UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 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. 0-2251
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SCI SYSTEMS, INC.
(Exact name of registrant as specified in its
charter)
Delaware 63-0583436
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SCI Systems, Inc.
2101 West Clinton Avenue
Huntsville, Alabama 35805
(Address of principal executive offices) (Zip Code)
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(256) 882-4800
Registrant's telephone number, including area code
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Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which
registered
Common Stock, $.10 Par Value New York Stock Exchange
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Securities registered pursuant to Section 12 (g) of the Act:
None
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 such
filing requirements for the past 90 days. Yes .X. No ....
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [ X ]
At August 24, 1999, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $3,683,908,663. At August 24,
1999, there were 71,951,375 outstanding shares of the registrant's Common Stock.
Documents Incorporated By Reference Portions of the registrant's 1999
Annual Report to Shareholders are incorporated by reference into Parts I and II.
Portions of the registrant's definitive Proxy Statement for its October 22,
1999, Annual Meeting of Shareholders are incorporated by reference into Part
III.
<PAGE>
PART I AND II DOCUMENTS INCORPORATED BY REFERENCE
The following information required by Parts I and II is incorporated herein
by reference to the Company's 1999 Annual Report to Shareholders, included
herein as Exhibit 13:
Excerpts from
Form 10-K
(contained in the 1999
Annual Annual Report to
Report Shareholders)
Pages Page (s)
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PART I.
ITEM 1. Business 1 to 3
ITEM 2. Properties 3 and 4
ITEM 3. Legal Proceedings 4
ITEM 4. Submission of Matters to
a Vote of Security Holders 4
PART II.
ITEM 5. Market for Registrant's Common
Equity and Related Stockholder
Matters 4 and 14
ITEM 6. Selected Financial Data 1
ITEM 7. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 4 to 6
ITEM 7A. Quantitative and Qualitative
Disclosure About Market Risk 6
ITEM 8. Consolidated Financial Statements
and Supplementary Data 7 to 15
ITEM 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure Not Applicable
PART III
DOCUMENT INCORPORATED BY REFERENCE
The following information required by Part III is incorporated herein by
reference to the Company's definitive Proxy Statement pursuant to Regulation 14A
for the October 22, 1999 Annual Meeting of Shareholders, filed with The
Securities and Exchange Commission within 120 days after close of the fiscal
year:
Proxy Statement
Page (s)
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ITEM 10. Directors and Executive Officers of the Registrant 3 to 5
ITEM 11. Executive Compensation 5 and 6
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management 1 and 2
ITEM 13. Certain Relationships and Related Transactions None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Index to exhibits, financial statements and schedules
1. Financial Statements
The following consolidated financial statements of the registrant are
included in Item 8:
Excerpts from Form 10-K
(contained in the 1999
Annual Report to
Shareholders)
Page (s)
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Consolidated Balance Sheets as of June 30, 1999,
1998, and 1997 7
For the years ended June 30, 1999, 1998 and 1997:
Consolidated Statements of Income 8
Consolidated Statements of Shareholders' Equity 8
Consolidated Statements of Cash Flows 9
Notes to Consolidated Financial Statements 10 to 14
Report of Ernst & Young LLP, Independent Auditors 15
2. Schedules
Financial Statements Schedules are omitted as allowed by Rule 4-02 for
immaterial amounts. Accounts receivable valuation accounts at June 30,
1999, 1998, and 1997, represent less than two percent (2%) of the year end
gross accounts receivable balance.
<PAGE>
3. Exhibits
NUMBER DESCRIPTION
3.1 Second Restated Certificate of Incorporation, as amended, and
Certificate of Amendment of the Second Restated Certificate of
Incorporation as filed with the Secretary of State of Delaware on
January 26, 1996. (Incorporated herein by reference to Exhibit 4.1
to Registration Statement on Form S-3, File No. 333-05917, as
amended.)
3.2 By-laws of the Registrant, as amended. (Incorporated herein by
reference to Exhibit 4.2 to Registration Statement on Form S-3,
File No. 333-05917, as amended.)
10(a)(1) Credit Agreement dated June 25, 1993, by and between the
Registrant, its Obligated Subsidiaries and its Lenders.
(Incorporated herein by reference to exhibit of the same number to
the Registrant's Annual Report on Form 10-K for the year ended
June 30, 1993.)
(2) Amended and Restated Credit Agreement dated as of August 3, 1995,
by and between the Registrant, its Obligated Subsidiaries and its
Lenders. (Incorporated herein by reference to exhibit of the same
number to the Registrant's Annual Report on Form 10-K for the year
ended June 30, 1995.)
(3) First Modification of Amended and Restated Credit Agreement (dated
as of August 3, 1995) made as of December 8, 1995, between the
Registrant, its Obligated Subsidiaries and its Lenders.
(Incorporated by reference to Exhibit 10 to the Registrant's Form
10-Q for the quarter ended December 24, 1995.)
(4) Second Modification of Amended and Restated Credit Agreement
(dated as of August 3, 1995) made as of March 26,1996, between the
Registrant, its Obligated Subsidiaries and its Lenders.
(Incorporated herein by reference to Exhibit of the same number to
the Registrant's Annual Report on Form 10-K for the year ended
June 30, 1996.)
(5) Third Modification of Amended and Restated Credit Agreement (dated
as of August 3, 1995) made as of June 28, 1996, between the
Registrant, its Obligated Subsidiaries and its Lenders.
(Incorporated herein by reference to Exhibit of the same number to
the Registrant's Annual Report on Form 10-K for the year ended
June 30, 1996.)
(6) Fourth Modification of Amended and Restated Credit Agreement
(dated as of August 3, 1995) made as of December 31, 1997, between
the Registrant, its Obligated Subsidiaries and its Lenders.
(Incorporated herein by reference to Exhibit 10 to the
Registrant's Form 10-Q for the quarter ended December 28, 1997.)
(7) The Formation or Acquisition of Additional Subsidiaries By SCI
Systems, Inc. Pursuant to Section 9.13 of The Restated Credit
Agreement (dated as of August 3, 1995) made as of March 18, 1999,
between the Registrant, its Obligated Subsidiaries and its
Lenders.
(b)(1) Amended and Restated Receivable Purchase Agreement dated as of
September 27,1996, among SCI Funding, Inc. as seller, SCI
Technology, Inc., as initial servicer, SCI Systems, Inc., as
Guarantor, and Receivables Capital Corporation, as Purchaser, and
Bank of America National Trust and Savings Association, as
Administrative Agent. (Incorporated herein by reference to Exhibit
10 (a) to the Registrant's Form 10-Q for the quarter ended
September 27, 1999.)
(2) First Amendment to Amended and Restated Receivable Purchase
Agreement dated as of October 31,1997, among SCI Funding, Inc. as
seller, SCI Technology, Inc., as initial servicer, SCI Systems,
Inc., as Guarantor, and Receivables Capital Corporation, as
Purchaser, and Bank of America National Trust and Savings
Association, as Administrative Agent. (Incorporated herein by
reference to Exhibit 10 (b) to the Registrant's Form 10-Q for the
quarter ended September 27, 1999.)
(3) Second Amendment to Amended and Restated Receivable Purchase
Agreement dated as of September 29,1998, among SCI Funding, Inc.
as seller, SCI Technology, Inc., as initial servicer, SCI Systems,
Inc., as Guarantor, and Receivables Capital Corporation, as
Purchaser, and Bank of America National Trust and Savings
Association, as Administrative Agent. (Incorporated herein by
reference to Exhibit 10 (c) to the Registrant's Form 10-Q for the
quarter ended September 27, 1999.)
(4) Third Amendment to Amended and Restated Receivable Purchase
Agreement dated as of June 4, 199, among SCI Funding, Inc. as
seller, SCI Technology, Inc., as initial servicer, SCI Systems,
Inc., as Guarantor, and Receivables Capital Corporation, as
Purchaser, and Bank of America National Trust and Savings
Association, as Administrative Agent.
(5) Fourth Amendment to Amended and Restated Receivable Purchase
Agreement dated as of July 23, 1999, among SCI Funding, Inc. as
seller, SCI Technology, Inc., as initial servicer, SCI Systems,
Inc., as Guarantor, and Receivables Capital Corporation, as
Purchaser, and Bank of America National Trust and Savings
Association, as Administrative Agent.
(c)(1) SCI Systems, Inc. 1994 Stock Option Incentive Plan. (Management
contracts or compensatory plan) (Incorporated herein by reference
to exhibit 10(d)(1) to the Registrant's Annual Report on Form 10-K
for the year ended June 30, 1995.)
(d)(1) Savings Plan of the SCI Systems, Inc. Employee Financial Security
Program, dated July 1, 1991.(Management contracts or compensatory
plan)(Incorporated herein by reference to Exhibit 10 (i)(1) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1994.)
(e)(1) Deferred Compensation Plan of SCI Systems Employee Financial
Security Program, as amended and restated January 1,
1992.(Management contracts or compensatory plan) (Incorporated
herein by reference to Exhibit 10(j)(1) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994.)
(f)(1) Supplemental Retirement Plan of the SCI Systems, Inc. Employee
Financial Security Program, as amended and restated April 1994.
(Management contracts or compensatory plan) (Incorporated herein
by reference to Exhibit 10 (k)(1) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994.)
(g)(1) Adjustable Rate Senior Notes due 2006 Purchase Agreement, made as
of June 28, 1996.(Incorporated herein by reference to Exhibit 10
(i)(1) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997.)
(h)(1) Senior Executive Officers Annual Incentive Plan. (Management
contracts or compensatory plan) (Incorporated herein by reference
to Exhibit 10 (j)(1) to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1997.)
13 1999 Annual Report to Shareholders. Except for the parts of the
SCI Systems, Inc. Annual Report expressly incorporated into this
Form 10-K by reference, the Annual Report is not to be deemed
filed with the Securities and Exchange Commission.
21 Subsidiaries of Registrant.
23 Consent of Independent Auditors
27 Financial Data Schedule
(b) Reports
The Company filed no reports on Form 8-K during the period of March 29,
1999, to June 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SCI SYSTEMS, INC.
Date: September 24, 1999 By:/s/A. Eugene Sapp, Jr.
A. Eugene Sapp, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
DATE SIGNATURE TITLE
September 24, 1999 /s/Olin B. King Chairman of the Board
Olin B. King (Principal Financial Officer)
September 24, 1999 /s/A. Eugene Sapp, Jr. President and
A. Eugene Sapp, Jr. Chief Executive Officer
(Principal Executive Officer)
(Principal Operating Officer)
September 24, 1999 /s/John M. Noll Assistant Vice President,
John M. Noll Corporate Controller
(Principal Accounting Officer)
September 24, 1999 /s/Howard H. Callaway Director
Howard H. Callaway
September 24, 1999 /s/William E. Fruhan Director
William E. Fruhan
September 24, 1999 /s/Wayne Shortridge Director
Wayne Shortridge
September 24, 1999 /s/G. Robert Tod Director
G. Robert Tod
September 24, 1999 /s/Jackie M. Ward Director
Jackie M. Ward
EXHIBIT 10(A)(7)
SECOND SUPPLEMENTAL AMENDED AND RESTATED
STOCK PLEDGE AND SECURITY AGREEMENT
THIS SECOND SUPPLEMENTAL AMENDED AND RESTATED STOCK PLEDGE AND SECURITY
AGREEMENT (this "Agreement"), dated as of March 18, 1999, made by SCI HOLDINGS,
INC., a Delaware corporation and INTERAGENCY, INC., a Delaware corporation
(together, the "Pledgor"), each a wholly owned subsidiary of SCI SYSTEMS, INC.,
a Delaware corporation ("Borrower"), to CITIBANK, N.A. (the "Pledgee"), acting
in its capacity as agent for the Pledgee, ABN AMRO Bank N.V. ("ABN AMRO") and
Bank of America Illinois (collectively, the "Co-Agents") and the banks and other
lending institutions (the "Banks") which are signatories to the Amended and
Restated Credit Agreement dated as of August 3, 1995, among Borrower, the
Pledgee, the Co-Agents and the Banks, and acting as Agent for any assignees
which become Banks as provided in such Amended and Restated Credit Agreement.
WITNESSETH:
WHEREAS, pursuant to the Amended and Restated Credit Agreement described
above (as the same may be amended, restated, supplemented or otherwise modified
from time to time, the "Credit Agreement"; the terms defined in the Credit
Agreement and not otherwise defined herein are used herein with the same
meaning), the Pledgee, the Co-Agents and the Banks have committed to loan
certain amounts to, and ABN AMRO, in its capacity as Co-Agent (acting for the
Banks) has amended the Letter of Credit for the benefit of, the Borrower; and
WHEREAS, pursuant to the Credit Agreement, the Pledgor entered into a
certain amended and restated stock pledge and security agreement dated as of
August 3, 1995 (the "1995 Pledge Agreement") and a first supplemental amended
and restated stock pledge and security agreement dated as of March __, 1998 (the
"First Supplemental Pledge Agreement"); and
WHEREAS, it is a condition precedent to the Banks' obligations continue to
make Loans to Borrower under the Credit Agreement that the Pledgor execute and
deliver to the Pledgee this Agreement (which shall supplement the 1995 Pledge
Agreement executed by Pledgor at the initial closing of the Credit Agreement and
also supplement the First Supplemental Pledge Agreement);
WHEREAS, the Pledgor desires to execute this Agreement to satisfy the
condition described in the preceding paragraph;
NOW, THEREFORE, in consideration of the benefits accruing to the Pledgor,
the receipt and sufficiency of which are hereby acknowledged, and in order to
induce the Pledgee, the Co-Agents and the Banks to continue to make Loans to
Borrower under the Credit Agreement the Pledgor hereby makes the following
representations and warranties to the Pledgee and hereby covenants and agrees
with the Pledgee as follows:
1.SECURITY FOR OBLIGATIONS ETC. This Agreement is for
the benefit of the Pledgee to secure the prompt payment in full when due,
whether at stated maturity, by acceleration or otherwise, of (i) the Loans, the
Notes, the Pledgor's reimbursement obligations in respect of the Letter of
Credit and all other Obligations (whether for principal, interest, fees,
expenses or otherwise), (ii) all obligations of the Pledgor now or hereafter
existing under the Credit Agreement or under this Agreement (whether for
principal, interest, fees, expenses or otherwise) or under any Interest Rate
Contracts, and (iii) all costs and expenses incurred by the Pledgee or any Bank
in connection with the exercise of its rights and remedies hereunder (including
reasonable attorneys' fees) (all such obligations collectively being the
"Secured Obligations").
2.PLEDGED STOCK. As used herein, the term
"Pledged Stock" shall mean the number of issued and outstanding shares or
other interests specified on Annex A attached hereto which Pledgor owns of each
class of capital stock of or other interests in the corporations or other
entities identified on Annex A attached hereto (collectively, the
"Subsidiaries"). The Pledgor represents and warrants that on the date hereof (a)
the Pledged Stock consists of the number of shares of the stock or other
interests of the Subsidiaries as described in Annex A attached hereto; (b) the
Pledgor is the holder of record and sole beneficial owner of such Pledged Stock;
and (c) the Pledged Stock constitutes the percentage of the issued and
outstanding stock or other interests of the Subsidiaries indicated on Annex A.
3.PLEDGE OF SECURITIES, ETC.
3.A.Pledge. To secure the Secured Obligations and for the purposes set forth in
Section 1, the Pledgor hereby pledges to the Pledgee (for and on behalf of the
Pledgee, the Co-Agents and the Banks), and grants a security interest in, the
Pledged Stock, together with (i) the certificates representing such Pledged
Stock accompanied by stock powers duly executed in blank by the Pledgor, and
(ii) subject to the rights of the Pledgor set forth in Section 6, all dividends
(whether in cash, stock, warrants, options, or other securities), cash,
instruments or other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any and all of the
Pledged Stock; and hereby assigns, transfers, hypothecates and sets over to the
Pledgee all of the Pledgor's right, title and interest in and to the Pledged
Securities (and in and to the certificates or instruments evidencing the items
described in clauses (i) and (ii) above) to be held by the Pledgee, upon the
terms and conditions set forth in this Agreement. Subject to the terms of the
Intercreditor Agreement, the Pledgor agrees to deliver to the Pledgee all
certificates and instruments evidencing the items described in clause (ii) above
promptly upon the Pledgor's receipt thereof. 3.B.Definition of Pledged
Securities and Collateral. The Pledged Stock and all items described in clause
(ii) of Section 3.1 are hereinafter called the "Pledged Securities," and the
Pledged Securities, together with all other securities and moneys received and
at the time held by the Pledgee hereunder and any proceeds of any of the
foregoing, are hereinafter called the "Collateral."
4.APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC.
The Pledgee shall have the right to appoint one or more agents for the purpose
of retaining physical possession of the Collateral, which may be held (if
applicable and in the discretion of the Pledgee) in the name of the Pledgor,
endorsed or assigned in blank or in favor of the Pledgee or any nominee or
nominees of the Pledgee or an agent appointed by the Pledgee.
5.VOTING, ETC. Unless and until an Event of Default
(such term to mean an Event of Default as defined herein) shall have
occurred and be continuing, the Pledgor shall be entitled to vote any and all
Pledged Stock and to give consents, waivers or ratifications in respect thereof;
provided that no vote shall be cast or any consent, waiver or ratification given
or any action taken which would violate or be inconsistent with any of the terms
of this Agreement, the Credit Documents, or any instrument or agreement relating
to the Obligations; provided, further, that the Pledgor shall give the Pledgee
at least five (5) Business Days, written notice of the manner in which it
intends to exercise, or the reasons for refraining from exercising, any such
right if the exercise or non-exercise of such right potentially may violate or
be inconsistent with the aforementioned agreements. All such rights of the
Pledgor to vote and to give consents, waivers and ratifications shall cease in
case an Event of Default shall occur and be continuing, and Section 7 hereof
shall become applicable.
6.DIVIDENDS AND OTHER DISTRIBUTIONS. A. Unless an
Event of Default shall have occurred and be continuing, all cash dividends
payable in respect of the Pledged Securities shall be paid to the Pledgor, but
only to the extent (if any) permitted by the Credit Agreement. The Pledgee shall
also be entitled to receive directly, and to retain as part of the Collateral:
1.all other or additional stock or securities paid or distributed by way
of dividend in respect of the Pledged Securities;
2.all other or additional stock or other securities paid or distributed
in respect of the Pledged Securities by way
of stock-split, spin-off, split-up, reclassification, combination of
shares or similar rearrangement; and
3.all other or additional stock or other securities which may be paid
in respect of the Pledged Securities by
reason of any consolidation, merger, exchange of stock,
conveyance of assets, liquidation or similar corporate reorganization.
Additional Shares. The Pledgor agrees and covenants
that it will cause the Subsidiaries not to issue any stock or other securities
in addition to or in substitution for the Pledged Securities except stock or
other securities which are either (i) issued to the Pledgor and pledged to the
Pledgee pursuant to this Agreement, to the extent necessary to keep 66% of the
issued and outstanding Pledged Stock pledged to the Pledgee hereunder and
delivered to the Pledgee within two (2) business days from the date of issuance
or (ii) issued in a manner otherwise acceptable to the Required Banks.
1.EVENTS OF DEFAULT.
7.A.Definition of Events of Default. Any of the following specified events shall
constitute an Event of Default under this Agreement:
4.the existence or occurrence
of any Event of Default as provided under the terms of the Credit
Agreement;
5.any representation, warranty or statement made or deemed to be made
by the Pledgor or any of its officers
under or in connection with this Agreement shall have been incorrect
in any material respect when made or deemed to be made;
6.the Pledgor shall fail to
observe or perform any covenant or agreement set forth in Section 6
(including Section 6.1), Section 15 or Section 17; or
7.the Pledgor shall fail to
observe or perform any covenant or agreement set forth in this
Agreement, other than those referred to in paragraph(c) above, and such
failure remains unremedied until the first to occur of the date
forty-five (45) days after an Executive Officer first obtains
knowledge thereof or the date thirty (30) days after written
notice thereof shall have been given to the Pledgor by any Bank.
7.B.Remedies. In case an Event of Default shall have occurred and be continuing,
and subject to Section 7.3 hereof, the Pledgee shall be entitled to exercise all
of the rights, powers and remedies (whether vested in it by this Agreement, any
other Credit Document or by law and including, without limitation, all rights
and remedies of a secured party of a debtor in default under the Uniform
Commercial Code (the "Code") in effect in the State of New York at that time)
for the protection and enforcement of its rights in respect of the Collateral,
and the Pledgee shall be entitled (subject to the rights of any holders of first
priority pledges and security interests on any portions of the Collateral as
permitted by the terms of this Agreement), without limitation, to exercise any
or all of the following rights, which the Pledgor hereby agrees to be
commercially reasonable: (a)to receive all amounts payable to the Pledgor in
respect of the Collateral otherwise payable under Section 6 and to enforce the
payment of the Pledged Securities and to exercise all of the rights, powers, and
remedies of the Pledgor thereunder; (b)to transfer all or any part of the
Collateral into the Pledgee's name or the name of its nominee or nominees; (c)to
vote all or any part of the Collateral (whether or not transferred into the name
of the Pledgee) and give all consents, waivers and ratifications in respect of
the Collateral and otherwise act with respect thereto as though it were the
outright owner thereof; (d)at any time or from time to time to sell, assign and
deliver, or grant options to purchase, all or any part of the Collateral in one
or more parcels, or any interest therein, at any public or private sale at any
exchange, broker's board or at any of the Pledgee's offices or elsewhere,
without demand of performance, advertisement or notice of intention to sell or
of the time or place of sale or adjournment thereof or to redeem or otherwise
(all of which are hereby expressly and irrevocably waived by the Pledgor), for
cash, on credit or for other property, for immediate or future delivery without
any assumption of credit risk, and for such price or prices and on such terms as
the Pledgee in its sole discretion may determine. The Pledgor agrees that to the
extent that notice of sale shall be required by law that at least 10 days'
written notice to the Pledgor of the time and place of any public sale or the
time after which any private sale is to be made shall constitute reasonable
notification. The Pledgee shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Pledgee may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and any such sale may, without further notice, be made
at the time and place to which it was so adjourned. The Pledgor hereby waives
and releases to the fullest extent permitted by law any right or equity of
redemption with respect to the Collateral, whether before or after sale
hereunder, and all rights, if any, of marshaling the Collateral and any other
security for the Obligations or otherwise. At any such sale, unless prohibited
by applicable law, the Pledgee may bid for and purchase all or any part of the
Collateral so sold free from any such right or equity of redemption. The Pledgee
shall not be liable for failure to collect or realize upon any or all of the
Collateral or for any delay in so doing nor shall it be under any obligation to
take any action whatsoever with regard thereto; (e)to settle, adjust, compromise
and arrange all accounts, controversies, questions, claims and demands
whatsoever in relation to all or any part of the Collateral; (f)to execute all
contracts, agreements, documents and instruments to bring, defend and abandon
all such actions, suits and
proceedings, and to take all other actions, in relation to all or any part of
the Collateral as the Pledgee in its sole discretion may determine; (g)to
appoint managers, agents and officers for any of the purposes mentioned in the
foregoing provisions of this Section 7 and to dismiss the same, all as the
Pledgee in its sole discretion may determine; and (h)generally, to take all such
other action as the Pledgee may determine as incidental or conducive to any of
the matters or powers mentioned in the foregoing provisions of this Section 7
and which the Pledgee may or can do lawfully and to use the name of the Pledgor
for the purposes aforesaid and in any proceedings arising therefrom.
7.C.Decisions Relating to Exercise of Remedies. Notwithstanding anything in this
Agreement to the contrary, as provided in the Credit Agreement, the Pledgee
shall exercise, or shall refrain from exercising, any remedy provided for in
Section 7.2 in accordance with the terms of Section 11.01 of the Credit
Agreement. Neither the Co-Agents nor any Bank may exercise any remedies provided
for herein.
1.REMEDIES, ETC., CUMULATIVE. Each right, power and
remedy of the Pledgee provided for in this Agreement or any other Credit
Document or now or hereafter existing at law or in equity or by statute shall be
cumulative and concurrent and shall be in addition to every other such right,
power or remedy. The exercise or beginning of the exercise by the Pledgee of any
one or more of the rights, powers or remedies provided for in this Agreement or
any other Credit Document or now or hereafter existing at law or in equity or by
statute or otherwise shall not preclude the simultaneous or later exercise by
the Pledgee of all such other rights, powers or remedies, and no failure or
delay on the part of the Pledgee to exercise any such right, power or remedy
shall operate as a waiver thereof. Any Event of Default, or any event which with
the passing of time or the giving of notice might become an Event of Default,
may be waived by written consent of the Required Banks but any such waiver shall
apply only to the specific occasion which is the subject of such waiver and
shall not apply to the occurrence of the same or any similar event on any future
occasion.
2.APPLICATION OF PROCEEDS.All moneys collected by the
Pledgee upon any sale or other disposition of the Collateral, together with all
other moneys received by the Pledgee hereunder, shall be applied as follows
(subject to the terms and conditions of the Intercreditor Agreement and the
rights of any holders of any first priority pledges and security interests on
any portions of the Collateral as permitted by the terms of this Agreement):
First, to the payment of the reasonable costs and expenses of such sale,
collection or other realization, including, without limitation, reasonable
attorneys' fees and all other
expenses, liabilities and advances made or incurred by the Pledgee in connection
therewith; Second, to the payment of the Secured Obligations then due so that
each Bank shall receive under this Clause Second payment of an amount equal to
the product of (1) the total amount available for payment under this Clause
Second and (ii) a fraction, the numerator of which is the total amount of
Secured Obligations then due to such Bank and the denominator of which is the
total amount of all Secured Obligations then outstanding; and Third, after
payment in full of all Secured Obligations then due, to the Pledgor, or its
successors or assigns, or to whomsoever may be lawfully entitled to receive the
same or as a court of competent jurisdiction may direct any surplus then
remaining from such proceeds.
3.PURCHASERS OF COLLATERAL. Upon any sale of any of
the Collateral hereunder (whether by virtue of the power of sale herein granted
pursuant to judicial process or otherwise), the receipt of the Pledgee or the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold, and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Pledgee or such officer or be answerable in any way for the
misapplication or nonapplication thereof.
4.INDEMNITY; EXPENSES. (a) The Pledgor shall pay, and
shall protect, indemnify and save harmless the Pledgee, the Co-Agents and the
Banks and, in their capacity as such, the officers, directors, shareholders,
controlling persons, employees, agents, and servants of the Pledgee, any
Co-Agent or any Bank from and against all liabilities, losses, claim, damages,
penalties, causes of action, suits, costs and expenses (including, without
limitation reasonable attorneys' fees and expenses) or judgments of any nature
arising from (i) the offering and sale of, and payment or non-payment on, the
Commercial Paper Notes or the issuance of the Letter of Credit, (ii) the default
of the Pledgor or any other Credit Party or the Depository in the performance of
its respective agreements, rights or obligations contained in this Agreement,
the Depositary Agreement or any other Credit Document entered into by the
Pledgor or such Credit Party or the Depositary in connection herewith or
therewith, (iii) any actual or proposed use of the proceeds of the Loans or the
Commercial Paper Notes or the Pledgor's or any Credit Party's entering into and
performing any Credit Document or any Commercial Paper Documents, (iv) the
Pledgee's, any Co-Agent's or any Banks' making, holding or administering the
Loans, the Letter of Credit, the Credit Documents or any of the Collateral
pledged in connection with any Credit Document (provided that the right of
payment and indemnification under this clause (iv) shall not apply to any
liabilities, losses, costs and expenses arising out of any successful action by
the Pledgor against the Pledgee, any Co-Agent or any Bank for a breach of its
obligations hereof, but nothing in this proviso shall modify or impair the
Pledgee's, any Co-Agent's or any Bank's rights under Section 11(b) hereof), (v)
allegations of participation or interference by the Pledgee, any Co-Agent or any
Bank in the management, contractual relations or other affairs of the Pledgor
(provided that the right of payment and indemnification under this clause (v)
shall not apply to any liabilities, losses, costs and expenses arising out of
any successful action by the Pledgor against the Pledgee, any Co-Agent or any
Bank for a breach of its obligations
hereof, but nothing in this proviso shall modify or impair the Pledgee's, any
Co-Agent's or any Bank's rights under Section 11(b) hereof), or (vi) allegations
that the Pledgee, any Co-Agent or any Bank has joint liability with Pledgor for
any reason; provided that the Pledgor will not be liable for such liabilities,
losses, claims, damages, penalties, causes of action, suits, costs and expenses
(including, without limitation, attorneys' fees and expenses) or judgments of
any arising from any untrue statement of a material fact in the material
relating to the Pledgee, any Co-Agent or any Bank in any offering circular used
in the sale of the Commercial Paper Notes or omission of a material fact
relating to the Pledgee, any Co-Agent or any Bank required to be stated therein
or necessary in order to make the statements therein relating to the Pledgee,
any Co-Agent or any Bank in the light of the circumstances under which they were
made not misleading if, but only if, such material was specifically approved in
writing by the Pledgee, such Co-Agent or such Bank, as the case may be, prior to
its inclusion in such offering circular; and further provided that the Pledgor
will not be liable for any such liabilities, losses, claims, damages, penalties,
causes or action, suits, costs and expenses or judgments to the extent the same
are the result of or arise out of the gross negligence or willful misconduct of
the Pledgee, any Co-Agent or any Bank or any of the officers, directors,
shareholders, controlling persons, employees, agents and (of any of them) of the
Pledgee, any Co-Agent or any Bank. If any action, suit or proceeding arising
from any of the foregoing is brought against the Pledgee, any Co-Agent or any
Bank or any other person indemnified pursuant to this Section, the Pledgor will,
if requested in writing by the Pledgee, any Co-Agent or any Bank to do so, at
its expense, resist and defend such action, suit or proceeding or cause the same
to be resisted and defended by counsel designated by the Pledgor (which counsel
shall be satisfactory to the Pledgee, the Co-Agent involved and the Bank(s)
involved). Each of the Pledgor's obligations under this Section 11(a) shall
survive the termination of this Agreement.
8.The Pledgor shall pay all reasonable out-of-pocket costs and expenses of
the Pledgee incurred in connection with the administration of, the preservation
of rights under, and enforcement of, and, after an Event of Default, the
renegotiation or restructuring of this Agreement and any amendment, waiver or
consent relating thereto (including, the reasonable fees and disbursements of
counsel for the Pledgee). The Pledgor shall also pay and hold Pledgee harmless
from and against any and all present and future stamp or documentary taxes or
any other excise or property taxes, charges or similar levies which arise from
any payment made hereunder or from the execution, delivery or registration of,
or otherwise with respect to this Agreement and save the Pledgee harmless from
and against any and all liabilities with respect to or resulting from any delay
or omission to pay any such taxes, charges or levies.
1.FURTHER ASSURANCES. The Pledgor agrees that it will
do such acts and things and promptly execute and deliver to the Pledgee such
additional conveyances, assignments, agreements and instruments as the Pledgee
may reasonably require or deem advisable to carry into effect the purposes of
this Agreement or to further assure and confirm unto the Pledgee its rights,
powers and remedies hereunder.
2.THE PLEDGEE AS AGENT.
The Pledgee will hold in accordance with this Agreement and the Credit
Agreement all items of the Collateral at any time received under this Agreement.
It is expressly understood and agreed that the obligations of the Pledgee as
holder of the Collateral and interests therein and with respect to the
disposition thereof, and otherwise under this Agreement, are only those
expressly set forth in this Agreement, the Intercreditor Agreement, and the
Credit Agreement. The Pledgee shall be deemed
to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which the Pledgee accords its own property, it being
understood that the Pledgee shall not have responsibility for (i) ascertaining
or taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relative to any Collateral, whether or not the Pledgee
has or is deemed to have knowledge of such matters, or (ii) taking any necessary
steps to preserve rights against any parties with respect to any Collateral.
1.REPRESENTATIONS AND WARRANTIES. The Pledgor
hereby represents and warrants that (i) it is the legal record and beneficial
owner of, and has good and marketable title to, the Pledged Stock described in
Section 2 hereof, subject to no pledge, lien, mortgage, hypothecation, security
interest, charge, option or other encumbrance whatsoever, except Liens and
security interests created by this Agreement or expressly permitted by this
Agreement or the Credit Agreement; (ii) it has full power, authority and legal
right to pledge all the Pledged Stock pursuant to this Agreement; (iii) to the
best of its knowledge, no consent of any other party (including, without
limitation, any stockholder or creditor of the pledgee or any of the
Subsidiaries) and no order, consent, license, permit, approval, validation or
authorization of, exemption by, notice to or registration, recording, filing or
declaration with, any governmental or public body or authority is required to be
obtained by the Pledgor in connection with the execution, delivery or
performance of this Agreement or consummation of the transactions contemplated
hereby, including, without limitation, the exercise by the Pledgee of the voting
or other rights provided for in this Agreement or the remedies in respect of the
Collateral pursuant to this Agreement (except as may be required in connection
with the disposition of the Pledged Securities by laws affecting the offering
and sale of securities generally and except as set forth on Annex B attached
hereto); (iv) all shares of Pledged Stock have been duly and validly issued, are
fully paid and nonassessable; and (v) to the best of its knowledge, except as
set forth on Annex B attached hereto, the pledge and delivery of the Pledged
Securities pursuant to this Agreement creates a valid and perfected first
priority security interest in the Pledged Securities, and the Pledged
Securities, and the proceeds thereof, which security interest is not subject to
any prior Lien or any agreement purporting to grant to any third party a Lien on
the property or assets of the Pledgor which would include the Pledged Securities
(other than the Lien of the Intercreditor Agreement, if any, or any other
intercreditor agreement entered into pursuant to the Credit Agreement and Liens
expressly permitted by the Credit Agreement).
2.COVENANTS OF THE PLEDGOR. The Pledgor covenants
and agrees that (i) the Pledgor will defend the Pledgee's right, title and
security interest in and to the Pledged Securities and the proceeds thereof
against the claims and demands of all Persons whomsoever; (ii) the Pledgor will
have like title to and right to pledge any other property at any time hereafter
pledged to the Pledgee as Collateral hereunder and will likewise defend the
right thereto and security interest therein of the Pledgee; and (iii) the
Pledgor will not, with respect to any Collateral, enter into any shareholder
agreements, voting agreements, voting trusts, trust deeds, irrevocable proxies
or any other similar agreements or instruments.
3.PLEDGOR'S OBLIGATIONS ABSOLUTE, ETC. The
obligations of the Pledgor under this Agreement shall be absolute and
unconditional in accordance with its terms and shall remain in full force and
effect without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by, any circumstance or occurrence whatsoever,
including, without limitation: (a) any change in the time, place or manner of
payment of, or in any other term of, all or any of the Secured Obligations, any
waiver, indulgence, renewal, extension, amendment or modification of or
addition, consent or supplement to or deletion from or any other action or
inaction under or in respect of the Credit Agreement, any Note, any other Credit
Document, or any of the other documents, instruments or agreements relating to
the Secured Obligations or any other instrument or agreement referred to therein
or any assignment or transfer of any thereof; (b) any lack of validity or
enforceability of the Credit Agreement, any other Credit Document, or any other
documents, instruments or agreement referred to therein or any assignment or
transfer of any thereof; (c) any furnishing of any additional security to the
Pledgee, or its assignees or any acceptance thereof or any release of any
security by the Pledgee or its assignees; (d) any limitation on any party's
liability or obligations under any such instrument or agreement or any
invalidity or unenforceability, in whole or in part, of any such instrument or
agreement or any term thereof; (e) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceeding
relating to the Pledgor or any of the Subsidiaries, or any action taken with
respect to this Agreement by any trustee or receiver, or by any court, in any
such proceeding, whether or not the Pledgor shall have notice or knowledge of
any of the foregoing; or (f) any exchange, release or nonperfection of any other
collateral, or any release, amendment or waiver of or consent to departure from
any guaranty or security, for all or any of the Secured Obligations.
4.REGISTRATION, ETC.
If an Event of Default shall have occurred and be continuing and the
Pledgor shall have received from the Pledgee a written request or requests that
the Pledgor cause any registration, qualification or compliance under any
Federal or state securities law or laws to be effected with respect to all or
any part of the Pledged Securities, the Pledgor as soon as practicable and at
its own expense will use its best efforts to cause such registration to be
effected (and be kept effective) and will use its best efforts to cause such
qualification and compliance to be effected (and be kept effective) as may be so
requested and as would permit or facilitate the sale and distribution of such
Pledged Securities, including, without limitation, registration under the
Securities Act of 1933 as then in effect (or any similar statute then in
effect), appropriate qualifications under applicable blue sky or other state
securities laws and appropriate compliance with any other government
requirements, and reasonably do or cause to be done all such other acts and
things as may be necessary to permit the sale of the Pledged Securities to be
made in compliance with Federal and applicable State securities laws; provided,
that the Pledgee shall furnish to the Pledgor such information regarding the
Pledgee as the Pledgor may reasonably request in writing and as shall be
required in connection with any such registration, qualification or compliance.
The Pledgor will cause the Pledgee to be kept reasonably advised in writing as
to the progress of each such registration, qualification or compliance and as to
the completion thereof, will furnish to the Pledgee such number of prospectuses,
offering circulars or other documents incident thereto as the Pledgee from time
to time may reasonably request, and will indemnify the Pledgee and all others
participating in the distribution of such Pledged Securities against all claims,
losses, damages and liabilities caused by any untrue statement (or alleged
untrue statement) of a material fact contained therein (or in any related
registration statement, notification or the like) or by any omission (or alleged
omission) to state therein (or in any related transaction statement,
notification or the like) a material fact required to be stated therein or
necessary to make the statements not misleading in light of the circumstances
under which they were made, except insofar as the same may have been caused by
an untrue statement or omission based upon information furnished in writing to
the Pledgor by the Pledgee, or such others participating in the distribution of
such Pledged Securities, expressly for use therein.
If at any time when the Pledgee shall determine to exercise its right to
sell all or any part of the Pledged Securities pursuant to Section 7, such
Pledged Securities or the part thereof to be sold shall not, for any reason
whatsoever, be effectively registered under the Securities Act of 1933, as then
in effect, the Pledgee may sell such Pledged Securities or part thereof by
private sale in such manner and under such circumstances as necessary or
advisable in order that such sale may legally be effected without such
registration. Without limiting the generality of the foregoing, in any such
event the Pledgee, in its sole discretion (i) may proceed to make such private
sale notwithstanding that a registration statement for the purpose of
registering such Pledged Securities or part thereof shall have been filed under
such Securities Act, (ii) may approach and negotiate with a single possible
purchaser to effect such sale, and (iii) may restrict such sale to a purchaser
or purchasers who will represent and agree that such purchaser is purchasing for
its own account, for investment, and not with a view to the distribution or sale
of such Pledged Securities or part thereof. In the event of any such sale, the
Pledgee shall incur no responsibility or liability for selling all or any part
of the Pledged Securities at a price which the Pledgee, in its sole discretion,
may in good faith deem reasonable under the circumstances, notwithstanding the
possibility that a substantially higher price might be realized if the sale were
deferred until after registration as aforesaid.
1.NOTICES, ETC. All notices and other communications
shall be given in the manner specified in Section 15.02 of the Credit Agreement
in the case of the Pledgee, and in the case of the Pledgor, at the address
specified in this Agreement.
2.POWER OF ATTORNEY. The Pledgor hereby absolutely
and irrevocably constitutes and appoints the Pledgee the Pledgor's true and
lawful agent and attorney-in-fact, effective upon the occurrence of an Event of
Default, with full power of substitution, in the name of the Pledgor: (a) to
execute and do all such assurances, acts and things which the Pledgor ought to
do but has failed to do under the covenants and provisions contained in this
Agreement; (b) to take any and all such action as the Pledgee may, in its sole
discretion, determine as necessary or advisable for the purpose of maintaining,
preserving or protecting the security constituted by this Agreement or any of
the rights, remedies, powers or privileges of the Pledgee under this Agreement;
and (c) generally, in the name of the Pledgor exercise all or any of the powers,
authorities, and discretions conferred on or reserved to the Pledgee by or
pursuant to this Agreement, and (without prejudice to the generality of any of
the foregoing) to seal and deliver or otherwise perfect any instrument or
document of conveyance, agreement, or act as the Pledgee may deem proper in or
for the purpose of exercising any of such powers, authorities or discretions.
The Pledgor hereby ratifies and confirms, and hereby agrees to ratify and
confirm, whatever lawful acts the Pledgee shall do or purport to do in the
exercise of the power of attorney granted to the Pledgee pursuant to this
Section 19, which power of attorney, being given for security, is irrevocable.
3.TERMINATION, RELEASE. After full indefeasible
payment and performance of all of the Secured Obligations other than
Secured Obligations which by their terms survive the repayment of the Loans and
irrevocable termination of the Total Commitments, this Agreement shall
terminate, and the Pledgee, at the request and expense of the Pledgor, will
execute and deliver to the Pledgor a proper instrument or instruments
acknowledging the satisfaction and termination of this Agreement, and will duly
assign, transfer and deliver to the Pledgor (without recourse and without any
representation or warranty) such of the Collateral as may be in the possession
of the Pledgee and as has not theretofore been sold or otherwise applied or
released pursuant to this Agreement, together with any moneys at the time held
by the Pledgee hereunder.
4.MISCELLANEOUS.
21.A.Independent Obligations. The Pledgor agrees with the Pledgee that each of
the obligations and liabilities of the Pledgor to the Pledgee under this
Agreement may be enforced against the Pledgor without the necessity of joining
the Borrower, any of the Subsidiaries, any other holders of pledges of or
security interests in any of the Collateral, or any other Person as a party.
21.B.Reaffirmation. The Pledgor hereby acknowledges agrees that each of the 1995
Pledge Agreement and the First Supplemental Pledge Agreement is in full force
and effect as of the date hereof and has not been rescinded, terminated or
revoked by the Pledgor prior to the date hereof, and each of the 1995 Pledge
Agreement and the First Supplemental Pledge Agreement shall remain in full force
and effect after giving effect to this Agreement. 21.C. Successors and Assigns.
This Agreement shall create a continuing security interest in the Collateral and
shall be binding upon the successors and assigns of the Pledgor and shall inure
to the benefit of and be enforceable by the Pledgee, and its successors and
permitted assigns. 21.D.Amendments, Etc. This Agreement may be amended or waived
only with the written consent of the Required Banks and, with respect to any
amendment, the Pledgor. 21.E.Other Definitions. Unless otherwise defined herein
or in the Credit Agreement, terms defined in Article 9 of the Code in the State
of New York are used herein as therein defined. 21.F.Headings; Entire Agreement.
The headings in this Agreement are for purposes of reference only and shall not
limit or define the meaning hereof. This Agreement, together with all
instruments, certificates and documents executed or delivered by the parties in
connection herewith or with reference hereto, embodies the entire understanding
and agreement between the parties hereto with respect to the Collateral and
supersedes all prior agreements, understandings and inducements, whether
expressed or implied, or oral or written. 21.G.Counterparts. This Agreement may
be executed in any number of counterparts, each of which shall be an original,
but all of which shall constitute one instrument. 21.H.Severable Provisions. In
the event that any provision of this Agreement shall prove to be invalid or
unenforceable, such provision shall be deemed to be severable from the other
provisions of this Agreement which shall remain binding on all parties hereto.
5.GOVERNING LAW. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with and
be governed by the law of the State of New York (without giving effect to the
conflict of law principles thereof).
6.JURISDICTION; WAIVER OF JURY TRIAL. PLEDGOR
HEREBY (1) AGREES THAT ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR TO ENFORCE ANY JUDGMENT OBTAINED AGAINST PLEDGOR IN CONNECTION WITH
THIS AGREEMENT BE BROUGHT BY THE PLEDGEE, ANY THE CO-AGENT OR ANY BANK IN ANY
COURT SITTING IN THE STATE OF NEW YORK; (2) IRREVOCABLY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY COURT OF THE STATE OF NEW YORK FOR THE PURPOSES
OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT; (3)
AGREES THAT SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAWS OF THE
STATE OF NEW YORK SHALL APPLY TO THIS ASSIGNMENT AND THE CREDIT DOCUMENTS; AND
(4) IRREVOCABLY WAIVES ANY PRESENT OR FUTURE OBJECTION TO VENUE IN ANY SUCH
COURT, AND ANY PRESENT OR FUTURE CLAIM THAT ANY SUCH COURT IS AN INCONVENIENT
FORUM, IN CONNECTION WITH ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused this Agreement to be
executed by their duly elected officers duly authorized as of the date first
above written.
Address for Notices:
SCI HOLDINGS, INC.
INTERAGENCY, INC.
c/o SCI Systems (Alabama), Inc.
2101 W. Clinton Avenue
Huntsville, Alabama 35805
SCI HOLDINGS, INC., as Pledgor Name:
By:
Name:
Title:
INTERAGENCY, INC., as Pledgor
By:
Name:
Title:
CITIBANK, N.A., as Agent, as Pledgee
By:
Name:
Title:
ANNEX A
SCI HOLDINGS, INC.
Name of Entity
Number of Number of Percentage of Percentage of
Shares or Shares or Shares or Shares or
Percentage of Percentage of Percentage of Percentage of
Partnership Partnership Partnership Partnership
Interest Interest Interest Interest
Owned Pledged Owned Pledged
SCI Systems
Sweden AB 1,000 660 100% 66%
SCI Systems
Finland Oy 100 66 100% 66%
SCI Systems
Spain, S.A. 10,000 6,600 100% 66%
AET Holland,
C.V. 10% 6.66% 10% 66%
INTERAGENCY, INC.
Name of Entity
Number of Number of Percentage of Percentage of
Shares or Shares or Shares or Shares or
Percentage of Percentage of Percentage of Percentage of
Partnership Partnership Partnership Partnership
Interest Interest Interest Interest
Owned Pledged Owned Pledged
AET Holland
C.V. 10% 6.66% 10% 66%
ANNEX B
EXCEPTIONS TO PLEDGE
[NONE]
SECOND SUPPLEMENTAL AMENDED AND RESTATED
ASSIGNMENT OF INTERCOMPANY LOANS
THIS SECOND SUPPLEMENTAL AMENDED AND RESTATED ASSIGNMENT OF INTERCOMPANY LOANS
(the "Assignment") dated as of March 18, 1999 (the "Effective Date"), between
each of the companies listed on the signature pages hereof (individually, an
"Assignor" and collectively, the "Assignors") and CITIBANK, N.A., as Agent for
and representative of (in such capacity herein called the "Agent") the banks and
other lending institutions which are signatories to the Credit Agreement (as
hereinafter defined) and each assignee of any such bank which may become a Bank
as provided in the Credit Agreement (the "Banks"). The Agent, the Co-Agents and
the Banks are hereinafter collectively called the "Secured Parties".
W I T N E S S E T H:
WHEREAS, SCI Systems, Inc. (the "Company"), the Agent, ABN AMRO Bank N.V. ("ABN
AMRO") and Bank of America Illinois (collectively, the "Co-Agents"), and the
Banks are parties to an Amended and Restated Credit Agreement (as the same may
be amended, restated, supplemented or otherwise modified from time to time, the
"Credit Agreement"; the terms defined in the Credit Agreement and not otherwise
defined herein are used herein with the same meaning), dated as of August 3,
1995, pursuant to which the Banks have committed to loan certain amounts to the
Company and ABN AMRO, in its capacity as a Co-Agent (acting for the Commercial
Paper Banks), has issued an amendment to the Letter of Credit for the benefit of
the Company; WHEREAS, in connection with the Credit Agreement, the Agent, the
Company and certain Subsidiaries of the Company entered into a certain
Assignment of Intercompany Loans dated as of August 3, 1995, as amended by the
First Modification of Amended and Restated Assignment of Intercompany Loans,
dated as of June 28, 1996 (the "1995 Assignment"); WHEREAS, in connection with
the Credit Agreement, the Agent, the Company and certain other Subsidiaries of
the Company entered into a certain First Supplemental Amended and Restated
Assignment of Intercompany Loans dated as of March 31, 1998 (the "First
Supplemental Assignment") WHEREAS, it is a condition precedent to the
obligations of the Banks to continue to make Loans to the Borrower under the
Credit Agreement that the Assignors execute and deliver to the Agent and the
Banks this Agreement (which shall supplement the 1995 Assignment and the First
Supplemental Assignment); WHEREAS, each Assignor desires to execute this
Assignment to satisfy the condition precedent described in the preceding
paragraph;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, each Assignor hereby
makes the following representations and warranties to each Secured Party and
hereby covenants and agrees with each Secured Party as follows: SECTION 1.
Assignment. As collateral (collectively, the "Assigned Collateral") to secure
the Secured Obligations (as defined in Section 2) each Assignor hereby:
7.grants to the Agent for the benefit of each Secured Party a
present and continuing security interest in the Intercompany Loans (other than
Intercompany Loans made by a Foreign Subsidiary to or for the benefit of another
Foreign Subsidiary) and all instruments evidencing any Intercompany Loans (other
than any such instrument issued by a Foreign Subsidiary and payable to the order
of, among others, another Foreign Subsidiary) and all renewals and extensions
thereof, accessions thereto and substitutions therefor, now owned or held or
hereafter owned or held by such Assignor; and
8.grants to the Agent for the benefit of each Secured Party, to
the maximum extent permitted by applicable law, a present and continuing
security interest in all Proceeds of the foregoing. Proceeds shall have the
meaning assigned that term under the Uniform Commercial Code as in effect in the
State of New York or under other relevant law and, in any event, shall include,
but not be limited to, any and all (i) proceeds of any insurance (except
payments made to one not a party to this Assignment), indemnity, warranty or
guaranty payable to the Agent or to such Assignor from time to time with respect
to any of the Assigned Collateral, (ii) instruments representing obligations to
pay amounts in respect of Assigned Collateral and (iii) other amounts from time
to time paid or payable under or in connection with any of the Assigned
Collateral. Security title to the Assigned Collateral shall be held by the Agent
for the benefit of the Secured Parties and their successors and assigns. SECTION
2. Secured Obligations. This Assignment secures, and the Assigned Collateral is
collateral security for, the prompt payment or performance in full when due,
whether at stated maturity, by acceleration or otherwise (including, without
limitation, which, but for the filing of a petition in bankruptcy with respect
to the Company would accrue on such Obligations) of all Obligations (as defined
in the Credit Agreement) whether for principal, premium or interest (including,
without limitation, interest which, but for the filing, of a petition in
bankruptcy with respect to the Company would accrue on such obligations) (all
such obligations being the "Secured Obligations"). SECTION 3. No Release.
Nothing set forth in this Assignment shall relieve any Assignor from the
performance of any term, covenant, condition or agreement on such Assignor's
part to be performed or observed under or in respect of any of the Assigned
Collateral or from any liability to any Person under or in respect of any of the
Assigned Collateral or impose any obligation on the Agent or any Secured Party
to perform or observe any such term, covenant, condition or agreement on any
Assignor's part to be so performed or observed or impose any liability on the
Agent or any Secured Party for any act or omission on the part of any Assignor
relating thereto or for any breach of any representation or warranty on the part
of any Assignor contained in this Agreement, or in respect of the Assigned
Collateral or made in connection herewith or therewith. This paragraph shall
survive the termination of this Assignment and the discharge of any Assignor's
other obligations hereunder and under the Credit Documents. SECTION 4. Delivery
of Assigned Collateral. Immediately upon delivery of any certificates or
instruments (except as provided under the terms of Section 7 hereof)
representing or evidencing the Intercompany Loans and in any event within five
(5) Business Days of any such delivery, such certificates or instruments
executed in favor of any Assignor shall be delivered by such Assignor to and
held by or on behalf of the Agent pursuant hereto and shall be in suitable form
for transfer by delivery, in form and substance satisfactory to the Agent;
provided, however, that no Assignor shall be required to deliver any
certificates or instruments representing or evidencing Intercompany Loans if
such certificate or instrument or Intercompany Loans are excluded from the
Assigned Collateral pursuant to Section 1 hereof. SECTION 5. Representations and
Warranties. Each Assignor represents and warrants as follows: (a)Such Assignor,
at the time of the delivery of any Assigned Collateral pursuant to Section 4 of
this Assignment, will be the legal and beneficial owner of such Assigned
Collateral free and clear of any Lien except for Permitted Encumbrances; (b)Such
Assignor has full corporate power and authority and legal right to pledge the
Assigned Collateral pursuant to this Assignment and make the transfers
contemplated by Section 4 hereof; (c)To the best of its knowledge, no consent of
any other Person (including, without limitation, any stockholder or creditor of
the Assignor) and no consent, authorization, approval, or other action by, and
no notice to or filing with, any governmental authority or other Person is
required either (i) for the transfer by such Assignor of the Assigned Collateral
as contemplated by this Assignment or for the execution, delivery or performance
of this Assignment by such Assignor or (ii) for the exercise by the Agent of the
remedies in respect of the Assigned Collateral pursuant to this Assignment,
except as may be required in connection with such disposition by laws affecting
the offering and sale of instruments generally or except as may be required
under the terms of the Intercreditor Agreement or except as set forth on Annex A
hereto; (d)Except as otherwise permitted by the Credit Agreement and this
Assignment, such Assignor at all times will be the sole beneficial owner of the
Assigned Collateral; and (e)All information set forth herein relating to the
Assigned Collateral is accurate and complete in all material respects as of the
date hereof. SECTION 6. Supplements, Further Assurances. At any time and from
time to time, at the expense of such Assignor, each Assignor shall promptly
execute and deliver all further instruments and documents and take all further
action that may be necessary or that the Agent may reasonably request, in order
to protect any security interest granted or purported to be granted hereby or to
enable the Agent to exercise and enforce its rights and remedies hereunder with
respect to any Assigned Collateral. SECTION 7. Payments on Notes. (a)As long as
no Event of Default shall have occurred and be continuing each Assignor shall be
entitled to receive and retain, and to utilize free and clear of the Lien of
this Assignment, any and all payments of current interest and principal in
respect of such Assignor's respective Assigned Collateral; provided, however,
that any and all payments in the form of securities or notes shall be, and shall
be deemed to be forthwith delivered to the Agent to hold as, Assigned
Collateral and shall, if received by such Assignor, be received in trust for the
benefit of the Agent, be segregated from the other property or funds of such
Assignor, and be forthwith delivered to the Agent as Assigned Collateral in the
same form as so received (with any necessary endorsement). (b)Upon the
occurrence and during the continuance of an Event of Default, all rights of each
Assignor to receive payments of current interest which it would otherwise be
authorized to receive and retain pursuant to Section 7(a) above shall cease and
all rights shall thereupon become vested in the Agent which shall thereupon have
the sole right to receive and hold as Assigned Collateral such payments during
the continuance of such Event of Default. (c)All payments which are received by
any Assignor contrary to the provisions of Section 7(b) above shall be received
in trust for the benefit of the Agent, shall be segregated from other funds of
such Assignor and shall be forthwith paid over to the Agent as Assigned
Collateral in the same form as so received (with any necessary endorsement).
SECTION 8. Covenants. Each Assignor hereby covenants and agrees as follows:
(a)Not to encumber the Assigned Collateral with any kind of Lien, other than
Permitted Encumbrances; (b)Not to sell or otherwise dispose of, or grant any
option or warrant with respect to, any of the Assigned Collateral; (c)To assign
hereunder, in accordance with Sections 1 and 7, any and all additional
instruments, agreements and other documents which are to become part of the
Assigned Collateral; (d)Not to make any Intercompany Loan to SCI Manufacturing
(Malaysia) SDN BHD ("SCI Malaysia") if, after giving effect to such Loan, the
aggregate amount of all Intercompany Loans outstanding to SCI Malaysia at such
time would exceed US $100,000 unless and until the Agent, the Co-Agents and the
Banks have received an opinion of counsel qualified to practice law in Malaysia
in form and substance satisfactory to the Agent and the ABN AMRO, in its
capacity as a Co-Agent; and (e)Not to make any Intercompany Loan to SCI U.K.
Limited, a Guernsey corporation ("SCI U.K.") or Newmoor Industries Limited, a
corporation organized under the laws of England (formerly known as Cambridge
Computer Corporation ("Newmoor") unless and until such Companies shall have
become Credit Parties pursuant to Section 8.17 and Section 9.13 of the Credit
Agreement. SECTION 9. Agent Appointed Attorney-in-Fact. Each Assignor hereby
appoints the Agent as such Assignor's attorney-in-fact, effective upon the
occurrence of an Event of Default, with full authority in the place and stead of
such Assignor and in the name of such Assignor or otherwise, from time to time
in the Agent's discretion to take any action and to execute any instrument which
the Agent may deem necessary or advisable to accomplish the purposes of this
Agreement. SECTION 10. Agent May Perform. If any Assignor fails to perform any
agreement contained herein within thirty (30) days after receipt of a written
request to do so from the Agent, the Agent may itself perform, or cause
performance of, such agreement, and the expenses of the Agent, including the
reasonable fees and expenses of its counsel, incurred in connection therewith
shall be payable by such Assignor under Section 14 hereof.
SECTION 11. Reasonable Care. The Agent shall be deemed to have exercised
reasonable care in the custody and preservation of the Assigned Collateral in
its possession if the Assigned Collateral is accorded treatment substantially
equivalent to that which the Agent, in its individual capacity, accords its own
property consisting of negotiable instruments, it being understood that neither
the Agent nor any other Secured Party shall have responsibility for (i)
ascertaining or taking action with respect to demands, maturities, or other
matters relative to any Assigned Collateral, whether or not the Agent or any
other Secured Party has or is deemed to have knowledge of such matters or (ii)
taking any necessary steps to preserve rights against any Person with respect to
any Assigned Collateral. SECTION 12. Events of Defaults; Remedies Upon Default.
A.Definition of Events of Default. Any of the following specified events shall
constitute an Event of Default under this Assignment: (a)the existence or
occurrence of any Event of Default as provided under the terms of the Credit
Agreement; (b)any representation, warranty or statement made or deemed to be
made by any Assignor or any of their respective officers under or in connection
with this Assignment (other than the representation and warranty in Section 5(e)
of this Assignment) shall have been incorrect in any material respect when made
or deemed to be made; (c)any Assignor shall fail to observe or perform any
covenant or agreement set forth in Section 7(c) and in Section 8; or (d)(i) any
Assignor shall fail to observe or perform any covenant or agreement set forth in
this Assignment, other than in Section 5(e) or those referred to in paragraph
(c) above, and any such failure remains unremedied until the first to occur of
the date forty-five (45) days after an Executive Officer first obtains knowledge
thereof or the date thirty (30) days after written notice thereof shall have
been given to the Assignor by the Agent, or (ii) if the representation and
warranty made by the Assignor in Section 5(c) of this Assignment shall have been
incorrect in any material respect when made or deemed to be made, and continues
to be incorrect in any material respect until the first to occur of the date
forty-five (45) days after an Executive Officer first obtains knowledge thereof
or the date thirty (30) days after written notice thereof shall have been given
to the Assignor by any Bank, the Agent or any Co-Agent. B.Remedies Upon Default.
Subject to Section 12.C, if any Event of Default shall have occurred and be
continuing:
The Agent may from time to time exercise in respect of the Assigned
Collateral in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party of a
debtor in default under the Uniform Commercial Code (the "Code") in effect in
the State of New York at that time, and the Agent may also in its sole
discretion, without notice except as specified below, sell the Assigned
Collateral or any part thereof in one or more parcels at public or private sale,
at any exchange, broker's board or at any of the Agent's offices or elsewhere
for cash, on credit or for future delivery, and at such price or prices and upon
such other terms as the Agent may deem commercially reasonable. The Agent or any
other Secured Party may be the purchaser of any or all of the Assigned
Collateral at any such sale and shall be entitled, for the purpose of bidding
and making settlement or payment of the purchase price for all or any portion of
the Assigned Collateral sold at such sale, to use and apply any of the Secured
Obligations owed to such Person as a credit on account of the purchase price of
any Assigned Collateral payable by such Person at such sale. Each purchaser at
any such sale shall acquire the property sold absolutely free from any claim or
right on the part of any Assignor, and each Assignor hereby waives (to the full
extent permitted by law) all rights of redemption, stay and/or appraisal which
it now has or may at any time in the future have under any rule of law or
statute now existing or hereafter enacted. Each Assignor agrees that, to the
extent notice of sale shall be required by law, at least ten (10) days' written
notice to such Assignor of the time and place of any public sale or the times
after which any private sale is to be made shall constitute reasonable
notification. The Agent shall not be obligated to make any sale of Assigned
Collateral regardless of notice of sale having been given. The Agent may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, be made at the time and place to which
it was so adjourned. Each Assignor hereby waives any claims against the Agent
arising by reason of the fact that the price at which any Assigned Collateral
may have been sold at such a private sale was less than the price which might
have been obtained at a public sale, even if the Agent accepts the first offer
received and does not offer such Assigned Collateral to more than one offeree.
Each Assignor recognizes that, by reason of certain prohibitions contained
in law, rules, regulations or orders of any foreign government, authority or
regulatory body, the Agent may be compelled, with respect to any sale of all or
any part of the Assigned Collateral, to limit purchasers to those who meet the
requirements of such foreign government, authority or regulatory body. Each
Assignor acknowledges that any such sales may be at prices and on terms less
favorable to the Agent than those obtainable through a public sale without such
restrictions, and, notwithstanding such circumstances, agrees that any such
restricted sale shall be deemed to have been made in a commercially reasonable
manner and that the Agent shall have no obligation to engage in public sales.
C.Decisions Relating to Exercise of Remedies. Notwithstanding anything in this
Assignment to the contrary, as provided in the Credit Agreement, the Agent shall
exercise, or shall refrain from exercising, any remedy provided for in Section
12.B. in accordance with the terms of Section 11.01 of the Credit Agreement. No
Secured Party other than the Agent may exercise any remedies provided for
herein. SECTION 13. Application of Proceeds. After and during the continuance of
an Event of Default described in Section 12.A., any cash held by the Agent as
Assigned Collateral and all cash proceeds received by the Agent (all such cash
being "Proceeds") in respect of any sale of, collection from, other realization
upon all or any part of the Assigned Collateral pursuant to the exercise by the
Agent of its remedies as a secured creditor as provided in Section 12 of this
Assignment shall be applied promptly from time to time by the Agent, subject to
Annex B attached hereto and incorporated herein by this reference: First, to the
payment of the Agent's reasonable costs and expenses of such sale, collection or
other realization, including all reasonable expenses, liabilities and advances
made or incurred by the Agent in connection therewith; Second, to the payment of
the Secured
Obligations then due so that each Secured Party shall receive under this
subparagraph payment of an amount equal to the product of (i) the total amount
available for payment under this Clause Second and (ii) a fraction, the
numerator of which is the total amount of Secured Obligations then due to such
Secured Party and the denominator of which is the total amount of all Secured
Obligations then outstanding; and Third, after payment in full of all Secured
Obligations, to each Assignor, or its successors or assigns, or to whomsoever
may be lawfully entitled to receive the same or as a court of competent
jurisdiction may direct, of any surplus then remaining from such Proceeds.
SECTION 14. Expenses. Each Assignor will upon demand pay to the Agent the amount
of any and all reasonable expenses, including the reasonable fees and expenses
of its counsel and of any experts and agents, which the Agent may reasonably
incur in connection with the administration of this Assignment, (ii) the custody
or preservation of, or the sale of, collection from, or other realization upon,
any of the Assigned Collateral, (iii) the exercise or enforcement of any of the
rights of the Agent or any other Secured Party hereunder or (iv) the failure by
such Assignor to perform or observe any of the provisions hereof except where
such expenses result solely from the gross negligence or willful misconduct of
the Agent. Each Assignor shall pay all reasonable out-of-pocket costs and
expenses of the Pledgee in connection with the administration of, the
preservation of rights under, and enforcement of, and, after an Event of
Default, the renegotiation or restructuring of this Agreement and any amendment,
waiver or consent relating thereto (including, without limitation, the
reasonable fees and disbursements of counsel for the Pledgee). Each Assignor
shall also pay and hold Assignee harmless from and against any and all present
and future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or from
the execution, delivery or otherwise with respect to this Agreement and save the
Assignee harmless from and against any and all liabilities with respect to or
resulting from any delay or omission to pay any such taxes, charges or levies.
SECTION 15. No Waiver. (a) No failure on the part of the Agent to exercise, and
no course of dealing with respect to, and no delay in exercising, any right,
power or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise by the Agent of any right, power or remedy hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy. The remedies herein provided are to the full extent
permitted by law cumulative and are not exclusive of any remedies provided by
law. Any Event of Default, or any event which with the passing of time or the
giving of notice might become an Event of Default, may be waived by written
consent of the Required Banks, but any such waiver shall apply only to the
specific occasion which is the subject of such waiver and shall not apply to the
occurrence of the same or any similar event on any future occasion. (b)In the
event the Agent shall have instituted any proceeding to enforce any right, power
or remedy under this instrument by foreclosure, sale, entry or otherwise, and
such proceeding shall have been discontinued or abandoned for any reason or
shall have been determined adversely to the Agent, then and in every such case
each Assignor, the Agent and each holder of any of the Obligations, to the
extent permitted by applicable law, shall be restored to their respective former
positions and rights hereunder with respect to the Assigned Collateral, and all
rights, remedies and powers of the Agent and the Secured Parties shall continue
as if no such proceeding had been instituted. SECTION 16. Agent. The Agent has
been appointed as Agent hereunder by the Banks pursuant to the Credit Agreement.
The Agent shall have the right hereunder to make demands, to give notices, to
exercise or refrain from exercising any rights, and to take or refrain from
taking action (including, without limitation, the release or substitution of
Assigned Collateral) in accordance with this Assignment and the Credit
Agreement. The Agent may resign and a successor Agent may be appointed in the
manner provided in the Credit Agreement. Upon the acceptance of any appointment
as an Agent by a successor Agent, that successor Agent shall thereupon succeed
to and become vested with all the rights, powers, privileges and duties of the
retiring Agent under this Assignment, and the retiring Agent shall thereupon be
discharged from its duties and obligations under this Assignment. After any
retiring Agent's resignation, the provisions of this Assignment shall inure to
its benefit as to any actions taken or omitted to be taken by it under this
Assignment while it was Agent. SECTION 17. Indemnification. Each Assignor hereby
agrees jointly and severally that it shall pay, and shall protect, indemnify and
save harmless the Agent, the Co-Agents and the Banks and, in their capacity as
such, the officers, directors, shareholders, controlling persons, employees,
agents, and servants of the Agent, any Co-Agent or any Bank from and against all
liabilities, losses, claims, damages, penalties, causes of action, suits, costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses) or judgments of any nature arising from (i) the offering and sale of,
and payment or nonpayment on, the Commercial Paper Notes or the issuance of the
Letter of Credit, (ii) the default of any Assignor or any other Credit Party or
the Depository in the performance of its respective agreements, rights or
obligations contained in this Agreement, the Depositary Agreement or any other
Credit Document entered into by any Assignor or such Credit Party or the
Depositary in connection herewith or therewith, (iii) any actual or proposed use
of the proceeds of the Loan or the Commercial Paper Notes or any Assignor's or
any Credit Party's entering into and performing any Credit Document or any
Commercial Paper Documents, (iv) the Agent's, any Co-Agent's or any Bank's
making, holding or administering the Loans, the Letter of Credit, the Credit
Documents or any of the Collateral pledged in connection with any Credit
Document (provided that the right of payment and indemnification under this
clause (iv) shall not apply to any liabilities, losses, costs and expenses
arising out of any successful action by any Assignor against the Agent, any
Co-Agent or any Bank for a breach of its obligations hereof, but nothing in this
provision shall modify or impair the Agent's, any Co-Agent's or any Bank's right
under Section 14 hereof), (v) allegations of participation or interference by
the Agent, any Co-Agent or any Bank in the management, contractual relations or
other affairs of any Assignor (provided that the right of payment and
indemnification under this clause (v) shall not apply to any liabilities,
losses, costs and expenses arising out of any successful action by any Assignor
against the Agent, any Co-Agent or any Bank for a breach of its obligations
hereof, but nothing in this provision shall modify or impair the Agent's, any
Co-Agent's or any Bank's rights under Section 14 hereof), or (vi) allegations
that the Agent, any Co-Agent or any Bank has joint liability with any Assignor
for any reason; provided, that no Assignor will be liable for such liabilities,
losses, claims, damages, penalties, causes of action, suits, costs and expenses
(including, without limitation, attorneys, fees and expenses) or judgments of
any nature arising from any untrue statement of a material fact in the material
relating to the Agent, any Co-Agent or any Bank in any offering circular used in
the sale of the Commercial Paper Notes or omission of a material fact relating
to the Agent, any Co-Agent or any Bank required to be stated therein or
necessary in order to make the statements therein relating to the Agent, any
Co-Agent or any Bank in light of these circumstances under which they were made
not misleading if, but only if, such material was specifically approved in
writing by the Agent, such Co-Agent or such Bank as the case may be, prior to
its inclusion in such offering circular; and further provided that no Assignor
will be liable for any such liabilities, losses, claims, damages, penalties,
causes of action, suits, costs and expenses or judgments to the extent the same
are the result of or arise out of the gross negligence or willfulness conduct of
the Agent, any Co-Agent or any Bank or any of the officers, directors,
shareholders, controlling persons, employees, agents and servants (or any of
them) of the Agent, any Co-Agent or any Bank. If any action, suit or proceeding
arising from any of the foregoing is brought against the Agent, any Co-Agent or
any Bank or any other person indemnified pursuant to this Section, each Assignor
will, if requested in writing by the Agent, any Co-Agent or any Bank to do so,
at its expense, resist in defense such action, suit or proceeding or cause the
same to be resisted and defended by counsel designated by such Assignor (which
counsel shall be satisfactory to the Agent, the Co-Agent involved and the
Bank(s) involved). The obligations of each Assignor under this Section 17 shall
survive the termination of this Agreement. SECTION 18. Amendments, Etc. This
Assignment may not be amended, modified or waived except with the written
consent of each of the Assignors and the Required Banks or except as otherwise
provided in the Credit Agreement. Any amendment, modification or supplement of
or to any provision of this Assignment, any termination or waiver of any
provision of this Agreement and any consent to any departure by any Assignor
from the terms of any provision of this Assignment shall be effective only in
the specific instance and for the specific purpose for which made or given. No
notice to or demand upon the Assignors in any instance hereunder shall entitle
the Assignors to any other or further notice or demand in similar or other
circumstances. SECTION 19. Termination. This Assignment shall terminate upon the
indefeasible payment in full in U.S. Dollars of all Secured Obligations and the
irrevocable termination of the Total Commitments, and then the Agent shall, upon
the request and at the expense of the Assignor, forthwith assign, transfer and
deliver, against receipt and without recourse to the Agent, such of each
Assignor's respective Assigned Collateral as shall not have been sold or
otherwise applied pursuant to the terms hereof to or on the order of such
Assignor. SECTION 20. Notices. All notices, demands, instructions and other
communications required or permitted to be given to or made upon any party
hereto shall be given in the manner provided in Section 15.02 of the Credit
Agreement to the addresses indicated below for the Assignors and the Agent.
SECTION 21. Continuing Security Interest; Transfer of Notes. This Assignment
shall create a continuing security interest in the Assigned Collateral and shall
(i) remain in full force and effect until this
Assignment is otherwise terminated pursuant to Section 19, (ii) be binding
upon the Assignors, their respective successors and assigns, and (iii) inure,
together with the rights and remedies of the Agent hereunder, to the benefit of
each Secured Party and each of their respective successors, transferees and
assigns permitted under the Credit Agreement; no other persons (including
without limitation, any other creditor of any Assignor) shall have any interest
herein or any right or benefit with respect hereto. Without limiting the
generality of the foregoing clause (iii), any Secured Party may assign or
otherwise transfer any indebtedness held by it secured by this Agreement to any
other Person or entity as and to the extent permitted under the Credit
Agreement, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Secured Party herein or otherwise,
subject however, to the provisions of the Credit Agreement. SECTION 22. Security
Interest Absolute. All rights of the Agent and security interests hereunder and
all obligations of each Assignor hereunder, shall be absolute and unconditional
irrespective of: (a)Any lack of validity or enforceability of the Credit
Agreement, the Notes, any Intercompany Loan, the Guaranty, any other Credit
Document or any other agreement or instrument relating thereto; (b)Any change in
the time, manner or place of payment of, or in any other term of, all or any of
the Secured Obligations, or any other amendment or waiver of or any consent to
any departure from the Credit Agreement, the Notes, any Intercompany Loan, the
Guaranty, any other Credit Document or any other agreement or instrument
relating thereto; or (c)Any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to any departure
from any other guaranty for all or any of the Secured Obligations. SECTION 23.
Severability of Provisions. Any provision of this Assignment which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction. SECTION 24.
Headings; Entire Agreement. Section headings used in this Assignment are for
convenience of reference only and shall not affect the construction of this
Assignment. This Assignment, together with all instruments, agreements and
certificates executed by the parties in connection herewith or with reference
hereto, embodies the entire understanding and agreement between the parties
hereto with respect to the Assigned Collateral and supersedes all prior
agreements, understandings and inducements, whether express or implied, oral or
written. SECTION 25. Execution in Counterparts. This Assignment may be executed
in any number of counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and all of which counterparts,
taken together, shall constitute one and the same Assignment. SECTION 26.
Release. The Agent may release any or all of the Assigned Collateral at any time
or from time to time in accordance with the provisions of the Credit Agreement.
SECTION 27. Acknowledgments by Obligors. Each Assignor which may from time to
time be obligated to Borrower or any Subsidiary of Borrower for payment of
Intercompany Loans, by signing in the space provided at the end of this
Assignment, acknowledges this Assignment and all of the terms and conditions
contained in this Assignment and agrees to pay the amount which it may at any
time owe such party on any Intercompany Loan directly to Agent immediately upon
receipt of demand for such payment by Agent to the extent that the Agent is
entitled to receive such payment in accordance with the terms of this
Assignment. SECTION 28. Governing Law; Jurisdiction; Waiver of Jury Trial;
Terms. (a)THIS ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICTS OF LAWS THEREOF, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND
EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR ASSIGNED
COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
NEW YORK. (b)EACH ASSIGNOR HEREBY (1) AGREES THAT ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS ASSIGNMENT OR TO ENFORCE ANY JUDGMENT OBTAINED AGAINST SUCH
ASSIGNOR IN CONNECTION WITH THIS ASSIGNMENT MAY BE BROUGHT BY THE AGENT, ANY
CO-AGENT OR ANY BANK IN ANY COURT SITTING IN THE STATE OF NEW YORK; (2)
IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY COURT OF THE STATE OF NEW
YORK FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS ASSIGNMENT; (3) AGREES THAT SECTIONS 5-1401 AND 5-1402 OF THE GENERAL
OBLIGATIONS LAWS OF THE STATE OF NEW YORK SHALL APPLY TO THIS ASSIGNMENT AND THE
CREDIT DOCUMENTS; AND (4) IRREVOCABLY WAIVES ANY PRESENT OR FUTURE OBJECTION TO
VENUE IN ANY SUCH COURT, AND ANY PRESENT OR FUTURE CLAIM THAT ANY SUCH COURT IS
AN INCONVENIENT FORUM, IN CONNECTION WITH ANY ACTION OR PROCEEDING RELATING TO
THIS ASSIGNMENT. (c)TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH ASSIGNOR
IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS ASSIGNMENT OR ANY OTHER
CREDIT DOCUMENT OR ANY MATTER ARISING IN CONNECTION HEREUNDER OR THEREUNDER.
(d)Unless otherwise defined herein or in the Credit Agreement, terms defined in
Article 8 and 9 of the Code in the State of New York are used herein as therein
defined.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, each Assignor and the Agent have caused this Assignment to
be duly executed and delivered by their respective officer thereunto duly
authorized as of the date first above written.
SCI FOREIGN SALES, INC., a company
organized under the laws of Barbados
By:
Name:
Title:
SCI SYSTEMS SWEDEN AB
By: By:
Name: Lindsey Tullett Name:
Title: Title:
SCI SYSTEMS FINLAND OY
By:
Name:
Title:
AET HOLLAND C.V.
By:
Name:
Title:
[Signatures continued on following page]
[Signatures continued from previous page]
SCI NETHERLANDS HOLDINGS B.V.
By:
Name:
Title:
SCI NETHERLANDS B.V.
By:
Name:
Title:
SCI SYSTEMS SPAIN, S.A.
By:
Name:
Title:
AGENT:
CITIBANK, N.A., as Agent
By:
Name:
Title:
ACKNOWLEDGEMENT OF
SECOND SUPPLEMENTAL AMENDED AND RESTATED
ASSIGNMENT OF INTERCOMPANY LOANS
Each of the undersigned acknowledges the foregoing Second Supplemental Amended
and Restated Assignment of Intercompany Loans and agrees to make payments on any
Intercompany Loans (other than Intercompany Loans made by a Foreign Subsidiary
to or for the benefit of another Foreign Subsidiary) directly to Agent upon
receipt of demand for payment from Agent to the extent that the Agent is
entitled to receive such payment in accordance with the terms of such
Assignment.
SCI FOREIGN SALES, INC., a company
organized under the laws of Barbados
By:
Name:
Title:
SCI SYSTEMS SWEDEN AB
By: By:
Name: Lindsey Tullett Name:
Title: Title:
SCI SYSTEMS FINLAND OY
By:
Name:
Title:
[Signatures continued on following page] [Signatures continued from previous
page]
AET HOLLAND C.V.
By:
Name:
Title:
SCI NETHERLANDS HOLDINGS B.V.
By:
Name:
Title:
SCI NETHERLANDS B.V.
By:
Name:
Title:
SCI SYSTEMS SPAIN, S.A.
By:
Name:
Title:
ANNEX A
EXCEPTIONS TO CONSENT
The Board of Directors of SCI Systems Sweden AB must expressly authorize the
specific Intercompany Loans to be made by SCI Sweden ("SCI Sweden") to any
Subsidiary from time to time, which authorization shall be made in compliance
with and shall be subject to all applicable laws of Sweden then in effect.
ANNEX A
SCI HOLDINGS, INC.
Name of Entity
Number of Number of Percentage of Percentage of
Shares or Shares or Shares or Shares or
Percentage of Percentage of Percentage of Percentage of
Partnership Partnership Partnership Partnership
Interest Interest Interest Interest
Owned Pledged Owned Pledged
SCI Systems
Sweden AB 1,000 666 100% 66.66%
SCI Systems
Finland Oy 100 66 100% 66%
SCI Systems
Spain, S.A. 10,000 6,600 100% 66%
AET Holland,
C.V. 10% 6.66% 10% 66%
INTERAGENCY, INC.
Name of Entity
Number of Number of Percentage of Percentage of
Shares or Shares or Shares or Shares or
Percentage of Percentage of Percentage of Percentage of
Partnership Partnership Partnership Partnership
Interest Interest Interest Interest
Owned Pledged Owned Pledged
AET Holland
C.V. 10% 6.66% 10% 66%
SECOND SUPPLEMENTAL AMENDED AND RESTATED
SECURITY AGREEMENT
THIS SECOND SUPPLEMENTAL AMENDED AND RESTATED SECURITY AGREEMENT (this
"Agreement"), dated as of _____________, 1999, made by SCI SYSTEMS, INC., a
Delaware corporation (the "SCI"), to CITIBANK, N.A. ("CITIBANK"), acting in its
capacity as agent for CITIBANK, ABN AMRO Bank N.V. ("ABN AMRO") and Bank of
America Illinois (collectively, the "Co-Agents") and the banks and other lending
institutions (the "Banks") which are signatories to the Amended and Restated
Credit Agreement dated as of August 3, 1995, among SCI Systems, Inc. (the
"Borrower"), CITIBANK, the Co-Agents and the Banks, and acting as Agent for any
assignees which become Banks as provided in such Amended and Restated Credit
Agreement. W I T N E S S E T H: WHEREAS, pursuant to the Amended and Restated
Credit Agreement described above (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Credit Agreement";
the terms defined in the Credit Agreement and not otherwise defined herein are
used herein with the same meaning), CITIBANK, the Co-Agents and the Banks have
committed to loan certain amounts to, and ABN AMRO, in its capacity as Co-Agent
(acting for the Banks) has amended the Letter of Credit for the benefit of, the
Borrower; and WHEREAS, pursuant to the Credit Agreement, SCI entered into a
certain amended and restated stock pledge and security agreement dated as of
August 3, 1995 (the "1995 Pledge Agreement") and a first supplemental
amended and restated stock pledge and security agreement dated as of March __,
1998 (the "First Supplemental Pledge Agreement"); and WHEREAS, it is a condition
precedent to the Banks' obligations to continue to make Loans to the Borrower
under the Credit Agreement that SCI execute and deliver to CITIBANK this
Agreement (which shall supplement the 1995 Pledge Agreement executed by SCI at
the initial closing of the Credit Agreement and also supplement the First
Supplemental Pledge Agreement); WHEREAS, SCI desires to execute this Agreement
to satisfy the condition described in the preceding paragraph; NOW, THEREFORE,
in consideration of the benefits accruing to SCI, the receipt and sufficiency of
which are hereby acknowledged, and in order to induce CITIBANK, the Co-Agents
and the Banks to continue to make Loans to the Borrower under the Credit
Agreement SCI hereby makes the following representations and warranties to
CITIBANK and hereby covenants and agrees with CITIBANK as follows:
1.SECURITY FOR OBLIGATIONS ETC. This Agreement is for the benefit of CITIBANK to
secure the prompt payment in full when due, whether at stated maturity, by
acceleration or otherwise, of (i) the Loans, the Notes, SCI's reimbursement
obligations in respect of the Letter of Credit and all other Obligations
(whether for principal, interest, fees, expenses or otherwise), (ii) all
obligations of SCI now or hereafter existing under the Credit Agreement or under
this Agreement (whether for principal, interest, fees, expenses or otherwise) or
under any Interest Rate Contracts, and (iii) all costs and expenses incurred by
CITIBANK or any Bank in connection with the exercise of its rights and remedies
hereunder (including reasonable attorneys' fees) (all such obligations
collectively being the "Secured Obligations"). 2.CHARGED STOCK. As used herein,
the term "Charged Stock" shall mean the number of issued and outstanding shares
specified on Annex A attached hereto which SCI owns of each class of capital
stock of the corporations identified on Annex A attached hereto (collectively,
the "Subsidiaries"). SCI represents and warrants that on the date hereof (a) the
Charged Stock consists of the number of shares of the stock of the Subsidiaries
as described in Annex A attached hereto; (b) SCI is the holder of record and
sole beneficial owner of such Charged Stock; and (c) the Charged Stock
constitutes the percentage of the issued and outstanding stock of the
Subsidiaries indicated on Annex A. CHARGE OF SECURITIES, ETC. 3.A.Charge. To
secure the Secured Obligations and for the purposes set forth in Section 1, SCI
hereby charges to CITIBANK (for and on behalf of CITIBANK, the Co-Agents and the
Banks), and grants a security interest in, the Charged Stock, together with (i)
the certificates representing such Charged Stock accompanied by stock powers
duly executed in blank by SCI, and (ii) subject to the rights of SCI set forth
in Section 6, all dividends (whether in cash, stock, warrants, options, or other
securities), cash, instruments or other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any and all
of the Charged Stock; and hereby assigns, transfers, hypothecates and sets over
to CITIBANK all of SCI's right, title and interest in and to the Charged
Securities (and in and to the certificates or instruments evidencing the items
described in clauses (i) and (ii) above) to be held by CITIBANK, upon the terms
and conditions set forth in this Agreement. Subject to the terms of the
Intercreditor Agreement, SCI agrees to deliver to CITIBANK all certificates and
instruments evidencing the items described in clause (ii) above promptly upon
SCI's receipt thereof. 3.B.Definition of Charged Securities and Collateral. The
Charged Stock and all items described in clause (ii) of Section 3.1 are
hereinafter called the "Charged Securities," and the Charged Securities,
together with all other securities and moneys received and at the time held by
CITIBANK hereunder and any proceeds of any of the foregoing, are hereinafter
called the "Collateral." 4.APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC.
CITIBANK shall have the right to appoint one or more agents for the purpose of
retaining physical possession of the Collateral, which may be held (if
applicable and in the discretion of CITIBANK) in the name of SCI, endorsed or
assigned in blank or in favor of CITIBANK or any nominee or nominees of CITIBANK
or an agent appointed by CITIBANK. 5.VOTING, ETC. Unless and until an Event of
Default (such term to mean an Event of Default as defined herein) shall have
occurred and be continuing, SCI shall be entitled to vote any and all Charged
Stock and to give consents, waivers or ratifications in respect thereof;
provided that no vote shall be cast or any consent, waiver or ratification given
or any action taken which would violate or be inconsistent with any of the terms
of this Agreement, the Credit Documents, or any instrument or agreement relating
to the Obligations; provided, further, that the SCI shall give CITIBANK at least
five (5) Business Days, written notice of the manner in which it intends to
exercise, or the reasons for refraining from exercising, any such right if the
exercise or non-exercise of such right potentially may violate or be
inconsistent with the aforementioned agreements. All such rights of SCI to vote
and to give consents, waivers and ratifications shall cease in case an Event of
Default shall occur and be continuing, and Section 7 hereof shall become
applicable. 6. ADIVIDENDS AND OTHER DISTRIBUTIONS. Unless an Event of Default
shall have occurred and be continuing, all cash dividends payable in respect of
the Charged Securities shall be paid to SCI, but only to the extent (if any)
permitted by the Credit Agreement. CITIBANK shall also be entitled to receive
directly, and to retain as part of the Collateral:
1.(a)all other or additional stock or securities paid or
distributed by way of dividend in respect of the Charged Securities;
2.(b)all other or additional stock or other
securities paid or distributed in respect of the Charged Securities by way of
stock-split, spin-off, split-up, reclassification, combination of shares or
similar rearrangement; and
3.(c)all other or additional stock or other
securities which may be paid in respect of the Charged Securities by reason of
any consolidation, merger, exchange of stock, conveyance of assets, liquidation
or similar corporate reorganization.
6. B Additional Shares. SCI agrees and covenants that it will cause the
Subsidiaries not to issue any stock or other securities in addition to or in
substitution for the Charged Securities except stock or other securities which
are either (i) issued to SCI and pledged to CITIBANK pursuant to this Agreement,
to the extent necessary to keep 66% of the issued and outstanding Charged Stock
pledged to CITIBANK hereunder and delivered to CITIBANK within two (2)
business days from the date of issuance or (ii) issued in a manner otherwise
acceptable to the Required Banks.
EVENTS OF DEFAULT.
7.A.Definition of Events of Default. Any of the following specified events shall
constitute an Event of Default under this Agreement:
1.(a)the existence or occurrence of any Event of
Default as provided under the terms of the Credit Agreement;
2.(b)any representation, warranty or statement
made or deemed to be made by SCI or any of its officers under or in connection
with this Agreement shall have been incorrect in any material respect when made
or deemed to be made;
3.(c)SCI shall fail to observe or perform any
covenant or agreement set forth in Section 6 (including Section 6.1), Section 15
or Section 17; or
4.(d)SCI shall fail to observe or perform any
covenant or agreement set forth in this Agreement, other than those referred to
in paragraph (c) above, and such failure remains unremedied until the first to
occur of the date forty-five (45) days after an Executive Officer first obtains
knowledge thereof or the date thirty (30) days after written notice thereof
shall have been given to SCI by any Bank.
7.B.Remedies. In case an Event of Default shall have occurred and be
continuing, and subject to Section 7.3 hereof, CITIBANK shall be entitled to
exercise all of the rights, powers and remedies (whether vested in it by this
Agreement, any other Credit Document or by law and including, without
limitation, all rights and remedies of a secured party of a debtor in default
under the Uniform Commercial Code (the "Code") in effect in the State of New
York at that time) for the protection and enforcement of its rights in respect
of the Collateral, and CITIBANK shall be entitled (subject to the rights of any
holders of first priority pledges and security interests on any portions of the
Collateral as permitted by the terms of this Agreement), without limitation, to
exercise any or all of the following rights, which SCI hereby agrees to be
commercially reasonable: (a)to receive all amounts payable to SCI in respect of
the Collateral otherwise payable under Section 6 and to enforce the payment of
the Charged Securities and to exercise all of the rights, powers, and remedies
of SCI thereunder; (b)to transfer all or any part of the Collateral into
CITIBANK's name or the name of its nominee or nominees; (c)to vote all or any
part of the Collateral (whether or not transferred into the name of CITIBANK)
and give all consents, waivers and ratifications in respect of the Collateral
and otherwise act with respect thereto as though it were the outright owner
thereof; (d)at any time or from time to time to sell, assign and deliver, or
grant options to purchase, all or any part of the Collateral in one or more
parcels, or any interest therein, at any public or private sale at any exchange,
broker's board or at any of CITIBANK's offices or elsewhere, without demand of
performance, advertisement or notice of intention to sell or of the time or
place of sale or adjournment thereof or to redeem or otherwise (all of which are
hereby expressly and irrevocably waived by SCI), for cash, on credit or for
other property, for immediate or future delivery without any assumption
of credit risk, and for such price or prices and on such terms as CITIBANK in
its sole discretion may determine. SCI agrees that to the extent that notice of
sale shall be required by law that at least 10 days' written notice to SCI of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. CITIBANK shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. CITIBANK may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and any such sale may,
without further notice, be made at the time and place to which it was so
adjourned. SCI hereby waives and releases to the fullest extent permitted by law
any right or equity of redemption with respect to the Collateral, whether before
or after sale hereunder, and all rights, if any, of marshaling the Collateral
and any other security for the Obligations or otherwise. At any such sale,
unless prohibited by applicable law, CITIBANK may bid for and purchase all or
any part of the Collateral so sold free from any such right or equity of
redemption. CITIBANK shall not be liable for failure to collect or realize upon
any or all of the Collateral or for any delay in so doing nor shall it be under
any obligation to take any action whatsoever with regard thereto; (e)to settle,
adjust, compromise and arrange all accounts, controversies, questions, claims
and demands whatsoever in relation to all or any part of the Collateral; (f)to
execute all contracts, agreements, documents and instruments to bring, defend
and abandon all such actions, suits and proceedings, and to take all other
actions, in relation to all or any part of the Collateral as CITIBANK in its
sole discretion may determine; (g)to appoint managers, agents and officers for
any of the purposes mentioned in the foregoing provisions of this Section 7 and
to dismiss the same, all as CITIBANK in its sole discretion may determine; and
(h)generally, to take all such other action as CITIBANK may determine as
incidental or conducive to any of the matters or powers mentioned in the
foregoing provisions of this Section 7 and which CITIBANK may or can do lawfully
and to use the name of SCI for the purposes aforesaid and in any proceedings
arising therefrom. 7.C. Decisions Relating to Exercise of Remedies.
Notwithstanding anything in this Agreement to the contrary, as provided in the
Credit Agreement, CITIBANK shall exercise, or shall refrain from exercising, any
remedy provided for in Section 7B in accordance with the terms of Section 11.01
of the Credit Agreement. Neither the Co-Agents nor any Bank may exercise any
remedies provided for herein. 22.7.DREMEDIES, ETC., CUMULATIVE. Each right,
power and remedy of CITIBANK provided for in this Agreement or any other Credit
Document or now or hereafter existing at law or in equity or by statute shall be
cumulative and concurrent and shall be in addition to every other such right,
power or remedy. The exercise or beginning of the exercise by CITIBANK of any
one or more of the rights, powers or remedies provided for in this Agreement or
any other Credit
Document or now or hereafter existing at law or in equity or by statute or
otherwise shall not preclude the simultaneous or later exercise by CITIBANK of
all such other rights, powers or remedies, and no failure or delay on the part
of CITIBANK to exercise any such right, power or remedy shall operate as a
waiver thereof. Any Event of Default, or any event which with the passing of
time or the giving of notice might become an Event of Default, may be waived by
written consent of the Required Banks but any such waiver shall apply only to
the specific occasion which is the subject of such waiver and shall not apply to
the occurrence of the same or any similar event on any future occasion.
8.APPLICATION OF PROCEEDS. All moneys collected by CITIBANK upon any sale or
other disposition of the Collateral, together with all other moneys received by
CITIBANK hereunder, shall be applied as follows (subject to the terms and
conditions of the Intercreditor Agreement and the rights of any holders of any
first priority pledges and security interests on any portions of the Collateral
as permitted by the terms of this Agreement): First, to the payment of the
reasonable costs and expenses of such sale, collection or other realization,
including, without limitation, reasonable attorneys' fees and all other
expenses, liabilities and advances made or incurred by CITIBANK in connection
therewith; Second, to the payment of the Secured Obligations then due so that
each Bank shall receive under this Clause Second payment of an amount equal to
the product of (1) the total amount available for payment under this Clause
Second and (ii) a fraction, the numerator of which is the total amount of
Secured Obligations then due to such Bank and the denominator of which is the
total amount of all Secured Obligations then outstanding; and Third, after
payment in full of all Secured Obligations then due, to SCI, or its successors
or assigns, or to whomsoever may be lawfully entitled to receive the same or as
a court of competent jurisdiction may direct any surplus then remaining from
such proceeds. 9.PURCHASERS OF COLLATERAL. Upon any sale of any of the
Collateral hereunder (whether by virtue of the power of sale herein granted
pursuant to judicial process or otherwise), the receipt of CITIBANK or the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold, and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to CITIBANK or such officer or be answerable in any way for the
misapplication or non-application thereof. 10.INDEMNITY; EXPENSES. (a) SCI shall
pay, and shall protect, indemnify and save harmless CITIBANK, the Co-Agents and
the Banks and, in their capacity as such, the officers, directors, shareholders,
controlling persons, employees, agents, and servants of CITIBANK, any Co-Agent
or any Bank from and against all liabilities, losses, claim, damages, penalties,
causes of action, suits, costs and expenses (including, without limitation
reasonable attorneys' fees and expenses) or judgments of any nature arising from
(i) the offering and sale of, and payment or non-payment on, the Commercial
Paper Notes or the issuance of the Letter of Credit, (ii) the default of SCI or
any other Credit Party or the Depository in the performance of its respective
agreements, rights or obligations contained in this Agreement, the Depositary
Agreement or any other Credit Document entered into by SCI or such Credit Party
or the Depositary in connection herewith or therewith, (iii) any actual or
proposed use of the proceeds of the Loans or the Commercial Paper Notes or SCI's
or any Credit Party's entering into and performing any Credit Document or any
Commercial Paper Documents, (iv) CITIBANK's, any Co-Agent's or any Banks'
making, holding or administering the Loans, the Letter of Credit, the Credit
Documents or any of the Collateral pledged in connection with any Credit
Document (provided that the right of
payment and indemnification under this clause (iv) shall not apply to any
liabilities, losses, costs and expenses arising out of any successful action by
SCI against CITIBANK, any Co-Agent or any Bank for a breach of its obligations
hereof, but nothing in this proviso shall modify or impair CITIBANK's, any
Co-Agent's or any Bank's rights under Section 11(b) hereof), (v) allegations of
participation or interference by CITIBANK, any Co-Agent or any Bank in the
management, contractual relations or other affairs of SCI (provided that the
right of payment and indemnification under this clause (v) shall not apply to
any liabilities, losses, costs and expenses arising out of any successful action
by SCI against CITIBANK, any Co-Agent or any Bank for a breach of its
obligations hereof, but nothing in this proviso shall modify or impair
CITIBANK's, any Co-Agent's or any Bank's rights under Section 11(b) hereof), or
(vi) allegations that CITIBANK, any Co-Agent or any Bank has joint liability
with SCI for any reason; provided that SCI will not be liable for such
liabilities, losses, claims, damages, penalties, causes of action, suits, costs
and expenses (including, without limitation, attorneys' fees and expenses) or
judgments of any arising from any untrue statement of a material fact in the
material relating to CITIBANK, any Co-Agent or any Bank in any offering circular
used in the sale of the Commercial Paper Notes or omission of a material fact
relating to CITIBANK, any Co-Agent or any Bank required to be stated therein or
necessary in order to make the statements therein relating to CITIBANK, any
Co-Agent or any Bank in the light of the circumstances under which they were
made not misleading if, but only if, such material was specifically approved in
writing by CITIBANK, such Co-Agent or such Bank, as the case may be, prior to
its inclusion in such offering circular; and further provided that SCI will not
be liable for any such liabilities, losses, claims, damages, penalties, causes
or action, suits, costs and expenses or judgments to the extent the same are the
result of or arise out of the gross negligence or willful misconduct of
CITIBANK, any Co-Agent or any Bank or any of the officers, directors,
shareholders, controlling persons, employees, agents and (of any of them) of
CITIBANK, any Co-Agent or any Bank. If any action, suit or proceeding arising
from any of the foregoing is brought against CITIBANK, any Co-Agent or any Bank
or any other person indemnified pursuant to this Section, SCI will, if requested
in writing by CITIBANK, any Co-Agent or any Bank to do so, at its expense,
resist and defend such action, suit or proceeding or cause the same to be
resisted and defended by counsel designated by SCI (which counsel shall be
satisfactory to CITIBANK, the Co-Agent involved and the Bank(s) involved). Each
of SCI's obligations under this Section 11(a) shall survive the termination of
this Agreement.
1.(b)SCI shall pay all reasonable out-of-pocket
costs and expenses of CITIBANK incurred in connection with the administration
of, the preservation of rights under, and enforcement of, and, after an Event of
Default, the re-negotiation or restructuring of this Agreement and any
amendment, waiver or consent relating thereto (including, the reasonable fees
and disbursements of counsel for CITIBANK). SCI shall also pay and hold CITIBANK
harmless from and against any and all present and future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to this Agreement and save CITIBANK
harmless from and against any and all liabilities with respect to or resulting
from any delay or omission to pay any such taxes, charges or levies.
26. 11.FURTHER ASSURANCES. SCI agrees that it will do such acts and things
and promptly execute and deliver to CITIBANK such additional conveyances,
assignments, agreements and instruments as CITIBANK may reasonably require or
deem advisable to carry into effect the purposes of this Agreement or to further
assure and confirm unto CITIBANK its rights, powers and remedies hereunder.
27. 12.CITIBANK AS AGENT.
1.CITIBANK will hold in accordance with this
Agreement and the Credit Agreement all items of the Collateral at any time
received under this Agreement. It is expressly understood and agreed that the
obligations of CITIBANK as holder of the Collateral and interests therein and
with respect to the disposition thereof, and otherwise under this Agreement, are
only those expressly set forth in this Agreement, the Intercreditor Agreement,
and the Credit Agreement.
2.CITIBANK shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which CITIBANK accords its own property, it being understood that CITIBANK shall
not have responsibility for (i) ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Collateral, whether or not CITIBANK has or is deemed to have knowledge of
such matters, or (ii) taking any necessary steps to preserve rights against any
parties with respect to any Collateral. 13.REPRESENTATIONS AND WARRANTIES. SCI
hereby represents and warrants that (i) it is the legal record and beneficial
owner of, and has good and marketable title to, the Charged Stock described in
Section 2 hereof, subject to no pledge, lien, mortgage, hypothecation, security
interest, charge, option or other encumbrance whatsoever, except Liens and
security interests created by this Agreement or expressly permitted by this
Agreement or the Credit Agreement; (ii) it has full power, authority and legal
right to pledge all the Charged Stock pursuant to this Agreement; (iii) to the
best of its knowledge, no consent of any other party (including, without
limitation, any stockholder or creditor of CITIBANK or any of the Subsidiaries)
and no order, consent, license, permit, approval, validation or authorization
of, exemption by, notice to or registration, recording, filing or declaration
with, any governmental or public body or authority is required to be obtained by
SCI in connection with the execution, delivery or performance of this Agreement
or consummation of the transactions contemplated hereby, including, without
limitation, the exercise by CITIBANK of the voting or other rights provided for
in this Agreement or the remedies in respect of the Collateral pursuant to this
Agreement (except as may be required in connection with the disposition of the
Pledged Securities by laws affecting the offering and sale of securities
generally and except as set forth on Annex B attached hereto); (iv) all shares
of Charged Stock have been duly and validly issued, are fully paid and
non-assessable; and (v) to the best of its knowledge, except as set forth on
Annex B attached hereto, the pledge and delivery of the Charged Securities
pursuant to this Agreement creates a valid and perfected first priority security
interest in the Charged Securities, and the Charged Securities, and the proceeds
thereof, which security interest is not subject to any prior Lien or any
agreement purporting to grant to any third party a Lien on the property or
assets of SCI which would include the Charged Securities (other than the Lien of
the Intercreditor Agreement, if any, or any other
intercreditor agreement entered into pursuant to the Credit Agreement and Liens
expressly permitted by the Credit Agreement). 14.COVENANTS OF SCI. SCI covenants
and agrees that (i) SCI will defend CITIBANK's right, title and security
interest in and to the Charged Securities and the proceeds thereof against the
claims and demands of all Persons whomsoever; (ii) SCI will have like title to
and right to pledge any other property at any time hereafter pledged to CITIBANK
as Collateral hereunder and will likewise defend the right thereto and security
interest therein of CITIBANK; and (iii) SCI will not, with respect to any
Collateral, enter into any shareholder agreements, voting agreements, voting
trusts, trust deeds, irrevocable proxies or any other similar agreements or
instruments. 15.SCI'S OBLIGATIONS ABSOLUTE, ETC. The obligations of SCI under
this Agreement shall be absolute and unconditional in accordance with its terms
and shall remain in full force and effect without regard to, and shall not be
released, suspended, discharged, terminated or otherwise affected by, any
circumstance or occurrence whatsoever, including, without limitation: (a) any
change in the time, place or manner of payment of, or in any other term of, all
or any of the Secured Obligations, any waiver, indulgence, renewal, extension,
amendment or modification of or addition, consent or supplement to or deletion
from or any other action or inaction under or in respect of the Credit
Agreement, any Note, any other Credit Document, or any of the other documents,
instruments or agreements relating to the Secured Obligations or any other
instrument or agreement referred to therein or any assignment or transfer of any
thereof; (b) any lack of validity or enforceability of the Credit Agreement, any
other Credit Document, or any other documents, instruments or agreement referred
to therein or any assignment or transfer of any thereof; (c) any furnishing of
any additional security to CITIBANK, or its assignees or any acceptance thereof
or any release of any security by CITIBANK or its assignees; (d) any limitation
on any party's liability or obligations under any such instrument or agreement
or any invalidity or unenforceability, in whole or in part, of any such
instrument or agreement or any term thereof; (e) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceeding relating to SCI or any of the Subsidiaries, or any action taken with
respect to this Agreement by any trustee or receiver, or by any court, in any
such proceeding, whether or not SCI shall have notice or knowledge of any of the
foregoing; or (f) any exchange, release or nonperfection of any other
collateral, or any release, amendment or waiver of or consent to departure from
any guaranty or security, for all or any of the Secured Obligations.
16.REGISTRATION, ETC.
1.If an Event of Default shall have occurred and be
continuing and SCI shall have received from CITIBANK a written request or
requests that SCI cause any registration, qualification or compliance under any
Federal or state securities law or laws to be effected with respect to all or
any part of the Charged Securities, SCI as soon as practicable and at its own
expense will use its best efforts to cause such registration to be effected (and
be kept effective) and will use its best efforts to cause such qualification and
compliance to be effected (and be kept effective) as may be so requested and as
would permit or facilitate the sale and distribution of such Charged Securities,
including, without limitation, registration under the Securities Act of 1933 as
then in effect (or any similar statute then in effect), appropriate
qualifications under applicable blue sky or other state securities laws and
appropriate compliance with any other government requirements, and reasonably do
or cause to be done all such other acts and things as may be necessary to permit
the sale of the Charged Securities to be made in compliance with Federal and
applicable State securities laws; provided, that CITIBANK shall furnish to SCI
such information regarding CITIBANK as SCI may reasonably request in writing and
as shall be required in connection with any such registration, qualification or
compliance. SCI will cause CITIBANK to be kept reasonably advised in writing as
to the progress of each such registration, qualification or compliance and as to
the completion thereof, will furnish to CITIBANK such number of prospectuses,
offering circulars or other documents incident thereto as CITIBANK from time to
time may reasonably request, and will indemnify CITIBANK and all others
participating in the distribution of such Charged Securities against all claims,
losses, damages and liabilities caused by any untrue statement (or alleged
untrue statement) of a material fact contained therein (or in any related
registration statement, notification or the like) or by any omission (or alleged
omission) to state therein (or in any related transaction statement,
notification or the like) a material fact required to be stated therein or
necessary to make the statements not misleading in light of the circumstances
under which they were made, except insofar as the same may have been caused by
an untrue statement or omission based upon information furnished in writing to
SCI by CITIBANK, or such others participating in the distribution of such
Charged Securities, expressly for use therein.
2.If at any time when CITIBANK shall determine to
exercise its right to sell all or any part of the Charged Securities pursuant to
Section 7, such Charged Securities or the part thereof to be sold shall not, for
any reason whatsoever, be effectively registered under the Securities Act of
1933, as then in effect, CITIBANK may sell such Charged Securities or part
thereof by private sale in such manner and under such circumstances as necessary
or advisable in order that such sale may legally be effected without such
registration. Without limiting the generality of the foregoing, in any such
event CITIBANK, in its sole discretion (i) may proceed to make such private sale
notwithstanding that a registration statement for the purpose of registering
such Charged Securities or part thereof shall have been filed under such
Securities Act, (ii) may approach and negotiate with a single possible purchaser
to effect such sale, and (iii) may restrict such sale to a purchaser or
purchasers who will represent and agree that such purchaser is purchasing for
its own account, for investment, and not with a view to the distribution or sale
of such Charged Securities or part thereof. In the event of any such sale,
CITIBANK shall incur no responsibility or liability for selling all or any part
of the Charged Securities at a price which CITIBANK, in its sole discretion, may
in good faith deem reasonable under the circumstances, notwithstanding the
possibility that a substantially higher price might be realized if the sale were
deferred until after registration as aforesaid. 17.NOTICES, ETC. All notices and
other communications shall be given in the manner specified in Section 15.02 of
the Credit Agreement in the case of CITIBANK, and in the case of SCI, at the
address specified in this Agreement. 18.POWER OF ATTORNEY. SCI hereby absolutely
and irrevocably constitutes and appoints CITIBANK SCI's true and lawful agent
and attorney-in-fact, effective upon the occurrence of an Event of Default, with
full power of substitution, in the name of
SCI: (a) to execute and do all such assurances, acts and things which SCI ought
to do but has failed to do under the covenants and provisions contained in this
Agreement; (b) to take any and all such action as CITIBANK may, in its sole
discretion, determine as necessary or advisable for the purpose of maintaining,
preserving or protecting the security constituted by this Agreement or any of
the rights, remedies, powers or privileges of CITIBANK under this Agreement; and
(c) generally, in the name of SCI exercise all or any of the powers,
authorities, and discretions conferred on or reserved to CITIBANK by or pursuant
to this Agreement, and (without prejudice to the generality of any of the
foregoing) to seal and deliver or otherwise perfect any instrument or document
of conveyance, agreement, or act as CITIBANK may deem proper in or for the
purpose of exercising any of such powers, authorities or discretions. SCI hereby
ratifies and confirms, and hereby agrees to ratify and confirm, whatever lawful
acts CITIBANK shall do or purport to do in the exercise of the power of attorney
granted to CITIBANK pursuant to this Section 19, which power of attorney, being
given for security, is irrevocable. 19.TERMINATION, RELEASE. After full
indefeasible payment and performance of all of the Secured Obligations other
than Secured Obligations which by their terms survive the repayment of the Loans
and irrevocable termination of the Total Commitments, this Agreement shall
terminate, and CITIBANK, at the request and expense of SCI, will execute and
deliver to SCI a proper instrument or instruments acknowledging the satisfaction
and termination of this Agreement, and will duly assign, transfer and deliver to
SCI (without recourse and without any representation or warranty) such of the
Collateral as may be in the possession of CITIBANK and as has not theretofore
been sold or otherwise applied or released pursuant to this Agreement, together
with any moneys at the time held by CITIBANK hereunder.
MISCELLANEOUS.
21.A.Independent Obligations. SCI agrees with CITIBANK that each of the
obligations and liabilities of SCI to CITIBANK under this Agreement may be
enforced against SCI without the necessity of joining the Borrower, any of the
Subsidiaries, any other holders of pledges of or security interests in any of
the Collateral, or any other Person as a party. 21.B.Reaffirmation. SCI hereby
acknowledges agrees that each of the 1995 Pledge Agreement and the First
Supplemental Pledge Agreement is in full force and effect as of the date hereof
and has not been rescinded, terminated or revoked by SCI prior to the date
hereof, and each of the 1995 Pledge Agreement and the First Supplemental Pledge
Agreement shall remain in full force and effect after giving effect to this
Agreement. 21.C. Successors and Assigns. This Agreement shall create a
continuing security interest in the Collateral and shall be binding upon the
successors and assigns of SCI and shall inure to the benefit of and be
enforceable by CITIBANK, and its successors and permitted assigns.
21.D.Amendments, Etc. This Agreement may be amended or waived only with the
written consent of the Required Banks and, with respect to any amendment, SCI.
21.E.Other Definitions. Unless otherwise defined herein or in the Credit
Agreement, terms defined in Article 9 of the Code in the State of New York are
used herein as therein defined.
21.F.Headings; Entire Agreement. The headings in this Agreement are for purposes
of reference only and shall not limit or define the meaning hereof. This
Agreement, together with all instruments, certificates and documents executed or
delivered by the parties in connection herewith or with reference hereto,
embodies the entire understanding and agreement between the parties hereto with
respect to the Collateral and supersedes all prior agreements, understandings
and inducements, whether expressed or implied, or oral or written.
21.G.Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which shall constitute one
instrument. 21.H.Severable Provisions. In the event that any provision of this
Agreement shall prove to be invalid or unenforceable, such provision shall be
deemed to be severable from the other provisions of this Agreement which shall
remain binding on all parties hereto. 22.GOVERNING LAW. This Agreement and the
rights and obligations of the parties hereunder shall be construed in accordance
with and be governed by the law of the State of New York (without giving effect
to the conflict of law principles thereof). JURISDICTION; WAIVER OF JURY TRIAL.
SCI HEREBY (1) AGREES THAT ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR TO ENFORCE ANY JUDGMENT OBTAINED AGAINST SCI IN CONNECTION WITH
THIS AGREEMENT BE BROUGHT BY CITIBANK, ANY THE CO-AGENT OR ANY BANK IN ANY COURT
SITTING IN THE STATE OF NEW YORK; (2) IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK AND OF ANY COURT OF THE STATE OF NEW YORK FOR THE PURPOSES OF ALL LEGAL
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT; (3) AGREES THAT
SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAWS OF THE STATE OF NEW
YORK SHALL APPLY TO THIS ASSIGNMENT AND THE CREDIT DOCUMENTS; AND (4)
IRREVOCABLY WAIVES ANY PRESENT OR FUTURE OBJECTION TO VENUE IN ANY SUCH COURT,
AND ANY PRESENT OR FUTURE CLAIM THAT ANY SUCH COURT IS AN INCONVENIENT FORUM, IN
CONNECTION WITH ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT. IN WITNESS
WHEREOF, SCI and CITIBANK have caused this Agreement to be executed by their
duly elected officers duly authorized as of the date first above written.
Address for Notices:
SCI SYSTEMS, INC.
c/o SCI Systems (Alabama), Inc.
2101 W. Clinton Avenue
Huntsville, Alabama 35805
SCI SYSTEMS, INC., as SCI
By:
Name:
Title:
CITIBANK, N.A., as Agent, as
CITIBANK
By:
Name:
Title:
ANNEX A
Name of Name of Name of Percentage of Percentage of
Corporation Shares Shares Shares Shares
Owned Charged Owned Charged
- ----------- -------- --------- ------------- 66%
- ----------- -------- --------- ------------- 66%
- ----------- -------- --------- ------------- 66%
- ----------- -------- --------- ------------- 66%
- ----------- -------- --------- ------------- 66%
- ----------- -------- --------- ------------- 66%
ANNEX B
EXCEPTIONS TO PLEDGE
CONFIRMATION OF GUARANTY AND
REAFFIRMATION OF PLEDGE AGREEMENT
Reference is hereby made to the Amended and Restated Credit Agreement (the
"Credit Agreement") dated as of August 3, 1995 among SCI SYSTEMS, INC., a
Delaware corporation (the "Borrower"), CITIBANK, N.A., as Agent (the "Agent"),
ABN AMRO BANK, N.V., as Co-Agent (the "Co-Agent"), and the banks who are parties
to such Credit Agreement (collectively, the "Banks"). In order to induce the
Agent, the Co-Agent and the Banks (collectively, the "Guaranteed Parties") to
enter into that certain Fifth Modification of Amended and Restated Credit
Agreement of even date among the Borrower, the Agent, the Co-Agent and the Banks
(the "Fifth Modification"), as well as for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, each
of the undersigned (individually a "Guarantor" and collectively, the
"Guarantors") hereby acknowledges and agrees in favor of the Guaranteed Parties
as follows: 1.SCI Colorado, Inc., a Colorado corporation ("SCI Colorado"), is
indebted to the Guaranteed Parties under the terms of that certain Guaranty
Agreement, dated as of June 28, 1996, executed by SCI Colorado in favor of the
Guaranteed Parties (the "SCI Colorado Guaranty"). 2.Each Guarantor (other than
SCI Colorado) is indebted to the Guaranteed Parties under the terms of that
certain Amended and Restated Guaranty Agreement, dated as of August 3, 1995,
executed by such Guarantors in favor of the Guaranteed Parties (the "1995
Guaranty", the SCI Colorado Guaranty and the 1995 Guaranty are hereinafter
collectively called the "Guaranties").
3.Each of the Guaranties to which a Guarantor is a party is in full force and
effect as of the date hereof, has not been amended, rescinded, revoked or
terminated by any Guarantor a party thereto through the date hereof, and
continues to constitute the legal, valid and binding obligation of such
Guarantor, enforceable against such Guarantor in accordance with its terms, and
each Guarantor hereby confirms and reaffirms all of its obligations and
liabilities to the Guaranteed Parties under the Guaranty executed by it. 4.All
indebtedness, obligations and liabilities of the Borrower to the Guaranteed
Parties which may now or hereafter arise under or by reason of the Credit
Agreement described above, as amended, including without limitation, the
Borrower's obligations arising under the Fifth Modification, constitute part of
the "Guaranteed Obligations" of the Borrower to the Guaranteed Parties which is
guaranteed by each Guarantor under the terms and conditions of the Guaranty
executed by it. 5.Each Guarantor Hereby consents to and approves the execution,
delivery and performance of the Fifth Modification and all of the transactions
contemplated thereby. 6.Each Guarantor which has executed a Pledge Agreement (as
defined in the Credit Agreement) does hereby reaffirm all of its indebtedness,
obligations and liabilities to the Agent, the Co-Agent and the Banks under the
Pledge Agreement executed by it and does hereby reaffirm the grant of any and
all liens in the Collateral under (and as such term is defined in) such Pledge
Agreement); provided, however, that nothing in this Confirmation is intended or
shall be construed, to constitute a novation of any such indebtedness,
obligations or liabilities or to modify, effect, release or otherwise impair the
continuity or perfection of such liens. 7.Each Guarantor which executed a Pledge
Agreement also confirms and agrees that the Pledge Agreement executed by it
remains in full force and effect after giving effect to the execution, delivery
and performance of the Fifth Modification and continues to secure all Secured
Obligations (as defined in such Pledge Agreement). 8.THIS CONFIRMATION SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE. IN WITNESS
WHEREOF, each Guarantor has caused its duly authorized officers to execute this
Confirmation, all as of this __________ of September, 1998.
SCI SYSTEMS (ALABAMA), INC.
By:
Name:
Title:
SCIMEX, INC.
By:
Name:
Title:
SCI TECHNOLOGY, INC.
By:
Name:
Title:
(Signatures continued on next page)
(Signatures continued from preceding page)
INTERAGENCY, INC.
By:
Name:
Title:
SCI HOLDINGS, INC.
By:
Name:
Title:
SCI FOREIGN SALES, INC.
By:
Name:
Title:
NEWPORT, INC.
By:
Name:
Title:
SCI COLORADO, INC.
By:
Name:
Title:
SUBSIDIARY (INTERCOMPANY) NOTE
$410,000,000 March 18, 1999
FOR VALUE RECEIVED, the undersigned promises to pay to the order of SCI
Systems, Inc., a Delaware corporation (the "Parent"), or any subsidiary thereof
(a "Subsidiary", and together with the Parent or any other holder hereof, the
"Holder") at its registered office in Wilmington, Delaware (or at such other
place as the Holder may designate in writing to the undersigned) the principal
amount of FOUR HUNDRED TEN MILLION AND NO/100 U.S. DOLLARS ($410,000,000) or so
much thereof as has been advanced to the undersigned by each payee hereunder,
plus interest as hereinafter provided. The principal amount of this Subsidiary
Note shall be due and payable in the amounts and at the times determined by the
Holder to be necessary to allow the Parent to make any payment of principal due
and payable under the Notes (as such term is defined in the Amended and Restated
Credit Agreement (as amended, extended, modified or supplemented from time to
time, the "Credit Agreement"), dated as of August 3, 1995, by and among the
Parent, Citibank, N.A., as agent (the "Agent"), ABN AMRO Bank N.V. and Bank of
America (Illinois), as Co-Agents, and the Banks (the "Banks") which are
signatories to such Credit Agreement, and any assignees which become Banks under
such Credit Agreement). The undersigned shall pay interest on the principal
amount outstanding hereunder from time to time at the effective rate of interest
being paid by the Parent under the Notes and the Credit Agreement. Interest
hereunder shall be due and payable as and when interest from the Parent is due
under the Credit Agreement in an amount determined by the Holder, based on the
ratio of the amount outstanding hereunder at
the time of any interest payment, to the total amount outstanding under the
Credit Agreement from the Parent. Any payment of principal or interest which is
not timely made shall bear interest at a per annum rate equal to the interest
rate for overdue advances provided in the Credit Agreement. It is contemplated
that the original principal sum evidenced by this Subsidiary Note may be reduced
from time to time and that additional advances may be made from time to time. In
no event shall the amount of interest due or payable hereunder exceed the
maximum rate of interest allowed by applicable law, and in the event any such
payment is inadvertently paid by the undersigned or inadvertently received by
the Holder, then such excess sum shall be credited as a payment of principal,
unless the undersigned shall notify the Holder, in writing, that the undersigned
elects to have such excess sum returned to it forthwith. It is the express
intent hereof that the undersigned not pay and the Holder not receive, directly
or indirectly, in any manner whatsoever, interest in excess of that which may be
lawfully paid by the undersigned under applicable law. Should any payment of
principal and interest not be paid when due under this Subsidiary Note, or
should an Event of Default occur under the Credit Agreement or any other
document or agreement executed and delivered in connection herewith or
therewith, then, and at any time thereafter, the Holder shall have the right and
option, in its sole discretion, to declare the principal and interest
outstanding hereunder to be forthwith due and payable. All parties now or
hereafter liable with respect to this Subsidiary Note, whether the undersigned,
any guarantor, endorser or any other person or entity, hereby expressly waive
presentation, demand of payment, protest, notice of demand of payment, protest
and notice of non-payment, or any other notice of any kind with respect hereto.
No delay or failure on the part of the Holder in the exercise of any right or
remedy hereunder, under any loan agreement or security agreement, or at law or
in equity, shall operate as a waiver thereof, and no single or partial exercise
by the Holder of any right or remedy hereunder, under any loan agreement or
security agreement, or at law or in equity shall preclude or estop another or
further exercise thereof or the exercise of any other right or remedy. Principal
and interest on this Subsidiary Note shall be payable and paid in lawful money
of the United States of America. Time is of the essence of this Subsidiary Note
and, in case this Subsidiary Note is collected by or through an attorney at law,
or under advice therefrom, the undersigned agrees to pay all costs of collection
including reasonable attorneys' fees. The provisions of this Subsidiary Note
shall be construed and interpreted and all rights and obligations of the parties
hereunder determined in accordance with the laws of the State of New York. THIS
SUBSIDIARY NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN AMENDED
AND RESTATED ASSIGNMENT OF INTERCOMPANY LOANS DATED AS OF AUGUST 3, 1995, AS
AMENDED AND SUPPLEMENTED FROM TIME TO TIME, BY AND AMONG THE AGENT, THE
UNDERSIGNED AND ITS AFFILIATES.
SECOND SUPPLEMENTAL AMENDED AND RESTATED
SECURITY AGREEMENT
THIS SECOND SUPPLEMENTAL AMENDED AND RESTATED SECURITY AGREEMENT (this
"Agreement"), dated as of _____________, 1999, made by SCI SYSTEMS, INC., a
Delaware corporation (the "SCI"), to CITIBANK, N.A. ("CITIBANK"), acting in its
capacity as agent for CITIBANK, ABN AMRO Bank N.V. ("ABN AMRO") and Bank of
America Illinois (collectively, the "Co-Agents") and the banks and other lending
institutions (the "Banks") which are signatories to the Amended and Restated
Credit Agreement dated as of August 3, 1995, among SCI Systems, Inc. (the
"Borrower"), CITIBANK, the Co-Agents and the Banks, and acting as Agent for any
assignees which become Banks as provided in such Amended and Restated Credit
Agreement. W I T N E S S E T H: WHEREAS, pursuant to the Amended and Restated
Credit Agreement described above (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Credit Agreement";
the terms defined in the Credit Agreement and not otherwise defined herein are
used herein with the same meaning), CITIBANK, the Co-Agents and the Banks have
committed to loan certain amounts to, and ABN AMRO, in its capacity as Co-Agent
(acting for the Banks) has amended the Letter of Credit for the benefit of, the
Borrower; and WHEREAS, pursuant to the Credit Agreement, SCI entered into a
certain amended and restated stock pledge and security agreement dated as of
August 3, 1995 (the "1995 Pledge Agreement") and a first supplemental amended
and restated stock pledge and security agreement dated as of March __, 1998 (the
"First Supplemental Pledge Agreement"); and WHEREAS, it is a condition precedent
to the Banks' obligations to continue to make Loans to the Borrower under the
Credit Agreement that SCI execute and deliver to CITIBANK this Agreement (which
shall supplement the 1995 Pledge Agreement executed by SCI at the initial
closing of the Credit Agreement and also supplement the First Supplemental
Pledge Agreement); WHEREAS, SCI desires to execute this Agreement to satisfy the
condition described in the preceding paragraph; NOW, THEREFORE, in consideration
of the benefits accruing to SCI, the receipt and sufficiency of which are hereby
acknowledged, and in order to induce CITIBANK, the Co-Agents and the Banks to
continue to make Loans to the Borrower under the Credit Agreement SCI hereby
makes the following representations and warranties to CITIBANK and hereby
covenants and agrees with CITIBANK as follows:
1.SECURITY FOR OBLIGATIONS ETC. This Agreement is for the benefit of CITIBANK to
secure the prompt payment in full when due, whether at stated maturity, by
acceleration or otherwise, of (i) the Loans, the Notes, SCI's reimbursement
obligations in respect of the Letter of Credit and all other Obligations
(whether for principal, interest, fees, expenses or otherwise), (ii) all
obligations of SCI now or hereafter existing under the Credit Agreement or under
this Agreement (whether for principal, interest, fees, expenses or otherwise) or
under any Interest Rate Contracts, and (iii) all costs and expenses incurred by
CITIBANK or any Bank in connection with the exercise of its rights and remedies
hereunder (including reasonable attorneys' fees) (all such obligations
collectively being the "Secured Obligations"). 2.CHARGED STOCK. As used herein,
the term "Charged Stock" shall mean the number of issued and outstanding shares
specified on Annex A attached hereto which SCI owns of each class of capital
stock of the corporations identified on Annex A attached hereto (collectively,
the "Subsidiaries"). SCI represents and warrants that on the date hereof (a) the
Charged Stock consists of the number of shares of the stock of the Subsidiaries
as described in Annex A attached hereto; (b) SCI is the holder of record and
sole beneficial owner of such Charged Stock; and (c) the Charged Stock
constitutes the percentage of the issued and outstanding stock of the
Subsidiaries indicated on Annex A. CHARGE OF SECURITIES, ETC. 3.A.Charge. To
secure the Secured Obligations and for the purposes set forth in Section 1, SCI
hereby charges to CITIBANK (for and on behalf of CITIBANK, the Co-Agents and the
Banks), and grants a security interest in, the Charged Stock, together with (i)
the certificates representing such Charged Stock accompanied by stock powers
duly executed in blank by SCI, and (ii) subject to the rights of SCI set forth
in Section 6, all dividends (whether in cash, stock, warrants, options, or other
securities), cash, instruments or other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any and all
of the Charged Stock; and hereby assigns, transfers, hypothecates and sets over
to CITIBANK all of SCI's right, title and interest in and to the Charged
Securities (and in and to the certificates or instruments evidencing the items
described in clauses (i) and (ii) above) to be held by CITIBANK, upon the terms
and conditions set forth in this Agreement. Subject to the terms of the
Intercreditor Agreement, SCI agrees to deliver to CITIBANK all certificates and
instruments evidencing the items described in clause (ii) above promptly upon
SCI's receipt thereof. 3.B.Definition of Charged Securities and Collateral. The
Charged Stock and all items described in clause (ii) of Section 3.1 are
hereinafter called the "Charged Securities," and the Charged Securities,
together with all other securities and moneys received and at the time held by
CITIBANK hereunder and any proceeds of any of the foregoing, are hereinafter
called the "Collateral." 4.APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC.
CITIBANK shall have the right to appoint one or more agents for the purpose of
retaining physical possession of the Collateral, which may be held (if
applicable and in the discretion of CITIBANK) in the name of SCI, endorsed or
assigned in blank or in favor of CITIBANK or any nominee or nominees of CITIBANK
or an agent appointed by CITIBANK. 5.VOTING, ETC. Unless and until an Event of
Default (such term to mean an Event of Default as defined herein) shall have
occurred and be continuing, SCI shall be entitled to vote any and all Charged
Stock and to give consents, waivers or ratifications in respect thereof;
provided that no vote shall be cast or any consent, waiver or ratification given
or any action taken which would violate or be inconsistent with any of the terms
of this Agreement, the Credit Documents, or any instrument or agreement relating
to the Obligations; provided, further, that the SCI shall give CITIBANK at least
five (5) Business Days, written notice of the manner in which it intends to
exercise, or the reasons for refraining from exercising, any such right if the
exercise or non-exercise of such right potentially may violate or be
inconsistent with the aforementioned agreements. All such rights of SCI to vote
and to give consents, waivers and ratifications shall cease in case an Event of
Default shall occur and be continuing, and Section 7 hereof shall become
applicable. 6. A DIVIDENDS AND OTHER DISTRIBUTIONS. Unless an Event of Default
shall have occurred and be continuing, all cash dividends payable in respect of
the Charged Securities shall be paid to SCI, but only to the extent (if any)
permitted by the Credit Agreement. CITIBANK shall also be entitled to receive
directly, and to retain as part of the Collateral:
1.(a)all other or additional stock or securities paid or
distributed by way of dividend in respect of the Charged Securities;
2.(b)all other or additional stock or other
securities paid or distributed in respect of the Charged Securities by way of
stock-split, spin-off, split-up, reclassification, combination of shares or
similar rearrangement; and
3.(c)all other or additional stock or other
securities which may be paid in respect of the Charged Securities by reason of
any consolidation, merger, exchange of stock, conveyance of assets, liquidation
or similar corporate reorganization.
1. 6.B Additional Shares. SCI agrees and covenants that it will cause the
Subsidiaries not to issue any stock or other securities in addition to or in
substitution for the Charged Securities except stock or other securities which
are either (i) issued to SCI and pledged to CITIBANK pursuant to this Agreement,
to the extent necessary to keep 66% of the issued and outstanding Charged Stock
pledged to CITIBANK hereunder and delivered to CITIBANK within two (2) business
days from the date of issuance or (ii) issued in a manner otherwise acceptable
to the Required Banks.
EVENTS OF DEFAULT.
7.A.Definition of Events of Default. Any of the following specified events shall
constitute an Event of Default under this Agreement:
1.(a)the existence or occurrence of any Event of
Default as provided under the terms of the Credit Agreement;
2.(b)any representation, warranty or statement
made or deemed to be made by SCI or any of its officers under or in connection
with this Agreement shall have been incorrect in any material respect when made
or deemed to be made;
3.(c)SCI shall fail to observe or perform any
covenant or agreement set forth in Section 6 (including Section 6.1), Section 1
or Section 17; or
4.(d)SCI shall fail to observe or perform any
covenant or agreement set forth in this Agreement, other than those referred to
in paragraph (c) above, and such failure remains unremedied until the first to
occur of the date forty-five (45) days after an Executive Officer first obtains
knowledge thereof or the date thirty (30) days after written notice thereof
shall have been given to SCI by any Bank. 7.B.Remedies. In case an Event of
Default shall have occurred and be continuing,
and subject to Section 7.3 hereof, CITIBANK shall be entitled to exercise all of
the rights, powers and remedies (whether vested in it by this Agreement, any
other Credit Document or by law and including, without limitation, all rights
and remedies of a secured party of a debtor in default under the Uniform
Commercial Code (the "Code") in effect in the State of New York at that time)
for the protection and enforcement of its rights in respect of the Collateral,
and CITIBANK shall be entitled (subject to the rights of any holders of first
priority pledges and security interests on any portions of the Collateral as
permitted by the terms of this Agreement), without limitation, to exercise any
or all of the following rights, which SCI hereby agrees to be commercially
reasonable: (a)to receive all amounts payable to SCI in respect of the
Collateral otherwise payable under Section 6 and to enforce the payment of the
Charged Securities and to exercise all of the rights, powers, and remedies of
SCI thereunder; (b)to transfer all or any part of the Collateral into CITIBANK's
name or the name of its nominee or nominees; (c)to vote all or any part of the
Collateral (whether or not transferred into the name of CITIBANK) and give all
consents, waivers and ratifications in respect of the Collateral and otherwise
act with respect thereto as though it were the outright owner thereof; (d)at any
time or from time to time to sell, assign and deliver, or grant options to
purchase, all or any part of the Collateral in one or more parcels, or any
interest therein, at any public or private sale at any exchange, broker's board
or at any of CITIBANK's offices or elsewhere, without demand of performance,
advertisement or notice of intention to sell or of the time or place of sale or
adjournment thereof or to redeem or otherwise (all of which are hereby expressly
and irrevocably waived by SCI), for cash, on credit or for other property, for
immediate or future delivery without any assumption of credit risk, and for such
price or prices and on such terms as CITIBANK in its sole discretion may
determine. SCI agrees that to the extent that notice of sale shall be required
by law that at least 10 days' written notice to SCI of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification. CITIBANK shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. CITIBANK may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and any such sale may, without further notice, be made
at the time and place to which it was so adjourned. SCI hereby waives and
releases to the fullest extent permitted by law any right or equity of
redemption with respect to the Collateral, whether before or after sale
hereunder, and all rights, if any, of marshaling the Collateral and any other
security for the Obligations or otherwise. At any such sale, unless prohibited
by applicable law, CITIBANK may bid for and purchase all or any part of the
Collateral so sold free from any such right or equity of redemption. CITIBANK
shall not be liable for failure to collect or realize upon any or all of the
Collateral or for any delay in so doing nor shall it be under any obligation to
take any action whatsoever with regard thereto; (e)to settle, adjust, compromise
and arrange all accounts, controversies, questions, claims and demands
whatsoever in relation to all or any part of the Collateral; (f)to execute all
contracts, agreements, documents and instruments to bring, defend and abandon
all such actions, suits and proceedings, and to take all other actions, in
relation to all or any part of the Collateral as CITIBANK in its sole discretion
may determine;
(g)to appoint managers, agents and officers for any of the purposes mentioned in
the foregoing provisions of this Section 7 and to dismiss the same, all as
CITIBANK in its sole discretion may determine; and (h)generally, to take all
such other action as CITIBANK may determine as incidental or conducive to any of
the matters or powers mentioned in the foregoing provisions of this Section 7
and which CITIBANK may or can do lawfully and to use the name of SCI for the
purposes aforesaid and in any proceedings arising therefrom. 7.C.Decisions
Relating to Exercise of Remedies. Notwithstanding anything in this Agreement to
the contrary, as provided in the Credit Agreement, CITIBANK shall exercise, or
shall refrain from exercising, any remedy provided for in Section 7B in
accordance with the terms of Section 11.01 of the Credit Agreement. Neither the
Co-Agents nor any Bank may exercise any remedies provided for herein.
7.DREMEDIES, ETC., CUMULATIVE. Each right, power and remedy of CITIBANK provided
for in this Agreement or any other Credit Document or now or hereafter existing
at law or in equity or by statute shall be cumulative and concurrent and shall
be in addition to every other such right, power or remedy. The exercise or
beginning of the exercise by CITIBANK of any one or more of the rights, powers
or remedies provided for in this Agreement or any other Credit Document or now
or hereafter existing at law or in equity or by statute or otherwise shall not
preclude the simultaneous or later exercise by CITIBANK of all such other
rights, powers or remedies, and no failure or delay on the part of CITIBANK to
exercise any such right, power or remedy shall operate as a waiver thereof. Any
Event of Default, or any event which with the passing of time or the giving of
notice might become an Event of Default, may be waived by written consent of the
Required Banks but any such waiver shall apply only to the specific occasion
which is the subject of such waiver and shall not apply to the occurrence of the
same or any similar event on any future occasion. 8.APPLICATION OF PROCEEDS. All
moneys collected by CITIBANK upon any sale or other disposition of the
Collateral, together with all other moneys received by CITIBANK hereunder, shall
be applied as follows (subject to the terms and conditions of the Intercreditor
Agreement and the rights of any holders of any first priority pledges and
security interests on any portions of the Collateral as permitted by the terms
of this Agreement): First, to the payment of the reasonable costs and expenses
of such sale, collection or other realization, including, without limitation,
reasonable attorneys' fees and all other expenses, liabilities and advances made
or incurred by CITIBANK in connection therewith; Second, to the payment of the
Secured Obligations then due so that each Bank shall receive under this Clause
Second payment of an amount equal to the product of (1) the total amount
available for payment under this Clause Second and (ii) a fraction, the
numerator of which is the total amount of Secured Obligations then due to such
Bank and the denominator of which is the total amount of all Secured Obligations
then outstanding; and Third, after payment in full of all Secured Obligations
then due, to SCI, or its successors or assigns, or to whomsoever may be lawfully
entitled to receive the same or as a court of competent jurisdiction may direct
any surplus then remaining from such proceeds.
9.PURCHASERS OF COLLATERAL. Upon any sale of any of the Collateral hereunder
(whether by virtue of the power of sale herein granted pursuant to judicial
process or otherwise), the receipt of CITIBANK or the officer making the sale
shall be a sufficient discharge to the purchaser or purchasers of the Collateral
so sold, and such purchaser or purchasers shall not be obligated to see to the
application of any part of the purchase money paid over to CITIBANK or such
officer or be answerable in any way for the misapplication or non-application
thereof. 10.INDEMNITY; EXPENSES. (a) SCI shall pay, and shall protect, indemnify
and save harmless CITIBANK, the Co-Agents and the Banks and, in their capacity
as such, the officers, directors, shareholders, controlling persons, employees,
agents, and servants of CITIBANK, any Co-Agent or any Bank from and against all
liabilities, losses, claim, damages, penalties, causes of action, suits, costs
and expenses (including, without limitation reasonable attorneys' fees and
expenses) or judgments of any nature arising from (i) the offering and sale of,
and payment or non-payment on, the Commercial Paper Notes or the issuance of the
Letter of Credit, (ii) the default of SCI or any other Credit Party or the
Depository in the performance of its respective agreements, rights or
obligations contained in this Agreement, the Depositary Agreement or any other
Credit Document entered into by SCI or such Credit Party or the Depositary in
connection herewith or therewith, (iii) any actual or proposed use of the
proceeds of the Loans or the Commercial Paper Notes or SCI's or any Credit
Party's entering into and performing any Credit Document or any Commercial Paper
Documents, (iv) CITIBANK's, any Co-Agent's or any Banks' making, holding or
administering the Loans, the Letter of Credit, the Credit Documents or any of
the Collateral pledged in connection with any Credit Document (provided that the
right of payment and indemnification under this clause (iv) shall not apply to
any liabilities, losses, costs and expenses arising out of any successful action
by SCI against CITIBANK, any Co-Agent or any Bank for a breach of its
obligations hereof, but nothing in this proviso shall modify or impair
CITIBANK's, any Co-Agent's or any Bank's rights under Section 11(b) hereof), (v)
allegations of participation or interference by CITIBANK, any Co-Agent or any
Bank in the management, contractual relations or other affairs of SCI (provided
that the right of payment and indemnification under this clause (v) shall not
apply to any liabilities, losses, costs and expenses arising out of any
successful action by SCI against CITIBANK, any Co-Agent or any Bank for a breach
of its obligations hereof, but nothing in this proviso shall modify or impair
CITIBANK's, any Co-Agent's or any Bank's rights under Section 11(b) hereof), or
(vi) allegations that CITIBANK, any Co-Agent or any Bank has joint liability
with SCI for any reason; provided that SCI will not be liable for such
liabilities, losses, claims, damages, penalties, causes of action, suits, costs
and expenses (including, without limitation, attorneys' fees and expenses) or
judgments of any arising from any untrue statement of a material fact in the
material relating to CITIBANK, any Co-Agent or any Bank in any offering circular
used in the sale of the Commercial Paper Notes or omission of a material fact
relating to CITIBANK, any Co-Agent or any Bank required to be stated therein or
necessary in order to make the statements therein relating to CITIBANK, any
Co-Agent or any Bank in the light of the circumstances under which they were
made not misleading if, but only if, such material was specifically approved in
writing by
CITIBANK, such Co-Agent or such Bank, as the case may be, prior to its inclusion
in such offering circular; and further provided that SCI will not be liable for
any such liabilities, losses, claims, damages, penalties, causes or action,
suits, costs and expenses or judgments to the extent the same are the result of
or arise out of the gross negligence or willful misconduct of CITIBANK, any
Co-Agent or any Bank or any of the officers, directors, shareholders,
controlling persons, employees, agents and (of any of them) of CITIBANK, any
Co-Agent or any Bank. If any action, suit or proceeding arising from any of the
foregoing is brought against CITIBANK, any Co-Agent or any Bank or any other
person indemnified pursuant to this Section, SCI will, if requested in writing
by CITIBANK, any Co-Agent or any Bank to do so, at its expense, resist and
defend such action, suit or proceeding or cause the same to be resisted and
defended by counsel designated by SCI (which counsel shall be satisfactory to
CITIBANK, the Co-Agent involved and the Bank(s) involved). Each of SCI's
obligations under this Section 11(a) shall survive the termination of this
Agreement.
1.(b)SCI shall pay all reasonable out-of-pocket
costs and expenses of CITIBANK incurred in connection with the administration
of, the preservation of rights under, and enforcement of, and, after an Event of
Default, the re-negotiation or restructuring of this Agreement and any
amendment, waiver or consent relating thereto (including, the reasonable fees
and disbursements of counsel for CITIBANK). SCI shall also pay and hold CITIBANK
harmless from and against any and all present and future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to this Agreement and save CITIBANK
harmless from and against any and all liabilities with respect to or resulting
from any delay or omission to pay any such taxes, charges or levies. 11.FURTHER
ASSURANCES. SCI agrees that it will do such acts and things and promptly execute
and deliver to CITIBANK such additional conveyances, assignments, agreements and
instruments as CITIBANK may reasonably require or deem advisable to carry into
effect the purposes of this Agreement or to further assure and confirm unto
CITIBANK its rights, powers and remedies hereunder. 12.CITIBANK AS AGENT.
1.CITIBANK will hold in accordance with this
Agreement and the Credit Agreement all items of the Collateral at any time
received under this Agreement. It is expressly understood and agreed that the
obligations of CITIBANK as holder of the Collateral and interests therein and
with respect to the disposition thereof, and otherwise under this Agreement, are
only those expressly set forth in this Agreement, the Intercreditor Agreement,
and the Credit Agreement.
2.CITIBANK shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which CITIBANK accords its own property, it being understood that CITIBANK shall
not have responsibility for (i) ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Collateral, whether or not CITIBANK has or is deemed to have knowledge of
such matters, or (ii) taking any necessary steps to preserve rights against any
parties with respect to any Collateral. 13.REPRESENTATIONS AND WARRANTIES. SCI
hereby represents and
warrants that (i) it is the legal record and beneficial owner of, and has good
and marketable title to, the Charged Stock described in Section 2 hereof,
subject to no pledge, lien, mortgage, hypothecation, security interest, charge,
option or other encumbrance whatsoever, except Liens and security interests
created by this Agreement or expressly permitted by this Agreement or the Credit
Agreement; (ii) it has full power, authority and legal right to pledge all the
Charged Stock pursuant to this Agreement; (iii) to the best of its knowledge, no
consent of any other party (including, without limitation, any stockholder or
creditor of CITIBANK or any of the Subsidiaries) and no order, consent, license,
permit, approval, validation or authorization of, exemption by, notice to or
registration, recording, filing or declaration with, any governmental or public
body or authority is required to be obtained by SCI in connection with the
execution, delivery or performance of this Agreement or consummation of the
transactions contemplated hereby, including, without limitation, the exercise by
CITIBANK of the voting or other rights provided for in this Agreement or the
remedies in respect of the Collateral pursuant to this Agreement (except as may
be required in connection with the disposition of the Pledged Securities by laws
affecting the offering and sale of securities generally and except as set forth
on Annex B attached hereto); (iv) all shares of Charged Stock have been duly and
validly issued, are fully paid and non-assessable; and (v) to the best of its
knowledge, except as set forth on Annex B attached hereto, the pledge and
delivery of the Charged Securities pursuant to this Agreement creates a valid
and perfected first priority security interest in the Charged Securities, and
the Charged Securities, and the proceeds thereof, which security interest is not
subject to any prior Lien or any agreement purporting to grant to any third
party a Lien on the property or assets of SCI which would include the Charged
Securities (other than the Lien of the Intercreditor Agreement, if any, or any
other intercreditor agreement entered into pursuant to the Credit Agreement and
Liens expressly permitted by the Credit Agreement). 14.COVENANTS OF SCI. SCI
covenants and agrees that (i) SCI will defend CITIBANK's right, title and
security interest in and to the Charged Securities and the proceeds thereof
against the claims and demands of all Persons whomsoever; (ii) SCI will have
like title to and right to pledge any other property at any time hereafter
pledged to CITIBANK as Collateral hereunder and will likewise defend the right
thereto and security interest therein of CITIBANK; and (iii) SCI will not, with
respect to any Collateral, enter into any shareholder agreements, voting
agreements, voting trusts, trust deeds, irrevocable proxies or any other similar
agreements or instruments. 15.SCI'S OBLIGATIONS ABSOLUTE, ETC. The obligations
of SCI under this Agreement shall be absolute and unconditional in accordance
with its terms and shall remain in full force and effect without regard to, and
shall not be released, suspended, discharged, terminated or otherwise affected
by, any circumstance or occurrence whatsoever, including, without limitation:
(a) any change in the time, place or manner of payment of, or in any other term
of, all or any of the Secured Obligations, any waiver, indulgence, renewal,
extension, amendment or modification of or addition, consent or supplement to or
deletion from or any other action or inaction under or in respect of the Credit
Agreement, any Note, any other Credit Document, or any of the other documents,
instruments or agreements relating to the Secured Obligations or any other
instrument or agreement referred to therein or any assignment or transfer of any
thereof; (b) any lack of validity or enforceability of the Credit Agreement, any
other Credit Document, or any other documents, instruments or agreement referred
to therein or any assignment or transfer of any thereof; (c) any furnishing of
any additional security to CITIBANK, or its assignees or any acceptance thereof
or any release of any security by CITIBANK or its assignees; (d) any limitation
on any party's liability or obligations under any such instrument or agreement
or any invalidity or unenforceability, in whole or in part, of any such
instrument or agreement or any term thereof; (e) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceeding relating to SCI or any of the Subsidiaries, or any action taken with
respect to this Agreement by any trustee or receiver, or by any court, in any
such proceeding, whether or not SCI shall have notice or knowledge of any of the
foregoing; or (f) any exchange, release or nonperfection of any other
collateral, or any release, amendment or waiver of or consent to departure from
any guaranty or security, for all or any of the Secured Obligations.
16.REGISTRATION, ETC.
1.If an Event of Default shall have occurred and be
continuing and SCI shall have received from CITIBANK a written request or
requests that SCI cause any registration, qualification or compliance under any
Federal or state securities law or laws to be effected with respect to all or
any part of the Charged Securities, SCI as soon as practicable and at its own
expense will use its best efforts to cause such registration to be effected (and
be kept effective) and will use its best efforts to cause such qualification and
compliance to be effected (and be kept effective) as may be so requested and as
would permit or facilitate the sale and distribution of such Charged Securities,
including, without limitation, registration under the Securities Act of 1933 as
then in effect (or any similar statute then in effect), appropriate
qualifications under applicable blue sky or other state securities laws and
appropriate compliance with any other government requirements, and reasonably do
or cause to be done all such other acts and things as may be necessary to permit
the sale of the Charged Securities to be made in compliance with Federal and
applicable State securities laws; provided, that CITIBANK shall furnish to SCI
such information regarding CITIBANK as SCI may reasonably request in writing and
as shall be required in connection with any such registration, qualification or
compliance. SCI will cause CITIBANK to be kept reasonably advised in writing as
to the progress of each such registration, qualification or compliance and as to
the completion thereof, will furnish to CITIBANK such number of prospectuses,
offering circulars or other documents incident thereto as CITIBANK from time to
time may reasonably request, and will indemnify CITIBANK and all others
participating in the distribution of such Charged Securities against all claims,
losses, damages and liabilities caused by any untrue statement (or alleged
untrue statement) of a material fact contained therein (or in any related
registration statement, notification or the like) or by any omission (or alleged
omission) to state therein (or in any related transaction statement,
notification or the like) a material fact required to be stated therein or
necessary to make the statements not misleading in light of the circumstances
under which they were made, except insofar as the same may have been caused by
an untrue statement or omission based upon information furnished in writing to
SCI by CITIBANK, or such others participating in the distribution of such
Charged Securities, expressly for use therein.
2.If at any time when CITIBANK shall determine to
exercise its right to sell all or any part of the Charged Securities pursuant to
Section 7, such Charged Securities or the part thereof to be sold shall not, for
any reason whatsoever, be effectively registered under the Securities Act of
1933, as then in effect, CITIBANK may sell such Charged Securities or part
thereof by private sale in such manner and under such circumstances as necessary
or advisable in order that such sale may legally be effected without such
registration. Without limiting the generality of the foregoing, in any such
event CITIBANK, in its sole discretion (i) may proceed to make such private sale
notwithstanding that a registration statement for the purpose of registering
such Charged Securities or part thereof shall have been filed under such
Securities Act, (ii) may approach and negotiate with a single possible purchaser
to effect such sale, and (iii) may restrict such sale to a purchaser or
purchasers who will represent and agree that such purchaser is purchasing for
its own account, for investment, and not with a view to the distribution or sale
of such Charged Securities or part thereof. In the event of any such sale,
CITIBANK shall incur no responsibility or liability for selling all or any part
of the Charged Securities at a price which CITIBANK, in its sole discretion, may
in good faith deem reasonable under the circumstances, notwithstanding the
possibility that a substantially higher price might be realized if the sale were
deferred until after registration as aforesaid. 17.NOTICES, ETC. All notices and
other communications shall be given in the manner specified in Section 15.02 of
the Credit Agreement in the case of CITIBANK, and in the case of SCI, at the
address specified in this Agreement. 18.POWER OF ATTORNEY. SCI hereby absolutely
and irrevocably constitutes and appoints CITIBANK SCI's true and lawful agent
and attorney-in-fact, effective upon the occurrence of an Event of Default, with
full power of substitution, in the name of SCI: (a) to execute and do all such
assurances, acts and things which SCI ought to do but has failed to do under the
covenants and provisions contained in this Agreement; (b) to take any and all
such action as CITIBANK may, in its sole discretion, determine as necessary or
advisable for the purpose of maintaining, preserving or protecting the security
constituted by this Agreement or any of the rights, remedies, powers or
privileges of CITIBANK under this Agreement; and (c) generally, in the name of
SCI exercise all or any of the powers, authorities, and discretions conferred on
or reserved to CITIBANK by or pursuant to this Agreement, and (without prejudice
to the generality of any of the foregoing) to seal and deliver or otherwise
perfect any instrument or document of conveyance, agreement, or act as CITIBANK
may deem proper in or for the purpose of exercising any of such powers,
authorities or discretions. SCI hereby ratifies and confirms, and hereby agrees
to ratify and confirm, whatever lawful acts CITIBANK shall do or purport to do
in the exercise of the power of attorney granted to CITIBANK pursuant to this
Section 19, which power of attorney, being given for security, is irrevocable.
19.TERMINATION, RELEASE. After full indefeasible payment and performance of all
of the Secured Obligations other than Secured Obligations which by their terms
survive the repayment of the Loans and irrevocable termination of the Total
Commitments, this Agreement shall terminate, and CITIBANK, at the request and
expense of SCI, will execute and deliver to SCI a proper instrument or
instruments acknowledging the satisfaction and termination of this Agreement,
and will duly assign,
transfer and deliver to SCI (without recourse and without any representation or
warranty) such of the Collateral as may be in the possession of CITIBANK and as
has not theretofore been sold or otherwise applied or released pursuant to this
Agreement, together with any moneys at the time held by CITIBANK hereunder.
MISCELLANEOUS.
21.A.Independent Obligations. SCI agrees with CITIBANK that each of the
obligations and liabilities of SCI to CITIBANK under this Agreement may be
enforced against SCI without the necessity of joining the Borrower, any of the
Subsidiaries, any other holders of pledges of or security interests in any of
the Collateral, or any other Person as a party. 21.B.Reaffirmation. SCI hereby
acknowledges agrees that each of the 1995 Pledge Agreement and the First
Supplemental Pledge Agreement is in full force and effect as of the date hereof
and has not been rescinded, terminated or revoked by SCI prior to the date
hereof, and each of the 1995 Pledge Agreement and the First Supplemental Pledge
Agreement shall remain in full force and effect after giving effect to this
Agreement. 21.C. Successors and Assigns. This Agreement shall create a
continuing security interest in the Collateral and shall be binding upon the
successors and assigns of SCI and shall inure to the benefit of and be
enforceable by CITIBANK, and its successors and permitted assigns.
21.D.Amendments, Etc. This Agreement may be amended or waived only with the
written consent of the Required Banks and, with respect to any amendment, SCI.
21.E.Other Definitions. Unless otherwise defined herein or in the Credit
Agreement, terms defined in Article 9 of the Code in the State of New York are
used herein as therein defined. 21.F.Headings; Entire Agreement. The headings in
this Agreement are for purposes of reference only and shall not limit or define
the meaning hereof. This Agreement, together with all instruments, certificates
and documents executed or delivered by the parties in connection herewith or
with reference hereto, embodies the entire understanding and agreement between
the parties hereto with respect to the Collateral and supersedes all prior
agreements, understandings and inducements, whether expressed or implied, or
oral or written. 21.G.Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original, but all of which shall
constitute one instrument. 21.H.Severable Provisions. In the event that any
provision of this Agreement shall prove to be invalid or unenforceable, such
provision shall be deemed to be severable from the other provisions of this
Agreement which shall remain binding on all parties hereto. 22.GOVERNING LAW.
This Agreement and the rights and obligations of the parties hereunder shall be
construed in accordance with and be governed by the law of the State of New York
(without giving effect to the conflict of law principles thereof). JURISDICTION;
WAIVER OF JURY TRIAL. SCI HEREBY (1) AGREES THAT ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT OR TO ENFORCE ANY JUDGMENT OBTAINED AGAINST SCI
IN CONNECTION WITH THIS AGREEMENT BE BROUGHT BY CITIBANK, ANY THE CO-AGENT OR
ANY BANK IN ANY COURT SITTING IN THE STATE OF NEW YORK; (2) IRREVOCABLY SUBMITS
TO THE NONEXCLUSIVE JURISDICTION OF UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND OF ANY COURT OF THE STATE OF NEW YORK FOR THE
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT;
(3) AGREES THAT SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAWS OF
THE STATE OF NEW YORK SHALL APPLY TO THIS ASSIGNMENT AND THE CREDIT DOCUMENTS;
AND (4) IRREVOCABLY WAIVES ANY PRESENT OR FUTURE OBJECTION TO VENUE IN ANY SUCH
COURT, AND ANY PRESENT OR FUTURE CLAIM THAT ANY SUCH COURT IS AN INCONVENIENT
FORUM, IN CONNECTION WITH ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT.
IN WITNESS WHEREOF, SCI and CITIBANK have caused this Agreement to be executed
by their duly elected officers duly authorized as of the date first above
written.
Address for Notices:
SCI SYSTEMS, INC.
c/o SCI Systems (Alabama), Inc.
2101 W. Clinton Avenue
Huntsville, Alabama 35805
SCI SYSTEMS, INC., as SCI
By:
Name:
Title:
CITIBANK, N.A., as Agent, as
CITIBANK
By:
Name:
Title:
ANNEX A
Name of Name of Name of Percentage of Percentage of
Corporation Shares Shares Shares Shares
Owned Charged Owned Charged
- ----------- -------- --------- ------------- 66%
- ----------- -------- --------- ------------- 66%
- ----------- -------- --------- ------------- 66%
- ----------- -------- --------- ------------- 66%
- ----------- -------- --------- ------------- 66%
- ----------- -------- --------- ------------- 66%
ANNEX B
EXCEPTIONS TO PLEDGE
IN WITNESS WHEREOF, the undersigned has caused this Subsidiary
Note to be executed, sealed and delivered by and through its duly authorized
representatives, as of the day and year first above written.
SCI SYSTEMS SWEDEN AB
By:
Name: Lindsey Tullett
Title:
By:
Name:
Title:
REAFFIRMATION OF PLEDGE AGREEMENT
Reference is hereby made to the Amended and Restated Credit Agreement (the
"Credit Agreement") dated as of August 3, 1995 among SCI SYSTEMS, INC., a
Delaware corporation (the "Borrower"), CITIBANK, N.A., as Agent (the "Agent"),
ABN AMRO BANK, N.V., as Co-Agent (the "Co-Agent"), and the banks who are parties
to such Credit Agreement (collectively, the "Banks"). In order to induce the
Agent, the Co-Agent and the Banks to enter into that certain Fifth Modification
of Amended and Restated Credit Agreement of even date among the Borrower, the
Agent, the Co-Agent and the Banks (the "Fifth Modification"), as well as for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Borrower hereby acknowledges and agrees in favor of the
Agent, the Co-Agent and the Banks as follows: 1.All capitalized terms used
herein and not otherwise defined herein shall have the meanings given such terms
in the Credit Agreement. 2.The Borrower does hereby reaffirm all of its
indebtedness, obligations and liabilities to the Agent, the Co-Agent and the
Banks under each Pledge Agreement executed by it and does hereby reaffirm the
grant of any and all liens in the collateral pledged by the Borrower under any
Pledge Agreement executed by it; provided, however, that nothing in this
Reaffirmation is intended or shall be construed, to constitute a novation of any
such indebtedness, obligations or liabilities or to modify, effect, release or
otherwise impair the continuity or perfection of such liens. 3.The Borrower also
confirms and agrees that each Pledge Agreement executed by it remains in full
force and effect after giving effect to the execution, delivery and performance
of the Fifth Modification and continues to secure all Secured Obligations (as
defined in each such Pledge Agreement). 4.THIS REAFFIRMATION SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE. IN WITNESS WHEREOF,
the Borrower has caused its duly authorized officers to execute this
Reaffirmation, all as of this _______ day of September, 1998.
SCI SYSTEMS, INC.
By:
Name:
Title:
EXHIBIT 10(B)(4)
THIRD AMENDMENT TO
AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT
This Third Amendment to Amended and Restated Receivables Purchase Agreement,
dated as of June 4, 1999 (this "Amendment"), is among SCI FUNDING, INC., a
Delaware corporation ("Seller"), SCI TECHNOLOGY, INC., an Alabama corporation
("SCI"), SCI SYSTEMS, INC., a Delaware corporation ("Guarantor"), RECEIVABLES
CAPITAL CORPORATION, a Delaware corporation ("RCC"), QUINCY CAPITAL CORPORATION,
a Delaware corporation ("Quincy"; RCC and Quincy are collectively referred to as
the "Purchasers"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a
national banking association, as administrative agent for the Purchasers
("Administrative Agent").
Background 1. Seller, SCI, Guarantor, Purchasers and the Administrative
Agent are parties to that certain Amended and Restated Receivables Purchase
Agreement, dated as of September 27, 1996, as amended by the First Amendment to
Amended and Restated Receivables Purchase Agreement, dated as of October 31,
1997 and by the Second Amendment to Amended and Restated Receivables Purchase
Agreement, dated as of September 29, 1998 (the "Receivables Purchase
Agreement"). 2. The parties hereto desire to amend the Receivables Purchase
Agreement in certain respects as set forth herein. NOW, THEREFORE, in
consideration of the foregoing and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows.
SECTION 1. Definitions. Capitalized terms used in this Amendment and not
otherwise defined herein shall have the meanings assigned thereto in the
Receivables Purchase Agreement.
SECTION 2. Purchase Limit. Section 1.02(a) of the Receivables Purchase
Agreement is hereby amended by deleting the number "$200,000,000" where it
appears therein and substituting therefor the number "$250,000,000".
SECTION 3. Representations and Warranties. Each of Seller, SCI and
Guarantor hereby represent and warrant that (i) the representations and
warranties set forth in Article VI of the Receivables Purchase Agreement are
true and correct on and as of the date of this Amendment as though made on and
as of such date and shall be deemed to have been made on such date (except to
the extent they relate solely to an earlier date, in which event they were true
and correct as of such earlier date) and (ii) after giving effect to this
Amendment, no event has occurred and is continuing, or would result from this
Amendment, that constitutes a Termination Event or Unmatured Termination Event.
SECTION 4. Miscellaneous. The Receivables Purchase Agreement, as amended
hereby, remains in full force and effect. Any reference to the Receivables
Purchase Agreement from and after the date hereof shall be deemed to refer to
the Receivables Purchase Agreement as amended hereby, unless otherwise expressly
stated. This Amendment shall be governed by, and construed in accordance with,
the internal laws of the State of Illinois. This Amendment may be executed in
any number of counterparts, and by the different parties hereto on separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement. Seller, SCI and Guarantor, jointly and severally, agree to pay on
demand all costs and expenses, including all reasonable attorneys' fees and
disbursements, actually incurred by the Administrative Agent in connection with
the negotiation, preparation, execution or delivery of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their respective duly authorized officers as of the date first above written.
Pro Rata Share of RECEIVABLES CAPITAL CORPORATION
Purchase Limit and Purchases:
$125,000,000 By:
50% Name Printed:
Its:
Pro Rata Share QUINCY CAPITAL CORPORATION
of Purchase Limit and
Purchases:
$125,000,000 By:
50% Name Printed:
Its:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as the
Administrative Agent
By:
Name Printed:
Its:
SCI FUNDING, INC.
By:
Name Printed:
Its:
SCI TECHNOLOGY, INC.
By:
Name Printed:
Its:
SCI SYSTEMS, INC.
By:
Name Printed:
Its:
EXHIBIT 10(B)(5)
FOURTH AMENDMENT TO
AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT
This Fourth Amendment to Amended and Restated Receivables Purchase Agreement,
dated as of July 23, 1999 (this "Amendment"), is among SCI FUNDING, INC., a
Delaware corporation ("Seller"), SCI TECHNOLOGY, INC., an Alabama corporation
("SCI"), SCI SYSTEMS, INC., a Delaware corporation ("Guarantor"), RECEIVABLES
CAPITAL CORPORATION, a Delaware corporation ("RCC"), QUINCY CAPITAL CORPORATION,
a Delaware corporation ("Quincy"; RCC and Quincy are collectively referred to as
the "Purchasers"), and BANK OF AMERICA, N.A., a national banking association, as
administrative agent for the Purchasers ("Administrative Agent").
Background 1. Seller, SCI, Guarantor, Purchasers and the Administrative
Agent are parties to that certain Amended and Restated Receivables Purchase
Agreement, dated as of September 27, 1996, as amended by the First Amendment to
Amended and Restated Receivables Purchase Agreement, dated as of October 31,
1997, by the Second Amendment to Amended and Restated Receivables Purchase
Agreement, dated as of September 29, 1998, and by the Third Amendment to Amended
and Restated Receivables Purchase Agreement, dated as of June 4, 1999 (the
"Receivables Purchase Agreement").
2. The parties hereto desire to amend the Receivables Purchase Agreement in
certain respects as set forth herein. NOW, THEREFORE, in consideration of the
foregoing and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows.
SECTION 1. Definitions. Capitalized terms used in this Amendment and not
otherwise defined herein shall have the meanings assigned thereto in the
Receivables Purchase Agreement.
SECTION 2. Facility Termination Date. Section 1.05(a) of the Receivables
Purchase Agreement is hereby amended by deleting the date "September 30, 1999"
and substituting therefor the date "April 30, 2000".
SECTION 3. Special Concentration Limit. Schedule 2.04(c) to the Receivables
Purchase Agreement is hereby amended by deleting the percentage "12%" every
place it appears in the column labelled "Special Concentration Limit" and
substituting therefor the percentage "9%".
SECTION 4. Year 2000 Compliance. Section 6.02 and Section 6.03 of the
Receivables Purchase Agreement are each hereby amended by adding an additional
paragraph at the end thereof as follows: (j) Year 2000 Compliance. It has
conducted a review and assessment of its or its Subsidiaries' operations that
could be materially adversely affected by the Year 2000 Problem, and all of its
or its Subsidiaries' computer applications that are material to its or its
Subsidiaries' business and operations, or to its ability to service the Pool
Receivables, are reasonably expected on a timely basis to perform properly date
sensitive functions for all dates before and after January 1, 2000. The Year
2000 Problem, has not had, and is not reasonably expected to have, a Material
Adverse Effect. Section 7.02(e) of the Receivables Purchase Agreement is hereby
amended by inserting the phrase "and the reasonable possibility that the Year
2000 Problem will cause a Material Adverse Effect" after the phrase "Unmatured
Termination Event" where it appears therein. Appendix A to the Receivables
Purchase Agreement is hereby amended by adding the following definition thereto
in the appropriate alphabetical order: "Year 2000 Problem" means the risks that
computer applications may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999.
SECTION 5. Representations and Warranties. Each of Seller, SCI and
Guarantor hereby represent and warrant that (i) the representations and
warranties set forth in Article VI of the Receivables Purchase Agreement are
true and correct on and as of the date of this Amendment as though made on and
as of such date and shall be deemed to have been made on such date (except to
the extent they relate solely to an earlier date, in which event they were true
and correct as of such earlier date) and (ii) after giving effect to this
Amendment, no event has occurred and is continuing, or would result from this
Amendment, that constitutes a Termination Event or Unmatured Termination Event.
SECTION 6. Miscellaneous. The Receivables Purchase Agreement, as amended
hereby, remains in full force and effect. Any reference to the Receivables
Purchase Agreement from and after the date hereof shall be deemed to refer to
the Receivables Purchase Agreement as amended hereby, unless otherwise expressly
stated. This Amendment shall be governed by, and construed in accordance with,
the internal laws of the State of Illinois. This Amendment may be executed in
any number of counterparts, and by the different parties hereto on separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement. Seller, SCI and Guarantor, jointly and severally, agree to pay on
demand all costs and expenses, including all reasonable attorneys' fees and
disbursements, actually incurred by the Administrative Agent in connection with
the negotiation, preparation, execution or delivery of this Amendment.
FOURTH AMENDMENT TO
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by
their respective duly authorized officers as of the date first above written.
Pro Rata Share of RECEIVABLES CAPITAL CORPORATION
Purchase Limit and
Purchases:
$125,000,000 By:
50% Name Printed:
Its:
Pro Rata Share QUINCY CAPITAL CORPORATION
of Purchase Limit and
Purchases:
$125,000,000 By:
50% Name Printed:
Its:
BANK OF AMERICA, N.A., as the
Administrative Agent
By:
Name Printed:
Its:
SCI FUNDING, INC.
By:
Name Printed:
Its:
SCI TECHNOLOGY, INC.
By:
Name Printed:
Its:
SCI SYSTEMS, INC.
By:
Name Printed:
Its:
[EXHIBIT 13]
BEGINNING OF 1999 ANNUAL REPORT TO SHAREHOLDERS
[COVER OF 1999 ANNUAL REPORT TO SHAREHOLDERS]
SCI Systems, Inc.
1999 Annual Report
Worldwide Electronics Engineering and Manufacturing Services
[INSIDE FRONT COVER OF ANNUAL REPORT TO SHAREHOLDERS]
Company Overview
SCI Systems, Inc. is a diversified international electronics manufacturing
services provider. SCI designs, manufactures, distributes, and services
electronic products for virtually every market segment. Markets served include
the computer, peripheral, datacom, telecom, medical, industrial, consumer,
aerospace, defense, and entertainment industries, as well as the U.S.
Government.
Founded in 1961, the Company was initially engineering oriented - with the
U.S. Government's National Aeronautics and Space Administration (NASA) and its
prime contractors as early customers. Building on a strong technical and
engineering base, which is still maintained today, SCI participated in a number
of significant Defense programs and later expanded into a variety of commercial
activities.
In the mid-1970s SCI successfully led the way into the then new arena of
contract manufacturing. SCI became the world's premier provider of electronics
manufacturing services and continues as a leader in surface mount technology
(SMT) production capacity.
Company activities are conducted through eight operational Divisions, with
six organized geographically and two structured along functional lines. Each
Division is composed of multiple plants which design and manufacture
subassemblies and finished products, primarily for original equipment
manufacturers, but also for a variety of service providers and government
agencies. The Divisions offer a full range of services from design through
distribution to after sales support.
Although the Company derives much of its revenue from hardware
manufacturing and maintains a broad technology base, it is primarily a
vertically integrated engineering and manufacturing services provider with
dedication to close customer interaction forming the cornerstone of its
activities. The key elements of SCI's operating philosophy - quality products,
competitive pricing, and customer responsiveness - are a proven foundation for
success. These fundamental tenets will continue to guide SCI as it pursues its
many opportunities for growth and expansion.
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An illustration of the flags of the following countries:
Brazil, Canada, Finland, France, Hungary, Ireland, Malaysia, Mexico, The
Netherlands, People's Republic of China, Singapore, Spain, Sweden, Thailand,
United Kingdom, United States of America
- --------------------------------------------------------------------------------
<PAGE>
[PAGE 1 OF ANNUAL REPORT TO SHAREHOLDERS]
Financial Highlights
Annual Report for the Year Ended June 30, 1999
(Dollars in thousands except for per share data)
No cash dividends were declared in the periods presented.
(See Part II, Items 7 and 8 of Excerpts from Form 10-K for Fiscal 1999, bound
herein.)
<TABLE>
<S> <C> <C> <C> <C> <C>
Fiscal Year 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
Net Sales $6,710,785 $6,805,893 $5,762,656 $4,544,759 $2,673,783
Net Income 137,848 145,085 112,713 80,955 45,243
Diluted Earnings Per Share (EPS) 2.01 2.13 1.69 1.34 .79
Depreciation and Amortization 123,905 103,534 76,848 60,972 49,839
Interest Expense, net of interest income 16,938 21,304 17,993 24,165 16,945
Taxes on Income 79,235 90,826 76,721 55,103 30,418
Total Assets 2,322,660 1,944,728 1,869,852 1,283,195 981,292
Borrowings 141,194 441,884 458,702 343,738 162,090
Cash and Cash Equivalents 216,085 184,346 290,809 46,493 10,277
Working Capital 876,390 759,428 754,222 549,650 280,124
Property, Plant, and Equipment Additions 134,670 236,799 109,739 109,912 80,316
Net Property, Plant, and Equipment 447,985 436,097 300,997 264,054 214,025
Shareholders' Equity 1,164,817 747,957 594,662 472,261 349,776
Per Common Share $ 16.19 $ 12.46 $ 9.96 $ 7.98 $ 6.38
Common Shares Outstanding 71,942,575 60,045,444 59,715,424 59,184,424 54,871,984
Employees 25,235 23,287 18,470 15,524 13,185
Manufacturing Plants 34 29 24 21 20
Facility Square Footage 5,574,255 5,005,015 3,885,000 3,510,000 3,021,600
</TABLE>
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Three bar charts showing the above 5 year information for the following:
1.) Facilities
2.) Depreciation and Amortization (Charged to Income)
3.) Book Value per Share
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<PAGE>
[PAGE 2 OF ANNUAL REPORT TO SHAREHOLDERS]
Executive Letter
- --------------------------------------------------------------------------------
A bar chart showing New Orders Received ($ Billions):
Fiscal Year New Orders
95 3.575
96 5.249
97 6.113
98 6.257
99 7.138
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A bar chart showing Shareholders' Equity ($ Billions):
Fiscal Year Shareholders' Equity
95 .350
96 .472
97 .595
98 .748
99 1.165
- --------------------------------------------------------------------------------
To the Shareholders
Fiscal year 1999 was characterized by accelerating change. Changes occurred
not only with customers and their products, but also with the pricing
environment, capacity requirements, material supply chain elements, and product
distribution structures. Customers are emphasizing global strategic
manufacturing solutions and continued low cost requirements. The Company
responded during fiscal 1999 by expanding and enhancing its global capabilities,
facilities infrastructure, internal systems, and management staffing.
Revenues
Sales ended the year robustly with record fourth quarter revenues of $1.8
billion. Average selling price declines - together with customer, product, and
geographic transition, and intense industry wide price competition - led to a
slight decline in annual sales. Revenues were $6.7 billion, compared with $6.8
billion in the prior year. Average selling price declines resulted not only from
component price drops, especially in computer related products, but also from
reduced manufacturing costs in low cost locations and improved factory
efficiencies. Foreign sales represented 42% of revenues in 1999 compared with
31% in 1998. Acquisitions of customer plants in Sweden, Finland, and Spain, and
organic growth in the Company's Mexican, Hungarian, and Dutch plants contributed
to this increase. Foreign sales are expected to continue their growth in the
future, as customers seek the lowest costs possible for their products. The
Chinese plant acquired from Hewlett-Packard in May 1999 and the Canadian plant
acquired from Nortel in August 1999, together with substantial capacity
expansions which are in progress at several international plants, will add
further to foreign sales in fiscal year 2000.
Income and Returns
Operating margins also ended the year on an upward trend. Higher operating
margins led to record fourth quarter earnings per share (diluted) of $.60.
Operating margins of earlier quarters and earnings per share were adversely
impacted by start-up and transition costs of new and enlarged facilities; new
project ramps; intense price competition; and increased foreign exchange losses,
especially in Brazil. During 1999 the Brazilian economy and changes in Brazilian
currency exchange rates adversely impacted income there. The Company expects
these conditions to be corrected as the Brazilian economy stabilizes and plant
operational improvements are implemented. Return on equity declined somewhat in
fiscal 1999 due to lower net income and the May 1999 conversion of Convertible
Notes that decreased the Company's leverage. Asset turnover is expected to
increase in future periods along with anticipated revenue growth as the Company
benefits from the last two fiscal years' capacity expansions.
Strong Balance Sheet
Shareholders' equity now exceeds $1.1 billion, while debt, net of cash
balances, is zero. The Company also has more than adequate working capital and a
strong current ratio, all of which will aid the Company in financing its future
growth. Increased usage of credit lines will likely occur in fiscal year 2000 to
finance both acquisitions and organic growth. Reducing the Company's current
under-leverage should improve return on equity performance.
Customers
Several significant new customers were added in fiscal 1999. Balanced
growth from new and existing customers is expected in fiscal 2000, commensurate
with growth in the Electronic Manufacturing Services industry. The Company
enjoys one of the most diversified and highest quality customer bases in the
global EMS industry.
Product Mix Diversification
Product diversification continues to be an important goal of the Company.
Fiscal 1999 saw manufacturing services expansions in computers, peripherals,
and, importantly, in telecommunication products. Personal computer production
has been relatively stable for the past two years while providing the Company
with a steady revenue base. Overall, Company sales percentage from personal
computer production is expected to diminish as growth in other product areas is
anticipated to outpace this segment. Other computer products such as
workstations and servers are experiencing excellent growth. Telecommunication
equipment output, which is a major rev-
<PAGE>
[PAGE 3 OF ANNUAL REPORT TO SHAREHOLDERS]
enue source for the Company, increased considerably during the year. Emphasis
upon expanding sales to this business area is a near term strategic focus of the
Company. Peripheral product manufacturing is a broadening and growing business
area of the Company. In particular, finished product level production of
printers is experiencing rapid expansion. Storage and display product output is
growing at a more moderate pace. Other product areas served by the Company
include multimedia equipment, ruggedized transportation electronics, and defense
and aerospace electronics for military and commercial applications. In addition
to manufacturing services, SCI offers engineering, distribution, logistic, and
after sales services to its customers on a global basis. SCI's product mix and
geographic plant locations are believed to be the broadest and most diversified
of any company in the EMS industry.
Capacity Expansion Strategy
Unit production capacity increases were required in fiscal 1999 to maintain
dollar revenue levels in the face of declining average selling prices. Fiscal
1999 capacity expansion was balanced between acquisitions of OEM divestitures
and internal plant expansion. Of strategic note is the May 1999 acquisition of
HP Verifone's mainland China plant. Other OEM divestiture acquisitions during
the year were Ericsson Madrid, Spain, and Mexico City manufacturing operations,
and Intergraph Huntsville, Alabama, computer hardware manufacturing operations.
Two "green field" plants were added in Mexico, another in Huntsville, Alabama,
and facility expansions occurred at several locations. Of strategic and volume
importance was the acquisition in August 1999 of Nortel Network's Brockvillle,
Ontario, Canada, manufacturing plant along with assets from two other Nortel
operations. This transaction, along with a multiyear supply agreement, will
substantially expand the Company's telecommunications revenues.
Evolving Information Systems
Information technology system expansion was limited in fiscal 1999 by Year
2000 readiness priorities. The Company believes it has resolved those issues,
enabling acceleration in the coming year of information technology system
developments unique to SCI's opportunities.
Customer and internal system requirements will drive near term information
technology system emphasis. Additional and important drivers will be the rapid
evolution of the Internet and e-commerce. Focused emphasis will also be given to
global expansion of supply chain management information system capabilities.
Chief Executive Officer Change
At fiscal year end, the Chief Executive Officer's responsibilities were
transferred to A. Eugene Sapp, Jr. from Olin B. King, upon the reaching of his
sixty-fifth birthday. Both believe that this natural transition of the Company's
management, together with planned additions to upper and middle management, will
well position the Company for a growing future.
Outlook Toward Opportunity
The outlook for the Company, and the EMS industry in general, continues to
be favorable. Recent pressure from falling average selling prices abated
somewhat at fiscal year end and is expected to moderate further in fiscal 2000.
The Company has provided guidance to the investment community reflecting
improving revenue and earnings results in fiscal 2000. New initiatives of
existing customers enlarging their outsourcing programs, new customers seeking
global strategic partnerships, and a sizeable number of potential acquisition
opportunities are available to the Company. SCI's management and employees are
committed to exploiting these opportunities, while continuing to grow existing
business to the direct benefit of the shareholders.
/s/ Olin B. King /s/ A. Eugene Sapp,Jr.
Olin B. King A. Eugene Sapp, Jr.
Chairman of the Board President and
Chief Executive Officer
<PAGE>
[PAGE 4 OF ANNUAL REPORT TO SHAREHOLDERS]
Broadest Range of Products
SCI believes it produces the broadest range of subassemblies and finished
products of any Electronic Manufacturing Services company. These products and a
full range of engineering, distribution, logistic, and after sales services are
supplied to a large multinational customer base for a highly diversified mix of
commercial applications as well as for military and space programs. The
following is a partial listing of typical products supplied by SCI during fiscal
1999.
Computers
o PC, server, and workstation motherboards
o Home computers
o Office computers
o Microprocessor modules
o ATM motherboards
o Notebook computers
o Workstations
o Servers
o Ruggedized computers
Telecommunications Products
o Cable modems for high-speed Internet access
o Terminals for tracking vehicles and cargo containers via satellite
o Broadband digital access products for fiber-to-the-curb installations
o Transaction automation systems
o Printed circuit board (PCB) assemblies for use in:
- public switching equipment
- ground-based RF telephone systems
- high speed modems
- PCMCIA-format plug-in modems
- large cellular network base stations
- advanced multiplex equipment
- credit card processors
- token ring switches
o PCB assemblies and finished products for:
- routers
- hubs
- switches
- multiplexers
- GSM radios
- battery chargers for cellular products
- power systems for base stations
Peripheral Products
o Color ink-jet printers
o High resolution color scanners and printers
o Point-of-sale data entry and management systems
o Video monitors
o Data terminals
o Network interface assembly
o Back planes
o Notebook docking stations
o Asynchronous Transfer Mode control units
o Credit verification systems
o Memory modules
o PCB assemblies for use in:
- disk drives
- disk array systems
- optical storage devices and systems
- tape drives
- large automated tape libraries
- graphic design systems
- graphics accelerators
- ink-jet, thermal, and dot-matrix printers
- color plotters
- copiers
<PAGE>
[PAGE 5 OF ANNUAL REPORT TO SHAREHOLDERS]
Medical Products
o Vital signs monitoring equipment
o Blood glucose monitors
o Electronic controls for X-ray equipment
o Printed circuit board assemblies for:
- Computer Tomography (CT) scanners
- Magnetic Resonance Imaging (MRI) machines
- X-ray systems
- ultrasound systems
- infusion pumps
- sleep apnea pressure pumps
Consumer Products
o Video projectors
o Internet "TV set top" converters
o Family of digital TV receiver products for:
- direct broadcast satellites
- fixed cables
- ground based broadcast
o Miniature printed circuit board assemblies for:
- camera products
- cellular telephones
o Automotive control/dashboard products
Industrial Products
o Bar code readers
o Test and measurement systems
o Hand held tracking devices
o Battery chargers for electric vehicles
o Semiconductor processing equipment
o Hand held engine analyzers
o Sheet metal, plastic, and machined components
o Ruggedized high reliability assemblies for:
- railroad locomotives
- broadcast equipment
- studio and remote programming systems
- special effects units
- signal and transmission routing and processing systems
- automotive sensors
Military and Aerospace Products
o Aircraft voice and digital communications control systems
o GPS User Equipment for fixed-wing aircraft, helicopters, and ships
o Systems for the Apache Longbow helicopter: systems computers, weapons
computers, and communications processors
o Tactical communications - ruggedized field telephones and shelter
communications systems
o Fiber Optic Guided Missile gunner consoles and fiber optic dispensers system
o Data Bus products for aircraft
o Current mode couplers and Standard Interface Modules for aircraft
o Flight test instrumentation systems for joint service applications on a wide
range of aircraft
o Nonvolatile memories for aircraft and satellite applications
o Interference blanker systems for aircraft
o Data acquisition systems for the Titan IV Launch Vehicle
o Family of standard bus computer subsystems
o Satellite terminals - two-way terrestrial terminals for voice, data, and
telephony
o Sincgars radio card assemblies
- --------------------------------------------------------------------------------
Four pictures of the inside of SCI manufacturing facilities.
One picture of SCI products
- --------------------------------------------------------------------------------
<PAGE>
[PAGE 6 OF ANNUAL REPORT TO SHAREHOLDERS]
World Class Engineering Services
A growing number of SCI's existing and potential customers are in various
stages of migrating from vertical to virtual integration and will increasingly
rely on the Electronic Manufacturing Services (EMS) industry for new product
development and introduction support. SCI is benefiting from this trend, having
begun as an engineering oriented company and currently possessing the most
extensive product development and related support resources of any EMS company.
These engineering resources coupled with the Company's global supply chain,
manufacturing, test, distribution, and after sale support capabilities serve to
promote lasting strategic partnerships. Engineering support is a growing
influence on customers' ability to realize their outsourcing objectives of lower
total cost, shorter time to market, reduced capital investment, enhanced risk
management, access to leading technologies, and flexible manufacturing and
distribution capacity.
The depth and breadth of SCI's engineering resources and capabilities
clearly differentiate the Company from its competitors with customers seeking to
enhance the product development process through an EMS relationship. SCI is
expert in the design of products and systems with particular emphasis on
computer, communications, and instrumentation technologies. Product development
engineers and technical support personnel serve SCI's customers with electronic,
mechanical, software, and system engineering. The Company has in excess of 2,000
engineering personnel including the additional disciplines of quality,
reliability, component, manufacturing, test, industrial, and environmental
engineering.
SCI's Technology Division, headquartered in Huntsville, Alabama,
exemplifies the Company's engineering expertise. The Division was formed by
consolidating the Company's former Government Division engineering activities
with commercial product development resources assembled in recent years to
support a growing number of customers' new product initiatives. The Division
provides its engineering services company wide. Resources have been expanded to
include a full range of hardware and software simulation, design validation,
environmental testing, and agency approval capabilities. Numerous products
currently manufactured by SCI reflect Company involvement in the product
development cycle including, in many cases, full responsibility for new product
design and introduction.
The Company also operates design centers in its Asian and European
Divisions. These centers collaborate with the Technology Division to provide
customers with broad geographical coverage of an extensive range of product
development and other engineering capabilities.
[PAGE 7 OF ANNUAL REPORT TO SHAREHOLDERS]
Leading Edge Manufacturing Technology
SCI's manufacturing processes and equipment are second to none. The Company
aggressively invests in the very latest manufacturing and electronic
interconnect technologies while maintaining a high level of activity in
preparation for future ones. Equipment is continuously upgraded or purchased to
provide increased production throughput, higher productivity, greater accuracy
and reliability, utilizing the latest assembly technologies.
The Company assembles high volumes of printed circuit assemblies using
leaded semiconductor devices with lead spacings as close as 0.010 inches and
discrete components with package size designations as small as 0201 (0.020 x
0.010 inches). The Company also produces assemblies using plastic or ceramic
area array-based component packages with input/output counts as high as 1657.
The Company routinely integrates conventional microelectronics technology with
surface mount technology (SMT), and produces assemblies that incorporate COB
(chip-on-board); TCP (tape carrier package); MCM-L (multichip module on
laminate); and CSP (chip scale package) interconnect technologies.
During the year SCI selected and began installing a new suite of
standardized Computer Integrated Manufacturing (CIM) hardware and software tools
to significantly enhance manufacturing operations. This company wide hardware
and software implementation will provide automated machine programming and
production line optimization, and will generate production and test programs
directly from customer design files. These tools make component data available
from an online data base, more easily manage documentation and changes, and
provide comprehensive status reporting of the manufacturing and test processes
to manufacturing personnel and management.
SCI's Technology Roadmap is managed by a technology council with
representatives from plants in all operating divisions. This roadmap assures
that no gaps exist between the Company's technology offerings and customer or
industry direction. Best manufacturing practices are shared company wide to
continuously enhance mature process technologies. New technologies are supported
by standardized processes and equipment developed and chosen by carefully
selected teams of manufacturing and test technology experts.
The Company is committed to preserving the environment and works to
identify and incorporate state-of-the-art environmentally friendly materials
into its manufacturing processes. During fiscal 2000, the Company plans to
complete registration of all its plants to the ISO 14001 standard which
specifically addresses environmental management systems.
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Eight pictures across bottom of pages 6 and 7 of the inside of SCI manufacturing
facilities.
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<PAGE>
[PAGE 8 OF ANNUAL REPORT TO SHAREHOLDERS]
Evolving Support Systems
Supply Chain Management
During fiscal 1999 SCI's worldwide manufacturing operations purchased more
than 20.5 billion parts from approximately 17,500 suppliers. These activities
necessitate exact control of the flow of materials from suppliers through the
production process and to the customer. Supply Chain Management assures this
control while saving time and money in the material acquisition and
manufacturing process. SCI will continue to enhance its supply chain management
capabilities and organization in support of Company growth and customer service.
Supply Chain Management at SCI functions through a network of three
regional purchasing centers in North America, Asia, and Europe and material
planning groups located in all SCI plants around the world. Operations are
governed by company wide policies which utilize a single systems architecture
and operating environment. At each plant material planners release requisitions
based upon customer requirements that are automatically converted to purchase
orders and electronically sent to SCI's suppliers on a real time basis. This
electronic information transfer is accomplished through a unique SCI developed
supply chain order processing system. The process efficiently links order
information among SCI customers, manufacturing plants, and suppliers.
To assure continuity of supply beyond the customers' order horizons, a
capability for supplier forecasting has also been developed. This system accepts
customer forecasts for a period of up to 12 months and utilizes SCI's networked
computers to generate supplier forecasts, assuring that suppliers immediately
comprehend and provide for the requirements of the Company's customers.
To improve responsiveness to customers' changing order requirements, the
Company during the year initiated a Supplier Managed Inventory (SMI) program.
Under the SMI program, component suppliers own and store inventory in a
warehouse (a "Hub") in proximity to an SCI plant. The Hub warehouse delivers
components directly to the manufacturing plant on a Just-In-Time basis.
Major customers have been pleased with the increased inventory turnover,
reduced obsolescence, lower material cost, and improved flexibility in the
management of material flow resulting from the supply chain management program.
Future enhancements to the Company's supply chain capabilities include web-based
information access for suppliers, customers, and all SCI plants to provide
improved responsiveness to customer requirements globally.
Information Technology
Information Systems has become a significant differentiator within the
Electronic Manufacturing Services Industry. Customers view robust and fully
integrated Information Systems as important as such traditional factors as
equipment, material sourcing, and global reach.
A critical factor in SCI's growth is the seamless implementation of its
computer and communications systems. SCI was an early implementer of uniform
systems across the Company, an attribute that many competitors are just now
striving to achieve. Continued improvement and development in this area has
allowed SCI to grow its business on a global basis while continuing to provide
timely information for internal and customer use.
The Company's system hardware is configured in a multitier structure that
begins with a corporate Enterprise Server, connected to plant servers, and then
to individual desktops. The software is a combination of off-the-shelf packages
(heavily utilized in the administrative areas) combined with customized (largely
internally developed) application systems for manufacturing processes.
Constant improvement in systems capabilities provides the Company and its
customers with real time worldwide access to inventory data at all of SCI's 34
plants. The Company has also invested in manufacturing systems that accommodate
Electronic Data Interchange (EDI) receipt of orders, build-to-order processes
with 48-hour or less turnaround times, and "data warehousing" of online
inventory and supply chain status. Financial systems have been enhanced to
accommodate the unique regulatory requirements of the markets SCI serves.
Shop floor data collection, statistical quality control, and process
control systems are also available at each manufacturing location. Powerful
order fulfillment systems are fully integrated and customer accessible,
providing maximum flexibility of demand management. The SCI Information Systems
organization is staffed with more than 100 professional personnel that not only
provide new feature implementation and installation services to all SCI plants
but also provide 24-hour support for all systems.
More tightly coupled information data exchange between SCI and its
suppliers and customers, including expanded use of the Internet, will evolve in
the future. SCI currently utilizes the latest Internet hardware and software
technology and is well positioned to capitalize upon the rapid advances
occurring in e-commerce implementation.
<PAGE>
[PAGE 9 OF ANNUAL REPORT TO SHAREHOLDERS]
Quality Awards
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The company name and/or logo for 18 companies.
- --------------------------------------------------------------------------------
SCI's Continuing Commitment to Quality
SCI is committed to Total Customer Satisfaction by providing the highest
quality products and services in the industry. The Company fosters an
environment of defect prevention and continuous improvement in every element of
the business and to this end empowers employees to achieve their best in
individual performance and teamwork.
Quality has been a driving force at SCI throughout its history. Founded as
a supplier to the United States' manned space flight program, the Company
developed and still maintains an operating philosophy built around a necessity
for quality of performance second to none.
Commitment to quality did not diminish when SCI diversified into commercial
manufacturing. In fact, the Company is able to conclusively demonstrate to large
OEMs that product quality is not compromised by outsourcing but is often
significantly enhanced by the disciplines inherent in the EMS model. The same
quality philosophy that successfully put SCI products into outer space has
sustained the Company through the evolution and growth of its global operations
and the ongoing introduction of state-of-the-art manufacturing technologies and
services.
All SCI plant sites were certified to the appropriate ISO 9000
international standards for quality in 1992 and 1993. All facilities added since
then have been certified within the first year of operation.
With growing competition in today's EMS marketplace, the industry worldwide
recognizes that quality is essential to increasing customer satisfaction and
confidence. In this environment SCI management views high quality as critical to
its ongoing growth. Company quality standards are high and quality performance
is both expected and required of all employees of the Company.
SCI's commitment to quality has resulted in numerous customer awards and
recognitions, some of the most recent of which are identified by the logos
above.
[PAGE 10 OF ANNUAL REPORT TO SHAREHOLDERS]
Organization Broadest Geographic Coverage
Company Organization
The Company is organized into decentralized divisions and plants with
leadership, oversight, and certain core services provided from the corporate
center. Core services include finance, human resource development, credit
review, tax management, systems operations and development, strategic
purchasing, legal review, and global account management for multinational
customers. Division management provides leadership to the plants while
implementing corporate policy compliance. The plants provide engineering and
manufacturing services and are the Company's primary interface with customers.
At the end of fiscal 1999, SCI operated 34 manufacturing plants in 16 countries
organized into 8 divisions.
Technology Division
This Division consists of three plants in Alabama and a plant in Colorado.
The Division was formed by combining SCI's domestic commercial development
engineering and support resources with its former Government Division to allow
the Company to focus technology resources on a range of commercial and
government activities. In addition to manufacturing products for its own
customers,the Division serves as a corporate wide resource to design and support
customer products manufactured in any SCI facility. The Division's product line
ranges from military and space products built and tested to exacting standards,
to a range of commercial products built to order in lot size of one and
delivered directly to the customer base.
Personal Computer Division
This Division has two plants in Alabama and a plant in The Netherlands, all
producing a variety of finished personal computers (PCs) in high volumes. One
plant is the largest production facility for a customer's global corporate PC
business. Another provides assembly of a family of finished consumer PC products
for the North American market. The Netherlands plant provides final assembly of
PCs for the European market.
Western Division
The three plants of this Division are located in California, South Dakota,
and Colorado, and serve the Western United States. The plants operate a large
number of automated assembly lines and offer a full range of manufacturing
services, primarily in high-mix
<PAGE>
[PAGE 11 OF ANNUAL REPORT TO SHAREHOLDERS]
medium volume production of subassemblies for major customers. The Division's
plants provide extensive new product introduction services.
Southeastern Division
This Division serves customers in the Southeastern United States from three
plants in Alabama and one plant in North Carolina. One Alabama plant specializes
in general machining, sheet metal fabrication, plastic molding, and system
integration of precision mechanical products. This plant's services are
available to all SCI plants. High-volume products of this Division include
medical devices and satellite TV receivers.
A plant in Brazil provides production support for global customers' South
American market. The plant is well positioned to capitalize on excellent growth
opportunities in that promising regional market.
Northeastern Division
The three plants of this Division - in Maine, New Hampshire, and Quebec -
serve the Northeastern United States and Canada. The plants primarily produce
subassemblies for graphics equipment and for the data communication and
telecommunication industries. The plants also perform final assembly of several
computer products.
Mexican Division
This Division has two plants in Guadalajara and one each in Monterrey and
Mexico City and operates SCI's largest number of automated production lines. The
Division provides services to multinational customers for the North American
computer, peripheral, and high-end consumer product markets.
Asian Division
From plants in Singapore, Thailand, Malaysia, and mainland China, the Asian
Division serves its region with a large number of high-volume automated assembly
lines. The plants produce subassemblies for shipment to numerous customer final
assembly plants, as well as finished products for multinational distribution.
European Division
This Division operates seven plants located in Scotland, Ireland, France,
Hungary, Finland, Sweden, and Spain. SCI's European capacity has expanded
rapidly in recent years. Division plant capabilities offer a full line of
production services to a sizeable number of global customers in proximity to
their European markets. Principal markets include telecommunication equipment,
peripheral products, and multimedia TV reception units.
- --------------------------------------------------------------------------------
SCI Facilities Around The World
A map of the world pin pointing the following SCI plant locations:
Pointe-Claire, Rapid City, San Jose, Colorado Springs, Fountain, Huntsville,
Augusta, Hooksett, Graham, Guadalajara, Mexico City, Monterrry, Pathum Thani,
Penang, Singapore, Kunshan, Hortolandia, Motala, Leganes, Oulu, Irvine, Fermoy,
Grenoble, Leek, Tatabanya
- --------------------------------------------------------------------------------
<PAGE>
[PAGE 12 OF ANNUAL REPORT TO SHAREHOLDERS]
Facility Additions
During the fiscal year SCI continued its strategic capacity and geographic
expansion programs, adding a number of new plants and expanding existing ones.
These activities significantly extended the Company's global manufacturing
capacity.
The facility in Lacey's Spring, Alabama, added capacity and capabilities in
support of Company requirements for design and production of mechanical
products.
The Fermoy, County Cork, Ireland, plant completed its second phase. This
new construction has more than doubled the original size of the plant.
The Company began operations in Phase I of a "green field" plant in
Apodaca, Nuevo Leon, Mexico, near Monterrey. The plant is only 125 miles from
the U.S. border and is an advantageous source of manufacture for products
destined for U.S. end markets.
The Company opened Phase I of a second Guadalajara, Jalisco, Mexico, plant.
This facility was specifically designed for efficient production and
distribution of finished products.
At the request of a large customer, a new plant was established in
Huntsville, Alabama. This plant is dedicated to the manufacture and distribution
of computers for rapidly growing segments of the consumer market.
An ongoing operation in Kunshan, Jiangsu, China, was acquired by the
Company, affording SCI an opportunity for geographic diversification consistent
with its objective of global customer service. SCI will continue to manufacture
products for the previous owner under a multiyear agreement and will also
utilize the facility to support an expanding customer base in the China market.
- --------------------------------------------------------------------------------
Six pictures on the page with the captions:
1.) The operation in Lacey's Spring, Alabama, completed and expanded into its
sixth building during the year.
2.) The Fermoy, County Cork, Ireland plant completed its second phase expansion,
more than doubling its original size.
3.) A startup operation in Apodaca, Nuevo Leon, Mexico, began production in the
first phase of its newly constructed facility.
4.) The Company's fourth Mexican plant began operations in a new building
located in a suburb of Guadalajara, Jalisco, Mexico.
5.) A new plant in Huntsville, Alabama, was completed and placed in full
operation during the year.
6.) Acquisition of an existing plant in Kunshan, Jiangsu, China, furthered the
Company's strategic geographical diversification.
- --------------------------------------------------------------------------------
<PAGE>
[PAGE 1 OF EXCERPTS FROM FORM 10-K]
EXCERPTS FROM FORM 10-K
FOR FISCAL 1999
(Except for the sections of SCI Systems, Inc.
Annual Report to Shareholders expressly incorporated in the Form 10-K
by reference, the Annual Report to Shareholders is not to be
deemed filed with the Securities and Exchange Commission)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[...X...] ANNUAL REPORT TO SHAREHOLDERS PURSUANT TO
SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
Commission File No. 0-2251
SCI SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
PART I
From time to time the Company may publish or express forward-looking statements
relating to such matters as anticipated financial performance, business
prospects and outlook, plant expansions, foreign sales and currency risks,
technological developments, price competition, operating margins, liquidity, and
similar matters. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. In compliance with such safe harbor
terms, the Company notes that a variety of factors could cause the Company's
actual results and experience to differ materially from past performance or from
anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may cause actual
results to differ materially include component availability and pricing,
management of growth, customer concentration, customer order flow, competition,
technological change, trends in selling prices for the Company's customers'
products, foreign currency fluctuations, projected capital expenditures, year
2000 readiness, qualitative market risk disclosures, and other similar
statements. Such statements generally contain the words "may," "believes,"
"anticipates," "estimates," "expects," and words of similar import. These
statements are subject to risks, uncertainties, and other factors which could
cause actual results to differ materially from those anticipated, including,
without limitation, the risks described herein.
Item 1. Business.
SCI Systems, Inc. is a diversified international electronics engineering and
manufacturing services provider. SCI designs, manufactures, distributes, and
services electronic products for virtually every electronics market area.
Markets served include the computer, peripheral product, telecommunications,
data communications, medical, industrial, consumer, aerospace, defense, and
entertainment industries, as well as the U.S. Government.
Founded in 1961, the Company was strongly engineering oriented - with the U.S.
Government's National Aeronautics and Space Administration (NASA) and its prime
contractors as early customers. Building on a strong technical and engineering
base which is still maintained today, SCI participated in a number of
significant Government programs and expanded into the commercial arena.
Company activities are conducted through eight operating divisions, with six
organized geographically and two structured along functional lines. Each
division operates multiple plants which design and manufacture components,
subassemblies, and finished products primarily for original equipment
manufacturers, but also for a variety of service providers and government
agencies. The divisions offer a full range of services, from design through
distribution to after-sale support.
Although the Company derives much of its revenue from hardware manufacturing and
maintains a broad technology base, it is primarily a vertically integrated
engineering and manufacturing services provider with dedication to close
customer interaction forming the cornerstone of its activities.
Marketing, Customer Concentration, and Dependence on the Electronics Industry
A majority of the Company's revenues are derived from direct sales to original
equipment manufacturers. Marketing is conducted primarily by factory-based
personnel in Brazil, Canada, Finland, France, Hungary, Ireland, Malaysia,
Mexico, The Netherlands, People's Republic of China, Singapore, Spain, Sweden,
Thailand, the United Kingdom, and the United States. The Company advertises on a
small scale and participates in a modest number of industry trade shows.
Although the Company has several hundred customer accounts, in any particular
period a significant percentage of sales is derived from a limited group of
customers. Sales to individual customers that exceeded 10% of annual sales in
any of the last three fiscal years were: Hewlett-Packard, $2,465 million in
1999, $2,692 million in 1998, and $2,054 million in 1997; Compaq, $840 million
in 1999; Dell, $681 million in 1999; and Apple Computer, $1,134 million in 1997.
In fiscal year 1999 the Company's ten largest customers contributed more than
75% of revenues. Significant reductions in sales to any of these customers could
have a material adverse effect on the Company's results of operations. Customer
contracts can be canceled and volume levels changed or delayed at any time
without notice. Timely replacement of canceled, delayed, or reduced contracts
with new business cannot be assured. These
[PAGE 2 OF EXCERPTS FROM FORM 10-K]
risks are exacerbated as a majority of the Company's sales are to customers in
the electronics industry, which is subject to rapid market and technological
changes and frequent product obsolescence. Factors affecting the electronics
industry in general or any of the Company's major customers in particular could
have a material adverse effect upon the Company's results of operations.
The Company's major contracts are with customers in the high technology
industry. Credit terms relating to both accounts receivable and contract
inventories are extended to customers after performing credit evaluations. When
significant credit risks exist, letters of credit or other appropriate security
are generally requested. However, credit losses on customer contracts have
occurred in the past and no assurances can be given that credit losses, which
could be material, will not reoccur.
Order Backlog
In recent years, components used in the Company's products have experienced
substantial price and lead time fluctuations. These fluctuations have
significantly affected the timing and size of order placements by the Company's
customers. Consequently, backlog is not considered a definitive indicator of
future revenue. Backlog at June 30, 1999, approximated $3.1 billion as compared
with $2.6 billion at June 30, 1998.
Growth Management
The Company has experienced rapid growth over recent years. It has acquired and
built facilities in several locations and continues to do so. There can be no
assurance that historical revenue growth will continue or that the Company will
successfully manage existing operations or future plants it may acquire or
build. As the Company manages its operations and expands geographically, it may
experience -- as it has in the past, inefficiencies related to new operations
and broadened geographic diversification. The Company may be adversely affected
by new and acquired facilities that do not achieve growth sufficient to offset
increased expenditures associated with geographic expansion. In addition, should
the Company increase expenditures in anticipation of future sales levels which
do not materialize, profitability could be adversely affected. Moreover,
occasionally customers may require rapid production increases which can stress
the Company's resources.
Acquisitions
The Company over the last three years has acquired several assets and several
operations from its customers and entered into multiyear manufacturing
agreements for related products.
The Company has also acquired the Mexico City and Brazilian manufacturing
operations of Group Technology Corporation, a competitor, in June 1997.
The Company acquired various assets and operations from Ericsson Telecom, AB in
support of an agreement wherein SCI was designated as one of Ericsson's primary
manufacturing partners. The principal manufacturing assets acquired from
Ericsson were certain assets in Sweden during fiscal 1998, a Leganes, Spain,
operation in October 1998, and Mexico City assets in August 1998. Also in
support of being designated as a customer's manufacturing partner, the Company
acquired certain Nokia Corporation manufacturing operations in Motala, Sweden,
and Oulu, Finland, in May and June 1998.
In May 1999, the Company acquired the operations of Hewlett-Packard's Verifone,
Inc. Kunshan, China, plant near Shanghai. This facility will also be used for
manufacturing other SCI customer products. The Company acquired computer
manufacturing operations of Intergraph Corporation in October 1998. These
operations are being consolidated into two of the Company's Huntsville, plants.
Subsequent to fiscal year end, in August 1999 the Company entered into an
agreement with Nortel Networks Limited for the purchase of its Brockville,
Ontario, manufacturing plant and assets of two other Nortel plants.
Seasonality
The Company has not historically considered its business to be consistently
seasonal, although seasonal demands for its customers' products sold to
consumers may impact quarterly revenues. In recent periods the proportion of the
Company's products ultimately sold at retail has expanded, which has increased
seasonality in the Company's sales. Operating margins have seen seasonal
fluctuations in the past, particularly in the first fiscal quarter due to
slowing effects of the summer season. The Company believes these seasonality
effects may continue.
Global Business Considerations
The Company operates internationally with the majority of revenue generated in
the United States, but with significant foreign activities. The Company's U.S.
export and foreign sales were $2.924 billion in 1999, $2.292 billion in 1998,
and $1.514 billion in 1997, representing 44% of total sales in 1999, 34% in
1998, and 26% in 1997.
Much of the Company's manufacturing material is sourced from international
suppliers. The Company is subject to the risks of currency fluctuations,
possible funds transfer restrictions, and the burden of compliance with a
variety of laws.
(See Note G to the 1999 Consolidated Financial Statements, incorporated herein
by reference.)
Patents and Licenses
Patents are not significant to the Company's business. The Company believes that
its success depends more upon the
[PAGE 3 OF EXCERPTS FROM FORM 10-K]
creativity of its personnel than upon patent ownership. Because of rapid
technological change and rate of new patent issuance, certain of the Company's
products, manufacturing processes, and purchased equipment may inadvertently
infringe others' patents. If patent infringements inadvertently occur, the
Company believes that, based upon industry practice, necessary licenses can be
obtained without material adverse impact; however, there can be no assurance
given to that effect.
Competition and Other Factors
The Company primarily operates in the Electronics Manufacturing Services (EMS)
Industry. The Company competes against numerous domestic and foreign companies.
It also faces competition from current and prospective customers who evaluate
the Company's capabilities against the merits of internal manufacturing.
Competition varies depending upon the type of service offered and the geographic
area of competition. Competition is intense and is expected to continue to be so
as more companies enter the EMS industry and existing ones expand capacity. The
Company could be adversely affected if its competitors introduce superior or
lower priced services or products. During the last three fiscal years
electronics manufacturing services accounted for over 90% of total revenues.
The Company devotes considerable resources to designing and developing new
products, internal information systems, and advanced manufacturing processes.
Computer aided design centers are employed at strategic regional plants. New
product development is usually undertaken in support of customer contractual
requirements. (See Note A to the 1999 Consolidated Financial Statements,
incorporated herein by reference.)
The Company has developed internal systems to support its customers'
manufacturing information requirements, including customized finished products
assembly for delivery directly to distribution channels or directly to end
users. Such systems are important to obtaining future contracts and maintaining
existing contracts.
To remain competitive the Company must continue to develop and provide
technologically advanced engineering services, information systems, and
manufacturing processes. It must also maintain high quality, offer flexible
delivery schedules, deliver products on a timely basis, and continue to price
its products and services competitively. Failure to satisfy any of the foregoing
requirements could adversely affect the Company.
Component Availability and Impact on Sales
Components are sourced on a global basis. Component availability is periodically
subject to constraints, shortages, and abundances. Many components are available
only from a limited number of sources. Some components are subject to periodic
allocation by suppliers. Although no assurances can be given, the Company has
generally been able to obtain adequate supply to maintain production when
shortages occur. However, shipment delays have occurred and may reoccur.
Significant component constraints could adversely affect the Company. The
Company's sales are mainly generated from turnkey manufacturing services.
Accordingly, average selling prices (ASPs) for the Company's products fluctuate
proportionally to component prices. During fiscal 1999 components were generally
readily available and significant price reductions were experienced.
Possible Termination of Government Programs
The Company's contracts with the U.S. Government and its prime contractors are
subject to audit and termination at the election of the Government. The Company
believes that its ongoing principal government programs will continue to be
funded, but there can be no assurance given to that effect. No single current
government program accounts for more than 1% of consolidated revenues.
Employees
At June 30, 1999, the Company directly employed 25,235 individuals, of which
9,360 were based in the United States. Except for nine foreign plants, employees
are not subject to collective bargaining agreements. There have been no work
stoppages caused by employee activities. The Company believes that its employee
relations, in general, are good.
The Company's success depends largely upon the efforts and abilities of key
managerial and technical employees. The loss of services of certain key
personnel could adversely affect the Company. The Company's business depends
upon its ability to recruit, train, and retain senior managers, skilled
professional and technical salaried personnel, and skilled and semiskilled
hourly employees at competitive costs, for which there is intense competition.
Failure to do so could adversely affect the Company.
Variations in Operating Results
The Company's operating results are dependent upon its ability to identify and
react in a timely manner to changes in business conditions and customer
requirements, especially the Company's actions in balancing inventory
quantities; property, plant, and equipment capacity; staffing levels; and
liquidity amounts. Accordingly, operating results could vary over time as such
conditions change.
Item 2. Properties.
The Company increased its facilities in fiscal 1999 to accommodate existing
business volume and that anticipated in the near term. Domestically the Company
owns, or finances with Industrial Revenue Bonds (treated as purchases for
financial statement purposes), facilities in Alabama, California, Colorado,
Maine, New Hampshire, North Carolina, and South
[PAGE 4 OF EXCERPTS FROM FORM 10-K]
Dakota, with total area of 2,962,800 square feet. Internationally the Company
owns facilities in Brazil, Canada, France, Hungary, Ireland, Malaysia, Mexico,
People's Republic of China, Singapore, Thailand, and the United Kingdom, with
total area of 1,818,500 square feet and leases space in Finland, Mexico, The
Netherlands, Spain, Sweden, and the United States, with total area of 773,600
square feet. An owned plant is under construction in The Netherlands to replace
the leased one there. A 200,000 square foot domestic manufacturing facility
leased by the Company will be vacated and consolidated with Company owned
facilities in the first half of fiscal 2000. Miscellaneous space amounting to
19,355 square feet is also leased in various locations. The Company believes its
facilities are modern, in good repair, and suitable for operations conducted
therein.
An additional 454,000 square foot facility was added with the acquisition of
Nortel Networks Limited's Brockville, Ontario, Canada, manufacturing plant in
August 1999.
Item 3. Legal Proceedings.
The Company is a party to several lawsuits incidental to its various activities
and incurred in the ordinary course of business. The Company believes that it
has meritorious claims and defenses in each case that either will absolve it of
or limit its liability. The Company believes it has adequately provided for any
likely material adverse outcome of pending litigation. After consultation with
counsel, it is the opinion of management that, although there can be no
assurance given, none of the associated claims when resolved will have a
material adverse effect upon the Company's consolidated financial position. (See
Note I to the Company's 1999 Consolidated Financial Statements, incorporated
herein by reference.)
The Company is subject to a variety of environmental regulations relating to the
use, storage, discharge, and disposal of hazardous materials used in its
manufacturing processes. Failure by the Company to comply with present and
future regulations could subject it to future liabilities or the suspension of
production. In addition such regulations could restrict the Company's ability to
expand its facilities or could require the Company to acquire costly equipment
or to incur other significant expenses to comply with environmental regulations.
The Company is not involved in any material environmental proceedings.
Item 4. Submission of Matters to a Vote of Security Holders. --None
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
At August 24, 1999, there were 1,888 shareholders of record. See Note K to the
Company's 1999 Consolidated Financial Statements, incorporated herein by
reference, for fiscal year 1999 and 1998 quarterly high and low stock prices.
The Company's Common Stock is traded on the New York Stock Exchange.
The Company has not paid cash dividends on its Common Stock to date. Payment of
dividends is restricted as described in Note B to the Company's 1999
Consolidated Financial Statements, incorporated herein by reference. The Company
has paid stock dividends in the past in the form of common stock splits, lastly
in August 1997.
Item 6. Selected Financial Data.
See page 1 of the Company's 1999 Annual Report to Shareholders, incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
1999 Results Compared With 1998
Sales declined slightly (1.4%) in 1999 to $6.71 billion from $6.81 billion in
1998. As an electronics manufacturing services provider, the Company's sales are
affected by shifts in customers' market shares and product changeovers. Certain
of these shifts and product changeovers, together with declining average selling
prices, accounted for lower sales in 1999. Domestic sales declined in 1999 as a
result of these factors and manufacturing contract transfers by customers to
lower cost foreign operations. Declining average selling prices are expected to
continue during fiscal 2000.
Finished product sales continue to represent approximately 50% of the Company
sales. Such sales inherently carry lower operating margins than subassembly
level products. This lower operating margin is offset by higher associated asset
turnovers.
Sales of the Company's foreign operations increased to 42% of total 1999 sales
from 31% in 1998. Foreign sales ratio is expected to continue to increase as
demand for lower cost foreign manufacturing persists. Growth in foreign sales
also affects average selling prices because of their generally lower
manufacturing costs.
Foreign sales grew, especially in Europe and Mexico. Europe's sales growth
benefitted from the acquisitions of Scandinavian facilities in May 1998, and a
Spanish facility in October 1998, together with the first full year production
of a plant in The Netherlands and maturing of the Hungarian plant. Mexico's
sales growth mainly resulted from expanded capacity installed during the year.
Further capacity expansions in Canada, Hungary, Mexico, and The Netherlands are
planned for 2000.
Operating margins declined to 3.50% in 1999 compared with 3.78% in 1998. This
decline resulted primarily from startup and transition costs of new and enlarged
facilities and
[PAGE 5 OF EXCERPTS FROM FORM 10-K]
projects, industry price pressures, and increased foreign currency exchange
losses.
Brazil's currency devaluations affected product pricing and business volumes.
The Company uses the U.S. dollar as the functional currency for its Brazilian
operation since the major expenditures for that operation are transacted in
dollars. The Brazilian economy is believed to be stabilizing and the SCI
Brazilian operation's performance is expected to improve.
Net interest expense declined in 1999 mainly because of lower borrowing
requirements and the conversion of outstanding convertible notes in May 1999.
(Reduced interest expense resulting from the conversion had no effect on diluted
earnings per share as it is added back for this per share calculation.) Net
interest expense is expected to increase in 2000 because of forecast increased
use of credit lines for planned growth. Interest income netted against interest
expense was earned from temporary cash investments. Interest income declined
because of reduced amounts of short-term investments.
Increased amounts of lower taxed foreign earnings accounted for the reduced
effective income tax rate in 1999 (36.5% in 1999 compared with 38.5% in 1998).
The Company has fully provided for U.S. income taxes on that portion of foreign
earnings it does not consider permanently invested. The effective income tax
rate may decline somewhat in the future if lower taxed foreign earnings become a
greater percentage of taxable income as forecast.
Net income decreased as a percentage of sales in 1999 (2.05% in 1999 compared
with 2.13% in 1998) mainly as a result of lower operating margins.
Capital Resources and Liquidity
Working capital at June 30, 1999, increased to $876 million from $759 million at
June 30, 1998. This change primarily resulted from increased accounts receivable
and inventories in support of larger quarterly revenues. Accounts payable and
accrued expenses increased as well. Other current assets increased primarily
because of additional recoverable foreign value added taxes (V.A.T.) resulting
from larger foreign sales. Current ratio declined modestly to 1.9 at June 30,
1999, from 2.0 a year earlier.
Available liquidity at June 30, 1999, was $901 million, supplied by $685 million
in unused credit facilities and $216 million in cash. Lower liquidity is
expected in fiscal 2000 as anticipated acquisitions and internal growth utilize
funds. With shareholders' equity now exceeding $1.1 billion, additional
financing is believed to be available to the Company as needed. Accordingly, the
Company believes it can adequately fund its expected growth in the intermediate
term.
Capital expenditures decreased in 1999 from the 1998 level as revenues
stabilized. Capital expenditures are expected to substantially increase in
fiscal 2000 as the Company expands acquisition and building activity. Capital
expenditures could exceed $500 million under existing plans. Changes in market
conditions and acquisition opportunities can impact actual capital expenditures
substantially. The August 30, 1999, acquisition of Nortel Networks' Brockville
plant and manufacturing assets was funded with existing liquidity.
Other noncurrent assets increased somewhat due to increased Goodwill and
deferred compensation investments (other than the Company common stock) held in
Rabbi trusts. The Company common stock held in Rabbi trusts is shown as a
reduction to shareholders' equity beginning in fiscal 1999 in accordance with
EITF 97-14.
Year 2000 Readiness
The Year 2000 compliance issue refers to a condition in computer software where
a two digit field rather than a four digit field is used to distinguish a
calendar year. Unless corrected, some computer programs may not function on
January 1, 2000 (and thereafter until corrected), as they will be unable to
distinguish the correct date. Such an uncorrected condition could significantly
impact the Company, possibly resulting in disruption to its operations, and
possibly subjecting it to legal liabilities.
The Company has updated much of its existing software for Year 2000 compliance
by acquiring new or upgraded third party software packages, and by modifying
existing internally developed software. The Company has tested all significant
software for Year 2000 readiness and expects to have all such software
compliant, tested, and installed by the end of October 1999. The Company
believes it has sufficiently reduced mechanical equipment microcontroller Year
2000 exposure through substantial compliant equipment additions or replacements.
The possibility exists, however, that the Company may fail to correct an
internal Year 2000 issue in its software or manufacturing equipment. The Company
believes this possibility would not significantly impact its operations, as it
should be able to effectively conduct its business using Year 2000 compliant
software and equipment currently installed.
Based on inquiries to date, the Company believes satisfactory progress has been
made by its major vendors and customers on Year 2000 readiness.
The major exposure to the Company with Year 2000 readiness is believed to be the
status of utility providers, especially in foreign countries. Not only could the
Company's production be disrupted if one of its utility providers fails to be
fully Year 2000 ready, but also indirectly if a parts supplier's utility
provider is not Year 2000 ready. A prolonged utility outage could significantly
adversely affect the Company until production is shifted to other facilities or
to suppliers not impacted by utility outages.
[PAGE 6 OF EXCERPTS FROM FORM 10-K]
To date, Year 2000 readiness cost to the Company has been approximately $7
million (including upgrades to existing systems).
1998 Results Compared With 1997
Sales in 1998 increased to $6.81 billion from the $5.76 billion level of a year
earlier. In spite of the effects of continued rapid declines of average selling
prices, liquidation of excess customer distribution channel inventories, and
essentially a full year of Asian economic turmoil, net revenues grew 18.1%.
Outsourcing of manufacturing services continued to gain momentum. Finished
product sales accounted for approximately 50% of 1998 sales.
The Company's Mexican operations had substantial sales growth in 1998 due to
higher customer demands for its lower cost manufacturing operations. This
growth, together with improving European markets, accounted for larger
percentage growth in foreign sales than domestic sales.
Consolidated operating margins improved to 3.78% in 1998 from 3.58% in 1997.
Foreign operating margins declined as a result of increased pricing pressures.
The Company faced increased foreign competition as other competitors entered
lower cost non-U.S. locations.
Net interest expense was 0.31% of sales in 1998 and 1997. Reduced interest
income accounted for the increased net interest expense amount. Interest income
declined as related invested cash was used to fund the 1998 growth.
The effective income tax rate declined to 38.5% in 1998 from 40.5% in 1997. This
reduction resulted from lower U.S. income taxes being provided on undistributed
foreign earnings.
Net income improved to 2.13% of sales in 1998 from the 1.96% in 1997 as
operating margins improved.
Item 7a. Quantitative and Qualitative Disclosure About Market Risk.
Short-term interest rate changes can impact the Company's interest expense on
its variable interest rate debt, as well as the discount (reflected as interest
expense) on its accounts receivable sold under an asset securitization
agreement. Variable interest rate debt of less than $42 million was outstanding
at June 30, 1999. No amounts were sold under the asset securitization agreement
at June 30, 1999. Accordingly, a change in short-term interest rates would
currently have a minor impact on the Company. In the future, the Company expects
changing interest rates to have a greater impact. Increased use of the asset
securitization agreement and borrowings is expected to finance anticipated
growth.
The Company predominantly conducts its foreign sales and purchase transactions
in U.S. dollars or under customer contract provisions that protect against most
major currency risks. The largest currency risk at June 30, 1999, was that
associated with Brazilian operations. Unlike most other foreign operations of
SCI, this plant is directly subjected to the effects of currency devaluation on
certain customers' contracts until forward pricing is adjusted accordingly
(normally monthly). During fiscal 1999 the Brazilian currency experienced severe
devaluations. This devaluation adversely impacted the results of the Brazilian
operation. At June 30, 1999, the Company had approximately $20 million of net
current assets and $9 million of long-term intercompany advances subject to this
currency exposure. Approximately $15 million of inventory is subject to
repricing arrangements for currency fluctuations. The Company considers the
Brazilian economic outlook, while improving, too uncertain to predict.
Other currency exchange risks primarily relate to current assets and liabilities
denominated in other than the U.S. dollar. The Company endeavors to balance such
items against each other where possible at individual operations. Accordingly,
the Company does not believe the effects of changes in currency exchange rates
upon such non-U.S. dollar transactions would be material.
Changes in certain foreign currency exchange rates impact the geographic areas
where the Company's revenue is derived. When foreign currencies are devalued,
manufacturing costs of plants in those countries may become more competitive
with domestic plants.
The Company, when it believes it advisable, may enter into hedge contracts to
reduce its currency risks on known transactions. Additionally, when deemed
advantageous, the Company may enter into interest rate swap agreements to adjust
the interest rate on existing debt. The Company has not entered into speculative
interest or currency agreements, and it does not plan to do so.
<PAGE>
[PAGE 7 OF EXCERPTS FROM FORM 10-K]
Item 8. Financial Statements and Supplementary Data.
Consolidated Balance Sheets
(In thousands of dollars except share data)
<TABLE>
<S> <C> <C> <C>
June 30,
-----------------------------------
Assets 1999 1998 1997
- --------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents $ 216,085 $ 184,346 $ 290,809
Accounts receivable, less allowances
of $12,630 in 1999, $11,100 in 1998,
and $11,200 in 1997 821,925 633,835 630,867
Inventories 719,008 639,283 569,846
Refundable and deferred federal and
foreign income taxes 12,522 10,876 43,950
Other current assets 62,159 17,623 12,582
- --------------------------------------------------------------------------------
Total Current Assets 1,831,699 1,485,963 1,548,054
- --------------------------------------------------------------------------------
Property, Plant, and Equipment - Note B
Land and improvements 29,515 26,977 23,613
Buildings and leasehold improvements,
including construction in process 176,388 156,255 126,145
Equipment 734,180 671,023 499,182
Less accumulated depreciation and
amortization (492,098) (418,158) (347,943)
- --------------------------------------------------------------------------------
Net Property, Plant, and Equipment 447,985 436,097 300,997
- --------------------------------------------------------------------------------
Other Noncurrent Assets 42,976 22,668 20,801
- --------------------------------------------------------------------------------
Total Assets $2,322,660 $1,944,728 $1,869,852
================================================================================
Liabilities and Shareholders' Equity
- --------------------------------------------------------------------------------
Current Liabilities
Accounts payable and accrued expenses $ 874,709 $ 663,600 $ 713,377
Accrued payroll and related expenses 44,142 34,529 28,084
Federal, foreign, and state income taxes 36,117 27,024 47,977
Current maturities of long-term debt 341 1,382 4,394
- --------------------------------------------------------------------------------
Total Current Liabilities 955,309 726,535 793,832
- --------------------------------------------------------------------------------
Deferred Income Taxes 34,587 10,659 9,901
Noncurrent Employee Benefits 27,094 19,075 17,148
Long-term Debt -Note B
Industrial revenue bonds 21,119 21,215 21,310
Long-term notes 119,734 136,414 150,801
Convertible subordinated notes -0- 282,873 282,197
- --------------------------------------------------------------------------------
Total Long-term Debt 140,853 440,502 454,308
- --------------------------------------------------------------------------------
Commitments and Contingencies - Notes B and I
Shareholders' Equity
Preferred Stock, 500,000 shares authorized
but unissued -0- -0- -0-
Common Stock, $.10 par value:authorized
200,000,000 shares; issued 72,138,237
in 1999, 60,104,810 shares in 1998, and
59,774,790 shares in 1997 7,214 6,010 5,978
Capital in excess of par value 469,393 180,464 172,910
Retained earnings 703,796 565,948 420,863
Currency translation adjustment (11,288) (4,124) (4,747)
Shares held in Rabbi Trusts, 136,296 shares
in 1999, at cost (3,957) -0- -0-
Treasury stock - 59,366 shares at cost (341) (341) (341)
- --------------------------------------------------------------------------------
Total Shareholders' Equity 1,164,817 747,957 594,663
- --------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $2,322,660 $1,944,728 $1,869,852
================================================================================
</TABLE>
See notes to Consolidated Financial Statements.
<PAGE>
[PAGE 8 OF EXCERPTS FROM FORM 10-K]
Consolidated Statements of Income
In thousands of dollars except per share data)
<TABLE>
<S> <C> <C> <C>
Years ended June 30,
-----------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Net sales $6,710,785 $6,805,893 $5,762,656
Costs and expenses 6,475,983 6,548,792 5,556,480
- --------------------------------------------------------------------------------
Operating Income 234,802 257,101 206,176
- --------------------------------------------------------------------------------
Other income(expense):
Interest expense (net of interest income of
$7,141 in 1999, $9,347 in 1998, and $12,581
in 1997) (16,938) (21,304) (17,993)
Other income (expense), net (781) 114 1,251
- --------------------------------------------------------------------------------
Income before Income Taxes 217,083 235,911 189,434
Income taxes - Note F 79,235 90,826 76,721
- --------------------------------------------------------------------------------
Net Income $ 137,848 $ 145,085 $ 112,713
================================================================================
Earnings per share - Note C:
- --------------------------------------------------------------------------------
Basic $2.22 $2.42 $1.89
Diluted 2.01 2.13 1.69
================================================================================
</TABLE>
See notes to Consolidated Financial Statements.
Consolidated Statements of Shareholders' Equity
(In thousands of dollars except number of shares)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of Capital in Currency Rabbi Treasury Total
Shares Common excess of Retained translation Trusts Stock Shareholders'
Outstanding Stock par value earnings adjustment Shares Equity
Balance July 1, 1996 59,184,424 $5,924 $165,177 $308,150 $ (6,649) $ -0- $(341) $ 472,261
Stock options exercised 531,000 54 7,733 7,787
Net income for year 112,713 112,713
Translation gain (loss) 1,902 1,902
- ------------------------------------------------------------------------------------------------------------------------------------
Balance June 30, 1997 59,715,424 5,978 172,910 420,863 (4,747) -0- (341) 594,663
Stock options exercised 330,020 32 7,554 7,586
Net income for year 145,085 145,085
Translation gain (loss) 623 623
- ------------------------------------------------------------------------------------------------------------------------------------
Balance June 30, 1998 60,045,444 6,010 180,464 565,948 (4,124) -0- (341) 747,957
Stock options exercised 241,084 25 7,351 7,376
Conversion of notes in May 1999 11,792,343 1,179 281,578 282,757
Adoption of EITF No. 97-14 (136,296) (3,957) (3,957)
Net income for year 137,848 137,848
Translation gain (loss) (7,164) (7,164)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance June 30, 1999 71,942,575 $7,214 $469,393 $703,796 $(11,288) $(3,957) $(341) $1,164,817
====================================================================================================================================
</TABLE>
See notes to Consolidated Financial Statements.
<PAGE>
[PAGE 9 OF EXCERPTS FROM FORM 10-K]
Consolidated Statements of Cash Flows
(In thousands of dollars)
<TABLE>
<S> <C> <C> <C>
Years ended June 30,
-----------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Operating Activities
Net income $ 137,848 $ 145,085 $ 112,713
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 123,905 103,534 76,848
Deferred income taxes 22,808 37,778 (22,599)
Changes in current assets and liabilities:
Accounts receivable (190,533) (2,741) (255,961)
Inventories (79,936) (68,839) (14,591)
Refundable income taxes (522) (3,946) (271)
Other current assets (45,215) (5,028) 2,896
Accounts payable and accrued expenses 224,893 (43,513) 310,502
Income taxes 11,703 (16,480) 29,589
Other noncash items - net (4,692) (1,939) 1,099
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 200,259 143,911 240,225
- --------------------------------------------------------------------------------
Investing Activities
Purchase of property, plant, and equipment (134,670) (236,799) (109,739)
Other (20,274) 2,403 (3,195)
- --------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (154,944) (234,396) (112,934)
- --------------------------------------------------------------------------------
Financing Activities
Payments on long-term debt (30,877) (241,748) (66,010)
Proceeds from long-term debt 13,177 224,107 178,942
Issuance of common stock 4,609 3,090 3,935
- --------------------------------------------------------------------------------
NET CASH (USED FOR) PROVIDED BY FINANCING
ACTIVITIES (13,091) (14,551) 116,867
- --------------------------------------------------------------------------------
Effect of exchange rate changes on cash (485) (1,427) 158
- --------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 31,739 (106,463) 244,316
Cash and cash equivalents at beginning
of year 184,346 290,809 46,493
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 216,085 $ 184,346 $ 290,809
================================================================================
</TABLE>
Cash equivalents are primarily short-term interest bearing deposits.
Interest paid was $26,072 in 1999, $30,144 in 1998, and $28,179 in 1997.
Income taxes paid (net of refunds) were $48,775 in 1999, $76,221 in 1998, and
$68,298 in 1997.
See notes to Consolidated Financial Statements.
Consolidated Statements of Comprehensive Income
(In thousands of dollars)
<TABLE>
<S> <C> <C> <C>
Years ended June 30,
-----------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Net Income $ 137,848 $ 145,085 $ 112,713
- --------------------------------------------------------------------------------
Currency translation (loss) gain (7,146) 623 1,902
Tax benefit (expense) 2,615 (240) (770)
- --------------------------------------------------------------------------------
Other Comprehensive Income (4,531) 383 1,132
- --------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 133,317 $ 145,468 $ 113,845
================================================================================
</TABLE>
See notes to Consolidated Financial Statements.
<PAGE>
[PAGE 10 OF EXCERPTS FROM FORM 10-K]
Notes to Consolidated Financial Statements
Note A - Accounting Policies
Consolidated Financial Statements include accounts of the Company and its
subsidiaries after elimination of material intercompany accounts and
transactions. Generally Accepted Accounting Principles require that management
make estimates and assumptions in the preparation of the Company's financial
statements. Such estimates and assumptions affect the recognition of revenue and
expenses, recorded values of assets and liabilities, and disclosure of
contingent liabilities. Actual results could differ from these estimates and
assumptions. The functional currency of the majority of the Company's foreign
operations is the U.S. dollar.
Sales and Cost of Sales are generally recorded as units are shipped. Costs
and expenses principally represent engineering, manufacturing, and other costs
incurred in support of customer contracts.
Inventories primarily consist of costs incurred in support of customer
contracts stated at the lower of cost (principally first-in, first-out method)
or market, adjusted for potential contract valuation issues.
Property, Plant, and Equipment are recorded at cost, and depreciated on the
straight-line method over the estimated useful lives of individual assets.
Leasehold improvements are amortized over the shorter of the lease term or
useful lives. Estimated useful lives currently range between 3 to 5 years for
machinery, equipment, furniture and fixtures; and 10 to 20 years for land
improvements and buildings. Depreciation expenses amounted to $118,058,000 in
1999, $100,850,000 in 1998, and $75,092,000 in 1997.
Goodwill included in other noncurrent assets is the unamortized excess of
cost over the underlying net tangible value of assets acquired. Such assets are
amortized on a straight-line basis over their estimated useful lives. The
estimated useful life assigned to individual acquired Goodwill is established
after reviewing its related product area, its market position and outlook, and
other pertinent factors. Goodwill, net of amortization, at year end amounted to
$21,033,000 in 1999, $4,842,000 in 1998, and $6,251,000 in 1997. Goodwill
amortization expense amounted to $3,866,000 in 1999, $811,000 in 1998, and
$534,000 in 1997.
Long-lived asset impairment reviews are regularly conducted by the Company
using projected future cash flows and such other factors as prescribed by
Statement of Financial Accounting Standard No. 121. During fiscal 1999, an
impairment provision of $4,081,000 was provided for certain intangibles and
equipment. This provision is reflected in the financial statements as
depreciation and amortization expense.
Deferred income taxes are provided on temporary differences as certain
contract related revenues and expenses are reported in periods which differ from
those in which they are taxed. U.S. income taxes in excess of estimated foreign
income tax credits have not been provided on certain undistributed earnings of
foreign subsidiaries aggregating $68 million at June 30, 1999, which are
considered to be permanently invested. Otherwise, $15 million of additional
deferred U.S. income taxes (net of related estimated foreign income tax credits)
would have been provided.
Research and Development is conducted by the Company under both customer
sponsored and Company sponsored programs. Company sponsored programs include
research and development related to government products and services, which are
allocable and recoverable in the same manner as general and administrative
expenses under U.S. Government regulations. Customer sponsored research and
development costs are accounted for as any other program cost. Total research
and development costs incurred by the Company were $35,281,000 in 1999,
$36,961,000 in 1998, and $36,569,000 in 1997.
General and administrative expenses included in costs and expenses
approximated $26,519,000 in 1999, $24,279,000 in 1998, and $22,854,000 in 1997.
Foreign currency exchange net gain (losses) included in costs and expenses
approximated ($7,732,000) in 1999, $794,000 in 1998, and ($180,000) in 1997.
Stock Split. The Company declared and paid a two-for-one stock split in the
form of a 100% dividend in August 1997. All share and per share data in the
financial statements reflect the effect of this stock split.
Adoption of New Financial Accounting Standards. The Company does not
anticipate any material difference in the presentation of its financial
statements when it adopts FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities.
Note B - Long-term Debt
Industrial Revenue Bonds. The Company is obligated by lease or guarantee
for $21,545,000 at June 30, 1999, ($21,676,000 at June 30, 1998, and $21,707,000
at June 30, 1997) of industrial revenue bonds maturing through the year 2015.
The majority of such borrowings currently bear variable interest ranging between
2.95% and 6.25%, and are secured by related properties or irrevocable letters of
credit.
Long-term Notes. The Company is obligated under mortgages and notes
maturing through the year 2006 amounting to $20,128,000 at June 30, 1999,
($38,574,000 at June 30, 1998, and $56,535,000 at June 30, 1997). Substantially
all of the notes bear variable interest rates ranging between 2.97% and 5.53% at
June 30, 1999. $2,200,000 of the June 30, 1999's balance is collateralized by
the related properties.
In July 1996 the Company borrowed $100,000,000 under a Senior Note
agreement with a group of institutional lenders. The Notes bear interest at
7.59% and are payable in six annual installments of $16,667,000 beginning in
July 2001. The interest rate may be adjusted upward by 0.75% if the Company
fails to meet certain financial ratios.
The Company has a credit facility with a group of domestic and
international banks, consisting of a $260 million revolving credit line and a
$150 million commercial paper agreement. The initial renewal date for this
facility is December 8, 2002. Borrowings under the revolving credit line, at the
Company's option, bear interest at a rate based upon either a defined Base Rate
or the London Interbank Offered Rate (LIBOR) plus or minus applicable margins.
The agreement allows the
[PAGE 11 OF EXCERPTS FROM FORM 10-K]
Company to enhance the marketability of its commercial paper with an irrevocable
letter of credit in order to borrow at rates generally below revolving credit
rates. Conversion privileges are provided in the event of nonsalability of
commercial paper. At June 30, 1999, 1998, and 1997, no amounts were outstanding
under the facility. Under the credit agreement, the Company must maintain
certain financial ratios and meet certain balance sheet tests. Under the most
restrictive provision of the credit agreement, $152,391,000 of June 30, 1999's
retained earnings are available for the payment of cash dividends. A commitment
fee of 0.125% is paid on the unused revolving credit amount. No compensating
balances are required under the facility.
Short-term borrowings may be drawn under the credit agreement. Because of
the Company's ability and intent to refinance such borrowings, total borrowings
under the agreement and other short-term borrowings expected to be refinanced,
including commercial paper, may be classified as long-term.
The Company has an asset securitization agreement under which up to
$250,000,000 of certain accounts receivable can be sold with limited recourse.
As funds are collected, additional eligible receivables may be sold to bring the
outstanding balance to the desired level. At June 30, 1999 and 1998, no
receivables were sold under the agreement compared with $35,998,000 at June 30,
1997. A commitment fee of 0.25% was paid in 1999 on the unused portion.
Unused credit facilities and commitments at June 30, 1999, approximated
$685 million.
Convertible Subordinated Notes. In May 1999 the outstanding 5% Convertible
Subordinated Notes due May 1, 2006, were substantially converted into 11,792,343
shares of Common Stock.
Deferred charges netted against total year end long-term debt were $479,000
in 1999, $5,866,000 in 1998, and $7,040,000 in 1997.
Debt, Lease, and Rental Payments. Long-term debt maturities for the next
five fiscal years are: $341,000 in 2000; $1,454,000 in 2001; $16,798,000 in
2002; $18,998,000 in 2003; and $16,798,000 in 2004. While the Company leases
certain real property in its operations, annual rental expense and future
commitments are not material to its operations.
Note C - Earnings Per Share
Basic earnings per share are computed by dividing reported net income for
the period by the weighted average number of shares of common stock outstanding
during the period. A reconciliation of the net income and weighted average
number of shares used for the diluted earnings per share computations follows:
<TABLE>
<S> <C> <C> <C>
(In thousands of dollars, except share data) 1999 1998 1997
- --------------------------------------------------------------------------------
Net income $137,848 $145,085 $112,713
Add back after-tax interest expense
for convertible subordinated notes 7,965 9,232 8,956
- --------------------------------------------------------------------------------
Adjusted net income $145,813 $154,317 $121,669
================================================================================
Weighted average number of shares
outstanding during period 62,035,549 59,860,594 59,495,448
Applicable number of shares for stock
options outstanding for period 755,216 922,366 858,344
Number of convertible shares for
outstanding convertible subordinated notes 9,821,499 11,794,872 11,794,872
- --------------------------------------------------------------------------------
Weighted average number of shares 72,612,264 72,577,832 72,148,664
================================================================================
Diluted earnings per share $2.01 $2.13 $1.69
================================================================================
</TABLE>
Note D - Fair Value of Financial Instruments
June 30, 1999's estimated fair values of the financial instruments
represented by cash and cash equivalents approximated their recorded values.
Convertible Subordinated Notes outstanding at June 30, 1998 and 1997, had a year
end trading price of 161.70 and 145.25, respectively, on the Private Offerings,
Resale and Trading through Automated Linkages ("PORTAL") Market. All other debt
instruments' fair value is estimated to approximate their recorded value, as
their applicable interest rates approximate current market rates.
Note E - Employee Benefit Plans
The Company provides retirement benefits to its domestic employees who meet
certain age and service requirements through three plans: a defined benefit
supplemental pension plan; a qualified savings plan (401(k) Plan); and a
deferred compensation plan. Pension plan benefits are computed based upon
compensation earned during the member's career at the Company or its
subsidiaries and years of credited service. The Company funds its retirement
benefit obligations annually at an amount that approximates the maximum
deductible for income taxes. Company contributions to savings and deferred
compensation plans are equal to a percentage of employees' contributions and are
fully funded when the liability is incurred. The Company's and employees'
contributions to the deferred compensation plan are held in an irrevocable
"Rabbi trust", Nonemployee Directors also participate in an irrevocable "Rabbi
trust" deferred compensation plan. The Company also has defined contribution
pension plans for its European employees who meet certain requirements, and
savings plans for its Canadian and Thai employees. Company contributions to
these various plans amounted to $8,403,000 in 1999, $7,482,000 in 1998, and
$6,686,000
[PAGE 12 OF EXCERPTS FROM FORM 10-K]
in 1997. June 30, 1999's domestic pension plan's accumulated benefit obligation
amounted to $38,862,000, compared with the fair value of its assets of
$32,153,000. At June 30, 1999, domestic pension plan assets were invested 73% in
equity based mutual funds, 21% in corporate bond mutual funds, and 6% in money
market funds.
Note F - Income taxes
<TABLE>
<S> <C> <C> <C>
The provision for income taxes is summarized as follows:
(In thousands of dollars) 1999 1998 1997
- --------------------------------------------------------------------------------
Income before income taxes:
Domestic $131,809 $156,219 $126,173
Foreign 85,274 79,692 63,261
- --------------------------------------------------------------------------------
Total $217,083 $235,911 $189,434
================================================================================
Taxes currently payable:
Domestic $ 36,602 $ 55,977 $ 89,931
Foreign 13,921 (2,929) 9,302
Deferred taxes:
Domestic 10,131 15,419 (22,212)
Foreign 18,581 22,359 (300)
- --------------------------------------------------------------------------------
Total $ 79,235 $ 90,826 $ 76,721
================================================================================
The reconciliation of the provision for income taxes and that based on the
U.S. statutory rate is:
(In thousands of dollars) 1999 1998 1997
- --------------------------------------------------------------------------------
Income taxes at U.S. statutory rate $ 75,978 $ 82,569 $ 66,302
Effects of U.S.state income taxes,
net of federal benefits 2,999 5,780 5,406
Effects of loss carryforwards (657) 31 1,166
Effects of foreign operations (3,045) (1,607) (519)
Permanent differences 3,960 4,053 4,366
- --------------------------------------------------------------------------------
Income Taxes $ 79,235 $ 90,826 $ 76,721
================================================================================
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
At June 30, 1999 and 1998, the net deferred tax asset was:
1999 1998
----------------------------------------------
Deferred Deferred
(In thousands of dollars) Asset Asset
Temporary Difference Amount (Liability) Amount (Liability)
- --------------------------------------------------------------------------------
Difference between book and tax
recognized contract profits:
U.S. $ 69,067 $ 24,173 $ 78,603 $ 27,511
Foreign (78,006) (23,155) (93,010) (28,932)
Undistributed foreign earnings
not currently taxable in U.S. (145,874) (30,067) (61,940) (17,999)
Accrued expenses not currently
deductible:
U.S. 44,905 15,384 23,798 8,329
Foreign 2,240 632 2,022 320
Depreciation and amortization
differences:
U.S. (1,564) (547) (3,163) (1,107)
Foreign (45,951) (13,774) 10,819 5,240
Other -0- -0- (1,629) (570)
Net foreign operating loss
carryforwards 4,891 1,416 14,686 4,885
Valuation allowance:
Beginning of year (6,871) (2,228) (7,190) (2,373)
Net change for year 1,980 812 319 145
- --------------------------------------------------------------------------------
Total $(155,183) $ (27,354) $ (36,685) $ (4,551)
================================================================================
</TABLE>
In accordance with SFAS No. 123, the U.S. income tax benefit associated
with exercised stock options of $2,766,000 in 1999, $4,497,000 in 1998, and
$3,851,000 in 1997 is classified as an addition to capital in excess of par
value.
Note G - Geographic Data
The Company operates principally in the Electronics Manufacturing Services
(EMS) Industry. It serves the same and similar customers on a global basis.
Accordingly, the Company is viewed by its management as a global provider of
manufacturing services to its customers. Evaluations are not only made of
individual plant performances, but most importantly of worldwide services
provided to strategic customers.
[PAGE 13 OF EXCERPTS FROM FORM 10-K]
The Company's external sales and long-lived assets associated with its
domestic and foreign operations are as follows:
(In thousands of dollars)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Sales Long-lived Assets
------------------------------------------------ -------------------------------------------------
Domestic Foreign Total Domestic Foreign Total
------------------------------------------------ -------------------------------------------------
1999 $3,903,238 $2,807,547 $6,710,785 $142,138 $326,880 $469,018
1998 4,699,582 2,106,311 6,805,893 163,461 277,478 440,939
1997 4,350,482 1,412,174 5,762,656 152,855 151,393 304,248
</TABLE>
Major customer data, including credit risk concentration, is incorporated
by reference from Part I, Marketing and Customers, of the Company's Form 10-K
for the year ended June 30, 1999. U.S. export sales approximated $116,000,000,
$185,000,000, and $102,000,000 for the years ended June 30, 1999, 1998, and
1997, respectively.
Note H - Stock Option Plans
The Company's stock option plan grants options to officers. Under the plan
the Board of Directors may award options at less than market price, but to date
have granted all options at not less than 100% of market value on grant date.
Vesting is 20% upon granting, with 20% per annum thereafter. Options expire ten
years after granting. Stock options are accounted for in accordance with APB
Opinion 25 and related Interpretations. Accordingly, no nonmonetary fair value
compensation costs associated with options have been recorded. Had fair value
compensation costs been determined under SFAS No. 123, pro forma net income and
diluted earnings per share would have been reflected as follows:
<TABLE>
<S> <C> <C> <C>
(In thousands of dollars, except share data) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
Net income
As reported $137,848 $145,085 $112,713
Pro forma 133,677 142,284 110,162
Diluted earnings per share
As reported $2.01 $2.13 $1.69
Pro forma 1.95 2.09 1.65
</TABLE>
Information relating to the changes in the Company's stock options follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(Shares in thousands) 1999 1998 1997
------------------------- ------------------------- -------------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
Outstanding at
beginning of year 2,723.0 $21.50 2,461.7 $13.52 2,366.0 $ 8.91
Granted 737.0 $33.63 701.0 $45.45 694.0 $24.65
Exercised (241.1) $19.12 (330.0) $ 9.36 (530.8) $ 7.41
Canceled (73.0) $34.23 (109.7) $32.02 (67.5) $14.27
------------------------- ------------------------- --------------------------
Outstanding at
end of year 3,145.9 $24.23 2,723.0 $21.50 2,461.7 $13.52
========================= ========================= ==========================
Exercisable at June 30 1,891.5 $17.52 1,569.0 $13.86 1,364.9 $ 8.97
========================= ========================= ==========================
</TABLE>
Shares available for additional granting at June 30 were 1,770,400 in 1999,
428,400 in 1998, and 1,019,800 in 1997. During 1999, an additional 2,000,000
shares for stock options was authorized. The following table summarizes June 30,
1999's outstanding stock option information:
<PAGE>
(Shares in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Weighted-Average
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercisable Price
- ------------------------------------------------------------------------------------------------------------------
$ 3.00 - $ 6.31 525.0 1.86 years $ 4.21 525.0 $ 4.21
$ 8.63 - $ 9.44 431.0 4.87 $ 9.27 431.0 $ 9.27
$10.31 - $18.75 368.6 6.29 $17.20 279.8 $17.13
$20.50 - $28.56 563.1 7.47 $24.92 305.1 $24.89
$32.50 - $38.00 648.4 9.32 $33.57 122.8 $33.54
$41.50 - $49.00 609.8 8.38 $45.72 227.8 $45.76
- ------------------------------------------------------------------------------------------------------------------
$ 3.00 - $49.00 3,145.9 6.60 $24.23 1,891.5 $17.52
==================================================================================================================
</TABLE>
[PAGE 14 OF EXCERPTS FROM FORM 10-K]
Note I - Litigation
The Company has been sued by the Lemelson Medical Educational Research
Foundation (Lemelson), together with eighty-seven other defendants including the
Company's major domestic competitors and customers, alleging infringement on
fifteen patents relating to machine vision and use of bar coding and bar code
readers in manufacturing. Lemelson has been successful in settling similar
assertions against certain automobile and semiconductor manufacturers. Lemelson
is requesting damages equal to a certain percent of sales for a ten-year period.
The Company, together with other major defendants, intends to contest the
validity of the patents. In addition, possible recourse exists against
manufacturers of the equipment Lemelson is alleging violated its patents. While
no guarantee can be given, the Company does not believe that outcome of this
lawsuit will result in any material adverse effect on the Company. The maximum
exposure for this suit is currently estimated to be less than one percent of the
Company's current assets, and the Company has provided for what it believes will
be the likely outcome of the suit. Additionally if Lemelson's patents are
upheld, the Company believes it will be able to obtain adequate licenses to use
them.
The Company is involved in other lawsuits incidental to the conduct of
business, but none are considered material.
Note J - Acquisitions and Subsequent Event
The Company over the last three years has acquired certain assets and
operations from its customers and entered into multiyear manufacturing
agreements for related products. Additionally, the Company acquired the Mexico
City and Brazilian operations of Group Technology Corporation, a competitor, in
June 1997. These acquisitions have been accounted for as asset purchases, with
the excess of the purchase price over the underlying assets being assigned to
intangible assets. None of the acquisitions are considered significant to the
Company's operations, and accordingly, no pro forma information is presented.
In May 1999, the Company acquired the operations of Hewlett-Packard's
Verifone, Inc. Kunshan, China, plant and manufacturing operations. This facility
will also be used for manufacturing other SCI customer products. The Company
acquired computer manufacturing operations from Intergraph Corporation in
October 1998. These operations will be consolidated into two of the Company's
Alabama, plants. The Company acquired various assets and operations from
Ericsson Telecom, AB in support of an agreement where SCI was designated as one
of Ericsson's primary manufacturing partners. The principal assets acquired were
certain assets in Sweden during fiscal year 1998, a Leganes, Spain,
manufacturing operation in October 1998, and a Mexico City manufacturing
operation in August 1998. Also in support of being designated as a customer's
primary manufacturing partner, the Company acquired certain Nokia Corporation
manufacturing operations in Motala, Sweden, and Oulu, Finland, in May and June
1998.
Subsequent to year end in August 1999, the Company entered into an
agreement with Nortel Networks Limited for the purchase of its Brockville,
Ontario, Canada, manufacturing plant and operations, and certain other
manufacturing assets that are scheduled to be consolidated during fiscal year
2000.
<PAGE>
Note K - Selected Quarterly Financial Data (Unaudited)
Quarterly financial results and high and low stock prices, as reported on
the New York Stock Exchange, for the last two fiscal years were:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 1998
------------------------------------------------- -----------------------------------------------
(In thousands of Fourth Third Second First Fourth Third Second First
dollars except per Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
share data) ------- ------- ------- ------- ------- ------- ------- -------
Net sales $1,802,254 $1,603,024 $1,735,930 $1,569,577 $1,590,856 $1,686,849 $1,786,423 $1,741,765
Operating profit 69,521 55,641 56,940 52,700 59,212 64,405 68,105 65,379
Net income 42,833 32,388 32,657 29,970 36,860 34,284 37,559 36,382
Diluted earnings
per share $.60 $.48 $.48 $.45 $.54 $.50 $.55 $.53
Market stock
price range:
High $50 $59 3/8 $57 15/16 $44 1/2 $44 13/16 $49 $53 3/8 $49 7/8
Low 25 1/4 29 3/16 20 3/4 21 1/4 30 1/4 35 9/16 36 1/8 31 1/4
</TABLE>
Quarterly and annual earnings per share are independently computed using
the estimated effective income tax rate and Common Stock market prices
applicable for that period. Consequently, the sum of individual quarterly
diluted earnings per share may not equal the total for the years presented.
<PAGE>
[PAGE 15 OF EXCERPTS FROM FORM 10-K]
================================================================================
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
SCI Systems, Inc.
We have audited the accompanying consolidated balance sheets of SCI Systems,
Inc. as of June 30, 1999, 1998 and 1997, and the related consolidated statements
of income, shareholders' equity, cash flows and comprehensive income for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SCI Systems, Inc.
at June 30, 1999, 1998 and 1997, and the consolidated results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Birmingham, Alabama
August 5, 1999
<PAGE>
[INSIDE BACK COVER OF ANNUAL REPORT TO SHAREHOLDERS]
Corporate Directory
[LEFT COLUMN]
Board of Directors
Olin B. King (1)
Chairman of the Board of the
Company
Huntsville, Alabama
Howard H. Callaway (2)(4)
CEO, Crested Butte Mountain
Resort, Inc.
Crested Butte, Colorado
Chairman
Callaway Gardens Resort, Inc.
Pine Mountain, Georgia
William E. Fruhan (2)(3)
Professor of Business Administration
Harvard University
Boston, Massachusetts
A. Eugene Sapp, Jr. (1)(3)
President and Chief Executive Officer of the Company
Huntsville, Alabama
Wayne Shortridge (1)(3)
Partner
Paul, Hastings, Janofsky & Walker
Atlanta, Georgia
G. Robert Tod (2)(4)
Retired President, CML Group, Inc.
Acton, Massachusetts
Jackie M. Ward (3)(4)
Chief Executive Officer
Computer Generation Incorporated
Atlanta, Georgia
Director Emeritus
Joseph C. Moquin
Retired CEO
Teledyne Brown Engineering
Madison, Alabama
Committees of the Board
(1) Executive Committee
(2) Audit Committee
(3) Investment Committee
(4) Compensation Committee
[MIDDLE COLUMN]
Officers
Chairman of the Board
Olin B. King
President and Chief Executive Officer
A. Eugene Sapp, Jr.
Senior Vice President and Assistant to the President
Peter M. Scheffler
Senior Vice Presidents
C. T. Chua
David F. Jenkins
George J. King
LeRoy H. Mackedanz
Michael H. Missios
Charles N. Parks
W. David Rees
Jerry F. Thomas
Vice Presidents
Alvin G. Austin
Charles Barnhart
Patrick R. Barry
Jose Luis Cano
Warren F. Cline, Jr.
William C. Coker
Michael D. Coleman
Daniel W. Dery
John F. Dullea
Robert P. Eisenberg
James M. Ferguson
James H. Ferry
Luis G. Franco
Francis X. Henry
Mike D. Henry
V. Antti Hintikka
Steven T. Korn
S. T. Lee
David L. Lengel
David L. Marler
Michael P. McCaughey
Hector E. Morales
Ronald E. Patterson
A. Paul Pepe
P. William Quinn
Sven Krister Rapp
Yvonne Sanchez-Navarro
David Snape
Mark J. Tan
Francois M. Thionet
Christopher J. White
John R. Wilkins, Jr.
F. M. Wong
Secretary and Corporate Counsel
Michael M. Sullivan
Treasurer
Ronald G. Sibold
Assistant Vice Presidents
James A. Johnson
John M. Noll
Robert J. Swift
[RIGHT COLUMN]
General Counsel
Powell, Goldstein, Frazer & Murphy
Atlanta, Georgia
Auditors
Ernst & Young LLP
Birmingham, Alabama
Transfer Agent and Registrar
Chase Mellon Shareholder Services
1-800-756-3353
Security Trading Markets
Common Stock
New York Stock Exchange
Symbol "SCI"
Common Stock Options
Chicago Board Options Exchange
Symbol "SSQ"
1-800-OPTIONS
Agent Banks
Revolving Credit
Citibank, N.A.
Commercial Paper
ABN AMRO Bank, N.V.
Asset Securitization
Bank of America, N.T. & S.A.
Annual Shareholders' Meeting
Fourth Friday in October
Shareholder Relations
2101 West Clinton Avenue
MS 130
Huntsville, AL 35805
Internet Website
http://www.sci.com
e-mail
[email protected]
Annual Report to the S.E.C.
The annual report to the Securities and Exchange Commission on Form 10-K
provides complete exhibits and schedules. Copies will be furnished upon written
request to Shareholder Relations at the address above.
This document contains forward looking statements within the meaning of the
Private Securities Act of 1995. Actual results could differ from the forward
looking statements made herein.
[BACK COVER OF ANNUAL REPORT TO SHAREHOLDERS]
SCI Systems, Inc.
Printed by free enterprise in the USA
[END OF ANNUAL REPORT TO SHAREHOLDERS]
[END OF EXHIBIT 13]
EXHIBIT 21--SUBSIDIARIES OF REGISTRANT
Listed below are the principal subsidiaries of the Company and the
percentage of voting securities owned by the Company. The Company's other
subsidiaries, taken in the aggregate, would not constitute a significant
subsidiary.
Jurisdiction in which Percentage of
Incorporated or Organized Voting
Securities
Owned
SCI Systems (Alabama), Inc. Alabama 100%
SCI Technology, Inc. Alabama 100%
SCI Foreign Sales, Inc U.S. Virgin islands 100%
SCIMEX, Inc. Alabama 100%
SCI Systems de Mexico S.A. Mexico 100%
SCI Holdings, Inc. Delaware 100%
SCI Manufacturing
Singapore Pte. Ltd. Singapore 100%
SCI Systems (Thailand)
Limited Thailand 100%
SCI Irish Holdings
Republic of Ireland
100%
SCI Ireland Limited Republic of Ireland 100%
SCI Alpha Limited Republic of Ireland 100%
SCI Systems (Canada), Inc. Canada 100%
Newport, Inc. Georgia 100%
SCI Holding France, S.A. France 100%
SCI France, S.A. France 100%
SCI Manufacturing
(Malaysia) SDN BHD Malaysia 100%
SCI Funding, Inc. Delaware 100%
SCI Hungary Ltd. Hungary 100%
Advanced Electronic
Technology, LTDA. Brazil 100%
Advanced Electronic
Integration, LTDA. Brazil 100%
SCI Systems Finland OY Finland 100%
SCI Systems Sweden AB Sweden 100%
SCI Systems Spain SA Spain 100%
AET Holland CV The Netherlands 100%
SCI Netherlands Holding BV The Netherlands 100%
SCI Netherlands The Netherlands 100%
Interagency Inc. Delaware 100%
SCI Services de Mexico, S.A. Mexico 100%
AET Holdings LTD. Mauritius 100%
Verifone Kunshan LTD. Peoples's Republic of China 100%
SCI Brock Holdings
Corporation Canada 100%
SCI Brock Telecom Limited Canada 100%
Exhibit 23 - Consent of Independent Auditor
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of SCI Systems, Inc. of our report dated August 5, 1999, included in the 1999
Annual Report to Shareholders of SCI Systems, Inc.
We also consent to the incorporation by reference in (i) the Registration
Statement (Form S-8 No. 33-56809) and related Prospectus pertaining to the
Savings Plan of the SCI Systems, Inc. Employee Financial Security Program; (ii)
the Registration Statement (Form S-8 No. 33-56811) and related Prospectus
pertaining to the Deferred Compensation Plan of the SCI Systems, Inc. Employee
Financial Security Program; (iii) the Registration Statement (Form S-8 No.
2-91587) and related Prospectus pertaining to the Incentive Stock Option Plan of
SCI Systems, Inc.; (iv) the Registration Statement (Form S-8 No. 33- 11894) and
related Prospectus pertaining to the Non-Qualified Stock Option Plan of SCI
Systems, Inc.; (v) the Registration Statement (Form S-8 No. 333-71589) and
related Prospectus pertaining to the SCI Systems, Inc. Board of Directors
Deferred Compensation Plan., and, (vi) the Registration Statement (Form S-8 No.
333-71591) and related Prospectus pertaining to the SCI Systems, Inc. 1994 Stock
Option Incentive Plan, of our report dated August 5, 1999, with respect to the
consolidated financial statements of SCI Systems, Inc. incorporated by reference
in the Annual Report (Form 10-K) for the year ended June 30, 1999
/s/ Ernst & Young LLP
Birmingham, Alabama
September 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1999'S BALANCE SHEET AND THE INCOME STATEMENT FOR THE YEAR THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 216,085
<SECURITIES> 0
<RECEIVABLES> 834,555
<ALLOWANCES> 12,630
<INVENTORY> 719,008
<CURRENT-ASSETS> 1,831,699
<PP&E> 940,083
<DEPRECIATION> 492,098
<TOTAL-ASSETS> 2,322,660
<CURRENT-LIABILITIES> 955,309
<BONDS> 140,853
0
0
<COMMON> 7,214
<OTHER-SE> 1,157,603
<TOTAL-LIABILITY-AND-EQUITY> 2,322,660
<SALES> 6,710,785
<TOTAL-REVENUES> 6,710,785
<CGS> 6,475,983
<TOTAL-COSTS> 6,475,983
<OTHER-EXPENSES> (6,360)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,079
<INCOME-PRETAX> 217,083
<INCOME-TAX> 79,235
<INCOME-CONTINUING> 137,848
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,848
<EPS-BASIC> 2.22
<EPS-DILUTED> 2.01
</TABLE>
