<PAGE>
As filed with the Securities and Exchange Commission on May 16, 2000
Registration No.
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
under
The Securities Act of 1933
---------------
PEMSTAR INC.
(Exact name of registrant as specified in its charter)
3672 41-1771227
Minnesota (Primary Standard (I.R.S. Employer
(State or other Industrial Identification Number)
jurisdiction of Classification Code
incorporation or Number)
organization)
3535 Technology Drive N.W.
Rochester, Minnesota 55901
(507) 288-6720
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Allen J. Berning
Pemstar Inc.
3535 Technology Drive N.W.
Rochester, Minnesota 55901
(507) 288-6720
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
---------------
Copies to:
Jonathan B. Abram Dennis M. Myers
Dorsey & Whitney LLP Kirkland & Ellis
220 South Sixth Street 200 East Randolph Drive
Minneapolis, Minnesota 55402-1498 Chicago, Illinois 60601
(612) 340-2600 (312) 861-2000
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
---------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Maximum Aggregate
Titles of Each Class of Securities to be Offering Price Amount of
Registered (1) Registration Fee
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<S> <C> <C>
Common Stock, par value $.01 per share
(2)....................................... $115,000,000 $30,360
</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
(2) Includes certain associated preferred stock rights that will be issued to
each shareholder pursuant to a rights agreement.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and it is not soliciting an offer to buy +
+these securities, in any jurisdiction where the offer or sale in not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated May 16, 2000
PROSPECTUS
Shares
PEMSTAR
Common Stock
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This is our initial public offering of common stock. We are offering up to
shares of common stock. No public market currently exists for our
shares.
We propose to list our common stock on the Nasdaq National Market under the
symbol "PMTR." The anticipated price range is $ to $ per share.
Investing in the shares involves risks. "Risk Factors" begin on page 8.
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public Offering Price............................................... $ $
Underwriting Discount...............................................
Proceeds to Pemstar.................................................
</TABLE>
We and certain selling shareholders have granted the underwriters a 30-day
option to purchase up to additional shares of common stock on the same
terms and conditions as set forth above to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is accurate or complete. Any representation to the contrary is
a criminal offense.
Lehman Brothers, on behalf of the underwriters, expects to deliver the shares
on or about , 2000.
- --------------------------------------------------------------------------------
Lehman Brothers Robertson Stephens
Chase H&Q
CIBC World Markets
Fidelity Capital Markets
a division of National Financial Services Corporation
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 3
Risk Factors........................ 8
Use of Proceeds..................... 14
Dividend Policy..................... 14
Capitalization...................... 15
Dilution............................ 16
Unaudited Pro Forma Consolidated
Financial Data..................... 17
Selected Consolidated Financial
Data............................... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 21
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business......................... 28
Management....................... 40
Related Party Transactions....... 47
Principal Shareholders........... 48
Description of Capital Stock..... 50
Shares Eligible for Future Sale.. 54
Underwriting..................... 56
Legal Matters.................... 58
Experts.......................... 58
Where You Can Find More
Information..................... 59
Index to Financial Statements.... F-1
</TABLE>
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is not an offer to sell or a
solicitation of an offer to buy our common stock in any jurisdiction where it
is unlawful. The information contained in this prospectus is accurate only as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
This preliminary prospectus is subject to completion prior to this offering.
Some of the statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
prospectus are forward-looking statements. These forward-looking statements
include, but are not limited to, statements about our plans, objectives,
expectations and intentions and other statements contained in the prospectus
that are not historical facts. When used in this prospectus, the words
"anticipates," "believe," "continue," "could," "estimate," "expects,"
"intends," "may," "plans," "seeks," "should," or "will" or the negative of
these terms or similar expressions are generally intended to identify forward-
looking statements. Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by these forward-looking
statements, including the factors discussed under "Risk Factors."
PEMSTAR(R) is a registered trademark of Pemstar Inc. Other trademarks and
trade names appearing in this prospectus are the property of their respective
holders.
Until , 2000, all dealers selling shares of the common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information we present in greater detail elsewhere
in this prospectus. This prospectus contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially
from those discussed in the forward-looking statements as a result of factors
described under "Risk Factors" and elsewhere in this prospectus.
Pemstar Inc.
We are a leading provider of electronics manufacturing services, or EMS, to
original equipment manufacturers, or OEMs, in the communications, computing,
data storage, industrial and medical equipment markets. We offer our
communications industry customers substantial expertise and experience in the
wireless and optical systems markets that are experiencing rapidly growing
demand for specialized engineering and manufacturing services. We provide a
comprehensive range of engineering, manufacturing and fulfillment services to
our customers on a global basis through nine facilities strategically located
in the United States, Mexico, Asia and Europe. Our comprehensive service
offerings support our customers' needs from product development and design
through manufacturing to worldwide distribution and aftermarket support. Since
our founding in 1994, we have experienced strong financial growth and
consistent profitability, with Manufacturing Market Insider ranking our revenue
growth rate of 110% in fiscal 2000 the highest among the top twenty domestic
EMS companies for their most recent fiscal year.
The EMS industry is experiencing dramatic growth primarily driven by the
overall growth of the electronics industry, increased use of outsourcing among
OEMs and frequent OEM asset divestitures to EMS businesses. By outsourcing EMS,
OEMs are able to focus on their core competencies, such as product development,
sales, marketing and customer service, while leveraging the expertise of EMS
providers in assembly and test operations and supply chain management. OEMs are
increasingly outsourcing a broad spectrum of design services, including product
definition, design for manufacturability and design for test. Technology
Forecasters, Inc., or TFI, projects that the global EMS industry will grow at
an average annual rate of 20%, from $60 billion of revenues in 1998 to $149
billion in 2003. TFI also projects that the communications segment, which
represented $19 billion of revenues in 1998, will be the fastest growing EMS
market through 2003. Additionally, the EMS industry is highly fragmented, with
over 3,000 independent EMS companies in existence and the twenty largest
companies accounting for only 56% of the worldwide market in 1998 based on
revenues.
Our customers include industry leading OEMs such as 3M, Efficient Networks,
Electronics For Imaging, Fluke Corporation, Fujitsu, Hewlett Packard,
Honeywell, IBM, Motorola, Pinnacle, RSA, Seagate and Sony. We also have
leveraged our expertise in the wireless and optical systems markets to develop
strong relationships with a number of emerging wireless and optical systems
OEMs, including Ancor Communications, Interwave, Optical Networks, Optical
Solutions, Repeater Technologies and Western Multiplex.
Over the past several years, we have completed a number of acquisitions and
established new operations in order to expand our geographic presence, enhance
our product and service offerings, diversify our customer base and increase our
production capacity. In June 1999, we acquired Quadrus Manufacturing, a
division of Bell Microproducts, located in San Jose, California, which
primarily serves the communications sector in North America. In May 1999, we
also acquired a division of Fluke Corporation located in Almelo, the
Netherlands, which primarily serves the industrial equipment sector in Europe
and North America. Since 1994, we have established operations in Guadalajara,
Mexico; Tianjin, China; Singapore and Bangkok, Thailand, which have expanded
our manufacturing and distribution capabilities and further broadened our
customer base. We continue to actively pursue potential acquisitions to
complement our organic growth and to expand our business.
3
<PAGE>
Our Competitive Strengths
We have established strong, long-term relationships with numerous OEMs, many
of which are leaders in their respective markets. Our business is built on
several specific strengths, including the following:
. World-Class Engineering Capabilities. Utilizing over 400 engineering
professionals worldwide, we differentiate ourselves in the EMS
marketplace by providing our customers with world-class engineering and
product management services. Our engineering capabilities enable us to
design and enhance the manufacturability of our customers' products,
thereby increasing product quality, reducing both time to market and
manufacturing costs as well as improving our customers' overall
profitability.
. Communications Focus with Specific Wireless and Optical Systems
Expertise. We focus substantial resources on the rapidly expanding
communications industry and have developed specific expertise in the
high growth wireless and optical systems market segments. As a result,
revenues from communications OEMs increased to approximately 34% of our
total revenues in fiscal 2000 from 16% in fiscal 1999.
. Comprehensive Manufacturing and Fulfillment Services. We complement our
engineering capabilities with a comprehensive range of manufacturing,
value-added assembly, final systems build-to-order, worldwide
distribution and aftermarket services. These capabilities enable us to
provide OEMs with a complete solution for all of their EMS needs.
. Global Scale and Infrastructure. We have established a network of
facilities in the world's major electronics markets--North America,
Europe and Asia--to serve the increasing outsourcing needs of both
multinational and regional OEMs. As a result, we are able to reduce the
time and cost required to bring our customers' products to market.
Our Strategy
Our objective is to enhance our position as a leading EMS provider to OEMs
worldwide. We intend to achieve this objective by continuing to employ the
following strategies:
. Leverage our world-class engineering services;
. Provide comprehensive engineering, manufacturing and fulfillment service
offerings;
. Focus on high growth EMS market segments;
. Expand our global scale and infrastructure;
. Pursue selective acquisitions;
. Focus on quality management; and
. Provide superior supply chain management.
----------------
Pemstar is a Minnesota corporation incorporated in 1994. Our principal
executive office is located at 3535 Technology Drive N.W., Rochester, Minnesota
55901. Our telephone number is (507) 288-6720. We maintain a website on the
Internet at www.pemstar.com. Our website, and the information contained
therein, is not a part of this prospectus.
4
<PAGE>
The Offering
Common stock offered by Pemstar..... shares
Common stock to be outstanding
after the offering.................
shares
Use of proceeds..................... We intend to use the net proceeds from
this offering to repay existing
indebtedness and for general corporate
purposes, including working capital,
capital expenditures and possible
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market "PMTR"
symbol..............................
The number of shares that will be outstanding after the offering is based on
the number of shares outstanding as of March 31, 2000, and excludes:
. 3,845,232 shares of common stock issuable upon exercise of stock options
outstanding as of March 31, 2000, with a weighted average exercise price
of $4.35 per share; and
. 1,327,362 additional shares reserved for issuance under our stock option
plans as of March 31, 2000.
Our fiscal year ends on March 31 of each year and fiscal years are
identified in this prospectus according to the calendar year in which they end.
For example, the fiscal year ended March 31, 2000, is referred to as "fiscal
2000." Except as otherwise indicated, all information in this prospectus
assumes that the underwriters do not exercise the option granted by us and
certain selling shareholders to purchase additional shares in this offering and
that all of our outstanding preferred stock is converted into common stock upon
the consummation of this offering and reflects a 3-for-1 stock split, which was
effective in May 2000.
5
<PAGE>
Summary Consolidated Financial Data
The following table summarizes financial data regarding our business and
should be read together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," our consolidated financial statements and
the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------
1996 1997 1998 1999 2000
------- ------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of
Income Data:
Net sales..................... $22,021 $31,895 $165,049 $187,381 $393,842
Costs of goods sold........... 18,724 27,347 147,962 172,219 363,974
------- ------- -------- -------- --------
Gross profit.................. 3,297 4,548 17,087 15,162 29,868
Selling, general and
administrative expenses...... 2,309 2,976 8,328 10,955 21,576
Amortization.................. -- -- 54 190 1,281
------- ------- -------- -------- --------
Operating income.............. 988 1,572 8,705 4,017 7,011
Other income (expense) -net... 187 247 455 (438) (74)
Interest expense.............. (255) (315) (746) (640) (3,588)
------- ------- -------- -------- --------
Income before income taxes.... 920 1,504 8,414 2,939 3,349
Income tax expense............ 289 554 3,097 1,273 698
------- ------- -------- -------- --------
Net income.................... $ 631 $ 950 $ 5,317 $ 1,666 $ 2,651
======= ======= ======== ======== ========
Net income per share:
Basic....................... $ 0.08 $ 0.12 $ 0.55 $ 0.15 $ 0.23
Diluted..................... 0.08 0.12 0.49 0.12 0.15
Weighted average number of
common shares outstanding
(1):
Basic....................... 7,645 8,009 9,653 10,897 11,503
Diluted..................... 7,758 8,039 10,874 14,143 17,167
Other Financial Data:
Depreciation.................. $ 600 $ 911 $ 1,929 $ 3,331 $ 7,455
Capital expenditures.......... 1,587 2,887 8,393 8,657 13,415
Supplemental Data:
EBITDA (2).................... $ 1,775 $ 2,730 $ 11,143 $ 7,100 $ 15,673
Net cash provided by (used in)
operating activities......... 150 776 (1,374) 65 (20,225)
Net cash provided by (used in)
investing activities......... (1,576) (2,938) (10,126) (5,545) (53,489)
Net cash provided by (used in)
financing activities......... 1,343 2,133 14,661 3,112 75,612
</TABLE>
6
<PAGE>
The as adjusted consolidated balance sheet data gives effect to the
automatic conversion of all of our outstanding shares of preferred stock into
shares of common stock upon consummation of this offering and the consummation
of this offering and the application of the net proceeds as described under
"Use of Proceeds," as if each had occurred on March 31, 2000.
<TABLE>
<CAPTION>
As of March 31, 2000
------------------------
As Adjusted (3)
Actual (unaudited)
-------- ---------------
(in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Unrestricted cash and cash equivalents............... $ 2,727 $41,427
Working capital...................................... 49,649 96,749
Total assets......................................... 190,451 229,151
Long-term debt and capital lease obligations less
current maturities.................................. 55,181 10,031
Total shareholders' equity........................... 22,673 141,472
</TABLE>
- --------
(1) For an explanation of the determination of the weighted average number of
common shares outstanding used in computing net income per share, see Note
1 of the notes to consolidated financial statements.
(2) EBITDA means earnings before net interest expense, income taxes,
depreciation and amortization. EBITDA is presented because we believe it
is an indicator of our ability to incur and service debt and a similar
formula is used by our lenders in determining compliance with financial
covenants. However, EBITDA should not be considered as an alternative to
cash flow from operating activities, as a measure of liquidity or as an
alternative to net income as a measure of operating results in accordance
with generally accepted accounting principles.
(3) We intend to use approximately $63.9 million of the net proceeds from this
offering to repay existing indebtedness. The table above reflects the
repayment of $53.6 million, the amount of our indebtedness outstanding as
of March 31, 2000. Subsequently, we incurred additional indebtedness of
$10.3 million. See "Use of Proceeds."
7
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making a
decision to buy our shares. If any of the following risks actually occur, our
business could be harmed. In that event, the trading price of our shares might
decline, and you could lose all or part of your investment. You should also
refer to the other information set forth in this prospectus, including our
consolidated financial statements and related notes.
Risks Relating to Our Business and Industry
A downturn in the EMS markets we serve would likely negatively affect our net
sales.
The communications, computing, data storage, industrial and medical
equipment markets of the EMS industry are characterized by intense competition,
relatively short product life-cycles and significant fluctuations in product
demand. In addition, these EMS industry markets are generally subject to rapid
technological change and product obsolescence. If any of these factors or other
factors reduce demand for specific products or components that we design or
manufacture for our customers, our net sales would likely be negatively
affected. Furthermore, these industries are subject to economic cycles and have
in the past experienced, and are likely in the future to experience,
recessionary periods. A recession or any other event leading to excess capacity
or a downturn in the EMS markets we serve would likely negatively affect our
net sales.
We depend on a small number of customers for a significant portion of our net
sales and the loss of any of our major customers would harm us.
We depend on a relatively small number of customers for a significant
portion of our net sales. Our two largest customers in fiscal 2000 were IBM and
Motorola, which represented approximately 37% and 15% of our total net sales.
In addition, our five largest customers in fiscal 2000 accounted for
approximately 75% of our net sales. We expect to continue to depend upon a
relatively small number of customers for a significant percentage of our net
sales. Because our major customers represent such a large part of our business,
the loss of any of our major customers could negatively impact our business.
Our major customers may not continue to purchase products and services from
us at current levels or at all. For various reasons, including consolidation in
our customers' industries, we have in the past and expect in the future to
terminate or lose relationships with customers. We may not be able to expand
our customer base to make up any sales shortfalls if we lose a major customer.
Our attempts to diversify our customer base and reduce our reliance on
particular customers may not be successful.
Our business is not typified by long-term contracts, and cancellations,
reductions or delays in customer orders would adversely affect our
profitability.
We do not typically obtain firm long-term purchase orders or commitments
from our customers. We work closely with our customers to develop forecasts for
future orders, but these forecasts are not binding. Customers may cancel their
orders, change production quantities from forecast volumes or delay production
for a number of reasons beyond our control. Any material delay, cancellation or
reduction of orders from our largest customers could cause our net sales to
decline significantly. In addition, as many of our costs and operating expenses
are relatively fixed, a reduction in customer demand can decrease our gross
margins and adversely affect our business, financial condition and results of
operations.
Shortages or price fluctuations in component parts specified by our customers
could delay product shipments and adversely affect our profitability.
Many of the products we manufacture require one or more components that we
order from sole-source suppliers. Supply shortages for a particular component
can delay production of all products using that component or cause cost
increases in the services we provide. In the past, some of the materials we
use, such
8
<PAGE>
as capacitors and memory and logic devices, have been subject to industry-wide
shortages. As a result, suppliers have been forced to allocate available
quantities among their customers and we have not been able to obtain all of the
materials desired. Our inability to obtain these needed materials could slow
production or assembly, delay shipments to our customers, increase costs and
reduce operating income. In certain circumstances, we may bear the risk of
periodic component price increases. Accordingly, some component price increases
could increase costs and reduce our operating income.
In addition, if we fail to manage our inventory effectively, we may bear the
risk of fluctuations in materials costs, scrap and excess inventory, all of
which adversely affect our business, financial condition and results of
operations. We are required to forecast our future inventory needs based upon
the anticipated demand of our customers. Inaccuracies in making these forecasts
or estimates could result in a shortage or an excess of materials. A shortage
of materials could lengthen production schedules and increase costs. An excess
of materials may increase the costs of maintaining inventory and may increase
the risk of inventory obsolescence, both of which may increase expenses and
decrease our profit margins and operating income.
We have experienced significant growth in a short period of time and we may
have trouble managing our expansion and integrating acquired businesses.
We have grown rapidly in recent years due to acquisitions and organic
growth. Since 1994, we have completed two acquisitions and developed two
greenfield operations. As a result, we have a limited history of owning and
operating our acquired businesses on a consolidated basis. We cannot assure you
that we will be able to meet performance expectations or successfully integrate
our acquired businesses on a timely basis without disrupting the quality and
reliability of service to our customers or diverting management resources. Our
rapid growth has placed and will continue to place a significant strain on our
management, financial resources and on our information, operations and
financial systems. If we are unable to manage our growth effectively, it may
have an adverse effect on our business, financial condition and results of
operations. We cannot assure you that we will manage our growth effectively,
and we expect that our annual growth rate of net sales will decrease in the
future due to our increased size.
We expect to continue to expand our operations through acquisitions and
greenfield expansions. These activities involve numerous risks, including
difficulty in integrating operations, technologies, systems, and products and
services of these acquired companies; diversion of management's attention; a
disruption of operations; increases in expenses and working capital
requirements; failure to enter effectively markets in which we have limited or
no prior experience and where competitors in such markets have stronger market
positions; and potential loss of key employees and customers of acquired
companies. In addition, acquisitions may involve financial risks, such as the
potential liabilities of the acquired businesses, the dilutive effect of the
issuance of additional equity securities, the incurrence of additional debt,
the financial impact of transaction expenses and the amortization of goodwill
and other intangible assets involved in any transactions that are accounted for
using the purchase method of accounting, and possible adverse tax and
accounting effects.
Increased competition may result in decreased demand or prices for our
services.
The EMS industry is highly competitive and characterized by low margins. We
compete against numerous U.S. and foreign service providers with global
operations, as well as those who operate on a local or regional basis. In
addition, current and prospective customers continually evaluate the merits of
manufacturing products internally. Consolidation in the EMS industry results in
a continually changing competitive landscape. The consolidation trend in the
industry also results in larger and more geographically diverse competitors who
have significant combined resources with which to compete against us. Some of
our competitors have substantially greater managerial, manufacturing,
engineering, technical, financial, systems, sales and marketing resources than
we do. These competitors may:
. Respond more quickly to new or emerging technologies;
. Have greater name recognition, critical mass and geographic and market
presence;
. Be better able to take advantage of acquisition opportunities;
9
<PAGE>
. Adapt more quickly to changes in customer requirements; and
. Devote greater resources to the development, promotion and sale of their
services.
We also may be operating at a cost disadvantage as compared to competitors
who have greater direct buying power from component suppliers, distributors and
raw material suppliers or who have lower cost structures. Increased competition
from existing or potential competitors could result in price reductions,
reduced margins or loss of market share.
We anticipate that our net sales and operating results will fluctuate which
could affect the price of our common stock.
Our net sales and operating results have fluctuated and may continue to
fluctuate significantly from quarter to quarter. A substantial portion of our
net sales in any given quarter may depend on obtaining and fulfilling orders
for assemblies to be manufactured and shipped in the same quarter in which
those orders are received. Further, a significant portion of our net sales in a
given quarter may depend on assemblies configured, completed, packaged and
shipped in the final weeks of such quarter. Our operating results may fluctuate
in the future as a result of many factors, including:
. Variations in customer orders relative to our manufacturing capacity;
. Variations in the timing of shipment of products to customers;
. Introduction and market acceptance of our customers' new products;
. Changes in competitive and economic conditions generally or in our
customers' markets;
. Effectiveness of our manufacturing processes, including controlling
costs;
. Changes in cost and availability of components or skilled labor; and
. The timing and price we pay for acquisitions and related acquisition
costs.
Our operating expenses are based on anticipated revenue levels and a high
percentage of our operating expenses are relatively fixed in the short term. As
a result, any unanticipated shortfall in revenue in a quarter would likely
adversely affect our operating results for that quarter. Also, changes in our
product assembly mix may cause our margins to fluctuate which could negatively
impact our results of operations for that period. Results in any period should
not be considered indicative of the results to be expected in any future
period. It is possible that in one or more future periods our results of
operations will fail to meet the expectations of securities analysts or
investors, and the price of our common stock could decline significantly.
If we are unable to respond to rapidly changing technologies and process
developments, we may not be able to compete effectively.
The market for our products and services is characterized by rapidly
changing technologies and continuing process developments. The future success
of our business will depend in large part upon our ability to maintain and
enhance our technological capabilities, to develop and market products and
services that meet changing customer needs and to successfully anticipate or
respond to technological changes on a cost-effective and timely basis. Our core
technologies could in the future encounter competition from new or revised
technologies that render existing technology less competitive or obsolete or
that reduce the demand for our services. We cannot assure you that we will
effectively respond to the technological requirements of the changing market.
If we determine that new technologies and equipment are required to remain
competitive, the development, acquisition and implementation of these
technologies may require us to make significant capital investments. We cannot
assure you that we will be able to obtain capital for these purposes in the
future or that investments in new technologies will result in commercially
viable technological processes. The loss of revenue and earnings to us from
these changing technologies and process developments could adversely affect us.
We will need additional financing to support our future growth.
We expect to continue to make substantial capital expenditures to expand our
operations and remain competitive in the rapidly changing EMS industry. Our
future success depends on our ability to obtain
10
<PAGE>
additional financing and capital to support our future growth, if any. We may
not be able to obtain additional capital when we want or need it, and capital
may not be available on satisfactory terms. If we issue additional equity
securities or convertible debt to raise capital, it may be dilutive to your
ownership interest. In addition, any additional capital may have terms and
conditions that adversely affect our business, such as financial or operating
covenants.
Operating in foreign countries exposes us to increased risks which could
adversely affect our results of operations.
We currently have foreign operations in China, Mexico, the Netherlands,
Singapore and Thailand. We may in the future expand into other international
regions. We have limited experience in managing geographically dispersed
operations and in operating in Europe, Mexico or Asia. We also purchase a
significant number of components manufactured in foreign countries. Because of
the scope of our international operations, we are subject to the following
risks which could adversely impact our results of operations:
. Economic or political instability;
. Transportation delays and interruptions;
. Foreign currency exchange rate fluctuations;
. Increased employee turnover and labor unrest;
. Longer payment cycles;
. Greater difficulty in collecting accounts receivable;
. Utilization of different systems and equipment;
. Difficulties in staffing and managing foreign personnel and diverse
cultures; and
. Less developed infrastructures.
In addition, changes in policies by the United States or foreign governments
could negatively affect our operating results due to increased duties,
increased regulatory requirements, higher taxation, currency conversion
limitations, restrictions on the transfer of funds, the imposition of or
increase in tariffs and limitations on imports or exports. Also, we could be
negatively affected if our host countries revise their policies away from
encouraging foreign investment or foreign trade, including tax holidays.
Our acquisition strategy may not succeed.
As part of our business strategy, we expect to continue to grow by pursuing
acquisitions of other companies, assets or product lines that complement or
expand our existing business. Competition for attractive companies in our
industry is substantial. We cannot assure you that we will be able to identify
suitable acquisition candidates or finance and complete transactions that we
select. Failure to execute our acquisition strategy may adversely affect our
business, financial condition and results of operations.
We may be unable to protect our intellectual property, which would negatively
affect our ability to compete.
We rely on our proprietary technology, and we expect that future
technological advances made by us will be critical to remain competitive.
Therefore, we believe that the protection of our intellectual property rights
is, and will continue to be, important to the success of our business. We rely
on a combination of patent, trademark and trade secret laws and restrictions on
disclosure to protect our intellectual property rights. Despite these
protections, unauthorized parties may attempt to copy or otherwise obtain and
use our proprietary technology. We cannot be certain that patents we have or
that may be issued as a result of our pending patent applications will protect
or benefit us or give us adequate protection from competing technologies. We
also cannot be certain that others will not develop our unpatented proprietary
technology or effective competing technologies on their own. We believe that
our proprietary technology does not infringe on the proprietary rights of
others. However, if others assert valid infringement claims against us with
respect to our past, current or future designs or processes, we could be
required to enter into expensive royalty arrangements, develop non-infringing
technologies or engage in costly litigation, which could negatively affect our
business, financial condition and results of operations.
11
<PAGE>
Our inability to expand our Web-based supply chain management system could
negatively impact our future competitiveness.
Our future success depends in part on our ability to rapidly respond to
changing customer needs by scaling operations to meet customers' requirements,
shift capacity in response to product demand fluctuations, procure materials at
advantageous prices, manage inventory and effectively distribute products to
our customers. In order to continue to meet these customer requirements, we
have developed a Web-based supply chain management system that enables us to
collaborate with our customers on product content and to process engineering
changes. We are currently implementing an enhanced version of our existing
system, which will include real-time communications between our customers
across all of our facilities. Our inability to expand this Web-based system, or
delays or defects in such expansion could negatively impact our ability to
manage our supply chain in an efficient and timely manner to meet customer
demands, which could adversely affect our competitive position and negatively
affect our ability to be competitive in the EMS industry.
Our business could suffer if we lose the services of, or fail to attract, key
personnel.
Our future success largely depends on the skills and efforts of our
executive management and our engineering, manufacturing and sales employees. We
do not have employment contracts or non-competition agreements with any of our
executive management or other key employees. The loss of services of any of our
executives or other key personnel could negatively affect our business. Our
continued growth will also require us to attract, motivate, train and retain
additional skilled and experienced managerial, engineering, manufacturing and
sales personnel. We face intense competition for such personnel. We may not be
able to attract, motivate and retain personnel with the skills and experience
needed to successfully manage our business and operations.
We are subject to a variety of environmental laws which expose us to potential
financial liability.
Our operations are regulated under a number of federal, state, provincial,
local and foreign environmental laws and regulations, which govern, among other
things, the discharge of hazardous materials into the air and water as well as
the handling, storage and disposal of such materials. Compliance with these
environmental laws is a significant consideration for us because we use metals
and other hazardous materials in our manufacturing processes. We may be liable
under environmental laws for the cost of cleaning up properties we own or
operate if they are or become contaminated by the release of hazardous
materials, regardless of whether we caused the release. In addition, we, along
with any other person who arranges for the disposal of our wastes, may be
liable for costs associated with an investigation and remediation of sites at
which we have arranged for the disposal of hazardous wastes, if such sites
become contaminated, even if we fully comply with applicable environmental
laws. In the event of contamination or violation of environmental laws, we
could be held liable for damages including fines, penalties and the costs of
remedial actions and could also be subject to revocation of our discharge
permits. Any such penalties or revocations could require us to cease or limit
production at one or more of our facilities, thereby harming our business.
Risks Relating to this Offering
Management has discretion in spending our proceeds from this offering.
Management intends to use approximately $63.9 million of the net proceeds
from this offering to repay existing indebtedness and approximately $28.4
million of the net proceeds for general corporate purposes, including working
capital, capital expenditures and possible acquisitions. You should be aware
that we have broad discretion to determine the allocation of our proceeds from
this offering that will be used for general corporate purposes. You will not
have an opportunity to evaluate the economic, financial or other information on
which we base our decisions on how to use these proceeds. See "Use of
Proceeds."
The initial public offering price is significantly higher than the book value
of our common stock, and you will experience immediate and substantial dilution
in the book value of your investment.
Prior investors paid a lower per share price than the price in this
offering. The initial public offering price is substantially higher than the
net book value per share of the outstanding common stock immediately after
12
<PAGE>
this offering. Accordingly, if you purchase common stock in this offering, you
will incur immediate and substantial dilution of $ per share. In addition,
we have issued options to acquire common stock at prices significantly below
the initial public offering price. To the extent these outstanding options are
exercised, there will be further dilution to investors in this offering. See
"Dilution."
We do not intend to pay dividends on our common stock.
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future.
Future sales of our common stock, including the shares purchased in this
offering, may depress our stock price.
Sales of a substantial number of shares of our common stock in the public
market by our shareholders after this offering, or the perception that such
sales are likely to occur, could depress the market price of our common stock
and could impair our ability to raise capital through the sale of additional
equity securities. Based on shares outstanding as of March 31, 2000, upon
completion of this offering we will have outstanding shares of common
stock, assuming no exercise of the underwriters' overallotment option. Of these
shares, the shares of common stock sold in this offering will be freely
tradable, without restriction, in the public market. After the lockup
agreements pertaining to this offering expire 180 days from the date of this
prospectus, an additional 18.5 million shares will be eligible for sale in the
public market. In addition, 3.0 million of the shares subject to outstanding
options will be exercisable, and if exercised, available for sale 180 days
after the date of this prospectus. See "Shares Eligible for Future Sale."
An active public market for our common stock may not develop, which could
impede your ability to sell your shares and depress our stock price.
Before this offering, you could not buy or sell our common stock on the
public market. An active public market for our common stock may not develop or
be sustained after the offering, which could affect your ability to sell your
shares and depress the market price of your shares. The market price of your
shares may fall below the initial public offering price.
Provisions in our charter documents and Minnesota law may delay or prevent
acquisition of our company.
Provisions of our amended articles of incorporation and our amended and
restated bylaws which we intend to adopt prior to completion of this offering
and provisions of Minnesota law may delay or prevent the acquisition of our
company which you may consider favorable. These provisions include the
following:
. No cumulative voting by shareholders for directors;
. A classified board of directors with three-year staggered terms;
. The ability of our board to set the size of the board of directors, to
create new directorships and to fill vacancies;
. The ability of our board, without shareholder approval, to issue
preferred stock, which may have rights and preferences that are superior
to our common stock;
. The ability of our board to amend the bylaws;
. A shareholder rights plan, which discourages the unauthorized
acquisition of 15% or more of our common stock or an unauthorized
exchange or tender offer;
. Restrictions under Minnesota law on mergers or other business
combinations between us and any holder of 10% or more of our outstanding
common stock; and
. A requirement that at least two-thirds of our shareholders and at least
two-thirds of our directors approve amendments of our articles of
incorporation.
13
<PAGE>
USE OF PROCEEDS
We estimate the net proceeds from this offering to be approximately $92.3
million or approximately $ million if the underwriters exercise their
over-allotment option in full based on an assumed public offering price of
$ per share and after deducting our estimated underwriting and offering
expenses.
We intend to use approximately $63.9 million of the net proceeds from this
offering to repay existing indebtedness and approximately $28.4 million for
general corporate purposes, including the funding of working capital, capital
expenditures and internal expansion. In addition, we may acquire companies,
assets or product lines that are complementary to ours, and a portion of the
net proceeds may be used for these acquisitions. While we engage from time to
time in discussions with respect to potential acquisitions, we cannot assure
you that any acquisitions will be made. Pending use of the net proceeds of this
offering, we intend to invest the net proceeds in short-term, interest bearing,
investment-grade marketable securities.
As of May 15, 2000, the existing indebtedness to be repaid from a portion of
the net proceeds from this offering consisted of the following:
. Approximately $48.7 million under our two revolving credit facilities
with US Bank, excluding accrued interest, with an effective interest
rate of 11.0% and a final maturity date of August 2002;
. Approximately $15.0 million under our credit facility with IBM Credit
Corporation, excluding accrued interest, with an interest rate of 10.0%
and a final maturity date of May 2001; and
. Approximately $0.2 million under non-interest bearing notes issued to
Rochester Area Economic Development, Inc., which are due and payable in
the event we complete an initial public offering.
We used borrowings under our US Bank revolving credit facilities to fund a
portion of the purchase price for Quadrus Manufacturing and all of the purchase
price of our Almelo, the Netherlands facility.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends in the foreseeable future. We
currently intend to retain future earnings to fund the development and growth
of our business.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000:
. on an actual basis; and
. on a pro forma as adjusted basis to reflect (1) the automatic conversion
of all of our outstanding preferred stock into common stock upon the
consummation of this offering, and (2) the application of the net
proceeds from this offering upon the consummation of this offering,
assuming an initial public offering price of $ per share after
deducting our estimated underwriting and offering expenses.
<TABLE>
<CAPTION>
As of March 31, 2000
-------------------------
Pro Forma
As Adjusted (2)
Actual (unaudited)
-------- ---------------
(in thousands, except
share data)
<S> <C> <C>
Unrestricted cash and cash equivalents............... $ 2,727 $ 41,427
======== ========
Current maturities of long-term obligations.......... $ 15,229 $ 6,829
======== ========
Long-term obligations, net of current maturities:
Revolving credit facility.......................... $ 45,000 $ --
Industrial revenue bonds........................... 4,990 4,990
Other total long-term obligations, net of current
maturities........................................ 5,191 5,041
-------- --------
Total long-term obligations, net of current
maturities...................................... 55,181 10,031
Redeemable preferred stock (1)....................... 26,549 --
Shareholders' equity:
Preferred stock, $0.01 par value, 3,333,000 shares
authorized and undesignated; none issued and
outstanding on an actual and pro forma as adjusted
basis............................................. --
Common stock, $0.01 par value, 150,000,000 shares
authorized; 13,819,260 shares issued and
outstanding on an actual basis; and issued and
outstanding on a pro forma adjusted basis......... 138 185
Additional paid-in capital......................... 15,395 134,147
Accumulated other comprehensive loss............... (772) (772)
Retained earnings.................................. 11,170 11,170
Loans to stockholders.............................. (3,258) (3,258)
-------- --------
Total shareholders' equity....................... 22,673 141,472
-------- --------
Total capitalization............................. $104,403 $151,503
======== ========
</TABLE>
- --------
(1) The Series A and Series B preferred stock is subject to mandatory
redemption rights and automatically convert into shares of common stock
upon the consummation of this offering.
The number of shares that will be outstanding after this offering is based
on the number of shares outstanding as of March 31, 2000, and excludes:
. 3,845,232 shares of common stock issuable upon exercise of stock options
outstanding as of March 31, 2000, with a weighted average exercise price
of $4.35 per share; and
. 1,327,362 additional shares reserved for issuance under our stock option
plans as of March 31, 2000.
See "Management--Stock Option Plans."
(2) We intend to use approximately $63.9 million of the net proceeds from this
offering to repay existing indebtedness. The table above reflects the
repayment of $53.6 million, the amount of such indebtedness outstanding as
of March 31, 2000. Subsequent to March 31, 2000, we incurred additional net
indebtedness of $10.3 million, which is being repaid with the proceeds from
this offering. See "Use of Proceeds."
15
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 2000, was
$ or $ per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible
assets, less our total liabilities, divided by the pro forma number of shares
of common stock outstanding, after giving effect to the conversion of all
outstanding shares of preferred stock into common stock. Dilution in pro forma
net tangible book value per share represents the difference between the amount
per share paid by investors in this offering and the pro forma net tangible
book value per share of our common stock immediately after this offering. After
giving effect to our sale of the shares of common stock in this
offering, based upon an assumed initial public offering price of $
per share, our pro forma net tangible book value as of March 31, 2000 would
have been approximately $ or $ per share of common stock.
This represents an immediate increase in pro forma net tangible book value to
existing shareholders of $ per share and an immediate dilution to new
investors in this offering of $ per share. The following table
illustrates the per share dilution in pro forma net tangible book value to new
investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $
Pro forma net tangible book value per share as of March 31,
2000...................................................... $
Increase in pro forma net tangible book value per share
attributable to new investors.............................
------
Pro forma net tangible book value per share as of March 31,
2000 after the offering.....................................
------
Pro forma net tangible book value dilution per share to new
investors................................................... $
======
</TABLE>
The following table summarizes, on a pro forma basis, as of March 31, 2000,
the differences between the number of shares of common stock purchased from us,
the aggregate cash consideration paid to us and the average price per share
paid by existing shareholders since our inception and new investors purchasing
shares of common stock in this offering. The calculation below is based on an
offering price of $ per share, before deducting estimated underwriting and
offering expenses payable by us:
<TABLE>
<CAPTION>
Shares Total
Purchased Consideration
--------------- ---------------- Average Price
Number Percent Amount Percent Per Share
------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders........... % $ % $
New public investors (1)........
------- --- -------- ---
Total......................... 100% $ 100%
======= === ======== ===
</TABLE>
- --------
(1) The above discussion and the table does not include 3,845,232 shares of
common stock issuable pursuant to the exercise of stock options under our
stock option plans at a weighted average exercise price of $4.35 per
share. To the extent that outstanding options are exercised in the future,
there will be further dilution to investors. See "Capitalization" and
"Management--Stock Option Plans."
16
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The unaudited pro forma consolidated statement of operations for the fiscal
year ended March 31, 2000 gives effect to the acquisition of Quadrus
Manufacturing, the consummation of this offering and the application of the net
proceeds therefrom as described under "Use of Proceeds," as if each had
occurred on April 1, 1999.
The unaudited pro forma consolidated balance sheet gives pro forma effect to
the conversion of all of our outstanding preferred stock into common stock, the
consummation of this offering and the application of the net proceeds therefrom
as described under "Use of Proceeds," as if each had occurred on March 31,
2000.
Our unaudited pro forma consolidated financial data should be read in
conjunction with our audited consolidated financial statements for the fiscal
year ended March 31, 2000, and the related notes thereto, which statements have
been audited by Ernst & Young LLP, independent auditors, whose report is
included elsewhere herein and the audited financial statements of Quadrus
Manufacturing and the related notes thereto, which statements have been audited
by McGladrey & Pullen, LLP, independent auditors, whose report is included
elsewhere herein.
Our unaudited pro forma consolidated financial data has been prepared to
illustrate the effects of the Quadrus Manufacturing acquisition and the receipt
and application of the net proceeds from this offering. Our unaudited pro forma
consolidated financial data does not necessarily present our financial position
or results of operations as they would have been if the companies involved had
constituted one entity for the period presented and is not necessarily
indicative of our future results of operations or the results that might have
occurred if the forgoing transactions had been consummated on the indicated
dates.
17
<PAGE>
Pemstar Inc.
Unaudited Pro Forma Consolidated Statement of Operations
Fiscal Year Ended March 31, 2000
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quadrus Pro Forma
Pemstar Inc. Manufacturing As Adjusted
Year Ended From April 1, Year Ended
March 31, 1999, to Acquisition Pro Forma Offering March 31,
2000 June 7, 1999 Adjustments Combined Adjustments 2000
------------ ------------- ----------- ----------- ----------- -----------
(audited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $393,842 $14,130 $ -- $407,972 $ -- $407,972
Costs of goods sold..... 363,974 16,810 -- 380,784 -- 380,784
-------- ------- ----- -------- ------ --------
Gross profit............ 29,868 (2,680) -- 27,188 -- 27,188
Selling, general and
administrative
expenses............... 21,576 627 22,203 -- 22,203
Amortization............ 1,281 -- 102 (a) 1,383 -- 1,383
-------- ------- ----- -------- ------ --------
Operating income
(loss)................. 7,011 (3,307) (102) 3,602 -- 3,602
Other income (expense) -
net.................... (74) (7) (81) (81)
Interest expense........ (3,588) (81) (248)(b) (3,917) 2,738 (c) (1,179)
-------- ------- ----- -------- ------ --------
Income (loss) before
income taxes........... 3,349 (3,395) (350) (396) 2,738 2,342
Income tax expense
(benefit).............. 698 (1,307) (135) (744) 1,054 (d) 310
-------- ------- ----- -------- ------ --------
Net income (loss)....... $ 2,651 $(2,088) $(215) $ 348 $1,684 $ 2,032
======== ======= ===== ======== ====== ========
Net income (loss) per
share:
Basic................. $ 0.23 $
Diluted............... 0.15
Weighted average number
of common shares
outstanding:
Basic................. 11,503
Diluted............... 17,167
</TABLE>
- --------
(a) Reflects the additional amortization expense related to the allocation of
the purchase price to goodwill for the acquisition. The amortization is
based on the estimated useful life of twenty years for the goodwill.
(b) Reflects the additional interest expense related to the borrowings
required by us to complete the acquisition using borrowing capacity
available under our credit facility with US Bank.
(c) Reflects the decrease in interest expense in connection with the use of
net proceeds from the offering to repay outstanding debt.
(d) Reflects the income tax effect of adjustments (b) and (c) at a 38.5%
effective tax rate.
18
<PAGE>
Pemstar Inc.
Unaudited Pro Forma As Adjusted Consolidated Balance Sheet
March 31, 2000
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Offering Pro Forma
Pemstar Inc. Adjustments As Adjusted
------------ ----------- -----------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.............. $ 2,727 $100,000 (a) $ 41,427
(7,750)(a)
(53,550)(a)
Restricted cash........................ 528 528
Accounts receivable, net............... 60,061 60,061
Inventories, net....................... 64,437 64,437
Deferred income taxes.................. 2,232 2,232
Prepaid expenses and other............. 3,458 3,458
-------- -------- --------
Total current assets................. 133,443 38,700 172,143
Property, plant, and equipment, net..... 34,933 34,933
Goodwill, net........................... 20,691 20,691
Other assets, net....................... 1,384 1,384
-------- -------- --------
Total assets......................... $190,451 $ 38,700 $229,151
======== ======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Bank overdrafts........................ $ 10,213 $ $ 10,213
Accounts payable....................... 47,138 47,138
Accrued expenses and other............. 9,740 9,740
Income taxes payable................... 1,474 1,474
Current maturities of long-term debt... 12,930 (8,400)(a) 4,530
Current maturities of capital lease
obligations........................... 2,299 2,299
-------- -------- --------
Total current liabilities............ 83,794 (8,400) 75,394
Long-term debt, less current
maturities............................. 51,114 (45,150)(a) 5,964
Capital lease obligations, less current
maturities............................. 4,067 4,067
Deferred grant income................... 1,713 1,713
Deferred revenue........................ 350 350
Deferred income taxes................... 17 17
Minority interest in consolidated
subsidiaries........................... 174 174
Redeemable stock:
Series A preferred stock, $0.01 par
value; 570 shares issued and
outstanding........................... 8,549 (8,549)(b) --
Series B preferred stock, $0.01 per
share; 1,000 shares issued and
outstanding........................... 18,000 (18,000)(b) --
Shareholders' Equity:
Common stock, $0.01 par value; shares
issued and outstanding-- ; 2000--
13,819 shares; pro forma issued and
outstanding-- shares............... 138 47 (b) 185
Additional paid-in capital............. 15,395 26,502 (b) 134,147
92,250 (a)
Accumulated other comprehensive loss... (772) (772)
Retained earnings...................... 11,170 11,170
Loans to shareholders.................. (3,258) (3,258)
-------- -------- --------
Total shareholders' equity........... 22,673 118,799 141,472
-------- -------- --------
Total liabilities and shareholders'
equity.............................. $190,451 $ 38,700 $229,151
======== ======== ========
</TABLE>
- --------
(a) Reflects our sale of shares of common stock generating net
proceeds of $92,250, after deducting our estimated underwriting and
offering expenses totaling approximately $7,750, and the use of $53,550 of
the estimated net proceeds to repay borrowings outstanding as of March 31,
2000. Subsequent to March 31, 2000, we incurred additional net
indebtedness of $10,300. We intend to repay total indebtedness of $63,900
from the proceeds from this offering as detailed in "Use of Proceeds."
(b) Reflects the conversion of our outstanding preferred stock into common
stock upon closing of this offering.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of and for the dates
and periods indicated have been derived from our audited consolidated financial
statements. The selected consolidated statements of income data for the fiscal
year ended March 31, 2000, and the historical consolidated balance sheet data
as of March 31, 2000, were derived from consolidated financial statements
audited by Ernst & Young LLP, whose report appears elsewhere in this
prospectus. The selected historical consolidated statements of income data for
the fiscal years ended March 31, 1998 and 1999, and the historical balance
sheet data as of March 31, 1999, were derived from consolidated financial
statements audited by McGladrey & Pullen, LLP, whose report appears elsewhere
in this prospectus. You should read the data set forth below in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our consolidated financial statements and the related notes
thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------
1996 1997 1998 1999 2000
------- ------- -------- -------- --------
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of
Income Data:
Net sales...................... $22,021 $31,895 $165,049 $187,381 $393,842
Costs of goods sold............ 18,724 27,347 147,962 172,219 363,974
------- ------- -------- -------- --------
Gross profit................... 3,297 4,548 17,087 15,162 29,868
Selling, general and
administrative expenses....... 2,309 2,976 8,328 10,955 21,576
Amortization................... -- -- 54 190 1,281
------- ------- -------- -------- --------
Operating income............... 988 1,572 8,705 4,017 7,011
Other income (expense) - net... 187 247 455 (438) (74)
Interest expense............... (255) (315) (746) (640) (3,588)
------- ------- -------- -------- --------
Income before income taxes..... 920 1,504 8,414 2,939 3,349
Income tax expense............. 289 554 3,097 1,273 698
------- ------- -------- -------- --------
Net income..................... $ 631 $ 950 $ 5,317 $ 1,666 $ 2,651
======= ======= ======== ======== ========
Net income per share:
Basic......................... $ 0.08 $ 0.12 $ 0.55 $ 0.15 $ 0.23
Diluted....................... 0.08 0.12 0.49 0.12 0.15
Weighted average number of
common shares outstanding (1):
Basic......................... 7,645 8,009 9,653 10,897 11,503
Diluted....................... 7,758 8,039 10,874 14,143 17,167
Other Financial Data:
Depreciation................... $ 600 $ 911 $ 1,929 $ 3,331 $ 7,455
Capital expenditures........... 1,587 2,887 8,393 8,657 13,415
Supplemental Data:
EBITDA (2)..................... $ 1,775 $ 2,730 $ 11,143 $ 7,100 $ 15,673
Net cash provided by (used in)
operating activities.......... 150 776 (1,374) 65 (20,225)
Net cash provided by (used in)
investing activities.......... (1,576) (2,938) (10,126) (5,545) (53,489)
Net cash provided by (used in)
financing activities.......... 1,343 2,133 14,661 3,112 75,612
<CAPTION>
March 31,
----------------------------------------------
1996 1997 1998 1999 2000
------- ------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Unrestricted cash and cash
equivalents................... $ 64 $ 34 $ 3,195 $ 827 $ 2,727
Working capital................ 719 525 12,873 12,783 49,649
Total assets................... 9,398 16,334 61,121 64,983 190,451
Long-term debt and capital
lease obligations less current
maturities.................... 1,713 2,251 6,340 7,090 55,181
Total shareholders' equity..... 1,901 3,009 19,544 16,555 22,673
</TABLE>
- --------
(1) For an explanation of the determination of the weighted average number of
common shares outstanding used in computing net income per share see Note
1 of notes to consolidated financial statements.
(2) EBITDA means earnings before net interest expense, income taxes,
depreciation and amortization. EBITDA is presented because we believe it
is an indicator of our ability to incur and service debt and a similar
formula is used by our lenders in determining compliance with financial
covenants. However, EBITDA should not be considered as an alternative to
cash flow from operating activities, as a measure of liquidity or as an
alternative to net income as a measure of operating results in accordance
with generally accepted accounting principles.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the "Selected
Consolidated Financial Data" section of this prospectus and our consolidated
financial statements and notes to those statements included elsewhere in this
prospectus. The forward-looking statements in this discussion regarding the
electronics manufacturing services industry, our expectations regarding our
future performance, liquidity and capital resources and other non-historical
statements in this discussion include numerous risks and uncertainties,
including the factors as described in the "Risk Factors" section of this
prospectus. Our actual results may differ materially from those contained in
any forward-looking statements.
Overview
We are a leading provider of electronics manufacturing services to OEMs in
the communications, computing, data storage, industrial and medical equipment
markets. We provide OEMs with a comprehensive range of engineering,
manufacturing and fulfillment services on a global basis through nine
facilities strategically located in the United States, Mexico, Asia and Europe.
Our comprehensive service offerings support our customers' products from
initial development and design through manufacturing to worldwide distribution
and aftermarket support.
We were founded in January 1994 by a group of eight senior IBM managers who
had led the storage product operations at IBM's Rochester, Minnesota facility.
We have maintained a significant relationship with IBM, which remains one of
our major customers. Since our inception, we have diversified our customer base
to include industry leading communications and computing OEMs. We have also
expanded our geographic presence, enhanced our product and service offerings
and increased our volume production capabilities. Our key growth initiatives
have been:
. In June 1997, we established a manufacturing facility to produce storage
product components and assemblies in Bangkok, Thailand. This facility
provides us with cost-effective manufacturing capabilities and a
facility strategically located in Asia's growing communications and
computing markets.
. In September 1997, we established a greenfield operation in Guadalajara,
Mexico, which enhanced our cost-effective manufacturing capabilities in
close proximity to Mexico's emerging communications and computing
markets.
. In June 1998, we established a greenfield operation in Tianjin, China,
which we believe made us one of the first independent EMS companies in
northern China. Our facility in China has further enhanced our cost-
effective manufacturing capabilities while giving us access to new
customers in the communications, computing and data storage industries.
. In October 1998, we entered into a joint venture with Honguan
Technologies, a mechanical fabrication company in Singapore. We own a
51% controlling interest in this joint venture, Pemstar-Honguan Pte.
This joint venture enables us to target data storage industry OEMs by
adding specialized test and process equipment design, manufacturing and
service capabilities and has further strengthened our presence in
southeast Asia.
. In May 1999, we acquired a facility located in Almelo, the Netherlands,
from Fluke Corporation, a manufacturer of precision test equipment,
scopes and meters. In connection with this acquisition, we entered into
a long-term supply agreement to provide manufacturing and design
services to Fluke. In addition to adding Fluke as a key customer, the
acquisition increased our engineering and design capabilities,
particularly in the areas of electrical and industrial design and
enabled us to expand into Europe.
. In June 1999, we acquired Quadrus Manufacturing, located in San Jose,
California. Quadrus Manufacturing was a division of Bell Microproducts,
a distributor of storage and semiconductor
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products. This acquisition further strengthened our relationships with
OEMs in the communications market, including such industry leaders as
Efficient Networks and Electronics For Imaging.
See Note 2 to our consolidated financial statements for further information
regarding our acquisitions.
We derive most of our net sales from customer purchase orders. We recognize
sales, net of product returns and warranty costs, typically at the time of
product shipment or as services are rendered. Our net sales and margins from
period to period are affected by the volume of turnkey manufacturing
transactions as compared to consignment transactions. In turnkey
manufacturing, we purchase the materials and components necessary to produce
the products we are manufacturing, resulting in generally higher net sales and
cost of goods sold and generally lower margins. In consignment sales, the
customer purchases all or a portion of the materials and components necessary
for production, resulting in generally lower net sales and generally higher
margins, since we record only the value-added portion as revenue. Currently,
substantially all of our revenue is generated from turnkey transactions. In
addition, our net sales and margins are affected by the mix of projects
between engineering and manufacturing and the complexity of those projects.
For example, manufacturing projects typically generate lower margins than
engineering projects because of the high material content of a manufacturing
project as a percentage of revenue and the lower value-added content. Our cost
of goods sold includes the cost of components and materials, labor costs and
manufacturing overhead. The procurement of raw materials and components
requires us to commit significant working capital to our operations and to
manage the purchasing, receiving, inspection and stocking of these items.
Our operating results are also impacted by the level of capacity
utilization of our manufacturing facilities, indirect labor, and selling,
general and administrative expense. During periods of high capacity
utilization, our gross margins and operating margins generally improve while
during periods of lower capacity utilization our gross margins and operating
margins generally decline. As our capacity has grown in recent years both
through greenfield operations and acquisitions, our selling, general and
administrative expenses have increased to support this growth.
Our production volumes are based on purchase orders for the delivery of
products. These orders typically do not commit firm production schedules for
more than thirty to ninety days in advance. We work to minimize the risk
relative to our inventory by ordering materials and components only to the
extent necessary to satisfy existing customer orders. We believe we are
largely protected from the risk of inventory cost fluctuations because we
generally pass these costs through to our customers.
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Results of Operations
The table below sets forth certain operating data expressed as a percentage
of our net sales for the years indicated:
<TABLE>
<CAPTION>
Fiscal Year Ended
March 31,
-------------------
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0%
Cost of goods sold......................................... 89.7 91.9 92.4
----- ----- -----
Gross profit............................................... 10.3 8.1 7.6
Selling, general and administrative expenses............... 5.0 5.9 5.5
Amortization............................................... 0.0 0.1 0.3
----- ----- -----
Operating income........................................... 5.3 2.1 1.8
Other income (expense)-net................................. 0.3 (0.2) (0.0)
Interest expense........................................... (0.5) (0.3) (0.9)
----- ----- -----
Income before income taxes................................. 5.1 1.6 0.9
Income tax expense......................................... 1.9 0.7 0.2
----- ----- -----
Net income................................................. 3.2% 0.9% 0.7%
===== ===== =====
</TABLE>
Fiscal Year Ended March 31, 2000 Compared to Fiscal Year Ended March 31, 1999
Net Sales. Our net sales increased $206.4 million, or 110.1%, to $393.8
million in fiscal 2000 from $187.4 million in fiscal 1999. This increase
resulted from both organic growth and strategic acquisitions. In fiscal 2000,
our organic growth, which excludes net sales increases from operations acquired
in the preceding twelve months, accounted for $61.9 million, or 30.0%, of total
year-to-year growth and was driven by new projects with existing and new
customers in North America and Asia. Our acquisitions of Quadrus Manufacturing
and a European division of Fluke Corporation accounted for $144.5 million, or
70.0% of total year-to-year growth.
Gross Profit. Our gross profit increased $14.7 million to $29.9 million in
fiscal 2000 from $15.2 million in fiscal 1999. This increase in gross profit
reflects the year-to-year growth in net sales. Gross margins decreased to 7.6%
of net sales in fiscal 2000 from 8.1% in fiscal 1999, primarily due to
initially lower gross margins of businesses acquired in fiscal 2000,
underutilization of assets in certain locations and set-up costs related to new
product introductions.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses increased $10.6 million to $21.6 million in fiscal 2000
from $11.0 million in fiscal 1999. This increase was a result of increased
staffing levels and higher selling and administrative costs to support our
growth. As a percentage of net sales, our selling, general and administrative
expenses decreased to 5.5% in fiscal 2000 from 5.9% in fiscal 1999, due to our
leveraging these expenses over an increased revenue base.
Amortization. Amortization increased $1.1 million to $1.3 million in fiscal
2000 from $0.2 million in fiscal 1999, primarily as a result of amortization of
goodwill arising out of our fiscal 2000 acquisitions.
Other Income (Expense)--Net. Our other expense decreased $0.3 million to
$0.1 million in fiscal 2000 from $0.4 million in fiscal 1999. Fiscal 1999
includes a $0.4 million loss on the sale of property and equipment.
Interest Expense. Our interest expense increased $3.0 million to $3.6
million in fiscal 2000 from $0.6 million in fiscal 1999. This increase reflects
increased borrowings required to fund acquisitions and
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greenfield expansions as well as increased working capital requirements driven
by growth in business with new and existing customers.
Income Tax Expense. In fiscal 2000, our effective tax rate decreased to
20.8% from 43.3% in fiscal 1999. This decrease resulted from the mix of
domestic versus international income from operations and the benefit of state
tax credits generated by the Quadrus acquisition. In general, our international
operations are being taxed at a lower rate than our domestic operations due to
tax holidays and incentives.
Fiscal Year Ended March 31, 1999 Compared to Fiscal Year Ended March 31, 1998
Net Sales. Our net sales increased $22.3 million, or 13.5%, to $187.4
million in fiscal 1999 from $165.0 million in fiscal 1998 due entirely to
organic growth. This growth was offset in part by a $41.6 million decline in
net sales to a customer that discontinued manufacturing a product that had
accounted for $43.7 million of our net sales in fiscal 1998. The organic growth
was the result of new programs with both new and existing customers as well as
the transition of a major project from a consignment to a turnkey basis.
Gross Profit. Our gross profit decreased $1.9 million to $15.2 million in
fiscal 1999 from $17.1 in fiscal 1998. Gross margins decreased to 8.1% of net
sales in fiscal 1999 from 10.3% in fiscal 1998. These decreases resulted from
start-up expenses associated with our greenfield expansions in Mexico and China
and the transition of a major project from a consignment to a turnkey basis.
Selling, General and Administrative Expenses. Our selling, general and
administrative expenses increased $2.6 million to $11.0 million in fiscal 1999
from $8.3 million in fiscal 1998. Selling, general and administrative expenses
increased to 5.9% of net sales in fiscal 1999 from 5.0% in fiscal 1998. These
increases reflect increased staffing and expenses added to support anticipated
growth.
Amortization. Amortization increased $0.1 million to $0.2 million in fiscal
1999 from $0.1 million in fiscal 1998.
Other Income (Expense)-Net. Our other income and expense was $0.4 million of
expense in fiscal 1999 compared to $0.5 million of income in fiscal 1998. This
decrease principally reflects recognition of minority interest in our net
income of consolidated subsidiaries and a loss on sales of property and
equipment in fiscal 1999.
Interest Expense. Our interest expense decreased $0.1 million to $0.6
million in fiscal 1999 from $0.7 million in fiscal 1998. This decrease reflects
reduced borrowings under our bank agreement as a result of using the proceeds
from the sale of approximately $9.9 million of equity in fiscal 1998 to repay
indebtedness.
Income Tax Expense. In fiscal 1999, our effective tax rate increased to
43.3% from 36.8% in fiscal 1998. This increase resulted from an increased
percentage of revenue derived from higher tax jurisdictions in fiscal 1999
versus fiscal 1998.
Quarterly Results of Operations
The following table sets forth unaudited quarterly financial information of
Pemstar for the eight quarters ended fiscal 1999 and 2000. Historically, we
have experienced some seasonal variation in net sales, with net sales typically
being highest in the quarter ended December 31 and lowest in the quarter ended
March 31. This variation may be offset in part by organic growth and
acquisitions. This information has been derived from our monthly consolidated
financial statements which are unaudited, but, in the opinion of management,
fairly represent our financial performance. This information should be read in
conjunction with the consolidated financial statements and the related notes
contained elsewhere in this prospectus. The operating results for any previous
quarter are not necessarily indicative of results for any future period.
24
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31,
1998 1998 1998 1999 1999 1999 1999 2000
-------- --------- -------- -------- -------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $42,551 $44,641 $50,677 $49,512 $68,566 $97,550 $111,787 $115,939
Cost of goods sold...... 38,507 41,250 46,439 46,023 62,275 89,817 103,845 108,037
------- ------- ------- ------- ------- ------- -------- --------
Gross profit............ 4,044 3,391 4,238 3,489 6,291 7,733 7,942 7,902
Selling, general and
administrative
expenses............... 2,238 2,368 3,015 3,334 3,895 5,003 5,862 6,816
Amortization............ 16 16 75 83 205 271 277 528
------- ------- ------- ------- ------- ------- -------- --------
Operating income........ 1,790 1,007 1,148 72 2,191 2,459 1,803 558
Other income (expense)-
net................... (315) (282) (172) 331 -- (518) (387) 831
Interest expense........ 125 135 152 228 341 776 986 1,485
------- ------- ------- ------- ------- ------- -------- --------
Income (loss) before
income taxes........... 1,350 590 824 175 1,850 1,165 430 (96)
Income tax expense
(benefit).............. 556 277 379 61 738 351 62 (453)
------- ------- ------- ------- ------- ------- -------- --------
Net income.............. $ 794 $ 313 $ 445 $ 114 $ 1,112 $ 814 $ 368 $ 357
======= ======= ======= ======= ======= ======= ======== ========
</TABLE>
Liquidity and Capital Resources
Our principle sources of liquidity are cash provided by operations,
borrowings under our various credit facilities and debt instruments and private
sales of equity. Our principal uses of cash have been to finance working
capital, acquisitions, greenfield expansions, capital expenditures and debt
service requirements. We anticipate these uses will continue to be our
principal uses of cash in the future.
Net cash provided by (used in) operating activities for fiscal year 2000,
1999 and 1998 was ($20.2 million), $0.1 million and ($1.4 million),
respectively. Fluctuations in net cash provided by (used in) operating
activities are attributable to increases and decreases in our net income,
normal fluctuations in working capital and longer collection periods and lower
inventory turns at properties acquired in fiscal 2000.
Net cash used in investing activities for fiscal 2000, 1999 and 1998 was
$53.5 million, $5.5 million and $10.1 million, respectively. In fiscal 2000,
our cash used in investing activities consisted primarily of $35.0 million used
in the acquisition of Quadrus Manufacturing, $13.4 million used for capital
expenditures and $4.5 million used in the acquisition of a European division of
Fluke Corporation.
Net cash provided by financing activities for fiscal 2000, 1999 and 1998 was
$75.6 million, $3.1 million and $14.7 million, respectively. Our principal
sources of cash from financing activities in fiscal 2000 included proceeds of
approximately $18.0 million from the sale of private equity and proceeds from
long-term debt. Net cash provided by financing activities for fiscal 1999
consisted primarily of proceeds from long-term debt, offset in part by payments
of long-term debt, and net cash provided by financing activities for fiscal
1998 included proceeds of approximately $9.9 million from the sale of private
equity and proceeds from long-term debt offset in part by payments of short-
term and long-term debt.
Our capital expenditures in fiscal 2000 consisted of $5.4 million of printed
circuit board assembly equipment purchased for our Tianjin, China facility and
an investment of $8.0 million in general equipment and information technology
upgrades across all of our facilities. We estimate our capital expenditures for
fiscal 2001 will increase over fiscal 2000 and will be used primarily for
equipment upgrades, optical technology equipment, information technology
systems and expansion of our facilities.
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<PAGE>
As of March 31, 2000, we had unrestricted cash and cash equivalents of $2.7
million and total borrowings of approximately $70.4 million. Of these total
borrowings, we had approximately $53.4 million outstanding under our US Bank
revolving credit facility at an effective interest rate of 10.3%. On May 5,
2000, we entered into a new credit facility with IBM Credit Corporation, which
provides for borrowings up to $40.0 million, and amended our US Bank credit
facility to reduce our available borrowings from $65.0 million to $55.0
million. As of May 15, 2000, we had $48.7 million outstanding under the US Bank
credit facility and $15.0 million outstanding under our IBM facility. We also
have a $3.2 million credit facility serving our Netherlands operations. As of
March 31, 2000, we had $3.1 million outstanding under our Netherlands credit
facility. Each credit facility bears interest on outstanding borrowings at
variable interest rates, which as of May 15, 2000, were 11.0% for the US Bank
facility, 10.0% for the IBM facility and 5.75% for the Netherlands facility.
All of these credit facilities are secured by substantially all of our domestic
non real-estate assets. We also have certain financial covenants under these
facilities, which we are required to meet. We had other debt obligations
totaling $17.0 million as of March 31, 2000. See Notes 8 and 11 to our
consolidated financial statements. We intend to use a portion of the net
proceeds from this offering to repay indebtedness under our credit facilities.
Subsequent to this offering, we intend to revise our existing credit facilities
to increase our borrowing capacity.
We believe that cash flows from operating activities, borrowings available
in our current financing agreements and the proceeds from this offering will be
sufficient to fund our currently anticipated working capital, planned capital
expenditures and debt service requirements for the next twelve months. However,
we regularly review acquisition and additional greenfield expansion
opportunities as well as major new program opportunities with new or existing
customers, any of which may require us to sell additional equity or secure
additional financing. The sale of additional equity could result in additional
dilution to our shareholders. We cannot assure you that any financing
arrangements will be available in amounts or on terms acceptable to us.
Quantitative and Qualitative Disclosures About Market Risks
Interest Rate Risk
Our exposure to interest rate risk arises principally from the variable
rates associated with our primary revolving line of credit. On March 31, 2000,
we had total borrowings of $53.4 million under this line of credit, which
accrued interest at an effective rate of 10.3%. An adverse change of one
percent in the interest rate of all borrowings which bear interest at variable
rates would cause us to incur a change in interest expense of approximately
$605,000 on an annual basis. As of March 31, 1999 an adverse change of one
percent in the interest rate would cause us to incur a change in interest
expense of approximately $103,000 on an annual basis for all borrowings
outstanding bearing interest at variable rates at March 31, 1999.
Foreign Currency Exchange Risk
Fluctuations in the rate of exchange between the U.S. dollar and the
currencies of countries other than the U.S. in which we conduct business could
adversely affect our financial results. For example, if there is an increase in
the rate at which a foreign currency is exchanged for U.S. dollars, it will
require more of the foreign currency to equal a specified amount of U.S.
dollars than before the rate increase. In such cases, and if we price our
products and services in the foreign currency, we will receive less in U.S.
dollars than we did before the rate increase went into effect. If we price our
products and services in U.S. dollars and competitors price their products in
local currency, an increase in the relative strength of the U.S. dollar could
result in our prices being uncompetitive in a market where business is
transacted in the local currency.
The result of a uniform 10% strengthening in the value of the U.S. dollar
from March 31, 2000 and 1999 levels relative to each of the currencies in which
our revenues and expenses are denominated would result in a decrease in
operating income of approximately $148,000 and $110,000, respectively, for the
fiscal years ended March 31, 2000 and 1999.
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For the fiscal year ended March 31, 2000, the amount we consider
permanently invested in foreign subsidiaries and translated into dollars using
the year end exchange rate is $8,343,000 and the potential loss in fair value
resulting from a hypothetical 10% adverse change in foreign currency exchange
rate amounts to $758,000. For the fiscal year ended March 31, 1999, we did not
have any amounts permanently in foreign subsidiaries. Actual amounts may
differ.
We currently do not hedge our exposure to foreign currency exchange rate
fluctuations, however we may hedge such exposures in the future.
Impact of Inflation
We believe that our results of operations are not dependent upon moderate
changes in the inflation rate.
Recently Issued Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and hedging activities. It requires that an entity
recognize all derivatives as either assets or instruments at fair value. This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000 and is therefore applicable to us beginning with our fiscal
quarter ending June 30, 2001. Based upon the nature of our financial
instruments and hedging activities in effect as of the date of this filing,
this pronouncement would not have a material impact on our financial position
or results of operations. We will adopt SFAS No. 133 effective April 1, 2001.
In fiscal 2000, we adopted the American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1
provides guidance on accounting for the costs of computer software developed
or obtained for internal use and for determining when specific costs should be
capitalized and when they should be expensed. The impact of adopting SOP 98-1
did not have a material impact on our financial position, results of
operations or cash flows.
In fiscal 2000, we adopted AICPA SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires that all start-up costs related to new
operations be expensed as incurred. The impact of adopting SOP 98-5 did not
have a material impact on our financial position, results of operations or
cash flows.
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BUSINESS
Overview
We are a leading EMS provider to OEMs in the communications, computing, data
storage, industrial and medical equipment markets. We offer our communications
industry customers substantial expertise and experience in wireless and optical
systems markets that are experiencing rapidly growing demand for specialized
engineering and manufacturing services. We provide a comprehensive range of
engineering, manufacturing and fulfillment services to our customers on a
global basis through nine facilities strategically located in the United
States, Mexico, Asia and Europe. Our comprehensive service offerings support
our customers' needs from product development and design through manufacturing
to worldwide distribution and aftermarket support. Since our founding in 1994,
we have experienced strong financial growth and consistent profitability, with
Manufacturing Market Insider ranking our revenue growth rate of 110% in fiscal
2000 the highest among the top twenty domestic EMS companies for their most
recent fiscal year.
Our customers include industry leading OEMs such as 3M, Efficient Networks,
Electronics For Imaging, Fluke Corporation, Fujitsu, Hewlett Packard,
Honeywell, IBM, Motorola, Pinnacle, RSA, Seagate and Sony. We also have
leveraged our expertise in the wireless and optical systems markets to develop
strong relationships with a number of emerging wireless and optical systems
OEMs, including Ancor Communications, Interwave, Optical Networks, Optical
Solutions, Repeater Technologies and Western Multiplex.
Over the past several years, we have completed a number of acquisitions and
established new operations in order to expand our geographic presence, enhance
our product and service offerings, diversify our customer base and increase our
production capacity. In June 1999, we acquired Quadrus Manufacturing, a
division of Bell Microproducts, located in San Jose, California, which
primarily serves the communication sector in North America. In May 1999, we
also acquired a European division of Fluke Corporation located in Almelo, the
Netherlands, which primarily serves the industrial equipment sector in Europe
and North America. Since 1994, we have established operations in Guadalajara,
Mexico; Tianjin, China; Singapore and Bangkok, Thailand, which have expanded
our manufacturing and distribution capabilities and further broadened our
customer base. We continue to actively pursue potential acquisitions to
complement our organic growth and to expand our business.
Industry Background
EMS companies provide a broad range of engineering, manufacturing and
fulfillment services to OEMs worldwide. Growth in the EMS industry is primarily
being driven by the overall growth of the electronics industry, the increased
use of outsourcing among OEMs and the frequency of OEM asset divestitures to
EMS businesses. By outsourcing EMS, OEMs are able to focus on their core
competencies, including product development, sales, marketing and customer
service, while leveraging the expertise of EMS providers for design,
procurement, assembly and test operations and supply chain management. OEMs use
EMS providers to enhance their competitive position by:
. Accessing leading engineering technologies;
. Accessing advanced manufacturing and processing technologies;
. Reducing time to market;
. Reducing operating costs and invested capital;
. Improving supply chain management; and
. Improving access to global markets.
According to TFI, the global EMS industry is expected to grow at an average
annual rate of 20% from $60 billion in revenues in 1998 to $149 billion in
2003. TFI estimates that the percentage of cost of goods sold in the
electronics industry that is outsourced for manufacture by OEMs will increase
from 9.5% in 1998 to
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<PAGE>
17.1% by 2003. We believe that OEMs will continue to increase their use of
outsourcing due to rapidly changing product technologies, shortening product
lifecycles and the increasing capability of EMS companies to manufacture more
complex products. A summary of the historical and projected growth of the EMS
industry is provided below.
[Bar Chart]
Historical and Projected EMS Industry Growth
(BILLIONS) % Outsourced
---------- ------------
1998 $60 9.5%
1999 $73 10.9%
2000E $88 12.4%
2001E $106 14.0%
2002E $126 15.5%
2003E $149 17.1%
Source: Technology Forecasters, Inc., Contract Manufacturing from a Global
Perspective-1999 Update.
According to TFI, the EMS industry is extremely fragmented, with over 3,000
independent EMS companies in existence today. Additionally, the twenty largest
companies represented approximately 56% of the worldwide EMS market in 1998,
with the largest company in the industry representing 11.3% of total industry
revenues. The industry has experienced and is anticipated to continue to
experience significant consolidation.
TFI indicates that OEMs of all sizes are embracing the outsourcing model,
with smaller OEMs, those with less than $1.0 billion of revenue in 1998, just
as likely to outsource as manufacture products in-house. This is due in part to
the advent of the "virtual corporation," in which companies evolve without
performing any manufacturing in-house, relying instead on long term
relationships with EMS companies. In addition, according to TFI, medium size
companies, those with $1.0 billion to $9.9 billion of revenue in 1998, are
expected to increase their use of outsourcing from approximately 10% of their
total cost of goods sold in 1998 to approximately 45% by 2003. As a result,
small and medium size OEMs have represented and will continue to represent a
large market opportunity for the EMS industry going forward.
The EMS industry is highly diverse with companies serving OEMs in a broad
array of industry segments. Communications and computing are currently the
largest EMS markets based on 1998 total revenues having accounted for 34% and
39% of total EMS revenues in 1998, respectively. TFI also forecasts that the
communications market will be the fastest growing end market for EMS over the
next several years, with total EMS revenue from OEMs in the communications
sector expected to grow from $19.2 billion of revenues in 1998 to $55.5 billion
in 2003. We also believe that certain segments of the communications sector
offer particularly strong growth opportunities, including the wireless and
optical systems markets.
As this outsourcing trend continues, many OEMs are increasingly evaluating
whether to outsource additional aspects of their business functions, including
design, logistics, procurement and test. For example, in a 1999 TFI survey,
OEMs indicated an increased willingness to outsource a broad spectrum of design
services, including product definition, product design, design for
manufacturability and design for test services. As a result, we believe EMS
companies that have core competencies in providing advanced engineering
services and in serving the communications markets are well positioned to
benefit from OEMs' accelerating demand for EMS.
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Our Competitive Strengths
We have established strong, long-term relationships with numerous OEMs, many
of which are leaders in their respective markets. Our business is built on
several specific strengths, including the following:
World-Class Engineering Capabilities. Utilizing over 400 engineering
professionals worldwide, we differentiate ourselves in the EMS marketplace by
providing our customers with world-class engineering and product management
services. Our engineering capabilities enable us to conceptualize, create
specifications, design, prototype, validate and ramp our customers' products to
volume production. We offer our customers expertise in a variety of design
applications, including mechanical and electromechanical engineering, software,
firmware, application specific integrated circuit design, printed circuit board
design, industrial design and systems engineering and integration. In addition,
we offer extensive custom test and automation equipment design and build
services. These product design, custom test equipment and automation
capabilities enhance the design and manufacturability of our customers'
products, reduce time to market and allow us to provide customers with a
seamless transition to commercial volume production.
Communications Focus with Specific Wireless and Optical Systems
Expertise. We focus substantial resources on the rapidly expanding
communications industry and have developed specific expertise in the high
growth wireless and optical market segments. Our wireless and optical service
offerings include adhesives, advanced printed circuit board assembly
technologies, such as chip on board, chip on flex and flip chip technologies,
lead-free soldering, conformal coating, laser welding, hybrid
optical/electrical printed circuit board assembly and test and sub-micron
alignment of optical sub-assemblies. We use these capabilities to build a wide
variety of advanced optical components and optical subsystems for existing and
emerging OEMs. We have been able to leverage our focus and expertise to
establish strong relationships with wireless and optical systems OEMs,
including Ancor Communications, Interwave, Optical Networks, Optical Solutions,
Repeater Technologies and Western Multiplex. We believe that this expertise and
our early entry into the wireless and optical systems markets will enable us to
continue to attract new customers and increase our sales to existing customers
in the communications marketplace.
Comprehensive Manufacturing and Fulfillment Services. We complement our
engineering capabilities with a comprehensive range of manufacturing and
fulfillment services that support our customers' products from initial design
and development through prototyping, assembly, test equipment build and
automation, final system build, supply chain management, packaging, worldwide
distribution, and aftermarket support. These capabilities enable us to provide
OEMs with a complete solution for all of their EMS needs.
Global Scale and Infrastructure. We operate engineering and manufacturing
facilities in the United States, China, Mexico, the Netherlands, Singapore and
Thailand, all of which are in close proximity to the world's major electronics
markets. Our global presence allows us to shift manufacturing efforts to the
areas where our customers and their end markets are located, reduce the time
and cost required to bring our customers' products to market and simultaneously
introduce our customers' products in major global markets.
Strategy
Our objective is to enhance our position as a leading EMS provider to OEMs
worldwide. We intend to achieve this objective by continuing to employ the
following strategies:
Leverage Our World-Class Engineering Services. We are committed to providing
world-class engineering services to meet OEMs' increasing requirements to
outsource front-end product design, prototyping and test services. We intend to
leverage our engineering services to establish relationships with OEMs early in
the new product design and development process to give us an opportunity to
also provide integrated engineering, manufacturing and fulfillment services for
these new products. In addition, we provide engineering expertise in the design
and build of custom test equipment systems, which OEMs have traditionally been
unable to outsource. Our custom equipment design and build services provide us
with another opportunity to attract new customers and to introduce other
components of our comprehensive EMS solution to existing customers. We intend
to continue developing new advanced engineering, custom test equipment and
process automation services to meet the changing needs of our customers in a
cost efficient and timely manner.
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<PAGE>
Provide Comprehensive Engineering, Manufacturing and Fulfillment Service
Offerings. We will continue to expand our service offerings to meet the
evolving needs of our customers who are increasingly requiring a wider range of
advanced services from EMS companies. We have developed the engineering,
manufacturing and fulfillment capabilities to provide comprehensive EMS
solutions that support our customers' products from initial product design and
development through prototyping, testing, manufacture and world-wide
distribution. We intend to use these capabilities to increase our services to
our existing customers and to expand the scope of services we provide to OEMs
launching new product programs.
Focus on High Growth EMS Market Segments. We focus on establishing
profitable and strategic relationships with industry leaders in high growth
markets such as the wireless and optical segments of the communications
industry. We will continue to leverage our engineering and manufacturing
capabilities to develop relationships with established and emerging OEMs in
high growth markets to increase our customer base and increase our sales to
existing customers as they expand into new markets.
Expand Our Global Scale and Infrastructure. Over the last several years, we
have expanded from one facility in North America to nine facilities across
North America, Europe and Asia. We intend to continue to expand our presence in
strategic locations to provide our customers with services in close proximity
to their own operations or their end customers. This strategy enhances our
ability to offer our customers timely delivery of products and cost effective
manufacturing solutions worldwide.
Pursue Selective Acquisitions. We completed two acquisitions in fiscal 2000
and we will continue to pursue strategic acquisitions that enable us to expand
our geographic reach, add manufacturing capacity, secure key new customers,
diversify into complementary product markets and broaden our technological
capabilities and value-added service offerings. As part of our overall
strategy, we intend to capitalize on the growth opportunities presented by
OEMs' divestitures of their own engineering and manufacturing operations as
well as the consolidation of EMS companies, thereby maximizing our ability to
increase our service capabilities in strategic markets and locations.
Focus on Quality Management. We are committed to excellence in the
engineering and manufacturing of our customers' products and have adopted an
extensive quality management system that focuses on continual process
improvement and achieving high customer satisfaction. Our facilities in
Rochester, Minnesota; San Jose, California; and Almelo, the Netherlands are ISO
9001 certified for quality assurance in design, development, production,
installation and servicing activities. Our facilities in Mexico and Thailand
are ISO 9002 certified for quality assurance in production, installation and
servicing activities. In addition, all of our facilities engaged in medical
product design and manufacture are FDA/QSR compliant, and our Rochester,
Minnesota facilities are QS 9000 certified. We will continue to utilize
advanced statistical engineering and metrics control techniques to achieve our
high quality standards and customer satisfaction objectives.
Provide Superior Supply Chain Management. We are committed to maintaining a
leadership position in supply chain management to reduce our customers' total
costs and time to market and increase our flexibility to respond to changing
customer requirements. We are currently implementing Web-based supply chain
software products from AGILE Software Corporation and i2 Technologies that will
allow us to communicate with our supply chain partners to provide them real-
time information on specific orders, product demand, inventory and component
lead times. We will continue to utilize and develop advanced electronic data
interchange and Web-based e-business systems to manage all aspects of the
engineering, manufacturing and fulfillment processes and streamline the supply
chain system for our customers.
Services
We offer a comprehensive range of engineering, manufacturing and fulfillment
services that support our customers' products from initial design through
prototyping, design validation, testing, ramp to volume production, worldwide
distribution and aftermarket support. We support all of our service offerings
with a comprehensive supply chain management system, superior quality
management program and sophisticated
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<PAGE>
information technology systems. Our comprehensive service offerings enable us
to provide a complete and solution for our customers' outsourcing requirements.
The following illustration highlights our comprehensive service offerings and
our value added support services:
[Illustration of customer circled by engineering, fulfillment and manufacturing
services.]
Our Engineering Services
New Product Design, Engineering, Prototype & Test. We offer a full spectrum
of new product design, prototype, test and related engineering services that
shorten product development cycles, resulting in faster time to market and
reduced costs for our customers. Our multi-disciplined engineering teams
provide expertise in a number of core competencies critical to serving OEMs in
our target markets, including industrial design, mechanical and electrical
hardware, firmware, software and systems integration and support. We create
specifications, design, prototype, validate and ramp our customers' products
into high volume manufacturing. Our technical expertise includes electronic
circuit design for analog, digital, radio frequency and microwave printed
circuit boards and application specific integrated circuits.
Custom Test and Automation Equipment Design & Build Services. We provide our
customers with a comprehensive range of custom functional test equipment,
process automation and replication services. We have substantial expertise in
tooling, testers, equipment control, systems planning, automation, floor
control, systems integration, replication and programming. Our custom
functional test equipment, process automation and replication services are
available to OEMs as part of our full service product design and manufacturing
services package or on a stand-alone basis for products designed and
manufactured elsewhere. Our ability to provide these services allows us to
capitalize on OEMs' increasing needs for custom manufacturing solutions and
provide an additional opportunity to introduce customers to our comprehensive
engineering and manufacturing services.
Our Manufacturing Services
Printed Circuit Board Assembly & Test. We offer a wide range of printed
circuit board assembly and test services, including printed circuit board
assembly, assembly of subsystems, in-circuit and functional testing of printed
assemblies, board level functional testing, environmental and stress testing
and component reliability testing. Our multi-disciplined engineering
professionals have expertise in a variety of established and emerging
technologies, including surface mount technology, fine pitch, ball grid array,
flip chip, chip on board, micro chip, column ball grid array, direct chip
attach and wire bonding. All of our printed circuit boards are manufactured
using a continuous flow process, which minimizes process times for faster
delivery and reduces the overall costs to our customers.
Flex Circuit Assembly & Test. We provide OEMs with a wide range of flexible
circuit assembly and test services, including surface mount technology, fine
pitch, ball grid array and flip chip attached to flexible circuits and ceramic
substrates. We utilize specialized tooling strategies and advanced procedures
to minimize circuit
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<PAGE>
handling and ensure that consistent processing parameters are maintained
throughout the assembly process. All of our manufacturing activities are
monitored to comply with strict environmental controls and to maintain our
product quality standards.
Systems Assembly & Test. We offer a wide range of systems assembly and test
services that enhance product quality and product life cycles. Our
manufacturing capabilities include the design, development and building of test
strategies for specific products which utilize manual, mechanized or fully
automated production lines to improve product quality, reduce costs and improve
delivery time to customers. As OEMs seek to provide greater functionality in
smaller products, they require more sophisticated systems assembly technologies
and processes. Our expertise in advanced precision and electromechanical
technologies and our continued investment in technology enables us to meet our
customers' changing needs and gives our customers access to a wide variety of
advanced manufacturing solutions without having to make substantial capital
investments. In order to meet our customers' demand for systems assembly and
test services, we offer subassembly build, final assembly, functional test,
configuration and software installation and final packaging services.
Precision Electromechanical Assembly & Test. We offer a full spectrum of
precision electromechanical assembly and test services that can be utilized in
a variety of advanced applications. We design, develop and build product
specific manufacturing processes utilizing manual, mechanized or fully
automated lines to meet our customers' product volume and quality requirements.
We provide OEMs with expertise in several core technologies that can be
utilized in a variety of applications, including optical systems assembly and
test, magnetics assembly and test, overmolding, precision metal joining, in-
process forming, vision-assisted assembly and precision alignment and assembly.
All of our assembly and test processes are developed according to customer
specifications and replicated within our facilities.
Plastic Injection Molding. We provide our customers with plastic injection
molding services for the communications, computing, data storage and medical
device industries. All of our molding services can be performed with hands-free
robotic systems in a humidity and temperature controlled environment to
maximize product quality.
Our Fulfillment Services
Product Configuration and Distribution. We provide our customers with
product configuration and global distribution services that complement our
engineering and manufacturing services and enable our customers to be
responsive to changing market demands and reduce time to market. We utilize
sophisticated build-to-order software to configure our customers' products on a
customized basis. Our global distribution capabilities allow us to distribute
products to customers, distributors and end-users around the world. We provide
vendor-managed inventory programs, including customer-designated hubs where a
customer's inventory can be stored prior to distribution, to streamline the
distribution process and decrease delivery times.
Aftermarket Services. We provide a range of aftermarket services, including
repair, replacement, refurbishment, remanufacturing, exchange, systems upgrade
and spare part manufacturing. These services are tracked and supported by
specific information technology systems that can be tailored to meet our
customers' individual requirements.
Our Value-Added Support Systems
We support our engineering, manufacturing and fulfillment services with an
efficient supply chain management system and a superior quality management
program. All of our value-added support services are implemented and managed
through sophisticated information technology systems, which enable us to
collaborate with our customers throughout all stages of the engineering,
manufacturing and order fulfillment processes.
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<PAGE>
Supply Chain Management
Our supply chain management system reduces our customers' total costs by
assisting them in the selection of components during the product design stage
to ensure advantageous sourcing and pricing from preferred suppliers and
distributors. We have strong relationships with a broad range of materials and
component suppliers and distributors, and our product design and volume
procurement capabilities enhance our ability to secure supplies of materials
and components at advantageous pricing. We employ a supplier certification
process to ensure that suppliers of key components have predictable and stable
manufacturing processes capable of supplying components that meet or exceed our
quality requirements.
We utilize a full complement of electronic data interchange transactions, or
EDI, with our suppliers to coordinate forecasts, orders, reschedules, inventory
and component lead times. At our engineering facilities, we also utilize Web-
based products from AGILE Software Corporation to collaborate with our supply
chain partners in real-time on product content and engineering change
management. We are in the process of expanding our Web-based system by
implementing a suite of real-time supply chain management software products
from i2 Technologies across all of our facilities to enhance our ability to
rapidly scale operations to meet customer needs, shift capacity in response to
product demand fluctuations, reduce materials costs and effectively distribute
products to our customers or their end-customers.
Quality Management
We believe quality management is paramount to providing quality engineering
and manufacturing services to our customers. We employ several quality
management systems, which ensure the highest quality services and customer
satisfaction. Our facilities in Rochester, Minnesota; San Jose, California; and
Almelo, the Netherlands are ISO 9001 certified for quality assurance in design,
development, production, installation and servicing activities. Our
manufacturing facilities in Mexico and Thailand are ISO 9002 certified for
quality assurance in production, installation and servicing activities. In
addition, all of our facilities engaged in medical product design and
manufacture are FDA/QSR compliant and our Rochester facilities are QS 9000
certified. We are currently pursuing an ISO 14000 environmental certification
for all of our facilities. All of our assembly and test activities are
supported by advanced statistical engineering and metrics control techniques,
including yield management and failure analysis, which improve product and
service quality. Statistical information is regularly reviewed by each
facility's management team to ensure we are achieving our quality goals and
customer satisfaction. Our customers can access our quality data information
through our Web-based program management system and monitor our commitment to
quality assurance.
Information Systems
Information systems are a critical element for achieving our business
objectives. We believe that our significant investment in sophisticated
information systems will deliver competitive advantages for our customers by
improving product quality and operational flexibility. Our enterprise resource
planning systems, or ERP systems, provide product and production information to
our supply chain management and engineering change management systems. These
ERP systems also provide us with real-time financial and materials management
data. Our information systems also control serialization and quality data for
all of our facilities around the world utilizing state-of-the-art statistical
process control techniques for continuous process improvements. We will
continue to make significant investments in Web-based collaboration tools that
will leverage the speed and technology of the Internet to facilitate the flow
of information, both within Pemstar and with our customers and suppliers,
resulting in superior quality products, quicker response time for our clients
and reduced time to market.
Customers
Our customers include established OEMs, including such industry leaders as
3M, Efficient Networks, Electronics For Imaging, Fluke Corporation, Fujitsu,
Hewlett Packard, Honeywell, IBM, Motorola, Pinnacle, RSA, Seagate and Sony. We
also have relationships with a number of emerging wireless and optical systems
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OEMs, including Ancor Communications, Interwave, Optical Networks, Optical
Solutions, Repeater Technologies and Western Multiplex. Our customers include
established and emerging OEMs in the communications, computing, data storage,
industrial and medical equipment industries. The following table shows the
percentage of our sales in each of the markets we serve for the fiscal years
ended March 31, 1998, 1999 and 2000.
<TABLE>
<CAPTION>
Fiscal Year
Ended
March 31,
----------------
Markets 1998 1999 2000
------- ---- ---- ----
<S> <C> <C> <C>
Communications............................................ 15% 16% 34%
Computing................................................. 41 60 32
Data Storage.............................................. 39 18 20
Industrial Equipment...................................... 2 3 13
Medical Equipment......................................... 3 3 1
--- --- ---
Total................................................... 100% 100% 100%
=== === ===
</TABLE>
The following table indicates, for fiscal 2000, our ten largest customers in
terms of net sales, in alphabetical order and the primary products for which we
provided our services.
<TABLE>
<CAPTION>
OEM Customers End Products
------------- ------------
<S> <C>
Ancor Communications............. Communications switching equipment
Efficient Networks............... Broadband access devices
Electronics For Imaging.......... Networking equipment
Fluke Corporation................ Industrial instrumentation
IBM.............................. Computing, network and storage equipment
Interwave........................ Wireless communications equipment
Motorola......................... Wireless communications devices
Pinnacle......................... Computer video equipment
RSA.............................. Computer security devices
Sony............................. Industrial equipment
</TABLE>
In fiscal 2000, IBM represented approximately 37% of our net sales and
Motorola represented approximately 15% of our net sales.
Sales and Marketing
We market our engineering, manufacturing and fulfillment services through a
sales force of fifteen full-time senior sales professionals located in North
America, Europe and Asia. Our North American sales force is assisted by six
manufacturers representative organizations. Our direct sales efforts in North
America are organized into four regions, Eastern, Central, Rocky Mountain and
Western. Sales in each region are managed by an experienced director of sales
with the assistance of a director of technical sales who coordinates
engineering sales across all four regions. Our direct sales personnel have
knowledge of local markets, which we believe is critical to identifying new
customers and developing new business opportunities. In excess of 95% of our
net sales in fiscal 2000 were generated through our internal sales force. Our
executive management team is integral to our sales efforts, with each member
being assigned to a North American, European or Asian region in which the
executive interfaces with customers to ensure customer satisfaction and
generate additional business opportunities.
Our sales and marketing professionals target OEMs that require a
comprehensive outsourcing solution in the communications, computing, data
storage, industrial and medical equipment industries and whose outsourcing
requirements will utilize our global facilities and capabilities. Our marketing
strategy focuses on developing close working relationships with our customers
early in the design phase and throughout the lifecycle of a product. To
facilitate these relationships, a customer support team is assigned to each
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customer to service all of the customer's needs throughout the outsourcing
process. Each customer support team consists of a dedicated program manager,
project buyer, production control planner, manufacturing engineer and quality
engineer. The program manager serves as the customer's single point of contact
for all of the customer's requirements on a worldwide basis and, with the
support of the team, has responsibility for managing all aspects of the
customer's project.
Intellectual Property
We have developed proprietary processes and program management methodologies
that enable us to shorten time to market and to deliver superior quality
products in a cost-effective manner. Our intellectual property portfolio of
patents, patent applications, trade secrets and other proprietary information
consists primarily of unique processes that enable us to develop and
manufacture superior custom test equipment solutions for our customers. We
currently have one patent and fourteen patent applications filed for technology
and methodologies relating to process automation, test equipment, product
quality and reliability, manufacturing processes, failure analysis, process
control techniques and test equipment. These proprietary processes are grouped
into building blocks that can be applied in a variety of applications.
Our multi-disciplined engineering teams continually seek to develop new
testing and manufacturing equipment and processes to meet our customers'
changing needs and provide custom solutions at an affordable cost. Our
engineers often incorporate custom built equipment into our own proprietary
manufacturing systems to maximize the equipment's functionality and optimize
manufacturability. Because these systems are based on our proprietary
technology, they can be quickly replicated in our facilities and provided to
our customers in a cost-efficient manner.
To protect our proprietary rights, we rely largely upon a combination of
patents, trade secret laws, non-disclosure agreements with our customers and
our internal confidentiality procedures and employee confidentiality
agreements. Although we take steps to protect our proprietary information and
trade secrets, misappropriation may still occur. We believe that our
proprietary design and manufacturing processes do not infringe on the
proprietary rights of others.
We license some technology from third parties that we use in providing
engineering and manufacturing services to our customers. We believe that these
licenses are generally available on commercial terms from a number of
licensors. Generally, the agreements governing this technology grant us non-
exclusive, worldwide licenses with respect to the subject technology and could
terminate upon a material breach by us.
Research and Development
The market for our services is characterized by rapidly changing technology
and continuing process development. OEMs are demanding smaller, faster and
higher performance products. These demands require increasingly complex
engineering and manufacturing capabilities. We are committed to developing new
design and manufacturing technologies and enhancing our existing technologies.
Since our formation in 1994, we have made substantial investments in technology
and equipment to meet our customers' needs and maintain our competitive
advantage. Our expenditures for research and development in fiscal 2000 were
$410,000, and our expenditures in fiscal 1999 and 1998 were $387,000 and
$401,000, respectively.
Our close relationships with customers in the early stages of product design
allows us to develop new products that utilize innovative technology in a
variety of engineering disciplines. These close relationships assist us in
identifying emerging products and related technologies in target markets, which
allows us to develop and expand our existing technology, or to develop or
obtain new technology that will enable us to remain a leading provider of EMS.
As a result of our commitment to maintaining superior technological
capabilities, we have developed substantial expertise in communications,
particularly in the areas of wireless and optical technologies, which we
believe gives us a competitive advantage over many other EMS providers.
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Employees
As of March 31, 2000, we had 2,715 full-time employees. In addition to our
full-time employees, we regularly hire part-time and temporary (contract)
employees. Given the variable nature of our project flow and the quick response
time required by our customers, it is critical that we be able to quickly ramp-
up and ramp-down our production capacities to maximize efficiency. To achieve
this, our strategy has been to employ a skilled temporary labor force, as
required. Except for our 218 employees located in Almelo, the Netherlands, none
of our employees are unionized. We believe our employee relations are good, and
we have not experienced any work stoppages at any of our facilities.
International Operations
A key element in our business strategy is to expand our global presence to
provide engineering, manufacturing and fulfillment services in locations that
meet our customers' regional requirements. Consistent with this strategy, we
have established international design and manufacturing facilities in China,
Mexico, the Netherlands, Singapore and Thailand. We will continue to seek
strategic opportunities to acquire facilities throughout the world, especially
in low-cost regions, either through OEM divestitures or the acquisition of, or
strategic partnering with, regional engineering and manufacturing service
companies.
In May 1999, we acquired a facility located in Almelo, the Netherlands from
Fluke Corporation. Acquisition of our Netherlands facility increased our
engineering design capabilities, particularly in the areas of electrical and
industrial design. This facility also gives us the ability to rapidly
distribute products for our European and North American customers. In
connection with this acquisition, we entered into a long-term supply agreement
to provide manufacturing and design services to Fluke.
Our Mexican facility, located in Guadalajara, Mexico and our Chinese
facility located in Tianjin, China, represent greenfield operations established
in September 1997 and June 1998, respectively. Establishment of these
facilities has enabled us to provide low-cost manufacturing and order
fulfillment services for our customers on a global basis. Our facility in
Guadalajara is located in Mexico's emerging communications and computing
markets, and our expansion into this region has provided us with the
opportunity to attract new customers in those industries. Similarly, our
expansion into China has enabled us to reduce our customers' manufacturing
costs while giving us access to new customers in the communications, computing
and data storage industries.
Our Bangkok, Thailand facility was initially a strategic partnership with
Italade Technology Holdings, Ltd. This facility, Pemstar Limited, is now a
wholly-owned subsidiary of Pemstar. Our Thailand operations are strategically
situated in the rapidly expanding Asian communications, computing and data
storage markets, giving us access to new customers in those industries.
In October 1998, we formed a Singapore joint venture company called Pemstar-
Honguan Pte. Ltd. with a manufacturing services company called Honguan
Technologies. We own a controlling 51% interest in this joint venture. Our
facility in Singapore has significantly enhanced our service capabilities in
the data storage industry by adding specialized disk drive design and
manufacturing capabilities. This facility also provides critical sales support
for customers in the United States, Southeast Asia, the Philippines, Japan and
Korea.
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Facilities
Our executive offices are located in Rochester, Minnesota, where we also
have engineering and manufacturing facilities. We also have two other U.S.
facilities located in San Jose, California as well as facilities in China,
Mexico, the Netherlands, Singapore and Thailand. Information about these
facilities is set forth below:
<TABLE>
<CAPTION>
Location Square Feet Leased/Owned
-------- ----------- --------------
<S> <C> <C>
Rochester, Minnesota (2 facilities)............ 225,000 Owned & Leased
San Jose, California (2 facilities)............ 179,000 Leased
Almelo, the Netherlands........................ 132,000 Leased
Guadalajara, Mexico............................ 60,000 Leased
Bangkok, Thailand.............................. 52,000 Leased
Tianjin, China................................. 40,000 Leased
Singapore...................................... 8,000 Leased
</TABLE>
We believe our facilities are well maintained and suitable for their
respective operations. We anticipate that as our business grows, we will need
to acquire, lease or build additional facilities. We may encounter unforeseen
difficulties, costs or delays in expanding our facilities.
Competition
The EMS industry is highly competitive and we compete against numerous
domestic and foreign engineering and manufacturing service companies. We
believe that the principal competitive factors in our industry are:
. Service offerings;
. Technological capabilities;
. Scale of operations and financial strength;
. Geographic location and coverage;
. Pricing;
. Product quality;
. Meeting product delivery schedules; and
. Flexible and timely response to design and schedule changes.
We believe that large, publicly-traded OEMs prefer to enter into outsourcing
relationships with other public EMS companies that present them with the
opportunity to build a long-term relationship because of their greater access
to capital and resulting financial stability. Many of our competitors are
substantially larger and have greater financial, operating, manufacturing and
marketing resources than we do. Some of our competitors have broader geographic
breadth and range of services than we do. In addition, some of our competitors
may have stronger relationships with our existing customers than we do. We
believe that we are a leading EMS provider and that we are well positioned to
compete against these larger competitors due to our world-class engineering,
product quality, flexibility and timeliness in responding to design and
schedule changes, reliability in meeting product delivery schedules, pricing,
the provision of value-added services and geographic location.
We also face competition from the manufacturing operations of our current
and potential customers, who continually evaluate the relative benefits of
internal manufacturing compared to outsourcing. As more OEMs dispose of their
manufacturing assets and increase their use of outsourcing, we face increasing
competitive pressure to grow our business in order to maintain our competitive
position.
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<PAGE>
Governmental Regulation
Our operations are subject to federal, state and local regulatory
requirements relating to environmental, waste management and health and safety
measures relating to the use, release, storage, treatment, transportation,
discharge, disposal and clean-up of hazardous substances and wastes, as well as
practices and procedures applicable to the construction and operation of our
plants. In addition, we are required to register with the United States Food
and Drug Administration as a medical device manufacturer. The FDA and various
state agencies inspect our facilities from time to time to determine whether we
are in compliance with the FDA's Quality Systems Regulation relating to medical
device manufacturing companies, including regulations concerning manufacturing,
testing, quality control and product labeling practices. The current costs of
compliance are not material to us, and we are not presently aware of any facts
or circumstances that would cause us to incur significant costs or liabilities
in the future related to environmental, health and safety law compliance.
Legal Proceedings
To the best of our knowledge, there are no legal proceedings pending or
threatened against us.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth our directors and executive officers, their
ages as of May 15, 2000 and the positions currently held by them:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Allen J. Berning........ 45 Chairman, Chief Executive Officer and Director
William J. Kullback..... 40 Vice President--Finance and Chief Financial
Officer
William B. Leary........ 58 Executive Vice President--Rochester Site
Operations and Director
David L. Sippel(1)...... 56 Executive Vice President--Engineering Services
and Chief Technology Officer and Director
Robert R. Murphy(1)..... 56 Executive Vice President--Corporate Operations
Treasurer and Director
Gary L. Lingbeck........ 54 Executive Vice President--North American Sales,
Secretary and Director
Steve V. Petracca....... 44 Executive Vice President--Business Development
and Director
Karl D. Shurson(1)...... 60 Executive Vice President--Quality and Director
Hargopal (Paul) Singh... 50 Executive Vice President--International
Operations and Director
Robert J. Legendre...... 43 Vice President--Worldwide Materials
Robert D. Ahmann........ 44 Executive Vice President--Manufacturing Systems
and Director
Thomas A. Burton(1)(2).. 63 Director
Michael J. 36
Odrich(1)(2)........... Director
Bruce M. Jaffe(1)(2).... 56 Director
</TABLE>
- --------
(1)Member of our executive compensation committee.
(2)Member of our audit committee.
Allen J. Berning has served as our Chief Executive Officer, director and
Chairman of our Board since the founding of Pemstar in 1994. Prior to founding
Pemstar, Mr. Berning was employed by IBM for fifteen years, where he held
several engineering and management positions in process engineering,
manufacturing, cost engineering and resource planning, including most recently
as Operations Manager for IBM's Rochester Storage Systems facility. Mr. Berning
received a B.S.I.E. and an M.B.A. from St. Cloud State University. He is
currently serving as board member and past chair of the Greater Rochester Area
University Center. In 1999, Mr. Berning received the national Ernst & Young
Entrepreneur of the Year Award.
William J. Kullback has served as our Vice President--Finance and Chief
Financial Officer since joining Pemstar in 2000. Prior to joining Pemstar, Mr.
Kullback served for five years as Chief Financial Officer of Crenlo, Inc., a
manufacturer of fabricated metal products. Prior to joining Crenlo, Mr.
Kullback worked in various positions with the Stant Corporation, a manufacturer
of automotive parts and tools, including Corporate Controller and Vice
President of Finance of Stant's Plews Tool subsidiary. From 1987 to 1990, Mr.
Kullback served as a consultant in the audit and manufacturing consulting
practices of Price Waterhouse. Mr. Kullback received a B.A. in Economics and
English and an M.B.A. in Accounting from the State University of New York at
Buffalo.
William B. Leary has served as our Executive Vice President--Rochester Site
Operations and as a director since 1994. Prior to joining Pemstar, Mr. Leary
was employed by IBM from 1965 until 1994, where he held a variety of
engineering and management positions, including most recently as engineering
manager of storage production. Mr. Leary holds a B.S.E.E. from Marquette
University.
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David L. Sippel has served as our Executive Vice President--Engineering
Services and Chief Technology Officer and as a director since 1994. From 1970
until 1994, Dr. Sippel was employed by IBM, where he held several engineering
and management positions, including most recently as the manager of IBM's thin-
film disk development and manufacturing operations. Dr. Sippel holds a B.S. in
Aeronautics and Engineering Mechanics, an M.S. in Mechanics and Materials and a
Ph.D. in Mechanics and Materials from the University of Minnesota.
Robert R. Murphy has served as Executive Vice President--Corporate
Operations since 2000 and as Treasurer and a director since 1994. Prior to
serving as our Executive Vice President--Corporate Operations, Mr. Murphy
served as our Chief Financial Officer from 1994 to 2000. From June 1962 to
1994, Mr. Murphy was employed by IBM, where he held several engineering and
management positions, including most recently as manager of magnetic head
development and production. Mr. Murphy holds a B.S. degree in Mathematics from
Winona State University.
Gary L. Lingbeck has served as our Executive Vice President--North American
Sales since 1999, and as Secretary and a director since 1994. Prior to serving
as our Executive Vice President--North American Sales, Mr. Lingbeck served as
our Executive Vice President--World Wide Sales from 1994 to 1999. From 1964 to
1993, Mr. Lingbeck was employed by IBM in various technical and management
positions, including establishing OEM sales and marketing groups for IBM's
storage products and midrange systems groups.
Steve V. Petracca has served as our Executive Vice President--Business
Development and as a director since joining Pemstar in 1999. From 1998 to 1999,
Mr. Petracca served as the Executive Vice President and General Manager of
Quadrus Manufacturing, a division of Bell Microproducts. From 1988 to 1997,
Mr. Petracca served as the Chief Executive Officer and President of Reply
Corporation, a venture backed computer start-up company that he founded, and
after acquisition of Reply Corporation by Radius Inc. in 1997, as its Senior
Vice President of engineering and operations until 1998. Prior to founding
Reply Corporation, Mr. Petracca worked in various positions with IBM. Mr.
Petracca holds a B.A. from the University of Colorado and an M.B.A. from Nova
University.
Karl D. Shurson has served as our Executive Vice President--Operations and
Quality since 1998 and as a director since 1994. Mr. Shurson has also served as
our Corporate Manager of Human Resources since 1994 and as the site executive
for our Bangkok, Thailand operations since 1998. From 1962 to 1994, Mr. Shurson
was employed by IBM where he held several technical and management positions,
including most recently as production facility manager for storage products at
IBM's Rochester, Minnesota facility.
Hargopal (Paul) Singh has served as our Executive Vice President--
International Operations and Wireless Communications since 1999 and as a
director since 1998. Mr. Singh has been employed by us since 1995 and also
serves as President of our Chinese and Mexican subsidiaries. From 1994 to 1995,
Mr. Singh was employed by Microsoft, and from 1979 to 1994, he was employed by
IBM. Mr. Singh holds a B.E. in Mechanical Engineering from Osmania University
in India and an M.S. in Engineering Management from Oklahoma State University.
Robert J. Legendre has served as Vice President, World Wide Materials since
2000. Prior to joining Pemstar, Mr. Legendre was employed by Western Digital
Corporation from 1987 to 2000, most recently as Vice President of World Wide
Materials. Mr. Legendre holds a B.S. degree in Business from LaSalle
University.
Robert D. Ahmann has served as our Executive Vice President--Manufacturing
Systems and a director since August 1999. Mr. Ahmann has worked for us in
various capacities since 1994. From 1977 to 1994, Mr. Ahmann was employed by
IBM where he held several engineering and management positions, including most
recently as manager of test and process engineering for storage products. Mr.
Ahmann holds a B.S.E.E. from North Dakota State University and a M.S.E.E. from
the University of Minnesota.
41
<PAGE>
Thomas A. Burton has served as a director since 1994. Mr. Burton has been an
independent consultant since 1995. Prior to joining Pemstar, Mr. Burton was
President and Chief Executive Officer of Waters Instruments Inc., a diversified
manufacturer of medical and agricultural products and a contract manufacturer
for the computing and telecommunications industries, from 1960 to 1990. From
1992 to 1997, Mr. Burton was appointed to serve on the Minnesota Public
Utilities Commission which regulates the electric gas and telephone industries
in Minnesota.
Michael J. Odrich has served as a director of Pemstar since 1998. Since
1995, Mr. Odrich has been a Managing Director and head of the Lehman Brothers'
Venture Capital Fund. Prior to joining Lehman Brothers Private Equity, he
served as assistant to Lehman Brothers' Chairman and Chief Executive Officer
from 1993 until 1995. Mr. Odrich joined the Investment Banking Division of
Lehman Brothers in 1986. He is currently a director of Active Software, Inc.
and Regeneration Technologies, Inc. Mr. Odrich holds a B.A. degree from
Stanford University and an M.B.A. from Columbia University.
Bruce M. Jaffe has served as a director of Pemstar since 2000. Mr. Jaffe,
currently a private investor, was Senior Vice President and Chief Financial
Officer of Bell Microproducts Inc., a distributor of storage and computer
products from 1997 to 1999. From 1967 to 1996, Mr. Jaffe was employed by Bell
Industries Inc., a distributor of electronic components, where he held several
management positions, most recently as President, Chief Operating Officer and a
member of the Board of Directors. From 1965 to 1967, Mr. Jaffe was employed as
an accountant by Price Waterhouse. Mr. Jaffe holds a B.S. in Business from the
University of Southern California and is a certified public accountant. Mr.
Jaffe currently serves on the Board of Advisors for the University of Southern
California School of Business.
Board of Directors
Following the offering, our board of directors will consist of twelve
directors divided into three classes with each class serving for a term of
three years. At each annual meeting of shareholders, directors will be elected
by the holders of common stock to succeed those directors whose terms are
expiring. Gary L. Lingbeck, Karl D. Shurson, Robert D. Ahman and Bruce M. Jaffe
will be Class I directors whose terms will expire in 2001; William B. Leary,
Robert R. Murphy, Hargopal (Paul) Singh and Thomas A. Burton will be Class II
directors whose terms will expire in 2002; and Allen J. Berning, David L.
Sippel, Steve V. Petracca and Michael J. Odrich will be Class III directors
whose terms will expire in 2003. Following the offering, our bylaws will
provide that the number of directors shall be fixed by the board of directors.
The number of directors on our board will be fixed at a maximum of fifteen.
Director Compensation
We pay our non-employee board members $1,000 for attendance at each board
meeting and $500 for attendance at each committee meeting. We also reimburse
our non-employee directors for reasonable expenses incurred in serving as a
director. All of our non-employee directors are entitled to participate in our
Stock Plans. The number of options granted to our non-employee directors is
determined by our Options Committee on an annual basis. In fiscal 2000, one of
our non-employee directors, Thomas A. Burton was awarded an option to purchase
3,000 shares of common stock under our 1999 Amended and Restated Option Plan.
See "Benefit Plans--Stock Option Plans."
Committees
Our board of directors has authority to appoint committees to perform
certain management and administrative functions. We currently have two board-
appointed committees:
Audit Committee
The functions of the audit committee, which consists of Thomas A. Burton,
Michael J. Odrich and Bruce M. Jaffe, each a non-employee director, include:
reviewing the adequacy of our system of internal accounting controls; reviewing
the results of the independent auditors' annual audit, including any
significant adjustments, management judgments and estimates, new accounting
policies and disagreements with
42
<PAGE>
management; reviewing our audited financial statements and discussing them with
management; reviewing the audit reports submitted by the independent auditors;
reviewing disclosures by independent auditors concerning relationships with our
company and the performance of our independent auditors and annually
recommending independent auditors; adopting and annually assessing our charter;
and preparing such reports or statements as may be required by Nasdaq or the
securities laws.
Executive Compensation Committee
The executive compensation committee consists of Thomas A. Burton, Michael
J. Odrich and Bruce M. Jaffe, each a non-employee director, and Robert R.
Murphy, Karl D. Shurson and David L. Sippel, each of whom is also a director.
The functions of the executive compensation committee currently include making
promotion and compensation recommendations for our executive officers and vice
presidents and reviewing our general compensation strategy.
Executive Compensation Committee Interlocks and Insider Participation
During fiscal 2000, Robert R. Murphy, David L. Sippel and Karl D. Shurson,
each an executive officer of Pemstar, served on our executive compensation
committee. Mr. Murphy has an outstanding loan from us in the principal amount
of $67,650, excluding accrued interest. See "Related Party Transactions."
No interlocking relationship exists between the board of directors or the
executive compensation committee and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past.
Employment Agreements
We currently do not have employment agreements with any of our executive
officers, although the terms of our change of control agreements with each
executive officer impose limitations on our ability to terminate an executive
officer. See "Executive Compensation--Change in Control Arrangements."
Change in Control Arrangements
We have entered into change in control arrangements with each of our
executive officers. These agreements are designed to diminish the distractions
that could be caused by personal uncertainties and risks associated with
changes in control and other significant business combinations involving our
company by providing these individuals with assurances regarding their
compensation and benefits expectations under such circumstances.
Under these agreements, we agree not to terminate any of these individuals
during the six month period prior to a "change in control" involving our
company and for the two year period following any change in control. If, during
the applicable period, we terminate any individual other than for "cause" or
"disability" or the individual terminates his employment for "good reason," the
individual is entitled to receive a severance payment from us in the amount of
110% of the individual's annual base salary in effect at the time of
termination or immediately prior to the change in control, whichever is
earlier. We may pay the severance payment in one lump sum or in twelve
consecutive monthly installments.
Limitation on Liability and Indemnification Matters
Minnesota law and our articles of incorporation and bylaws provide that we
shall, under certain circumstances and subject to certain limitations,
indemnify any person made or threatened to be made a party to a proceeding by
reason of that person's former or present official capacity with us against
judgments, penalties, fines, settlements and reasonable expenses. Any such
person also is entitled, subject to limitations, to payment or reimbursement of
reasonable expenses in advance of the final disposition of the proceeding.
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<PAGE>
Pursuant to provisions of the Minnesota Business Corporation Act, we have
adopted provisions in our articles of incorporation which provide that our
directors shall not be personally liable to us or our shareholders for monetary
damages for a breach of fiduciary duty as a director, subject to exceptions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for indemnification.
Executive Compensation
The following table sets forth information regarding compensation received
during the fiscal year ended March 31, 2000 by our Chief Executive Officer and
the other four most highly compensated executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation(1) Compensation
-----------------------------
Securities All Other
Salary Bonus Underlying Compensation
Name and Principal Position ($) ($) Options (#) ($)(2)
- --------------------------- ------ ------------------- ------------
<S> <C> <C> <C> <C>
Allen J. Berning.................... 156,346 -- 216,000 4,656
Chief Executive Officer
Steve V. Petracca................... 182,948 -- 210,000 5,192
Executive Vice President--Business
Development
William B. Leary.................... 126,154 -- 135,000 2,360
Executive Vice President--Rochester
Site Operations
Hargopal (Paul) Singh............... 126,154 -- 135,000 2,360
Executive Vice President--
International Operations
David L. Sippel..................... 126,154 -- 135,000 2,390
Executive Vice President--
Engineering Services and Chief
Technology Officer
</TABLE>
- --------
(1) With respect to each of the named executive officers, the aggregate amount
of prerequisites and other personal benefits, securities or property
received was less than either $50,000 or 10% of the total annual salary and
bonus reported for such named executive officer.
(2) All other compensation consists of discretionary matching contributions to
our 401(k) on behalf of each named executive officer. See "Benefits--
401(k) Plan."
44
<PAGE>
Stock Option Grants in Last Fiscal Year
The following table sets forth information regarding grants of stock options
to each of the executive officers named in the Summary Compensation Table
during fiscal 2000. The percentage of total options set forth below is based on
an aggregate of 3,269,775 options granted to employees during fiscal 2000. All
options were granted at the fair market value of our common stock, as
determined by our board of directors, on the date of grant. Potential
realizable values are net of exercise price, but before taxes associated with
exercise. Amounts representing hypothetical gains are those that could be
achieved for the options if exercised at the end of the option term. The
assumed 5% and 10% rates of stock price appreciation are provided in accordance
with rules of the Securities and Exchange Commission based on a deemed common
stock value of $5.00 at the time of option grant, and do not represent our
estimate or projection of the future stock price.
Option Grants in Fiscal Year Ended March 31, 2000
<TABLE>
<CAPTION>
Potential
Individual Grants Realizable Value
-------------------------------------------- at Assumed Annual
Number of % of Total Rate Of Stock
Shares of Options Price
Common Stock Granted to Appreciation For
Underlying Employees Exercise Option Term
Options in FY 2000 Price Per Expiration -----------------
Name Granted(1) (%) Share ($) Date 5% ($) 10% ($)
- ---- ------------ ---------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Allen J. Berning........ 216,000 6.6 5.00 08/02/09 679,206 1,721,242
Steve V. Petracca....... 210,000 6.4 5.00 08/02/09 660,339 1,673,429
William B. Leary........ 135,000 4.1 5.00 08/02/09 424,504 1,075,776
Hargopal (Paul) Singh... 135,000 4.1 5.00 08/02/09 424,504 1,075,776
David L. Sippel......... 135,000 4.1 5.00 08/02/09 424,504 1,075,776
</TABLE>
- --------
(1) All options granted to the named executive officers in fiscal 2000 are
fully vested and exercisable.
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The table below sets forth the number of shares of common stock acquired
upon the exercise of options in the fiscal year ended March 31, 2000 and the
value and the number of shares of common stock subject to exercisable and
unexercisable options held as of March 31, 2000, by each of the executive
officers named in the Summary Compensation Table.
Aggregate Option Exercises in Fiscal 2000
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised In-
Underlying Unexercised the-Money Options at
Number of Options at Year-End(2) Year-End(3)
Shares Value ------------------------- -------------------------
Name Acquired Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Allen J. Berning........ 187,500 $470,250 150,000 -- $ -- $ --
Steve V. Petracca....... -- -- 210,000 -- -- --
William B. Leary........ 82,500 344,850 135,000 -- -- --
Hargopal (Paul) Singh... 285,000 670,800 -- -- -- --
David L. Sippel......... 82,500 344,850 143,100 -- -- --
</TABLE>
- --------
(1) Based on an estimated fair market value of $5.00 per share of our common
stock.
(2) As of March 31, 2000, all outstanding options are exercisable as a result
of a board action accelerating the vesting dates of all options granted
prior to December 13, 1999.
(3) There is no value of the unexercised in-the-money options at year end
because the exercise price of all outstanding options is equal to the fair
market value of the shares as determined by the board of directors.
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<PAGE>
Benefit Plans
Stock Option Plans
We currently maintain five stock option plans: (1) the Pemstar Inc. 1994
Stock Option Plan (the "1994 Option Plan"), (2) the Pemstar Inc. 1995 Stock
Option Plan (the "1995 Option Plan"), (3) the Pemstar Inc. 1997 Stock Option
Plan (the "1997 Option Plan"), (4) the Pemstar Inc. Amended and Restated 1999
Stock Option Plan (the "1999 Amended and Restated Option Plan") and (5) the
Pemstar Inc. 2000 Stock Option Plan (the "2000 Option Plan") (collectively
referred to as the "Option Plans"). Our Option Plans provide for the grant of
options to purchase shares of our common stock to any of our full or part-time
employees, including officers and directors who are also employees, and any of
our subsidiaries. Such options may qualify as incentive stock options under the
Internal Revenue Code of 1986. Members of our board of directors, consultants
or independent contractors providing valuable services to us or one of our
subsidiaries who are not employees are eligible to receive options which do not
qualify as incentive stock options.
We have reserved 900,000 shares of common stock for issuance under our 1994
Option Plan, 600,000 shares of common stock under our 1995 Option Plan,
1,500,000 shares of common stock under the 1997 Option Plan, 3,000,000 shares
of common stock under our 1999 Amended and Restated Option Plan and 1,500,000
shares of common stock under our 2000 Option Plan.
Our Option Plans are administered by our options committee. Our options
committee has the discretion to determine the purchase price of the common
shares covered by each option, select the people to whom options are granted
and to establish the terms and conditions of each stock option, subject to the
provisions of our Option Plans and the approval of our board of directors.
Our 1999 Amended and Restated Option Plan and our 2000 Option Plan allow our
options committee to establish special rules for employees located in our
foreign subsidiaries. Such rules may not increase the number of shares that may
be issued under our 1999 Amended and Restated Option Plan.
The exercise price of an incentive stock option granted under our Option
Plans must not be less than 100% of fair market value of the common stock on
the date the option is granted. In the event that a proposed optionee owns more
than 10% of our common stock, any incentive stock option granted must have an
exercise price not less than 110% of the fair market value of our common stock
on the grant date.
The term of each option is determined by our options committee, but in any
event the term of an incentive stock option may not exceed 10 years from the
date of grant and the term of a non-qualified stock option may not exceed 15
years from the date of grant. In the case of an incentive stock option granted
to an owner of more than 10% of our common stock, the term may not exceed five
years from the date of grant.
The Option Plans are subject to amendment or discontinuance by our board of
directors, except that the board may not, without the approval of our
shareholders, increase the number of shares that may be issued under our plans,
decrease the minimum exercise price, extend the maximum option term or
materially modify the eligibility requirements for participation.
Employee Stock Purchase Plan
Prior to completion of this offering, we expect our board of directors and
shareholders to approve an employee stock purchase plan covering an aggregate
of 500,000 shares of common stock. The purchase plan will provide a means by
which employees may purchase our common stock through payroll deductions. The
purchase plan is intended to qualify as an employee stock purchase plan within
the meaning of Section 423 of the Internal Revenue Code of 1986, as amended.
401(k) Plan
In 1995, we adopted a 401(k) plan to provide eligible employees with a tax
preferential savings and investment program. Employees become eligible to
participate in the 401(k) plan on the first day of the first
46
<PAGE>
month after they become employed by us, at which point we classify them as
participants. Employees may elect to reduce their current compensation by not
less than 1% nor more than 15% of eligible compensation or the statutorily
prescribed annual limit, currently $10,500, and have this reduction contributed
to the 401(k) plan. Our board of directors may change the minimum and maximum
contribution levels, subject to the statutorily prescribed limit. The 401(k)
plan permits, but does not require, us to make discretionary matching
contributions and discretionary profit sharing contributions to the 401(k) plan
on behalf of eligible participants. In 1997, our board approved a discretionary
matching contribution of 3% of an employee's contributions to the plan. All
contributions made by and on behalf of participants are subject to a maximum
contribution limitation currently equal to the lesser of 25% of their
compensation or $30,000 per year. At the direction of each participant, the
trustee of the 401(k) plan invests the assets of the 401(k) plan in selected
investment options. Contributions by participants or by us to the 401(k) plan
and income earned on plan contributions, are generally not taxable to the
participants until withdrawn, and contributions by us, if any, are generally
deductible by us when made. In fiscal 2000, we made $412,800 in matching
contributions to the plan on behalf of participants.
RELATED PARTY TRANSACTIONS
Loans to Executive Officers
In connection with the purchase of shares of common stock and exercise of
options in fiscal 2000, we accepted as payment from certain executive officers,
notes bearing interest at 6.5% per annum. These notes are secured by a security
interest in the shares purchased or issued upon exercise of the options. As of
March 31, 2000, the following executive officers had outstanding loan balances
in excess of $60,000 which are due and payable within ninety days: Allen J.
Berning--$75,030, William B. Leary--$67,650, Gary L. Lingbeck--$77,650, Robert
R. Murphy--$67,650 and Hargopal (Paul) Singh--$379,200. As of March 31, 2000,
the following executive officers had outstanding loan balances in excess of
$60,000 which are due and payable within two years: Allen J. Berning--$375,000,
William J. Kullback--$225,000, Robert J. Legendre--$150,000, Steve V.
Petracca--$450,000 and Hargopal (Paul) Singh--$375,000.
Financing Transactions
In fiscal 1998, we sold 569,966 shares of Series A preferred stock
convertible into 1,709,898 shares of common stock for an aggregate purchase
price of $8.5 million, or $15.00 per share to affiliates of Lehman Brothers
Inc. In fiscal 2000, we sold 1,000,000 shares of Series B preferred stock
convertible into 3,000,000 shares of common stock for an aggregate purchase
price of $18.0 million, or $18.00 per share to affiliates of Lehman Brothers
Inc. Upon the automatic conversion of the Series A and Series B preferred stock
upon consummation of this offering, Lehman Brothers Inc. will be the beneficial
owner of more than 5% of our outstanding shares of common stock. Michael
Odrich, one of our non-employee directors, is an affiliate of Lehman Brothers
Inc. See "Principal Shareholders" for information relating to the beneficial
ownership of shares and identification of affiliates of Lehman Brothers Inc.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The table below sets forth information known to us regarding the beneficial
ownership of our common stock as of March 31, 2000, as adjusted to reflect the
automatic conversion of outstanding shares of preferred stock into common
stock, and to reflect the sale of the common stock offered by this prospectus,
by:
. Each shareholder known by us to be the owner of more than 5% of our
outstanding common stock;
. Each of our executive officers listed on the Summary Compensation Table
under "Management";
. Each of our directors; and
. All executive officers and directors as a group.
Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and includes generally voting power and/or
investment power with respect to securities. Shares of common stock subject to
options currently exercisable or exercisable within sixty days of March 31,
2000 are deemed outstanding for purposes of computing the percentage
beneficially owned by the person holding such options but are not deemed
outstanding for purposes of computing the percentage beneficially owned by any
other person. Except as otherwise noted, the persons or entities named have
sole voting and investment power with respect to all shares shown as
beneficially owned by them. Unless otherwise indicated, the principal address
of each of the shareholders below is c/o Pemstar Inc., 3535 Technology Drive
N.W., Rochester, Minnesota 55901.
<TABLE>
<CAPTION>
Number of Percentage of Shares
Shares Beneficially Owned
Beneficially ------------------------------
Beneficial Owner Owned Before Offering After Offering
- ---------------- ------------ --------------- --------------
<S> <C> <C> <C>
5% Shareholders:
Lehman Brothers Inc.(1)........... 4,959,903 26.77%
Italade Technology Holdings
Limited(2)....................... 2,610,000 14.09
Executive Officers and Directors:
Allen J. Berning(3)............... 1,110,900 5.95
Steve V. Petracca(4).............. 300,000 1.60
William B. Leary(5)............... 682,500 3.66
David L. Sippel(6)................ 995,640 5.33
Robert R. Murphy(7)............... 1,003,500 5.38
Gary L. Lingbeck(8)............... 592,500 3.17
Karl D. Shurson(9)................ 510,310 2.73
Hargopal Singh(10)................ 491,400 2.65
Robert D. Ahmann(11).............. 462,000 2.47
Thomas A. Burton.................. 6,000 *
Michael J. Odrich(12)............. 4,959,903 26.77
Bruce M. Jaffe.................... -- --
All directors and executive
officers as a group (13
persons)(13)..................... 11,189,613 56.74%
</TABLE>
- --------
* Shares represent less than 1% of total shares outstanding.
(1) Shares beneficially owned by Lehman Brothers Inc. include shares held by
the following wholly-owned subsidiaries of Lehman Brothers Inc.: (a) LBI
Group Inc.--3,580,416; (b) Lehman Brothers Venture Capital Partners I,
L.P.--366,906; (c) Lehman Brothers Venture Partners L.P.--613,158; (d)
Lehman Brothers VC Partners L.P.--300,000; (e) Lehman Brothers MBG Venture
Capital Partners 1998 (A) L.P.--87,807; (f) Lehman Brothers MBG Venture
Capital Partners 1998 (B) L.P.--1,620; (g) Lehman Brothers MBG Venture
Capital Partners 1998 (C) L.P.--9,996. The shares beneficially owned by
Lehman Brothers Inc. and its wholly-owned subsidiaries include 553,301
shares of our Series A preferred stock and 1,000,000 shares of our Series
B preferred stock, which shares automatically convert into shares of our
common stock upon consummation of this offering. The address of Lehman
Brothers Inc. is 3 World Financial Center, New York, New York 10285.
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<PAGE>
(2) On March 31, 2000, the shares reflected as owned by Italade Technology
Holdings Limited were transferred to the following persons: (a) Chi Ming
Gabriel Xu--200,000; (b) Rose Beauty Limited--211,697; (c) Lai Ngor Chan--
200,000; (d) Kar Chun Nicky Lor--42,369; and (e) Sing Cheong Tien and Lian
Imm Tien--211,671. The address of Italade Technology Holdings Limited is
29/F The Center, 99 Queen's Road Central, Hong Kong.
(3) The shares of common stock included in this table include 764,400 shares
held jointly by Mr. Berning and his spouse and 150,000 shares that can be
acquired upon the exercise of outstanding options.
(4) The shares of common stock included in this table include 210,000 shares
that can be acquired upon the exercise of outstanding options.
(5) The shares of common stock included in this table include 240,000 shares
held by Mr. Leary's spouse and 135,000 shares that can be acquired upon
the exercise of outstanding options.
(6) The shares of common stock included in this table include 385,020 shares
held by Mr. Sippel's spouse and 143,100 shares that can be acquired upon
the exercise of outstanding options.
(7) The shares of common stock included in this table include 777,000 shares
held jointly by Mr. Murphy and his spouse and 135,000 shares that can be
acquired upon the exercise of outstanding options.
(8) The shares of common stock included in this table include 135,000 shares
that can be acquired upon the exercise of outstanding options.
(9) The shares of common stock included in this table include 318,000 shares
held jointly by Mr. Shurson and his spouse and 141,600 shares that can be
acquired upon the exercise of outstanding options.
(10) Includes 71,400 shares held jointly by Mr. Singh and his spouse and
75,000 shares held by Mr. Singh's spouse.
(11) The shares of common stock included in this table include 141,000 shares
that can be acquired upon the exercise of outstanding options.
(12) Mr. Odrich is a Managing Director of Lehman Brothers Inc. and may be
considered to have beneficial ownership of Lehman Brothers Inc.'s
interest in us. Mr. Odrich disclaims beneficial ownership of all such
shares. The address of Mr. Odrich is c/o Lehman Brothers Inc., is 3 World
Financial Center, New York, New York 10285.
(13) See Notes (2) through (11). Includes an aggregate of 1,190,700 shares
issuable upon the exercise of currently exercisable options held by our
executive officers and directors.
We have granted the underwriters an option to purchase up to an aggregate of
shares of our common stock (equal to at least two-thirds of the over-
allotment option) to cover over-allotments, if any. The following selling
shareholders have also granted the underwriters an option to purchase up to an
aggregate of shares of common stock (equal to no more than one-third of
the over-allotment option) to cover over-allotments, if any. , and
who currently own , and shares, respectively. These
shareholders are offering up to , and shares in the offering. If
the underwriters exercise their over-allotment option in full will
beneficially own shares, or % of our outstanding common stock;
will own shares or %; and will own shares or %.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General Matters
Upon the closing of this offering, our authorized capital stock will consist
of 150,000,000 shares of common stock, par value $0.01 per share, and 5,000,000
shares of preferred stock, par value $0.01 per share.
The following is a summary of the material terms of our common stock. Please
see our amended and restated articles of incorporation filed as an exhibit to
the registration statement of which this prospectus is a part.
Common Stock
As of March 31, 2000, there were 13,819,260 shares of common stock
outstanding, held by approximately 293 shareholders of record.
Holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders, including the
election of directors, and do not have cumulative voting rights. Subject to
preferences that may be applicable to any then outstanding preferred stock,
holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared by the board of directors out of funds legally available
therefore. See "Dividend Policy." Upon a liquidation, dissolution or winding up
of Pemstar, the holders of common stock will be entitled to share ratably in
the net assets legally available for distribution to shareholders after the
payment of all of our debts and other liabilities, subject to the prior rights
of any preferred stock then outstanding. Holders of common stock have no
preemptive or conversion rights or other subscription rights and there are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are, and the common stock to be outstanding
upon completion of this offering will be, fully paid and nonassessable.
Preferred Stock
We currently have two classes of preferred stock, Series A preferred stock
and Series B preferred stock. As of March 31, 2000, there were 569,966 shares
of Series A preferred stock outstanding and 1,000,000 shares of Series B
preferred stock outstanding. Upon closing of this offering, all of the
outstanding shares of preferred stock will automatically convert into 4,709,898
shares of common stock and no shares of preferred stock will be outstanding.
Our board of directors has the authority, without action by the shareholders,
to designate and issue preferred stock in one or more series and to designate
the rights, preferences and privileges of each series, any of which may be
greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock on the rights of
holders of common stock until the board of directors determines the specific
rights of the preferred stock. However, the effects might include, among other
things, restricting dividends on the common stock, diluting the power of the
common stock, impairing liquidation rights of the common stock and delaying or
preventing a change of control or the removal of our existing management
without further action by the shareholders. We have no present plans to issue
any shares of preferred stock.
Registration Rights
As of March 31, 2000, the holders of common stock issuable upon conversion
of the preferred shares of our outstanding shares of preferred stock are
entitled to rights with respect to the registration of 4,709,898 shares under
the Securities Act. The holders of registration rights are those investors that
purchased shares of our mandatorily redeemable, convertible Series A and Series
B preferred stock. Under the terms of the agreement between us and the holders
of these registrable securities, the holders of at least 35% of the registrable
securities may require that we file a registration statement under the
Securities Act with respect to their shares of common stock after the earlier
of February 12, 2001, or the six month anniversary of the
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<PAGE>
effective date of this offering, so long as the total offering price of the
shares to the public under such registration statement is at least $10 million.
We will only be required to file two registration statements in response to a
request for registration by the holders of registrable securities. We may
postpone the filing of a registration statement for up to ninety days in any
twelve month period if we determine that the filing would be seriously
detrimental to us and our shareholders. Further, holders of the registrable
securities may require us on two occasions within any twelve month period to
file additional registration statements on Form S-3 at our expense. In
addition, in the event that we decide to register our securities, we are
required to include in our registration statement the registrable securities of
any holder who so requests. These rights are subject to the right of the
underwriters of an offering to limit the number of shares included in that
registration under certain circumstances. The expenses incurred in such
registrations will be borne by us.
The registration rights described above will expire with respect to any
holder of registrable securities if such holder can sell all of its shares in a
three month period under Rule 144 of the Securities Act. In any event, the
registration rights described above will expire five years after this offering
is completed. Holders of registrable securities have agreed not to exercise
their registration rights for a period of 180 days following the date of this
prospectus.
Shareholder Rights Plan
Prior to completion of this offering, the board of directors will declare a
dividend of one preferred share purchase right for each outstanding share of
common stock outstanding on the business day immediately preceding the date of
this prospectus to the shareholders of record on that date. Each right entitles
the registered holder to purchase one one-hundredth of a share of Series A
junior participating preferred stock, par value $0.01 per share, at a price of
$ per one one-hundredth of a preferred share, subject to adjustment. The
description and terms of the share purchase rights will be set forth in a
rights agreement between Pemstar and a rights agent, a copy of the form of
which is filed as an exhibit to the registration statement of which this
prospectus is a part.
Initially, the certificates for shares of common stock then outstanding will
evidence the rights and we will not distribute separate rights certificates.
The rights will separate from the common stock on the share purchase rights
distribution date, which is the earlier of:
. The first date of public announcement that a person or group of
affiliated or associated persons has become the beneficial owner of 15%
or more of the outstanding common stock, subject to certain exceptions;
and
. The close of business on the tenth day, or such later date as may be
determined by the board of directors prior to such time as any person
becomes the beneficial owner of 15% or more of the outstanding common
stock, following the commencement or public announcement of a tender
offer or exchange offer, the consummation of which would result in a
person or group of affiliated or associated persons becoming the
beneficial owner of 15% or more of the outstanding common stock.
The board of directors, after receiving such advice as it deems necessary
and giving due consideration to all relevant factors, may elect to approve a
tender offer or an exchange offer for all of our outstanding common stock if
the board determines the offer to be in our best interest and the best
interests of our stockholders. If the board does approve a tender offer or
exchange offer, the rights will expire.
Until the share purchase rights distribution date,
. The rights will be evidenced by the certificates for shares of common
stock and will be transferred with and only with the common stock;
. Any common stock certificates issued after the business day immediately
preceding the date of this Prospectus upon transfer or new issuance of
the common stock will contain a notation incorporating the rights
agreement by reference; and
. The transfer of any common stock will also constitute the transfer of
the rights associated with the common stock.
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<PAGE>
As promptly as practicable following the share purchase rights distribution
date, we will mail separate certificates evidencing the share purchase rights
to holders of record of the common stock as of the close of business on that
date, and such separate certificates alone will evidence the share purchase
rights.
The holders of our common stock and the share purchase rights cannot
exercise the rights until the share purchase rights distribution date. The
rights will expire on the date that is ten years after the business day
immediately preceding the date of this Prospectus, unless we extend or earlier
redeem or exchange the rights as described below. We will not issue fractions
of a preferred share, other than fractions in integral multiples of one one-
hundredth of a share, and, in lieu thereof, we will make a cash adjustment on
the closing price on the last trading date prior to the date of exercise.
We will adjust the purchase price payable and the number of preferred shares
issuable upon exercise of the rights from time to time to prevent dilution:
. In the event of a stock dividend on, or a subdivision, combination or
reclassification of, the preferred shares;
. Upon the grant to holders of the preferred shares of certain rights,
options or warrants to subscribe for or purchase preferred shares or
convertible securities at less than the then current market price of the
preferred shares; or
. Upon the distribution to holders of the preferred shares of any evidence
of indebtedness or assets, excluding regular periodic cash dividends or
dividends payable in preferred shares, or of subscription rights or
warrants, other than those described in clause (2) of this paragraph.
With certain exceptions, we are not required to adjust the purchase price
until cumulative adjustments require an adjustment of at least 1% in the
purchase price. We also will adjust the number of outstanding share purchase
rights and the number of preferred shares issuable upon exercise of the rights
in the event of a stock split of the common stock or a stock dividend on the
common stock payable in common stock or subdivisions, consolidations or
combinations of the common stock occurring, in any such case, prior to the
distribution date.
We cannot redeem the preferred shares purchasable upon exercise of the
rights. Each preferred share will be entitled to a minimum preferential
quarterly dividend payment of $ per share but will be entitled to an
aggregate dividend of 100 times the dividend declared per share of common
stock. In the event of liquidation, the holders of the preferred shares will be
entitled to a minimum preferential liquidation payment of $ per share
but will be entitled to an aggregate payment of 100 times the payment made per
share of common stock. Each preferred share will have 100 votes, voting
together with the common stock. Finally, in the event of any merger,
consolidation or other transaction in which common stock is exchanged, each
preferred share will be entitled to receive 100 times the amount received per
share of common stock. These rights are subject to adjustment in the event of a
stock dividend on the common stock or a subdivision, combination or
consolidation of the common stock.
In the event any person becomes the beneficial owner of 15% or more of the
outstanding common stock, each holder of a share purchase right shall
thereafter have a right to receive, upon exercise thereof at the then current
aggregate exercise price, in lieu of preferred shares, such number of shares of
our common stock having a current aggregate market price equal to twice the
current aggregate exercise price. In the event that at any time after there is
a beneficial owner of 15% or more of the outstanding common stock, we are
acquired in certain mergers or other business combination transactions or 50%
or more of our assets or earning power and our subsidiaries, taken as a whole,
are sold, holders of the rights will thereafter have the right to receive, upon
exercise thereof at the then current aggregate exercise price, such number of
shares of common stock of the acquiring company or, in certain cases, one of
its affiliates, having a current aggregate market price equal to twice the
current aggregate exercise price.
At any time after a person becomes the beneficial owner of 15% or more of
the outstanding common stock, subject to certain exceptions, and prior to the
acquisition by a person of 50% or more of the outstanding
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<PAGE>
common stock, the board of directors may exchange all or part of the rights for
common stock at an exchange ratio of one share of common stock per right,
subject to adjustment.
At any time before a person has become the beneficial owner of 15% or more
of the outstanding common stock, the board of directors may redeem the rights
in whole, but not in part, at a price of $0.01 per right, subject to
adjustment. The redemption of the rights may be made effective at such time, on
such basis and with such conditions as the board of directors in its sole
discretion may establish.
Until a right is exercised, the holder thereof, as such, will have no rights
as a stockholder, including without limitation, the right to vote or to receive
dividends.
The rights have certain anti-takeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire us pursuant
to an offer that is not approved by the board of directors, unless the rights
have been redeemed. However, the rights should not interfere with any tender
offer or merger approved by the board because the board of directors may redeem
the rights or approve an offer at any time prior to such time as any person
becomes the beneficial owner of 15% or more of the outstanding common stock.
Provisions of our Articles of Incorporation and Bylaws and State Law
Provisions with Potential Antitakeover Effects
Some provisions of our articles of incorporation and amendments to our
articles of incorporation and bylaws we intend to adopt prior to completion of
this offering could make it more difficult to acquire control of our company
and to remove existing management. These provisions include:
. Our articles of incorporation do not provide for cumulative voting for
directors;
. We will have a classified board of directors with each class serving a
staggered three-year term;
. The board of directors fixes the size of the board of directors, may
create new directorships and may elect new directors to serve for the
full term of the class of directors in which the new directorship was
created. The board of directors (or its remaining members, even though
less than a quorum) also may fill vacancies on the board of directors
occurring for any reason for the remainder of the term of the class of
director in which the vacancy occurred;
. The board of directors may issue preferred stock without any vote or
further action by the shareholders;
. The board of directors may adopt, amend, alter or repeal the bylaws
without a vote of the shareholders;
. All shareholder actions must be taken at a regular or special meeting of
the shareholders and cannot be taken by written consent without a
meeting; and
. We require advance notice procedures with respect to shareholder
proposals and the nomination of candidates for election as directors.
These provisions are intended to discourage coercive takeover practices and
inadequate takeover bids. They are also designed to encourage persons seeking
to acquire control of us to first negotiate with our board. We believe that the
benefits of increased protection give us the potential ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure us and outweigh the disadvantages of discouraging such proposals.
Negotiating with the proponent could result in an improvement of the terms of
the proposal.
The Minnesota Business Corporations Act
Section 302A.671 of the Minnesota Business Corporation Act, or MBCA,
applies, with certain exceptions, to any acquisition of our voting stock (from
a person other than us and other than in connection with certain
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<PAGE>
mergers and exchanges to which we are a party) resulting in the acquiring
person owning 20% or more of our voting stock then outstanding. The MBCA
requires approval of any such acquisitions by a majority vote of our
shareholders prior to its consummation. In general, shares acquired without
such approval lose their voting rights and are redeemable by us at their then
fair market value within thirty days after the acquiring person failed to give
us timely information regarding the acquisition of the shares or the date the
shareholders voted not to grant voting rights to the acquiring person's shares.
Section 302A.673 of the MBCA generally prohibits us, or any of our
subsidiaries, from entering into any transaction with a shareholder under which
the shareholder purchases 10% or more of our voting shares (an "interested
shareholder") within four years following the date the person became an
interested shareholder, unless the transaction is approved by a committee of
all of the disinterested members of our board of directors before the
interested shareholder acquires the shares.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is .
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market after
the offering could cause the market price of our common stock to fall and could
affect our ability to raise equity capital in the future on terms favorable to
us.
Upon the closing of this offering, we will have shares of common
stock outstanding, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options to purchase common stock. Of
these shares, the shares of common stock being sold in this offering will
be freely tradable without restriction or further registration under the
Securities Act, except that any shares held by our "affiliates," as such term
is defined in Rule 144 under the Securities Act, may generally only be sold in
compliance with the limitations of Rule 144 described below.
The remaining shares that were issued and sold by us in private
transactions, are restricted securities and may be sold in the public market
only if registered under the Securities Act or if they qualify for an exemption
from registration under Rules 144, 144(k) or 701 under the Securities Act,
which rules are summarized below. Subject to the lock-up agreements described
below and the provisions of Rules 144, 144(k) and 701, additional shares will
be available for sale in the public market, subject in the case of shares held
by affiliates to compliance with certain volume restrictions, as follows:
. shares will be available for immediate sale in the public market on
the date of this prospectus; and
. shares will be available for sale upon the expiration of lock-up
agreements 180 days after the date of this prospectus.
Rule 144
In general, under Rule 144 as currently in effect, beginning ninety days
after the date of this prospectus, a person who has beneficially owned shares
of our common stock for at least one year is entitled to sell, within any
three-month period, a number of shares that is not more than the greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this
offering; or
. The average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks before a notice of the
sale on Form 144 is filed.
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Sales under Rule 144 are also subject to manner of sale provisions, notice
requirements and the availability of current public information about us.
Under Rule 144(k), a person who has not been one of our affiliates at any
time during the three months before a sale, and who has beneficially owned the
restricted shares for at least two years, is entitled to sell the shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultants or advisors who purchase shares from us under a
stock option plan or other written agreement can resell those shares ninety
days after the effective date of this offering in reliance on Rule 144, but
without complying with some of the restrictions, including the holding period,
contained in Rule 144.
We intend to file a Form S-8 registration statement under the Securities Act
to register all shares of common stock issuable under our stock option plans.
See "Management--Stock Option Plans." Such registration statement is expected
to become effective immediately upon filing and shares covered by that
registration statement will thereupon be eligible for sale in the public
markets, subject to Rule 144 limitations applicable to affiliates.
Prior to this offering there has been no public market for our common stock,
and no predictions can be made regarding the effect, if any, that market sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of our
common stock in the public market could adversely affect the prevailing market
price.
All of our directors, executive officers and shareholders have agreed that
they will not, without the prior written consent of the representatives of the
underwriters, sell or otherwise dispose of any shares of common stock or
options to acquire shares of common stock during the 180-day period following
the closing of this offering. See "Underwriting."
After the closing of this offering, the holders of shares of our common
stock will be entitled to certain rights with respect to the registration of
such shares under the Securities Act. See "Description of Capital Stock-
Registration Rights." Registration of such shares under the Securities Act
would result in such shares, except for shares purchased by affiliates,
becoming freely tradable without restriction under the Securities Act
immediately upon the effectiveness of such registration.
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UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, Lehman Brothers Inc.,
FleetBoston Robertson Stephens Inc., Chase Securities Inc., CIBC World Markets
Corp. and Fidelity Capital Markets, a division of National Financial Services
Corporation are acting as representatives of each of the underwriters named
below. Under the underwriting agreement, each of the underwriters has agreed to
purchase from us the respective number of shares of common stock shown opposite
its name below:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
- ------------ ----------
<S> <C>
Lehman Brothers Inc. ..............................................
FleetBoston Robertson Stephens Inc.................................
Chase Securities Inc...............................................
CIBC World Markets Corp............................................
Fidelity Capital Markets, a division of National Financial Services
Corporation.......................................................
----------
Total............................................................
==========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement and that, if any of the shares of
common stock are purchased by the underwriters under the underwriting
agreement, all of the shares of common stock that the underwriters have agreed
to purchase under the underwriting agreement, must be purchased. The conditions
contained in the underwriting agreement include the requirement that the
representations and warranties made by us to the underwriters are true, that
there is no material change in the financial markets and that we deliver to the
underwriters customary closing documents.
The following table shows the underwriting fees to be paid to the
underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares described below. Assuming full exercise of the
underwriters' over-allotment option, $ of the underwriting fee will be paid
by us and $ will be paid by the selling shareholders. The underwriting fee
is the difference between the public offering price and the amount the
underwriters pay to us to purchase the shares from us. On a per share basis,
the underwriting fee is % of the initial public offering price.
<TABLE>
<CAPTION>
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
Per share............................................... $ $
Total................................................... $ $
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the initial public
offering price set forth on the cover page of this prospectus, and to dealers,
who may include the underwriters, at this public offering price less a selling
concession not in excess of $ per share. The underwriters may allow, and the
dealers may reallow, a concession not in excess of $ per share to brokers
and dealers. After the offering, the underwriters may change the offering price
and other selling terms.
We estimate that the total expenses of this offering, including
registration, filing and listing fees, printing fees and legal and accounting
expenses, but excluding underwriting discounts, will be approximately $1.0
million.
We and the selling shareholders have granted to the underwriters an option
to purchase up to an aggregate of additional shares of common stock,
exercisable to cover over-allotments, if any, at the initial public offering
price less the underwriting discounts shown on the cover page of this
prospectus. The underwriters may exercise this option any time until thirty
days after the date of the underwriting agreement. If this option is exercised,
each underwriter will be committed, so long as the conditions of the
underwriting agreement are satisfied, to purchase a number of additional shares
of common stock proportionate to the
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underwriter's initial commitment as indicated in the table above and we will be
obligated, under the over-allotment option, to sell the shares of common stock
to the underwriters.
We have agreed that, without the consent of Lehman Brothers Inc., we will
not, directly or indirectly, offer, sell or otherwise dispose of any shares of
common stock or any securities that may be converted into or exchanged for any
shares of common stock for a period of 180 days from the date of this
prospectus. All of our executive officers, directors and shareholders holding
all of the shares of our capital stock have agreed under lock-up agreements
that, without the prior written consent of Lehman Brothers Inc., they will not,
directly or indirectly, offer, sell or otherwise dispose of any shares of
common stock or any securities that may be converted into or exchanged for any
shares of common stock for the period ending 180 days after the date of this
prospectus. See "Shares Eligible for Future Sale."
Prior to the offering, there has been no public market for the shares of our
common stock. The initial public offering price has been negotiated between the
representatives and us. The material factors considered in determining the
initial public offering price of the common stock, in addition to prevailing
market conditions, were:
. Our historical performance and capital structure;
. Estimates of our business potential and earning prospects;
. An overall assessment of our management; and
. The above factors in relation to market valuation of companies in
related businesses.
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as an underwriter of this offering and will be
facilitating electronic distribution through the Internet.
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "PMTR."
We and the selling shareholders have agreed to indemnify the underwriters
against liabilities under the Securities Act and liabilities arising from
breaches of the representations and warranties contained in the underwriting
agreement, and to contribute to payments that the underwriters may be required
to make for these liabilities.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with this offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create
a short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares
of common stock in the open market to reduce the underwriters' short position
or to stabilize the price of the common stock, they may reclaim the amount of
the selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of these purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither we, nor the selling shareholders or any of the underwriters makes
any representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the
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common stock. In addition, neither we nor any of the selling shareholders or
the underwriters make any representation that the representatives will engage
in these transactions or that these transactions, once commenced, will not be
discontinued without notice.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
the sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
page of this prospectus.
The representatives have informed us that they do not intend to confirm the
sales of shares of common stock offered by this prospectus to any accounts over
which they exercise discretionary authority without the prior written approval
of the customer.
At our request, the underwriters have reserved up to shares or %
of the common stock offered by this prospectus for sale to our directors,
employees and other persons having an established business relationship with us
at the initial public offering price set forth on the cover page of this
prospectus. These persons must commit to purchase no later than the close of
business on the day following the date of this prospectus. The number of shares
available for sale to the general public will be reduced to the extent these
persons purchase the reserved shares.
Affiliates of Lehman Brothers Inc., one of the representatives of the
underwriters, hold shares of our Series A and Series B preferred stock which
will automatically convert into 4,709,898 shares of our common stock upon
closing of this offering. In addition, Michael J. Odrich, one of our directors,
is a Managing Director of Lehman Brothers Inc. Because of this relationship
between us and Lehman Brothers Inc., the offering is being conducted in
accordance with Rule 2720 of the National Association of Securities Dealers, or
NASD. This rule requires that the initial public offering price for our shares
cannot be higher than the price recommended by a "qualified independent
underwriter," as defined by the NASD. FleetBoston Robertson Stephens Inc. is
serving as a qualified independent underwriters and will perform the due
diligence investigations and review and participate in the preparation of the
registration statement of which this prospectus is a part.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Dorsey & Whitney LLP, Minneapolis, Minnesota. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Kirkland & Ellis (a partnership that includes professional
corporations), Chicago, Illinois.
EXPERTS
Ernst & Young LLP, independent auditors have audited our consolidated
financial statement as of and for the year ended March 31, 2000, as set forth
in their report. McGladrey & Pullen, LLP, independent auditors, have audited
our consolidated financial statements as of and for the years ended March 31,
1999 and 1998, as set forth in their report. We have included our financial
statements in the prospectus in reliance on the reports of Ernst & Young LLP
and McGladrey & Pullen, LLP, given on their authority as experts in accounting
and auditing.
McGladrey & Pullen, LLP, independent auditors, have audited the financial
statements of Quadrus Manufacturing, a division of Bell Microproducts, Inc., as
of and for the years ended December 31, 1998, 1997 and 1996, as set forth in
their report. We have included the Quadrus Manufacturing financial statements
in the registration statement in reliance on the report of McGladrey & Pullen,
LLP, given on their authority as experts in accounting and auditing.
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On February 11, 2000, upon the recommendation of the audit committee, the
board of directors engaged Ernst & Young LLP to audit our consolidated
financial statements for the year ended March 31, 2000. There were no
disagreements between us and our prior accountants, McGladrey & Pullen, LLP, on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure. The audit opinion of McGladrey &
Pullen, LLP for the fiscal years March 31, 1999 and 1998 did not contain an
adverse option or disclaimer of opinion, nor were they qualified as to
uncertainty, audit scope or accounting principles.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 with respect
to the shares offered hereby. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in
the registration statement or the exhibits and schedules which are part of the
registration statement. For further information with respect to Pemstar and the
shares, reference is made to the registration statement and exhibits and
schedules thereto. You may read and copy any document we file at the SEC's
public reference room in Washington, DC. Please call the SEC at 1-800-SEC-0330
for further information on the public reference room. Our SEC filings are also
available to the public from the SEC's website at http://www.sec.gov.
Upon completion of this offering, Pemstar will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms, Pemstar's website at www.pemstar.com and the website of
the SEC referred to above. Information on our website does not constitute a
part of this prospectus.
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PEMSTAR INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Pemstar Inc.:
<S> <C>
Report of Independent Auditors--Ernst & Young LLP........................ F-2
Report of Independent Auditors--McGladrey & Pullen, LLP.................. F-3
Consolidated Balance Sheets as of March 31, 1999 and 2000................ F-4
Consolidated Statements of Income for the Years Ended March 31, 1998,
1999 and 2000........................................................... F-5
Consolidated Statements of Shareholders' Equity for the Years Ended March
31, 1998, 1999 and 2000................................................. F-6
Consolidated Statements of Cash Flows for the Years Ended March 31, 1998,
1999 and 2000........................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
Quadrus Manufacturing, a Division of Bell Microproducts, Inc.:
Report of Independent Auditors--McGladrey & Pullen, LLP.................. F-22
Balance Sheets as of December 31, 1998, 1997 and 1996.................... F-23
Statements of Cash Flows and Divisional Equity for the Years Ended March
31, 1998, 1997 and 1996................................................. F-24
Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and
1996.................................................................... F-25
Notes to Financial Statements............................................ F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Directors of Pemstar Inc.
We have audited the accompanying consolidated balance sheet of Pemstar Inc.
as of March 31, 2000, and the related consolidated statement of income,
shareholders' equity, and cash flows for the year 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides 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 Pemstar Inc.
at March 31, 2000, and the consolidated results of their operations and their
cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
May 5, 2000
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Directors of Pemstar Inc.
We have audited the accompanying consolidated balance sheet of Pemstar Inc.
as of March 31, 1999, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the two years in the period
ended March 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Pemstar Inc. as of March 31, 1999, and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
March 31, 1999, in conformity with generally accepted accounting principles.
/s/ McGLADREY & PULLEN, LLP
Rochester, Minnesota
May 10, 1999
F-3
<PAGE>
PEMSTAR INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31,
-----------------
1999 2000
------- --------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................... $ 827 $ 2,727
Restricted cash.............................. 411 528
Accounts receivable, net..................... 21,681 60,061
Inventories, net............................. 16,449 64,437
Recoverable income taxes..................... 415 --
Deferred income taxes........................ -- 2,232
Prepaid expenses and other................... 2,116 3,458
------- --------
Total current assets....................... 41,899 133,443
Property and equipment, net.................. 17,561 34,933
Goodwill, net................................ 3,794 20,691
Other assets, net............................ 1,336 1,384
Deferred income taxes........................ 393 --
------- --------
Total Assets............................... $64,983 $190,451
======= ========
<CAPTION>
Pro Forma
March 31, Shareholders'
----------------- Equity March
1999 2000 31, 2000
------- -------- -------------
(See Note 1)
<S> <C> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Bank overdrafts.............................. $ 1,644 $ 10,213
Accounts payable............................. 19,935 47,138
Accrued expenses and other................... 2,208 9,740
Income taxes payable......................... 207 1,474
Deferred income taxes........................ 357 --
Current maturities of long-term debt......... 4,471 12,930
Current maturities of capital lease
obligations................................. 294 2,299
------- --------
Total current liabilities.................. 29,116 83,794
Long-term debt, less current maturities....... 7,000 51,114
Capital lease obligations, less current
maturities................................... 90 4,067
Deferred grant income......................... 1,808 1,713
Deferred revenue.............................. 1,017 350
Deferred income taxes......................... -- 17
Minority interest in consolidated
subsidiaries................................. 848 174
Redeemable stock:
Series A preferred stock, $0.01 par value;
570 shares issued and outstanding in 1999
and 2000; pro forma--none................... 8,549 8,549 $ --
Series B preferred stock, $0.01 per share;
2000--1,000 shares issued and outstanding;
pro forma--none............................. -- 18,000 --
Shareholders' equity:
Common stock, $0.01 par value; 150,000
shares authorized; shares issued and
outstanding--1999--11,270; 2000--13,819
shares; pro forma issued and outstanding--
18,529 shares............................... 113 138 185
Additional paid-in capital................... 7,949 15,395 41,897
Accumulated other comprehensive loss......... (32) (772) (772)
Retained earnings............................ 8,525 11,170 11,170
Loans to shareholders........................ -- (3,258) (3,258)
------- -------- -------
Total shareholders' equity................. 16,555 22,673 $49,222
------- -------- =======
Total liabilities and shareholders'
equity.................................... $64,983 $190,451
======= ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
PEMSTAR INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Net sales....................................... $165,049 $187,381 $393,842
Cost of goods sold.............................. 147,962 172,219 363,974
-------- -------- --------
Gross profit.................................... 17,087 15,162 29,868
Selling, general and administrative expenses.... 8,328 10,955 21,576
Amortization.................................... 54 190 1,281
-------- -------- --------
Operating income................................ 8,705 4,017 7,011
Other income (expense)--net..................... 455 (438) (74)
Interest expense................................ (746) (640) (3,588)
-------- -------- --------
Income before income taxes...................... 8,414 2,939 3,349
Income tax expense.............................. 3,097 1,273 698
-------- -------- --------
Net income...................................... $ 5,317 $ 1,666 $ 2,651
======== ======== ========
Net income per common share:
Basic......................................... $ 0.55 $ 0.15 $ 0.23
Diluted....................................... 0.49 0.12 0.15
Shares used in computing net income per common
share:
Basic......................................... 9,653 10,897 11,503
Diluted....................................... 10,874 14,143 17,167
Unaudited pro forma net income per share (see
Note 1):
Basic......................................... $ 0.17
Diluted....................................... 0.15
Shares used in computing unaudited pro forma net
income per share (see Note 1):
Basic......................................... 15,647
Diluted....................................... 17,167
</TABLE>
See accompanying notes.
F-5
<PAGE>
PEMSTAR INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
-------------- Paid-In Comprehensive Retained Loans to
Shares Amount Capital Loss Earnings Shareholders Total
------ ------ ---------- ------------- -------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31,
1997................... 8,366 $ 84 $ 1,371 $ -- $ 1,554 $ -- $ 3,009
Issuance of common stock
upon exercise of stock
options................ 273 3 81 -- -- -- 84
Issuance of common
stock.................. 1,765 17 2,567 -- -- -- 2,584
Net income.............. -- -- -- -- 5,317 -- 5,317
------ ---- ------- ----- ------- ------- -------
Balance, March 31,
1998................... 10,404 104 4,019 -- 6,871 -- 10,994
Issuance of common stock
upon exercise of stock
options................ 111 1 45 -- -- -- 46
Issuance of common
stock.................. 783 8 3,907 -- -- -- 3,915
Repurchase of common
stock.................. (28) -- (22) -- (12) -- (34)
Comprehensive income:
Net income.............. -- -- -- -- 1,666 -- 1,666
Foreign currency
translation
adjustment............. -- -- -- (32) -- -- (32)
-------
Comprehensive income.... -- -- -- -- -- -- 1,634
------ ---- ------- ----- ------- ------- -------
Balance, March 31,
1999................... 11,270 113 7,949 (32) 8,525 -- 16,555
Issuance of common stock
upon exercise of stock
options................ 1,565 15 2,410 -- -- (1,855) 570
Issuance of common
stock.................. 985 10 4,913 -- -- (1,403) 3,520
Repurchase of common
stock.................. (1) -- -- -- (6) -- (6)
Comprehensive income:
Net income.............. -- -- -- -- 2,651 -- 2,651
Foreign currency
translation
adjustment............. -- -- -- (740) -- -- (740)
-------
Comprehensive income.... -- -- -- -- -- -- 1,911
Other................... -- -- 123 -- -- -- 123
------ ---- ------- ----- ------- ------- -------
Balance, March 31,
2000................... 13,819 $138 $15,395 $(772) $11,170 $(3,258) $22,673
====== ==== ======= ===== ======= ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
PEMSTAR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------
1998 1999 2000
-------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 5,317 $ 1,666 $ 2,651
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation..................................... 1,929 3,331 7,455
Amortization..................................... 54 190 1,281
Deferred grant income recognized................. (193) (222) (95)
Deferred revenue................................. 962 (725) (667)
Deferred income taxes............................ (185) 151 (2,179)
(Gain) loss on sale of property and equipment.... -- 377 (42)
Equity in income of affiliate.................... (169) -- --
Minority interest................................ -- 277 191
Issuance of stock options for services........... -- -- 150
Changes in operating assets and liabilities:
Accounts receivable............................. (15,052) 439 (23,828)
Inventories..................................... (15,382) 2,418 (22,962)
Recoverable income taxes........................ 628 (1,214) 1,889
Prepaid expenses and other...................... (492) (1,127) (343)
Accounts payable................................ 20,516 (5,733) 15,404
Accrued expenses and other...................... 693 237 870
-------- ------- --------
Net cash (used in) provided by operating
activities.................................... (1,374) 65 (20,225)
Cash flows from investing activities:
(Increase) decrease in restricted cash........... (1,447) 583 155
Business acquisitions, net of cash acquired...... -- -- (39,473)
Increase of intangibles.......................... (286) (556) (878)
Proceeds from sale of property and equipment..... -- 3,085 122
Purchases of property and equipment.............. (8,393) (8,657) (13,415)
-------- ------- --------
Net cash used in investing activities.......... (10,126) (5,545) (53,489)
Cash flows from financing activities:
Bank overdrafts.................................. 2,364 (1,273) 8,569
Proceeds from grants............................. 836 -- --
Net (payments on) proceeds from short-term
borrowings...................................... (3,206) -- --
Proceeds from sale/exercise of stock options..... 335 46 802
Repurchase of common stock....................... -- (34) (6)
Proceeds from private placement offering......... 9,920 -- 18,000
Proceeds from minority interest shareholder...... -- 296 --
Principal payments on long-term borrowings....... (1,453) (1,879) (4,645)
Proceeds from long-term borrowings............... 5,865 5,956 52,892
-------- ------- --------
Net cash provided by financing activities...... 14,661 3,112 75,612
Effect of exchange rate changes on cash........... -- -- 2
-------- ------- --------
Net increase (decrease) in cash and cash
equivalents...................................... 3,161 (2,368) 1,900
Cash and cash equivalents:
Beginning of year................................ 34 3,195 827
-------- ------- --------
End of year...................................... $ 3,195 $ 827 $ 2,727
======== ======= ========
</TABLE>
See accompanying notes.
F-7
<PAGE>
PEMSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
Note 1. Nature of Business and Significant Accounting Policies
Business--Pemstar Inc. (the "Company") is a leading provider of electronics
manufacturing services to original equipment manufacturers in the
communications, computing, data storage, industrial and medical equipment
sectors. The Company provides its services to customers on a global basis
through manufacturing facilities located in the United States, Mexico, Europe
and Asia. The Company considers its business activities as a single segment.
Basis of presentation--The accompanying financial statements include the
accounts of Pemstar Inc., its majority-owned subsidiaries and the Company's
share of net earnings or losses of fifty percent or less owned companies
accounted for using the equity method. All material intercompany accounts and
transactions are eliminated in the consolidated financial statements.
Revenue recognition--Revenue from the sale of products is recognized when
the product is shipped to the customer. Revenue from design, development and
engineering services is recognized when the services are performed and
collectibility is reasonably certain.
Cash and cash equivalents--The Company considers all highly liquid debt
investments purchased with a maturity of three months or less to be cash
equivalents. Cash equivalents are recorded at cost which approximates market
value.
Inventories--Inventories are stated at the lower of cost (first-in, first-
out method) or market and include freight-in, materials, labor and
manufacturing overhead costs.
Property and equipment--Property and equipment is stated at cost.
Depreciation is computed using the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
Number of
Years
---------
<S> <C>
Buildings and improvements......................................... 4 to 40
Machinery and equipment............................................ 4
Furniture and fixtures............................................. 2 to 10
Computer hardware and software..................................... 4
</TABLE>
Amortization of assets acquired under capital leases is included with
depreciation expense.
Goodwill and other intangible assets--Goodwill represents the excess of the
purchase price over the fair value of the net assets acquired and is being
amortized on a straight-line basis over 20 years. Other intangible assets
principally consist of debt financing costs that are being amortized over the
terms of the applicable agreement.
Long-lived assets--The Company follows Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that long-
lived assets, including goodwill, be reviewed for impairment whenever events or
circumstances indicate the carrying amount of an asset may not be recoverable.
The Company evaluates potential impairment by comparing the carrying amount of
the assets with the estimated undiscounted cash flows associated with them. If
an impairment exists, the Company measures the impairment utilizing discounted
cash flows.
F-8
<PAGE>
PEMSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)
Estimated warranty claim--The Company sells its products with a warranty
that provides for repairs or replacements of any defective workmanship for a
three-month period after the sale. Based upon historical experience the accrual
for warranty claims is not material at March 31, 1999 and 2000.
Foreign currency--Foreign currency denominated assets and liabilities are
translated into United States dollars using the exchange rates in effect at the
balance sheet date. Results of operations are translated using the average
exchange rates throughout the period. The effect of exchange rate fluctuations
on translation of assets and liabilities is recorded as a component of
shareholders' equity. Gains and losses from foreign currency transactions are
included in net other income or expense.
Income taxes--The Company accounts for income taxes following the provisions
of SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires that
deferred income taxes be recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end, based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized. The
effect of changes in tax rates is recognized in the period in which the rate
change occurs.
Deferred grant income--The Company recognizes revenue related to grants
received from various sources over the life of the property and equipment to
which the funding relates or during the period in which the expense occurs for
which grants were received.
Research and development--Research and development costs are expensed when
incurred and totaled $401, $387 and $410 for the years ended March 31, 1998,
1999 and 2000, respectively.
Use of estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Segment information--The Company follows the provisions of SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS No.
131 replaces the "industry segment" approach with the "management" approach of
reporting segment information. The management approach designates the internal
organization used by management for making operating decisions and assessing
performance as the source of the Company's reportable segments. The Company
derives its revenue from one industry segment, the electronics manufacturing
services industry. Until such time as the Company diversifies its operations,
this pronouncement has no significant impact on the reporting practices of the
Company. Refer to Note 15 for geographic and significant customer disclosures.
Comprehensive income--The Company follows the provisions of SFAS No. 130,
"Reporting Comprehensive Income," which established standards for reporting and
display of comprehensive income and its components. Comprehensive income
reflects the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. For the
Company, comprehensive income represents net income adjusted for foreign
currency translation adjustments. In accordance with SFAS No. 130, the Company
has chosen to disclose comprehensive income in the consolidated statement of
shareholders' equity.
Stock-based compensation--The Company accounts for stock options issued to
employees using the intrinsic value method of Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees."
Compensation expense is recorded on the date stock options are granted only if
the
F-9
<PAGE>
PEMSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)
current fair value of the underlying stock exceeds the exercise price of the
option. The Company has provided the pro forma disclosures required by SFAS No.
123, "Accounting for Stock-Based Compensation."
Net income per common share--The Company follows the provisions of SFAS No.
128, "Earnings Per Share." Basic net income per share is computed based upon
the weighted average number of common shares issued and outstanding during each
year. Diluted net income per share amounts assume conversion, exercise or
issuance of all potential common stock instruments (stock options as discussed
in Note 16 and convertible preferred stock as discussed in Note 14) unless the
effect is to reduce a loss or increase net income per share. The following
table reflects the components of common shares outstanding in accordance with
SFAS No. 128:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
1998 1999 2000
------ ------ ------
<S> <C> <C> <C>
Weighted average common shares outstanding--basic........ 9,653 10,897 11,503
Effect of dilutive securities:
Preferred stock conversion............................. 198 1,710 4,144
Stock options.......................................... 1,023 1,536 1,520
------ ------ ------
Shares used in computing net income per common share--
diluted................................................. 10,874 14,143 17,167
====== ====== ======
</TABLE>
Pro forma shareholders' equity--Upon the closing of an initial public
offering, all outstanding shares of Series A and Series B preferred stock will
automatically convert into 4,710 shares of common stock. The pro forma effects
of these transactions are unaudited and have been reflected in the accompanying
pro forma shareholders' equity section at March 31, 2000.
Pro forma net income per share--Pro forma basic net income per share is
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of the Company's
redeemable Series A and Series B preferred stock into shares of the Company's
common stock as if such conversion occurred at the date of original issuance.
The resulting pro forma adjustments include an increase in the weighted average
shares used to compute basic net income per share of 4,144 shares for the year
ended March 31, 2000. The pro forma effects of these transactions are
unaudited.
Stock split--In May 2000, the Company's Board of Directors declared a 3-for-
1 stock split payable in the form of a stock dividend. Accordingly, all share,
per share, weighted average share and stock option information for periods
prior to the split, have been restated to reflect the split.
New accounting pronouncements--In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires an entity recognize all derivatives as either assets or liabilities at
fair value. This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000 and is therefore effective for the Company
beginning April 1, 2001. Based upon the nature of the financial instruments and
hedging activities in effect as of March 31, 2000, this pronouncement would not
have a material impact on the Company's financial position or results of
operations.
In fiscal 2000, the Company adopted the American Institute of Certified
Public Accountants ("AICPA") Statement of Position ("SOP") 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use." SOP
98-1 provides guidance on accounting for the costs of computer software
developed or obtained for internal use and for determining when specific costs
should be capitalized and when they should be expensed. The impact of adopting
SOP 98-1 was not significant to the Company's financial position, results of
operations or cash flows.
F-10
<PAGE>
PEMSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)
In fiscal 2000, the Company adopted SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities," issued by the AICPA. SOP 98-5 requires costs associated
with certain start-up activities be expensed as incurred versus capitalizing
and expensing them over a period of time. The impact of adopting SOP 98-5 was
not significant to the Company's financial position, results of operations, or
cash flows.
Reclassification--Certain prior year amounts have been reclassified to
conform with the current year presentation.
Note 2. Acquisitions
In June 1999, the Company acquired Quadrus, Inc., a division of Bell
Microproducts, Inc. Quadrus is a provider of electronic manufacturing services
to original equipment manufacturers. The purchase price of $34,966 was funded
through the issuance of Series B preferred stock in the aggregate amount of
$18,000 to certain of the Company's existing investors, with the remaining
amount funded by borrowings under the Company's operating line of credit. The
transaction was accounted for as a purchase. Accordingly, the net assets and
operating results have been included in the Company's financial statements from
the date of acquisition. The excess of the purchase price over the estimated
fair value of the net assets acquired of $12,346 has been recorded as goodwill
and is being amortized over an estimated useful life of 20 years. The following
unaudited pro forma combined summary statement of income for the years ended
March 31, 1999 and 2000 was prepared in accordance with Accounting Principles
Board Opinion No. 16 and assumes the acquisition had occurred at the beginning
of the periods presented. The following pro forma data reflect adjustments for
interest expense, amortization of goodwill and depreciation of fixed assets.
The unaudited pro forma financial information is provided for informational
purposes only and does not purport to be indicative of the future results of
the Company.
Unaudited Pro Forma Consolidated Statements of Income
<TABLE>
<CAPTION>
Year Ended March
31,
-----------------
1999 2000
-------- --------
<S> <C> <C>
Revenue................................................... $273,480 $407,972
Net income................................................ 3,926 348
Net income per share--basic............................... $ 0.36 $ 0.03
Net income per share--diluted............................. 0.28 0.02
</TABLE>
In May 1999, the Company acquired a division of Fluke Corporation located in
Almelo, the Netherlands, which provides electronic manufacturing services to
the industrial equipment sector in Europe and North America. The purchase price
of $7,663 was funded through various credit facilities. The transaction was
accounted for as a purchase. Accordingly, the net assets and operating results
have been included in the Company's financial statements from the date of
acquisition. The excess of the purchase price, including certain employee
termination costs, over the estimated fair value of the net assets acquired of
$3,325 has been recorded as goodwill and is being amortized over an estimated
useful life of 20 years.
During fiscal 2000, the Company's management approved a plan to reduce
headcount of the acquired operations. The formulation of such plans had begun
as of the date of acquisition, with all affected employees being notified by
March 2000. Costs associated with the planned workforce reductions totaling
$1,439 were recorded as liabilities in the purchase price allocation. The plans
contemplate completion of the workforce reduction by March 2001.
F-11
<PAGE>
PEMSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)
Pursuant to the acquisition, the Company assumed all assets and liabilities
associated with a pension plan administered by Fluke Corporation for the
acquired division. As of March 31, 2000, the fair value of plan assets and
projected benefit obligation were $3,997 and $3,932, respectively. Expense
associated with the plan totaled $62 for the year ended March 31, 2000.
Note 3. Accounts Receivable
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
March 31,
----------------
1999 2000
------- -------
<S> <C> <C>
Accounts receivable........................................ $21,734 $60,614
Less allowance for doubtful accounts....................... (53) (553)
------- -------
$21,681 $60,061
======= =======
</TABLE>
Note 4. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31,
---------------
1999 2000
------- -------
<S> <C> <C>
Raw materials............................................... $14,961 $49,948
Work in process............................................. 566 8,675
Finished goods.............................................. 922 6,387
Less allowance for inventory obsolescence................... -- (573)
------- -------
$16,449 $64,437
======= =======
</TABLE>
Note 5. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
March 31,
-----------------
1999 2000
------- --------
<S> <C> <C>
Land...................................................... $ 812 $ 1,022
Buildings and improvements................................ 7,451 11,818
Machinery and equipment................................... 13,733 27,388
Computer hardware and software............................ 2,351 7,595
Construction in progress.................................. 132 1,131
------- --------
24,479 48,954
Less accumulated depreciation............................. (6,918) (14,021)
------- --------
$17,561 $ 34,933
======= ========
</TABLE>
F-12
<PAGE>
PEMSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)
Note 6. Goodwill
Goodwill consists of the following:
<TABLE>
<CAPTION>
March 31,
---------------
1999 2000
------ -------
<S> <C> <C>
Goodwill.................................................... $3,940 $21,717
Less accumulated amortization............................... (146) (1,026)
------ -------
$3,794 $20,691
====== =======
</TABLE>
Note 7. Other Assets
Other assets consist of the following:
<TABLE>
<CAPTION>
March 31,
-------------
1999 2000
------ ------
<S> <C> <C>
Restricted cash................................................ $ 454 $ 182
Other intangible assets, net of accumulated amortization -
1999--$107; 2000--$299........................................ 882 1,055
Other.......................................................... -- 147
------ ------
$1,336 $1,384
====== ======
</TABLE>
Note 8. Financing Arrangements
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31,
---------------
1999 2000
------ -------
<S> <C> <C>
Revolving credit facilities................................ $3,957 $56,557
Notes payable, non-interest bearing, due in March 2007--
$200 and April 2007--$150. Notes totalling $200 are
collateralized by domestic equipment and real estate...... 350 350
Notes payable bearing interest at 5.00%, due in monthly
payments of principal and interest of $75 through February
2001 and annual payments of principal and interest of $58
through July 2008. Notes are collateralized by domestic
property and equipment.................................... 1,164 1,627
Bonds payable to the City of Rochester with variable
interest rates ranging from 4.20% to 6.25% at March 31,
2000, interest due monthly. Annual principal payments
ranging from $75 to $285 are due through June 2018........ 6,000 5,510
------ -------
11,471 64,044
Less current maturities.................................... (4,471) (12,930)
------ -------
$7,000 $51,114
====== =======
</TABLE>
Payment of the bonds is secured by irrevocable letters of credit in favor of
the trustee in the amount of $5,609 expiring August 2003. The Company is
required to maintain letters of credit sufficient to pay all outstanding
principal and interest under the bonds. Interest on the bonds is variable and
is payable monthly until, at the option of the Company with the consent of US
Bank, the rate is fixed (conversion date). In the event the Company exercises
its option to convert the interest rate on the bonds from a variable rate to a
fixed
F-13
<PAGE>
PEMSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)
rate, a remarketing agent, currently FBS Investment Services, Inc., shall
determine the fixed rate in accordance with a remarketing agreement. Upon
exercise of this option, a mandatory tender date shall occur on which date the
bonds are called and reissued. Prior to the conversion date, the holders of the
bonds may require the trustee to purchase the bonds at a price equal to the
principal amount thereof plus accrued interest thereon. Upon presentation for
redemption, the remarketing agent will attempt to resell the bonds at a price
that is not less than par. Proceeds from the bonds, to the extent unused, are
reported as restricted cash.
Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending March 31:
<S> <C>
2001............................................................... $12,930
2002............................................................... 45,648
2003............................................................... 678
2004............................................................... 258
2005............................................................... 272
Thereafter......................................................... 4,258
-------
$64,044
=======
</TABLE>
The Company has two Revolving Credit Facilities totaling $65,000 ($55,000--
"Revolver A" and $10,000--"Revolver B") for revolving credit loans and letters
of credit which expire on Revolver A in August 2002 and Revolver B at the
earlier of October 2000 or the closing of an initial public offering. Advances
under the Revolving Credit Facilities bear interest at the Company's option at
a rate equal to either (1) 3.75% per annum plus the applicable LIBOR rate or
(2) 2.00% per annum plus prime. In addition, the Company is required to pay a
fee of 0.25% on the average unused commitment under the Revolving Credit
Facilities. The Company had $500 reserved against the Revolving Credit
Facilities for letters of credit at March 31, 2000. As of March 31, 2000, the
Company had elected the LIBOR rate (6.20% at March 31, 2000) for advances
totaling $37,400, and the prime rate (8.5% at March 31, 2000) for advances
totaling $16,000.
On May 5, 2000, Revolver A was amended to reduce the available credit
facility from $55,000 to $45,000. In addition, the index rate for Revolver B
loans was amended to increase on a periodic basis to a maximum rate at October
1, 2000 of (1) 6.75% per annum plus the applicable LIBOR rate or (2) 5.00% per
annum plus the bank's reference rate. Concurrent with this amendment, the
Company entered into a new Revolving Credit Facility with another lender
totaling $40,000. Advances under the new Revolving Credit Facility bear
interest at prime plus 1.00%. In addition, the Company is required to pay a
monthly fee of 0.25% on the unused portion of the facility. Borrowings under
the new Revolving Credit Facility and Revolver A are collateralized by
substantially all domestic non-real estate assets of the Company. Borrowings
under Revolver B are unsecured.
The Company also has, through one of its subsidiaries, a separate line of
credit totaling $3,257. Advances under the line of credit bear interest at the
bank's base rate (4.25% at March 31, 2000) plus 1.5%. The line of credit is
secured by the inventory and receivables of the subsidiary and the corporate
guarantee of the Company.
Notes payable totaling $1,225 are subordinated to the Revolving Credit
Facilities. The financing arrangements are subject to certain covenants that
require the Company to maintain certain financial ratios, including minimum
liquidity and debt coverage, and limit investments and cash distributions.
F-14
<PAGE>
PEMSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)
Note 9. Other Income (Expense)--Net
The other income and expense consists of the following:
<TABLE>
<CAPTION>
March 31,
----------------
1998 1999 2000
---- ----- ----
<S> <C> <C> <C>
Grant income............................................. $193 $ 222 $ 95
Equity in earnings of affiliate.......................... 170 -- --
Minority interest in net income of consolidated
subsidiaries............................................ -- (277) (191)
Net other income (expense)............................... 92 (383) 22
---- ----- ----
$455 $(438) $(74)
==== ===== ====
</TABLE>
Note 10. Fair Value of Financial Instruments
The carrying values of cash, accounts receivable and payable, and accrued
liabilities approximate fair value due to the short-term maturity of these
instruments. The carrying amount of the Company's revolving line of credit
approximates fair value because of the variability of the interest cost
associated with these instruments. The fair value of the Company's long-term
notes approximated fair value because the majority of the amounts outstanding
accrue interest at variable rates which approximate market. The fair value of
the Company's preferred stock approximated $23,500 at March 31, 2000 based upon
the assumed conversion of the preferred stock into common stock.
Note 11. Commitments and Contingencies
The Company has various capital and operating leases which expire on various
dates through 2012. Future minimum payments under both capital leases and
operating leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
Fiscal Year Ending March 31:
2001.................................................... $ 2,899 $ 3,753
2002.................................................... 1,932 3,394
2003.................................................... 1,451 2,936
2004.................................................... 901 2,701
2005.................................................... 18 2,734
Thereafter.............................................. -- 7,618
------- -------
Total minimum lease payments.............................. 7,201 $23,136
=======
Less amount representing interest......................... (835)
-------
Present value of minimum lease payment.................... 6,366
Less current portion...................................... (2,299)
-------
$ 4,067
=======
</TABLE>
F-15
<PAGE>
PEMSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)
Property and equipment includes the following amounts for capitalized
leases:
<TABLE>
<CAPTION>
March 31,
------------
1999 2000
---- ------
<S> <C> <C>
Machinery and equipment........................................ $125 $5,189
Furniture and fixtures......................................... 84 84
Computer hardware and software................................. 644 2,019
---- ------
853 7,292
Less accumulated depreciation.................................. (269) (719)
---- ------
$584 $6,573
==== ======
</TABLE>
Total rent expense recognized under operating leases for the years ended
March 31, 1998, 1999 and 2000 totaled $579, $1,567 and $3,027, respectively.
Note 12. Income Taxes
Income before income taxes consisted of the following:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
1998 1999 2000
------ ------ ------
<S> <C> <C> <C>
Domestic................................................ $8,206 $1,837 $2,485
Foreign................................................. 208 1,102 864
------ ------ ------
$8,414 $2,939 $3,349
====== ====== ======
</TABLE>
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------
1998 1999 2000
------ ------ -------
<S> <C> <C> <C>
Current:
Domestic........................................... $3,282 $ 624 $ 2,378
Foreign............................................ -- 498 499
------ ------ -------
3,282 1,122 2,877
Deferred:
Domestic........................................... (185) 151 (1,678)
Foreign............................................ -- -- (501)
------ ------ -------
(185) 151 (2,179)
------ ------ -------
$3,097 $1,273 $ 698
====== ====== =======
</TABLE>
F-16
<PAGE>
PEMSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)
A reconciliation of the provision for income taxes at the statutory rates to
the reported income tax provision is as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------
1998 1999 2000
------ ------ ------
<S> <C> <C> <C>
Computed "expected" tax rate....................... $2,861 $ 999 $1,139
Increase (decrease) in income taxes resulting from:
State taxes, net of credits and federal income
tax benefit..................................... 319 80 (289)
Permanent differences............................ (77) (46) 148
Foreign taxes.................................... (71) 108 (296)
Other............................................ 65 132 (4)
------ ------ ------
$3,097 $1,273 $ 698
====== ====== ======
</TABLE>
A summary of deferred tax assets (liabilities) is as follows:
<TABLE>
<CAPTION>
March 31,
---------------
1999 2000
------- ------
<S> <C> <C>
Deferred tax assets:
Deferred revenue......................................... $ 1,087 $ 794
Expenses accelerated for financial reporting purposes.... 94 1,135
Foreign net operating losses............................. -- 492
State tax credits........................................ -- 523
Other.................................................... 25 139
------- ------
Total deferred tax assets.................................. 1,206 3,083
Deferred tax liabilities:
Unbilled services........................................ (475) (495)
Accounting basis of assets in excess of tax basis........ (695) (373)
------- ------
Total deferred tax liabilities............................. (1,170) (868)
------- ------
Net deferred tax asset..................................... $ 36 $2,215
======= ======
</TABLE>
No provision has been made for U.S. income taxes related to undistributed
earnings of foreign subsidiaries that are intended to be permanently
reinvested. The Company had approximately $1,991 of foreign net operating loss
carryforwards, $1,539 of which expire in 2010, with the remaining amount having
an unlimited carryforward period. The state tax credit carryforwards of $792
expire at varying dates through 2015.
Note 13. Deferred Grant Income
The Company has received grant monies pursuant to certain Development
Assistance and Redevelopment Assistance Agreements (the Agreements) which
provide primarily for the funding of certain development costs associated
primarily with property and equipment acquisitions. The Agreements require,
among other things, that the Company maintain certain levels of employment. If
the Company does not maintain the levels of employment, the Company must repay
the grant monies plus accrued interest at various rates up to 5%, or pay a
penalty of $8 per employee according to the terms of the Agreements. Deferred
grant income is being recognized over the life of the related property and
equipment acquired with the grant proceeds. Grant income for each of the years
ended March 31, 1998, 1999 and 2000 totaled $193, $222 and $95, respectively.
F-17
<PAGE>
PEMSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)
Note 14. Mandatory Redeemable and Convertible Preferred Stock
The Company has authorized 5,000 shares of $0.01 par value preferred stock,
667 shares of which are designated as Series A preferred stock (Series A) of
which 570 shares were issued and outstanding as of March 31, 1999 and 2000.
Additionally, 1,000 shares have been designated as Series B preferred stock
(Series B) of which 1,000 shares were issued and outstanding as of March 31,
2000. Dividends are $0.40 and $0.48 per share per year, non-cumulative, for the
Series A and Series B, respectively. After paying the preferred dividend, the
preferred shareholders share ratably with the common shareholders in any
additional dividends. The Series A and Series B preferred shareholders are
entitled to liquidation preferences of $5.00 and $6.00 per share, respectively.
Upon completion of the distribution of the liquidation preferences, the Series
A and Series B preferred shareholders are entitled to receive ratable
distributions with the common shareholders up to $2.50 per share and up to
$3.00 per share, respectively.
Any time after February 12 and September 15, 2002, the holders of a majority
of the Series A and Series B preferred stock, respectively, can demand
redemption. The purchase price is the original issue price plus declared unpaid
dividends payable in three equal annual installments. The amount of the
potential redemption requirement excluding dividends, subsequent to February
12, 2002 is $8,549 for the Series A preferred stock and subsequent to September
15, 2002 is $18,000 for the Series B preferred stock.
Each share of preferred stock is convertible into common stock at conversion
prices of $5.00 per share for Series A and $6.00 per share for Series B as of
March 31, 2000. The conversion ratio is adjusted upon the issuance of
additional common shares with certain exceptions.
Each share of preferred stock is automatically converted into shares of
common stock upon the earlier of (1) an initial public offering at not less
than $6.67 per share for Series A and $8.00 per share for Series B and $15,000
in the aggregate or (2) by written consent of two-thirds of the holders of the
outstanding Series A and Series B preferred shares.
In connection with the sale of the preferred stock, the founding
shareholders and preferred shareholders entered into a "Shareholders
Agreement." The agreement stipulates the Company has the right of first refusal
on the proposed transfer of stock by any founding shareholder with payment due
in ten days. In the event the Company does not exercise its right, the
preferred shareholders have the same right of first refusal.
In the event less than all of the shares of stock proposed to be transferred
by a founding shareholder are acquired by the Company and/or preferred
shareholders pursuant to the right of first refusal, each preferred shareholder
shall have the right to participate in such sale (co-sale rights) of stock on
the same terms and conditions. To the extent one or more of the preferred
shareholders exercises such right of participation, the number of shares of
stock the founding shareholder may sell in the transaction shall be
correspondingly reduced.
The rights of first refusal and the co-sale rights terminate upon the
occurrence of specific events, including the effective date of a bona fide firm
commitment underwritten public offering of the Company's common stock.
F-18
<PAGE>
PEMSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)
Note 15. Geographic and Concentration of Credit Risk Information
The following is a summary of net sales and long-lived assets by geographic
location:
<TABLE>
<CAPTION>
March 31,
--------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Net sales:
United States................................... $165,049 $176,373 $318,616
Asia............................................ -- 11,008 44,314
Europe.......................................... -- -- 30,912
-------- -------- --------
$165,049 $187,381 $393,842
======== ======== ========
Long-lived assets:
United States................................... $ 16,497 $ 19,546 $ 42,463
Asia............................................ -- 3,538 10,421
Europe.......................................... -- -- 4,124
-------- -------- --------
$ 16,497 $ 23,084 $ 57,008
======== ======== ========
</TABLE>
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade receivables. Sales of the Company's
products are concentrated among specific customers in the same industry. The
Company generally does not require collateral. The Company considers
concentrations of credit risk in establishing the allowance for doubtful
accounts and believes the recorded amount is adequate.
Customers that accounted for more than 10% of consolidated net sales are as
follows:
<TABLE>
<CAPTION>
March 31,
----------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Customer A.................................................... 36% 64% 37%
Customer B.................................................... 12 11 15
Customer C.................................................... 26 -- --
</TABLE>
As of March 31, 1999 and 2000, receivables from these customers represented
59% and 33% of total accounts receivable.
Note 16. Stock Option Plans
The Company has reserved 1,327 shares of common stock for issuance to board
members and employees under incentive stock option and purchase plans approved
by shareholders. Current exercisable options are granted at prices equal to the
fair market value on the dates of grant. All options are exercisable over a
ten-year period.
Grants under stock option plans are accounted for using APB No. 25 and
related interpretations. Accordingly, no compensation cost has been recognized
for grants under these stock option plans as the exercise price equaled the
fair market value of the stock on the date of grant. Had compensation cost for
stock option grants been based on the grant date fair values of awards (the
method described in SFAS No. 123), reported net income would have been reduced
to the pro forma amounts reported below.
F-19
<PAGE>
PEMSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
March 31,
--------------------
1998 1999 2000
------ ------ ------
<S> <C> <C> <C>
Net income (loss):
As reported............................................ $5,317 $1,666 $2,651
Pro forma.............................................. 5,279 1,499 (5,059)
Basic earnings (loss) per share:
As reported............................................ $ 0.55 $ 0.15 $ 0.23
Pro forma.............................................. 0.55 0.14 (0.44)
Diluted earnings (loss) per share:
As reported............................................ $ 0.49 $ 0.12 $ 0.15
Pro forma.............................................. 0.49 0.11 (0.44)
</TABLE>
The fair value of each option grant has been estimated at the grant date
using the minimum-value method with the following weighted average assumptions:
dividend rate of 0% for all years; risk-free interest rates of 6.13%, 5.53% and
5.73% for 2000, 1999 and 1998, respectively and expected lives of ten years.
Following is a summary of stock option activity for the fiscal years ended
March 31:
<TABLE>
<CAPTION>
1998 1999 2000
---------------- ---------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year................ 963 $0.32 1,866 $0.65 2,173 $1.40
Granted................. 1,176 0.83 418 4.52 3,269 4.39
Exercised/forfeited..... (273) 0.31 (111) 0.39 (1,597) 1.47
------ ------ -------
Outstanding, end of
year................... 1,866 0.65 2,173 1.40 3,845 4.35
====== ====== =======
Exercisable, end of
year................... 901 0.53 937 0.57 3,029 4.18
Weighted average fair
value per share of
options granted during
the year............... $ 0.37 $ 2.29 $ 2.35
</TABLE>
At March 31, 2000, the options outstanding have average remaining
contractual lives and exercise prices as follows:
<TABLE>
<CAPTION>
Average
Shares Contractual Life Exercise Price
------ ---------------- --------------
<S> <C> <C>
262 6 years $0.33
71 7.5 years 0.50
195 7.5 years 0.82
3,317 9.5 years 5.00
</TABLE>
Note 17. Sale-Leaseback
During the year ended March 31, 1999, the Company sold its manufacturing and
office space facility. The Company subsequently leased this facility back from
the new owner. The gain realized on this sale is being deferred and recognized
over the term of the new building lease. The remaining deferred gain, which is
included in the deferred revenue balance, as of March 31, 1999 and 2000 was
$272 and $250, respectively. The amount of gain recognized during the years
ended March 31, 1999 and 2000 was $14 and $22, respectively.
F-20
<PAGE>
PEMSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except per share amounts)
Note 18. Employee Benefit Plans
Retirement Savings Plans
The Company sponsors various employee retirement savings plans that allow
qualified employees to provide for their retirement on a tax-deferred basis. In
accordance with the terms of the retirement savings plans, the Company is
required to match certain of the participants' contributions and/or provide
employer contributions based on the Company's performance and other factors.
Employer contributions for the years ended March 31, 1998, 1999 and 2000
totaled $126, $295 and $413, respectively.
Note 19. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------
1998 1999 2000
------ ------ ------
<S> <C> <C> <C>
Supplemental disclosures for cash flow information:
Cash payments for:
Interest.......................................... $ 817 $ 643 $3,555
Income taxes...................................... 2,658 2,332 1,197
Supplemental schedule of non-cash investing and
financing activities:
Land acquired through tax increment financing....... $ 456 $ -- $ --
Property and equipment acquired through capital
lease agreements................................... 683 71 2,514
Purchase of minority interest in consolidated
subsidiary through issuance of common stock........ 963 3,915 3,263
</TABLE>
F-21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Pemstar Inc.
Rochester, Minnesota
We have audited the accompanying balance sheets of Quadrus Manufacturing, a
Division of Bell Microproducts, Inc. as of December 31, 1998, 1997 and 1996,
and the related statements of income, divisional equity, and cash flows 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 audits 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 presents fairly,
in all material respects, the financial position of Quadrus Manufacturing, a
Division of Bell Microproducts, Inc. as of December 31, 1998, 1997 and 1996,
and the results of its operations and its cash flows for the years then ended
in conformity with generally accepted accounting principles.
/s/ McGLADREY & PULLEN, LLP
Rochester, Minnesota
January 13, 2000
F-22
<PAGE>
QUADRUS MANUFACTURING, A DIVISION OF BELL MICROPRODUCTS, INC.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Assets
Current assets:
Cash................................................. $ -- $ 71 $ 513
Receivables, less allowance for doubtful accounts
1998 $113; 1997 $107; 1996 $119 (Note 9)............ 13,618 10,274 11,345
Inventories (Note 2)................................. 24,059 16,553 18,867
Prepaid expenses..................................... 576 561 527
Income tax receivable, home office................... 1,975 1,775 --
------- ------- -------
Total current assets............................... 40,228 29,234 31,252
Other assets
Deposits............................................. 126 132 123
Property and equipment (Notes 3 & 6)................... 9,411 8,654 7,952
------- ------- -------
Total assets....................................... $49,765 $38,020 $39,327
======= ======= =======
Liabilities and Net Assets
Current liabilities:
Checks in excess of bank balance..................... $ 1,121 $ -- $ --
Current maturities of long-term debt................. 2,232 1,728 1,375
Accounts payable..................................... 8,238 4,587 3,871
Accrued expenses..................................... 1,234 720 728
Income tax payable, home office...................... -- -- 1,746
------- ------- -------
Total current liabilities.......................... 12,825 7,035 7,720
------- ------- -------
Long-term debt, net of current portion (Note 4)........ 4,530 4,442 4,985
------- ------- -------
Commitments and contingencies (Note 5)
Divisional equity (Note 7)........................... 32,410 26,543 26,622
------- ------- -------
$49,765 $38,020 $39,327
======= ======= =======
</TABLE>
See accompanying notes.
F-23
<PAGE>
QUADRUS MANUFACTURING, A DIVISION OF BELL MICROPRODUCTS, INC.
STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Net sales (Note 9)................................. $ 86,099 $ 73,221 $92,131
Cost of sales...................................... 84,030 70,344 80,203
-------- -------- -------
Gross profit....................................... 2,069 2,877 11,928
Corporate allocation............................... 1,761 2,367 1,618
Operating expenses................................. 3,566 3,459 4,818
-------- -------- -------
Operating income (loss)............................ (3,258) (2,949) 5,492
Nonoperating income (expenses):
Loss on disposal of assets......................... (20) (2) --
Interest expense................................... (515) (528) (507)
Corporate allocations-interest..................... (911) (747) (829)
-------- -------- -------
Income (loss) before income taxes.................. (4,704) (4,226) 4,156
Allocation for income taxes (Note 5)............... (1,975) (1,775) 1,746
-------- -------- -------
Net income (loss).................................. $ (2,729) $ (2,451) $ 2,410
======== ======== =======
</TABLE>
STATEMENTS OF DIVISIONAL EQUITY
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Balance, beginning.................................. $26,543 $26,622 $35,429
Net income (loss)................................. (2,729) (2,451) 2,410
Long-term working capital advanced from (repaid
to) the home office.............................. 8,596 2,372 (11,217)
------- ------- -------
Balance, ending..................................... $32,410 $26,543 $26,622
======= ======= =======
</TABLE>
See accompanying notes.
F-24
<PAGE>
QUADRUS MANUFACTURING, A DIVISION OF BELL MICROPRODUCTS, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $(2,729) $(2,451) $ 2,410
Adjustments to reconcile net income (loss) to net
cash provided
by (used in) operating activities:
Depreciation and amortization.................. 2,844 2,472 1,973
Loss on sale of equipment...................... 20 2 --
Change in assets and liabilities:
(Increase) decrease in trade receivables..... (3,344) 1,071 6,176
(Increase) decrease in inventories........... (7,506) 2,314 1,838
Increase in prepaid expenses................. (15) (34) (195)
Increase in income taxes receivable, home
office...................................... (200) (1,775) --
(Increase) decrease in deposits.............. 6 (9) (98)
Increase (decrease) in accounts payable...... 3,651 716 (244)
Increase (decrease) in accrued expenses...... 514 (8) 271
Increase (decrease) in income taxes payable,
home office................................. -- (1,746) 1,746
------- ------- --------
Net cash provided by (used in) operating
activities................................ (6,759) 552 13,877
Cash flows from investing activities:
Purchase of property and equipment............... (1,105) (1,829) (1,108)
Proceeds from sale of property and equipment..... 3 -- 375
------- ------- --------
Net cash used in investing activities...... (1,102) (1,829) (733)
Cash flows from financing activities:
Working capital advance from (repayments to) the
home office..................................... 8,596 2,372 (11,217)
Principal payments on long-term borrowings....... (1,927) (1,537) (1,600)
Increase in checks in excess of bank balance..... 1,121 -- --
------- ------- --------
Net cash provided by (used in) financing
activities................................ 7,790 835 (12,817)
Net increase (decrease) in cash............ (71) (442) 327
Cash:
Beginning........................................ 71 513 186
------- ------- --------
Ending........................................... $ -- $ 71 $ 513
======= ======= ========
Cash payments for interest....................... $ 515 $ 528 $ 507
======= ======= ========
Supplementary schedule of noncash investing and
financing activities;
Capital lease obligations incurred for purchase
of property and equipment....................... $ 2,519 $ 1,347 $ 2,280
======= ======= ========
</TABLE>
See accompanying notes.
F-25
<PAGE>
QUADRUS MANUFACTURING, A DIVISION OF BELL MICROPRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
(in thousands)
Note 1. Nature of Business and Significant Accounting Policies
Nature of business--The Division's operations consist principally of
contract manufacturing. The Division also provides a variety of manufacturing
and value-added services to its customers, including the manufacturing of
board-level and systems products to customer specifications, and certain types
of component kits to customer specification.
Significant accounting policies are as follows:
Basis of presentation--The accompanying Divisional financial statements have
been prepared from the books and records maintained by Bell Microproducts, Inc.
The statements of income may not necessarily be indicative of the results of
operations that would have been obtained if the division had been operated as
an independent entity. The statements of income include allocation of certain
expenses which are material in amount. Such expenses are allocations for
corporate services, interest expense, and federal and state income taxes.
Financial statement estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair value of financial instruments--The fair value of cash, accounts
receivable, accounts payable and home office advance approximate the carrying
amount because of the short maturity of those instruments.
Cash--The Division maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Division has not experienced
any losses in such accounts.
Inventories--Inventories are stated at the lower of standard cost which
approximates actual cost on a first-in, first-out basis or market. Market is
based on estimated net realizable value. Work in process and finished goods
include materials, labor and allocated overhead.
Property and equipment--Property and equipment is carried at cost.
Depreciation on property and equipment is computed by the straight line method
over the following estimated useful lives:
<TABLE>
<CAPTION>
Years
------
<S> <C>
Manufacturing equipment........................................... 3 to 5
Office furniture and fixtures..................................... 5
Computer hardware and software.................................... 3 to 5
</TABLE>
Leasehold improvements are depreciated over the shorter of the term of the
lease or their estimated useful lives. The amortization of assets acquired
under capital leases is included with depreciation expense on owned assets.
Note 2. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Raw materials........................................... $12,644 $ 7,833 $ 9,721
Work in process......................................... 10,713 7,853 8,234
Finished goods.......................................... 702 867 912
------- ------- -------
Total inventories....................................... $24,059 $16,553 $18,867
======= ======= =======
</TABLE>
F-26
<PAGE>
QUADRUS MANUFACTURING, A DIVISION OF BELL MICROPRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(in thousands)
Note 3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Asset Description:
Leasehold improvements............................ $ 1,660 $ 1,568 $ 332
Manufacturing equipment........................... 13,353 10,435 9,604
Office furniture and fixtures..................... 667 651 230
Computer hardware and software.................... 1,824 1,461 1,109
------- ------- -------
Total cost...................................... 17,504 14,115 11,275
Less: accumulated depreciation.................... 8,093 5,461 3,323
------- ------- -------
Total property and equipment........................ $ 9,411 $ 8,654 $ 7,952
======= ======= =======
</TABLE>
Note 4. Long-Term Debt
The Division has $6,762 of leases with various banks. Due to the terms of
the leases, they are all considered capital lease obligations. The Division has
the following capital lease obligations:
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Capital lease obligations due in monthly payments of
approximately $223 through October 2003, discounted at
rates of 6.9% to 9.8%................................. $6,762 $6,170 $6,360
Less: current maturities............................. 2,232 1,728 1,375
------ ------ ------
Total long-term debt................................... $4,530 $4,442 $4,985
====== ====== ======
</TABLE>
Aggregate maturities required on long-term debt at December 31, 1998 are due
as follows:
<TABLE>
<CAPTION>
<S> <C>
1999................................. $ 2,232
2000................................. 2,180
2001................................. 1,116
2002................................. 706
2003................................. 528
</TABLE>
Note 5. Income Taxes
The following table reconciles the expected amount from applying the
statutory federal income tax rate to income before income taxes.
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997 1996
-------- -------- ------
<S> <C> <C> <C>
Computed "expected' income tax expense
(benefit)...................................... $ (1,646) $ (1,437) $1,455
State income taxes, net of federal tax benefit.. (193) (177) 237
Other........................................... (136) (161) 54
-------- -------- ------
Total income taxes.............................. $ (1,975) $ (1,775) $1,746
======== ======== ======
</TABLE>
F-27
<PAGE>
QUADRUS MANUFACTURING, A DIVISION OF BELL MICROPRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(In thousands)
Note 6. Lease or Other Commitments
The Division leases a building under a 10 year triple net lease agreement.
Rental expense for the years ending December 31, 1998, 1997 and 1996 were
$1,046; $891 and $-0-, respectively. The total minimum rental commitment as of
December 31, 1998 is due in future years as follows:
<TABLE>
<S> <C>
Years ending December 31,
1999.............................................................. $ 969
2000.............................................................. 989
2001.............................................................. 989
2002.............................................................. 1,110
2003.............................................................. 1,120
Thereafter........................................................ 2,429
------
$7,606
======
</TABLE>
The Division leases manufacturing equipment under various leases which,
because of their terms, are recorded as capital leases.
The following is a schedule by years of the future minimum lease payments
under the capital leases together with the present value of the minimum lease
payments as of December 31, 1998:
<TABLE>
<S> <C>
Years ending December 31,
1999.............................................................. $2,689
2000.............................................................. 2,455
2001.............................................................. 1,255
2002.............................................................. 773
2003.............................................................. 536
------
Total minimum lease payments.................................... 7,708
Less the amount representing interest........................... 946
------
Present value of minimum lease payments......................... $6,762
======
</TABLE>
At December 31, 1998, 1997 and 1996, property and equipment includes amounts
for assets acquired under capital leases of $12,561, $10,042 and $8,695,
respectively. Accumulated depreciation for the same periods includes amounts of
$6,036, $4,001 and $2,253, respectively.
Note 7. Divisional Equity
Divisional equity balance was comprised of the following elements:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997 1996
(In thousands) ------- ------- -------
<S> <C> <C> <C>
Intercompany liability............................. $32,130 $21,759 $21,133
Investment by home office.......................... 1,759 1,759 1,759
Retained earnings (deficit)........................ (1,479) 3,025 3,730
------- ------- -------
$32,410 $26,543 $26,622
======= ======= =======
</TABLE>
F-28
<PAGE>
QUADRUS MANUFACTURING, A DIVISION OF BELL MICROPRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(in thousands)
Note 8. Sale of Division
On June 7, 1999 Bell Microproducts, Inc. sold the Quadrus Manufacturing
division to Pemstar Inc. Pemstar Inc. bought certain assets and assumed certain
liabilities as of that date. The adjusted sales price was $34,966. The
acquisition was funded through the increase in Pemstar Inc.'s operating line of
credit and from the sale of Pemstar Inc. preferred stock.
Note 9. Major Customers
Net sales include sales to the following customers which accounted for 10%
or more of the total net sales of the Division. Information relating to these
customers is as follows:
<TABLE>
<CAPTION>
Trade Receivable
Net Sales for the Year Balance as of
Ended December 31, December 31,
----------------------- -------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Customer A....................... $ -- $14,537 $38,165 $ -- $362 $5,999
Customer B....................... -- -- 16,345 -- -- 1,882
Customer C....................... 10,986 20,315 -- 1,235 (20) --
Customer D....................... 24,464 -- -- 4,074 -- --
------- ------- ------- ------ ---- ------
$35,450 $34,852 $54,510 $5,309 $342 $7,881
======= ======= ======= ====== ==== ======
</TABLE>
Because of the nature of the Division's business, the major customers may
vary between years.
F-29
<PAGE>
[LOGO OF WATERMARK]
Shares
Common Stock
-----------
PROSPECTUS
, 2000
-----------
Lehman Brothers
Robertson Stephens
Chase H&Q
CIBC World Markets
Fidelity Capital Markets
a division of National Financial Services Corporation
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Except as set forth below the following fees and expenses will be paid by
Pemstar in connection with the issuance and distribution of the securities
registered hereby and do not include underwriting commissions and discounts.
All such expenses, except for the SEC registration, NASD filing and Nasdaq
listing fees, are estimated.
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 30,360
NASD filing fee............................................... $ 12,000
Nasdaq National Market listing fee............................ $ 95,000
Legal fees and expenses....................................... $ *
Accounting fees and expenses.................................. $ *
Transfer Agent's and Registrar's fees......................... $ *
Printing and engraving expenses............................... $ *
Miscellaneous................................................. $ *
----------
Total......................................................... $1,000,000
==========
</TABLE>
- --------
* To be provided by amendment.
Item 14. Indemnification of Directors and Officers
Section 302A.521 of the Minnesota Statutes provides that a corporation shall
indemnify any person made or threatened to be made a party to a proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines (including, without limitation, excise taxes
assessed against such person with respect to any employee benefit plan),
settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefore by another
organization or employee benefit plan for the same judgments, penalties or
fines; (2) acted in good faith; (3) received no improper personal benefit and
Section 302A.255 (with respect to director conflicts of interest), if
applicable, has been satisfied; (4) in the case of a criminal proceeding, had
no reasonable cause to believe the conduct was unlawful; and (5) in the case of
acts or omissions in such person's official capacity for the corporation,
reasonably believed that the conduct was in the best interests of the
corporation, or in the case of acts or omissions in such person's official
capacity for other affiliated organizations, reasonably believed that the
conduct was not opposed to the best interests of the corporation. Section
302A.521 also requires payment by a corporation, upon written request, of
reasonable expenses in advance of final disposition of the proceeding in
certain instances. A decision as to required indemnification is made by a
disinterested majority of the Board of Directors present at a meeting at which
a disinterested quorum is present, or by a designated committee of the Board,
by special legal counsel, by the shareholders or by a court.
Provisions regarding indemnification of officers and directors of Pemstar to
the extent permitted by Section 302A.521 are contained in Pemstar's articles of
incorporation and bylaws.
Item 15. Recent Sales of Unregistered Securities
During the past three years, the registrant sold the following securities
that were not registered under the Securities Act. No underwriting commission
or discount was paid in connection with any of the sales.
(1) Between May 16, 1997 and May 16, 2000, we sold 1,664,358 shares of
common stock to various employees, directors, consultants and advisors
pursuant to the exercise of outstanding options for an aggregate of
$1,133,452.26 cash in reliance upon Rule 701 of the Securities Act.
II-1
<PAGE>
(2) On May 19, 1997 we sold 15,000 shares of common stock for $7,500 cash
to one employee in reliance upon the exemption contained in Section
4(2) of the Securities Act for transactions not involving a public
offering.
(3) In 1997 we entered into a joint venture with Italade Technology of
Thailand to form Italade Pemstar Limited. Pursuant to the terms of the
joint venture agreement, we acquired Italade Technology's joint venture
interest in Italade Pemstar Limited in exchange for 2,610,000 shares of
our common stock. The sales were made in reliance upon the exemptions
contained in Regulation S of the Securities Act for sales to non U.S.
persons and in Section 4(2) of the Securities Act for transactions not
involving a public offering.
(4) On September 30, 1997, we sold 270,000 shares of common stock for
$221,400 cash to eight officers (who were also directors of the
registrant) and to one other accredited investor in reliance upon the
exemption contained in Section 4(2) of the Securities Act for
transactions not involving a public offering.
(5) In February 1998, we sold 285,102 shares of common stock for $1,425,510
cash to various accredited investors in a private placement in reliance
upon the exemptions contained in Section 4(2) of the Securities Act and
Rule 506 of Regulation D thereunder.
(6) In February and March 1998, we sold 569,966 shares of Series A
preferred stock for $8,549,490 cash to two accredited investors in a
private placement in reliance upon the exemptions contained in Section
4(2) of the Securities Act and Rule 506 of Regulation D thereunder.
(7) In June 1999, we sold 1,000,000 shares of Series B preferred stock for
$18,000,000 cash to three accredited investors in a private placement
in reliance upon the exemptions contained in Section 4(2) of the
Securities Act and Rule 506 of Regulation D thereunder.
(8) In September 1999, we sold 300 shares of common stock for $1500 cash
upon the exercise of a stock option previously granted to one employee
in reliance upon the exemption contained in Section 4(2) of the
Securities Act for transactions not involving a public offering.
(9) In March 2000, we sold 332,250 shares of common stock for $348,750 cash
and $1,312,500 in promissory notes to four officers and 11 managerial
level employees in reliance upon the exemption contained in Section
4(2) of the Securities Act for transactions not involving a public
offering. The registrant believes that the Section 4(2) exemption was
available based on the financial and other information provided to (or
made available to) the purchasers and the representations made by the
purchasers in their subscription agreements as to their knowledge and
experience in financial and business matters, their ability to evaluate
the risks and merits of the prospective investment, the suitability of
the investment for them and their ability to bear the risks of the
investment. All purchasers represented that they purchased for
investment purposes only and received share certificates that were
legended to restrict transferability except in compliance with the
Securities Act.
(10) In March 2000, we sold 296,298 shares of common stock for $1,481,490
cash upon the exercise of stock options previously granted to four
officers and eight managerial level employees in reliance upon the
exemption contained in Section 4(2) of the Securities Act for
transactions not involving a public offering. The registrant believes
that the Section 4(2) exemption was available based on the financial
and other information provided to (or made available to) the
purchasers and based on the purchasers' position at the registrant.
All purchasers represented that they purchased for investment purposes
only and received share certificates that were legended to restrict
transferability except in compliance with the Securities Act.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Underwriting Agreement.
3.1 Articles of Incorporation of the Company.
3.2 Bylaws of the Company.
4.1 Form of Certificate of Common Stock of the Company.
4.2* Rights Agreement, dated as of , 2000, between the Company and
, as Rights Agent.
4.3 Credit Agreement between the Company and U.S. Bank National
Association, as amended on August 31, 1999, October 14, 1999,
November 23, 1999, December 20, 1999, March 13, 2000 and May 5, 2000.
4.4 Revolving Credit Agreement, dated as of May 5, 2000, between the
Company and IBM Credit Corporation.
4.5 ING Bank District Oost Nederland Credit Facility, dated May 26, 1999.
4.6 The Company agrees to furnish supplementally to the Securities and
Exchange Commission upon request a copy of any instrument defining
the rights of holders of long-term debt not being filed as an exhibit
in reliance on Item 601(b)(4)(iii)(A) of Regulation S-K.
5.1* Opinion of Dorsey & Whitney LLP.
10.1 Joint Venture Agreement dated September 25, 1998, between the Company
and Hongguan Technologies (S) Pte. Ltd.
10.2 Asset Purchase Agreement dated as of April 30, 1999, by and between
the Company and Bell Microproducts, Inc.
10.3 Supply Agreement dated April 30, 1999, between the Company, Fluke
Corporation and Fluke Industrial B.V.
10.4 Form of Change in Control Agreement.
10.5 Form of Promissory Note.
10.6 Form of Promissory Note.
10.7 Series A Stock Purchase Agreement, dated as of February 12, 1998,
between the Company and the parties names therein.
10.8 First Amendment to Series A Stock Purchase Agreement, dated as of
March 27, 1998, between the Company and the parties named therein.
10.9 Series B Stock Purchase Agreement, dated as of June 7, 1999, between
the Company and the parties named therein.
10.10 First Amended and Restated Investor Rights Agreement, dated as of
June 7, 1999 between the Company and certain shareholders.
10.11 First Amended and Restated Shareholders' Agreement dated June 7,
1997, between the Company and certain shareholders.
10.12 Pemstar Inc. 1994 Stock Option Plan.
10.13 Pemstar Inc. 1995 Stock Option Plan.
10.14 Pemstar Inc. 1997 Stock Option Plan.
10.15 Pemstar Inc. Amended and Restated 1999 Stock Option Plan.
10.16 Pemstar Inc. 2000 Stock Option Plan.
10.17 Supplementary Contract, dated March 24, 2000, between Pemstar
(Tianjin) Enterprise Co. Ltd. and Tianjin Yat-Sen Scientific-
Industrial Park International, Inc.
10.18 Lease Agreement, dated June 4, 1997, between Italade Technology
(Thailand) Limited and Italade-Pemstar Limited.
10.19 Lease, dated June 29, 1998, between the Company and Leslie E. Nelson
as Trustee of the Leslie E. Nelson Revocable Trust dated December 20,
1994, as amended.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.20 Sub-Lease Agreement, dated February 3, 1999, between Hongguan
Technologies (S) Pte. Ltd. and Pemstar-Hongguan Pte. Ltd.
10.21 Lease Agreement dated September 30, 1998, between Guadalajara
Industrial Technologico, S.A. de C.V. and Pemstar de Mexico S.A. de
C.V.
10.22 Sublease for Office Premises, dated May 1, 1999, between Pemstar B.V.
and Fluke Industrial B.V.
10.23 Sublease Assignment Agreement dated June 8, 1999 between the Company
and Bell Microproducts, Inc.
10.24* Employee Stock Purchase Plan.
16.1 Statement Regarding Change in Certifying Accountant.
21.1 Subsidiaries of the Company.
23.1 Consent of McGladrey & Pullen, LLP.
23.2 Consent of Ernst & Young LLP.
23.2 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1).
24.1 Powers of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedules
The following financial statement schedules are filed herewith:
Schedule II: Report of Independent Auditors--Ernst & Young LLP
Schedule II: Report of Independent Auditors--McGladrey & Pullen, LLP
Schedule II: Valuation and Qualifying Accounts
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all if the
requirements for filing on Form S-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Rochester, State of Minnesota, on May 16, 2000.
PEMSTAR INC.
/s/ Allen J. Berning
By: _________________________________
Allen J. Berning
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Allen J. Berning Chairman, Chief May 16, 2000
Executive Officer and
Director (principal
executive officer)
___________________________________________
Allen J. Berning
/s/ William J. Kullback Chief Financial Officer May 16, 2000
(principal financial
officer and principal
accounting officer)
___________________________________________
William J. Kullback
/s/ William B. Leary Director May 16, 2000
___________________________________________
William B. Leary
/s/ Robert R. Murphy Director May 16, 2000
___________________________________________
Robert R. Murphy
/s/ Gary L. Lingbeck Director May 16, 2000
___________________________________________
Gary L. Lingbeck
/s/ Karl D. Shurson Director May 16, 2000
___________________________________________
Karl D. Shurson
/s/ Robert D. Ahmann Director May 16, 2000
___________________________________________
Robert D. Ahmann
/s/ Thomas A. Burton Director May 16, 2000
___________________________________________
Thomas A. Burton
/s/ Paul Singh Director May 16, 2000
___________________________________________
Hargopal (Paul) Singh
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Michael J. Odrich Director May 16, 2000
___________________________________________
Michael J. Odrich
/s/ Steve V. Petracca Director May 16, 2000
___________________________________________
Steve V. Petracca
/s/ Bruce M. Jaffe Director May 16, 2000
___________________________________________
Bruce M. Jaffe
/s/ David L. Sippel Director May 16, 2000
___________________________________________
David L. Sippel
</TABLE>
II-6
<PAGE>
SCHEDULE II
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Directors of Pemstar Inc.
We have audited the consolidated financial statements of Pemstar Inc. as of
March 31, 2000, and for the year then ended, and have issued our report thereon
dated May 5, 2000 (included elsewhere in this Registration Statement). Our
audit also included the financial statement schedule listed in Item 16(b) of
this Registration Statement. This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audit. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Minneapolis, Minnesota
May 5, 2000
S-1
<PAGE>
SCHEDULE II
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Directors of Pemstar Inc.
Our audits were made for the purpose of forming an opinion on the 1999 and
1998 basic consolidated financial statements taken as a whole. The consolidated
supplemental schedule listed as Item 16(b) of the registration statement is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic consolidated financial
statements. The information for the years ended 1999 and 1998 in this schedule
has been subjected to the auditing procedures applied in our audits of the
basic consolidated financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic consolidated financial
statements taken as a whole.
/s/ McGLADREY & PULLEN, LLP
Rochester, Minnesota
May 10, 1999
S-2
<PAGE>
Schedule II--Valuation and Qualifying Accounts
Pemstar Inc.
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
------ ---------- --------------------- ----------- --------
Additions
---------------------
Charge to Balance
Balance at Charged to Other at End
Beginning Costs and Accounts-- Deductions of
Description of Period Expenses Described Described-- Period
----------- ---------- ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31,
2000
Reserve and allowances
deducted from
accounts:
Allowance for
uncollectible
accounts............ $53,136 $ 545,079 $-- $ 45,215 $553,000
Allowance for
inventory
obsolescence........ -- 572,656 -- -- 572,656
YEAR ENDED MARCH 31,
1999
Reserve and allowances
deducted from
accounts:
Allowance for
uncollectible
accounts............ 6,000 73,801 -- 26,665 53,136
YEAR ENDED MARCH 31,
1998
Reserve and allowances
deducted from
accounts:
Allowance for
uncollectible
accounts............ 12,000 1,546,244 -- 1,552,244 6,000
</TABLE>
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Underwriting Agreement.
3.1 Articles of Incorporation of the Company.
3.2 Bylaws of the Company.
4.1 Form of Certificate of Common Stock of the Company.
4.2* Rights Agreement, dated as of , 2000, between the Company and
, as Rights Agent.
4.3 Credit Agreement between the Company and U.S. Bank National
Association, as amended on August 31, 1999, October 14, 1999, November
23, 1999, December 20, 1999, March 13, 2000 and May 5, 2000.
4.4 Revolving Credit Agreement, dated as of May 5, 2000, between the
Company and IBM Credit Corporation.
4.5 ING Bank District Oost Nederland Credit Facility dated May 26, 1999.
4.6 The Company agrees to furnish supplementally to the Securities and
Exchange Commission upon request a copy of any instrument defining the
rights of holders of long-term debt not being filed as an exhibit in
reliance on Item 601(b)(4)(iii)(A) of Regulation S-K.
5.1* Opinion of Dorsey & Whitney LLP.
10.1 Joint Venture Agreement dated September 25, 1998, between the Company
and Hongguan Technologies (S) Pte. Ltd.
10.2 Asset Purchase Agreement dated as of April 30, 1999, by and between the
Company and Bell Microproducts, Inc.
10.3 Supply Agreement dated April 30, 1999, between the Company, Fluke
Corporation and Fluke Industrial B.V.
10.4 Form of Change in Control Agreement.
10.5 Form of Promissory Note.
10.6 Form of Promissory Note.
10.7 Series A Stock Purchase Agreement, dated as of February 12, 1998,
between the Company and the parties names therein.
10.8 First Amendment to Series A Stock Purchase Agreement, dated as of March
27, 1998, between the Company and the parties named therein.
10.9 Series B Stock Purchase Agreement, dated as of June 7, 1999, between
the Company and the parties named therein.
10.10 First Amended and Restated Investor Rights Agreement, dated as of June
7, 1999 between the Company and certain shareholders.
10.11 First Amended and Restated Shareholders' Agreement dated June 7, 1997,
between the Company and certain shareholders.
10.12 Pemstar Inc. 1994 Stock Option Plan.
10.13 Pemstar Inc. 1995 Stock Option Plan.
10.14 Pemstar Inc. 1997 Stock Option Plan.
10.15 Pemstar Inc. Amended and Restated 1999 Stock Option Plan.
10.16 Pemstar Inc. 2000 Stock Option Plan.
10.17 Supplementary Contract, dated March 24, 2000, between Pemstar (Tianjin)
Enterprise Co. Ltd. and Tianjin Yat-Sen Scientific-Industrial Park
International, Inc.
10.18 Lease Agreement, dated June 4, 1997, between Italade Technology
(Thailand) Limited and Italade-Pemstar Limited.
10.19 Lease, dated June 29, 1998, between the Company and Leslie E. Nelson as
Trustee of the Leslie E. Nelson Revocable Trust dated December 20,
1994, as amended.
10.20 Sub-Lease Agreement, dated February 3, 1999, between Hongguan
Technologies (S) Pte. Ltd. and Pemstar-Hongguan Pte. Ltd.
10.21 Lease Agreement dated September 30, 1998 between Guadalajara Industrial
Technologico, S.A. de C.V. and Pemstar de Mexico S.A. de C.V.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.22 Sublease for Office Premises, dated May 1, 1999, between Pemstar B.V.
and Fluke Industrial B.V.
10.23 Sublease Assignment Agreement dated June 8, 1999 between the Company
and Bell Microproducts, Inc.
10.24* Employee Stock Purchase Plan.
16.1 Statement Regarding Change in Certifying Accountant.
21.1 Subsidiaries of the Company.
23.1 Consent of McGladrey & Pullen, LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Dorsey & Whitney LLP (included in Exhibit 5.1).
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
2
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
PEMSTAR INC.
To form a Minnesota business corporation under and pursuant to Minnesota
Statutes, Chapter 302A, as now enacted or hereafter amended, the following
Articles of Incorporation are adopted:
ARTICLE 1. NAME
---------------
The name of the corporation is "PEMSTAR INC.".
ARTICLE 2. REGISTERED OFFICE
----------------------------
The address of the registered office of the corporation in Minnesota is
Suite 340, 201 First Avenue, S.W., Rochester, Minnesota 55902.
ARTICLE 3. AUTHORIZED SHARES
----------------------------
The aggregate number of shares of stock that the corporation is authorized
to issue is 11,000,000, of which 10,000,000 shares are designated as common
shares with a par value or $.01 per share and 1,000,000 shares are designated as
preferred shares with a par value of $.01 per share.
Authority is hereby expressly vested in the Board of Directors of the
corporation, subject to the provisions of this Article 3 and to limitations
prescribed by law, to create and authorize the issuance from time to time of one
or more series of the preferred shares and, with respect to each such series, to
determine or fix, by resolution or resolutions adopted by the affirmative vote
of a majority of the Board of Directors present providing for the issue of such
series, the voting powers, full or limited, if any, of the shares of such series
and the designations, preferences and relative, participating, optional or other
special rights and the qualifications, limitations or restrictions thereof,
including, without limitation, the determination or fixing of the rates of and
terms and conditions upon which any dividends shall be payable on such series,
any terms under or conditions on which the shares of such series may be
redeemed, any provisions made for the conversion or exchange of the shares of
such series for shares of any other class or classes or of any other series of
the same or any other class or classes of the corporation's capital stock, and
any rights of the holders of the shares of such series upon the voluntary or
involuntary liquidation, dissolution or winding up of the corporation.
ARTICLE 4. PREEMPTIVE RIGHTS
----------------------------
The shareholders of the corporation shall not have preemptive rights to
subscribe for or acquire shares or rights to purchase shares of any class, kind,
or series of the corporation.
<PAGE>
ARTICLE 5. CUMULATIVE VOTING
----------------------------
There shall be no cumulative voting by the shareholders of the corporation.
ARTICLE 6. INCORPORATOR
The name and address of the incorporator, who is a natural person of full
age, are:
Name Address
---- -------
William A. Jonason 2100 Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
ARTICLE 7. DIRECTOR LIABILITY
-----------------------------
To the fullest extent permitted by the Minnesota Business Corporation Act
as the same exists or may hereafter be amended, a director of this corporation
shall not be liable to this corporation or its shareholders for monetary damages
for breach of fiduciary duty as a director.
Dated: January 14, 1994.
-------------------------------------
William A. Jonason
Incorporator
2
<PAGE>
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
PEMSTAR INC.
1. The name of the corporation is PEMSTAR INC., a Minnesota corporation.
2. The Amendment adopted is: In the third line of the first paragraph of
Article 3, "or" shall be deleted and in its place shall be inserted "of", and
the first paragraph shall read as follows:
The aggregate number of shares of stock that the corporation is authorized
to issue is 11,000,000, of which 10,000,000 shares are designated as common
shares with a par value of $.01 per share and 1,000,000 shares are
designated as preferred shares with a par value of $.01 per share.
3. The Amendment has been adopted pursuant to Chapter 302A of the Minnesota
Business Corporation Act.
IN WITNESS WHEREOF, the undersigned, the Incorporator of PEMSTAR INC., has
executed this document as of the 25th day of January, 1994.
-------------------------------------
William A. Jonason
Incorporator
3
<PAGE>
CERTIFICATE OF DESIGNATION OF PREFERENCES
OF SERIES A PREFERRED STOCK
OF PEMSTAR INC.,
a Minnesota corporation
The undersigned Allen J. Berning and Gary L. Lingbeck hereby certify that:
A. They are the duly elected and acting Chief Executive Officer and
Secretary, respectively, of said corporation.
B. Pursuant to authority given by said corporation's Articles of
Incorporation, as amended to date, the Board of Directors of said corporation
has duly adopted the following resolutions:
RESOLVED, that the Board of Directors does hereby provide for the issue of
a series of Preferred Stock of the corporation consisting of Six Hundred Sixty
Six Thousand Six Hundred Seventy Seven (666,667) shares designated as "Series A
Preferred Stock," and does hereby fix the rights, preferences, privileges, and
restrictions and other matters relating to said Series A Preferred Stock as
follows:
1. Designation. The series of Preferred Stock shall be designated
"Series A Preferred Stock."
2. Number. The number of authorized shares constituting the Series A
Preferred Stock shall be Six Hundred Sixty Six Thousand Six Hundred Sixty
Seven (666,667) shares.
3. Dividend Provisions.
(a) Subject to the rights of series of Preferred Stock which may
from time to time come into existence, the holders of shares of Series
A Preferred Stock shall be entitled to receive dividends, out of any
assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common
Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares
of Common Stock of this corporation) on the Common Stock of this
corporation, at the rate of $1.20 per share of Series A Preferred
Stock (subject to appropriate adjustments for stock splits, stock
dividends, combinations or other recapitalizations with respect to
such shares) per annum (the "Preferred Dividend Preference"). Such
dividends shall not be cumulative and shall be payable when, as and if
declared by the Board of Directors.
(b) After paying the full Preferred Dividend Preference in any
calendar year, whenever this corporation declares a further dividend
in such calendar year, the holders of Common Stock and the holders of
Series A Preferred Stock shall be entitled to receive dividends
ratably based on the number of shares of Common Stock held by each on
an as-if-converted to Common Stock basis.
4
<PAGE>
4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the
rights of series of Preferred Stock that may from time to time come
into existence, the holders of Series A Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of
any of the assets of this corporation to the holders of Common Stock
by reason of their ownership thereof, an amount per share equal to the
sum of (i) $15.00 for each outstanding share of Series A Preferred
Stock (subject to appropriate adjustments for stock splits, stock
dividends, combinations or other recapitalizations with respect to
such shares and hereafter referred to as the "Original Series A Issue
Price"), and (ii) an amount equal to declared but unpaid dividends on
such share. If upon the occurrence of such event, the assets and funds
thus distributed among the holders of the Series A Preferred Stock
shall be insufficient to permit the payments to such holders of the
full aforesaid preferential amounts, then, subject to the rights of
series of Preferred Stock that may from time to time come into
existence, the entire assets and funds of the corporation legally
available for distribution shall be distributed ratably among the
holders of the Series A Preferred Stock on proportion to the
preferential amount each such holder would otherwise be entitled to
receive.
(b) Upon the completion of the distribution required by
subsection (a) of this Section 4, the remaining assets of the
corporation available for distribution to shareholders shall be
distributed among the holders of Series A Preferred Stock and Common
Stock pro rata based on the number of shares of Common Stock held by
each (assuming conversion of all such Series A Preferred Stock) until
the holders of Series A Preferred Stock shall have received an
aggregate of $7.50 per share (not including amounts paid pursuant to
subsection (a) of this Section 4); thereafter, if assets remain in
this corporation, the holders of the Common Stock of this corporation
shall receive all of the remaining assets of this corporation pro rata
based on the number of shares of Common Stock held by each.
(c) (i) A consolidation or merger of this corporation with or
into any other corporation or corporations (other than any merger
effected solely for the purpose of changing the domicile of the
corporation), or a sale, conveyance or disposition of all or
substantially all of the assets of this corporation or the
effectuation by the corporation of a transaction or series of related
transactions in which more than 50% of the voting power of the
corporation is disposed of, shall be deemed to be a liquidation,
dissolution or winding up within the meaning of this Section 4.
(ii) In any of such events, if the consideration received by
the corporation is other than cash, its value will be deemed its
fair market value. Any securities shall be valued as follows:
(A) Securities not be subject to investment letter or
other similar restrictions on free marketability covered by
(B) below shall be valued as follows:
(1) If traded on a securities exchange or through
the Nasdaq National Market System, the value shall be
deemed to be the average of the closing
5
<PAGE>
prices of the securities on such exchange over the
thirty (30) day period ending three (3) trading days
prior to the closing;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or
sale prices (whichever is applicable) over the thirty
(30) day period ending three (3) trading days prior to
the closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually
determined by the Board of Directors of the corporation
and the holders of at least a majority of the voting
power of all then outstanding shares of Series A
Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free
marketability (other than restrictions arising solely by
virtue of a shareholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the
market value determined as above in (A) (1), (2) or (3) to
reflect the approximate fair market value thereof, as
mutually determined by the Board of Directors and the
holders of at least a majority of the voting power of all
then outstanding shares of such Series A Preferred Stock.
(iii) In the event the requirements of this subsection 4(c)
are not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time
as the requirements of this subsection 4(c) have been
complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A
Preferred Stock shall revert to and be the same as such
rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in
subsection 4(c)(iv) hereof.
(iv) The corporation shall give each holder of record of
Series A Preferred Stock written notice of such impending
transaction not later than thirty (30) days prior to the
shareholders' meeting called to approve such transaction, or
thirty (30) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of
such notices shall describe the material terms and conditions of
the impending transaction and the provisions of this Section 4,
and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event
take place sooner than thirty (30) days after the corporation has
given the first notice provided for herein or sooner than ten
(10) days after the corporation has given notice of any material
changes provided for herein; provided, however, that such periods
may be shortened upon the written consent of the holders of
Series A Preferred Stock that are entitled to such notice rights
or similar notice rights and that represent at least a majority
of the voting power of all then outstanding shares of such Series
A Preferred Stock.
6
<PAGE>
(v) Any notice required by the provisions of this Section 4
to be given to the holders of shares of Series A Preferred Stock
shall be deemed given when deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his
address appearing on the books of this corporation.
(vi) The provisions of this Section 4 are in addition to the
protective provisions of Section 8 hereof.
5. Redemption.
(a) At any time after February 12, 2002, but within forty-five
(45) days (the "Redemption Date") after the receipt by this
corporation of a written request from the holders of not less than a
majority of the then outstanding shares of Series A Preferred Stock
that all of such holders' shares be redeemed, and immediately prior to
the surrender by such holders of the certificates representing such
shares, this corporation shall, to the extent it may lawfully do so,
redeem all of the then outstanding shares of Series A Preferred Stock
by paying in cash therefor a sum per share equal to the Original
Series A Issue Price (as adjusted for any stock dividends,
combinations or splits with respect to such share) plus an amount
equal to all declared but unpaid dividends on such share as of the
Redemption Date (the "Redemption Price") to the holders of the Series
A Preferred Stock in three equal annual installments beginning on the
Redemption Date. Any redemption effected pursuant to this subsection
5(a) shall be made on a pro rata basis among the holders of the Series
A Preferred Stock in proportion to the number of shares of Series A
Preferred Stock then held by such holders.
(b) Not less than twenty (20) days prior to the Redemption Date,
written notice shall be mailed, first class postage prepaid, to each
holder of record (at the close of business on the business day next
preceding the day on which notice is given) of the Series A Preferred
Stock at the address last shown on the records of this corporation for
such holder, notifying such holder of the redemption to be effected,
specifying the number of shares to be redeemed from such holder (which
shall be all of the shares of Series A Preferred Stock held by such
holder), the Redemption Date, the Redemption Price, the place at which
payment may be obtained and calling upon such holder to surrender to
this corporation, in the manner and at the place designated, his, her
or its certificate or certificates representing all of the shares of
the Series A Preferred Stock held by such holder (the "Redemption
Notice"). Except as provided in subsection 5(c) hereof, on or after
the Redemption Date, each holder of Series A Preferred Stock shall
surrender to this corporation the certificate or certificates
representing such shares, in the manner and at the place designated in
the Redemption Notice, and thereupon the Redemption Price of such
shares shall be payable to the order of the person whose name appears
on such certificate or certificates as the owner thereof and each
surrendered certificate shall be cancelled.
(c) From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the
holders of shares of Series A Preferred Stock designated in the
Redemption Notice as holders of Series A Preferred Stock (except the
right to receive the respective Redemption Price without interest upon
surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be
transferred on the books of this corporation or be deemed to be
outstanding for any
7
<PAGE>
purpose whatsoever. If the funds of the corporation legally available
for redemption of shares of Series A Preferred Stock on the Redemption
Date, or any subsequent date on which payment is due the holders of
Series A Preferred Stock pursuant to this Section 5, are insufficient
to redeem the total number of shares of Series A Preferred Stock on
such date, those funds which are legally available will be used to
redeem the maximum possible number of such shares ratably among the
holders of the Series A Preferred Stock in proportion to the amount of
such stock owned by each such holder. At any time thereafter when
additional funds of the corporation are legally available for the
redemption of shares of Series A Preferred Stock, such funds will
immediately be used to redeem the balance of the shares which the
corporation has become obliged to redeem on the Redemption Date but
which it has not redeemed. Notwithstanding anything herein to the
contrary, the number of shares of Series A Preferred Stock for which
the corporation has not yet paid the full Redemption Price as of any
date after the Redemption Date shall remain outstanding and entitled
to all the rights and preferences provided herein.
6. Conversion. The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time
and from time to time after the date of issuance of such share at the
office of this corporation or any transfer agent for such stock, into
such number of fully paid and nonassessable shares of Common Stock as
is determined by dividing the Original Series A Issue Price by the
Conversion Price at the time in effect for such share. The initial
Conversion Price per share for shares of Series A Preferred Stock
shall be the Original Series A Issue Price; provided, however, that
the Conversion Price for the Series A Preferred Stock shall be subject
to adjustment as set forth in subsection 6(d).
(b) Automatic Conversion. Each share of Series A Preferred Stock
shall automatically be converted into shares of Common Stock at the
Conversion Price at the time in effect for such Series A Preferred
Stock immediately and without further action by the corporation or the
holder of such shares of Series A Preferred Stock upon the earlier of
(i) the corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement
under the Securities Act of 1933, as amended, the public offering
price of which is not less than $20.00 per share (subject to
appropriate adjustments for stock splits, stock dividends,
combinations or other recapitalizations with respect to such shares)
and $15,000,000 in the aggregate or (ii) the date specified by written
consent or agreement of the holders of two-thirds (2/3) of the then
outstanding shares of Series A Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall surrender the certificate or certification
therefor, duly endorsed, at the office of this corporation or of any
transfer agent for Series A preferred Stock, and shall give written
notice to this corporation at its principal corporate office, of the
election to convert the same and shall state therein the name names in
which the certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the shares of
Series A Preferred Stock to be converted, and the person or persons
entitled to receive the shares
8
<PAGE>
of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common
Stock as of such date. If the conversion is in connection with an
underwritten offering of securities registered pursuant to the
Securities Act of 1933, as amended, the conversion may, at the option
of any holder tendering Series A preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of
securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock upon conversion of the Series A
Preferred Stock shall not be deemed to have converted such Series A
Preferred Stock until immediately prior to the closing of such sale of
securities.
(d) Conversion Price Adjustments of Series A Preferred Stock. The
Conversion price of the Series A Preferred Stock shall be subject to
adjustment from time to time as follows:
(i)(A) Upon the issuance by the corporation of any
Additional Stock (as defined below) after the date upon which any
shares of the Series A preferred Stock were first issued (the
"Purchase Price"), without consideration or for a consideration
per share less than the Conversion Price for the Series A
Preferred Stock in effect immediately prior to the issuance of
such Additional Stock, the Conversion Price for the Series A
Preferred Stock in effect immediately prior to each such issuance
shall forthwith (except as otherwise provided in this clause (i))
be adjusted to a price determined by multiplying such Conversion
Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such
issuance (excluding the number of shares of Common Stock issuable
upon the conversion of the Series A Preferred Stock) plus the
number of shares of Common Stock that the aggregate consideration
received by the corporation for such issuance would purchase at
the conversion price existing immediately prior to such issuance
of Additional Stock, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to
such issuance (excluding the number of shares of Common Stock
issuable upon the conversion of the Series A Preferred Stock)
plus the number of shares of such Additional Stock. However, the
foregoing calculation shall not take into account shares deemed
issued pursuant to Section 6(d)(I)(E) on account of options,
rights or convertible or exchangeable securities (or the actual
or deemed consideration therefor), except to the extent (I) such
options, rights or convertible or exchangeable securities have
been exercised, converted or exchanged or (2) the consideration
to be paid upon such exercise or exchange per share underlying
Common Stock, or the conversion price then in effect for
convertible securities, is less than or equal to the per share
consideration for the Additional Stock which has given rise to
the Conversion Price adjustment being calculated.
(B) No adjustment of the Conversion Price for the
Series A Preferred Stock shall be made in an amount less
than one cent per share, provided that any adjustments which
are not required to be made by reason of this sentence shall
be carried forward and shall be either taken into account in
any subsequent adjustment made prior to 3 years from the
date of the event giving rise to the adjustment being
carried forward, or shall be made at the end of 3 years from
the date of the event giving rise to the adjustment being
carried forward. Except to the limited extent provided for
in subsections 6(d)(i)(E)(3) and (E)(4), no adjustment of
the Conversion Price pursuant to this subsection 6(d)(I)
shall have the effect of
9
<PAGE>
increasing the Conversion Price above the Conversion Price
in effect immediately prior to such adjustment.
(C) In the case of the issuance of Additional Stock for
cash, the consideration shall be deemed to be the amount of
cash paid therefore before deducting any reasonable
discounts, commissions or other expenses allowed, paid or
incurred by this corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(E) In the case of the issuance (whether before, on or
after the applicable Purchase Date) of options to purchase
or rights to subscribe for Common Stock, securities by their
terms convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such
convertible or exchangeable securities, the following
provisions shall apply for all purposes of this subsection
6(d)(i) and subsection 6(d)(ii):
(1) The aggregate maximum number of shares of
Common Stock deliverable upon exercise (assuming the
satisfaction of any conditions to exercisability,
including without limitation, the passage of time, but
without taking into account potential antidilution
adjustments) of such option sot purchase or rights to
subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued
and for a consideration equal to the consideration
(determined in the manner provided in subsections
6(d)(i)(C) and (d)(i)(D)), if any, received by the
corporation upon the issuance of such options or rights
plus the minimum exercise price provided in such option
or rights (without taking into account potential
antidilution adjustments) for the Common Stock covered
thereby.
(2) The aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in
exchange (assuming the satisfaction of any conditions
to convertibility or exchangeability, including,
without limitation, the passage of time, but without
taking into account potential antidilution adjustments)
for any such convertible or exchangeable securities or
upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable
securities or upon the exercise of options to purchase
or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or
exchange thereof shall be deemed to have been issued
at the time such securities were issued or such options
or rights were issued and for a consideration equal to
the consideration, if any received by the corporation
for any such securities and related options or rights
(excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum
additional consideration, if any, to be received by the
corporation (without taking into account potential
antidilution adjustments) upon the conversion or
exchange of such securities or the exercise of any
related options or rights (the consideration in each
case to be determined in the manner provided in
subsections 6(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of
shares of Common Stock deliverable or in the
consideration payable to this corporation upon exercise
of such options or rights or upon conversion of or in
exchange for such convertible or exchangeable
securities, including, but not limited to, a change
resulting from the antidilution provision thereof, the
Conversion Price of the Series A Preferred Stock, to
the extent in any way affected by or computed using
such options, rights or securities, shall be recomputed
to reflect
10
<PAGE>
such change, but no further adjustment shall be made
for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any options
or rights or the conversion or exchange of such
securities.
(4) Upon the expiration of any such options or
rights, the termination of any such rights to convert
or exchange or the expiration of any options or rights
related to such convertible or exchangeable securities,
the conversion Price of the Series A preferred Stock,
to the extent in any way affected by or computed using
such options, rights or securities or options or rights
related to such securities, shall be recomputed to
reflect the issuance of only the number of Shares of
Common Stock (and convertible or exchangeable
securities which remain in effect) actually issued upon
the exercise of such options or rights, upon the
conversion or exchange or such securities or upon the
exercise of the options or rights related to such
securities.
(ii) "Additional Stock" shall mean any shares of Common
Stock issued (or deemed to have been issued pursuant to
subsection 6(d)(i)(E)) by this corporation after the Purchase
Date for the Series A Preferred Stock other than:
(A) Common Stock issued pursuant to a transaction
described in subsection 6(d)(iii) hereof, or
(B) shares of Common Stock (or options, warrants or
other rights to purchase such Common Stock) issuable or
issued to employees, consultants, directors or vendors (if
in transactions with primarily non-financing purposes) of
this corporation directly or pursuant to a stock option plan
or restricted stock plan approved by the shareholders and
Board of Directors of this corporation at any time when the
total number of shares of Common Stock so issuable or issued
(and not repurchased at cost by the corporation in
connection with the termination of employment or commercial
relationship) does not exceed 1,000,000 or
(D) shares of Common Stock issued or issuable (I) in a
public offering before or in connection with which all
outstanding shares of Series A Preferred Stock will be
converted to Common Stock or (II) upon exercise of warrants
or rights granted to underwriters in connection with such a
public offering.
(E) up to 478,500 shares of Common Stock issued to
ITALADE TECHNOLOGY (THAILAND) LIMITED ("ITALADE") pursuant
to that joint venture agreement dated as of April 4, 1997
between the corporation and ITALADE.
(iii) In the event the corporation should at any time or
from time to time after the Purchase Date fix a record date for
the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities
or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalent
(including the additional shares of Common
11
<PAGE>
Stock issuable upon conversion or exercise thereof), then, as of
such record date (or the date of such dividend, distribution,
split or subdivision if no record date is fixed), the Conversion
Price of the Series A Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable
on conversion of each share of such series shall be increased in
proportion to such increase of the aggregate number of shares of
Common Stock outstanding and those issuable with respect to such
Common Stock Equivalents.
(iv) If the number of shares of Common Stock outstanding at
any time after the Purchase Date is decreased by a combination of
the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for the
Series A Preferred Stock shall be appropriately increased so that
the number of shares of Common Stock issuable on conversion of
each share of such series shall be decreased in proportion to
such decrease in outstanding shares.
(e) Other Distributions. In the event this corporation shall
declare a distribution payable in securities of other persons,
evidences of indebtedness issued by this corporation or other persons,
assets (excluding cash dividends) or options or rights not referred to
in subsection 6(d)(iii), the, in each such case for the purpose of
this subsection 6(e), the holders of the Series A Preferred Stock
shall be entitled to a proportionate share of any such distribution as
though they were the holders of the number of shares of Common Stock
of the corporation into which their shares of Series A Preferred Stock
are convertible as of the record date fixed for the determination of
the holders of Common Stock of the corporation entitled to receive
such distribution.
(f) Recapitalizations. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction
provided for elsewhere in this Section 6 or Section 4) provisions
shall be made so that each holder of Series A Preferred Stock shall
thereafter be entitled to receive upon conversion of the Series A
Preferred Stock the number of shares of stock or other securities or
property of the Company or otherwise, to which a holder of the Common
Stock deliverable upon conversion of such holder's Series A Preferred
Stock would have been entitled on such recapitalization. In any such
case, appropriate adjustment shall be made in the application of the
provisions of this Section 6 with respect to the rights of the holders
of the Series A Preferred Stock after the recapitalization to the end
that the provisions of this Section 6 (including adjustment of the
Conversion Price then in effect for the Series A Preferred Stock and
the number of shares purchasable upon conversion of the Series A
Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.
(g) No Impairment. This corporation will not, by amendment of its
Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by this corporation,
but will at all times in good faith assist in the carrying out of all
the provisions of this Section 6 and in the taking of all such action
as may be necessary or appropriate in order to protect the Conversion
Rights of the holders of the Series A Preferred Stock against
impairment.
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(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional share shall be issued upon the conversion
of any shares or shares of the Series A Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to
the nearest whole share. Whether or not fractional shares are
issuable upon such conversion shall be determined on the basis of
the total number of shares of Series A Preferred Stock the holder
is at the time converting into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment
of the Conversion Price of the Series A Preferred Stock pursuant
to this Section 6, this corporation, at its expense, shall
promptly computer such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of
Series A Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based. This corporation
shall, upon the written request at any time of any holder of
Series A Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (A) such adjustment
and readjustment, (B) the Conversion Price of the Series A
Preferred Stock held by such holder at the time in effect, and
(C) the number of shares of Common Stock and the amount, if any,
of other property which at the time would be received upon the
conversion of a share of Series A Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to
receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities or
property, or to receive any other right, this corporation shall mail
to each holder of Series A Preferred Stock, at least 20 days prior to
the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend,
distribution of right, and the amount and character of such dividend,
distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This
corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose
of effecting the conversion of the shares of the Series A Preferred
Stock, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares
of the Series A Preferred Stock. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series
A Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Series A Preferred Stock, this
corporation will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient
for such purposes, including, without limitation, using its best
efforts to obtain the requisite shareholder approval of any necessary
amendment to the corporation's Articles of Incorporation.
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<PAGE>
(k) Notices. Unless otherwise provided, any notice required or
permitted under this Section 6 shall be given in writing and shall be
deemed effectively given upon personal or facsimile delivery to the
party to be notified or upon deposit with the United States Post
Office, by registered or certified mail, or with a nationally
recognized overnight delivery service, postage prepaid and addressed
to each holder of record at his address appearing on the books of this
corporation.
7. Voting Rights. The holder of each share of Series A Preferred Stock
shall have the right to one vote for each share of Common Stock into which
such Series A Preferred Stock could then be converted, and with respect to
such vote, such holder shall have full voting rights and powers equal to
the voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any provision hereof, to notice of any
shareholders' meeting in accordance with the Bylaws of this corporation,
and shall be entitled to vote, together with holders of Common Stock, with
respect to any question upon which holders of Common Stock have the right
to vote. Fractional votes shall not be permitted and any fractional voting
rights available on an as-converted basis (after aggregating all shares
into which shares of the Series A Preferred Stock held by each holder could
be converted) shall be rounded to the nearest whole number (with one-half
being rounded upward).
8. Protective Provisions. Subject to the rights of series of Preferred
Stock which may from time to time come into existence, so long as any
shares of Series A Preferred Stock are outstanding, this corporation shall
not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of at least two thirds (66.67% ) of the
then outstanding shares of Series A Preferred Stock;
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge with and into
any other corporation where the corporation is not the surviving
corporation (other than a wholly-owned subsidiary corporation), or
effect any transaction or series of related transactions in which more
than fifty percent (50%) of the voting power of the corporation is
disposed of, or effect any voluntary liquidation, dissolution or
winding up of the corporation or recapitalization of the corporation;
or
(b) alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock so as to adversely affect such
shares; or
(c) increase or decrease (other than by redemption or conversion)
the total number of authorized shares of capital stock or any series
of capital stock, provided, however, that no such approval shall be
required to increase the total number of authorized shares of Common
Stock to less than or equal to fifteen million 15,000,000) shares; or
(d) authorize or issue, or obligate itself to issue, any equity
security, including any other security convertible into or exercisable
for any equity security, (i) having a preference over, or being on a
parity with, the rights, preferences and privileges of the Series A
Preferred Stock with respect to dividends, liquidation or voting
(provided that additional shares of Common Stock having the same
number of votes per share as the Series A Preferred Stock may be
issued), or (ii) having rights similar to any of the rights of the
Series A Preferred Stock
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under this Section 8; or
(e) redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any share or shares of
Common Stock; provided, however, that this restriction shall not apply
to the repurchase of share of Common Stock from certain shareholders
pursuant to that certain Shareholder Agreement dated June 8, 1994 or
that certain Shareholders' Agreement dated on or about February 12,
1998 or the repurchase of shares of Common Stock from employees,
officers, directors, consultants or other persons performing services
for the corporation or any subsidiary pursuant to agreements under
which the corporation has the option to repurchase such shares at cost
upon the occurrence of certain events, such as the termination of
employment; or
(f) issue, or obligate itself to issue, greater than 533,333
shares of Series A Preferred Stock; or
(g) pay any dividends on the corporation's Common Stock; or
(h) amend the corporation's Articles of Incorporation, provided,
however, that no such approval shall be required for an amendment to
the corporation's Articles of Incorporation to increase the total
number of authorized shares of Common Stock to less than or equal to
fifteen million (15,000,000) shares; or
(i) increase the authorized number of directors of the
corporation to more than thirteen (13).
9. Status of Redeemed or Converted Stock. In the event (a) any shares
of Series A Preferred Stock shall be redeemed pursuant to Section 5 hereof
or (b) any shares of Series A Preferred Stock shall be converted pursuant
to Section 6 hereof, the shares so redeemed or converted shall be
cancelled, and such shares shall not be issuable by the corporation.
RESOLVED, FURTHER, that the Chairman, President, or any Vice President, and
the Secretary or the Chief Financial Officer of this corporation are hereby
authorized to execute, verify, and file a Certificate of Designation of
Preferences in accordance with Minnesota law.
C. The authorized number of shares of Preferred Stock of said corporation
is 1,000,000. 666,667 shares of Preferred Stock are hereby being designated
Series A Preferred Stock, none of which has been issued.
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We further declare under penalty of perjury under the laws of the State of
Minnesota that the matters set forth in this Certificate are true and correct of
our own knowledge.
DATED: February 12, 1998
-----------------------------------------
Allen J. Berning, Chief Executive Officer
----------------------------------------
Gary L. Lingbeck, Secretary
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<PAGE>
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
PEMSTAR INC.
1. The name of the corporation is PEMSTAR INC., a Minnesota corporation.
2. The Articles of Incorporation are hereby amended by modifying the first
paragraph of Article 3 to read as follows:
The aggregate number of shares of stock that the corporation is
authorized to issue is 55,000,000, of which 50,000,000 shares are
designated as common shares with a par value of $.01 per share and
5,000,000 shares are designated as preferred shares with a par value
of $.01 per share.
3. This amendment has been adopted pursuant to Chapter 302A of the
Minnesota Business Corporation Act.
IN WITNESS WHEREOF, the undersigned, President of PEMSTAR INC., being duly
authorized on behalf of PEMSTAR INC., has executed this document on this 2nd day
of June, 1999.
--------------------------------------
Allen J. Berning, President
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<PAGE>
ARTICLES OF AMENDMENT
OF
CERTIFICATE OF DESIGNATION OF PREFERENCES
OF
SERIES A PREFERRED STOCK
OF
PEMSTAR INC.
1. The name of the corporation is PEMSTAR INC., a Minnesota corporation.
2. The Certificate of Designation of Preferences of Series A Preferred
Stock of PEMSTAR INC. is hereby amended by deleting the reference to "February
12" in the first line of Section 5(a) and inserting in lieu thereof "September
15".
3. This amendment has been adopted pursuant to Chapter 302A of the
Minnesota Business Corporation Act.
IN WITNESS WHEREOF, the undersigned, President of PEMSTAR INC., being duly
authorized on behalf of PEMSTAR INC., has executed this document on this 2nd day
of June, 1999.
--------------------------------------
Allen J. Berning, President
18
<PAGE>
CERTIFICATE OF DESIGNATION OF PREFERENCES
OF SERIES B PREFERRED STOCK
OF PEMSTAR INC.,
a Minnesota corporation
The undersigned Robert R. Murphy and David L. Sippel hereby certify that:
A. They are the duly elected and acting Chief Financial Officer and Vice
President, respectively, of said corporation.
B. Pursuant to authority given by said corporation's Articles of
Incorporation, as amended to date, the Board of Directors of said corporation
has duly adopted the following resolutions:
RESOLVED, that the Board of Directors does hereby provide for the issue of
a series of Preferred Stock of the corporation consisting of One Million
(1,000,000) shares designated as "Series B Preferred Stock," and does hereby fix
the rights, preferences, privileges, and restrictions and other matters relating
to said Series B Preferred Stock as follows:
1. Designation. The series of Preferred Stock shall be designated
"Series B Preferred Stock."
2. Number. The number of authorized shares constituting the Series B
Preferred Stock shall be One Million (1,000,000) shares.
3. Rank. Unless otherwise specified herein, the Series B Preferred
Stock shall rank on a parity with the Series A Preferred Stock in terms of
the operation of the dividend provisions set forth in Section 4 hereof, the
liquidation preference provisions set forth in Section 5 hereof, and the
redemption provisions set forth in Section 6 hereof.
4. Dividend Provisions.
(a) Subject to the rights of series of Preferred Stock which may
from time to time come into existence, the holders of shares of Series
B Preferred Stock shall be entitled to receive dividends, out of any
assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common
Stock or other securities and rights convertible into or entitling the
holder thereof to receive, directly or indirectly, additional shares
of Common Stock of this corporation) on the Common Stock of this
corporation, at the rate of $1.44 per share of Series B Preferred
Stock (subject to appropriate adjustments for stock splits, stock
dividends, combinations or other recapitalizations with respect to
such shares) per annum (the "Preferred Dividend Preference"). Such
dividends shall not be cumulative and shall be payable when, as and if
declared by
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<PAGE>
the Board of Directors. If the Board of Directors shall declare a
dividend upon the Series A Preferred Stock, then the Board of
Directors shall declare a dividend upon the Series B Preferred Stock.
(b) After paying the full Preferred Dividend Preference in any
calendar year, whenever this corporation declares a further dividend
in such calendar year, the holders of Common Stock and the holders of
Series A Preferred Stock and Series B Preferred Stock shall be
entitled to receive dividends ratably based on the number of shares of
Common Stock held by each on an as-if-converted to Common Stock basis.
5. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of
this corporation, either voluntary or involuntary, subject to the
rights of series of Preferred Stock that may from time to time come
into existence, the holders of Series B Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of
any of the assets of this corporation to the holders of Common Stock
by reason of their ownership thereof, an amount per share equal to the
sum of (i) $18.00 for each outstanding share of Series B Preferred
Stock (subject to appropriate adjustments for stock splits, stock
dividends, combinations or other recapitalizations with respect to
such shares and hereafter referred to as the "Original Series B Issue
Price"), and (ii) an amount equal to declared but unpaid dividends on
such share. If upon the occurrence of such event, the assets and funds
to be distributed among the holders of the Series A Preferred Stock
and Series B Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts,
then, subject to the rights of series of Preferred Stock that may from
time to time come into existence, the entire assets and funds of the
corporation legally available for distribution shall be distributed
ratably among the holders of the Series A Preferred Stock and Series B
Preferred Stock in proportion to the preferential amount each such
holder would otherwise be entitled to receive.
(b) Upon the completion of the distribution required by
subsection (a) of this Section 5, the remaining assets of the
corporation available for distribution to shareholders shall be
distributed among the holders of Series A Preferred Stock, Series B
Preferred Stock and Common Stock pro rata based on the number of
shares of Common Stock held by each (assuming conversion of all such
Series A Preferred Stock and Series B Preferred Stock) until and only
until the holders of Series A Preferred Stock shall have received an
aggregate of $7.50 per share and the holders of the Series B Preferred
Stock shall have received an aggregate of $9.00 per share (not
including amounts paid pursuant to subsection (a) of this Section 5
and Section 5(a) of the Certificate of Designation of Preferences of
Series A Preferred Stock); thereafter, if assets remain in this
corporation, the holders of the Common Stock of this corporation shall
receive all of the remaining assets of this corporation pro rata based
on the number of shares of Common Stock held by each.
(c)(i) A consolidation or merger of this corporation with or into
any other corporation or corporations (other than any merger effected
solely for the purpose of changing the domicile of the corporation),
or a sale, conveyance or disposition of all or substantially all of
the assets of this
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<PAGE>
corporation or the effectuation by the corporation of a transaction or
series of related transactions in which more than 50% of the voting
power of the corporation is disposed of, shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this
Section 5.
(ii) In any of such events, if the consideration received by
the corporation is other than cash, its value will be deemed its
fair market value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or
other similar restrictions on free marketability covered by
(B) below shall be valued as follows:
(1) If traded on a securities exchange or through
the Nasdaq National Market System, the value shall be
deemed to be the average of the closing prices of the
securities on such exchange over the thirty (30) day
period ending three (3) trading days prior to the
closing;
(2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or
sale prices (whichever is applicable) over the thirty
(30) day period ending three (3) trading days prior to
the closing; and
(3) If there is no active public market, the value
shall be the fair market value thereof, as mutually
determined by the Board of Directors of the corporation
and the holders of at least a majority of the voting
power of all then outstanding shares of Series B
Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free
marketability (other than restrictions arising solely by
virtue of a shareholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the
market value determined as above in (A) (1), (2) or (3) to
reflect the approximate fair market value thereof, as
mutually determined by the Board of Directors and the
holders of at least a majority of the voting power of all
then outstanding shares of such Series B Preferred Stock.
(iii) In the event the requirements of this subsection 5(c)
are not complied with, this corporation shall forthwith either:
(A) cause such closing to be postponed until such time
as the requirements of this subsection 5(c) have been
complied with; or
(B) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series B
Preferred Stock shall revert to and be the same as such
rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in
subsection 5(c)(iv) hereof.
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<PAGE>
(iv) The corporation shall give each holder of record of
Series B Preferred Stock written notice of such impending
transaction not later than thirty (30) days prior to the
shareholders' meeting called to approve such transaction, or
thirty (30) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of
such notices shall describe the material terms and conditions of
the impending transaction and the provisions of this Section 5,
and the corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event
take place sooner than thirty (30) days after the corporation has
given the first notice provided for herein or sooner than ten
(10) days after the corporation has given notice of any material
changes provided for herein; provided, however, that such periods
may be shortened upon the written consent of the holders of
Series B Preferred Stock that are entitled to such notice rights
or similar notice rights and that represent at least a majority
of the voting power of all then outstanding shares of such Series
B Preferred Stock.
(v) Any notice required by the provisions of this Section 5
to be given to the holders of shares of Series B Preferred Stock
shall be deemed given when deposited in the United States mail,
postage prepaid, and addressed to each holder of record at his
address appearing on the books of this corporation.
(vi) The provisions of this Section 5 are in addition to the
protective provisions of Section 9 hereof.
6. Redemption.
(a) At any time after September 15, 2002, but within forty-five
(45) days (the "Redemption Date") after the receipt by this
corporation of a written request from the holders of not less than a
majority of the then outstanding shares of Series B Preferred Stock
that all of such holders' shares be redeemed, and immediately prior to
the surrender by such holders of the certificates representing such
shares, this corporation shall, to the extent it may lawfully do so,
redeem all of the then outstanding shares of Series B Preferred Stock
by paying in cash therefor a sum per share equal to the Original
Series B Issue Price (as adjusted for any stock dividends,
combinations or splits with respect to such share) plus an amount
equal to all declared but unpaid dividends on such share as of the
Redemption Date (the "Redemption Price") to the holders of the Series
B Preferred Stock in three equal annual installments beginning on the
Redemption Date. If pursuant to Section 6(a) of the Certificate of
Designation of Preferences of Series A Preferred Stock, holders of
Series A Preferred Stock elect to have the shares of Series A
Preferred Stock redeemed, then the holders of not less than a majority
of the then outstanding shares of Series B Preferred Stock may elect
to have the outstanding shares of Series B Preferred Stock redeemed
contemporaneously with the redemption of the Series A Preferred Stock.
The Company shall provide sufficient notice to the holders of Series B
Preferred Stock to provide for such election. Any redemption effected
pursuant to this subsection 6(a) shall be made on a pro rata basis
among the holders of the Series B Preferred Stock in proportion to the
number of shares of Series B Preferred Stock then held by such
holders.
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<PAGE>
(b) Not less than twenty (20) days prior to the Redemption Date,
written notice shall be mailed, first class postage prepaid, to each
holder of record (at the close of business on the business day next
preceding the day on which notice is given) of the Series B Preferred
Stock at the address last shown on the records of this corporation for
such holder, notifying such holder of the redemption to be effected,
specifying the number of shares to be redeemed from such holder (which
shall be all of the shares of Series B Preferred Stock held by such
holder), the Redemption Date, the Redemption Price, the place at which
payment may be obtained and calling upon such holder to surrender to
this corporation, in the manner and at the place designated, his, her
or its certificate or certificates representing all of the shares of
the Series B Preferred Stock held by such holder (the "Redemption
Notice"). Except as provided in subsection 6(c) hereof, on or after
the Redemption Date, each holder of Series B Preferred Stock shall
surrender to this corporation the certificate or certificates
representing such shares, in the manner and at the place designated in
the Redemption Notice, and thereupon the Redemption Price of such
shares shall be payable to the order of the person whose name appears
on such certificate or certificates as the owner thereof and each
surrendered certificate shall be cancelled.
(c) From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the
holders of shares of Series B Preferred Stock designated in the
Redemption Notice as holders of Series B Preferred Stock (except the
right to receive the respective Redemption Price without interest upon
surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be
transferred on the books of this corporation or be deemed to be
outstanding for any purpose whatsoever. If the funds of the
corporation legally available for redemption of shares of Series B
Preferred Stock on the Redemption Date, or any subsequent date on
which payment is due the holders of Series B Preferred Stock pursuant
to this Section 6, are insufficient to redeem the total number of
shares of Series B Preferred Stock on such date, those funds which are
legally available will be used to redeem the maximum possible number
of such shares ratably among the holders of the Series B Preferred
Stock or, if applicable, the Series A Preferred Stock in proportion to
the amount of such stock owned by each such holder. At any time
thereafter when additional funds of the corporation are legally
available for the redemption of shares of Series B Preferred Stock,
such funds will immediately be used to redeem the balance of the
shares which the corporation has become obliged to redeem on the
Redemption Date but which it has not redeemed. Notwithstanding
anything herein to the contrary, the number of shares of Series B
Preferred Stock for which the corporation has not yet paid the full
Redemption Price as of any date after the Redemption Date shall remain
outstanding and entitled to all the rights and preferences provided
herein.
7. Conversion. The holders of the Series B Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series B Preferred Stock
shall be convertible, at the option of the holder thereof, at any time
and from time to time after the date of issuance of such share at the
office of this corporation or any transfer agent for such stock, into
such number of fully paid
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<PAGE>
and nonassessable shares of Common Stock as is determined by dividing
the Original Series B Issue Price by the Conversion Price at the time
in effect for such share. The initial Conversion Price per share for
shares of Series B Preferred Stock shall be the Original Series B
Issue Price; provided, however, that the Conversion Price for the
Series B Preferred Stock shall be subject to adjustment as set forth
in subsection 7(d).
(b) Automatic Conversion. Each share of Series B Preferred Stock
shall automatically be converted into shares of Common Stock at the
Conversion Price at the time in effect for such Series B Preferred
Stock immediately and without further action by the corporation or the
holder of such shares of Series B Preferred Stock upon the earlier of
the corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement
under the Securities Act of 1933, as amended, the public offering
price of which is not less than $24.00 per share (subject to
appropriate adjustments for stock splits, stock dividends,
combinations or other recapitalizations with respect to such shares)
and $15,000,000 in the aggregate or the date specified by written
consent or agreement of the holders of two-thirds (2/3) of the then
outstanding shares of Series B Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series B
Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of this corporation or of any
transfer agent for the Series B Preferred Stock, and shall give
written notice to this corporation at its principal corporate office,
of the election to convert the same and shall state therein the name
or names in which the certificate or certificates for shares of Common
Stock are to be issued. This corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Series
B Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled as aforesaid. Such conversion
shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series B
Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such
shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offering of securities registered
pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Series B Preferred Stock
for conversion, be conditioned upon the closing with the underwriters
of the sale of securities pursuant to such offering, in which event
the person(s) entitled to receive the Common Stock upon conversion of
the Series B Preferred Stock shall not be deemed to have converted
such Series B Preferred Stock until immediately prior to the closing
of such sale of securities.
(d) Conversion Price Adjustments of Series B Preferred Stock. The
Conversion Price of the Series B Preferred Stock shall be subject to
adjustment from time to time as follows:
(i)(A) Upon the issuance by the corporation of any
Additional Stock (as defined below) after the date upon which any
shares of the Series B Preferred Stock were first issued (the
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<PAGE>
"Purchase Date"), without consideration or for a consideration
per share less than the Conversion Price for the Series B
Preferred Stock in effect immediately prior to the issuance of
such Additional Stock, the Conversion Price for the Series B
Preferred Stock in effect immediately prior to each such issuance
shall forthwith (except as otherwise provided in this clause (i))
be adjusted to a price determined by multiplying such Conversion
Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to such
issuance (excluding the number of shares of Common Stock issuable
upon the conversion of the Series B Preferred Stock) plus the
number of shares of Common Stock that the aggregate consideration
received by the corporation for such issuance would purchase at
the Conversion Price existing immediately prior to such issuance
of Additional Stock, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to
such issuance (excluding the number of shares of Common Stock
issuable upon the conversion of the Series B Preferred Stock)
plus the number of shares of such Additional Stock. However, the
foregoing calculation shall not take into account shares deemed
issued pursuant to Section 7(d)(i)(E) on account of options,
rights or convertible or exchangeable securities (or the actual
or deemed consideration therefor), except to the extent such
options, rights or convertible or exchangeable securities have
been exercised, converted or exchanged or the consideration to be
paid upon such exercise or exchange per share of underlying
Common Stock, or the conversion price then in effect for
convertible securities, is less than or equal to the per share
consideration for the Additional Stock which has given rise to
the Conversion Price adjustment being calculated.
(B) No adjustment of the Conversion Price for the Series B
Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be
made by reason of this sentence shall be carried forward and
shall be either taken into account in any subsequent adjustment
made prior to 3 years from the date of the event giving rise to
the adjustment being carried forward, or shall be made at the end
of 3 years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent
provided for in subsections 7(d)(i)(E)(3) and (E)(4), no
adjustment of the Conversion Price pursuant to this subsection
7(d)(i) shall have the effect of increasing the Conversion Price
above the Conversion Price in effect immediately prior to such
adjustment.
(C) In the case of the issuance of Additional Stock for
cash, the consideration shall be deemed to be the amount of cash
paid therefor before deducting any reasonable discounts,
commissions or other expenses allowed, paid or incurred by this
corporation for any underwriting or otherwise in connection with
the issuance and sale thereof.
(D) In the case of the issuance of Additional Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
value thereof as determined by the Board of Directors
irrespective of any accounting treatment.
(E) In the case of the issuance (whether before, on or after
the applicable Purchase Date) of options to purchase or rights to
subscribe for Common Stock, securities by their
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terms convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such convertible
or exchangeable securities, the following provisions shall apply
for all purposes of this subsection 7(d)(i) and subsection
7(d)(ii):
(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction
of any conditions to exercisability, including without
limitation, the passage of time, but without taking into
account potential antidilution adjustments) of such options
to purchase or rights to subscribe for Common Stock shall be
deemed to have been issued at the time such options or
rights were issued and for a consideration equal to the
consideration (determined in the manner provided in
subsections 7(d)(i)(C) and (d)(i)(D)), if any, received by
the corporation upon the issuance of such options or rights
plus the minimum exercise price provided in such options or
rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange
(assuming the satisfaction of any conditions to
convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into
account potential antidilution adjustments) for any such
convertible or exchangeable securities or upon the exercise
of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such
options or rights were issued and for a consideration equal
to the consideration, if any, received by the corporation
for any such securities and related options or rights
(excluding any cash received on account of accrued interest
or accrued dividends), plus the minimum additional
consideration, if any, to be received by the corporation
(without taking into account potential antidilution
adjustments) upon the conversion or exchange of such
securities or the exercise of any related options or rights
(the consideration in each case to be determined in the
manner provided in subsections 7(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the number of shares
of Common Stock deliverable or in the consideration payable
to this corporation upon exercise of such options or rights
or upon conversion of or in exchange for such convertible or
exchangeable securities, including, but not limited to, a
change resulting from the antidilution provisions thereof,
the Conversion Price of the Series B Preferred Stock, to the
extent in any way affected by or computed using such
options, rights or securities, shall be recomputed to
reflect such change, but no further adjustment shall be made
for the actual issuance of Common Stock or any payment of
such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights,
the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such
convertible or exchangeable securities, the Conversion Price
of the Series B Preferred Stock, to the extent in any way
affected by or computed using such options, rights or
securities or options or rights related to such securities,
shall be recomputed to reflect the issuance of only the
number of shares
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of Common Stock (and convertible or exchangeable securities
which remain in effect) actually issued upon the exercise of
such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or
rights related to such securities.
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to subsection
7(d)(i)(E)) by this corporation after the Purchase Date for the Series
B Preferred Stock other than:
(A) Common Stock issued pursuant to a transaction described
in subsection 7(d)(iii) hereof, or
(B) shares of Common Stock issued upon conversion of the
Series A or Series B Preferred Stock, or
(C) shares of Common Stock (or options, warrants or other
rights to purchase such Common Stock) issuable or issued to
employees, consultants, directors or vendors (if in transactions
with primarily non-financing purposes) of this corporation
directly or pursuant to a stock option plan or restricted stock
plan approved by the shareholders and Board of Directors of this
corporation at any time when the total number of shares of Common
Stock so issuable or issued (and not repurchased at cost by the
corporation in connection with the termination of employment or
commercial relationship) does not exceed 2,000,000 or
(D) shares of Common Stock issued or issuable (I) in a
public offering before or in connection with which all
outstanding shares of Series B Preferred Stock will be converted
to Common Stock or (II) upon exercise of warrants or rights
granted to underwriters in connection with such a public
offering.
(E) up to 218,500 shares of Common Stock issued to ITALADE
TECHNOLOGY (THAILAND) LIMITED ("ITALADE") pursuant to that joint
venture agreement dated as of April 4, 1997 between the
corporation and ITALADE.
(iii) In the event the corporation should at any time or from
time to time after the Purchase Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into,
or entitling the holder thereof to receive directly or indirectly,
additional shares of Common Stock (hereinafter referred to as "Common
Stock Equivalents") without payment of any consideration by such
holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable
upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend, distribution, split or subdivision if no
record date is fixed), the Conversion Price of the Series B Preferred
Stock shall be appropriately decreased so that the number of shares of
Common Stock issuable on conversion of each share of such
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series shall be increased in proportion to such increase of the
aggregate number of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock outstanding at any
time after the Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of
such combination, the Conversion Price for the Series B Preferred
Stock shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of each share of such series shall
be decreased in proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event this corporation shall declare a
distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in subsection
7(d)(iii), then, in each such case for the purpose of this subsection 7(e),
the holders of the Series B Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the
holders of the number of shares of Common Stock of the corporation into
which their shares of Series B Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common Stock of
the corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there shall
be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere
in this Section 7 or Section 5) provision shall be made so that each holder
of Series B Preferred Stock shall thereafter be entitled to receive upon
conversion of the Series B Preferred Stock the number of shares of stock or
other securities or property of the Company or otherwise, to which a holder
of the Common Stock deliverable upon conversion of such holder's Series B
Preferred Stock would have been entitled on such recapitalization. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 7 with respect to the rights of the holders of
the Series B Preferred Stock after the recapitalization to the end that the
provisions of this Section 7 (including adjustment of the Conversion Price
then in effect for the Series B Preferred Stock and the number of shares
purchasable upon conversion of the Series B Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
(g) No Impairment. This corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this corporation, but will at all times in good faith assist
in the carrying out of all the provisions of this Section 7 and in the
taking of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the holders of the Series B Preferred
Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
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(i) No fractional shares shall be issued upon the conversion of
any share or shares of the Series B Preferred Stock, and the number of
shares of Common Stock to be issued shall be rounded to the nearest
whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of
shares of Series B Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of the Series B Preferred Stock pursuant to this
Section 7, this corporation, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the terms hereof
and prepare and furnish to each holder of Series B Preferred Stock a
certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is
based. This corporation shall, upon the written request at any time of
any holder of Series B Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth such
adjustment and readjustment, the Conversion Price of the Series B
Preferred Stock held by such holder at the time in effect, and the
number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of a
share of Series B Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
this corporation shall mail to each holder of Series B Preferred Stock, at
least 20 days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. This corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series B Preferred Stock, such number of
its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series B Preferred
Stock. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series B Preferred Stock, in addition to such
other remedies as shall be available to the holder of such Series B
Preferred Stock, this corporation will take such corporate action as may,
in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes, including, without limitation, using its best
efforts to obtain the requisite shareholder approval of any necessary
amendment to the corporation's Articles of Incorporation.
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(k) Notices. Unless otherwise provided, any notice required or
permitted under this Section 7 shall be given in writing and shall be
deemed effectively given upon personal or facsimile delivery to the party
to be notified or upon deposit with the United States Post Office, by
registered or certified mail, or with a nationally recognized overnight
delivery service, postage prepaid and addressed to each holder of record at
his address appearing on the books of this corporation.
8. Voting Rights. The holder of each share of Series B Preferred Stock
shall have the right to one vote for each share of Common Stock into which such
Series B Preferred Stock could then be converted, and with respect to such vote,
such holder shall have full voting rights and powers equal to the voting rights
and powers of the holders of Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any shareholders' meeting in
accordance with the Bylaws of this corporation, and shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not be
permitted and any fractional voting rights available on an as-converted basis
(after aggregating all shares into which shares of the Series B Preferred Stock
held by each holder could be converted) shall be rounded to the nearest whole
number (with one-half being rounded upward).
9. Protective Provisions. Subject to the rights of series of Preferred
Stock which may from time to time come into existence, so long as any shares of
Series B Preferred Stock are outstanding, this corporation shall not without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least two thirds (66.67%) of the then outstanding shares of
Series B Preferred Stock:
(a) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge with and into any
other corporation where the corporation is not the surviving corporation
(other than a wholly-owned subsidiary corporation), or effect any
transaction or series of related transactions in which more than fifty
percent (50%) of the voting power of the corporation is disposed of, or
effect any voluntary liquidation, dissolution or winding up of the
corporation or recapitalization of the corporation; or
(b) alter or change the rights, preferences or privileges of the
shares of Series B Preferred Stock so as to adversely affect such shares;
or
(c) increase or decrease (other than by redemption or conversion) the
total number of authorized shares of capital stock or any series of capital
stock; or
(d) authorize or issue, or obligate itself to issue, any equity
security, including any other security convertible into or exercisable for
any equity security, (i) having a preference over, or being on a parity
with, the rights, preferences and privileges of the Series B Preferred
Stock with respect to dividends, liquidation or voting (provided that
additional shares of Common Stock having the same number of votes per share
as the Series B Preferred Stock may be issued), or (ii) having rights
similar to any of the rights of the Series B Preferred Stock under this
Section 9; or
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(e) redeem, purchase or otherwise acquire (or pay into or set aside
for a sinking fund for such purpose) any share or shares of Common Stock;
provided, however, that this restriction shall not apply to the repurchase
of shares of Common Stock from certain shareholders pursuant to that
certain Shareholder Agreement dated June 8, 1994 or that certain First
Amended and Restated Shareholders' Agreement dated on or about June 4,
1999, or the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for the
corporation or any subsidiary pursuant to agreements under which the
corporation has the option to repurchase such shares at cost upon the
occurrence of certain events, such as the termination of employment; or
(f) issue, or obligate itself to issue, greater than 1,000,000 shares
of Series B Preferred Stock; or
(g) pay any dividends on the corporation's Common Stock; or
(h) amend the corporation's Articles of Incorporation, including all
Certificates of Designation thereto; or
(i) increase the authorized number of directors of the corporation to
more than thirteen (13).
10. Status of Redeemed or Converted Stock. In the event (a) any shares of
Series B Preferred Stock shall be redeemed pursuant to Section 6 hereof or (b)
any shares of Series B Preferred Stock shall be converted pursuant to Section 7
hereof, the shares so redeemed or converted shall be cancelled, and such shares
shall not be issuable by the corporation.
RESOLVED, FURTHER, that the Chairman, President, or any Vice President, and
the Secretary or the Chief Financial Officer of this corporation are hereby
authorized to execute, verify, and file a Certificate of Designation of
Preferences in accordance with Minnesota law.
C. The authorized number of shares of Preferred Stock of said corporation
is 5,000,000. 1,000,000 shares of Preferred Stock are hereby being designated
Series B Preferred Stock, none of which has been issued.
We further declare under penalty of perjury under the laws of the State of
Minnesota that the matters set forth in this Certificate are true and correct of
our own knowledge.
DATED: June 4, 1999
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IN WITNESS WHEREOF, the undersigned have executed this certificate on June
4, 1999.
-----------------------------------------
Robert R. Murphy, Chief Financial Officer
-----------------------------------------
David L. Sippel, Vice President
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ARTICLES OF AMENDMENT
OF
CERTIFICATE OF DESIGNATION OF PREFERENCES
OF
SERIES B PREFERRED STOCK
OF
PEMSTAR INC.
1. The name of the corporation is PEMSTAR INC., a Minnesota corporation.
2. The Certificate of Designation of Preferences of Series B Preferred
Stock of PEMSTAR INC. is hereby amended by (i) deleting the reference to
"Section 5(a)" in the ninth line of Section 5(b) and inserting in lieu thereof
"Section 4(a)" and (ii) deleting the reference to "Section 6(a)" in the eleventh
line of Section 6(a) and inserting in lieu thereof "Section 5(a)".
3. This amendment has been adopted pursuant to Chapter 302A of the
Minnesota Business Corporation Act.
IN WITNESS WHEREOF, the undersigned, Chief Financial Officer of PEMSTAR
INC., being duly authorized on behalf of PEMSTAR INC., has executed this
document on this 4th day of June, 1999.
-----------------------------------------
Robert R. Murphy, Chief Financial Officer
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EXHIBIT 3.2
BYLAWS
OF
PEMSTAR INC.
ARTICLE I.
OFFICES, CORPORATE SEAL
Section 1.01. Registered Office. The registered office of the corporation
in Minnesota shall be that set forth in the Articles of Incorporation or in the
most recent amendment of the Articles of Incorporation or resolution of the
directors filed with the Secretary of State of Minnesota changing the registered
office.
Section 1.02. Other Offices. The corporation may have such other offices,
within or without the State of Minnesota, as the directors shall, from time to
time, determine.
Section 1.03. Corporate Seal. The corporation shall have no seal.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 2.01. Place and Time of Meetings. Except as provided otherwise by
Minnesota Statutes Chapter 302A, meetings of the shareholders may be held at any
place, within or without the State of Minnesota, as may from time to time be
designated by the directors and, in the absence of such designation, shall be
held at the registered office of the corporation in the State of Minnesota. The
directors shall designate the time of day for each meeting and, in the absence
of such designation, every meeting of shareholders shall be held at ten o'clock
a.m.
Section 2.02. Regular Meetings.
(a) A regular meeting of the shareholders shall be held on such date as
the Board of Directors shall by resolution establish.
(b) At the regular meeting the shareholders, voting as provided in the
Articles of Incorporation and these Bylaws, shall designate the number
of directors to constitute the Board of Directors (subject to the
authority of the Board of Directors thereafter to increase or decrease
the number of directors as permitted by law), shall elect qualified
successors for directors who serve for an indefinite term or whose
terms have expired or are due to expire within six months after the
date of the meeting, and shall transact such other business as may
properly come before them.
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Section 2.03. Special Meetings. Special meetings of the shareholders may be
held at any time and for any purpose and may be called by the President,
Treasurer, any two directors, or by a shareholder or shareholders holding 10% or
more of the shares entitled to vote on the matters to be presented to the
meeting.
Section 2.04. Quorum, Adjourned Meetings. The holders of a majority of the
shares entitled to vote shall constitute a quorum for the transaction of
business at any regular or special meeting. In case a quorum shall not be
present at a meeting, those present may adjourn to such day as they shall, by
majority vote, agree upon, and a notice of such adjournment shall be mailed to
each shareholder entitled to vote at least 5 days before such adjourned meeting.
If a quorum is present, a meeting may be adjourned from time to time without
notice other than announcement at the meeting. At adjourned meetings at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally noticed. If a quorum is present, the
shareholders may continue to transact business until adjournment notwithstanding
the withdrawal of enough shareholders to leave less than a quorum.
Section 2.05. Voting. At each meeting of the shareholders every shareholder
having the right to vote shall be entitled to vote either in person or by proxy.
Each shareholder, unless the Articles of Incorporation or statute provide
otherwise, shall have one vote for each share having voting power registered in
such shareholder's name on the books of the corporation. Jointly owned shares
may be voted by any joint owner unless the corporation receives written notice
from any one of them denying the authority of that person to vote those shares.
Upon the demand of any shareholder, the vote upon any question before the
meeting shall be by ballot. All questions shall be decided by a majority vote of
the number of shares entitled to vote and represented at the meeting at the time
of the vote except if otherwise required by statute, the Articles of
Incorporation, or these Bylaws.
Section 2.06. Closing of Books. The Board of Directors may fix a time, not
exceeding 60 days preceding the date of any meeting of shareholders, as a record
date for the determination of the shareholders entitled to notice of, and to
vote at, such meeting, notwithstanding any transfer of shares on the books of
the corporation after any record date so fixed. The Board of Directors may close
the books of the corporation against the transfer of shares during the whole or
any part of such period. If the Board of Directors fails to fix a record date
for determination of the shareholders entitled to notice of, and to vote at, any
meeting of shareholders, the record date shall be the 20th day preceding the
date of such meeting.
Section 2.07. Notice of Meetings. There shall be mailed to each
shareholder, shown by the books of the corporation to be a holder of record of
voting shares, at his address as shown by the books of the corporation, a notice
setting out the time and place of each regular meeting and each special meeting,
except where the meeting is an adjourned meeting and the date, time and place of
the
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meeting were announced at the time of adjournment, which notice shall be mailed
at least five days prior thereto; except that notice of a meeting at which an
agreement of merger or exchange is to be considered shall be mailed to all
shareholders of record, whether entitled to vote or not, at least fourteen days
prior thereto. Every notice of any special meeting called pursuant to Section
2.03 hereof, shall state the purpose or purposes for which the meeting has been
called, and the business transacted at all special meetings shall be confined to
the purpose stated in the notice.
Section 2.08. Waiver of Notice. Notice of any regular or special meeting
may be waived by any shareholder either before, at or after such meeting orally
or in a writing signed by such shareholder or a representative entitled to vote
the shares of such shareholder. A shareholder, by his attendance at any meeting
of shareholders, shall be deemed to have waived notice of such meeting, except
where the share-holder objects at the beginning of the meeting to the
transaction of business because the item may not lawfully be considered at that
meeting and does not participate in the consideration of the item at that
meeting.
Section 2.09. Written Action. Any action which might be taken at a meeting
of the shareholders may be taken without a meeting if done in writing and signed
by all of the shareholders entitled to vote on that action.
ARTICLE III.
DIRECTORS
Section 3.01. General Powers. The business and affairs of the corporation
shall be managed by or under the direction of the Board of Directors, except as
otherwise permitted by statute.
Section 3.02. Number, Qualification and Term of Office. Until the first
meeting of shareholders, the number of directors shall be the number named in
the Articles of Incorporation or, if no such number is named therein, the number
elected by the incorporator. Thereafter, the number of directors shall be
established by resolution of the shareholders (subject to the authority of the
Board of Directors to increase or decrease the number of directors as permitted
by law). In the absence of such shareholder resolution, the number of directors
shall be the number last fixed by the shareholders, the Board of Directors, the
incorporator or the Articles of Incorporation. Directors need not be
shareholders. Each of the directors shall hold office until the regular meeting
of shareholders next held after such director's election and until such
director's successor shall have been elected and shall qualify, or until the
earlier death, resignation, removal, or disqualification of such director;
provided, however, that no director shall be elected to a term in excess of five
years.
Section 3.03. Board Meetings. Meetings of the Board of Directors may be
held from time to time at such time and place within or without the State of
Minnesota as may be designated in the notice of such meeting.
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Section 3.04. Calling Meetings; Notice. Meetings of the Board of Directors
may be called by the Chairman of the Board by giving at least twenty-four hours'
notice, or by any other director by giving at least five days' notice, of the
date, time and place thereof to each director by mail, telephone, telegram or in
person.
Section 3.05. Waiver of Notice. Notice of any meeting of the Board of
Directors may be waived by any director either before, at, or after such meeting
orally or in a writing signed by such director. A director, by his attendance at
any meeting of the Board of Directors, shall be deemed to have waived notice of
such meeting, except where the director objects at the beginning of the meeting
to the transaction of business because the meeting is not lawfully called or
convened and does not participate thereafter in the meeting.
Section 3.06. Quorum. A majority of the directors holding office
immediately prior to a meeting of the Board of Directors shall constitute a
quorum for the transaction of business at such meeting.
Section 3.07. Absent Directors. A director may give advance written consent
or opposition to a proposal to be acted on at a meeting of the Board of
Directors. If such director is not present at the meeting, consent or opposition
to a proposal does not constitute presence for purposes of determining the
existence of a quorum, but consent or opposition shall be counted as a vote in
favor of or against the proposal and shall be entered in the minutes or other
record of action at the meeting, if the proposal acted on at the meeting is
substantially the same or has substantially the same effect as the proposal to
which the director has consented or objected.
Section 3.08. Conference Communications. Any or all directors may
participate in any meeting of the Board of Directors, or of any duly constituted
committee thereof, by any means of communication through which the directors may
simultaneously hear each other during such meeting. For the purposes of
establishing a quorum and taking any action at the meeting, such directors
participating pursuant to this Section 3.08 shall be deemed present in person at
the meeting, and the place of the meeting shall be the place of origination of
the conference communication.
Section 3.09. Vacancies; Newly Created Directorships. Vacancies in the
Board of Directors of this corporation occurring by reason of death,
resignation, removal or disqualification shall be filled for the unexpired term
by a majority of the remaining directors of the Board although less than a
quorum; newly created directorships resulting from an increase in the authorized
number of directors by action of the Board of Directors as permitted by Section
3.02 may be filled by a two-thirds vote of the directors serving at the time of
such increase; and each director elected pursuant to this Section 3.09 shall be
a director until such director's successor is elected by the shareholders at
their next regular or special meeting.
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<PAGE>
Section 3.10. Removal. Any or all of the directors may be removed from
office at any time, with or without cause, by the affirmative vote of the
shareholders holding a majority of the shares entitled to vote at an election of
directors except, as otherwise provided by Minnesota Statutes Section 302A.223,
as amended, when the shareholders have the right to cumulate their votes. A
director named by the Board of Directors to fill a vacancy may be removed from
office at any time, with or without cause, by the affirmative vote of the
remaining directors if the shareholders have not elected directors in the
interim between the time of the appointment to fill such vacancy and the time of
the removal. In the event that the entire Board or any one or more directors be
so removed, new directors shall be elected at the same meeting.
Section 3.11. Committees. A resolution approved by the affirmative vote of
a majority of the Board of Directors may establish committees having the
authority of the board in the management of the business of the corporation to
the extent provided in the resolution. A committee shall consist of one or more
persons, who need not be directors, appointed by affirmative vote of a majority
of the directors present. Committees are subject to the direction and control
of, and vacancies in the membership thereof shall be filled by, the Board of
Directors, except as provided by Minnesota Statutes Section 302A.243.
A majority of the members of the committee present at a meeting is a quorum
for the transaction of business, unless a larger or smaller proportion or number
is provided in a resolution approved by the affirmative vote of a majority of
the directors present.
Section 3.12. Written Action. Any action which might be taken at a meeting
of the Board of Directors, or any duly constituted committee thereof, may be
taken without a meeting if done in writing and signed by all of the directors or
committee members, unless the Articles provide otherwise and the action need not
be approved by the shareholders.
Section 3.13. Compensation. Directors who are not salaried officers of this
corporation shall receive such fixed sum per meeting attended or such fixed
annual sum as shall be determined, from time to time, by resolution of the Board
of Directors. The Board of Directors may, by resolution, provide that all
directors shall receive their expenses, if any, of attendance at meetings of the
Board of Directors or any committee thereof. Nothing herein contained shall be
construed to preclude any director from serving this corporation in any other
capacity and receiving proper compensation therefor.
ARTICLE IV.
OFFICERS
Section 4.01. Number. The officers of the corporation shall consist of a
Chairman of the Board (if one is elected by the Board), a President, a
Treasurer, a Secretary (if one is elected by the
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<PAGE>
Board) and such other officers and agents as may, from time to time, be elected
or appointed by the Board of Directors. Any number of offices may be held by the
same person.
Section 4.02. Election, Term of Office and Qualifications. The Board of
Directors shall elect or appoint, by resolution approved by the affirmative vote
of a majority of the directors present, from within or without their number, the
President, Treasurer and such other officers as may be deemed advisable, each of
whom shall have the powers, rights, duties, responsibilities, and terms in
office provided for in these Bylaws or a resolution of the Board of Directors
not inconsistent therewith. The President and all other officers who may be
directors shall continue to hold office until the election and qualification of
their successors, notwithstanding an earlier termination of their directorship.
Section 4.03. Removal and Vacancies. Any officer may be removed from his
office by the Board of Directors at any time, with or without cause. Such
removal, however, shall be without prejudice to the contract rights of the
person so removed. If there be a vacancy among the officers of the corporation
by reason of death, resignation or otherwise, such vacancy shall be filled for
the unexpired term by the Board of Directors.
Section 4.04. Chairman of the Board. The Chairman of the Board, if one is
elected, shall preside at all meetings of the shareholders and directors and
shall have such other duties as may be prescribed, from time to time, by the
Board of Directors.
Section 4.05. President. The President shall be the chief executive officer
and shall have general active management of the business of the corporation. In
the absence of the Chairman of the Board, he shall preside at all meetings of
the shareholders and directors. He shall see that all orders and resolutions of
the Board of Directors are carried into effect. He shall execute and deliver, in
the name of the corporation, any deeds, mortgages, bonds, contracts or other
instruments pertaining to the business of the corporation unless the authority
to execute and deliver is required by law to be exercised by another person or
is expressly delegated by the Articles or Bylaws or by the Board of Directors to
some other officer or agent of the corporation. He shall maintain records of
and, whenever necessary, certify all proceedings of the Board of Directors and
the shareholders, and in general, shall perform all duties usually incident to
the office of the President. He shall have such other duties as may, from time
to time, be prescribed by the Board of Directors.
Section 4.06. Vice President. Each Vice President, if one or more are
elected, shall have such powers and shall perform such duties as may be
specified in the Bylaws or prescribed by the Board of Directors or by the
President. In the event of the absence or disability of the President, Vice
Presidents shall succeed to his power and duties in the order designated by the
Board of Directors.
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<PAGE>
Section 4.07. Secretary. The Secretary, if one is elected, shall give
proper notice of meetings of shareholders and directors. He shall perform such
other duties as may, from time to time, be prescribed by the Board of Directors
or by the President.
Section 4.08. Treasurer. The Treasurer shall be the chief financial officer
and shall keep accurate financial records for the corporation. He shall deposit
all moneys, drafts and checks in the name of, and to the credit of, the
corporation in such banks and depositaries as the Board of Directors shall, from
time to time, designate. He shall have power to endorse, for deposit, all notes,
checks and drafts received by the corporation. He shall disburse the funds of
the corporation, as ordered by the Board of Directors, making proper vouchers
therefor. He shall render to the President and the directors, whenever
requested, an account of all his transactions as Treasurer and of the financial
condition of the corporation, and shall perform such other duties as may, from
time to time, be prescribed by the Board of Directors or by the President.
Section 4.09. Compensation. The officers of this corporation shall receive
such compensation for their services as may be determined, from time to time, by
resolution of the Board of Directors.
ARTICLE V.
SHARES AND THEIR TRANSFER
Section 5.01. Certificates for Shares. All shares of the corporation shall
be certificated shares. Every owner of shares of the corporation shall be
entitled to a certificate, to be in such form as shall be prescribed by the
Board of Directors, certifying the number of shares of the corporation owned by
such shareholder. The certificates for such shares shall be numbered in the
order in which they shall be issued and shall be signed, in the name of the
corporation, by the President and by the Secretary or an Assistant Secretary or
by such officers as the Board of Directors may designate. If the certificate is
signed by a transfer agent or registrar, such signatures of the corporate
officers may be by facsimile if authorized by the Board of Directors. Every
certificate surrendered to the corporation for exchange or transfer shall be
cancelled, and no new certificate or certificates shall be issued in exchange
for any existing certificate until such existing certificate shall have been so
cancelled, except in cases provided for in Section 5.04.
Section 5.02. Issuance of Shares. The Board of Directors is authorized to
cause to be issued shares of the corporation up to the full amount authorized by
the Articles of Incorporation in such amounts as may be determined by the Board
of Directors and as may be permitted by law. No shares shall be allotted except
in consideration of cash or other property, tangible or intangible, received or
to be received by the corporation under a written agreement, of services
rendered or to be rendered to the corporation under a written agreement, or of
an amount transferred from surplus to stated capital upon a share dividend. At
the time of such allotment of shares, the Board of Directors making such
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allotments shall state, by resolution, their determination of the fair value to
the corporation in monetary terms of any consideration other than cash for which
shares are allotted.
Section 5.03. Transfer of Shares. Transfer of shares on the books of the
corporation may be authorized only by the shareholder named in the certificate,
or the shareholder's legal representative, or the shareholder's duly authorized
attorney-in-fact, and upon surrender of the certificate or the certificates for
such shares. The corporation may treat as the absolute owner of shares of the
corporation, the person or persons in whose name shares are registered on the
books of the corporation.
Section 5.04. Loss of Certificates. Except as otherwise provided by
Minnesota Statutes Section 302A.419, any shareholder claiming a certificate for
shares to be lost, stolen or destroyed shall make an affidavit or that fact in
such form as the Board of Directors shall require and shall, if the Board of
Directors so requires, give the corporation a bond of indemnity in form, in an
amount, and with one or more sureties satisfactory to the Board of Directors, to
indemnify the corporation against any claim which may be made against it on
account of the reissue of such certificate, whereupon a new certificate may be
issued in the same tenor and for the same number of shares as the one alleged to
have been lost, stolen or destroyed.
ARTICLE VI.
DIVIDENDS, RECORD DATE
Section 6.01. Dividends. Subject to the provisions of the Articles of
Incorporation, of these Bylaws, and of law, the Board of Directors may declare
dividends whenever, and in such amounts as, in its opinion, are deemed
advisable.
Section 6.02. Record Date. Subject to any provisions of the Articles of
Incorporation, the Board of Directors may fix a date not exceeding 120 days
preceding the date fixed for the payment of any dividend as the record date for
the determination of the shareholders entitled to receive payment of the
dividend and, in such case, only shareholders of record on the date so fixed
shall be entitled to receive payment of such dividend notwithstanding any
transfer of shares on the books of the corporation after the record date. The
Board of Directors may close the books of the corporation against the transfer
of shares during the whole or any part of such period.
ARTICLE VII.
BOOKS AND RECORDS, FISCAL YEAR
Section 7.01. Share Register. The Board of Directors of the corporation
shall cause to be kept at its principal executive office, or at another place or
places within the United States determined by the board:
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(a) a share register not more than one year old, containing the names
and addresses of the shareholders and the number and classes of
shares held by each shareholder; and
(b) a record of the dates on which certificates or transaction
statements representing shares were issued.
Section 7.02. Other Books and Records. The Board of Directors shall cause
to be kept at its principal executive office, or, if its principal executive
office is not in Minnesota, shall make available at its registered office within
ten days after receipt by an officer of the corporation of a written demand for
them made by a shareholder or other person authorized by Minnesota Statutes
Section 302A.461, originals or copies of:
(a) records of all proceedings of shareholders for the last three
years;
(b) records of all proceedings of the board for the last three years;
(c) its articles and all amendments currently in effect;
(d) its bylaws and all amendments currently in effect;
(e) financial statements required by Minnesota Statutes Section
302A.463 and the financial statement for the most recent interim
period prepared in the course of the operation of the corporation
for distribution to the shareholders or to a governmental agency
as a matter of public record;
(f) reports made to shareholders generally within the last three
years;
(g) a statement of the names and usual business addresses of its
directors and principal officers;
(h) any shareholder voting or control agreements of which the
corporation is aware; and
(i) such other records and books of account as shall be necessary and
appropriate to the conduct of the corporate business.
Section 7.03. Fiscal Year. The fiscal year of the corporation shall be
determined by the Board of Directors.
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<PAGE>
ARTICLE VIII.
LOANS, GUARANTEES, SURETYSHIP
Section 8.01. The corporation may lend money to, guarantee an obligation
of, become a surety for, or otherwise financially assist a person if the
transaction, or a class of transactions to which the transaction belongs, is
approved by the affirmative vote of a majority of the directors present and:
(a) is in the usual and regular course of business of the
corporation;
(b) is with, or for the benefit of, a related corporation, an
organization in which the corporation has a financial interest,
an organization with which the corporation has a business
relationship, or an organization to which the corporation has the
power to make donations;
(c) is with, or for the benefit of, an officer or other employee of
the corporation or a subsidiary, including an officer or employee
who is a director of the corporation or a subsidiary, and may
reasonably be expected, in the judgment of the board, to benefit
the corporation; or
(d) has been approved by the affirmative vote of the holders of
two-thirds of the outstanding shares.
The loan, guarantee, surety contract or other financial assistance may be with
or without interest, and may be unsecured, or may be secured in the manner as a
majority of the directors approve, including, without limitation, a pledge of or
other security interest in shares of the corporation. Nothing in this section
shall be deemed to deny, limit, or restrict the powers of guaranty or warranty
of the corporation at common law or under a statute of the State of Minnesota.
ARTICLE IX.
INDEMNIFICATION OF CERTAIN PERSONS
Section 9.01. The corporation shall indemnify such persons, for such
expenses and liabilities, in such manner, under such circumstances, and to such
extent as permitted by Minnesota Statutes Section 302A.521, as now enacted or
hereafter amended.
ARTICLE X.
AMENDMENTS
Section 10.01. These Bylaws may be amended or altered by a vote of the
majority of the whole Board of Directors at any meeting provided that notice of
such proposed amendment shall have
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been given in the notice given to the directors of such meeting. Such authority
in the Board of Directors is subject to the power of the shareholders to change
or repeal such Bylaws by a majority vote of the shareholders present or
represented at any regular or special meeting of shareholders called for such
purpose, and the Board of Directors shall not make or alter any Bylaws fixing a
quorum for meetings of shareholders, prescribing procedures for removing
directors or filling vacancies in the Board of Directors, or fixing the number
of directors or their classifications, qualifications, or terms of office,
except that the Board of Directors may adopt or amend any Bylaw to increase
their number.
ARTICLE XI.
SECURITIES OF OTHER CORPORATIONS
Section 11.01. Voting Securities Held by the Corporation. Unless otherwise
ordered by the Board of Directors, the President shall have full power and
authority on behalf of the corporation (a) to attend any meeting of security
holders of other corporations in which the corporation may hold securities and
to vote such securities on behalf of this corporation; (b) to execute any proxy
for such meeting on behalf of the corporation; or (c) to execute a written
action in lieu of a meeting of such other corporation on behalf of this
corporation. At such meeting, the President shall possess and may exercise any
and all rights and powers incident to the ownership of such securities that the
corporation possesses. The Board of Directors may, from time to time, grant such
power and authority to one or more other persons and may remove such power and
authority from the President upon any other person or persons.
Section 11.02. Purchase and Sale of Securities. Unless otherwise ordered by
the Board of Directors, the President shall have full power and authority on
behalf of the corporation to purchase, sell, transfer or encumber any and all
securities of any other corporation owned by the corporation, and may execute
and deliver such documents as may be necessary to effectuate such purchase,
sale, transfer or encumbrance. The Board of Directors may, from time to time,
confer like powers upon any other person or persons.
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<PAGE>
EXHIBIT 4.1
PLEASE SEE RESTRICTIVE LEGEND ON REVERSE SIDE HEREOF
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
PEMSTAR INC.
This Certifies that __________________________________________ is the owner and
registered holder of ________________________________________________ Shares of
Common Stock
transferable only on the books of the corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this certificate properly
endorsed.
IN WITNESS WHEREOF, the said corporation has caused this certificate to be
signed by its duly authorized officers and to be sealed with the seal of
the corporation this _____________ day of ______________, ______.
__________________________________ __________________________________
Secretary President
NO
CORPORATE
SEAL
<PAGE>
EXHIBIT 4.3
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT, dated as of June 4, 1999, is by and between PEMSTAR
INC., a Minnesota corporation (the "Borrower"), U. S. Bank National Association,
a national banking association, as administrative bank ( in such capacity, the
"Administrative Bank"), and the banks party hereto (individually a "Bank" and
collectively the "Banks"), which term shall include the Administrative Bank in
its role as a Bank.
ARTICLE I
---------
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms . In addition to terms defined elsewhere in this
Agreement, the following terms shall have the following respective meanings (and
such meanings shall be equally applicable to both the singular and plural form
of the terms defined, as the context may require):
"Account(s)": The Borrower's and each Borrowing Base Affiliate's
"Accounts" as defined in Article I of such Person's Security Agreement.
"Account Debtor": Any Person who is or who may become obligated to the
Borrower or any Borrowing Affiliate under, with respect to, or on account
of an Account, General Intangible or other Collateral.
"Adjusted Equity": At any Monthly Measurement Date, the sum of: (a)
the Borrower's Tangible Net Worth; plus (b) the outstanding principal
balance of the Subordinated Debt; plus (c) the unamortized amount of
"Deferred Grant Income" as shown as a liability on the Borrower's
consolidated balance sheet at such Monthly Measurement Date prepared in
accordance with GAAP.
"Adjusted Eurodollar Rate": Applicable to a Eurodollar Rate Loan Unit
during its Interest Period, the rate (rounded upward, if necessary, to the
next higher one-hundredth of one percent) determined by dividing the
Eurodollar Rate for the relevant Interest Period by 1.00 minus the
Eurodollar Reserve Percentage.
"Adjusted Net Income": For any period, the Borrower's Net Income for
such period but excluding therefrom non-operating gains and losses
(including extra-ordinary or unusual gains and losses, gains and losses
from discontinuance of operations, gains and losses arising from the sale
of assets other than Inventory and other non-recurring gains and losses)
during such period.
"Administrative Bank": As defined in the preamble hereto.
<PAGE>
"Adverse Event": The occurrence of any event that would have a
material adverse effect on the business, operations, property, assets or
condition (financial or otherwise) of the Borrower or on the ability of the
Borrower to perform its obligations under the Loan Documents.
"Agreement": This Credit Agreement, as it may be amended, modified,
supplemented, restated or replaced from time to time.
"Annualized Basis": With respect to calculating the Cash Flow Leverage
Ratio and Fixed Charge Coverage Ratio at any Quarterly Measurement Date
occurring through March 31, 2000, the product arrived at by first dividing
the relevant component of such financial covenant by the number of fiscal
months that have elapsed between June 1, 1999 and such Quarterly
Measurement Date and then multiplying the resulting quotient by 12.
"Applicable Margin": At any date of determination, the percentage
indicated below in accordance with the Cash Flow Leverage Ratio at such
date:
<TABLE>
<CAPTION>
When the Cash Flow
Leverage Ratio
Is The Applicable Margin Is
-------------------- --------------------- --
<S> <C> <C>
Equal to or greater than 2.5 to1.0 Base Rate Loan Units 1.00% per annum
Eurodollar Rate Loan Units 2.75% per annum
Less than 2.50 to 1.0 but greater than Base Rate Loan Units 0.75% per annum
1.50 to 1.0
Eurodollar Rate Loan Units 2.50% per annum
Equal to or less than 1.50 to 1.0 Base Rate Loan Units 0.50% per annum
Eurodollar Rate Loan Units 2.25% per annum
</TABLE>
The Applicable Margin on the Closing Date is 1.00% per annum with respect
to Base Rate Loan Units and 2.75 % per annum with respect to Eurodollar
Rate Loan Units and shall continue at those percentages until changed in
accordance with the terms of this definition. The Cash Flow Leverage Ratio
and the Applicable Margin will be determined at the end of each fiscal
quarter, commencing with the fiscal quarter ending March 31,2000, as
calculated from the financial statements and Compliance Certificate
delivered by the Borrower pursuant to Sections 8.1(b) and 8.1(c). Any
increase or decrease in the Applicable Margin shall apply to all then
existing or thereafter arising Loan Units and shall become effective as of
the first day following the date on which the Borrower delivers its
financial statements and Compliance Certificate to the Administrative Bank
and the Banks in accordance with Section 8.1(b) and Section 8.1(c),
respectively, showing that
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<PAGE>
the Cash Flow Leverage Ratio for the Measurement Period coinciding with the
end of such fiscal quarter required a change in the Applicable Margin, and
shall continue to be effective until subsequently changed in accordance
with this definition; provided, however, if the financial statements
required by Section 8.1(b) and Compliance Certificate required by Section
8.1(c), are not delivered in the time periods provided therein, the Cash
Flow Leverage Ratio will be deemed to be greater than 2.5 to 1.0.
"Bank Affiliate": Any Person which directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common
control with any Bank. The term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of a Person, whether through ownership of stock, by contract
or otherwise.
"Banks": As defined in the preamble hereto.
"Base Rate": At any date, the greater of: (a) the Administrative
Bank's Reference Rate; or (b) a rate equal to 0.50% per annum above the
Federal Funds Rate.
"Base Rate Loan Unit": Each portion of any Loan designated as such in
a notice of borrowing under Section 2.3 or a notice of continuation or
conversion under Section 2.4.
"Borrower Security Agreement": The Security Agreement dated as of even
date herewith made by the Borrower in favor of the Administrative Bank for
itself and the ratable benefit of the Banks and, if and only so long as US
Bank is the only Bank party hereto, the Existing Security Agreements; in
each case as originally executed and as amended, modified, supplemented,
restated or replaced from time to time.
"Borrowing Affiliate": Each of the Borrower's Subsidiaries identified
on Part I of Schedule 1.1(a) attached hereto and incorporated herein by
reference.
"Borrowing Affiliate Guaranty": With respect to any Borrowing
Affiliate, the Guaranty made by such Borrowing Affiliate in favor of the
Administrative Bank for itself and the ratable benefit of the Banks as
originally executed and as it may be amended, modified, supplemented,
restated or replaced from time to time.
"Borrowing Affiliate Security Agreement": With respect to any
Borrowing Affiliate, the Security Agreement made by such Borrowing
Affiliate in favor of the Administrative Bank for itself and the ratable
benefit of the Banks as originally executed and as it may be amended,
modified, supplemented, restated or replaced from time to time.
"Borrowing Base": At any date of determination, the sum of: (a) 80% of
Eligible Accounts; plus (b) 50% of Eligible Inventory other than the
Eligible Inventory comprised of "WIP-Kits" except that, on or after March
15, 2000, the amount of the Eligible Inventory produced by the
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<PAGE>
Borrower's Quadrus Business operations includable in the Borrowing Base
shall not exceed 50% of the amount of the Eligible Accounts generated by
such Quadrus Business operations; plus (c) 45% of Eligible Inventory
comprised of "WIP-Kits"); plus (d) the Eligible Equipment Availability. The
determination of the Borrowing Base may be re-evaluated at each Collateral
audit following the Closing Date in the Administrative Bank's and Required
Banks' sole discretion.
"Borrowing Base Certificate": As provided in Section 8.1(d).
"Business Day": Any day (other than a Saturday, Sunday or legal
holiday in the State of Minnesota) on which national banks are permitted to
be open in Minneapolis, Minnesota.
"Capital Expenditure": Any amount debited to the fixed asset account
on the Borrower's consolidated balance sheet in respect of: (a) the
acquisition (including, without limitation, acquisition by entry into a
Capitalized Lease), construction, improvement, replacement or betterment of
land, buildings, machinery, equipment or of any other fixed assets or
capitalized leaseholds; and (b) to the extent related to and not included
in (a) above, materials, contract labor and direct labor (excluding
expenditures charged to repairs or maintenance in accordance with GAAP.
"Capitalized Lease": Any lease which, in accordance with GAAP, is
capitalized on the books of the lessee.
"Cash Flow Leverage Ratio": At any Quarterly Measurement Date, the
ratio of: (a) the Total Debt at such date; to (b) EBITDA for the
Measurement Period ending at such date; provided, however, that for any
Quarterly Measurement Date occurring through March 31, 2000, EBITDA shall
be computed on an Annualized Basis.
"Change of Control": The occurrence after the date of this Agreement
of an event where: (a) less than a majority of the members of the
Borrower's board of directors are Qualified Members (as hereinafter
defined); or (b) three or more of the Borrower's Key Officers (as
hereinafter defined) shall cease to hold the office ascribed to them
herein, or shall cease to perform the duties that, as of the date of this
Agreement, are associated with such office. For purposes of this
definition: (a) the Qualified Members shall be deemed to be the members of
the Borrower's board of directors as of the date of this Agreement; and (b)
the Key Officers shall be deemed to be Allen Berning - President and Chief
Executive Officer, Robert Murphy - Executive Vice President and Treasurer,
Gary Lingbeck - Executive Vice President, Dave Sippel- Executive Vice
President, William Leary- Executive Vice President and Hargopal Singh-
Executive Vice President.
"Closing Date": The date on which the initial Revolving Loans are made
after the satisfaction of all conditions precedent specified in Article VI.
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<PAGE>
"Code": The Internal Revenue Code of 1986, as amended, or any
successor statute, together with regulations thereunder.
"Collateral": Any property in which the Administrative Bank has been
granted a Lien pursuant to any Loan Document.
"Collateral Audit Fee": As provided in Section 3.4.
"Commitment": The agreement of the Banks to make the Loans and of U.
S. Bank to issue the Letters of Credit and of each Bank to purchase its
Letter of Credit Participations.
"Compliance Certificate": As defined in Section 8.1(c).
"Contingent Obligations": With respect to any Person, all of such
Person's liabilities and obligations which are contingent upon and will not
mature unless and until the occurrence of some event or circumstance and
which are not included within the definition of Indebtedness of such
Person.
"Current Assets:" At any Monthly Measurement Date, the aggregate
amount of assets appearing on the Borrower's consolidated balance sheet at
such date which, in accordance with GAAP, should be properly classified as
current assets, after deducting adequate reserves where proper but in no
event including notes receivable or any amounts due from employees or
Related Parties.
"Current Liabilities:" At any Monthly Measurement Date, the aggregate
amount of Liabilities appearing on the Borrower's consolidated balance
sheet at such date which, in accordance with GAAP, should be properly
classified as current Liabilities; provided, however, that the Revolving
Loans and the outstanding principal amount of any Indebtedness of Pemstar
BV described in Section 9.10(g) shall be deemed to be a Current Liability
for all purposes.
"Current Ratio": At any Monthly Measurement Date, the ratio of the
Borrower's Current Assets to Current Liabilities.
"Default": Any event which, with the giving of notice to the Borrower
or lapse of time, or both, would constitute an Event of Default.
"Default Rate": The rate applicable to Base Rate Loan Units determined
in accordance with Section 3.1(b).
"EBITDA": For any period, the sum of: (a) the after-tax Adjusted Net
Income for such period; plus (b) the sum of the following amounts deducted
in arriving at the Net Income included in such Adjusted Net Income (but
without duplication for any item): (i) Interest Expense;
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<PAGE>
(ii) depreciation, amortization and other non-cash expenses (to the extent
not included in clause (i) or (iii); and (iii) federal, state and local
income taxes.
"Eligible Accounts": An Account owing to the Borrower or any Borrowing
Affiliate which meets the following requirements:
(a) it is genuine and in all respects what it purports to be;
(b) it arises from either (i) the performance of services by the
Borrower or the Borrowing Affiliate, which services have been fully
performed and, if applicable, acknowledged and/or accepted by the
Account Debtor with respect thereto; or (ii) the sale or lease of
goods by the Borrower or the Borrowing Affiliate and (A) such goods
comply with such Account Debtor's specifications (if any) and have
been shipped to, or delivered to and accepted by, such Account Debtor,
(B) the Borrower or the Borrowing Affiliate has possession of, or has
delivered to the Administrative Bank, at the Administrative Bank's
request, shipping and delivery receipts evidencing such shipment,
delivery and acceptance, and (C) such goods have not been returned to
the Borrower or the Borrowing Affiliate;
(c) it is evidenced by an invoice rendered to the Account Debtor
with respect thereto which (i) is dated not earlier than the date of
shipment or performance and (ii) has payment terms reasonably
acceptable to the Administrative Bank;
(d) (i) if the Account is generated through: (A) the Borrower's
Rochester, MN operations, it must not be unpaid on the date that is:
(1) 75 days from the original invoice date evidencing such Account if
it is not a dated Account; or (2) 45 days past the original stated due
date if such Account is a dated Account but in no event beyond 75 days
from the original invoice date evidencing such Account; or (B) the
Borrower's Quadrus Business operations, it must not be unpaid on the
date that is: (1) 90 days from the original invoice date evidencing
such Account if it is not a dated Account; or (2) 60 days past the
original stated due date if such Account is a dated Account but in no
event beyond 90 days from the original invoice date evidencing such
Account; and (ii) it must not be an Account owed by any Account Debtor
which has 25% or more of its Accounts beyond the time period specified
in subsection (i) above;
(e) it is not subject to any assignment, claim or Lien other than
(i) a Lien in favor of the Administrative Bank; (ii) Liens in favor of
US Bank in existence on the date of this Agreement so long as the
Intercreditor Agreement is in force and effect; (iii) Liens in favor
of the City of Rochester, MN in existence on the date of this
Agreement so long as such Liens are subordinated to the Liens of the
Administrative Bank or, if US Bank is the only Bank party hereto, to
the Liens of US Bank; and (iv) other Liens consented to by the Banks
in writing;
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(f) it is a valid, legally enforceable and unconditional
obligation of the Account Debtor with respect thereto and is not
subject to setoff, counterclaim, credit or allowance (except any
credit or allowance which has been deducted in computing the net
amount of the applicable invoice as shown in the original schedule or
Borrowing Base Certificate furnished to the Administrative Bank and
the Banks identifying or including such Account) or adjustment by the
Account Debtor with respect thereto, or to any claim by such Account
Debtor denying liability thereunder in whole or in part, and such
Account Debtor has not refused to accept any of the goods or services
which are the subject of such Account or offered or attempted to
return any of such goods;
(g) there are no proceedings or actions which are then threatened
or pending against the Account Debtor with respect thereto or to which
such Account Debtor is a party which might result in any material
adverse change in such Account Debtor's financial condition or in its
ability to pay any Account in full when due;
(h) it does not arise out of a contract or order which, by its
terms, forbids, restricts or makes void or unenforceable the
assignment by the Borrower or the Borrowing Affiliate to the
Administrative Bank of such Account;
(i) the Account Debtor with respect thereto is not a Subsidiary
or Related Party, or a director, officer, employee or agent of the
Borrower, a Subsidiary or Related Party;
(j) the Account Debtor with respect thereto is a resident or
citizen of and is located within the United States of America unless
the sale of goods giving rise to such Account is on letter of credit,
banker's acceptance or other credit support terms satisfactory to the
Administrative Bank;
(k) it does not arise from a "sale on approval," "sale or return"
or "consignment," nor is it subject to any other repurchase or return
agreement;
(l) it is not an Account with respect to which possession and/or
control of the goods sold giving rise thereto is held, maintained or
retained by the Borrower, any Subsidiary or Related Party (or by any
agent or custodian of the Borrower, any Subsidiary or Related Party)
for the account of or subject to further and/or future direction from
the Account Debtor with respect thereto;
(m) it does not, in any way, violate or fail to meet any
warranty, representation or covenant contained in the Loan Documents
relating directly or indirectly to the Borrower's or the Borrowing
Affiliates' Accounts;
(n) the Account Debtor with respect thereto is not located in the
States of Minnesota, Indiana, New Jersey or Alabama or any other state
which prohibits a Person from availing itself of the benefits of that
state's courts unless such Person is qualified to do
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<PAGE>
business or has filed a notice of business activities; provided,
however, that such restriction shall not apply if: (i) the Borrower or
the Borrowing Affiliate which owns such Account is qualified to do
business in such state; (ii) such owner has filed and has effective a
notice of business activities report with the appropriate office or
agency of such state for the then current year or is exempt from the
filing of such report; or (iii) upon the Borrower's written request
and at the Borrower's sole cost and expense (including, without
limitation, the payment of Administrative Bank's reasonable attorneys'
fees), the Administrative Bank determines, that it can avail itself of
the benefits of the relevant state's courts to collect such Account
Debtor's Accounts, regardless of whether such owner can do so;
(o) it arises in the ordinary course of the Borrower's or the
Borrowing Affiliate's business;
(p) if the Account Debtor with respect thereto is the United
States of America or any department, agency or instrumentality thereof
(a "Federal Governmental Authority"), or any state, county or local
governmental authority, or any department, agency or instrumentality
thereof, the Borrower has assigned its right to payment of such
Account to the Administrative Bank pursuant to the Assignment of
Claims Act of 1940 as amended in the case of the a Federal
Governmental Authority, or pursuant to applicable state law, if any,
in all other instances, and such assignment has been accepted and
acknowledged by the appropriate government officers;
(q) if the Administrative Bank, in its reasonable business
judgment, has established a credit limit for the Account Debtor with
respect thereto, the aggregate dollar amount of Accounts due from such
Account Debtor, including such Account, does not exceed such credit
limit; and
(r) if it is evidenced by chattel paper or instruments, (i) the
Administrative Bank shall have specifically agreed to include such
Account as an Eligible Account , (ii) only payments then due and
payable under such chattel paper or instrument shall be included as an
Eligible Account and (iii) the originals of such chattel paper or
instruments have been assigned and delivered to the Administrative
Bank in a manner satisfactory to the Administrative Bank.
An Account which is at any time an Eligible Account but which subsequently
fails to meet any of the foregoing requirements shall forthwith cease to be
an Eligible Account. Further, with respect to any Account, if the
Administrative Bank at any time or times hereafter determines, in its
reasonable business judgment, that the prospect of payment or performance
by the Account Debtor with respect thereto is or will be impaired for any
reason whatsoever, notwithstanding anything to the contrary contained
above, such Account shall forthwith cease to be an Eligible Account. The
amount of Eligible Accounts shall be the net United States dollar amount
(as determined by the Administrative Bank after deduction of such reserves
and allowances as the Administrative Bank in its reasonable business
judgment deems proper and necessary) computed no less frequently than
8
<PAGE>
semi-monthly from the Borrowing Base Certificate delivered to the
Administrative Bank and the Banks pursuant to Section 8.1(d).
"Eligible Equipment": Equipment of the Borrower or any Borrowing
Affiliate which meets the following requirements:
(a) it is in good and workable condition, ordinary wear and tear
excepted;
(b) no portion of the purchase price thereof remains unpaid, as
established by documentation satisfactory to the Lender;
(c) it is not subject to any prior assignment, claim or Lien
other than (i) a Lien in favor of the Administrative Bank; (ii) Liens
in favor of US Bank in existence on the date of this Agreement so long
as the Intercreditor Agreement is in force and effect; (iii) Liens in
favor of the City of Rochester, MN in existence on the date of this
Agreement so long as such Liens are subordinated to the Liens of the
Administrative Bank or, if US Bank is the only Bank party hereto, to
the Liens of US Bank; and (iv) other Liens consented to by the Banks
in writing;
(d) it complies with the Borrower's or the Borrowing Affiliate's
specifications and has been delivered to and accepted by the Borrower
or the Borrowing Affiliate;
(e) there exists no dispute with respect thereto between the
Borrower or the Borrowing Affiliate and the manufacturer or supplier
thereof, including, without limitation, warranty or other claims;
(f) it does not, in any way, violate or fail to meet any
warranty, representation or covenant contained in the Loan Documents
relating directly or indirectly to the Borrower's or the Borrowing
Affiliate's Equipment; and
(g) the Banks have determined in its sole and absolute discretion
that it is not unacceptable due to age, type, condition or quality.
Equipment which at any time is Eligible Equipment but which subsequently
fails to meet any of the foregoing requirements shall forthwith cease to be
Eligible Equipment.
"Eligible Inventory": Inventory of the Borrower or a Borrowing
Affiliate which meets the following requirements:
(a) it is owned by the Borrower or the Borrowing Affiliate and is
not subject to any prior assignment, claim or Lien other than (i) a
Lien in favor of the Administrative Bank (ii) Liens in favor of US
Bank in existence on the date of this Agreement so long as the
Intercreditor Agreement is in force and effect; (iii) Liens in favor
of the City of Rochester,
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MN in existence on the date of this Agreement so long as such Liens
are subordinated to the Liens of the Administrative Bank or, if US
Bank is the only Bank party hereto, to the Liens of US Bank; and (iv)
other Liens consented to by the Banks in writing;
(b) it is: (i) finished goods Inventory of the Borrower or the
Borrowing Affiliate held for sale under binding and enforceable
purchase orders from a Person who is not a Subsidiary or Related Party
and complies with such purchase order's specifications; or (ii)
work-in-process-Kits Inventory assembled in the conduct of the Quadrus
Business ("WIP-Kits");
(c) it is located at one of the Borrower's or the Borrowing
Affiliates' facilities described on Schedule 1.1(b) attached hereto
and incorporated herein by reference;
(d) the Administrative Bank has determined, in its reasonable
business judgment, that it is not unacceptable due to age, type,
category, quality and/or quantity;
(e) it is not held by the Borrower or the Borrowing Affiliate on
"consignment" and is not subject to any other repurchase or return
agreement;
(f) it complies with all standards imposed by any governmental
agency having regulatory authority over such goods and/or their use,
manufacture or sale; and
(g) it does not, in any way, violate or fail to meet any
warranty, representation or covenant contained in the Loan Documents
relating directly or indirectly to the Borrower's or the Borrowing
Affiliate's Inventory.
Inventory which is at any time Eligible Inventory but which subsequently
fails to meet any of the foregoing requirements shall forthwith cease to be
Eligible Inventory. The value of Eligible Inventory shall be the U.S.
dollar amount thereof computed at the lower of the cost, determined on a
first in first out basis, or market value of such Inventory, as determined
by the Administrative Bank after deduction of such reserves and allowances
as the Administrative Bank in its reasonable business judgment deems proper
and necessary and shall be computed no less frequently than semi-monthly
from the Borrowing Base Certificate delivered to the Administrative Bank
and the Banks pursuant to Section 8.1(d).
"Eligible Equipment Availability": At any time: (a) prior to December
31, 2000, an amount equal to the lesser of: (i) the difference between: (A)
80% of the orderly liquidation value (or, through the earlier of August
31,1999 or the date on which the Administrative Bank receives the
Appraisal, 80% of the net book value) of the Eligible Equipment as
determined by an appraisal in form and substance, and prepared by an
appraiser, satisfactory to the Administrative Bank, in its sole discretion
(the "Appraisal") as adjusted from time to time to exclude the orderly
liquidation value or net book value, as the case may be, of any piece of
Eligible Equipment which is sold, transferred or otherwise disposed of by
the Borrower or any Borrowing Affiliate or which sustains a casualty
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<PAGE>
loss; minus (B) the outstanding principal balance of the IDB Bond Equipment
Financing; or (ii) $4,000,000.00; or (b) at any time on or after December
31, 2000, $0.00 (zero).
"Equipment": The Borrower's or any Borrowing Affiliate's"Equipment" as
defined in Article I of such Person's Security Agreement.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended, or any successor statute, together with regulations thereunder.
"ERISA Affiliate": Any trade or business (whether or not incorporated)
that is a member of a group of which the Borrower or any of its
Subsidiaries is a member and which is treated as a single employer under
Section 414 of the Code.
"Eurodollar Business Day": A Business Day which is also a day for
trading by and between banks in United States dollar deposits in the
interbank Eurodollar market and a day on which banks are open for business
in New York City.
"Eurodollar Rate": Applicable to determining the Adjusted Eurodollar
Rate for a Eurodollar Rate Loan Unit during its Interest Period, the
average offered rate for deposits in United States Dollars (rounded upward,
if necessary, to the nearest 1/16 of 1%), for delivery of such deposits on
the first day of such Interest Period, for the number of days in such
Interest Period, which appears on the Reuters Screen LIBO Page as of 11:00
a.m., London time (or such other time as of which such rate appears) two
Eurodollar Business Days prior to the first day of such Interest Period or,
if the Reuters Screen LIBO Page is not published at the time, the rate for
such deposits determined by the Administrative Bank at such time based on
such other published service of general application as shall be selected by
the Administrative Bank for such purpose or, if no such published service
is available, based on rates at which United States dollar deposits are
offered to the Administrative Bank in the interbank Eurodollar market at
such time for delivery in immediately available funds on the first day of
such Interest Period in an amount approximately equal to the principal
balance to be outstanding on such Eurodollar Rate Loan Unit (rounded
upward, if necessary, to the nearest 1/16 of 1 %). "Reuters Screen LIBO
Page" means the display designated as page "LIBO" on the Reuter Monitor
Money Rates Service (or such other page as may replace the LIBO Page on
that service for the purpose of displaying London interbank offered rates
of major banks for United States Dollar deposits.
"Eurodollar Rate Loan Unit": Each portion of any Revolving Loan
designated as such in a notice of borrowing under Section 2.3 or a notice
of continuation or conversion under Section 2.4.
"Eurodollar Reserve Percentage": Applicable in determining the
Adjusted Eurodollar Rate for a Eurodollar Rate Loan Unit during its
Interest Period, as of any day, that percentage (expressed as a decimal)
which is in effect on such day, as prescribed by the Federal Reserve Board
for determining the maximum reserve requirement for the Administrative
Bank, in respect
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of "Eurocurrency Liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate
of Eurodollar Rate Loan Units is determined or any category of extensions
of credit or other assets which includes loans by a non-United States
office of the Administrative Bank to United States residents). Any rate of
interest based on the Eurodollar Rate shall be adjusted automatically on
and as of the effective date of any change in the Eurodollar Reserve
Percentage.
"Event of Default": Any event described in Section 10.1 which has not
been cured to the satisfaction of, or waived by, the Banks in accordance
with Section 12.1.
"Existing Letter(s) of Credit": The letters of credit issued by U. S.
Bank that are described on Schedule 1.1(c) attached hereto and incorporated
herein by reference but excluding, in all events, the IDB Letters of Credit
issued by U.S. Bank.
"Existing Security Agreements": (a) The Borrower's Security Agreement
dated as of August 11, 1994 (the "First Borrower's Security Agreement")
executed by the Borrower in favor of US Bank; (b) the Borrower's Security
Agreement dated as of February 10, 1995 (the "Second Borrower's Security
Agreement") executed by the Borrower in favor of US Bank; and (c) the
Borrower's Security Agreement dated as of November 17, 1995 (the "Third
Borrower's Security Agreement") executed by the Borrower in favor of US
Bank
"Federal Funds Rate": For any date, the overnight effective borrowing
rate per annum for such date (or, if such date is not a Business Day of the
Administrative Bank, the last Business Day of the Administrative Bank
preceding such date) for reserves in the amount of $1,000,000 or more
traded among commercial banks in the New York Federal Reserve District as
published by the Federal Reserve Bank of New York as being such rate in
effect on such date; provided, however, that if said rate is no longer
published, then the Federal Funds Rate shall be determined on the basis of
other sources reasonably selected by the Administrative Bank.
"Federal Reserve Board": The Board of Governors of the Federal Reserve
System or any successor thereto.
"Fixed Charge Coverage Ratio": At any Quarterly Measurement Date, the
ratio of: (a) the excess of: (i) EBITDA for the Measurement Period ending
at such date; minus (ii) the amount of federal, state and local income
taxes that were actually paid in cash by the Borrower during such
Measurement Period; minus (iii) Non-Financed Capital Expenditures made by
Borrower and its consolidated Subsidiaries during the Borrower's then
current fiscal year; to (b) the sum of: (i) the Interest Expense during
such Measurement Period; plus (ii) the Mandatory Principal Payments
scheduled to have been paid during such Measurement Period; provided,
however, that for any Quarterly Measurement Date occurring through March
31, 2000: (x) EBITDA, income taxes, Interest Expense and Mandatory
Principal Payments shall be computed on an Annualized Basis; and (y)
Non-Financed Capital Expenditures shall be computed on the basis
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of the Non-Financed Capital Expenditures that have been made during the
period commencing on the Closing Date and ending on such Quarterly
Measurement Date.
"Fluke Purchase Agreement": The Asset Purchase Agreement dated April
30, 1999 (the "Fluke Purchase Agreement") among Fluke Corporation and Fluke
Industrial, B.V. (collectively, the "Fluke Seller"), the Borrower and
PEMSTAR, B.V. ("PEMSTAR BV") and pursuant to which the Fluke Seller has
agreed to sell, and the Borrower and PEMSTAR BV have agreed to purchase,
the "Business" described therein (the "Fluke Business").
"Foreign Exchange Protection Agreement": Any foreign exchange swap
agreement, foreign exchange futures contract, foreign exchange option
contract or similar agreement or arrangement between the Borrower and the
Foreign Exchange Protection Provider designed to protect the Borrower
against fluctuations in exchange rates.
"Foreign Exchange Protection Obligations": The liabilities,
Indebtedness and obligations of the Borrower, if any, to the Foreign
Exchange Protection Provider under any Foreign Exchange Protection
Agreement.
"Foreign Exchange Protection Provider": Each Bank or Bank Affiliate
which is a counterparty under a Foreign Exchange Protection Agreement.
"GAAP": Generally accepted accounting principles as in effect from
time to time including, without limitation, applicable statements,
bulletins and interpretations of the Financial Accounting Standards Board
and applicable bulletins, opinions and interpretations issued by the
American Institute of Certified Public Accountants or its committees.
"IDB Bonds": (a) The "Bonds" described in the 1997 IDB Reimbursement
Agreement (the "1997 IDB Bonds"); and (b) the "Bonds" described in the 1998
IDB Reimbursement Agreement (the "1998 IDB Bonds").
"IDB Bond Equipment Financing:" The outstanding portion of the 1997
IDB Bonds described in Schedule 1.1(d) attached hereto and incorporated
herein by reference, as such amount may be amortized in accordance with
said Schedule 1.1(d).
"IDB Indenture": (a) The "Indenture" described in the 1997 IDB
Reimbursement Agreement (the "1997 IDB Indenture"); and b) the "Indenture"
described in the 1998 IDB Reimbursement Agreement (the "1998 IDB
Indenture").
"IDB Letter of Credit": (a) The "Letter of Credit" described in the
1997 IDB Reimbursement Agreement (the "1997 IDB Letter of Credit"); and (b)
the "Letter of Credit" described in the 1998 IDB Reimbursement Agreement
(the "1998 IDB Letter of Credit").
"IDB Loan:" (a) The "Loan" made to the Borrower by the City of
Rochester, Minnesota (the "Issuer") pursuant to the "Loan Agreement" (the
"1997 IDB Loan Agreement") described
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in the 1997 IDB Reimbursement Agreement; and (b) the "Loan" made by the
Borrower by the Issuer pursuant to the "Loan Agreement" (the "1998 IDB Loan
Agreement") described in the 1998 Reimbursement Agreement
"IDB Reimbursement Agreement": (a) The Letter of Credit and
Reimbursement Agreement dated as of May 1, 1997 (the "1997 IDB
Reimbursement Agreement") among the Borrower, U. S. Bank and U. S. Bank
Trust National Association (the "1997 IDB Trustee); and (b) the Letter of
Credit and Reimbursement Agreement dated as of June 1, 1998 (the "1998 IDB
Reimbursement Agreement") among the Borrower, U. S. Bank and U. S. Bank
Trust National Association (the "1998 IDB Trustee); in each case, as
originally executed and as amended, modified, supplemented, restated or
replaced from time to time.
"IDB Reimbursement Obligations": (a) The "Reimbursement Obligations"
described in the 1997 IDB Reimbursement Agreement (the "1997 IDB
Reimbursement Obligations"); and (b) the "Reimbursement Obligations"
described in the 1998 IDB Reimbursement Agreement (the "1998 IDB
Reimbursement Obligations").
"Indebtedness": Without duplication, all obligations, contingent or
otherwise, which in accordance with GAAP should be classified upon the
obligor's balance sheet as liabilities, but in any event including the
following (whether or not they should be classified as liabilities upon
such balance sheet): (a) obligations secured by any mortgage, pledge,
security interest, lien, charge or other encumbrance existing on property
owned or acquired subject thereto, whether or not the obligation secured
thereby shall have been assumed and whether or not the obligation secured
is the obligation of the owner or another party; (b) any obligation on
account of deposits or advances; (c) any obligation for the deferred
purchase price of any property or services, except for any Trade Account
Payable provided that any Trade Account Payable which accrues interest or
any portion of which is allocable to interest in accordance with GAAP shall
be deemed to constitute Indebtedness; (d) any obligation as lessee under
any Capitalized Lease; (e) all guaranties, endorsements and other
contingent obligations in respect to Indebtedness of others, except that
Indebtedness shall not include endorsements of instruments for payment in
the ordinary course of business; (f) undertakings or agreements to
reimburse or indemnify issuers of letters of credit; (g) all Rate
Protection Obligations; and (h) all Foreign Exchange Protection
Obligations. For all purposes of this Agreement, the Indebtedness of any
Person shall include the Indebtedness of any partnership or joint venture
in which such Person is a general partner or a joint venturer unless such
Indebtedness is non-recourse to such Person.
"Individual Letter of Credit Commitment(s)": At any date, with respect
to any Bank, such Bank's Percentage times the Letter of Credit Commitment
at such date.
"Individual Revolving Credit Commitment(s)": At any date, with respect
to any Bank, such Bank's Percentage times the Revolving Credit Commitment
at such date.
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"Intercreditor Agreement": The Intercreditor Agreement dated as of
even date herewith between US Bank and the Administrative Bank as
originally executed and as it may be amended, modified, supplemented,
restated or replaced from time to time.
"Interest Expense": For any period, the aggregate consolidated
interest expense (including capitalized interest) of the Borrower for such
period including, without limitation, the interest portion of any
Capitalized Lease; provided, however, that the foregoing shall be adjusted
to reflect only the net effect of any interest rate swap, interest hedging
transaction, or other similar arrangement entered into by the Borrower in
order to reduce or eliminate variations in its interest expenses.
"Interest Period": For any Eurodollar Rate Loan Unit, the period which
shall begin on (and include) the date of the initial borrowing date of such
Eurodollar Rate Loan Unit or the date of the conversion of any Base Rate
Loan Unit into a Eurodollar Rate Loan Unit, or the date of the continuation
of a Eurodollar Rate Loan Unit as a Eurodollar Rate Loan Unit upon the
termination of the Interest Period then applicable thereto and, unless the
final maturity of such Eurodollar Rate Loan Unit is accelerated, shall end
on (but exclude) the date which is one, two, three or six months thereafter
as selected by the Borrower; provided, however, that:
(a) any such Interest Period which would otherwise end on a day
not a Eurodollar Business Day shall end on the next succeeding
Eurodollar Business Day unless such extension would cause the last day
of such Interest Period to fall in the next following calendar month,
in which event the last day of such Interest Period for such
Eurodollar Rate Loan Unit shall occur on the next preceding Eurodollar
Business Day;
(b) no Interest Period relating for any Eurodollar Rate Loan Unit
comprising part of any Loan may end later than the scheduled Maturity
of such Loan; and
(c) any Interest Period which begins on the last day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Eurodollar Business Day in such Interest
Period.
"Inventory": The Borrower's or any Borrowing Affiliate's"Inventory" as
defined in Article I of such Person's Security Agreement.
"Investment": The acquisition, purchase, making or holding of any
stock or other security, any loan, advance, contribution to capital,
extension of credit (except for trade and customer accounts receivable for
Inventory sold or services rendered in the ordinary course of business and
payable in accordance with customary trade terms), any acquisitions of real
or personal property (other than real and personal property acquired in the
ordinary course of business) and any purchase or commitment or option to
purchase stock or other debt or equity
15
<PAGE>
securities of, or any interest in, another Person or any integral part of
any business or the assets comprising such business or part thereof.
"Letter of Credit": As provided in Section 2.7(a) including, in all
events, the Existing Letter of Credit.
"Letter of Credit Application": As provided in Section 2.7(c).
"Letter of Credit Commission": As provided in Section 2.7(e)(i).
"Letter of Credit Commitment": The maximum amount of Letter of Credit
Obligations which may from time to time be outstanding hereunder, being
initially $2,000,000.00 and, as the context may require, the agreement of
U. S. Bank to issue the Letters of Credit for the account of the Borrower
and the agreement of each other Bank to purchase a participation in the
Letter of Credit Obligations up to its Individual Letter of Credit
Commitment subject to the terms and conditions of this Agreement.
"Letter of Credit Obligations": At any date, the sum of: (a) the
aggregate amount available to be drawn on the Letters of Credit on such
date; plus (b) the aggregate amount owed by the Borrower to U. S. Bank on
such date as a result of draws on the Letters of Credit for which the
Borrower has not reimbursed U. S. Bank.
"Letter of Credit Participations": At any date, with respect to any
Bank, such Bank's participations in the Letter of Credit Obligations.
"Letter of Credit Commitment Termination Date": The earlier of: (a)
the Revolving Credit Termination Date; or (b) the date on which the
Borrower terminates the Letter of Credit Commitment pursuant to Section
4.3.
"Liabilities": At any date of determination, the aggregate amount of
liabilities appearing on the Borrower's consolidated balance sheet at such
date prepared in accordance with GAAP.
"Lien": Any security interest, mortgage, pledge, lien, hypothecation,
judgment lien or similar legal process, charge, encumbrance, title
retention agreement or analogous instrument or device (including, without
limitation, the interest of the lessors under Capitalized Leases and the
interest of a vendor under any conditional sale or other title retention
agreement).
"Loan Documents": This Agreement, the Notes, the Security Agreements,
the Borrowing Affiliate Guaranties, the Letters of Credit, the Letter of
Credit Applications and each other instrument, document, guaranty, security
agreement, mortgage, or other agreement executed and delivered by the
Borrower or any other Loan Party pursuant to which the Borrower or such
other Loan Party incurs any liability to the Administrative Bank or any
Bank with respect to the
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<PAGE>
Obligations, agrees to perform any covenant or agreement with respect to
the Obligations or grants any security interest to secure the Obligations.
"Loan Party": The Borrower and each Borrowing Affiliate.
"Loans": The Revolving Loans.
"Loan Units": A Base Rate Loan Unit and a Eurodollar Rate Loan Unit
(each a "Type" of Loan Unit).
"Loan Year": The 12 month period commencing on date of this Agreement
(or the anniversary date of such date in any subsequent year) and ending on
the day preceding the immediately following anniversary date of this
Agreement.
"Mandatory Principal Payments": At any Quarterly Measurement Date, the
current maturities of long term debt (including the portion of any payment
on any Capitalized Lease allocable to principal in accordance with GAAP) as
shown as a liability on the Borrower's consolidated balance sheet at such
Quarterly Measurement Date prepared in accordance with GAAP; provided,
however, that Mandatory Principal Payments shall include, without
limitation, the monthly sinking fund payments required to be made under an
IDB Reimbursement Agreement into the "Cash Collateral Account" described in
such IDB Reimbursement Agreement in order to fund the "Minimum Principal
Amount" described in such IDB Reimbursement Agreement.
"Maturity": The earlier of: (a) the date on which the Loans become due
and payable under Section 10.2 upon the occurrence of an Event of Default;
or (b) the Revolving Credit Termination Date for the Revolving Loans.
"Measurement Period": At any Quarterly Measurement Date, the four
fiscal quarters ending on such Quarterly Measurement Date except as
otherwise provided in the definitions of "Cash Flow Leverage Ratio" or
"Fixed Charge Coverage Ratio", as the case may be.
"Monthly Measurement Date": The last day of each month of the
Borrower's fiscal year.
"Monthly Payment Date": The last day of each month.
"Net Income": For any period, the Borrower's after-tax net income for
such period determined in accordance with GAAP.
"Net Proceeds": With respect to any sale, transfer or other
disposition of any of the Borrower's or any Subsidiary's assets (other than
sales of Inventory in the ordinary course of business) or from the
incurrence of any Indebtedness by the Borrower or any Subsidiary which is
not expressly permitted by Sections 9.10 without the necessity of obtaining
the consent of the Required Banks, the cash proceeds received by the
Borrower or such Subsidiary from such
17
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transaction less the sum of: (a) the reasonable costs associated with such
transaction; and (b) the amount of any Indebtedness (other than the
Obligations) which is required to be paid in connection with such
transaction.
"Non-Financed Capital Expenditures": For any period, the portion of
the Capital Expenditures made by the Borrower and its Subsidiaries during
such period which was not financed by Purchase Money Indebtedness or
Capitalized Leases permitted to be incurred by Section 9.10(f).
"Notes": The Revolving Notes.
"Obligations": All loans (including the Loans and the Letter of Credit
Obligations), advances, debts, liabilities, obligations, covenants and
duties owing by any Loan Party or the Loan Parties to the Administrative
Bank or any Bank of any kind or nature, present or future, which arise
under this Agreement or any other Loan Document or any Rate Protection
Agreement permitted by Section 9.10(e), whether or not evidenced by any
note, guaranty or other instrument, whether or not for the payment of
money, whether arising by reason of an extension of credit, opening,
guarantying or confirming of a letter of credit, guaranty, indemnification
or in any other manner, whether joint, several, or joint and several,
direct or indirect (including those acquired by assignment or purchases),
absolute or contingent, due or to become due, and however acquired. The
term includes, without limitation, all principal, interest, fees, charges,
expenses, attorneys' fees, and any other sum chargeable to any Loan Party
or the Loan Parties under this Agreement, any other Loan Document, or any
permitted Rate Protection Agreement.
"Origination Fee": As provided in Section 3.3.
"PBGC": The Pension Benefit Guaranty Corporation, established pursuant
to Subtitle A of Title IV of ERISA, and any successor thereto or to the
functions thereof.
"Percentage": With respect to any Bank, the percentage specified
opposite such Bank's name on Schedule A attached hereto and incorporated
herein by reference.
"Permitted Liens": Liens permitted by the provisions of Section 9.11.
"Person": Any natural person, corporation, partnership, joint venture,
firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision, or any other entity, whether
acting in an individual, fiduciary or other capacity.
"Plan": An employee benefit plan or other plan, maintained for
employees of the Borrower or of any ERISA Affiliate, and subject to Title
IV of ERISA or Section 412 of the Code.
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"Purchase Money Indebtedness": Any Indebtedness incurred for the
purchase of personal property where the repayment thereof is secured solely
by an interest in the personal property so purchased.
"Quadrus Purchase Agreement": The Asset Purchase Agreement dated April
30, 1999 (the "Quadrus Purchase Agreement") between Bell Microproducts,
Inc. (the "Quadrus Seller") and the Borrower and pursuant to which the
Quadrus Seller has agreed to sell, and the Borrower has agreed to purchase,
the "Business" described therein (the "Quadrus Business").
"Quarterly Measurement Date": The last day of each quarter of the
Borrower's fiscal year.
"Quarterly Payment Date": The last day of each March, June, September,
and December.
"Rate Protection Agreement": Any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, interest rate
futures contract, interest rate option contract or similar agreement or
arrangement between the Borrower and the Rate Protection Provider designed
to protect the Borrower against fluctuations in interest.
"Rate Protection Obligations": The liabilities, Indebtedness and
obligations of the Borrower, if any, to the Rate Protection Provider under
any Rate Protection Agreement.
"Rate Protection Provider": Each Bank or Bank Affiliate which is a
counterparty under a Rate Protection Agreement.
"Reference Rate": The rate of interest from time to time publicly
announced by the Administrative Bank as its "reference rate." Any Bank may
lend to its customers at rates that are at, above or below the Reference
Rate. For purposes of determining any interest rate which is based on the
Reference Rate, such interest rate shall change on the effective date of
any change in the Reference Rate.
"Regulatory Change": As to any Bank, any change (including any
scheduled change) applicable to a class of banks which includes such Bank
in any:
(a) federal or state law or foreign law; or
(b) regulation, interpretation, directive or request (whether or
not having the force of law) of any court or governmental authority
charged with the interpretation or administration of any law referred
to in clause (a) of this definition or of any fiscal, monetary or
other authority having jurisdiction over such class of banks;
or the adoption after the date hereof of any new or final law, regulation,
interpretation, directive or request applicable to a class of banks which
includes such Bank.
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"Related Party": Any Person other than a Subsidiary: (a) which
directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Borrower; (b) which
beneficially owns or holds 5% or more of the equity interest of the
Borrower; or (c) 5% or more of the equity interest of which is beneficially
owned or held by the Borrower or a Subsidiary. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities or by contract.
"Reportable Event": A reportable event, as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a
Plan, excluding, however, such events as to which the PBGC, by regulation,
has waived the requirement of Section 4043(a) of ERISA that it be notified
within 30 days of the occurrence of such event, provided that a failure to
meet the minimum funding standard of Section 412 of the Code and Section
302 of ERISA shall be a reportable event regardless of the issuance of any
such waivers in accordance with Section 412(d) of the Code.
"Required Banks": At any time, those Banks (which term shall include
the Administrative Bank) at such time having Percentages aggregating more
than 75%.
"Restricted Subsidiary": Each of the Borrower's Subsidiaries
identified on Part II of Schedule 1.1(a) attached hereto.
"Revolving Credit Commitment": The maximum unpaid principal amount of
Revolving Loans which may from time to time be outstanding hereunder, being
initially $40,000,000.00, as the same may be reduced from time to time
pursuant to Section 4.3 and, as the context may require, the agreement of
each Bank to make Revolving Loans to the Borrower up to its Individual
Revolving Credit Commitment subject to the terms and conditions of this
Agreement.
"Revolving Credit Termination Date": The date which is the earliest
of: (a) August 31, 2002; (b) the date on which the Borrower terminates the
Revolving Credit Commitment pursuant to Section 4.3; or (c) the date upon
which the obligation of the Banks to make Revolving Loans is terminated
pursuant to Section 10.2.
"Revolving Credit Non-Usage Fee": As provided in Section 3.2.
"Revolving Loan(s)": The Loans described in Section 2.1(a).
"Revolving Notes": The promissory notes of the Borrower described in
Section 2.5(a), substantially in the form of Exhibit A, as such promissory
notes may be amended, modified or supplemented from time to time, and such
term shall include any substitutions for, or renewals of, such promissory
notes.
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"Security Agreement": The Borrower Security Agreement and each
Borrowing Affiliate Security Agreement.
"Series A Preferred Stock": The 666,667 authorized shares of the
Borrower's Series A Preferred Stock having the rights, preferences,
privileges, and restrictions and other matters relating thereto as set
forth in the Certificate of Designation of Preferences of Series A
Preferred Stock of PEMSTAR INC. dated as of February 12,1998 (the "Original
Series A Preferred Stock Designation of Preferences") as amended by that
certain Amendment No. 1 to Certificate of Designation of Preferences of
Series A Preferred Stock of PEMSTAR INC dated as of June 2, 1999 (the
"Series A Preferred Stock Designation Amendment") ("Original Series A
Preferred Stock Designation of Preferences as so amended being the "Series
A Preferred Stock Designation of Preferences")and of which 569,966 shares
have been issued and are outstanding.
"Series B Preferred Stock": The 1,000,000 authorized shares of the
Borrower's Series B Preferred Stock to be issued pursuant to the Securities
Purchase Agreement dated as of June 4, 1999 (the "Series B Share
Agreement") and having the rights, preferences, privileges, and
restrictions and other matters relating thereto as set forth in the
Certificate of Designation of Preferences of Series B Preferred Stock of
PEMSTAR INC. dated as of June 4 ,1999 (the "Series B Preferred Stock
Designation of Preferences") and of which 1,000,000 shares will have been
issued and will be outstanding following the consummation of the
Transactions.
"Solvent" shall mean, with respect to any Person on any date of
determination, that on such date:
(a) the fair value of such Person's tangible and intangible
assets as a going concern is in excess of the total amount of such
Person's liabilities including, without limitation, contingent
obligations, provided that, in computing the amount of any contingent
obligation at any time in connection with this clause (a), it is
intended that such obligation will be computed at the amount which, in
light of all facts and circumstances existing at such time, represents
the amount that can be reasonably be expected to become an actual or
matured obligation as determined in accordance with GAAP; and
(b) such Person is then able to pay its debts as they mature; and
(c) such Person has capital sufficient to carry on its business.
"Subordinated Debt": At any date, the outstanding principal balance of
the Indebtedness described on Schedule 1.1(e) attached hereto and
incorporated herein by reference that is respectively subordinated to the
payment of the Obligations pursuant to the Subordination Agreements (each a
"Subordination Agreement" and collectively the Subordination Agreements:)
described on said Schedule 1.1(e).
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"Subsidiary": Any Person of which or in which the Borrower and its
other Subsidiaries own directly or indirectly 50% or more of: (a) the
combined voting power of all classes of stock having general voting power
under ordinary circumstances to elect a majority of the board of directors
of such Person, if it is a corporation, (b) the capital interest or profit
interest of such Person, if it is a partnership, joint venture or similar
entity, or (c) the beneficial interest of such Person, if it is a trust,
association or other unincorporated organization.
"Tangible Net Worth": At any date, the sum of the common stock,
preferred stock, additional paid-in capital, and retained earnings of the
Borrower (excluding treasury stock), less the book value of all assets of
the Borrower that would be treated as intangibles under GAAP, including
without limitation: (a) goodwill, organizational expenses, research and
development expenses, trademarks, trade names, copyrights, patents, patent
applications, licenses and rights in any thereof, covenants not to compete,
training costs and other similar intangibles; (b) all deferred charges or
unamortized debt discount and expenses other than deferred income taxes;
(c) securities which are not readily marketable; (d) any write-up in the
book value of any assets resulting from a reevaluation thereof subsequent
to the date of the Borrower's annual financial statement described in
Section 7.5(a); (e) amounts due from officers or Related Parties; and (f)
any asset acquired subsequent to the date of this Agreement which the
Administrative Bank or the Required Banks, in their sole discretion,
determines to be an intangible asset.
"Total Debt": At any date, the outstanding principal balance of the
Loans, the Borrower's and its Subsidiaries' Capitalized Leases, the
Subordinated Debt and other interest-bearing Indebtedness (including Trade
Accounts Payable which are includable in Indebtedness).
"Total Usage": At any date, the sum of: (a) the outstanding principal
balance of the Revolving Loans; plus (b) the Letter of Credit Obligations.
"Trade Accounts Payable": The trade accounts payable of the described
Person with a maturity of not greater than 90 days after their respective
original due dates and that are incurred in the ordinary course of such
Person's business and which do not remain unpaid for more than such period
of time.
"Transactions": The following series of transactions as more fully set
forth in the Transaction Documents: (a) the Borrower's purchase of the
Quadrus Business from the Quadrus Seller pursuant to the Quadrus Purchase
Agreement; (b) the Borrower's and PEMSTAR BV's purchase of the Fluke
Business from the Fluke Seller pursuant to the Fluke Purchase Agreement;
(c) the Borrower's amendment of the Series A Preferred Stock Designation of
Preferences to remove the Borrower's obligation to redeem the Series A
Preferred Stock pursuant to the Series A Preferred Stock Designation
Amendment; (d) the Borrower's issuance of the Series B Preferred Stock and
receipt of not less than $18,000,000.00 from the issuance thereof; (e) the
Borrower's incurrence of the
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Obligations pursuant to this Agreement; and (f) the consummation of the
other transactions contemplated by the Transaction Documents.
"Transaction Documents": The documents listed on Schedule 1.1(f)
attached hereto and incorporated herein by reference.
"Transaction Fees": The fees, costs and expenses described on Schedule
1.1.(g) attached hereto and incorporated herein by reference.
"U. S. Bank": U. S. Bank National Association, a national banking
association.
"U. S. Bank Main Loan Agreement": The Amended Loan Agreement dated as
of August 26, 1996, between the Borrower and U. S. Bank, as amended to
date.
Section 1.2 Accounting Terms and Calculations. Except as may be
expressly provided to the contrary herein, all accounting terms used herein
shall be interpreted and all accounting determinations hereunder (including,
without limitation, determination of compliance with financial ratios and
restrictions in Articles VIII and IX hereof) shall be made in accordance with
GAAP consistently applied on a consolidated basis for the Borrower and its
consolidated Subsidiaries as used in the preparation of the audited financial
statements described in Section 7.5(a).
Section 1.3 Computation of Time Periods. In this Agreement, in the
computation of a period of time from a specified date to a later specified date,
unless otherwise stated, the word "from" means "from and including" and the
words "to" or "until" each means "to but excluding."
Section 1.4 Other Definitional Provisions. The words "hereof," "herein,"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement. References to Sections, Exhibits, Schedules and like references are
to this Agreement unless otherwise expressly provided.
ARTICLE II
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TERMS OF LENDING
Section 2.1 The Loans. Subject to the terms and conditions hereof and in
reliance upon the warranties of the Borrower herein, the Banks severally agree
to make loans (each a "Revolving Loan" and collectively the "Revolving Loans")
to the Borrower from time to time from the date hereof until the Revolving
Credit Termination Date up to an aggregate unpaid principal amount at any time
equal to the Revolving Credit Commitment, during which period the Borrower may
repay and reborrow in accordance with the provisions hereof, provided that: (i)
the Banks shall not be obligated to make any Revolving Loan if, after giving
effect to such Revolving Loan, the
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Total Usage would exceed the lesser at such time of: (A) the Borrowing Base; or
(B) the Revolving Credit Commitment; and (ii) no Bank shall be obligated to make
any Revolving Loan if, after giving effect to such Revolving Loan, the aggregate
unpaid principal amount of all Revolving Loans made by such Bank plus its Letter
of Credit Participations would exceed such Bank's Individual Revolving Credit
Commitment at such time. Each borrowing under this Section 2.1(a) shall consist
of Revolving Loans made on the same day ratably by the Banks in accordance with
their Percentages, and each Bank's Revolving Loans made on such day shall be of
the same Type and shall have the same Interest Period (if applicable).
Section 2.2 Loan Units. Except as otherwise provided herein, the Loans
shall be comprised of Eurodollar Rate Loan Units and/or Base Rate Loan Units as
shall be selected by the Borrower in accordance with Section 2.3 and Section
2.4. Any combination of Types of Loan Units may be outstanding at the same time;
provided, however, that the Revolving Loans may not consist of more than five
(5) different Eurodollar Rate Loan Units. Each Eurodollar Rate Loan Unit shall
be in a minimum amount of $1,000,000.00 and in an integral multiple of
$100,000.00 above such amount. Each Base Rate Loan Unit shall be in an amount of
not less than $500,000.00 and an integral multiple of $100,000.00 above such
amount.
Section 2.3 Borrowing Procedures. Any request by the Borrower for Revolving
Loans shall be in writing, or by telephone promptly confirmed in writing if so
requested by the Administrative Bank, and must be given so as to be received by
the Administrative Bank not later than 12:00 noon., Administrative Bank time,
on: (i) the date of the requested Revolving Loans, if such Revolving Loans will
not include Eurodollar Rate Loan Units; or (ii) on the third Eurodollar Business
Day prior to the date of the requested Revolving Loans, if such Revolving Loans
will include Eurodollar Rate Loan Units. Each request for Revolving Loans shall
specify the borrowing date (which shall be a Business Day and, in the case of
any request for Eurodollar Rate Loan Units, a Eurodollar Business Day) and the
amount of such Revolving Loans. Each request for Revolving Loans shall be in a
minimum amount of $500,000.00 and an integral multiple of $100,000.00 above such
amount. Each request for Revolving Loans shall be deemed a representation and
warranty by the Borrower that all conditions precedent specified in Section 6.2
to such Revolving Loans are satisfied on the date of such request and on the
date the requested Revolving Loans are made. Each written request or
confirmation shall be in the form of Exhibit B attached hereto.
The Administrative Bank shall give prompt telephonic notice to each Bank of
the Borrower's request for Loans and the Borrower's interest rate elections for
such Loans. By not later than 1:00 p.m. (Administrative Bank time) on the date
of such Loans, each Bank shall make available to the Administrative Bank, in
immediately available funds, such Bank's Percentage of such Loans. After the
Administrative Bank's receipt of such funds, and upon satisfaction of the
applicable conditions set forth in Article VI, the Administrative Bank will make
the amount of the requested Loans available to the Borrower at the
Administrative Bank's principal office in Rochester, Minnesota in immediately
available funds on the date requested.
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Unless the Administrative Bank shall have been notified by any Bank in
writing prior to the date of a Loan that such Bank does not intend to make
available to the Administrative Bank its Percentage of such Loan, the
Administrative Bank may assume that each Bank has made such amount available to
the Administrative Bank on such date, and the Administrative Bank may, in
reliance upon such assumption, make available to the Borrower a corresponding
amount. If and to the extent any Bank shall not have made available to the
Administrative Bank on the date of any Loan such Bank's Percentage of such Loan,
such Bank and the Borrower agree to repay the Administrative Bank forthwith on
demand such corresponding amount, together with interest thereon, for each day
from the date of such Loan amount until the date such amount is repaid to the
Administrative Bank, at the Federal Funds Rate, in the case of payment by such
Bank, or at the interest rate applicable at the time to the relevant Loan, in
the case of payment by the Borrower; provided, however, if such Bank shall repay
to the Administrative Bank such corresponding amount, the amount repaid shall
constitute such Bank's Loan for purposes of this Agreement.
Section 2.4 Continuation or Conversion of Loan Units for Loans. The
Borrower may elect to: (i) continue any outstanding Eurodollar Rate Loan Unit
from one Interest Period into a subsequent Interest Period to begin on the last
day of the earlier Interest Period; or (ii) convert any outstanding Loan Unit
into another Type of Loan Unit (on the last day of an Interest Period only, in
the instance of a Eurodollar Rate Loan Unit), by giving the Administrative Bank
notice in writing, or by telephone promptly confirmed in writing if so requested
by the Administrative Bank, given so as to be received by the Administrative
Bank not later than 10:00 a.m., Administrative Bank time: (A) on the date of the
requested continuation or conversion, if the continuing or converted Loan Unit
shall be a Base Rate Loan Unit; or (B) three (3) Eurodollar Business Days prior
to the date of the requested continuation or conversion, if the continuing or
converted Loan Unit shall be a Eurodollar Rate Loan Unit. Each notice of
continuation or conversion of a Loan Unit shall specify: (i) the effective date
of continuation or conversion (which shall be a Business Day and, if the
resulting Loan Unit is a Eurodollar Rate Loan Unit, a Eurodollar Business Day);
(ii) the amount and the Type or Types of Loan Units following such continuation
or conversion; and (iii) for continuation as, or conversion into, Eurodollar
Rate Loan Units, the Interest Periods for such Loan Units. Absent timely notice
of continuation or conversion, each Eurodollar Rate Loan Unit shall
automatically convert into a Base Rate Loan Unit on the last day of an
applicable Interest Period, unless paid in full on such last day. No Loan Unit
comprising part of the Revolving Loans shall be continued as, or converted into,
a Eurodollar Rate Loan Unit if the Interest Period selected for such Loan Unit
may not transpire prior to the Maturity of the relevant Revolving Loans or if a
Default or Event of Default shall exist. Each written notice of continuation or
conversion shall be in the form of Exhibit C attached hereto. The Administrative
Bank shall give prompt written notice to each Bank of any notice received by the
Administrative Bank from the Borrower pursuant to this Section 2.4.
Section 2.5 The Notes and Maturities. The Revolving Loans made by a Bank
shall be evidenced by a Revolving Note, in the amount of such Bank's Individual
Revolving Credit Commitment. The Revolving Loans and the Revolving Notes shall
mature and be payable at
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Maturity of the Revolving Loans. Each Bank shall enter in its records the amount
of its Revolving Loan, the rate of interest borne on such Revolving Loans by
each Loan Unit, and the payments of the Revolving Loans received by such Bank,
and such records shall be conclusive evidence of the subject matter thereof,
absent manifest error.
Section 2.6 Funding Losses. Upon demand, the Borrower will indemnify and
hold each Bank free and harmless from and against any loss or expense which such
Bank may sustain or incur (including, without limitation, any loss or expense
sustained or incurred in obtaining, liquidating or employing deposits or other
funds acquired to effect, fund or maintain any Loan Unit) as a consequence of:
(i) any failure of the Borrower to make any payment when due of any amount due
hereunder with respect to the principal of any Loan or under any Note; or (ii)
any failure of the Borrower to borrow, continue or convert a Loan Unit on a date
specified therefor in a notice thereof; or (iii) any payment (including, without
limitation, any payment pursuant to Section 4.2, 4.3 or 10.2), prepayment or
conversion of any Eurodollar Rate Loan Unit on a date other than the last day of
the Interest Period for such Loan Unit. Determinations by a Bank for purposes of
this Section 2.6 of the amount required to compensate such Bank shall be
conclusive in the absence of manifest error, subject, however, to rebuttal by
the Borrower.
Section 2.7 Letters of Credit.
(a) Letter of Credit Commitment. Subject to the terms and conditions
hereinafter set forth, U. S. Bank agrees to issue stand-by letters of
credit (the "Letters of Credit;" and which term shall include the Existing
Letters of Credit) from time to time on terms reasonably acceptable to U.
S. Bank on any Business Day during the period from the date hereof and
ending on the Letter of Credit Termination Date; provided, however, that U.
S. Bank shall not be required to issue any Letter of Credit if, after
giving effect to such issuance: (i) the Letter of Credit Obligations would
exceed the Letter of Credit Commitment; or (ii) the Total Usage would
exceed the lesser at such time of: (A) the Revolving Credit Commitment; or
(B) the Borrowing Base.
(b) Termination. The obligation of U. S. Bank to issue any Letter of
Credit shall terminate on the Letter of Credit Commitment Termination Date.
(c) Manner of Issuance of Letters of Credit. On the date of this
Agreement, the Existing Letters of Credit shall be deemed to have been
issued by U. S. Bank pursuant to this Agreement for the account of the
Borrower. Each subsequent Letter of Credit shall be issued for the account
of the Borrower within three (3) Business Days after receipt of notice from
the Borrower to U. S. Bank specifying the date of the requested issuance,
the face amount of the requested Letter of Credit, and the expiry date of
the requested Letter of Credit; provided that such notice and the required
accompanying documentation is received before 12:00 noon (Administrative
Bank time); any notice received after 12:00 noon (Administrative Bank time)
on any Business Day shall be deemed to have been received on the
immediately following Business Day. In no event shall any Letter of
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Credit have an expiry date later than: (i) the earlier of twelve (12)
months after the date of issue ; or (ii) the Revolving Credit Termination
Date. Each request for a Letter of Credit shall be accompanied by an
appropriately completed and duly executed application for a Letter of
Credit in form acceptable to U. S. Bank (a "Letter of Credit Application").
(d) Reimbursement on Demand. The Borrower agrees to pay to U. S. Bank
on demand at U. S. Bank's address shown on the signature page hereof: (i)
the amount of each draft or other request for payment drawn under any
Letter of Credit (whether drawn before, on or after its stated expiry
date), and (ii) interest on all amounts referred to in clause (i) above
from the date of such draw until payment in full at a fluctuating rate per
annum at all times equal to the Default Rate; provided, however, that so
long as the conditions precedent set forth in Section 2.1 and Article VI
are satisfied as of the date of any draw under the Letter of Credit, the
Banks will make Revolving Loans in accordance with Section 2.3 (a) to pay
any draw under a Letter of Credit.
(e) Letter of Credit Fees.
(i) The Borrower agrees to pay to the Administrative Bank for the
account of each Bank ratably in accordance with its Percentage a
commission (the "Letter of Credit Commission") upon the undrawn face
amount of the Letters of Credit outstanding from time to time. The
Letter of Credit Commission shall be computed at a rate equal to the
Applicable Margin for Eurodollar Rate Loan Units on the date of which
such Letter of Commission is payable under the immediately following
sentence. The Letter of Credit Commission with respect to each Letter
of Credit is payable in advance: (x) on the date of issuance of such
Letter of Credit for the initial period from the date of issuance
through, to and including, the day preceding the immediately following
Quarterly Payment Date; and (y) on each Quarterly Payment Date
following such issuance date for the following quarter (or, any lesser
period if the relevant Letter of Credit is scheduled to expire prior
to the end of such quarter). U.S. Bank shall promptly pay over to each
Bank its Percentage of each Letter of Credit Commission received by
U.S. Bank.
(ii) The Borrower agrees to pay to U.S. Bank, solely for U.S.
Bank's account, all reasonable and and customary charges, fees and
expenses which U. S. Bank may assess in connection with the issuance,
extension, amendment or payment of any Letter of Credit in accordance
with the schedule therefor then in effect, and any and all reasonable
out-of-pocket expenses which U. S. Bank may pay or incur in connection
therewith.
(f) Obligations Absolute. The Obligations of the Borrower under this
Section 2.7 shall be unconditional and irrevocable and shall be paid
strictly in accordance with the terms of this Agreement under all
circumstances, including, without limitation, the following circumstances:
(i) any lack of validity or enforceability of any Letter of
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Credit or any other agreement or instrument relating thereto (collectively,
the "Related Documents"); (ii) any amendment or waiver of, or any consent
to departure from, all or any of the Related Documents; (iii) the existence
of any claim, set-off, defense or other right that the Borrower may have at
any time against any beneficiary or any transferee of any Letter of Credit
(or any Persons for whom any such beneficiary or any such transferee may be
acting), U. S. Bank or any other Person, whether in connection with any
Related Document, the transactions contemplated therein, or any unrelated
transaction, except as set forth in clause (v) below; (iv) any draft,
statement or any other document presented under any Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect, except as
set forth in clause (v) below; (v) payment by U. S. Bank under any Letter
of Credit against presentation of a draft or certificate which does not
comply with the terms of such Letter of Credit, except in the case of
payment resulting from the gross negligence or willful misconduct of U. S.
Bank; (vi) the occurrence of any Default or Event of Default; or (vii) any
other circumstance or event whatsoever, whether or not similar to any of
the foregoing.
(g) Letter of Credit Participations.
(i) Concurrently with the issuance of each Letter of Credit
pursuant to this Agreement (including, without limitation, the deemed
issuance of the Existing Letters of Credit pursuant to the first
sentence of Section 2.7(c)), U. S. Bank shall be deemed to have sold
and transferred to each Bank, and each Bank shall be deemed
irrevocably and unconditionally to have purchased and received from U.
S. Bank, without recourse or warranty, an undivided Letter of Credit
Participation in each Letter of Credit and the Letter of Credit
Obligations with respect thereto and any security therefor. U. S. Bank
shall retain its individual Letter of Credit Participation in each
Letter of Credit and the Letter of Credit Obligations with respect
thereto and any security therefor. U. S. Bank shall promptly give each
other Bank notice of the issuance of each Letter of Credit and the
amount of such Bank's Letter of Credit Participation therein.
(ii) U. S. Bank shall promptly notify the Borrower and each Bank
of each demand for payment under a Letter of Credit and of the date on
which such payment is to be made and the amount of such Bank's
Revolving Loan to be made pursuant to Sections 2.3(a) and 2.7(d), if
any. By not later than 1:00 p.m. (Administrative Bank time), on each
date on which payment is to be made to U. S. Bank, each Bank shall pay
to U. S. Bank in immediately available funds, such Bank's Percentage
of such demand for payment which the Borrower has not paid to U. S.
Bank, by Revolving Loans or otherwise. Each Bank's obligation to make
such amounts available to U. S. Bank shall be irrevocable and shall
not be subject to any qualification or exception whatsoever and shall
be made in accordance with the terms and conditions of this Agreement
under all circumstances except where
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the Borrower is not liable to U. S. Bank for payment of a draw on a
Letter of Credit under Section 2.7(f)(v). If and to the extent any
Bank shall not have made such amount available to U. S. Bank on any
such date, such Bank agrees, upon demand, to pay interest on such
amount to U. S. Bank for the account of U. S. Bank for each day from
and including the date on which such payment was to be made to but
excluding the date such payment is made at a rate per annum equal to
the Federal Funds Rate from time to time in effect, based upon a year
of 360 days. Any Bank's failure to make available to U. S. Bank its
Percentage of any demand for payment under a Letter of Credit shall
not relieve any other Bank of its obligation to make available to U.
S. Bank its Percentage of such demand for payment on the date such
payment is to be made, but no Bank shall be responsible for the
failure of any other Bank to make available to U. S. Bank such other
Bank's Percentage of any such payment.
(iii) Whenever, at any time after U. S. Bank has made a payment
under any Letter of Credit and has received from another Bank such
other Bank's Percentage of the unreimbursed portion of such payment,
U. S. Bank receives any reimbursement on account of such unreimbursed
portion or any payment of interest on account thereof, U. S. Bank will
promptly distribute to such other Bank its pro rata share thereof in
like funds as received in accordance with Section 4.4; provided,
however, that in the event that U. S. Bank is required to return such
reimbursement or such payment of interest (as the case may be), such
other Bank will return to U. S. Bank any portion thereof previously
distributed to it by U. S. Bank in like funds as such reimbursement or
payment is required to be returned by U. S. Bank.
(h) Indemnification by Banks. The Banks severally agree to indemnify
U. S. Bank acting in its capacity as issuer of the Letters of Credit, and
each officer, director, employee, agent and affiliate of U. S. Bank (herein
collectively called "LC Issuer Parties" and individually called a "LC
Issuer Party"), ratably according to their respective Percentages, to the
extent not reimbursed by the Borrower, from and against any and all claims,
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever
which may at any time (including, without limitation, at any time following
the payment of any of the Letter of Credit Obligations) be imposed on,
incurred by or asserted against U. S. Bank in any way relating to or
arising out of the issuance of or payment or failure to pay under the
Letter of Credit or the use of proceeds of any payment made under the
Letter of Credit; provided, however, that no Bank shall be liable for the
payment to U. S. Bank of any portion of such claims, liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever resulting from
U. S. Bank's gross negligence or willful misconduct. All obligations
provided for in this subsection (h) shall survive the termination of this
Agreement.
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(i) Conflicts. The rights of U. S. Bank against the Borrower
hereunder shall be in addition to all rights under (and shall control over
any conflict under) any Letter of Credit Application.
ARTICLE III
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INTEREST AND FEES
Section 3.1 Interest. Subject to the provisions of Section 3.1(b), the
Borrower agrees to pay interest on the outstanding principal amount of each
Revolving Loan from the date of such Revolving Loan until the Maturity thereof:
(a) With respect to each Base Rate Loan Unit comprising a portion of
such Revolving Loan, at a fluctuating rate per annum equal at all times to
the sum of the Base Rate plus the Applicable Margin; and
(b) With respect to each Eurodollar Rate Loan Unit comprising a
portion of such Revolving Loan, at a rate per annum equal at all times
during the Interest Period relating to such Eurodollar Rate Loan Unit to
the sum of the Adjusted Eurodollar Rate in effect for such Interest Period
plus the Applicable Margin.
(c) Notwithstanding the provisions of Section 3.1(a) or (b), at all
times after the occurrence and during the continuance of any Event of
Default, the Borrower agrees to pay interest on the outstanding principal
amount of each Revolving Loan from the date on which the Administrative
Bank notifies the Borrower of such Event of Default at a rate per annum at
all times equal to the sum of the rate equal to the sum of (i) the Base
Rate; plus (ii) the Applicable Margin; plus (iii) two percent (2.0%) per
annum.
(d) Until Maturity of a Loan: (i) interest accrued through the end of
a month on each Base Rate Loan Unit shall be payable on the Monthly Payment
Date coinciding with the end of such month, commencing on the first such
Monthly Payment Date following the Closing Date; and (B) interest accrued
during the applicable Interest Period on each Eurodollar Rate Loan Unit
shall be payable on the last day of such applicable Interest Period;
provided, however, that in the case of any Interest Period of longer than
three (3) months, interest shall also be payable at each Quarterly Payment
Date comprising part of such Interest Period. Interest on each Loan shall
also be payable at its Maturity. Interest accrued after Maturity shall be
payable on demand.
(e) No provision of this Agreement or any Note shall require the
payment of interest in excess of the rate permitted by applicable law.
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Section 3.2 Non-usage Fees. The Borrower shall pay to the Administrative
Bank a fee (the "Revolving Credit Non-Usage Fee") determined by applying a rate
separately agreed upon by the Borrower and the Administrative Bank to the
average daily excess of the Revolving Credit Commitment over the sum of the
outstanding principal amount of the Revolving Loans plus the Letter of Credit
Obligations. The Revolving Credit Non-Usage Fee shall be payable to the
Administrative Bank in arrears on each Quarterly Payment Date, commencing with
the first such date following the Closing Date, and on the Revolving Credit
Termination Date. The manner in which the Revolving Credit Non-Usage Fee shall
be allocated among the Banks shall be separately agreed upon among the
Administrative Bank and the Banks.
Section 3.3 Origination Fee. Upon the execution of this Agreement, the
Borrower shall pay to the Administrative Bank a non-refundable origination fee
(the "Origination Fee") in the amount separately agreed upon by the Borrower and
the Administrative Bank. No termination or reduction of any Loan or the
Revolving Credit Commitment and no failure of the Borrower to satisfy the
conditions set forth in Article VI shall entitle the Borrower to a refund of any
portion of the Origination Fee. The manner in which the Origination Fee shall be
allocated among the Banks shall be separately agreed upon among the
Administrative Bank and the Banks.
Section 3.4 Collateral Audit Fees. The Borrower shall pay to the
Administrative Bank for the period commencing on the date of this Agreement and
continuing through the date of payment of all Obligations after the termination
of the Commitment, a Collateral audit fee (the "Collateral Audit Fee")
compensating the Administrative Bank for its Collateral audits, such Collateral
Audit Fee shall be computed at the Administrative Bank's then current rate for
such services; provided, however, that so long as no Default or Event of Default
has occurred and is continuing, the Borrower shall not be obligated to pay for
more than two (2) Collateral audits during any Loan Year. Such Collateral Audit
Fee shall be payable to the Administrative Bank, solely for the account of the
Administrative Bank, immediately upon Borrower's receipt of an invoice therefor.
Section 3.5 Administrative Fees. Intentionally Deleted.
Section 3.6 Computation. Interest, the Revolving Credit Non-Usage Fee and
the Letter of Credit Commission shall be computed on the basis of actual days
elapsed and a year of 360 days.
ARTICLE IV
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PAYMENTS, PREPAYMENTS, REDUCTION ORTERMINATION OF THE CREDIT AND SETOFF
Section 4.1 Repayment. Principal of the Loans shall be due and payable in
accordance with the provisions of Section 2.5 hereof and this Article IV.
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Section 4.2 Voluntary and Mandatory Prepayments.
(a) Optional Prepayments. The Borrower, by giving written or
telephonic notice to the Administrative Bank by no later than 2:00 p.m.
(Administrative Bank time) on the Business Day of a prepayment, may prepay
the Loans, in whole or in part, at any time, without premium or penalty;
provided, however, that: (i) any prepayment shall be subject to the
provisions of Section 2.6; and (ii) each partial prepayment shall be in an
amount of $500,000.00 and an integral multiple $100,000.00 above such
amount. Any such prepayment must be accompanied by accrued and unpaid
interest on the amount prepaid and any amount payable pursuant to Section
2.6. The Administrative Bank shall give prompt notice to each Bank of any
notice received by the Administrative Bank pursuant to this Section 4.2(a).
(b) Mandatory Prepayment of Revolving Loans. The Borrower shall
prepay the Revolving Loans as follows:
(i) If, at any time, the Total Usage exceeds the lesser at such
time of: (A) the Borrowing Base; or (B) the Revolving Credit
Commitment, then the Borrower shall immediately prepay the Revolving
Loans and cash collateralize the Letter of Credit Obligations by the
amount of such excess together with interest on the amount prepaid.
Any prepayment required by this subsection (i) shall be applied first
to prepay the Revolving Loans, and the remainder of such prepayment,
if any, shall be deposited in an interest-bearing account maintained
at U. S. Bank for application to the Borrower's reimbursement
obligations under Section 2.7(d) as payments are made on the Letters
of Credit, with the balance, if any, to be applied to the other
Obligations.
(ii) If, at any time, the Administrative Bank notifies the
Borrower that the sum of the aggregate unpaid principal amount of the
Revolving Loans made by any Bank plus its Letter of Credit
Participations exceeds such Bank's Individual Revolving Credit
Commitment by providing the Borrower with a written certificate from
such Bank calculating the amount of such excess, then the Borrower
shall immediately prepay the amount of such excess together with
interest on the amount prepaid to the Administrative Bank for
distribution to such Bank for application to the Revolving Loans owed
to such Bank.
(iii) Contemporaneously with the Borrower's receipt of any Net
Proceeds, the Borrower shall prepay the Revolving Loans and the amount
of the Revolving Credit Commitment shall be reduced by an amount equal
to such Net Proceeds except that no such prepayment shall be required
during any fiscal year until after the aggregate amount of Net
Proceeds received by the Borrower during such fiscal
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year is greater than $1,000,000.00 and the Borrower may retain
aggregate Net Proceeds up to such amount.
(c) Application of Prepayments . The Banks shall apply
prepayments first to Base Rate Loan Units, then to Eurodollar Rate
Loan Units having an Interest Period ending on such day of prepayment
and then to other Eurodollar Rate Loan Units.
Section 4.3 Reduction or Termination of Revolving Credit Commitment or
Letter of Credit Commitment.
(a) Voluntary. The Borrower may, at any time, upon no less than three
(3) Business Days' prior written notice received by the Administrative
Bank, permanently reduce the Revolving Credit Commitment, with any such
reduction in a minimum amount of $5,000,000.00 or an integral multiple of
$1,000,000.00 in excess of that amount; provided, however, the Borrower may
not reduce the Revolving Credit Commitment below the sum of the aggregate
unpaid principal amount of the Revolving Loans plus the Letter of Credit
Obligations. The Borrower may, at any time when no Revolving Loans or
Letter of Credit Obligations are outstanding, upon not less than three (3)
Business Days' prior written notice to the Administrative Bank, terminate
both the Revolving Credit Commitment and Letter of Credit Commitment in
their entireties or may, when no Letter of Credit Obligations are
outstanding, terminate the Letter of Credit Commitment. Upon termination of
both of the Revolving Credit Commitment and the Letter of Credit Commitment
pursuant to this Section, the Borrower shall pay to the Administrative Bank
all accrued and unpaid interest on the Revolving Loans, all unpaid
Revolving Credit Non-Usage Fee accrued to the date of such termination and
all other unpaid Obligations of the Borrower to the Administrative Bank or
any Bank hereunder with respect to the Revolving Loans, the Revolving
Credit Commitment, the Letters of Credit and the Letter of Credit
Commitment including, without limitation, any amount required to be paid
under Section 10.3. Upon termination of the Letter of Credit Commitment
(without a corresponding termination of the Revolving Credit Commitment)
pursuant to this Section, the Borrower shall pay to the Administrative Bank
all unpaid Obligations of the Borrower to U. S. Bank hereunder with respect
to the Letters of Credit and the Letter of Credit Commitment including,
without limitation, any amount required to be paid under Section 10.3.
(b) Mandatory. The Revolving Credit Commitment shall be reduced by the
amount of any prepayment required to be made on the Revolving Loans
pursuant to Section 4.2(b)(iii).
(c) Application. Each reduction in the Revolving Credit Commitment or
Letter of Credit Commitment shall reduce the Banks' Individual Revolving
Credit Commitments or Individual Letter of Credit Commitments, as the case
may be, pro rata in accordance with their respective Percentages.
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Section 4.4 Payments. Except to the extent that this Agreement
specifically requires that payments be made directly to an individual Bank, all
payments and prepayments of principal of, and interest on, the Notes and all
fees, expenses and other Obligations under the Loan Documents payable to the
Administrative Bank or the Banks shall be made without deduction, set-off, or
counterclaim and net of any withholding taxes, in immediately available funds,
not later than 2:00 p.m., Administrative Bank time, on the dates due to the
Administrative Bank at the office specified by it from time to time for the
ratable benefit of the Banks in accordance with their Percentages, except as
otherwise specifically provided in this Agreement. Funds received on any day
after such time shall be deemed to have been received on the next Business Day.
Subject to the definition of the term "Interest Period", whenever any payment to
be made hereunder or on the Notes shall be stated to be due on a day which is
not a Business Day, such payment shall be made on the next succeeding Business
Day and such extension of time shall be included in the computation of any
interest or fees. The Borrower authorizes each Bank to charge any of the
Borrower's accounts maintained at such Bank for the amount of any payment or
prepayment on the Notes or other amount owing pursuant to any of the other Loan
Documents. The Borrower hereby authorizes the Banks, at the discretion of the
Required Banks, to make a Revolving Loan in order to pay, on behalf of the
Borrower, any amount due on any Note or pursuant to any of the other Loan
Documents without further action on the part of the Borrower and regardless of
whether the Borrower is able to comply with the terms, conditions and covenants
of this Agreement at the time of such Revolving Loan. The Administrative Bank
will use its best efforts to inform the Borrower immediately prior to or
promptly after any such charge to the Borrower's account or Revolving Loan is
made. The Administrative Bank (or its designee) shall promptly distribute to
each Bank its respective Percentage of all payments of principal of or interest
on the Loans or other payments due under this Agreement or any other Loan
Document received by it for the account of such Bank; provided, however that:
(a) the Administrative Bank may set off against any amount distributable to any
Bank the amount, if any, which such Bank is obligated to pay to the
Administrative Bank under this Agreement or any other Loan Document; and (b) if
the Administrative Bank reasonably determines that any amount received by it
under this Agreement or any other Loan Document must be returned to the Borrower
or paid to any other Person pursuant to any insolvency law or otherwise, then,
notwithstanding any other term or condition of this Agreement or any other Loan
Document, the Administrative Bank will not be required to distribute any portion
thereof to any Bank and each Bank will repay to the Administrative Bank, on
demand, any portion of such amount that the Administrative Bank has distributed
to such Bank, together with interest at such rate, if any, as the Administrative
Bank is required to pay to the Borrower or such other Person, without set-off,
counterclaim or deduction of any kind. All amounts received by each Bank
(whether as a result of payment transmitted by the Borrower or otherwise) on
account of payment of interest on or principal of the Notes, or other payments
due under this Agreement or any other Loan Document, as the case may be, shall
be so applied by it to such payment.
Section 4.5 Pro Rata Sharing. If any Bank or any holder of any Note shall
obtain any payment (whether voluntary, involuntary, by application of offset or
otherwise) upon any Loan or other Obligation which is to be shared pro rata
under this Agreement in excess of its Percentage
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of such payment then or thereafter obtained by all other Banks or other holders
of Notes upon such Obligations, such Bank or other holder shall purchase from
the other Banks or the other holders of Notes such participations in the
relevant Obligation as shall be necessary for such purchasing Bank or holder to
share the excess payment ratably with the other Banks or holders according to
each Bank's or other holder's Percentage; provided, however, that if all or any
portion of the excess payment is thereafter recovered from such purchasing
holder, the purchase shall be rescinded and the purchase price restored to the
extent of such recovery, but without interest. The Borrower agrees that any Bank
or holder so purchasing a participation from another Bank or holder pursuant to
this Section 4.5 may, to the fullest extent permitted by law, exercise all its
rights of payment (including the right of setoff) with respect to such
participation as fully as if such Bank or holder were the direct creditor of the
Borrower in the amount of such participation.
Section 4.6 Set-Off; etc. In addition to the remedies set forth in Section
10.2 and Section 10.3, upon the occurrence of any Event of Default or at any
time thereafter while such Event of Default continues, each Bank or any other
holder of the Notes may offset any and all balances, credits, deposits (general
or special, time or demand, provisional or final), accounts or monies of the
Borrower then or thereafter with such Bank or such other holder, or any
obligations of such Bank or such other holder of the Notes against the
Obligations. The Borrower hereby grants to each Bank and each other Note holder
a security interest in all such balances, credits, deposits, accounts or monies.
ARTICLE V
---------
ADDITIONAL PROVISIONS RELATING TO THE LOANS
Section 5.1 Increased Costs. If, as a result of any Regulatory Change:
(a) any tax, duty or other charge with respect to any Loan, the Notes,
the Letters of Credit, the Letter of Credit Participations or the
Commitment is imposed, modified or deemed applicable, or the basis of
taxation of payments to such Bank) is changed;
(b) any reserve, special deposit, special assessment or similar
requirement against assets of, deposits with or for the account of, or
credit extended by, such Bank is imposed, modified or deemed applicable;
(c) any increase in the amount of capital required or expected to be
maintained by such Bank or any Person controlling such Bank is imposed,
modified or deemed applicable;
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(d) any other condition affecting this Agreement or the Commitment is
imposed on such Bank or the relevant funding markets;
and such Bank determines that, by reason thereof, the cost to such Bank of
making or maintaining the Loans, the Letters of Credit, the Letter of Credit
Participations or the Commitment is increased, or the amount of any sum
receivable by such Bank hereunder or under the Notes is reduced; then, the
Borrower shall pay to such Bank upon demand such additional amount or amounts as
will compensate such Bank (or the controlling Person in the instance of (c)
above) on an after-tax basis for such additional costs or reduction (provided
that the Bank has not been compensated for such additional cost or reduction in
the calculation of the Eurodollar Reserve Percentage). The Bank claiming
compensation under this Section will promptly notify the Borrower and the
Administrative Bank of any event of which it has knowledge, occurring after the
date hereof, which will entitle such Bank to compensation pursuant to this
Section. A certificate of the Bank claiming compensation under this paragraph,
setting forth the additional amount or amounts to be paid to it hereunder and
stating in reasonable detail the basis for the charge and the method of
computation, shall be conclusive in the absence of error. In determining any
compensation under this Section, the claiming Bank may use any reasonable
averaging and attribution methods. Failure on the part of a Bank to demand
compensation under this Section for any period shall not constitute a waiver of
such Bank's rights to demand compensation for any subsequent period.
Section 5.2 Deposits Unavailable or Interest Rate Unascertainable or
Inadequate; Impracticability. If any Bank determines (which determination shall
be conclusive and binding on the parties hereto) that:
(a) deposits of the necessary amount for the relevant Interest Period
for any Eurodollar Rate Loan Unit are not available to such Bank in the
relevant market or that, by reason of circumstances affecting such market,
adequate and reasonable means do not exist for ascertaining the Eurodollar
Rate for such Interest Period;
(b) the Adjusted Eurodollar Rate will not adequately and fairly
reflect the cost to such Bank of making or funding the Eurodollar Rate Loan
Units for its relevant Interest Period; or
(c) the making or funding of any Eurodollar Rate Loan Unit has become
impracticable as a result of any event occurring after the date of this
Agreement which, in the opinion of such Bank, materially and adversely
affects such Loan Unit or such Bank's Commitment to make such Loan Unit or
the relevant market;
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such Bank shall promptly give notice of such determination to the Borrower and
the Administrative Bank, and (A) all Loans thereafter made by such Bank shall
accrue interest at the Base Rate during the period on and after the date of such
Bank's notice through the date on which such Bank determines that the
circumstances giving rise to such Bank's determination under subsection (a), (b)
or (c) no longer exists; (B) (1) any notice of a new Eurodollar Rate Loan Unit
previously given by the Borrower and not yet borrowed or converted shall be
deemed, as to such Bank, to be a notice to make a Base Rate Loan Unit and (2)
the Borrower shall be obligated to either prepay in full any outstanding
Eurodollar Rate Loan Units without premium or penalty other than any amount
required by Section 2.6 on the last day of the current Interest Period with
respect thereto or convert any such Eurodollar Rate Loan Unit to a Base Rate
Loan Unit or, in either case, on such earlier date as may be required by
applicable law. Any prepayment of any Eurodollar Rate Loan Unit prior to the end
of its Interest Period shall be accompanied by any payment required by Section
2.6.
Section 5.3 Changes in Law Rendering Eurodollar Rate Loan Units Unlawful.
If at any time due to the adoption of any law, rule, regulation, treaty or
directive, or any change therein, or in the interpretation or administration
thereof by any court, central bank, governmental authority, agency or
instrumentality, or comparable agency charged with the interpretation or
administration thereof, or for any other reason arising subsequent to the date
of this Agreement, it shall become unlawful or impossible for any Bank to make
or fund any Eurodollar Rate Loan Unit, the obligation of such Bank to provide
such Loan Unit shall, upon the happening of such event, forthwith be suspended
for the duration of such illegality or impossibility. If any such event shall
make it unlawful or impossible for any Bank to continue any Eurodollar Rate Loan
Unit previously made by it hereunder, such Bank shall, upon the happening of
such event, notify the Borrower and the Administrative Bank thereof in
writing,and the Borrower shall, at the time notified by the Bank, either convert
each such unlawful Loan Unit to a Base Rate Loan Unit or repay such Loan Unit in
full, together with accrued interest thereon and any payment required pursuant
to Section 2.6.
Section 5.4 Withholding Taxes. Upon the written request of the Borrower,
each Bank (or transferee) that is organized under the laws of a jurisdiction
outside the United States shall, if legally able to do so, prior to the
immediately following due date of any payment by the Borrower hereunder, deliver
to the Borrower such certificates, documents or other evidence, as required by
the Code or Treasury Regulations issued pursuant thereto, including Internal
Revenue Service Form 1001 or Form 4224 and any other certificate or statement of
exemption required by Treasury Regulation Section 1.1441-1, 1.1441-4 or
1.1441-6(c) or any subsequent version thereof or successors thereto, properly
completed and duly executed by such Bank (or transferee) establishing that such
payment is (a) not subject to United States Federal withholding tax under the
Code because such payment is effectively connected with the conduct by such Bank
(or transferee) of a trade or business in the United States or (b) totally
exempt from United States Federal withholding tax, or subject to a reduced rate
of such tax under a provision of an applicable tax treaty. Unless the Borrower
and the Administrative Bank have received forms or other documents satisfactory
to them indicating that such payments hereunder are not subject to United
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States Federal withholding tax or are subject to such tax at a rate reduced by
an applicable tax treaty, the Borrower or the Administrative Bank shall withhold
taxes from such payments at the applicable statutory rate. The Borrower shall
not be required to pay any additional amounts to any Bank (or transferee) in
respect of United States Federal withholding tax pursuant to Section 5.1 above
if the obligation to pay such additional amounts would not have arisen but for a
failure by such Bank (or transferee) to comply with the provisions of this
Section; provided, however, that the Borrower shall be required to pay those
amounts to any Bank (or transferee) it was required to pay hereunder prior to
the failure of such Bank (or transferee) to comply with the provisions of this
Section. Any Bank (or transferee) claiming any additional amounts payable
pursuant to this Section 5.4 shall use reasonable efforts (consistent with legal
and regulatory restrictions) to file any certificate or document requested by
the Borrower or to change the jurisdiction of its applicable lending office if
the making of such a filing or change would avoid the need for or reduce the
amount of any such additional amounts which may thereafter accrue and would not,
in the sole determination of such Lender, be otherwise disadvantageous to such
Bank (or transferee).
Section 5.5 Discretion of the Banks as to Manner of Funding.
Notwithstanding any provision of this Agreement to the contrary, each Bank shall
be entitled to fund and maintain its funding of all or any part of the Loans in
any manner it elects; it being understood, however, that for purposes of this
Agreement, all determinations hereunder shall be made as if the Banks had
actually funded and maintained each Eurodollar Rate Loan Unit during the
Interest Period for such Loan Unit through the purchase of deposits having a
term corresponding to such Interest Period and bearing an interest rate equal to
the Eurodollar Rate (whether or not the Banks shall have granted any
participation in such Loan Units).
Section 5.6 Funding Through the Sale of Participation. Subject only to the
provisions of Section 12.5, the Borrower acknowledges that each Bank may fund
all or any part of the Loans by sales of participation to various participants
and agrees that each Bank may, in invoking its rights under this Article V or
under Section 2.6, demand and receive payment for costs and other amounts
incurred by, or allocable to, any such participant, or take other action arising
from circumstances applicable to any such participant, to the same extent that
such participant could demand and receive payments, or take other action, under
this Article V or under Section 2.6 if such participant were the Bank under this
Agreement except that no participant's claims for payment of costs and other
amounts under this Article V or Section 2.6 shall exceed the amount which such
Bank would have received had such Bank not sold a participation to such
participant.
Section 5.7 Funding Through Branch or Affiliate. At each Bank's sole
option, it may fulfill its commitment to make Eurodollar Rate Loan Units by
causing a foreign branch or an affiliate to make or continue such Eurodollar
Rate Loan Units; provided, that in such instance such Eurodollar Rate Loan Unit
shall be deemed for purposes of this Agreement to have been made by the Bank and
the obligation of the Borrower to repay such Eurodollar Rate Loan Units shall be
to such Bank and shall be deemed held by such Bank for the account of such
branch or affiliate.
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ARTICLE VI
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CONDITIONS PRECEDENT
Section 6.1 Conditions of Initial Loans, etc. The obligation of the Banks
to make the initial Revolving Loans or of U. S. Bank to issue the initial Letter
of Credit shall be subject to the satisfaction of the conditions precedent, in
addition to the applicable conditions precedent set forth in Section 6.2 below,
that the Administrative Bank shall have received all of the following, in form
and substance satisfactory to the Banks, each duly executed and certified or
dated the date of the initial Loans or Letter of Credit or such other date as is
satisfactory to the Banks:
(a) The Notes appropriately completed and duly executed by the
Borrower;
(b) The other Loan Documents appropriately completed and duly executed
by each Loan Party which is a party thereto;
(c) UCC-1 Financing Statements in a form acceptable to the Banks
appropriately completed and duly executed by the Borrower and each
Borrowing Affiliate;
(d) Recent UCC searches from the filing offices in all states required
by the Banks which reflect that no Person holds a Lien in any of the
Borrower's or any of its Subsidiaries' assets other than Permitted Liens;
(e) A certificate of the secretary or any assistant secretary of each
Loan Party having attached (a) a copy of the corporate resolution of the
Borrower authorizing the execution, delivery and performance of the Loan
Documents to which such Loan Party is a party, certified by the Secretary
or an Assistant Secretary of such Loan Party; (ii) an incumbency
certificate showing the names and titles, and bearing the signatures of,
the officers of such Loan Party authorized to execute the Loan Documents to
which such Loan Party is a party; and (iii) a copy of the bylaws of such
Loan Party with all amendments thereto;
(f) A copy of the articles or certificate of incorporation of each
Loan Party with all amendments thereto, certified by the appropriate
governmental official of the jurisdiction of its incorporation as of a date
acceptable to the Administrative Bank and the Banks;
(g) Certificates of good standing for each Loan Party in the
jurisdiction of its incorporation and such other states as, in accordance
with the standards set forth in Section 7.1, such Loan Party is required to
qualify to do business, certified by the
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appropriate governmental officials as of a date acceptable to the
Administrative Bank and the Banks;
(h) An opinion of counsel to the Loan Parties, addressed to the
Administrative Bank and the Banks, in form and substance satisfactory to
the Administrative Bank and the Banks;
(i) An officer's certificate in a form provided by the Administrative
Bank executed by the chief financial officer or treasurer of the Borrower;
(j) Evidence of insurance for all insurance required by the Loan
Documents;
(k) A Borrowing Base Certificate for the Loan Parties as of a date
satisfactory to the Administrative Bank and the Banks appropriately
completed and duly executed by the Borrower;
(l) A letter signed by the Borrower instructing the Banks as to
payment of the proceeds of the initial Revolving Loans;
(m) Evidence of payment of the Origination Fee;
(n) Evidence satisfactory to the Administrative Bank and the Banks
that: (i) the Series A Preferred Stock Designation Amendment has become
effective in accordance with its terms; (ii) the Borrower has received
equity contributions from the issuance of the Series B Preferred Stock of
not less than $18,000,000.00 in immediately available funds pursuant to the
Series B Share Agreement; and (iii) the Borrower has assumed the "Assumed
Leases"described in Section 1.2(c) of the Quadrus Purchase Agreement and
Schedule 1.2(c) thereto;
(o) A copy of the Transaction Documents, each in form and substance
satisfactory to the Administrative Bank and the Banks and certified as a
true and correct copy by the Secretary of the Borrower;
(p) Evidence satisfactory to the Administrative Bank and the Banks
that: (i) all conditions precedent to the consummation of any of the
Transactions have been satisfied or waived; (ii) all necessary regulatory
approvals to the consummation of the Transactions have been obtained; (iii)
no litigation exists relating to the Transactions; and (iv)
contemporaneously with the Borrower's receipt of the proceeds of the
initial Revolving Loans, the Transactions will be consummated in full in
accordance with the terms of the Transaction Documents;
(q) A pro forma balance sheet for the Borrower prepared by the
Borrower based on the Borrower's internally prepared balance sheet
satisfactory to the Administrative Bank and the Banks, taking into account
the consummation of the Transactions and the receipt of the proceeds of the
Loans and the Series B Preferred Stock,
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describing all significant assumptions employed in connection therewith and
certifying that all accounting entries necessary to account for the
Transactions are reflected therein;
(r) Projections of the Borrower's financial performance on an annual
basis for each fiscal year through the Borrower's 2002 fiscal year prepared
by management of the Borrower in form and substance satisfactory to the
Administrative Bank and the Banks including, without limitation, a
statement by the Borrower's chief financial officer or treasurer stating
the assumptions upon which the Borrower relied in preparing said
projections and that such projections were prepared in good faith and
represent, on the date of this Agreement, the good faith opinion of the
Borrower's management as to the most probable course of business of the
Borrower on the basis of the assumptions which are set forth therein;
(s) Evidence that all consideration payable by the Borrower in
connection with the Transactions to the Quadrus Seller, as the case may be,
and other costs of consummating the Transactions does not exceed the amount
set forth on Schedule 1.1(g) attached hereto; and
(t) Such other approvals, opinions or documents as the Administrative
Bank or any Bank may reasonably request.
Section 6.2 Conditions Precedent to all Loans, etc. The obligation of the
Banks to make any Loan hereunder (including the initial Revolving Loans) or of
U. S. Bank to issue any Letter of Credit shall be subject to the satisfaction of
the following conditions precedent:
(a) Before and after giving effect to such Loan or Letter of Credit,
the representations and warranties contained in Article VII shall be true
and correct, as though made on the date of such Loan or Letter of Credit,
except that, after the delivery of any financial statements to the Banks in
accordance with Section 8.1(a) or (c), the representations and warranties
set forth in Section 7.5 shall be deemed a reference to the audited or
unaudited financial statements then most recently delivered to the Banks;
(b) Before and after giving effect to such Loan or Letter of Credit,
no Default or Event of Default shall have occurred and be continuing; and
(c) The Administrative Bank shall have received the Borrower's request
for such Loan as required by Section 2.3 or the Letter of Credit
Application for such Letter of Credit as required by Section 2.7.
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ARTICLE VII
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REPRESENTATIONS AND WARRANTIES
To induce the Banks to enter into this Agreement, to grant the Commitment
and to make Loans hereunder, the Borrower represents and warrants to the
Administrative Bank and the Banks:
Section 7.1 Organization, Standing, etc. The Borrower and each of its
Restricted Subsidiaries are corporations duly incorporated and validly existing
and in good standing under the laws of the state of their respective
organization and have all requisite corporate power and authority to carry on
their respective businesses as now conducted, to enter into the Loan Documents
and the Transaction Documents to which they are a party and to perform their
obligations under the Loan Documents and the Transaction Documents. Each of the
Borrower and each of its Restricted Subsidiaries is duly qualified and in good
standing as a foreign corporation in each jurisdiction in which the character of
the properties owned, leased or operated by it or the business conducted by it
makes such qualification necessary.
Section 7.2 Authorization and Validity. The execution, delivery and
performance by each Loan Party of the Loan Documents and the Transaction
Documents to which such Loan Party is a party have been duly authorized by all
necessary corporate action by such Loan Party. The Loan Documents and the
Transaction Documents constitute the legal, valid and binding obligations of
each Loan Party which is a party thereto, enforceable against such Loan Party in
accordance with their respective terms, subject to limitations as to
enforceability which might result from bankruptcy, insolvency, moratorium and
other similar laws affecting creditors' rights generally and subject to
limitations on the availability of equitable remedies.
Section 7.3 No Conflict, No Default. The execution, delivery and
performance by each Loan Party of the Loan Documents and the Transaction
Documents to which such Loan Party is a party will not: (a) violate any
provision of any law, statute, rule or regulation or any order, writ, judgment,
injunction, decree, determination or award of any court, governmental agency or
arbitrator presently in effect having applicability to such Loan Party; (b)
violate or contravene any provisions of the articles (or certificate) of
incorporation or bylaws of such Loan Party (in the case of each Loan Party which
is a corporation); or (c) result in a breach of or constitute a default under
any indenture, loan or credit agreement or any other agreement, lease or
instrument to which such Loan Party is a party or by which it or any of its
properties may be bound or result in the creation of any Lien on any asset of
such Loan Party except for Liens created by the Loan Documents. No Loan Party is
in default under or in violation of any such law, statute, rule or regulation,
order, writ, judgment, injunction, decree, determination or award or any such
indenture, loan or credit agreement or other agreement, lease or instrument in
any case in which the consequences of such default or violation constitute an
Adverse Event. No Default or Event of Default has occurred and is continuing.
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Section 7.4 Government Consent. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority is required on the
part of any Loan Party to authorize, or is required in connection with the
execution, delivery and performance of, or the legality, validity, binding
effect or enforceability of, the Loan Documents or the Transactions Documents to
which such Loan Party is a party.
Section 7.5 Financial Statements and Condition.
(a) Financial Statements. The Borrower's audited consolidated
financial statements as at March 31, 1998, and its unaudited financial
statements as at March 31, 1999 as heretofore furnished to the
Administrative Bank and the Banks, have been prepared in accordance with
GAAP on a consistent basis (except for the omission of footnotes and prior
period comparative data required by GAAP and for variations from GAAP which
in the aggregate are not material) which in the aggregate are not material
year-end adjustments which in the aggregate are not expected to be
materially adverse and the omission of footnotes) and fairly present the
consolidated financial condition of the Borrower and its Subsidiaries as at
such dates and the results of their consolidated operations and changes in
financial position for the respective periods then ended. Since March 31,
1998, no Adverse Event has occurred.
(b) Pro Forma Balance Sheet. The pro forma unaudited balance sheet of
the Borrower delivered to the Administrative Bank and the Banks pursuant to
Section 6.1(q) has been prepared on a basis in conformity with GAAP (except
for the omission of footnotes and prior period comparative data required by
GAAP and for variations from GAAP which in the aggregate are not material
and for reallocations of values with respect to categories of assets
acquired in connection with, and adjustment for actual fees, expenses and
transaction costs incurred in connection with, the Transactions) and
presents fairly the financial condition of the Borrower, assuming
consummation of the Transactions.
(c) Projections. The projections provided to the Administrative Bank
and the Banks pursuant to Section 6.1(r) have been prepared on the basis of
the assumptions which are set forth therein. Such projections have been
prepared in good faith and represent, on the date of this Agreement, the
good faith opinion of the Borrower's management as to the most probable
course of business of the Borrower on the basis of the assumptions which
are set forth therein.
Section 7.6 Litigation. There are no actions, suits or proceedings pending
or, to the knowledge of the Borrower, threatened against or affecting the
Borrower or any of its Restricted Subsidiary or any of their respective
properties before any court or arbitrator, or any governmental department,
board, agency or other instrumentality which, if determined adversely to the
Borrower or such Restricted Subsidiary, would constitute an Adverse Event.
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Section 7.7 Contingent Liabilities. Neither the Borrower nor any of its
Restricted Subsidiary has any contingent liabilities which are material to such
Person.
Section 7.8 Compliance. The Borrower and each of its Restricted
Subsidiaries are in material compliance with all statutes and governmental rules
and regulations applicable to such Person.
Section 7.9 Environmental, Health and Safety Laws. There does not exist any
violation by the Borrower or any of its Restricted Subsidiaries of any
applicable federal, state or local law, rule or regulation or order of any
government, governmental department, board, agency or other instrumentality
relating to environmental, pollution, health or safety matters which will or
threatens to impose a material liability on such Person or which would require a
material expenditure by such Person to cure. Neither the Borrower nor any
Restricted Subsidiary has received any notice to the effect that any part of its
operations or properties is not in material compliance with any such law, rule,
regulation or order or notice that it or its property is the subject of any
governmental investigation evaluating whether any remedial action is needed to
respond to any release of any toxic or hazardous waste or substance into the
environment, the consequences of which non-compliance or remedial action could
constitute an Adverse Event.
Section 7.10 ERISA. Each Plan complies with all material applicable
requirements of ERISA and the Code and with all material applicable rulings and
regulations issued under the provisions of ERISA and the Code setting forth
those requirements. No Reportable Event has occurred and is continuing with
respect to any Plan. All of the minimum funding standards applicable to such
Plans have been satisfied and there exists no event or condition which would
permit the institution of proceedings to terminate any Plan under Section 4042
of ERISA. The current value of the Plans' benefits guaranteed under Title IV of
ERISA does not exceed the current value of the Plans' assets allocable to such
benefits.
Section 7.11 Regulation U. Neither the Borrower nor any of its Restricted
Subsidiary is engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock (as defined in Regulation U of the Board of
Governors of the Federal Reserve Board), and no part of the proceeds of any Loan
will be used to purchase or carry margin stock or for any other purpose which
would violate any of the margin requirements of the Board of the Governors of
the Federal Reserve System.
Section 7.12 Ownership of Property; Liens. The Borrower and each of its
Restricted Subsidiaries have good and marketable title to their respective real
properties and good and sufficient title to their respective other properties,
including all properties and assets referred to as owned by the Borrower and its
Subsidiaries in the audited financial statements of the Borrower referred to in
Section 7.5 (other than property disposed of since the date of such financial
statements in the ordinary course of business). None of the properties, revenues
or assets of the Borrower pr any Restricted Subsidiary is subject to a Lien,
except for: (a) Liens listed on
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Schedule 7.12 attached hereto and incorporated herein by reference; or (b) Liens
allowed under Section 9.11.
Section 7.13 Indebtedness. Except for Indebtedness permitted by Section
9.10, neither the Borrower nor any of its Restricted Subsidiaries has any
Indebtedness.
Section 7.14 Guaranty of Suretyship.Except for Contingent Obligations
permitted by Section 9.12, neither the Borrower nor any of its Restricted
Subsidiaries is a party to any contract of guaranty or suretyship and none of
its assets is subject to such a contract.
Section 7.15 Taxes. The Borrower and each of its Restricted Subsidiaries
have filed all federal, state and local tax returns required to be filed and
have paid or made provision for the payment of all taxes due and payable
pursuant to such returns and pursuant to any assessments made against any such
Person or any of its property and all other taxes, fees and other charges
imposed on any such Person or any of its property by any governmental authority
(other than taxes, fees or charges the amount or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which reserves in accordance with GAAP have been provided on the books of the
Borrower). No tax Liens have been filed and no material claims are being
asserted with respect to any such taxes, fees or charges. The charges, accruals
and reserves on the books of the Borrower and each of its Restricted
Subsidiaries in respect of taxes and other governmental charges are adequate.
Section 7.16 Trademarks, Patents. The Borrower and each of the Restricted
Subsidiaries possess or have the right to use all of the patents, trademarks,
trade names, service marks and copyrights, and applications therefor, and all
technology, know-how, processes, methods and designs used in or necessary for
the conduct of their respective businesses, without known conflict with the
rights of others. Schedule 7.16 attached hereto and incorporated herein by
reference is a complete list of all such property.
Section 7.17 Investment Company Act. The Borrower is not an "investment
company" and is not "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
Section 7.18 Public Utility Holding Company Act. The Borrower is not a
"holding company" or a "subsidiary company" of a holding company or an
"affiliate" of a holding company or of a subsidiary company of a holding company
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
Section 7.19 Subsidiaries. Schedule 7.19 attached hereto and incorporated
herein by reference sets forth as of the date of this Agreement a list of all of
the Borrower's Subsidiaries, after giving effect to the consummation of the
Transactions.
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Section 7.20 Partnerships and Joint Ventures. Schedule 7.20 attached hereto
and incorporated herein by reference sets forth as of the date of this Agreement
a list of all partnerships or joint ventures in which the Borrower is a partner
(limited or general) or joint venturer, after giving effect to the consummation
of the Transactions.
Section 7.21 Use of Proceeds. The initial Revolving Loan will be used to
repay existing Indebtedness of the Borrower including, without limitation, a
portion of the Borrower's outstanding indebtedness to U. S. Bank and to
partially finance the consummation of the Transactions.
Section 7.22 Solvency. Each Loan Party is Solvent after giving effect to
the making of the Loans in the full amount available hereunder, the incurrence
of the Indebtedness pursuant to the Loan Documents, the granting of Liens
pursuant to the Loan Documents and the consummation of the Transactions.
Section 7.23 Insurance. Schedule 7.23 attached hereto and incorporated
herein by reference sets forth a summary of the property and casualty insurance
program carried by the Borrower or any of its Restricted Subsidiaries on the
date hereof, including any self-insurance or risk assumption agreed to by any
such Person or imposed upon any such Person by any such insurer.
Section 7.24 Contracts; Labor Matters. (a) Neither the Borrower nor any of
its Restricted Subsidiaries is a party to any contract or agreement, or subject
to any charge, corporate restriction, judgment, decree or order, the performance
of which constitutes an Adverse Event; and (b) on the date of this Agreement and
after giving effect to the consummation of the Transactions: (i) neither the
Borrower nor any of its Restricted Subsidiaries is a party to any labor dispute;
and (ii) there are no strikes or walkouts relating to any labor contracts to
which any such Person is subject.
Section 7.25 Accuracy of Information. All factual information heretofore or
herewith furnished by the Borrower to the Administrative Bank or any Bank for
purposes of or in connection with this Agreement or any transaction contemplated
hereby is, and all other such factual information hereafter furnished by the
Borrower to the Administrative Bank or any Bank will be, true and accurate in
every material respect on the date as of which such information is dated or
certified and no such information contains any material misstatement of fact or
omits to state a material fact or any fact necessary to make the statements
contained therein not misleading.
Section 7.26 Capital Stock. As of the Closing Date, the stock ownership of
the Borrower is set forth on Schedule 7.26 attached hereto and incorporated
herein by reference. All of the issued and outstanding shares of capital stock
of the Borrower is duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in said Schedule 7.26, the Borrower has not
granted or issued, and has not agreed to grant or issue, any options, warrants
or similar rights to
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any Person to acquire any shares of, or other securities convertible into, the
Borrower's capital stock.
Section 7.27 Representations and Warranties under Transaction Documents.
All representations and warranties made by the Borrower in any of the
Transaction Documents or in the certificates delivered in connection therewith
are true and correct in all material respects as of the date hereof with the
same force and effect as though made on and as of the date hereof, and such
representations and warranties of the Borrower are hereby confirmed to the Bank
and made representations and warranties of the Borrower hereunder as fully as if
set forth herein. The Borrower has no knowledge that any of the representations
and warranties made in the Transaction Documents by or on behalf of any party
thereto other than the Borrower are untrue or incorrect.
Section 7.28 Year 2000. The Borrower has reviewed and assessed its and each
of its Restricted Subsidiaries' respective business operations and computer
systems and applications to address the "year 2000 problem" (that is, that
computer applications and equipment used by the Borrower or such Restricted
Subsidiary, directly or indirectly through third parties, may be unable to
properly perform date-sensitive functions before, during and after January 1,
2000). The Borrower reasonably believes that the year 2000 problem will not
result in a material adverse change in the Borrower's or any of its Restricted
Subsidiaries' business condition (financial or otherwise), operations,
properties or prospects or ability to repay the Banks. The Borrower agrees that
this representation will be true and correct on and shall be deemed made by the
Borrower on each date the Borrower requests any Loan under this Agreement or any
Note or delivers any information to the Bank. The Borrower will promptly deliver
to the Administrative Bank and the Banks such information relating to this
representation as the Administrative Bank or the Required Banks request from
time to time.
Section 7.29 Survival of Representations . All representations and
warranties contained in this Article VII shall survive the delivery of the Notes
and the making of the Loans evidenced thereby, and any investigation at any time
made by or on behalf of the Administrative Bank or any Bank shall not diminish
their rights to rely thereon.
ARTICLE VIII
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AFFIRMATIVE COVENANTS
From the date of this Agreement and thereafter until the Commitment is
terminated or expires and the Loans and all other Obligations of the Borrower to
the Banks hereunder and under the Notes and the other Loan Documents have been
paid in full, unless the Required Banks shall otherwise expressly consent in
writing, the Borrower will do, and will cause each of its Restricted
Subsidiaries to do, all of the following:
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Section 8.1 Financial Statements and Reports. Furnish to the Administrative
Bank with sufficient copies for each Bank to receive its own copy thereof:
(a) As soon as available and in any event within 120 days after the
end of each fiscal year of the Borrower, the annual audit report of the
Borrower prepared in conformity with GAAP, consisting of at least
consolidated statements of operations and retained earnings and cash flows,
and a consolidated balance sheet as at the end of such year, setting forth
in each case in comparative form corresponding figures from the previous
annual audit, certified without qualification by independent certified
public accountants of recognized standing selected by the Borrower and
acceptable to the Required Banks together with: (i) the related
consolidating statements; (ii) any management letters, management reports
or other supplementary comments or reports to the Borrower or its board of
directors furnished by such accountants; and (iii) a statement by the
accounting firm performing such audit stating that it has reviewed this
Agreement and that in performing its examination nothing came to its
attention that caused it to believe that any Default or Event of Default
exists, or, if such Default or Event of Default exists, describing its
nature.
(b) As soon as available and in any event within 30 days after the end
of each month of each fiscal year (or 45 days after the end of the last
month of each fiscal year), a copy of the unaudited consolidated financial
statements of the Borrower prepared in conformity with GAAP on a consistent
basis (except for the omission of footnotes and prior period comparative
data required by GAAP and for variations from GAAP which in the aggregate
are not material) consisting of a balance sheet as of the close of such
month and related consolidated statements of operations and retained
earnings and cash flow for such month and from the beginning of such fiscal
year to the end of such month, together with the comparative figures for
the corresponding portion of the preceding fiscal year and the budgets for
such period together with the other monthly reports required by the Banks.
(c) With each financial statement required by Section 8.1(b), a
certificate (the "Compliance Certificate") in the form of Exhibit D
attached hereto, signed by the chief financial officer of the Borrower.
(d) As soon as available, and in any event within 10 days after the
end of: (i) the second week of each month of each fiscal year; and (ii)
each month of each fiscal year, a certificate (the "Borrowing Base
Certificate") showing the Borrowing Base as of the first Business Day of
such month or the first Business Day after the 15th day of such month, as
the case may be, in the form of Exhibit E attached hereto and certified as
accurate by the Borrower's chief financial officer.
(e) As soon as available, and in any event within 10 days after the
end of each month of each fiscal year, an accounts receivable aging and
inventory certificate in a
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form acceptable to the Administrative Bank and the Required Banks and
certified as accurate by the Borrower's chief financial officer or his
designee.
(f) Immediately upon becoming aware of any Default or Event of
Default, a notice describing the nature thereof and what action the
Borrower proposes to take with respect thereto.
(g) Immediately upon becoming aware of the occurrence, with respect to
any Plan, of any Reportable Event or any "prohibited transaction" (as
defined in Section 4975 of the Code), a notice specifying the nature
thereof and what action the Borrower proposes to take with respect thereto,
and, when received, copies of any notice from PBGC of intention to
terminate or have a trustee appointed for any Plan.
(h) Immediately upon becoming aware of the occurrence thereof, notice
of the institution of any litigation, arbitration or governmental
proceeding against the Borrower, any of its Restricted Subsidiaries, or any
of such Person's property which, if determined adversely to such Person,
would constitute an Adverse Event, or the rendering of a judgment or
decision in such litigation or proceeding which constitutes an Adverse
Event, and the steps being taken by such Person with respect thereto.
(i) Immediately upon becoming aware of the occurrence thereof, notice
of any violation as to any environmental matter by the Borrower or any of
its Restricted Subsidiaries and of the commencement of any judicial or
administrative proceeding relating to health, safety or environmental
matters: (i) in which an adverse determination or result could result in
the revocation of or have a material adverse effect on any operating
permits, air emission permits, water discharge permits, hazardous waste
permits or other permits held by any such Person which are material to the
operations of such Person; or (ii) which will or threatens to impose a
material liability on any such Person to any other Person or which will
require a material expenditure by any such Person to cure any alleged
problem or violation.
(j) Within 10 days after the first meeting of the Borrower's board of
directors during any fiscal year, but in no event later than 60 days after
the beginning of such fiscal year, the annual plan for the Borrower's
immediately following fiscal year consisting of projected monthly balance
sheets and projected monthly statements of operations and cash flows
approved by the Borrower's board of directors together with the assumptions
underlying such projections certified by the Borrower's chief financial
officer or treasurer as being such annual plan.
(k) By not later 30 days after the Closing Date, a copy of the
Borrower's balance sheet immediately following the making of the initial
Revolving Loan and the consummation of the Transactions.
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(l) From time to time, such other information regarding the business,
operation and financial condition of the Borrower as the Administrative
Bank or the Required Banks may reasonably request.
Section 8.2 Corporate Existence. Maintain its corporate existence and good
standing under the laws of its jurisdiction of incorporation and its
qualification to transact business in each jurisdiction in which the character
of the properties owned, leased or operated by it or the business conducted by
it makes such qualification necessary and where the failure to so qualify could
constitute an Adverse Event.
Section 8.3 Insurance. Maintain with financially sound and reputable
insurance companies such insurance as may be required by any Loan Document or by
law and such other insurance in such amounts and against such hazards as is
customary in the case of reputable corporations engaged in the same or similar
business and similarly situated.
Section 8.4 Payment of Taxes and Claims. File all tax returns and reports
which are required by law to be filed by it and pay before they become
delinquent all taxes, assessments and governmental charges and levies imposed
upon it or its property and all claims or demands of any kind (including,
without limitation, those of suppliers, mechanics, carriers, warehouses,
landlords and other like Persons) which, if unpaid, might result in the creation
of a Lien upon its property; provided that the foregoing items need not be paid
if they are being contested in good faith by appropriate proceedings, and as
long as the Borrower's title to its property is not materially adversely
affected, its use of such property in the ordinary course of its business is not
materially interfered with and adequate reserves with respect thereto have been
set aside on the Borrower's books in accordance with GAAP; provided, however,
that, in all events, the Borrower and each of its Restricted Subsidiaries shall
pay or cause to be paid all such taxes, assessments, charges or levies forthwith
upon the commencement of foreclosure of any Lien which may have attached as
security therefor.
Section 8.5 Inspection. Permit any Person designated by the Administrative
Bank or any Bank to visit and inspect any of its properties, corporate books and
financial records, to examine and to make copies of its books of accounts and
other financial records, and to discuss the affairs, finances and accounts of
the Borrower or any of its Subsidiaries with, and to be advised as to the same
by, its officers at such reasonable times and intervals as the Administrative
Bank or any Bank may designate; provided, however, that so long as no Default or
Event of Default has occurred and is continuing, the Banks shall reasonably
attempt to coordinate their visits so as to occur at the same time during the
Borrower's normal business hours and upon reasonable prior written notice.
Except for the Borrower's obligation to pay the Collateral Audit Fees in
accordance with Section 3.4, the expenses of the Administrative Bank or any Bank
for such visits, inspections and examinations shall be at the expense of such
Person so long as no Event of Default exists, but any such visits, inspections,
and examinations made while any Event of Default is continuing shall be at the
expense of the Borrower.
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Section 8.6 Maintenance of Properties. Maintain its properties used or
useful in the conduct of its business in good condition, repair and working
order, and supplied with all necessary equipment, and make all necessary
repairs, renewals, replacements, betterments, and improvements thereto, all as
may be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times.
Section 8.7 Books and Records. Keep adequate and proper records and books
of account in which full and correct entries will be made of its dealings,
business and affairs.
Section 8.8 Compliance. Comply in all material respects with all laws,
rules, regulations, orders, writs, judgments, injunctions, decrees or awards to
which it may be subject.
Section 8.9 ERISA. Maintain each Plan in compliance with all material
applicable requirements of ERISA and of the Code and with all material
applicable rulings and regulations issued under the provisions of ERISA and of
the Code.
Section 8.10 Environmental Matters. Observe and comply with all laws,
rules, regulations and orders of any government or government agency relating to
health, safety, pollution, hazardous materials or other environmental matters to
the extent non-compliance could result in a material liability or otherwise
constitute or result in an Adverse Event.
ARTICLE IX
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NEGATIVE COVENANTS
From the date of this Agreement and thereafter until the Commitment and
each Letter of Credit is terminated or expires and the Loans and all other
Obligations of the Borrower to the Administrative Bank and Banks hereunder and
under the Notes and the other Loan Documents have been paid in full, unless the
Required Banks shall otherwise expressly consent in writing, the Borrower will
not do, and will not permit any of its Restricted Subsidiaries to do, any of the
following:
Section 9.1 Merger. Merge or consolidate or enter into any analogous
reorganization or transaction with any Person.
Section 9.2 Sale of Assets. Sell, transfer, lease, or otherwise convey all
or any part of its assets except for: (a) sales of Inventory in the ordinary
course of business and for the fair market value thereof ; (b) sales of: (i)
equipment or other property in the ordinary course of business and for the fair
market value thereof so long as the Net Proceeds to be obtained from any such
transaction (or related series of transactions) does not exceed $1,000,000.00 or
the aggregate Net Proceeds determined from all such transactions in any fiscal
year does not exceed $2,000,000.00 ; provided, however, that contemporaneously
with the receipt of the Net Proceeds from any transaction
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permitted by this subsection (b), the Borrower prepays the Revolving Loans in
accordance with Section 4.2(b)(iii).
Section 9.3 Plans. Permit any condition to exist in connection with any
Plan which might constitute grounds for the PBGC to institute proceedings to
have such Plan terminated or a trustee appointed to administer such Plan; permit
any Plan to terminate under any circumstances which would cause the Lien
provided for in Section 4068 of ERISA to attach to any property, revenue or
asset of the Borrower or any of its ERISA Affiliates; or permit the underfunded
amount of Plan benefits guaranteed under Title IV of ERISA to exceed
$500,000.00.
Section 9.4 Change in Nature of Business. Make any material change in the
nature of the business of the Borrower or any of its Restricted Subsidiaries as
carried on at the date hereof.
Section 9.5 Subsidiaries, Partnerships and Joint Ventures. Except as
otherwise permitted by Section 9.9, either: (a) form or acquire any corporation
which would thereby become a Subsidiary; or (b) form or enter into any
partnership as a limited or general partner or form or enter into any joint
venture.
Section 9.6 Other Agreements. Enter into any agreement, bond, note or other
instrument with or for the benefit of any Person other than the Administrative
Bank for itself and the ratable benefit of the Banks which would: (a) prohibit
the Borrower or any of its Restricted Subsidiaries from granting, or otherwise
limit the ability of any such Person to grant to the Administrative Bank for
itself and the ratable benefit of the Banks any Lien on any assets or properties
of such Person; or (b) be violated or breached by any Loan Party's performance
of its obligations under the Loan Documents.
Section 9.7 Payment Terms. Change its selling terms of payment on Accounts
as in effect on the date of this Agreement or provide dating terms except on a
basis consistent with past business practices of the Borrower or its Restricted
Subsidiary, as the case may be.
Section 9.8 Capital Expenditures. Make Capital Expenditures in an amount
exceeding: (a) $21,000,000.00 in the aggregate on a consolidated basis during
the Borrower's 2000 fiscal year; or (b) $10,000,000.00 in the aggregate on a
consolidated basis during any of the Borrower's fiscal years thereafter.
Section 9.9 Investments. Acquire for value, make, have or hold any
Investments, except:
(a) Investments outstanding on the date hereof and listed on Schedule
9.9 attached hereto and incorporated herein by reference;
(b) Travel advances to officers and employees in the ordinary course
of business;
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(c) Investments in readily marketable direct obligations of the United
States of America having maturities of one year or less from the date of
acquisition;
(d) Certificates of deposit or bankers' acceptances, each maturing
within one year from the date of acquisition, issued by: (a) a Bank; or (b)
any commercial bank organized under the laws of the United States or any
State thereof which has: (i) combined capital, surplus and undivided
profits of at least $100,000,000; and (ii) a credit rating with respect to
its unsecured indebtedness from a nationally recognized rating service that
is satisfactory to the Required Banks;
(e) Commercial paper maturing within 270 days from the date of
issuance and given the highest rating by a nationally recognized rating
service;
(f) Repurchase agreements relating to securities issued or guaranteed
as to principal and interest by the United States of America;
(g) Extensions of credit in the nature of Accounts or notes receivable
arising from the sale of goods and services in the ordinary course of
business to non-Subsidiaries;
(h) Shares of stock, obligations or other securities received in
settlement of claims arising in the ordinary course of business;
(i) Investments of the "Cash Collateral Account" established and
maintained pursuant to an IDB Reimbursement Agreement and in the "Eligible
Securities" described therein; and
(j) Existing Investments in Subsidiaries;
(k) Additional Investments in Restricted Subsidiaries after the date
of this Agreement so long as: (i) such Investment is evidenced by an
Account; and (ii) the aggregate outstanding amount of all such additional
Investments does not exceed $15,000,000.00 at any time;
(l) An Additional Investment in PEMSTAR BV on May 4,2000 in an amount
of up to $750,000.00 as a deferred payment under the Fluke Purchase
Agreement for the Borrower's acquisition of the Fluke Business; and
(m) Additional Investments in other Persons (other than Subsidiaries)
after the date of this Agreement so long as the aggregate amount of such
Investment (including, without limitation, any Indebtedness then assumed or
then or thereafter to be incurred by the Borrower or any of its
Subsidiaries in connection therewith) does not exceed $250,000.00 during
any of the Borrower's fiscal years.
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Section 9.10 Indebtedness. Incur, create, issue, assume or suffer to exist
any Indebtedness except:
(a) Indebtedness under this Agreement;
(b) Current liabilities, other than for borrowed money, incurred in
the ordinary course of business;
(c) Indebtedness existing on the date of this Agreement and disclosed
on the Borrower's March 31, 1999 balance sheet previously delivered to the
Banks or Indebtedness incurred subsequent to the date of such balance sheet
including, without limitation, Indebtedness assumed by the Borrower
pursuant to the Quadrus Purchase Agreement, and disclosed on Schedule 9.10
attached hereto and incorporated herein by reference; provided, however,
that: (i) any such Indebtedness (other than the IDB Loans) shall not be
refinanced without the express written consent of the Administrative Bank;
and (ii) the Borrower shall not convert the interest rate on the IDB Bonds
from a "Variable Rate" to a "Fixed Rate" (as such terms are defined in the
relevant IDB Indenture) without the prior written consent of the Required
Banks;
(d) Indebtedness consisting of endorsements for collection, deposit or
negotiation and warranties of products or services, in each case incurred
in the ordinary course of business;
(e) Indebtedness of the Borrower under: (i) Rate Protection Agreements
so long as: (A) the counter-party is a Bank or Bank Affiliate; and (B) the
aggregate notional amount of the Borrower's Indebtedness protected by Rate
Protection Agreements shall not exceed $25,000,000.00 at any time; or (ii)
Foreign Exchange Protection Agreements so long as: (A) the counter-party is
a Bank or Bank Affiliate; and (B) the aggregate notional amount of the
Borrower's Indebtedness protected by Foreign Exchange Protection Agreements
shall not exceed $7,500,000.00 at any time;
(f) Purchase Money Indebtedness incurred after the date of this
Agreement (and specifically excluding the Indebtedness assumed by the
Borrower pursuant to the Quadrus Purchase Agreement) and that is secured by
Liens permitted under Section 9.11(c) or Capitalized Leases so long as the
aggregate outstanding principal amount of such Purchase Money Indebtedness
and Capitalized Leases on a consolidated basis does not exceed
$6,000,000.00 at any time;
(g) Indebtedness incurred by PEMSTAR BV for its working capital
purposes (and guaranties thereof by the Borrower) prior to, on or after the
date of this Agreement so long as the aggregate outstanding principal
amount of such Indebtedness does not exceed $5,000,000.00 at any time;
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(h) Indebtedness of the Borrower incurred to any Subsidiary or by any
Subsidiary to another Subsidiary; and
(i) Guaranties issued by the Borrower in favor of suppliers to its
Subsidiaries prior to, on or after the date of this Agreement so long as
the aggregate outstanding principal amount of the guarantied Indebtedness
does not exceed $2,500,000.00 at any time.
Section 9.11 Liens. Create, incur, assume or suffer to exist any Lien with
respect to any property, revenues or assets now owned or hereafter arising or
acquired, except:
(a) Liens created by any of the Loan Documents including, without
limitation, Liens securing the Borrower's Indebtedness pursuant to Rate
Protection Agreements permitted by Section 9.10(e);
(b) Liens existing on the date of this Agreement and disclosed on
Schedule 7.12 hereto;
(c) Liens securing Purchase Money Indebtedness incurred in connection
with Capital Expenditures made after the date of this Agreement by way of
purchase money security interest, purchase money mortgage, conditional sale
or other title retention agreement, Capitalized Lease or other deferred
payment contract, and attaching only to the property being acquired,
provided that the Indebtedness secured thereby is permitted as a Capital
Expenditure at the time of such incurrence and does not exceed the lesser
of the purchase price or the fair market value of such property at the time
of its acquisition;
(d) Deposits or pledges to secure payment of workers' compensation,
unemployment insurance, old age pensions or other social security
obligations, in the ordinary course of business of the Borrower or any of
its Restricted Subsidiaries;
(e) Liens for taxes, fees, assessments and governmental charges not
delinquent or to the extent that payments therefor shall not at the time be
required to be made in accordance with the provisions of Section 8.4;
(f) Liens of carriers, warehousemen, mechanics and materialmen, and
other like Liens arising in the ordinary course of business, for sums not
due or to the extent that payment therefor shall not at the time be
required to be made in accordance with the provisions of Section 8.4;
(g) Liens securing lease obligations so long as such Liens attach only
to the property then being leased, do not attach to any of the Borrower's
or current assets, and do not secure any other indebtedness;
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(h) Deposits to secure the performance of bids, trade contracts,
leases, statutory obligations and other obligations of a like nature
incurred in the ordinary course of business; and
(i) Zoning restrictions, easements, licenses, restrictions on the use
of real property or minor irregularities in title thereto, which do not
materially impair the use of such property in the operation of the
Borrower's business or the value of such property for the purpose of such
business.
Section 9.12 Contingent Liabilities. Either: (a) endorse, guarantee,
contingently agree to purchase or to provide funds for the payment of, or
otherwise become contingently liable upon, any obligation of any other Person,
except: (i) by the endorsement of negotiable instruments for deposit or
collection (or similar transactions) in the ordinary course of business; or (ii)
Indebtedness permitted by Section 9.10; or (b) agree to maintain the net worth
or working capital of, or provide funds to satisfy any other financial test
applicable to, any other Person.
Section 9.13 Transactions with Related Parties. (a) Permit the direct or
indirect transfer, distribution or payment of any of its funds, assets or
property to any Related Party, except that the Borrower may pay: (i) bona fide
employee compensation (including benefits) to Related Parties for services
actually rendered to such Person; (ii) expenses incurred by an employee in the
ordinary course of business; (iii) expenses or rents for services or property or
the use thereof allocated to such Person; provided, however, that all such
payments pursuant to subsections (a)(i), (ii) and (iii) shall not exceed the
amount which would be payable in a comparable arm's length transaction with a
third party who is not a Related Party; (b) lend or advance money, credit or
property to any Related Party except;(c) invest in (by capital contribution or
otherwise) or purchase or repurchase any stock or indebtedness, or any assets or
properties, of any Related Party except as permitted by Section 9.20 or
otherwise permitted by other subsections of this Section 9.13; or (d) guarantee,
assume, endorse or otherwise become responsible for, or enter into any agreement
or instrument for the purpose of discharging or assuming (directly or
indirectly, through the purchase of goods, supplies or services or otherwise)
the indebtedness, performance, capability, obligations, dividends or agreement
for the furnishing of funds of any Related Party or any officer, director or
employee thereof except for the Guaranties permitted by Section 9.12.
Section 9.14 Use of Proceeds. Permit any proceeds of the Loans to be used,
either directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of "purchasing or carrying any margin stock" within the meaning of
Regulation U of the Federal Reserve Board, as amended from time to time, and
furnish to the Bank upon its request, a statement in conformity with the
requirements of Federal Reserve Form U-l referred to in Regulation U.
Section 9.15 Fiscal Year. Change its fiscal year-end from March 31.
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Section 9.16 Cash Flow Leverage Ratio. Permit, as of any Quarterly
Measurement Date, commencing with the Quarterly Measurement Date occurring on
December 31, 1999, the Cash Flow Leverage Ratio to be greater than the ratio
specified in the following table for any Quarterly Measurement Date occurring in
the specified period:
Period Ratio
------ -----
On and after December 31, 1999
to and including March 31, 2000 3.50 to 1.00
On and after April 1, 2000 to and
including March 31, 2001 3.00 to 1.00
At all times thereafter 2.50 to 1.00.
Section 9.17 Fixed Charge Coverage Ratio. Permit, as of any Quarterly
Measurement Date, commencing with the Quarterly Measurement Date occurring on
September 30, 1999, the Fixed Charge Coverage Ratio to be less than 1.30 to
1.00.
Section 9.18 Adjusted Equity. Permit, as of any Monthly Measurement Date,
commencing with the Monthly Measurement Date occurring on June 30, 1999, the
Adjusted Equity to be less than the sum of: (a) $27,000,000.00; plus (b) 90% of
the Borrower's cumulative consolidated Net Income (without deduction for any
losses) earned on or after June 1, 1999.
Section 9.19 Current Ratio. Permit, as of any Monthly Measurement Date,
commencing with the Monthly Measurement Date occurring on June 30, 1999, the
Current Ratio to be less than the ratio specified in the following table for any
Monthly Measurement Date occurring in the specified period:
Period Ratio
------ -----
On and after June 30, 1999
to and including March 31, 2000 1.05 to 1.00
At all times thereafter 1.10 to 1.00.
Section 9.20 Restricted Payments. Purchase or redeem any shares of its
stock, declare or pay any dividends thereon (other than dividends payable solely
in the Borrower's common stock and dividends payable to the Borrower), make any
distribution to stockholders as such (other than the Borrower), or set aside any
funds for any such purpose; provided, however, that, any of the Borrower's
Restricted Subsidiaries which is directly or indirectly wholly-owned by the
Borrower may pay dividends or distributions to its shareholders.
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Section 9.21 Unconditional Purchase Obligations. Enter into or be a party
to any contract for the purchase or lease of materials, supplies or other
property or services if such contract requires that payment be made by it
regardless of whether or not delivery is ever made of such materials, supplies
or other property or services.
Section 9.21 Operating Leases. Intentionally Deleted.
Section 9.22 Sale and Lease. Enter into any agreement providing for the
leasing by the Borrower or any of its Restricted Subsidiaries of property which
has been or is to be sold or transferred by the Borrower or any of its
Subsidiaries to the lessor thereof, or which is substantially similar in purpose
to property so sold.
Section 9.23 Other Transaction Documents. Amend, modify, or supplement any
provision of, or waive any other party's compliance with any of the terms of,
any Transaction Document in any manner which: (a) requires the Borrower or any
of its Subsidiaries to pay any additional consideration under such Transaction
Document or otherwise imposes any financial obligation or burden on the Borrower
or any of its Subsidiaries; (b) could result in an Adverse Event; or (c) is
materially adverse to the rights and benefits of the Administrative Bank and the
Banks under the Loan Documents.
Section 9.24 Subordinated Debt. (a) Make any scheduled payment of the
principal of or interest on any Subordinated Debt which would be prohibited by
the terms of such Subordinated Debt and any related Subordination Agreement; (b)
directly or indirectly make any prepayment on or purchase, redeem or defease any
Subordinated Debt or offer to do so (whether such prepayment, purchase or
redemption, or offer with respect thereto, is voluntary or mandatory); (c) amend
or cancel the subordination provisions applicable to any Subordinated Debt; (d)
take or omit to take any action if as a result of such action or omission the
subordination of such Subordinated Debt, or any part thereof, to the Obligations
might be terminated, impaired or adversely affected; or (e) omit to give the
Administrative Bank prompt notice of any notice received from any holder of
Subordinated Debt, or any trustee therefor, or of any default under any
agreement or instrument relating to any Subordinated Debt by reason whereof such
Subordinated Debt might become or be declared to be due or payable.
ARTICLE X
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EVENTS OF DEFAULT AND REMEDIES
Section 10.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default upon the expiration of the
cure period, if any, described in the relevant event:
(a) The Borrower shall fail to make when due, whether by acceleration
or otherwise, any payment of principal of or interest on the Notes or any
fee or other amount
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required to be made to the Administrative Bank or any Bank pursuant to any
Loan Document; or
(b) Any representation or warranty made or deemed to have been made by
or on behalf of the Borrower or any other Loan Party in any of the Loan
Documents or by or on behalf of the Borrower or such other Loan Party in
any certificate, statement, report or other writing furnished by or on
behalf of the Borrower or such other Loan Party to the Banks pursuant to
the Loan Documents shall prove to have been false or misleading in any
material respect on the date as of which the facts set forth are stated or
certified or deemed to have been stated or certified; or
(c) The Borrower shall fail to comply with Section 8.1(f), Section
8.2, or any Section of Article IX hereof; or
(d) Any Loan Party shall fail to comply with any agreement, covenant,
condition, provision or term contained in the Loan Documents on its part to
be performed (and such failure shall not constitute an Event of Default
under any of the other provisions of this Section 10.1) and such failure to
comply shall continue for 30 calendar days after the earlier to occur of
the Borrower's receipt of notice of such failure from the Administrative
Bank or the date on which such failure first becomes known to any of the
Borrower's officers; or
(e) The Borrower or any of its Restricted Subsidiary shall become
insolvent or shall generally not pay its debts as they mature or shall
apply for, shall consent to, or shall acquiesce in the appointment of a
custodian, trustee or receiver of the Borrower or any of its Restricted
Subsidiary or for a substantial part of the property thereof or, in the
absence of such application, consent or acquiescence, a custodian, trustee
or receiver shall be appointed for the Borrower or any of its Restricted
Subsidiaries or for a substantial part of the property thereof and shall
not be discharged within 60 days; or
(f) Any bankruptcy, reorganization, debt arrangement or other
proceedings under any bankruptcy or insolvency law shall be instituted by
or against the Borrower or any of its Restricted Subsidiaries, and, if
instituted against the Borrower or any of its Restricted Subsidiaries,
shall have been consented to or acquiesced in by such Person, or shall
remain undismissed for 60 days, or an order for relief shall have been
entered against the Borrower or any of its Restricted Subsidiaries, or the
Borrower or any of its Restricted Subsidiaries shall take any corporate
action to approve institution of, or acquiesced in, such a proceeding; or
(g) Any dissolution or liquidation proceeding shall be instituted by
or against the Borrower or any of its Restricted Subsidiaries and, if
instituted against the Borrower or any of its Restricted Subsidiaries,
shall be consented to or acquiesced in by such Person or shall remain for
60 days undismissed, or the Borrower or any of its Restricted
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Subsidiaries shall take any corporate action to approve institution of, or
acquiescence in, such a proceeding; or
(h) A judgment or judgments for the payment of money in excess of the
sum of $100,000.00 in the aggregate shall be rendered against the Borrower
or any of its Restricted Subsidiaries or such Person shall not discharge
the same or provide for its discharge in accordance with its terms, or
procure a stay of execution thereof, prior to any execution on such
judgments by such judgment creditor, within 30 days from the date of entry
thereof, and within said period of 30 days, or such longer period during
which execution of such judgment shall be stayed, appeal therefrom and
cause the execution thereof to be stayed during such appeal; or
(i) The Borrower or any ERISA Affiliate shall institute steps to
terminate any Plan if in order to effectuate such termination, the Borrower
or any ERISA Affiliate would be required to make a contribution to such
Plan, or would incur a liability or obligation to such Plan, in excess of
$100,000.00, or the PBGC shall institute steps to terminate any Plan; or
(j) The maturity of any Indebtedness of the Borrower or any of its
Restricted Subsidiaries (other than Indebtedness under: (i) this Agreement
or the other Loan Documents; or (ii) any IDB Reimbursement Agreement) in
the aggregate amount of more than $500,000.00 for any or all of such
Persons shall be accelerated, or any such Person shall fail to pay any such
Indebtedness when due or, in the case of such Indebtedness payable on
demand, when demanded, or any event shall occur or condition shall exist
and shall continue for more than the period of grace, if any, applicable
thereto and shall have the effect of causing, or permitting (any required
notice having been given and grace period having expired) the holder of any
such Indebtedness or any trustee or other Person acting on behalf of such
holder to cause such Indebtedness to become due prior to its stated
maturity or to realize upon any collateral given as security therefor; or
(k) Any creditor of the Borrower or any of its Restricted Subsidiaries
shall commence foreclosure, replevin or other proceedings against any of
the Collateral and such proceeding shall remain unstayed or unbonded for 10
consecutive days; or
(l) Any "Event of Default" (howsoever defined) shall occur under any
IDB Reimbursement Agreement; or
(m) Any Change of Control shall occur, unless (i) successors to such
Qualified Members or Key Officers satisfactory to the Administrative Bank
and the Required Banks, in theirs sole discretion are appointed and begin
serving within 90 days after the occurrence of such Change of Control; or
(ii) the Borrower terminates the Commitment and pays the Revolving Loans,
all Letter of Credit Obligations including, without limitation, any amount
required to be paid under Section 10.3, and all other Obligations in full
within 90 days after
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the Administrative Bank notifies the Borrower in writing that satisfactory
successors were not timely appointed and serving; or
(n) If the validity or enforceability of any of the Loan Documents
shall be challenged by any Loan Party or any other party thereto, or any
Loan Document shall fail to remain in full force and effect.
Section 10.2 Remedies. If: (a) any Event of Default described in Sections
10.1(e), (f) or (g) shall occur, the Commitment shall automatically terminate
and the outstanding unpaid principal balance of the Notes, the accrued interest
thereon, the Letter of Credit Obligations and all other Obligations of the
Borrower shall automatically become immediately due and payable; or (b) any
other Event of Default shall occur and be continuing, then the Administrative
Bank, upon written direction from the Required Banks, shall take any or all of
the following actions: (i) declare the Commitment terminated, whereupon the
Commitment shall terminate; (ii) declare that the outstanding unpaid principal
balance of the Notes, the accrued and unpaid interest thereon, the Letter of
Credit Obligations and all other Obligations under the Loan Documents to be
forthwith due and payable, whereupon the Notes, all accrued and unpaid interest
thereon, the Letter of Credit Obligations and all such Obligations shall
immediately become due and payable, in each case without demand or notice of any
kind, all of which are hereby expressly waived, anything in this Agreement or in
the Notes to the contrary notwithstanding; (iii) exercise all rights and
remedies under any other instrument, document or agreement between the Borrower
and the Administrative Bank for the benefit of the Banks; and (iv) enforce all
rights and remedies under any applicable law.
Section 10.3 Prepayment Obligations. The Borrower agrees that if the
Obligations become immediately due and payable in full at a time when one or
more Letters of Credit are outstanding, the Borrower shall thereupon
automatically be obligated to pay the Administrative Bank, in addition to all
other amounts owing under this Agreement, the aggregate face amount of all
Letters of Credit then outstanding. The foregoing obligation to pay in advance
for amounts which U. S. Bank may later have to pay pursuant to the Letters of
Credit is and shall at all times constitute a part of the "Obligations". Amounts
paid by the Borrower pursuant to this Section 10.3 shall be made directly to an
interest-bearing collateral account maintained at U. S. Bank for application to
the Borrower's reimbursement obligations under Section 2.7(d) as payments are
made on the Letters of Credit, with the balance, if any, to be applied to the
other Obligations.
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ARTICLE XI
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THE ADMINISTRATIVE BANK
Section 11.1 Appointment and Authorization. Each Bank hereby appoints U.
S. Bank as the Administrative Bank and authorizes the Administrative Bank to act
on such Bank's behalf to the extent provided herein or under any other Loan
Document or in connection therewith, and to take such other action and exercise
such other powers as may be reasonably incidental thereof. Each Bank hereby
agrees to be bound by the terms and conditions of the Borrower Security
Agreement and consents to the execution and delivery and/or acceptance of such
Loan Documents by the Administrative Bank.
Section 11.2 Power. The Administrative Bank shall have and may exercise
such powers under this Agreement and any other Loan Documents as are
specifically delegated to the Administrative Bank by the terms hereof or
thereof, together with such powers as are reasonably incidental thereto. As to
any matters not expressly provided for by the Loan Documents (including, without
limitation, enforcement or collection of the Notes), the Administrative Bank
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Required Banks,
and such instructions shall be binding upon all Banks and all holders of the
Notes; provided, however, that the Administrative Bank shall not be required to
take any action which exposes the Administrative Bank to personal liability or
which is contrary to any Loan Document or applicable law. The Administrative
Bank shall not have any implied duties or any obligation to take any action
under this Agreement or any other Loan Document except such action as is
specifically provided by this Agreement or any other Loan Document to be taken
by the Administrative Bank. The Administrative Bank shall act as an independent
contractor in performing its obligations as Administrative Bank hereunder and
nothing contained herein shall be deemed to create a fiduciary relationship
among or between the Administrative Bank and the Borrower or among or between
the Administrative Bank and any Bank.
Section 11.3 Employment of Counsel; etc. The Administrative Bank may
execute any of its duties under this Agreement or any other Loan Document, and
any instrument, agreement or document executed, issued or delivered pursuant
hereto or in connection herewith, by or through employees, agents and
attorneys-in-fact and shall not be answerable to any of the Banks for the
default or misconduct of any such agent or attorney-in-fact selected by it with
reasonable care. The Administrative Bank shall be entitled to rely on advice of
counsel (including counsel who are the employees of the Administrative Bank)
selected by the Administrative Bank concerning all matters pertaining to the
agency hereby created and its duties under any of the Loan Documents.
Section 11.4 Reliance. The Administrative Bank shall be entitled to rely
upon and shall not be under a duty to examine or pass upon the validity,
effectiveness or genuineness of any notice, consent, waiver, amendment,
certificate, affidavit, letter, telegram, statement, paper,
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document or writing believed by it to be genuine and to have been signed or sent
by the proper Person or Persons, and the Administrative Bank shall be entitled
to assume that the same are valid, effective and genuine and what they purport
to be.
Section 11.5 General Immunity. Neither the Administrative Bank nor any of
the Administrative Bank's directors, officers, agents, attorneys or employees
shall be liable to any Bank for any action taken or omitted to be taken by it or
them under the Loan Documents or in connection therewith except that the
Administrative Bank shall be obligated on the terms set forth herein for
performance of its express obligations hereunder and except that no Person shall
be relieved of any liability imposed by law for intentional tort or gross
negligence. Without limiting the generality of the foregoing, the Administrative
Bank: (a) shall not be responsible to any Bank for any recitals, statements,
warranties or representations under the Loan Documents or any agreement or
document relative thereto or for the financial condition of the Borrower; (b)
shall not be responsible for the authenticity, accuracy, completeness, value,
validity, effectiveness, due execution, legality, genuineness, enforceability or
sufficiency of any of the Loan Documents; (c) shall not be responsible for the
validity, genuineness, creation, perfection or priority of any of the Liens
created by any of the Loan Documents, or the validity, genuineness,
enforceability, existence, value or sufficiency of any Collateral or other
security; (d) shall not be bound to ascertain or inquire as to the performance
or observance of any of the terms, covenants or conditions of any of the Loan
Documents on the part of the Borrower or of any of the terms of any such
agreement by any party thereto and shall have no duty to inspect the property
(including the books and records) of the Borrower; (e) shall incur no liability
under or in respect of any of the Loan Documents or any other document or
Collateral by acting upon any notice, consent, certificate or other instrument
or writing (which may be by telegram, cable or telex) believed by the
Administrative Bank to be genuine and signed or sent by the proper party; and
(f) may consult with legal counsel (including counsel for the Borrower),
independent public accountants and other experts selected by the Administrative
Bank and shall not be liable for any action taken or omitted to be taken in
accordance with the advice of such counsel, accountants or experts.
Section 11.6 Credit Analysis. Each Bank has made, and shall continue to
make, its own independent investigation or evaluation of the operations,
business, property and condition, financial and otherwise, of the Borrower in
connection with the making of its commitments hereunder and has made, and will
continue to make, its own independent appraisal of the creditworthiness of the
Borrower. Without limiting the generality of the foregoing, each Bank
acknowledges that prior to the execution of this Agreement, it had this
Agreement and all other Loan Documents and such other documents or matters as it
deemed appropriate relating thereto reviewed by its own legal counsel as it
deemed appropriate, and it is satisfied with the form of this Agreement and all
other Loan Documents. Each Bank agrees and acknowledges that neither the
Administrative Bank nor any of its directors, officers, attorneys or employees
makes any representations or warranties about the creditworthiness of the
Borrower or with respect to the due execution, legality, validity, genuineness,
effectiveness, sufficiency or enforceability of this Agreement or any other Loan
Documents, or the validity, genuineness, execution, perfection or priority of
Liens created or reaffirmed by any of the Loan Documents, or the validity,
genuineness, enforceability, existence, value or sufficiency of any Collateral
or other security.
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Except as explicitly provided herein, neither the Administrative Bank nor any
Bank has any duty or responsibility, either initially or on a continuing basis,
to provide any other Bank with any credit or other information with respect to
the operations, business, property, condition or creditworthiness of the
Borrower or any other Loan Party, whether such information comes into its
possession on or before a Default or an Event of Default or at any time
thereafter; provided, however, that the Administrative Bank agrees that it will
promptly provide each Bank with copies of the financial statements, other
financial reports and notices received by the Administrative Bank pursuant to
Section 8.1 and, at the request of a Bank, a copy of any Collateral audit
performed by the Administrative Bank; provided further, however, that neither
the Administrative Bank nor any of its employees, officers, directors or agents
makes any representation or warranty regarding any information or analyses
provided to any Bank, whether such information or analyses was provided by the
Borrower or prepared or obtained by the Administrative Bank and none of the
Administrative Bank or any of its employees, officers, directors or agents shall
be liable to any Person receiving a copy of such information or analyses.
Section 11.7 U. S. Bank and Affiliates . With respect to its Commitments,
the Loans made by it, the Notes issued to it and the Letter of Credit
Participations retained by it, U. S. Bank shall have the same rights and powers
under the Loan Documents as any other Bank and may exercise the same as though
it were not the Administrative Bank; and the term "Bank" or "Banks" shall,
unless otherwise expressly indicated, include U. S. Bank in its individual
capacity. U. S. Bank and its Affiliates may accept deposits from, lend money to,
act as trustee under indentures of, and generally engage in any kind of business
with the Borrower, and any person or entity who may do business with or own
securities of the Borrower, all as if U. S. Bank were not the Administrative
Bank and without any duty to account therefor to the Banks.
Section 11.8 Indemnification. The Banks severally agree to indemnify and
hold harmless the Administrative Bank and its officers, directors, employees and
agents (to the extent not reimbursed by the Borrower), ratably according to
their respective Percentages, from and against any and all claims, liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against the Administrative Bank or any of its
officers, directors, employees or agents, in any way relating to or arising out
of any investigation, litigation or proceeding concerning or relating to the
transaction contemplated by this Agreement or any of the other Loan Documents,
or any of them, or any action taken or omitted to be taken by the Administrative
Bank or any of its officers, directors, employees or agents, under any of the
Loan Documents' provided, however, that no Bank shall be liable for any portion
of such claims, liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the gross
negligence or willful misconduct of the Administrative Bank or any of its
officers, directors, employees or agents. Without limitation of the foregoing,
each Bank agrees to reimburse the Administrative Bank promptly upon demand for
such Bank's Percentage of any out-of-pocket expenses (including counsel fees)
incurred by the Administrative Bank or its officers, directors, employees or
agents in connection with the preparation, execution, administration or
enforcement of, or obtaining legal advice in respect of rights or
responsibilities
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under any of, the Loan Documents, to the extent that the
Administrative Bank is not reimbursed for such expenses by the Borrower. If any
indemnity furnished to the Administrative Bank for any purpose shall, in the
opinion of the Administrative Bank, be insufficient or become impaired, the
Administrative Bank may call for additional indemnity and not commence or cease
to do the acts indemnified against until such additional indemnity is furnished.
Section 11.9 Successor Administrative Bank. The Administrative Bank may
resign at any time as Administrative Bank under the Loan Documents by giving
written notice thereof to the Banks and the Borrower and may be removed as agent
under the Loan Documents at any time with or without cause by the Required
Banks. Upon any such resignation or removal, the Required Banks shall have the
right to appoint a successor Administrative Bank hereunder. If no successor
Administrative Bank shall have been so appointed by the Required Banks, and such
appointed successor shall have accepted such appointment, within 30 days after
the retiring Administrative Bank's giving of notice of resignation or the
Required Bank's removal of the retiring Administrative Bank, then the retiring
Administrative Bank may, on behalf of the Banks, appoint a successor
Administrative Bank, which shall be a commercial bank organized under the laws
of the United States or of any State thereof and having a combined capital and
surplus of at least $300,000,000.00. Upon the acceptance of any appointment as
Administrative Bank under the Loan Documents by a successor Administrative Bank,
such successor Administrative Bank shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring
Administrative Bank, and the retiring Administrative Bank shall be discharged
from its duties and obligations under the Loan Documents. After any retiring
Administrative Bank's resignation or removal as Administrative Bank under the
Loan Documents, the provisions of this Article XI shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was Administrative
Bank under the Loan Documents.
ARTICLE XII
-----------
MISCELLANEOUS
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Section 12.1 Waiver and Amendment. No failure on the part of any Bank or
the holder of any Note to exercise and no delay in exercising any power or right
hereunder or under any other Loan Document shall operate as a waiver thereof;
nor shall any single or partial exercise of any power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
The remedies herein and in any other instrument, document or agreement delivered
or to be delivered to the Banks hereunder or in connection herewith are
cumulative and not exclusive of any remedies provided by law. No notice to or
demand on the Borrower not required hereunder or under any Note or any other
Loan Document shall in any event entitle the Borrower to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
right of the Banks or the holder of any Note to any other or further action in
any circumstances without notice or demand. The provisions of this Agreement and
each other Loan Document may from time to time be amended, modified or waived,
if such amendment, modification or waiver is in writing and consented to by the
Borrower (in the case of amendments or modifications) and by the Required Banks,
except that the consent of all Banks shall be required to: (a) extend or
increase the amount of the Commitment; (b) extend the maturity of any principal
or any installment of principal payable under any Note or any Letter of Credit
Obligation; (c) reduce the rate of interest payable with respect to any Note or
Letter of Credit Obligation or extend the date of the payment thereof; (d)
reduce the fees or any other payment obligations of the Borrower hereunder or
under any other Loan Document or extend the date of the payment thereof;; (e)
release any material Collateral except as otherwise expressly permitted by the
terms of the Loan Documents; (f) waive any Event of Default of the nature
described in Section 10.1(a); (g) reduce the aggregate Percentages required to
effect an amendment, modification, waiver or consent to this Agreement or any
other Loan Document; (h) change the definition of Required Banks; or (i) amend,
modify, supplement, or grant any waiver or consent, under this Section.
Notwithstanding any other provisions of this Agreement, no amendment,
modification or waiver shall be made with respect to the provisions of any Loan
Document which affects the rights and obligations of the Administrative Bank
without the consent of the Administrative Bank. No amendment, modification or
waiver of any provision of this Agreement or consent to any departure by the
Borrower therefrom shall be effective unless the same shall be in writing and
signed by the Required Banks, and then such amendment, modification, waiver or
consent shall be effective only in the specific instances and for the specific
purpose for which given.
Section 12.2 Expenses and Indemnities.
(a) Loan Documents. Whether or not any Loan is made, the Borrower
agrees to pay and reimburse the Administrative Bank upon demand for all
reasonable expenses paid or incurred by the Administrative Bank (including
filing and recording costs and fees and expenses of legal counsel, who may
be employees of the Administrative Bank, and including the costs of any
appraisals and environmental assessments) in connection with the
preparation, review, execution, delivery, amendment, modification or
interpretation of the Loan Documents. The Borrower agrees to pay and
reimburse the Administrative Bank and each Bank upon demand for all
reasonable expenses paid or incurred by the Administrative Bank or such
Bank (including reasonable fees and expenses of legal
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counsel, who may be employees of the Administrative Bank or such Bank) in
connection with the collection and enforcement of the Loan Documents;
provided, however, that the Borrower's obligations to pay and reimburse any
Bank, other than the Administrative Bank, for such expenses shall be
limited to those incurred by the relevant Bank after the occurrence of an
Event of Default under Section 10.1(a) and/or after the occurrence of any
other Event of Default which has remained uncured or unwaived for at least
30 days. The Borrower agrees to pay, and save each Bank (including the
Administrative Bank) harmless from all liability for, any stamp or other
taxes which may be payable with respect to the execution or delivery of the
Loan Documents. The Borrower agrees to indemnify and hold each Bank
(including the Administrative Bank) harmless from any loss or expense which
may arise or be created by the acceptance of telephonic or other
instructions for making Loans or disbursing the proceeds thereof except for
losses or expenses caused by such Bank's or the Administrative Bank's, as
the case may be, gross negligence or willful misconduct. The obligations of
the Borrower under this Section 12.2 shall survive any termination of this
Agreement.
(b) General Indemnity. In addition to the payment of expenses pursuant
to Section 121.2(a), whether or not the transactions contemplated hereby
shall be consummated, the Borrower hereby indemnifies, and agrees to pay
and hold the Administrative Bank, each Bank, any holder of any Notes, and
their respective officers, directors, employees, agents, successors and
assigns (collectively called the "Indemnitees") harmless from and against,
any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any
kind or nature whatsoever (including, without limitation, the reasonable
fees and disbursements of counsel for any of such Indemnitees in connection
with any investigative, administrative or judicial proceeding commenced or
threatened, whether or not any of such Indemnitees shall be designated a
party thereto), that may be imposed on, incurred by, or asserted against
the Indemnitees (or any of them), in any manner relating to or arising out
of the Loan Documents, the statements contained in any commitment letters
delivered by a Bank, the Banks' several agreements to make the Loans, or
the use or intended use of the proceeds of any of the Loans (the
"Indemnified Liabilities"); provided, however, that the Borrower shall have
no obligation to an Indemnitee hereunder with respect to Indemnified
Liabilities arising from the gross negligence or willful misconduct of such
Indemnitee. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because
it is violative of any law or public policy, the Borrower shall contribute
the maximum portion that it is permitted to pay and satisfy under
applicable law, to the payment and satisfaction of all Indemnified
Liabilities incurred by the Indemnitees or any of them.
(c) Survival. The obligations of the Borrower under this Section 12.2
shall survive any termination of this Agreement.
Section 12.3 Notices. Except when telephonic notice is expressly authorized
by this Agreement, any notice or other communication to any party in connection
with this Agreement
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shall be in writing and shall be sent by manual delivery, telegram, telex,
facsimile transmission, overnight courier or United States mail (postage
prepaid) addressed to such party at the address specified on the signature page
hereof, or at such other address as such party shall have specified to the other
party hereto in writing. All periods of notice shall be measured from the date
of delivery thereof if manually delivered, from the date of sending thereof if
sent by telegram, telex or facsimile transmission, from the first Business Day
after the date of sending if sent by overnight courier, or from four days after
the date of mailing if mailed; provided, however, that any notice to the
Administrative Bank or any Bank under Article II hereof shall be deemed to have
been given only when received by the Administrative Bank or such Bank, as the
case may be. The Borrower hereby authorizes the Administrative Bank and the
Banks to rely upon the telephone or written instructions of any person
identifying himself as an authorized officer of the Borrower and upon any
signature which the Administrative Bank or the Banks believes to be genuine, and
the Borrower shall be bound thereby in the same manner as if such person were
authorized or such signature were genuine.
Section 12.4 Successors. This Agreement shall be binding upon the Borrower,
the Administrative Bank, and the Banks and their respective successors and
assigns, and shall inure to the benefit of the Borrower, the Administrative
Bank, and the Banks and the successors and assigns of the Administrative Bank
and each Bank. The Borrower shall not assign its rights or duties hereunder
without the consent of the Administrative Bank and all of the Banks. Any Bank
may assign to a financial institution a proportionate part of its rights and
obligations under this Agreement of not less than $10,000,000.00 (or, if a
Bank's Individual Revolving Credit Commitment is less than $10,000,000.00, then
not less than the entire amount of such Bank's Individual Revolving Credit
Commitment): (a) upon payment to the Administrative Bank, solely for the account
of the Administrative Bank, of a fee of $3,500.00 for each assignment; and (b)
with the prior written consent of the Borrower and the Administrative Bank
(other than with respect to any assignment by US Bank or any of the transactions
described in the proviso clause hereto (an "Exempt Transfer")), which consent
shall not be unreasonably withheld or delayed by the Borrower or the
Administrative Bank; provided, however, that no Borrower or Administrative Bank
consent shall be required with respect to any assignment made: (i) during any
period when an Event of Default has occurred and is continuing; (ii) to a Bank
Affiliate of such Bank or to any other Bank or any of its Bank Affiliates; (iii)
in connection with the sale of all or substantially all of the Bank's assets; or
(iv) in response to any regulatory action affecting the Bank. Notwithstanding
the preceding sentence. Schedule A shall be amended to reflect each such
assignment.
Section 12.5 Participations and Information. Each Bank may sell
participation interests in any or all of the Loans and in all or any portion of
its Individual Revolving Credit Commitment to any Person without the consent of
the Borrower, the Administrative Bank, or any other Bank, but only so long as:
(a) the transfer is an Exempt Transfer; or (b) if not an Exempt Transfer: then
no holder of any such participation, other than a Bank Affiliate of such Bank,
shall be entitled to require such Bank to take or omit to take any action
hereunder, except that such
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Bank may agree with such participant that such Bank will not, without such
participant's consent, take any action which would increase any Commitment,
extend the Revolving Credit Termination Date, or the Maturity of any Loan, or
extend the due date for or reduce the amount of any payment of principal of or
rate of interest on any Loan or any Letter of Credit Commission, or other fees
accruing hereunder or under any other Loan Document. No Bank shall, as between
the Borrower and such Bank, be relieved of any of its obligations hereunder as a
result of any such granting of a participation.
Section 12.6 Severability. Any provision of this Agreement 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 12.7 Captions. The captions or headings herein and any table of
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.
Section 12.8 Entire Agreement. This Agreement, the Notes and the other Loan
Documents embody the entire agreement and understanding between the Borrower and
the Administrative Bank and the Banks with respect to the subject matter hereof
and thereof. This Agreement supersedes all prior agreements and understandings
relating to the subject matter hereof.
Section 12.9 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
Section 12.10 Governing Law. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY
OF THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO
NATIONAL BANKS.
Section 12.11 Consent to Jurisdiction. AT THE OPTION OF THE REQUIRED BANKS,
THIS AGREEMENT AND THE NOTES MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA
STATE COURT SITTING IN MINNEAPOLIS, ST. PAUL OR ROCHESTER, MINNESOTA; AND THE
BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY
ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER
COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT
THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS
AGREEMENT, THE REQUIRED BANKS AT THEIR OPTION SHALL BE ENTITLED TO HAVE THE CASE
TRANSFERRED TO ONE OF THE
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JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
Section 12.12 Waiver of Jury Trial. EACH OF THE ADMINISTRATIVE BANK, THE
BANKS AND THE BORROWER WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (a) UNDER THIS AGREEMENT OR UNDER ANY
AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR (b) ARISING FROM ANY BANKING
RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY
SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
Section 12.13 Termination of U.S. Bank Main Loan Agreement. On the Closing
Date, the U.S. Bank Main Loan Agreement shall be terminated and of no further
force and effect.
Section 12.14 Disclosure of Information. Subject to this Section, the
Borrower authorizes each Bank to disclose to any participant or assignee (each a
"Transferee") and any prospective Transferee any and all financial and other
Confidential Information (as hereinafter defined) in such Bank's possession
concerning the Loan Parties which has been delivered to such Bank by the Loan
Parties pursuant to this Agreement or which has been delivered to such Bank by
the Loan Parties in connection with such Bank's credit evaluation of the Loan
Parties prior to entering into this Agreement. The Administrative Bank and each
Bank agree that, except as may be required by applicable law or regulation, or
by reason of subpoena after providing notice thereof and an opportunity to
contest unless such notice is prohibited by the terms of the subpoena or
applicable law, court order or government action or as may be necessary or
convenient for the enforcement of the Administrative Bank's and the Banks'
rights and remedies under the Loan Documents or applicable law after the
occurrence of any Event of Default: (a) neither the Administrative Bank nor such
Bank will divulge, publish or otherwise reveal, either directly or through
another, to any Person (other than a Transferee or prospective Transferee) any
Confidential Information; (b) the Administrative Bank and such Bank will return
all Confidential Information to the relevant Loan Party after the termination of
the Administrative Bank's or such Bank's, as the case may be, interests in this
Agreement; and (c) the relevant Loan Party is entitled to injunctive relief
restraining any disclosure of Confidential Information in contravention of the
provisions of this Section without the prior written consent of the relevant
Loan Party. For purposes of this Agreement, "Confidential Information" shall
mean any proprietary information and, in particular, any confidential
information, including facts, business information, formulae, methods,
processes, inventions, devices, plant facilities or the like delivered to, or
received by, the Banks pursuant to Sections 8.1 or 8.5 or otherwise pursuant to
the transactions contemplated by this Agreement except for any such information
which: (w) the relevant Loan Party identifies as not being confidential
information; (x) was known to the public prior to the date of its disclosure to
the Banks; (y) becomes known to the public subsequent to the date of its
disclosure
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by the Borrower through no act of the Banks; or (z) becomes known to
any Bank on a non-confidential basis from a source other than the Borrower.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above.
PEMSTAR INC.
By /s/ R. R. Murphy
--------------------------------------
Its: Treasurer
------------------------------------
By /s/ David L. Sippel
--------------------------------------
Its: Ex Vice President
------------------------------------
3535 Technology Drive NW
Rochester, MN 55901
Attention: Mr. Robert Murphy
Telecopier: 507-280-0380
U. S. Bank National Association, as
Administrative Bank and a Bank
By /s/ illegible
--------------------------------------
Its Vice President
-------------------------------------
155 First Avenue Southwest
Rochester, MN 55902
Attention: Mr. Bruce Gudlin
Telecopier: (507) 285-7863
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EXHIBITS AND SCHEDULES
- ----------------------
Exhibit Contents
------- --------
A Form of Revolving Note
B Notice of Revolving Loans (Confirmation)
C Notice of Continuation/Conversion
D Compliance Certificate
E Borrowing Base Certificate
Schedule
--------
A Banks and Percentages
1.1(a) Borrowing Affiliates and Restricted Subsidiaries
1.1(b) Inventory Locations
1.1(c) Existing Letters of Credit
1.1(d) IDB Bond Equipment Financing
1.1(e) Subordinated Debt and Subordination Agreements
1.1(f) Transaction Documents
1.1(g) Transaction Consideration
7.12 Existing Liens (Sections 7.12 and 9.11)
7.16 Patents, etc. (Section 7.16)
7.19 Subsidiaries (Section 7.19)
7.20 Partnerships (Section 7.20)
7.23 Insurance (Section 7.23)
9.9 Investments
9.10 Existing Indentedness (Section 9.10)
<PAGE>
AMENDMENT NO. 1
TO
CREDIT AGREEMENT
This Amendment No. 1 to Credit Agreement, dated as of August 31st, 1999
(the "Amendment"), among PEMSTAR INC. (the "Borrower"), U.S. Bank National
Association, as administrative bank (the "Administrative Bank"), and and the
Banks party to that certain Credit Agreement dated as of June 4, 1999, among the
Borrower, the Administrative Bank and such Banks (the "Original Agreement")
RECITALS:
---------
A. The Borrower has requested that the Administrative Bank and the Banks
amend certain provisions of the Original Agreement.
B. Subject to the terms and conditions of this Amendment, the
Administrative Bank and the Banks will agree to the Borrower's foregoing
request.
NOW, THEREFORE, the parties agree as follows:
1. Defined Terms. All capitalized terms used in this Amendment shall,
except where the context otherwise requires, have the meanings set forth in the
Original Agreement as amended hereby.
2. Amendments. The Original Agreement is amended as follows:
a. Subpart (d) of the definition of "Eligible Accounts" appearing in
Section 1.1 is amended in its entirety to read as follows:
"(d) (i) if the Account is generated through: (A) the Borrower's
Rochester, MN operations, it must not be unpaid on the date that is:
(1) 90 days from the original invoice date evidencing such Account if
it is not a dated Account; or (2) 60 days past the original stated due
date if such Account is a dated Account but in no event beyond 90 days
from the original invoice date evidencing such Account; or (B) the
Borrower's Quadrus Business operations, it must not be unpaid on the
date that is: (1) 90 days from the original invoice date evidencing
such Account if it is not a dated Account; or (2) 60 days past the
original stated due date if such Account is a dated Account but in no
event beyond 90 days from the original invoice date evidencing such
Account; and (ii) it must not be an Account owed by any Account Debtor
which has 25% or more of its Accounts beyond the time period specified
in subsection (i) above;".
b. The definition of "Eligible Equipment Availability" appearing in
Section 1.1 is amended by extending the date "August 31,1999" appearing in
subpart (i) thereof to the date "October 15, 1999."
<PAGE>
3. Conditions to Effectiveness. This Amendment shall become effective on
the date (the "Effective Date") when, and only when, the Administrative Bank
shall have received:
a. Counterparts of this Amendment executed by the Borrower, the
Administrative Bank and the Required Banks;
b. A Certificate by the Borrower's Secretary or any Assistant
Secretary in form and substance satisfactory to the Administrative Bank and
the Required Banks; and
c. Such other documents, certificates or other items as the
Administrative Bank or the Required Banks may reasonably request.
4. Representations and Warranties. To induce the Administrative Bank and
the Banks to enter into this Amendment, the Borrower represents and warrants to
the Administrative Bank and the Banks as follows:
a. The execution, delivery and performance by the Borrower of this
Amendment and any other documents required to be executed and/or delivered
by the Borrower by the terms of this Amendment have been duly authorized by
all necessary corporate action, do not require any approval or consent of,
or any registration, qualification or filing with, any government agency or
authority or any approval or consent of any other person (including,
without limitation, any stockholder or partner), do not and will not
conflict with, result in any violation of or constitute any default under,
any provision of the Borrower's articles of incorporation or bylaws, any
agreement binding on or applicable to the Borrower or any of its property,
or any law or governmental regulation or court decree or order, binding
upon or applicable to the Borrower or of any of its property and will not
result in the creation or imposition of any security interest or other lien
or encumbrance in or on any of its property pursuant to the provisions of
any agreement applicable to the Borrower or any of its property except
pursuant to the Loan Documents to which the Borrower is a party;
b. The representations and warranties contained in the Original
Agreement are true and correct as of the date hereof as though made on that
date;
c. (i) No events have taken place and no circumstances exist at the
date hereof which would give the Borrower the right to assert a defense,
offset or counterclaim to any claim by the Administrative Bank or any Bank
for payment of the Obligations now or hereafter arising under the Original
Agreement, as amended by this Amendment or any other Loan Document; and
(ii) the Borrower hereby releases and forever discharges the Administrative
Bank, each Bank and their respective successors, assigns, directors,
officers, agents, employees and participants from any and all actions,
causes of action, suits, proceedings, debts, sums of money, covenants,
contracts, controversies, claims and demands, at law or in equity, which
the Borrower ever had or now has against the Administrative Bank, any Bank
or their respective successors, assigns, directors, officers, agents,
employees or participants by virtue of their
<PAGE>
relationship to the Borrower in connection with the Original Agreement, the
other Loan Documents and the transactions related thereto;
d. The Original Agreement, as amended by this Amendment, and the other
Loan Documents to which the Borrower is a party remain in full force and
effect and are the legal, valid and binding obligations of the Borrower and
are enforceable in accordance with their respective terms, subject only to
bankruptcy, insolvency, reorganization, moratorium or similar laws, rulings
or decisions at the time in effect affecting the enforceability of rights
of creditors generally and to general equitable principles which may limit
the right to obtain equitable remedies; and
e. After giving effect to this Amendment, there does not exist any
Default or Event of Default.
5. Reference to and Effect on the Loan Documents.
a. From and after the date of this Amendment, each reference in the
Original Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Original Agreement, and each
reference to the "Agreement", "thereunder", "thereof", "therein" or words
of like import referring to the Original Agreement in any other Loan
Document shall mean and be a reference to the Original Agreement as amended
hereby.
b. The execution, delivery and effectiveness of this Amendment, except
as expressly provided herein, shall not operate as a waiver of any right,
power or remedy of the Administrative Bank or any Bank under the Original
Agreement or any other Loan Document, nor constitute a waiver of any
provision of the Original Agreement or any such other Loan Document.
6. Costs, Expenses and Taxes. The Borrower agrees to pay on demand all
costs and expenses of the Administrative Bank in connection with the
preparation, reproduction, execution and delivery of this Amendment and the
other documents to be delivered hereunder or thereunder, including the
Administrative Bank's reasonable attorneys' fees and legal expenses. In
addition, the Borrower shall pay any and all stamp and other taxes and fees
payable or determined to be payable in connection with the execution and
delivery, filing or recording of this Amendment and the other instruments and
documents to be delivered hereunder, and agrees to hold the Administrative Bank
and the Banks harmless from and against any and all liabilities with respect to,
or resulting from, any delay in the Borrower's paying or omission to pay, such
taxes or fees.
7. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Minnesota.
<PAGE>
8. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
9. Counterparts. This Amendment may be executed in separate counterparts
and by separate parties in separate counterparts, each of which shall be an
original and all of which taken together shall constitute one and the same
Amendment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their respective officers thereunto duly authorized as of the date first
written above.
PEMSTAR Inc.
By: /s/ R. R. Murphy
-------------------------------------
Title: Treasurer
----------------------------------
By: /s/ David L. Sippel
--------------------------------------
Title: Exec V P
----------------------------------
U.S. Bank National Association, as
Administrative Bank and a Bank
By: /s/
-------------------------------------
Title: Officer
----------------------------------
M&I Marshall and Ilsley Bank, as a Bank
By: /s/
-------------------------------------
Title: Vice President
----------------------------------
<PAGE>
CERTIFICATE OF SECRETARY
I, Gary Lingbeck, hereby certify that:
(a) I am the Secretary of PEMSTAR INC., a Minnesota corporation (the
"Corporation"), and that I am authorized to execute this Certificate
on behalf of the Corporation;
(b) the Resolutions, Certificate of Incumbency and Signature Specimens
included in that certain Secretary's Certificate regarding the
Corporation and signed on June 1, 1999 remain in full force and effect
as of the date hereof and have not in any way been amended, modified
or rescinded; and
(c) the Corporation's Articles of Incorporation and Bylaws respectively
attached to such Secretary's Certificate as Exhibit A and Exhibit B
remain in full force and effect as of the date hereof and have not in
any way been amended, modified or rescinded.
IN WITNESS WHEREOF, I have hereunder subscribed my name as of the 31st day
of August, 1999.
/s/ Gary Lingbeck
-----------------------------------------
Secretary
<PAGE>
AMENDMENT NO. 2
TO
CREDIT AGREEMENT
This Amendment No. 2 to Credit Agreement, dated as of October 14, 1999 (the
"Amendment"), among PEMSTAR INC. (the "Borrower"), U.S. Bank National
Association, as administrative bank (the "Administrative Bank"), and and the
Banks party to that certain Credit Agreement dated as of June 4, 1999, among the
Borrower, the Administrative Bank and such Banks, as amended by an Amendment No.
1 dated as of August 31, 1999, (as so amended, the "Original Agreement")
RECITALS:
---------
A. The Borrower has requested that the Administrative Bank and the Banks
amend certain provisions of the Original Agreement.
B. Subject to the terms and conditions of this Amendment, the
Administrative Bank and the Banks will agree to the Borrower's foregoing
request.
NOW, THEREFORE, the parties agree as follows:
1. Defined Terms. All capitalized terms used in this Amendment shall,
except where the context otherwise requires, have the meanings set forth in the
Original Agreement as amended hereby.
2. Amendment. The definition of "Eligible Equipment Availability" appearing
in Section 1.1 of the Original Agreement is amended by extending the date
"October 15,1999" appearing in subpart (i) thereof to the date "February 15,
2000."
3. Conditions to Effectiveness. This Amendment shall become effective on
the date (the "Effective Date") when, and only when, the Administrative Bank
shall have received:
a. Counterparts of this Amendment executed by the Borrower, the
Administrative Bank and the Required Banks;
b. A Certificate by the Borrower's Secretary or any Assistant
Secretary in form and substance satisfactory to the Administrative Bank and
the Required Banks; and
c. Such other documents, certificates or other items as the
Administrative Bank or the Required Banks may reasonably request.
<PAGE>
4. Representations and Warranties. To induce the Administrative Bank and
the Banks to enter into this Amendment, the Borrower represents and warrants to
the Administrative Bank and the Banks as follows:
a. The execution, delivery and performance by the Borrower of this
Amendment and any other documents required to be executed and/or delivered
by the Borrower by the terms of this Amendment have been duly authorized by
all necessary corporate action, do not require any approval or consent of,
or any registration, qualification or filing with, any government agency or
authority or any approval or consent of any other person (including,
without limitation, any stockholder or partner), do not and will not
conflict with, result in any violation of or constitute any default under,
any provision of the Borrower's articles of incorporation or bylaws, any
agreement binding on or applicable to the Borrower or any of its property,
or any law or governmental regulation or court decree or order, binding
upon or applicable to the Borrower or of any of its property and will not
result in the creation or imposition of any security interest or other lien
or encumbrance in or on any of its property pursuant to the provisions of
any agreement applicable to the Borrower or any of its property except
pursuant to the Loan Documents to which the Borrower is a party;
b. The representations and warranties contained in the Original
Agreement are true and correct as of the date hereof as though made on that
date;
c. (i) No events have taken place and no circumstances exist at the
date hereof which would give the Borrower the right to assert a defense,
offset or counterclaim to any claim by the Administrative Bank or any Bank
for payment of the Obligations now or hereafter arising under the Original
Agreement, as amended by this Amendment or any other Loan Document; and
(ii) the Borrower hereby releases and forever discharges the Administrative
Bank, each Bank and their respective successors, assigns, directors,
officers, agents, employees and participants from any and all actions,
causes of action, suits, proceedings, debts, sums of money, covenants,
contracts, controversies, claims and demands, at law or in equity, which
the Borrower ever had or now has against the Administrative Bank, any Bank
or their respective successors, assigns, directors, officers, agents,
employees or participants by virtue of their relationship to the Borrower
in connection with the Original Agreement, the other Loan Documents and the
transactions related thereto;
d. The Original Agreement, as amended by this Amendment, and the other
Loan Documents to which the Borrower is a party remain in full force and
effect and are the legal, valid and binding obligations of the Borrower and
are enforceable in accordance with their respective terms, subject only to
bankruptcy, insolvency, reorganization, moratorium or similar laws, rulings
or decisions at the time in effect affecting the enforceability of rights
of creditors generally and to general equitable principles which may limit
the right to obtain equitable remedies; and
<PAGE>
e. After giving effect to this Amendment, there does not exist any
Default or Event of Default.
5. Reference to and Effect on the Loan Documents.
a. From and after the date of this Amendment, each reference in the
Original Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Original Agreement, and each
reference to the "Agreement", "thereunder", "thereof", "therein" or words
of like import referring to the Original Agreement in any other Loan
Document shall mean and be a reference to the Original Agreement as amended
hereby.
b. The execution, delivery and effectiveness of this Amendment, except
as expressly provided herein, shall not operate as a waiver of any right,
power or remedy of the Administrative Bank or any Bank under the Original
Agreement or any other Loan Document, nor constitute a waiver of any
provision of the Original Agreement or any such other Loan Document.
6. Costs, Expenses and Taxes. The Borrower agrees to pay on demand all
costs and expenses of the Administrative Bank in connection with the
preparation, reproduction, execution and delivery of this Amendment and the
other documents to be delivered hereunder or thereunder, including the
Administrative Bank's reasonable attorneys' fees and legal expenses. In
addition, the Borrower shall pay any and all stamp and other taxes and fees
payable or determined to be payable in connection with the execution and
delivery, filing or recording of this Amendment and the other instruments and
documents to be delivered hereunder, and agrees to hold the Administrative Bank
and the Banks harmless from and against any and all liabilities with respect to,
or resulting from, any delay in the Borrower's paying or omission to pay, such
taxes or fees.
7. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Minnesota.
8. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
9. Counterparts. This Amendment may be executed in separate counterparts
and by separate parties in separate counterparts, each of which shall be an
original and all of which taken together shall constitute one and the same
Amendment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their respective officers thereunto duly authorized as of the date first
written above.
PEMSTAR Inc.
By: /s/ R. R. Murphy
--------------------------------------
Title: Treasurer
----------------------------------
U.S. Bank National Association, as
Administrative Bank and a Bank
By: /s/ illegible
-------------------------------------
Title: V. P.
----------------------------------
M&I Marshall and Ilsley Bank, as a Bank
By: /s/ illegible
-------------------------------------
Title: Vice President
----------------------------------
<PAGE>
AMENDMENT NO. 3
TO
CREDIT AGREEMENT
This Amendment No. 3 to Credit Agreement, dated as of November 23, 1999
(the "Amendment"), among PEMSTAR INC. (the "Borrower"), U.S. Bank National
Association, as administrative bank (the "Administrative Bank"), and and the
Banks party to that certain Credit Agreement dated as of June 4, 1999, among the
Borrower, the Administrative Bank and such Banks, as amended by an Amendment No.
1 dated as of August 31, 1999 and an Amendment No. 2 dated as of October 14,
1999, (as so amended, the "Original Agreement")
RECITALS:
---------
A. The Borrower has requested that the Administrative Bank and the Banks
amend certain provisions of the Original Agreement.
B. Subject to the terms and conditions of this Amendment, the
Administrative Bank and the Banks will agree to the Borrower's foregoing
request.
NOW, THEREFORE, the parties agree as follows:
1. Defined Terms. All capitalized terms used in this Amendment shall,
except where the context otherwise requires, have the meanings set forth in the
Original Agreement as amended hereby.
2. Amendment. The definition of "Revolving Credit Commitment" appearing in
Section 1.1 of the Original Agreement is amended by increasing the amount
"$40,000,000.00" to "$45,000,000.00."
3. Conditions to Effectiveness. This Amendment shall become effective on
the date (the "Effective Date") when, and only when, the Administrative Bank
shall have received:
a. Counterparts of this Amendment executed by the Borrower, the
Administrative Bank and the Banks;
b. Replacement Revolving Notes (the "Replacement Revolving Notes") in
a form provided by the Administrative Bank appropriately completed and duly
executed by the Borrower;
c. A Certificate by the Borrower's Secretary or any Assistant
Secretary in form and substance satisfactory to the Administrative Bank and
the Banks;
<PAGE>
d. An opinion of counsel to the Borrower, addressed to the
Administrative Bank and the Banks, in form and substance satisfactory to
the Administrative Bank and the Banks;
f. Such other documents, certificates or other items as the
Administrative Bank or the Banks may reasonably request.
4. Representations and Warranties. To induce the Administrative Bank and
the Banks to enter into this Amendment, the Borrower represents and warrants to
the Administrative Bank and the Banks as follows:
a. The execution, delivery and performance by the Borrower of this
Amendment, the Replacement Revolving Notes and any other documents required
to be executed and/or delivered by the Borrower by the terms of this
Amendment have been duly authorized by all necessary corporate action, do
not require any approval or consent of, or any registration, qualification
or filing with, any government agency or authority or any approval or
consent of any other person (including, without limitation, any stockholder
or partner), do not and will not conflict with, result in any violation of
or constitute any default under, any provision of the Borrower's articles
of incorporation or bylaws, any agreement binding on or applicable to the
Borrower or any of its property, or any law or governmental regulation or
court decree or order, binding upon or applicable to the Borrower or of any
of its property and will not result in the creation or imposition of any
security interest or other lien or encumbrance in or on any of its property
pursuant to the provisions of any agreement applicable to the Borrower or
any of its property except pursuant to the Loan Documents to which the
Borrower is a party;
b. The representations and warranties contained in the Original
Agreement are true and correct as of the date hereof as though made on that
date;
c. (i) No events have taken place and no circumstances exist at the
date hereof which would give the Borrower the right to assert a defense,
offset or counterclaim to any claim by the Administrative Bank or any Bank
for payment of the Obligations now or hereafter arising under the Original
Agreement, as amended by this Amendment or any other Loan Document; and
(ii) the Borrower hereby releases and forever discharges the Administrative
Bank, each Bank and their respective successors, assigns, directors,
officers, agents, employees and participants from any and all actions,
causes of action, suits, proceedings, debts, sums of money, covenants,
contracts, controversies, claims and demands, at law or in equity, which
the Borrower ever had or now has against the Administrative Bank, any Bank
or their respective successors, assigns, directors, officers, agents,
employees or participants by virtue of their relationship to the Borrower
in connection with the Original Agreement, the other Loan Documents and the
transactions related thereto;
<PAGE>
d. The Original Agreement, as amended by this Amendment, the
Replacement Revolving Note(s) and the other Loan Documents to which the
Borrower is a party remain in full force and effect and are the legal,
valid and binding obligations of the Borrower and are enforceable in
accordance with their respective terms, subject only to bankruptcy,
insolvency, reorganization, moratorium or similar laws, rulings or
decisions at the time in effect affecting the enforceability of rights of
creditors generally and to general equitable principles which may limit the
right to obtain equitable remedies; and
e. After giving effect to this Amendment, there does not exist any
Default or Event of Default.
5. Reference to and Effect on the Loan Documents.
a. From and after the date of this Amendment, each reference in:
(i) the Original Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Original
Agreement, and each reference to the "Agreement", "thereunder",
"thereof", "therein" or words of like import referring to the Original
Agreement in any other Loan Document shall mean and be a reference to
the Original Agreement as amended hereby; and
(ii) any Loan Document to "the Revolving Note," "thereunder",
"thereof", "therein" or words of like import referring to any
Revolving Note which has been replaced by a Replacement Revolving Note
executed and delivered pursuant to this Amendment shall mean and be a
reference to such Replacement Revolving Note.
b. The execution, delivery and effectiveness of this Amendment, except
as expressly provided herein, shall not operate as a waiver of any right,
power or remedy of the Administrative Bank or any Bank under the Original
Agreement or any other Loan Document, nor constitute a waiver of any
provision of the Original Agreement or any such other Loan Document.
6. Costs, Expenses and Taxes. The Borrower agrees to pay on demand all
costs and expenses of the Administrative Bank in connection with the
preparation, reproduction, execution and delivery of this Amendment and the
other documents to be delivered hereunder or thereunder, including the
Administrative Bank's reasonable attorneys' fees and legal expenses. In
addition, the Borrower shall pay any and all stamp and other taxes and fees
payable or determined to be payable in connection with the execution and
delivery, filing or recording of this Amendment and the other instruments and
documents to be delivered hereunder, and agrees
<PAGE>
to hold the Administrative Bank and the Banks harmless from and against any and
all liabilities with respect to, or resulting from, any delay in the Borrower's
paying or omission to pay, such taxes or fees.
7. Governing Law. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS
AMENDMENT AND THE REPLACEMENT REVOLVING NOTE(S) SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF
LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES
APPLICABLE TO NATIONAL BANKS.
8. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
9. Counterparts. This Amendment may be executed in separate counterparts
and by separate parties in separate counterparts, each of which shall be an
original and all of which taken together shall constitute one and the same
Amendment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
PEMSTAR Inc.
By: /s/ illegible
--------------------------------------
Title: CEO
----------------------------------
By: /s/ R. R. Murphy
--------------------------------------
Title: Treasurer
----------------------------------
U.S. Bank National Association, as
Administrative Bank and a Bank
By:
-------------------------------------
Title:
----------------------------------
M&I Marshall and Ilsley Bank, as a Bank
By:
-------------------------------------
Title:
----------------------------------
<PAGE>
REPLACEMENT REVOLVING NOTE
--------------------------
$22,500,000.00 Rochester, Minnesota
November 23, 1999
FOR VALUE RECEIVED, the undersigned, PEMSTAR INC., a Minnesota corporation
(the "Borrower"), promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION
(the "Bank"), on the "Revolving Credit Termination Date" (as defined in the
Credit Agreement hereinafter described (the "Credit Agreement")), the principal
sum of TWENTY-TWO MILLION FIVE HUNDRED THOUSAND AND NO/100THS DOLLARS
($22,500,000.00) or if less, the then aggregate unpaid principal amount of the
Revolving Loans (as such term is defined in the Credit Agreement) as may be
borrowed by the Borrower from the Bank under the Credit Agreement. All Revolving
Loans and all payments of principal shall be recorded by the holder in its
records which records shall be conclusive evidence of the subject matter
thereof, absent manifest error.
The Borrower further promises to pay to the order of the Bank interest on
each Revolving Loan from time to time outstanding from the date hereof until
paid in full at the rates per annum which shall be determined in accordance with
the provisions of the Credit Agreement. Accrued interest shall be payable on the
dates specified in the Credit Agreement.
All payments of principal and interest under this Note shall be made in
lawful money of the United States of America in immediately available funds to
U.S. Bank National Association, as the Administrative Bank (the "Administrative
Bank"), at the Administrative Bank's office at 155 First Avenue Southwest,
Rochester, Minnesota 55902, or at such other place as may be designated by the
Administrative Bank to the Borrower in writing.
This Note is one of the Revolving Notes referred to in, and evidences
indebtedness incurred under, a Credit Agreement dated as of June 4, 1999
(herein, as it may be amended, modified or supplemented from time to time,
called the "Credit Agreement;" capitalized terms not otherwise defined herein
being used herein as therein defined) among the Borrower, the Administrative
Bank, the Bank and the other bank parties thereto, to which Credit Agreement
reference is made for a statement of the terms and provisions thereof, including
those under which the Borrower is permitted and required to make prepayments and
repayments of principal of such indebtedness and under which such indebtedness
may be declared to be immediately due and payable.
<PAGE>
REPLACEMENT REVOLVING NOTE
--------------------------
Page 2
$22,500,000.00 Rochester, Minnesota
November23, 1999
All parties hereto, whether as makers, endorsers or otherwise, severally
waive presentment, demand, protest and notice of dishonor in connection with
this Note.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT
TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS.
This Note is being executed and delivered in replacement of, but not in
payment of, that certain Replacement Revolving Note dated June 8, 1999 made by
the Borrower payable to the order of the Bank in the original principal amount
of $20,000,000.00; provided, however, that interest accrued on such replaced
note through the date hereof shall be due and payable on the next interest
payment date under the Credit Agreement.
PEMSTAR Inc.
By: /s/ illegible
--------------------------------------
Title: CEO
----------------------------------
By: /s/ R. R. Murphy
--------------------------------------
Title: Treasurer
----------------------------------
<PAGE>
REPLACEMENT REVOLVING NOTE
--------------------------
$22,500,000.00 Rochester, Minnesota
November 23, 1999
FOR VALUE RECEIVED, the undersigned, PEMSTAR INC., a Minnesota corporation
(the "Borrower"), promises to pay to the order of M&I MARSHALL AND ILSLEY BANK
(the "Bank"), on the "Revolving Credit Termination Date" (as defined in the
Credit Agreement hereinafter described (the "Credit Agreement")), the principal
sum of TWENTY-TWO MILLION FIVE HUNDRED THOUSAND AND NO/100THS DOLLARS
($22,500,000.00) or if less, the then aggregate unpaid principal amount of the
Revolving Loans (as such term is defined in the Credit Agreement) as may be
borrowed by the Borrower from the Bank under the Credit Agreement. All Revolving
Loans and all payments of principal shall be recorded by the holder in its
records which records shall be conclusive evidence of the subject matter
thereof, absent manifest error.
The Borrower further promises to pay to the order of the Bank interest on
each Revolving Loan from time to time outstanding from the date hereof until
paid in full at the rates per annum which shall be determined in accordance with
the provisions of the Credit Agreement. Accrued interest shall be payable on the
dates specified in the Credit Agreement.
All payments of principal and interest under this Note shall be made in
lawful money of the United States of America in immediately available funds to
U.S. Bank National Association, as the Administrative Bank (the "Administrative
Bank"), at the Administrative Bank's office at 155 First Avenue Southwest,
Rochester, Minnesota 55902, or at such other place as may be designated by the
Administrative Bank to the Borrower in writing.
This Note is one of the Revolving Notes referred to in, and evidences
indebtedness incurred under, a Credit Agreement dated as of June 4, 1999
(herein, as it may be amended, modified or supplemented from time to time,
called the "Credit Agreement;" capitalized terms not otherwise defined herein
being used herein as therein defined) among the Borrower, the Administrative
Bank, the Bank and the other bank parties thereto, to which Credit Agreement
reference is made for a statement of the terms and provisions thereof, including
those under which the Borrower is permitted and required to make prepayments and
repayments of principal of such indebtedness and under which such indebtedness
may be declared to be immediately due and payable.
<PAGE>
REPLACEMENT REVOLVING NOTE
--------------------------
Page 2
$22,500,000.00 Rochester, Minnesota
November 23, 1999
All parties hereto, whether as makers, endorsers or otherwise, severally
waive presentment, demand, protest and notice of dishonor in connection with
this Note.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT
TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS.
This Note is being executed and delivered in replacement of, but not in
payment of, that certain Revolving Note dated June 8, 1999 made by the Borrower
payable to the order of the Bank in the original principal amount of
$20,000,000.00; provided, however, that interest accrued on such replaced note
through the date hereof shall be due and payable on the next interest payment
date under the Credit Agreement.
PEMSTAR Inc.
By: /s/ Gary Lingbeck
--------------------------------------
Title: CEO
----------------------------------
By: /s/ R. R. Murphy
--------------------------------------
Title: Treasurer
----------------------------------
<PAGE>
AMENDMENT NO. 4
TO
CREDIT AGREEMENT
This Amendment No. 4 to Credit Agreement, dated as of December 20, 1999
(the "Amendment"), among PEMSTAR INC. (the "Borrower"), U.S. Bank National
Association, as administrative bank (the "Administrative Bank"), and the Banks
party to that certain Credit Agreement dated as of June 4, 1999, among the
Borrower, the Administrative Bank and such Banks, as amended by an Amendment No.
1 dated as of August 31, 1999, an Amendment No. 2 dated as of October 14, 1999,
and an Amendment No. 3 dated as of November 23, 1999 (as so amended, the
"Original Agreement")
RECITALS:
---------
A. The Borrower has requested that the Administrative Bank and the Banks
further amend certain provisions of the Original Agreement.
B. Subject to the terms and conditions of this Amendment, the
Administrative Bank and the Banks will agree to the Borrower's foregoing
request.
NOW, THEREFORE, the parties agree as follows:
1. Defined Terms. All capitalized terms used in this Amendment shall,
except where the context otherwise requires, have the meanings set forth in the
Original Agreement as amended hereby.
2. Amendment. The Original Agreement is hereby amended as follows:
a. The definitions of "Commitment," "Loans," "Maturity," "Notes" and
"Revolving Loan(s)" appearing in Section 1.1 of the Original Agreement are
respectively amended in their entireties to read as follows:
"`Commitment': The agreement of the Banks to make the Revolving
Loans, of U. S. Bank to make the Revolving B Loans and to issue the
Letters of Credit and of each Bank to purchase its Letter of Credit
Participations.
`Loans': The Revolving Loans and the Revolving B Loans.
`Maturity': The earlier of: (a) the date on which the Loans
become due and payable under Section 10.2 upon the occurrence of an
Event of Default; or (b) (i) the Revolving Credit Termination Date for
the Revolving Loans; or (ii) the Revolving Credit B Termination Date
for the Revolving B Loans.
<PAGE>
`Notes': The Revolving Notes and the Revolving B Note.
`Revolving Loan(s)': The Loans described in Section 2.1."
b. Section 1.1 is further amended by adding the following new
definitions of "Adjusted Percentage", "Revolving Credit B
Commitment,""Revolving Credit B Non-Usage Fee," "Revolving Credit B
Origination Fee,""Revolving Credit B Termination Date," "Revolving B
Loan(s)" and "Revolving B Note" in proper alphabetical order:
"`Adjusted Percentage': With respect to any Bank, the ratio
(expressed as a percentage) which: (a) the sum of such Bank's: (i)
Individual Revolving Credit Commitment; plus (ii) Revolving Credit B
Commitment, if any; bears to (b) the sum of: (i) the Revolving Credit
Commitment; plus (ii) the Revolving Credit B Commitment, if any.
`Revolving Credit B Commitment': The maximum unpaid principal
amount of Revolving B Loans which may from time to time be outstanding
hereunder, being initially $12,000,000.00, as the same may be reduced
from time to time pursuant to Section 4.3 and, as the context may
require, the agreement of U.S. Bank to make Revolving B Loans to the
Borrower up to the Revolving Credit B Commitment subject to the terms
and conditions of this Agreement.
`Revolving Credit B Non-Usage Fee': As provided in Section 3.2B.
`Revolving Credit B Origination Fee': As provided in Section
3.3B.
`Revolving Credit B Termination Date': The date which is the
earliest of: (a) December 31, 2000; (b) the date on which the Borrower
terminates the Revolving Credit B Commitment pursuant to Section 4.3;
or (c) the date upon which the obligation of U. S. Bank to make
Revolving B Loans is terminated pursuant to Section 10.2.
`Revolving B Loan(s)': The Loans described in Section 2.1(b).
`Revolving B Note': The promissory note of the Borrower described
in Section 2.5(b), substantially in the form of Exhibit A to that
certain Amendment No. 4 to Credit Agreement dated as of December 20,
1999 (the `Fourth Amendment') among the Borrower, the Administrative
Bank and the Banks, as such promissory note may be amended, modified
or supplemented from time to time, and such term shall include any
substitutions for, or renewals of, such promissory note."
<PAGE>
c. Section 2.1 of the Original Agreement is amended by changing its
heading from "Loans to "Revolving Loans" and by changing the reference to
"Section 2.1(a)" appearing in the 13th line thereof to a reference to
"Section 2.1."
d. ARTICLE II of the Original Agreement is further amended by adding
the following new Section 2.1B.
"Section 2.1B The Revolving B Loans . Subject to the terms and
conditions hereof and in reliance upon the warranties of the Borrower
herein, U. S. Bank agrees to make loans (each a `Revolving B Loan' and
collectively the `Revolving B Loans') to the Borrower from time to
time from the date hereof until the Revolving Credit B Termination
Date up to an aggregate unpaid principal amount at any time equal to
the Revolving Credit B Commitment, during which period the Borrower
may repay and reborrow in accordance with the provisions hereof,
provided that U. S. Bank shall not be obligated to make any Revolving
B Loan: (a) if, after giving effect to such Revolving B Loan, the
aggregate outstanding principal amount of the Revolving B Loans would
exceed the Revolving Credit B Commitment; or (b) to the extent that
the amount of the requested Revolving B Loan would then be available
to the Borrower under the Revolving Credit Commitment; it being
understood and agreed that Revolving B Loans shall be available to the
Borrower only on a last-in basis after the Revolving Credit Commitment
has been fully funded to the extent permitted by Section 2.1.
e. The second sentence of Section 2.2 of the Original Agreement is
amended in its entirety to read as follows:
"Any combination of Types of Loan Units may be outstanding at the
same time; provided, however, that neither the Revolving Loans nor the
Revolving B Loans may consist of more than five (5) different
Eurodollar Rate Loan Units."
f. Section 2.3 of the Original Agreement is amended in its entirety to
read as follows:
"Section 2.3 Borrowing Procedures. Any request by the Borrower
for Loans shall be in writing, or by telephone promptly confirmed in
writing if so requested by the Administrative Bank , and must be given
so as to be received by the Administrative Bank not later than 12:00
noon, Administrative Bank time, on: (i) the date of the requested
Loans, if such Loans will not include Eurodollar Rate Loan Units; or
(ii) on the third Eurodollar Business Day prior to the date of the
requested Loans, if such Loans will include Eurodollar Rate
<PAGE>
Loan Units. Each request for Loans shall specify the borrowing date
(which shall be a Business Day and, in the case of any request for
Eurodollar Rate Loan Units, a Eurodollar Business Day) and the amount
of such Loans. Each request for Loans shall be in a minimum amount of
$500,000.00 in the case of Revolving Loans or $500,000.00 in the case
of Revolving B Loans and an integral multiple of $100,000.00 above
such amount. Each request for Loans shall be deemed a representation
and warranty by the Borrower that all conditions precedent specified
in Section 6.2 to such Loans are satisfied on the date of such request
and on the date the requested Loans are made. Each written request or
confirmation shall be in the form of Exhibit B attached hereto.
The Administrative Bank shall give prompt telephonic notice to
each Bank of the Borrower's request for Revolving Loans and to U. S.
Bank of the Borrower's request for Revolving B Loans and the
Borrower's interest rate elections for such Loans. By not later than
1:00 p.m. (Administrative Bank time) on the date of such Loans, each
Bank shall make available to the Administrative Bank, in immediately
available funds, such Bank's Percentage of requested Revolving Loans
or U. S. Bank shall make available to the Administrative Bank, in
immediately available funds, such Revolving B Loans. After the
Administrative Bank's receipt of such funds, and upon satisfaction of
the applicable conditions set forth in Article VI, the Administrative
Bank will make the amount of the requested Loans available to the
Borrower at the Administrative Bank's principal office in Rochester,
Minnesota in immediately available funds on the date requested.
Unless the Administrative Bank shall have been notified by any
Bank in writing prior to the date of a Revolving Loan that such Bank
does not intend to make available to the Administrative Bank its
Percentage of such Revolving Loan, the Administrative Bank may assume
that each Bank has made such amount available to the Administrative
Bank on such date, and the Administrative Bank may, in reliance upon
such assumption, make available to the Borrower a corresponding
amount. If and to the extent any Bank shall not have made available to
the Administrative Bank on the date of any Revolving Loan such Bank's
Percentage of such Revolving Loan, such Bank and the Borrower agree to
repay the Administrative Bank forthwith on demand such corresponding
amount, together with interest thereon, for each day from the date of
such Revolving Loan amount until the date such amount is repaid to the
Administrative Bank, at the Federal Funds Rate, in the case of payment
by such Bank, or at the interest rate applicable at the time to the
relevant Revolving Loan, in the case of payment by the Borrower;
provided, however, if such Bank shall repay to the Administrative Bank
such corresponding amount, the amount
<PAGE>
repaid shall constitute such Bank's Revolving Loan for purposes of
this Agreement."
g. Section 2.5 of the Original Agreement is amended in its entirety to
read as follows:
"Section 2.5 The Notes and Maturities . The Revolving Loans made
by a Bank shall be evidenced by a Revolving Note, in the amount of
such Bank's Individual Revolving Credit Commitment and the Revolving B
Loans made by U. S. Bank shall be evidenced by a Revolving B Note, in
the amount of such Bank's Revolving Credit B Commitment. The Loans and
the Notes shall mature and be payable at Maturity of the relevant
Loans. Each Bank shall enter in its records the amount of its Loans,
the rate of interest borne on such Loans by each Loan Unit, and the
payments of the Loans received by such Bank, and such records shall be
conclusive evidence of the subject matter thereof, absent manifest
error."
h. Section 3.1 of the Original Agreement is amended by changing the
reference to `Section 3.1(b)" in the first line thereto to a reference to
"Section 3.1(c)" and is further generally amended so that each reference to
"Revolving Loan" or "Revolving Loans" therein shall be deemed to be a
reference to "Loan" or "Loans," respectively.
i. ARTICLE III of the Original Agreement is further amended by adding
the following new Section 3.2B:
"Section 3.2B Revolving Credit B Non-usage Fees . The Borrower
shall pay to U. S. Bank a fee (the "Revolving Credit B Non-Usage Fee")
determined by applying a rate separately agreed upon by the Borrower
and U. S. Bank to the average daily excess of the Revolving Credit B
Commitment over the sum of the outstanding principal amount of the
Revolving B Loans. The Revolving Credit B Non-Usage Fee shall be
payable to U. S. Bank in arrears on each Quarterly Payment Date,
commencing with the first such date following the `Effective Date' of
the Fourth Amendment, and on the Revolving Credit B Termination Date.
The Revolving Credit B Non-Usage Fee shall be payable to U. S. Bank,
solely for its own account."
j. ARTICLE III of the Original Agreement is further amended by adding
the following new Section 3.3B:
"Section 3.3B Revolving Credit B Origination Fee. Upon the
execution of the Fourth Amendment, the Borrower shall pay to U. S. a
non-refundable origination fee (the `Revolving Credit B Origination
Fee') in the amount
<PAGE>
separately agreed upon by the Borrower and U. S. Bank. No termination
or reduction of any Revolving B Loan or the Revolving Credit B
Commitment and no failure of the Borrower to satisfy the conditions
set forth in Article VI shall entitle the Borrower to a refund of any
portion of the Revolving Credit B Origination Fee. The Revolving
Credit B Origination Fee shall be payable to U. S. Bank, solely for
its own account."
k. Section 3.6 of the Original Agreement is amended in its entirety to
read as follows:
"Section 3.6 Computation . Interest, the Revolving Credit
Non-Usage Fee, the Revolving Credit B Non-Usage Fee and the Letter of
Credit Commission shall be computed on the basis of actual days
elapsed and a year of 360 days."
l. Section 4.2(b) of the Original Agreement is further amended by
adding the following new subsections (iv):
"(iv) Subject to the provisions of Section 4.7, if, at any time,
the sum of the aggregate unpaid principal amount of the Revolving B
Loans made by U.S. Bank exceeds the Bank's Revolving Credit B
Commitment, then the Borrower shall immediately prepay the amount of
such excess together with interest on the amount prepaid to the
Administrative Bank for distribution to U. S. Bank for application to
the Revolving B Loans owed to such Bank."
m. Section 4.3(a) of the Original Agreement is amended in its entirety
to read as follows:
"(a) Voluntary. The Borrower may, at any time, upon no less than
three (3) Business Days' prior written notice received by the
Administrative Bank, permanently reduce the Revolving Credit
Commitment or the Revolving Credit B Commitment, with any such
reduction in a minimum amount of $5,000,000.00 with respect to the
Revolving Credit Commitment or an integral multiple of $1,000,000.00
in excess of that amount or in a minimum amount of $1,000,000.00 with
respect to the Revolving Credit B Commitment or an integral multiple
of $1,000,000.00 in excess of that amount; provided, however, the
Borrower may not reduce: (a) the Revolving Credit Commitment below the
sum of the aggregate unpaid principal amount of the Revolving Loans
plus the Letter of Credit Obligations; or (b) the Revolving Credit B
Commitment below the aggregate unpaid principal amount of the
Revolving B Loans. The Borrower may, at any time when no Revolving
Loans or Letter of Credit Obligations are outstanding with respect to
the Revolving Credit Commitment or no Revolving
<PAGE>
B Loans are outstanding with respect to the Revolving Credit B
Commitment, upon not less than three (3) Business Days' prior written
notice to the Administrative Bank, terminate both the Revolving Credit
Commitment and Letter of Credit Commitment in their entireties on the
one hand, or the Revolving Credit B Commitment, on the other hand, or
may, when no Letter of Credit Obligations are outstanding, terminate
the Letter of Credit Commitment. Upon termination of both of the
Revolving Credit Commitment and the Letter of Credit Commitment
pursuant to this Section, the Borrower shall pay to the Administrative
Bank all accrued and unpaid interest on the Revolving Loans, all
unpaid Revolving Credit Non-Usage Fee accrued to the date of such
termination and all other unpaid Obligations of the Borrower to the
Administrative Bank or any Bank hereunder with respect to the
Revolving Loans, the Revolving Credit Commitment, the Letters of
Credit and the Letter of Credit Commitment including, without
limitation, any amount required to be paid under Section 10.3. Upon
termination of the Letter of Credit Commitment (without a
corresponding termination of the Revolving Credit Commitment) pursuant
to this Section, the Borrower shall pay to the Administrative Bank all
unpaid Obligations of the Borrower to U. S. Bank hereunder with
respect to the Letters of Credit and the Letter of Credit Commitment
including, without limitation, any amount required to be paid under
Section 10.3. Upon termination of the Revolving Credit B Commitment
pursuant to this Section, the Borrower shall pay to U. S. Bank all
accrued and unpaid interest on the Revolving B Loans, all unpaid
Revolving Credit B Non-Usage Fee accrued to the date of such
termination and all other unpaid Obligations of the Borrower to U. S.
Bank hereunder with respect to the Revolving B Loans and the Revolving
Credit B Commitment. The provisions of this Section 4.3 are subject to
the priority of Commitment termination or reduction set forth in
Section 4.7."
n. The fifth and sixth sentences of Section 4.4 are respectively
amended in their entireties to read as follows:
"The Borrower hereby authorizes the Banks, at the discretion of
the Required Banks in the case of Revolving Loans or U. S. Bank in the
case of Revolving B Loans, to make a Loan in order to pay, on behalf
of the Borrower, any amount due on any Note or pursuant to any of the
other Loan Documents without further action on the part of the
Borrower and regardless of whether the Borrower is able to comply with
the terms, conditions and covenants of this Agreement at the time of
such Loan. The Administrative Bank will use its best efforts to inform
the Borrower immediately prior to or promptly after any such charge to
the Borrower's account or Loan is made."
<PAGE>
o. ARTICLE IV of the Original Agreement is further amended by adding
the following new Section 4.7:
"Section 4.7 Relationship of Commitments. The Borrower, the
Administrative Bank, the Banks and U. S. Bank, in its capacity as the
issuer of the Revolving Credit B Commitment acknowledge and agree
that: (a) the Revolving B Loans are to be made on a last-in basis as
provided in Section 2.1B; (b) the Revolving Credit B Commitment shall
be terminated or reduced prior to the termination or reduction of the
Revolving Credit Commitment pursuant to Section 4.3; and (c) except
for mandatory prepayments of Revolving Loans pursuant to Section
4.2(b), the Revolving B Loans are to be paid on a first-out basis;
provided, however, that, if an Event of Default has occurred and is
continuing at the time of any payment on the Loans or any reduction or
termination of any Commitment, then such payment and/or reduction or
termination of a Commitment, instead of being applied to the Revolving
B Loans and/or the Revolving Credit B Commitment, shall be applied
first to pay the Revolving Loans and/or to reduce or terminate the
Revolving Credit Commitment and then to cash collateralize the Letter
of Credit Obligations and/or to reduce or terminate the Letter of
Credit Commitment until the Revolving Loans are paid in full, the
Revolving Credit Commitment is terminated, the Letter of Credit
Obligations are fully cash collateralized; and the Letter of Credit
Commitment is terminated. To further implement the parties' agreement
set forth in this Section, the parties agree that in the event of any
conflict or inconsistency between the provisions of this Section and
the provisions of any other Loan Document including, without
limitation ARTICLE VII of the Security Agreement, the provisions of
this Section shall govern. Without limiting the generality of the
foregoing, and by way of example only, the parties agree that U. S.
Bank's "Principal Amount" for purposes of computing its "Pro Rata
Share" of Collateral proceeds pursuant to the Security Agreement shall
not include the aggregate outstanding principal amount of the
Revolving B Loans following an Event of Default."
p. Section 11.8 of the Original Agreement is generally amended so that
each reference to "Percentages" appearing therein shall be deemed to be a
reference to "Adjusted Percentages."
q. Exhibit B to the Original Agreement is amended to conform to
Exhibit B (Amended 12/99) attached hereto.
r. Exhibit C to the Original Agreement is amended to conform to
Exhibit C (Amended 12/99) attached hereto.
<PAGE>
3. Conditions to Effectiveness. This Amendment shall become effective on
the date (the "Effective Date") when, and only when, the Administrative Bank
shall have received:
a. Counterparts of this Amendment executed by the Borrower, the
Administrative Bank and the Banks;
b. A Revolving B Note in a form provided by the Administrative Bank
appropriately completed and duly executed by the Borrower;
c. A Certificate by the Borrower's Secretary or any Assistant
Secretary in form and substance satisfactory to the Administrative Bank and
the Banks;
d. An opinion of counsel to the Borrower, addressed to the
Administrative Bank and the Banks, in form and substance satisfactory to
the Administrative Bank and the Banks;
e. Receipt in immediately available funds by U. S. Bank, solely for
its own account, of the Revolving Credit B Origination Fee; and
f. Such other documents, certificates or other items as the
Administrative Bank or the Banks may reasonably request.
4. Representations and Warranties. To induce the Administrative Bank and
the Banks to enter into this Amendment, the Borrower represents and warrants to
the Administrative Bank and the Banks as follows:
a. The execution, delivery and performance by the Borrower of this
Amendment, the Revolving B Note and any other documents required to be
executed and/or delivered by the Borrower by the terms of this Amendment
have been duly authorized by all necessary corporate action, do not require
any approval or consent of, or any registration, qualification or filing
with, any government agency or authority or any approval or consent of any
other person (including, without limitation, any stockholder or partner),
do not and will not conflict with, result in any violation of or constitute
any default under, any provision of the Borrower's articles of
incorporation or bylaws, any agreement binding on or applicable to the
Borrower or any of its property, or any law or governmental regulation or
court decree or order, binding upon or applicable to the Borrower or of any
of its property and will not result in the creation or imposition of any
security interest or other lien or encumbrance in or on any of its property
pursuant to the provisions of any agreement applicable to the Borrower or
any of its property except pursuant to the Loan Documents to which the
Borrower is a party;
b. The representations and warranties contained in the Original
Agreement are true and correct as of the date hereof as though made on that
date;
<PAGE>
c. (i) No events have taken place and no circumstances exist at the
date hereof which would give the Borrower the right to assert a defense,
offset or counterclaim to any claim by the Administrative Bank or any Bank
for payment of the Obligations now or hereafter arising under the Original
Agreement, as amended by this Amendment or any other Loan Document; and
(ii) the Borrower hereby releases and forever discharges the Administrative
Bank, each Bank and their respective successors, assigns, directors,
officers, agents, employees and participants from any and all actions,
causes of action, suits, proceedings, debts, sums of money, covenants,
contracts, controversies, claims and demands, at law or in equity, which
the Borrower ever had or now has against the Administrative Bank, any Bank
or their respective successors, assigns, directors, officers, agents,
employees or participants by virtue of their relationship to the Borrower
in connection with the Original Agreement, the other Loan Documents and the
transactions related thereto;
d. The Original Agreement, as amended by this Amendment, the Revolving
B Note and the other Loan Documents to which the Borrower is a party remain
in full force and effect and are the legal, valid and binding obligations
of the Borrower and are enforceable in accordance with their respective
terms, subject only to bankruptcy, insolvency, reorganization, moratorium
or similar laws, rulings or decisions at the time in effect affecting the
enforceability of rights of creditors generally and to general equitable
principles which may limit the right to obtain equitable remedies; and
e. After giving effect to this Amendment, there does not exist any
Default or Event of Default.
5. Reference to and Effect on the Loan Documents.
a. From and after the date of this Amendment, each reference in:
(i) the Original Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Original
Agreement, and each reference to the "Agreement", "thereunder",
"thereof", "therein" or words of like import referring to the Original
Agreement in any other Loan Document shall mean and be a reference to
the Original Agreement as amended hereby; and
(ii) any Loan Document to "the Notes," "thereunder", "thereof",
"therein" or words of like import referring to the Notes shall be
deemed to include the Revolving B Note where appropriate.
b. The execution, delivery and effectiveness of this Amendment, except
as expressly provided herein, shall not operate as a waiver of any right,
power or remedy of the Administrative Bank or any Bank under the Original
Agreement or any other Loan Document,
<PAGE>
nor constitute a waiver of any provision of the Original Agreement or any
such other Loan Document.
6. Costs, Expenses and Taxes. The Borrower agrees to pay on demand all
costs and expenses of the Administrative Bank in connection with the
preparation, reproduction, execution and delivery of this Amendment and the
other documents to be delivered hereunder or thereunder, including the
Administrative Bank's reasonable attorneys' fees and legal expenses. In
addition, the Borrower shall pay any and all stamp and other taxes and fees
payable or determined to be payable in connection with the execution and
delivery, filing or recording of this Amendment and the other instruments and
documents to be delivered hereunder, and agrees to hold the Administrative Bank
and the Banks harmless from and against any and all liabilities with respect to,
or resulting from, any delay in the Borrower's paying or omission to pay, such
taxes or fees.
7. Governing Law. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS
AMENDMENT AND THE REVOLVING B NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO
NATIONAL BANKS.
8. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
9. Counterparts. This Amendment may be executed in separate counterparts
and by separate parties in separate counterparts, each of which shall be an
original and all of which taken together shall constitute one and the same
Amendment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
PEMSTAR Inc.
By: /s/ Gary Lingbeck
-------------------------------------
Title: Secretary
----------------------------------
By: /s/ R. R. Murphy
-------------------------------------
Title: Treasurer
----------------------------------
U.S. Bank National Association, as
Administrative Bank and a Bank
By: Gwen Rusans
-------------------------------------
Title: Officer
----------------------------------
M&I Marshall and Ilsley Bank, as a Bank
By
-------------------------------------
Title:
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
<PAGE>
EXHIBIT A
---------
REVOLVING B NOTE
----------------
$12,000,000.00 Rochester, Minnesota
December 20, 1999
FOR VALUE RECEIVED, the undersigned, PEMSTAR INC., a Minnesota corporation
(the "Borrower"), promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION
(the "Bank"), on the "Revolving Credit B Termination Date" (as defined in the
Credit Agreement hereinafter described (the "Credit Agreement"), the principal
sum of TWELVE MILLION AND NO/100THS DOLLARS ($12,000,000.00) or if less, the
then aggregate unpaid principal amount of the Revolving B Loans (as such term is
defined in the Credit Agreement) as may be borrowed by the Borrower from the
Bank under the Credit Agreement. All Revolving B Loans and all payments of
principal shall be recorded by the holder in its records which records shall be
conclusive evidence of the subject matter thereof, absent manifest error.
The Borrower further promises to pay to the order of the Bank interest on
each Revolving B Loan from time to time outstanding from the date hereof until
paid in full at the rates per annum which shall be determined in accordance with
the provisions of the Credit Agreement. Accrued interest shall be payable on the
dates specified in the Credit Agreement.
All payments of principal and interest under this Note shall be made in
lawful money of the United States of America in immediately available funds to
U.S. Bank National Association, as the Administrative Bank (the "Administrative
Bank"), at the Administrative Bank's office at 155 First Avenue Southwest,
Rochester, Minnesota 55902, or at such other place as may be designated by the
Administrative Bank to the Borrower in writing.
This Note is the Revolving B Note referred to in, and evidences
indebtedness incurred under, a Credit Agreement dated as of June 4, 1999
(herein, as it may be amended, modified or supplemented from time to time,
called the "Credit Agreement;" capitalized terms not otherwise defined herein
being used herein as therein defined) among the Borrower, the Administrative
Bank, the Bank and the other bank parties thereto, to which Credit Agreement
reference is made for a statement of the terms and provisions thereof, including
those under which the Borrower is permitted and required to make prepayments and
repayments of principal of such indebtedness and under which such indebtedness
may be declared to be immediately due and payable.
<PAGE>
REVOLVING B NOTE
----------------
Page 2
$12,000,000.00 Rochester, Minnesota
December20, 1999
All parties hereto, whether as makers, endorsers or otherwise, severally
waive presentment, demand, protest and notice of dishonor in connection with
this Note.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT
TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS.
PEMSTAR INC.
By:
-------------------------------------
Its:
-------------------------------------
By:
-------------------------------------
Its:
-------------------------------------
<PAGE>
EXHIBIT B
(AMENDED 12/99)
---------------
[TO COME]
<PAGE>
EXHIBIT C
(AMENDED 12/99)
---------------
[TO COME]
<PAGE>
REVOLVING B NOTE
----------------
$12,000,000.00 Rochester, Minnesota
December 20, 1999
FOR VALUE RECEIVED, the undersigned, PEMSTAR INC., a Minnesota corporation
(the "Borrower"), promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION
(the "Bank"), on the "Revolving Credit B Termination Date" (as defined in the
Credit Agreement hereinafter described (the "Credit Agreement"), the principal
sum of TWELVE MILLION AND NO/100THS DOLLARS ($12,000,000.00) or if less, the
then aggregate unpaid principal amount of the Revolving B Loans (as such term is
defined in the Credit Agreement) as may be borrowed by the Borrower from the
Bank under the Credit Agreement. All Revolving B Loans and all payments of
principal shall be recorded by the holder in its records which records shall be
conclusive evidence of the subject matter thereof, absent manifest error.
The Borrower further promises to pay to the order of the Bank interest on
each Revolving B Loan from time to time outstanding from the date hereof until
paid in full at the rates per annum which shall be determined in accordance with
the provisions of the Credit Agreement. Accrued interest shall be payable on the
dates specified in the Credit Agreement.
All payments of principal and interest under this Note shall be made in
lawful money of the United States of America in immediately available funds to
U.S. Bank National Association, as the Administrative Bank (the "Administrative
Bank"), at the Administrative Bank's office at 155 First Avenue Southwest,
Rochester, Minnesota 55902, or at such other place as may be designated by the
Administrative Bank to the Borrower in writing.
This Note is the Revolving B Note referred to in, and evidences
indebtedness incurred under, a Credit Agreement dated as of June 4, 1999
(herein, as it may be amended, modified or supplemented from time to time,
called the "Credit Agreement;" capitalized terms not otherwise defined herein
being used herein as therein defined) among the Borrower, the Administrative
Bank, the Bank and the other bank parties thereto, to which Credit Agreement
reference is made for a statement of the terms and provisions thereof, including
those under which the Borrower is permitted and required to make prepayments and
repayments of principal of such indebtedness and under which such indebtedness
may be declared to be immediately due and payable.
<PAGE>
REVOLVING B NOTE
----------------
Page 2
$12,000,000.00 Rochester, Minnesota
December20, 1999
All parties hereto, whether as makers, endorsers or otherwise, severally
waive presentment, demand, protest and notice of dishonor in connection with
this Note.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT
TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS.
PEMSTAR INC.
By: /s/ Gary Lingbeck
-------------------------------------
Its: Secretary
------------------------------------
By: R. R. Murphy
-------------------------------------
Its: Treasurer
------------------------------------
<PAGE>
AMENDMENT NO. 5
TO
CREDIT AGREEMENT
This Amendment No. 5 to Credit Agreement, dated as of March 13, 2000 (the
"Amendment"), among PEMSTAR INC. (the "Borrower"), U.S. Bank National
Association, as administrative bank (the "Administrative Bank"), and and the
Banks party to that certain Credit Agreement dated as of June 4, 1999, among the
Borrower, the Administrative Bank and such Banks, as amended by an Amendment No.
1 dated as of August 31, 1999, an Amendment No. 2 dated as of October 14, 1999,
an Amendment No. 3 dated as of November 23 , 1999, and an Amendment No. 4 dated
as of December 20, 1999 (as so amended, the "Original Agreement").
RECITALS:
---------
A. The Borrower has requested that the Administrative Bank and the Banks
further amend certain provisions of the Original Agreement.
B. Subject to the terms and conditions of this Amendment, the
Administrative Bank and the Banks will agree to the Borrower's foregoing
request.
NOW, THEREFORE, the parties agree as follows:
1. Defined Terms. All capitalized terms used in this Amendment shall,
except where the context otherwise requires, have the meanings set forth in the
Original Agreement as amended hereby.
2. Amendment. The Original Agreement is hereby amended as follows:
a. The definition of "Applicable Margin" appearing in Section 1.1 of
the Original Agreement is amended in its entirety to read as follows:
"`Applicable Margin': At any date of determination, the percentage
indicated below in accordance with the Cash Flow Leverage Ratio at such
date:
<PAGE>
<TABLE>
<CAPTION>
When the Cash Flow
Leverage Ratio Is The Applicable Margin Is
----------------- --------------------- --
<S> <C> <C>
Equal to or greater than 3.5 Base Rate Loan Units 2.00% per annum
to1.0
Eurodollar Rate Loan Units 3.75% per annum
Less than 3.50 to 1.0 but equal Base Rate Loan Units 1.00% per annum
to or greater than 2.50 to 1.0
Eurodollar Rate Loan Units 2.75% per annum
Less than 2.50 to 1.0 but Base Rate Loan Units 0.75% per annum
greater than 1.50 to 1.0
Eurodollar Rate Loan Units 2.50% per annum
Equal to or less than 1.50 to Base Rate Loan Units 0.50% per annum
1.0
Eurodollar Rate Loan Units 2.25% per annum.
</TABLE>
The Applicable Margin as of the `Effective Date' of that certain Amendment
No. 5 to Credit Agreement dated as of March ____, 2000 (the `Fifth
Amendment') is 2.00% per annum with respect to Base Rate Loan Units and
3.75 % per annum with respect to Eurodollar Rate Loan Units and shall
continue at those percentages until changed in accordance with the terms of
this definition. The Cash Flow Leverage Ratio and the Applicable Margin
will be determined at the end of each fiscal quarter, commencing with the
fiscal quarter ending June 30, 2000, as alculated from the financial
statements and Compliance Certificate delivered by the Borrower pursuant to
Sections 8.1(b) and 8.1(c). Any increase or decrease in the Applicable
Margin shall apply to all then existing or thereafter arising Loan Units
and shall become effective as of the first day following the date on which
the Borrower delivers its financial statements and Compliance Certificate
to the Administrative Bank and the Banks in accordance with Section 8.1(b)
and Section 8.1(c), respectively, showing that the Cash Flow Leverage Ratio
for the Measurement Period coinciding with the end of such fiscal quarter
required a change in the Applicable Margin, and shall continue to be
effective until subsequently changed in accordance with this definition;
provided, however, if the financial statements required by Section 8.1(b)
and Compliance Certificate required by Section 8.1(c), are not delivered in
the time periods provided therein, the Cash Flow Leverage Ratio will be
deemed to be greater than 3.5 to 1.0.
b. The definition of "Revolving Credit Commitment" appearing in
Section 1.1 of the Original Agreement is amended by increasing the amount
"$45,000,000.00" to "$55,000,000.00."
c. The definition of "Revolving Credit B Commitment" appearing in
Section 1.1 of the Original Agreement is amended by decreasing the amount
"$12,000,000.00" to "$10,000,000.00."
<PAGE>
d. The definition of "Revolving Credit B Termination Date" appearing
in Section 1.1 of the Original Agreement is amended by changing the date
"December 31, 2000" to the date "April 30, 2000."
e. Schedule A (Amended 6/8/99) to the Original Agreement is amended to
conform to Schedule A (Amended 3/10 /00) attached hereto.
3. Conditions to Effectiveness. This Amendment shall become effective on
the date (the "Effective Date") when, and only when, the Administrative Bank
shall have received:
a. Counterparts of this Amendment executed by the Borrower, the
Administrative Bank and the Banks;
b. A Replacement Revolving Note (the "Replacement Revolving Note")
payable to the order of U.S. Bank in the form provided by the
Administrative Bank appropriately completed and duly executed by the
Borrower;
c. A Replacement Revolving B Note (the "Replacement Revolving B Note")
payable to the order of U.S. Bank in the form provided by the
Administrative Bank appropriately completed and duly executed by the
Borrower;
d. A Certificate by the Borrower's Secretary or any Assistant
Secretary in form and substance satisfactory to the Administrative Bank and
the Banks;
e. An opinion of counsel to the Borrower, addressed to the
Administrative Bank and the Banks, in form and substance satisfactory to
the Administrative Bank and the Banks;
f. The payment, in immediately available funds, to the Administrative
Bank solely for the benefit of U.S. Bank of the origination fee separately
agreed upon by the Borrower and U.S. Bank for the increase in the Revolving
Credit Commitment effected by this Amendment; and
g. Such other documents, certificates or other items as the
Administrative Bank or the Banks may reasonably request.
4. Representations and Warranties. To induce the Administrative Bank and
the Banks to enter into this Amendment, the Borrower represents and warrants to
the Administrative Bank and the Banks as follows:
a. The execution, delivery and performance by the Borrower of this
Amendment, the Replacement Revolving Note, the Replacement Revolving B Note
and any other documents required to be executed and/or delivered by the
Borrower by the terms of this Amendment have been duly authorized by all
necessary corporate action, do not require any approval or consent of, or
any registration, qualification or filing with, any government agency or
authority or any approval or consent of any other person (including,
without limitation, any stockholder or partner), do not and will not
conflict with, result in any violation of or constitute any default under,
any provision of the Borrower's articles of incorporation or bylaws, any
agreement binding on or applicable to the Borrower or any of its property,
or any law or governmental regulation or court decree
<PAGE>
or order, binding upon or applicable to the Borrower or of any of its
property and will not result in the creation or imposition of any security
interest or other lien or encumbrance in or on any of its property pursuant
to the provisions of any agreement applicable to the Borrower or any of its
property except pursuant to the Loan Documents to which the Borrower is a
party;
b. The representations and warranties contained in the Original
Agreement are true and correct as of the date hereof as though made on that
date;
c. (i) No events have taken place and no circumstances exist at the
date hereof which would give the Borrower the right to assert a defense,
offset or counterclaim to any claim by the Administrative Bank or any Bank
for payment of the Obligations now or hereafter arising under the Original
Agreement, as amended by this Amendment or any other Loan Document; and
(ii) the Borrower hereby releases and forever discharges the Administrative
Bank, each Bank and their respective successors, assigns, directors,
officers, agents, employees and participants from any and all actions,
causes of action, suits, proceedings, debts, sums of money, covenants,
contracts, controversies, claims and demands, at law or in equity, which
the Borrower ever had or now has against the Administrative Bank, any Bank
or their respective successors, assigns, directors, officers, agents,
employees or participants by virtue of their relationship to the Borrower
in connection with the Original Agreement, the other Loan Documents and the
transactions related thereto;
d. The Original Agreement, as amended by this Amendment, the
Replacement Revolving Note, the Replacement Revolving B Note and the other
Loan Documents to which the Borrower is a party remain in full force and
effect and are the legal, valid and binding obligations of the Borrower and
are enforceable in accordance with their respective terms, subject only to
bankruptcy, insolvency, reorganization, moratorium or similar laws, rulings
or decisions at the time in effect affecting the enforceability of rights
of creditors generally and to general equitable principles which may limit
the right to obtain equitable remedies; and
e. After giving effect to this Amendment, there does not exist any
Default or Event of Default.
5. Reference to and Effect on the Loan Documents.
a. From and after the date of this Amendment, each reference in:
(i) the Original Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Original
Agreement, and each reference to the "Agreement", "thereunder",
"thereof", "therein" or words of like import referring to the Original
Agreement in any other Loan Document shall mean and be a reference to
the Original Agreement as amended hereby;
(ii) any Loan Document to "the Revolving Note" payable to US
Bank, "thereunder", "thereof", "therein" or words of like import
referring to such Revolving Note shall mean and be a reference to the
Replacement Revolving Note executed and delivered to US Bank pursuant
to this Amendment; and
<PAGE>
(iii) any Loan Document to: (A) "the Revolving B Note,"
"thereunder", "thereof", "therein" or words of like import referring
to the Revolving B Note shall mean and be a reference to the
Replacement Revolving Note executed and delivered to US Bank pursuant
to this Amendment; or (B) "the Notes," "thereunder", "thereof",
"therein" or words of like import referring to the Notes shall be
deemed to include such Replacement Revolving B Note where appropriate.
b. The execution, delivery and effectiveness of this Amendment, except
as expressly provided herein, shall not operate as a waiver of any right,
power or remedy of the Administrative Bank or any Bank under the Original
Agreement or any other Loan Document, nor constitute a waiver of any
provision of the Original Agreement or any such other Loan Document.
6. Costs, Expenses and Taxes. The Borrower agrees to pay on demand all
costs and expenses of the Administrative Bank in connection with the
preparation, reproduction, execution and delivery of this Amendment and the
other documents to be delivered hereunder or thereunder, including the
Administrative Bank's reasonable attorneys' fees and legal expenses. In
addition, the Borrower shall pay any and all stamp and other taxes and fees
payable or determined to be payable in connection with the execution and
delivery, filing or recording of this Amendment and the other instruments and
documents to be delivered hereunder, and agrees to hold the Administrative Bank
and the Banks harmless from and against any and all liabilities with respect to,
or resulting from, any delay in the Borrower's paying or omission to pay, such
taxes or fees.
7. Governing Law. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS
AMENDMENT AND THE REVOLVING B NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES APPLICABLE TO
NATIONAL BANKS.
8. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
9. Counterparts. This Amendment may be executed in separate counterparts
and by separate parties in separate counterparts, each of which shall be an
original and all of which taken together shall constitute one and the same
Amendment.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
PEMSTAR Inc.
By:
-------------------------------------
Title:
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
U.S. Bank National Association, as
Administrative Bank and a Bank
By:
-------------------------------------
Title:
----------------------------------
M&I Marshall and Ilsley Bank, as a Bank
By:
-------------------------------------
Title:
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
<PAGE>
SCHEDULE A
(Amended 3/13/00)
Banks and Percentages
Banks Percentages
----- -----------
U.S. Bank National Association 59.09090909%
M & I Marshall & Ilsley 40.90909091%
<PAGE>
REPLACEMENT REVOLVING B NOTE
----------------------------
$10,000,000.00 Rochester, Minnesota
March ____, 2000
FOR VALUE RECEIVED, the undersigned, PEMSTAR INC., a Minnesota corporation
(the "Borrower"), promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION
(the "Bank"), on the "Revolving Credit B Termination Date" (as defined in the
Credit Agreement hereinafter described (the "Credit Agreement")), the principal
sum of TEN MILLION AND NO/100THS DOLLARS ($10,000,000.00) or if less, the then
aggregate unpaid principal amount of the Revolving B Loans (as such term is
defined in the Credit Agreement) as may be borrowed by the Borrower from the
Bank under the Credit Agreement. All Revolving B Loans and all payments of
principal shall be recorded by the holder in its records which records shall be
conclusive evidence of the subject matter thereof, absent manifest error.
The Borrower further promises to pay to the order of the Bank interest on
each Revolving B Loan from time to time outstanding from the date hereof until
paid in full at the rates per annum which shall be determined in accordance with
the provisions of the Credit Agreement. Accrued interest shall be payable on the
dates specified in the Credit Agreement.
All payments of principal and interest under this Note shall be made in
lawful money of the United States of America in immediately available funds to
U.S. Bank National Association, as the Administrative Bank (the "Administrative
Bank"), at the Administrative Bank's office at 155 First Avenue Southwest,
Rochester, Minnesota 55902, or at such other place as may be designated by the
Administrative Bank to the Borrower in writing.
This Note is the Revolving B Note referred to in, and evidences
indebtedness incurred under, a Credit Agreement dated as of June 4, 1999
(herein, as it may be amended, modified or supplemented from time to time,
called the "Credit Agreement;" capitalized terms not otherwise defined herein
being used herein as therein defined) among the Borrower, the Administrative
Bank, the Bank and the other bank parties thereto, to which Credit Agreement
reference is made for a statement of the terms and provisions thereof, including
those under which the Borrower is permitted and required to make prepayments and
repayments of principal of such indebtedness and under which such indebtedness
may be declared to be immediately due and payable.
<PAGE>
REPLACEMENT REVOLVING B NOTE
----------------------------
Page 2
$10,000,000.00 Rochester, Minnesota
March ____, 2000
All parties hereto, whether as makers, endorsers or otherwise, severally
waive presentment, demand, protest and notice of dishonor in connection with
this Note.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT
TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS.
This Note is being executed and delivered in replacement of, but not in
payment of, that certain Revolving B Note dated December 20, 1999 made by the
Borrower payable to the order of the Bank in the original principal amount of
$12,000,000.00; provided, however, that interest accrued on such replaced note
through the date hereof shall be due and payable on the next interest payment
date under the Credit Agreement.
PEMSTAR INC.
By:
------------------------------------
Its:
------------------------------------
By:
-------------------------------------
Its:
------------------------------------
<PAGE>
REPLACEMENT REVOLVING NOTE
--------------------------
$32,500,000.00 Rochester, Minnesota
March ___, 2000
FOR VALUE RECEIVED, the undersigned, PEMSTAR INC., a Minnesota corporation
(the "Borrower"), promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION
(the "Bank"), on the "Revolving Credit Termination Date" (as defined in the
Credit Agreement hereinafter described (the "Credit Agreement")), the principal
sum of THIRTY-TWO MILLION FIVE HUNDRED THOUSAND AND NO/100THS DOLLARS
($32,500,000.00) or if less, the then aggregate unpaid principal amount of the
Revolving Loans (as such term is defined in the Credit Agreement) as may be
borrowed by the Borrower from the Bank under the Credit Agreement. All Revolving
Loans and all payments of principal shall be recorded by the holder in its
records which records shall be conclusive evidence of the subject matter
thereof, absent manifest error.
The Borrower further promises to pay to the order of the Bank interest on
each Revolving Loan from time to time outstanding from the date hereof until
paid in full at the rates per annum which shall be determined in accordance with
the provisions of the Credit Agreement. Accrued interest shall be payable on the
dates specified in the Credit Agreement.
All payments of principal and interest under this Note shall be made in
lawful money of the United States of America in immediately available funds to
U.S. Bank National Association, as the Administrative Bank (the "Administrative
Bank"), at the Administrative Bank's office at 155 First Avenue Southwest,
Rochester, Minnesota 55902, or at such other place as may be designated by the
Administrative Bank to the Borrower in writing.
This Note is one of the Revolving Notes referred to in, and evidences
indebtedness incurred under, a Credit Agreement dated as of June 4, 1999
(herein, as it may be amended, modified or supplemented from time to time,
called the "Credit Agreement;" capitalized terms not otherwise defined herein
being used herein as therein defined) among the Borrower, the Administrative
Bank, the Bank and the other bank parties thereto, to which Credit Agreement
reference is made for a statement of the terms and provisions thereof, including
those under which the Borrower is permitted and required to make prepayments and
repayments of principal of such indebtedness and under which such indebtedness
may be declared to be immediately due and payable.
<PAGE>
REPLACEMENT REVOLVING NOTE
--------------------------
Page 2
$32,500,000.00 Rochester, Minnesota
March ___, 2000
All parties hereto, whether as makers, endorsers or otherwise, severally
waive presentment, demand, protest and notice of dishonor in connection with
this Note.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT
TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS.
This Note is being executed and delivered in replacement of, but not in
payment of, that certain Replacement Revolving Note dated November 23, 1999 made
by the Borrower payable to the order of the Bank in the original principal
amount of $22,500,000.00; provided, however, that interest accrued on such
replaced note through the date hereof shall be due and payable on the next
interest payment date under the Credit Agreement.
PEMSTAR INC.
By:
------------------------------------
Its:
------------------------------------
By:
-------------------------------------
Its:
------------------------------------
<PAGE>
CERTIFICATE OF SECRETARY
I, _____________________________, hereby certify that:
(a) I am the Secretary of PEMSTAR INC., a Minnesota corporation (the
"Corporation"), and that I am authorized to execute this Certificate
on behalf of the Corporation;
(b) Attached hereto as Exhibit A are the Resolutions of this Corporation
adopted by its board of directors as of December 20, 1999 and such
Resolutions remain in full force and effect as of the date hereof and
have not in any way been amended, modified or rescinded; and
(c) the Certificate of Incumbency and Signature Specimens included in that
certain Secretary's Certificate regarding the Corporation and signed
on June 1, 1999 remain in full force and effect as of the date hereof
and have not in any way been amended, modified or rescinded; and
(d) the Corporation's Articles of Incorporation and Bylaws respectively
attached hereto as Exhibit A and Exhibit B remain in full force and
effect as of the date hereof and have not in any way been amended,
modified or rescinded.
IN WITNESS WHEREOF, I have hereunder subscribed my name as of the _______
day of March, 2000.
-----------------------------------------
Secretary
<PAGE>
AMENDMENT NO. 6
TO
CREDIT AGREEMENT
This Amendment No. 6 to Credit Agreement, dated as of May 5, 2000 (the
"Amendment"), among PEMSTAR INC. (the "Borrower"), U.S. Bank National
Association, as administrative bank (in such capacity, the "Administrative
Bank"), and the Banks party to that certain Credit Agreement dated as of June 4,
1999, among the Borrower, the Administrative Bank and such Banks, as amended by
an Amendment No. 1 dated as of August 31, 1999, an Amendment No. 2 dated as of
October 14, 1999, an Amendment No. 3 dated as of November 23 , 1999, an
Amendment No. 4 dated as of December 20, 1999, and an Amendment No. 5 dated as
of March 13, 2000 (as so amended, the "Original Agreement").
RECITALS:
---------
A. The Borrower has requested that the Administrative Bank and the Banks
further amend certain provisions of the Original Agreement.
B. Subject to the terms and conditions of this Amendment, the
Administrative Bank and the Banks will agree to the Borrower's foregoing
request.
NOW, THEREFORE, the parties agree as follows:
1. Defined Terms. All capitalized terms used in this Amendment shall,
except where the context otherwise requires, have the meanings set forth in the
Original Agreement as amended hereby.
2. Amendment. The Original Agreement is hereby amended as follows:
a. The definition of "Applicable Margin" appearing in Section 1.1 of
the Original Agreement is amended in its entirety to read as follows:
"`Applicable Margin': At any date of determination, the
percentage indicated below in accordance with the Cash Flow Leverage
Ratio at such date:
<TABLE>
<CAPTION>
When the Cash Flow
Leverage Ratio Is The Applicable Margin Is
----------------- --------------------- --
<S> <C> <C>
Equal to or greater than 3.5 Base Rate Loan Units 2.00% per annum
to1.0
Eurodollar Rate Loan Units 3.75% per annum
Less than 3.50 to 1.0 but equal Base Rate Loan Units 1.00% per annum
to or greater than 2.50 to 1.0
Eurodollar Rate Loan Units 2.75% per annum
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Less than 2.50 to 1.0 but Base Rate Loan Units 0.75% per annum
greater than 1.50 to 1.0
Eurodollar Rate Loan Units 2.50% per annum
Equal to or less than 1.50 to Base Rate Loan Units 0.50% per annum
1.0
Eurodollar Rate Loan Units 2.25% per annum.
</TABLE>
The Applicable Margin as of the `Effective Date' of that certain
Amendment No. 5 to Credit Agreement dated as of March 13 , 2000 (the
`Fifth Amendment') is 2.00% per annum with respect to Base Rate Loan
Units and 3.75 % per annum with respect to Eurodollar Rate Loan Units
and shall continue at those percentages until changed in accordance
with the terms of this definition and except that, on and after May 5,
2000, the Applicable Margin shall apply to only those Loan Units
comprising part of the Revolving Loans, and not part of the Revolving
B Loans. The Cash Flow Leverage Ratio and the Applicable Margin will
be determined at the end of each fiscal quarter, commencing with the
fiscal quarter ending June 30,2000, as calculated from the financial
statements and Compliance Certificate delivered by the Borrower
pursuant to Sections 8.1(b) and 8.1(c). Any increase or decrease in
the Applicable Margin shall apply to all then existing or thereafter
arising Loan Units and shall become effective as of the first day
following the date on which the Borrower delivers its financial
statements and Compliance Certificate to the Administrative Bank and
the Banks in accordance with Section 8.1(b) and Section 8.1(c),
respectively, showing that the Cash Flow Leverage Ratio for the
Measurement Period coinciding with the end of such fiscal quarter
required a change in the Applicable Margin, and shall continue to be
effective until subsequently changed in accordance with this
definition; provided, however, that: (a) if the financial statements
required by Section 8.1(b) and Compliance Certificate required by
Section 8.1(c), are not delivered in the time periods provided
therein, the Cash Flow Leverage Ratio will be deemed to be greater
than 3.5 to 1.0; and (b) on and after May 1, 2000, the Applicable
Margin shall apply to only those Loan Units comprising part of the
Revolving Loans and not part of the Revolving B Loans.
b. The definition of "Cash Flow Leverage Ratio " appearing in Section
1.1 of the Original Agreement is amended by changing the date "March 31,
2000" to "December 31, 1999."
c. The definition of "Revolving Credit Commitment" appearing in
Section 1.1 of the Original Agreement is amended by decreasing the amount
"$55,000,000.00" to "$45,000,000.00."
<PAGE>
d. The definition of "Revolving Credit B Termination Date" appearing
in Section 1.1 of the Original Agreement is amended in its entirety to read
as follows:
"`Revolving Credit B Termination Date': The date which is the
earliest of: (a) October 31, 2000; (b) the date on which the Borrower
consummates a initial public offering of its shares in which such
shares shall be listed and traded on a national or regional exchange
or traded on the NASDAQ National Market System or the NASDAQ over the
counter market (an `IPO'); (c) the date on which the Borrower
terminates the Revolving Credit B Commitment pursuant to Section 4.3;
or (d) the date upon which the obligation of U. S. Bank to make
Revolving B Loans is terminated pursuant to Section 10.2.
e. Section 1.1 of the Original Agreement is amended by adding the
following new definitions of "IBM Credit Loan Agreement," "IBM Credit
Intercreditor Agreement," "Revolving Credit B Applicable Margin" in proper
alphabetical order
"`IBM Credit Loan Agreement:' The Revolving Credit Agreement
dated as of May __, 2000 between the Borrower and IBM Credit
Corporation (`IBM Credit'), as originally executed and as amended,
modified, supplemented, restated or replaced from time to time with
the prior written consent of the Administrative Bank and the Required
Banks.
`IBM Credit Intercreditor Agreement;': The Intercreditor
Agreement dated as of even date with the IBM Credit Loan Agreement
among the Administrative Bank, US Bank as the `Bank' party to 1997 IDB
Reimbursement Agreement and IBM Credit, as originally executed and as
amended, modified, supplemented, restated or replaced from time to
time.
`Revolving B Loan Applicable Margin': At any date of
determination: (a) prior to May 5, 2000, the Applicable Margin; or (b)
on or after May 5, 2000, the percentage indicated below for each day
in the specified period:
<TABLE>
<CAPTION>
The Revolving B Loan Applicable
Period Margin Is
------ ------------------------------- --
<S> <C> <C>
May 5, 2000 to and including Base Rate Loan Units 3.00% per annum
June 30, 2000
Eurodollar Rate Loan Units 4.75% per annum
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
July 1, 2000 to and including Base Rate Loan Units 4.00% per annum
September 30, 2000
Eurodollar Rate Loan Units 5.75% per annum
October 1, 2000 to and Base Rate Loan Units 5.00% per annum
including October 31,2000
Eurodollar Rate Loan Units 6.75% per annum.
</TABLE>
f. Sections 3.1 (a), (b) and (c) of the Original Agreement are
respectively amended in their entireties to read as follows:
"Section 3.1 Interest. Subject to the provisions of Section
3.1(c), the Borrower agrees to pay interest on the outstanding
principal amount of each Loan from the date of such until the Maturity
thereof as follows:
(a) with respect to each Base Rate Loan Unit comprising a
portion of:
(i) a Revolving Loan, at a fluctuating rate per annum
equal at all times to the sum of the Base Rate plus the
Applicable Margin; or
(ii) a Revolving B Loan, at a fluctuating rate per
annum equal at all times to the sum of the Base Rate plus
the Revolving B Loan Applicable Margin.
(b) with respect to each Eurodollar Rate Loan Unit
comprising a portion of:
(i) a Revolving Loan, at a rate per annum equal at all
times during the Interest Period relating to such Eurodollar
Rate Loan Unit to the sum of the Adjusted Eurodollar Rate in
effect for such Interest Period plus the Applicable Margin;
or
(ii) a Revolving B Loan, at a rate per annum equal at
all times during the Interest Period relating to such
Eurodollar Rate Loan Unit to the sum of the Adjusted
Eurodollar Rate in effect for such Interest Period plus the
Revolving B Loan Applicable Margin.
(c) Notwithstanding the provisions of Section 3.1(a) or (b),
at all times after:
<PAGE>
(i) the occurrence and during the continuance of any
Event of Default, the Borrower agrees to pay interest on the
outstanding principal amount of each Revolving Loan from the
date on which the Administrative Bank notifies the Borrower
of such Event of Default at a rate per annum at all times
equal to the sum of the rate equal to the sum of (i) the
Base Rate; plus (ii) the Applicable Margin; plus (iii) two
percent (2.0%) per annum; or
(ii) November 1, 2000, the Borrower agrees to pay
interest on the outstanding principal amount of each
Revolving B Loan as follows:
(A) with respect to each Base Rate Loan Unit
comprising a portion of such Revolving B Loan, at a
fluctuating rate per annum equal at all times to the
sum of: (1) the Base Rate plus (2) the Revolving B Loan
Applicable Margin in effect on October 31, 2000, plus
(3) on the first day of each month thereafter,
commencing on November 1, 2000, additional interest
equal to the product determined by multiplying two
percent (2.0%) per annum times the number of calendar
months that have commenced on or after November 1,
2000 (such product being the `Additional Interest
Rate'); and
(B) with respect to each Eurodollar Rate Loan Unit
comprising a portion of such Revolving B Loan, at a
rate per annum equal at all times during the Interest
Period relating to such Eurodollar Rate Loan Unit to
the sum of: (1) the Adjusted Eurodollar Rate in effect
for such Interest Period plus (2) the Revolving B Loan
Applicable Margin in effect on October 31, 2000, plus
(3) on the first day of each month thereafter,
commencing on November 1, 2000, the Additional
Interest Rate;
so that, by way of example only, the interest rate in effect
on December 1, 2000 will be four percent (4.0%) per annum in
excess of the interest rate in effect on October 31, 2000;
provided, however, that nothing in this subsection (c)(ii)
requires the Banks to permit the Revolving B Loans to remain
outstanding after the Revolving Credit B Termination Date or
waives, modifies, discharges, releases or otherwise alters
the Borrower's duty to pay the Revolving B Loans in full on
that date."
g. Section 7.28 of the Original Agreement is amended in its entirety
to read as follows:
<PAGE>
"Section 7.28 Year 2000. The Borrower has reviewed and assessed
its and each of its Restricted Subsidiaries' respective business
operations and computer systems and applications to address the `year
2000 problem' (that is, that computer applications and equipment used
by the Borrower or such Restricted Subsidiary, directly or indirectly
through third parties, may have been or may be unable to properly
perform date-sensitive functions before, during and after January 1,
2000). The Borrower represents and warrants that the year 2000 problem
has not resulted in and will not result in a material adverse change
in the Borrower's or any of its Restricted Subsidiaries' business
condition (financial or otherwise), operations, properties or
prospects or ability to repay the Banks. The Borrower agrees that this
representation and warranty will be true and correct on and shall be
deemed made by the Borrower on each date the Borrower requests any
Loan under this Agreement or any Note or delivers any information to
the Administrative Bank or any Bank. The Borrower will promptly
deliver to the Administrative Bank and the Banks such information
relating to this representation and warranty as the Administrative
Bank or the Required Banks request from time to time."
h. Sections 8.1(c) and (d) of the Original Agreement are respectively
amended in their entireties to read as follows:
"(c) With each financial statement required by Section 8.1(b), a
certificate (the `Compliance Certificate') in the form of Exhibit D
attached hereto, signed by the chief financial officer of the Borrower
together with a copy of the `Compliance Certificate' for that date
delivered to IBM Credit pursuant to the IBM Credit Loan Agreement.
(d) As soon as available, and in any event within 10 days after
the end of: (i) the second week of each month of each fiscal year; and
(ii) each month of each fiscal year, a certificate (the `Borrowing
Base Certificate') showing the Borrowing Base as of the first Business
Day of such month or the first Business Day after the 15th day of such
month, as the case may be, in the form of Exhibit E attached hereto
and certified as accurate by the Borrower's chief financial officer
together with a copy of the `Collateral Management Report' for that
date delivered to IBM Credit pursuant to the IBM Credit Loan Agreement
or, if such date is not the date of a `Collateral Management Report,'
then the most recent `Collateral Management Report' so delivered to
IBM Credit.
<PAGE>
i. Section 9.8 of the Original Agreement is amended by increasing the
amount of the permitted Capital Expenditures for the Borrower's 2000 fiscal
year from "$21,000,000.00" to "$22,500,000.00."
j. Section 9.10 of the Original Agreement is amended by: (i) deleting
the word "and" following the semi-colon at the end of subsection (h)
thereof; (ii) changing the period at the end of subsection (i) thereof to a
semi-colon followed by the word "and"; (iii) adding the following new
subsection (j); and adding the following new proviso clause to Section 9.10
following new subsection (j):
"(j) Indebtedness owed by the Borrower to IBM Credit under the
IBM Credit Agreement (and Guaranties thereof by the Borrower's foreign
Subsidiaries identified as an `IBM Credit Obligor' in the IBM Credit
Intercreditor Agreement) so long as: (i) the outstanding principal
amount of such Indebtedness does not exceed the lesser of: (A)
$40,000,000.00 at any time; or (B) the `Borrowing Base' described in
the IBM Credit Loan Agreement except that, for purposes of this
Agreement, such `Borrowing Base' shall be limited only to the sum of:
(1) the Borrower's assets constituting `IBM Credit Priority
Collateral' under the IBM Credit Intercreditor Agreement; plus (2) any
of the Borrower's foreign Subsidiary's assets comprising part of such
`Borrowing Base'; (iii) such Indebtedness is secured by only the
property described in Section 9.11(j); and (iv) the Borrower does not
incur any additional Indebtedness under the IBM Credit Loan Agreement
at a time when any Default or Event of Default has occurred and is
continuing except for advances made by IBM Credit to pay itself
interest, fees and late charges under the IBM Credit Loan Agreement;"
provided, however, that the aggregate outstanding principal amount of the
Borrower's and its Restricted Subsidiaries' Indebtedness permitted to be
incurred or exist pursuant to Sections 9.10(c), (f), (g) and/or (j) shall
not exceed $55,000,000.00 at any time.
k. Section 9.11 of the Original Agreement is amended by: (i) deleting
the word "and" following the semi-colon at the end of subsection (h)
thereof; (ii) changing the period at the end of subsection (i) thereof to a
semi-colon followed by the word "and"; and (iii) adding the following new
subsection (j):
"(j) Liens in favor of IBM Credit granted by: (i) the Borrower in
the `Common Collateral' described in the IBM Intercreditor Agreement
except that the Borrower will not permit IBM Credit to file any such
Lien or notice thereof in any patent, trademark or copyright office in
any jurisdiction unless the Borrower has first permitted the
Administrative Bank and US Bank, in its capacity as the `Bank' party
to the 1997 IDB Reimbursement Agreement, to file their respective
Liens or notices thereof in such office; and (ii) any of the
Borrower's foreign
<PAGE>
Subsidiaries which is an `IBM Credit Obligor" described in the IBM
Credit Intercreditor Agreement."
l. Section 9.16 of the Original Agreement is amended in its entirety
to read as follows:
"Section 9.16 Cash Flow Leverage Ratio. Permit, as of any
Quarterly Measurement Date, commencing with the Quarterly Measurement
Date occurring on December 31, 1999, the Cash Flow Leverage Ratio to
be greater than the ratio specified in the following table for any
Quarterly Measurement Date occurring in the specified period:
Period Ratio
------ -----
On December 31, 1999 3.50 to 1.00
On and after January 1, 2000
to and including December 31, 2000 5.00 to 1.00
On March 31, 2001 3.00 to 1.00
At all times thereafter 2.50 to 1.00;
except that, on and after the first Quarterly Measurement Date
following the consummation of the IPO, the minimum required Cash Flow
Leverage Ratio is 3.00 to 1.00."
m. Section 9.17 of the Original Agreement is amended in its entirety
to read as follows:
"Section 9.17 Fixed Charge Coverage Ratio. Permit, as of any
Quarterly Measurement Date, commencing with the Quarterly Measurement
Date occurring on September 30, 1999, the Fixed Charge Coverage Ratio
to be less than 1.30 to 1.00 except that the minimum required Fixed
Charge Coverage Ratio for the March 31, 2000 Quarterly Measurement
Date was 1.20 to 1.00.
n. Section 9.19 of the Original Agreement is amended in its entirety
to read as follows:
"Section 9.19 Current Ratio. Permit, as of any Monthly
Measurement Date, commencing with the Monthly Measurement Date
occurring on June 30, 1999, the Current Ratio to be less than the
ratio specified in the following table for any Monthly Measurement
Date occurring in the specified period:
<PAGE>
Period Ratio
------ -----
On and after June 30, 1999
to and including March 31, 2001 1.05 to 1.00
At all times thereafter 1.10 to 1.00;
except that, on and after the first Quarterly Measurement Date
following the consummation of the IPO, the minimum required Current
Ratio is 1.10 to 1.00"
o. ARTICLE IX of the Original Agreement is further amended by adding
the following new Section 9.25 and 9.26:
"Section 9.25 IBM Credit Loan Agreement. Amend, modify, or
supplement any provision of the IBM Credit Loan Agreement in any
manner which: (a) increases the interest rate, fees, or other charges
payable to IBM Credit pursuant to the terms thereof or of any `Other
Document' relating thereto including, without limitation, the `A/R
Finance Charges,' the `Delinquency Fee Rate,' the `Other Charges,' the
`Shortfall Transaction Fee,' the `Termination Fee' respectively
described therein; (b) imposes any higher standard of financial
performance on the Borrower from that previously agreed to by the
Administrative Bank and the Banks; or (c) contravenes the provisions
of Section 9.6."
Section 9.26 Certain Transfers. If an Event of Default has
occurred and is continuing, transfer any `Bank Priority Collateral'
described in the IBM Intercreditor Agreement to, or for the benefit
of, any of the Borrower's Subsidiaries, regardless of the form, or
recipient, of such transfer.
p. The first parenthetical clause of Section 10.1(j) of the Original
Agreement is amended in its entirety to read as follows:
"(other than Indebtedness under: (i) this Agreement or the other
Loan Documents; (ii) any IDB Reimbursement Agreement; or (iii) the IBM
Credit Loan Agreement)".
q. Section 10.1 of the Original Agreement is further amended by: (i)
deleting the word "or" following the semi-colon at the end of subsection
(m) thereof; (ii) changing the period at the end of subsection (n) thereof
to a semi-colon followed by the word "or"; and (iii) adding the following
new subsection (p):
<PAGE>
"(p) Any `Event of Default' (howsoever defined) shall occur under
the IBM Credit Loan Agreement."
r. Intentionally Deleted.
s. Schedule A (Amended 3/10/00) to the Original Agreement is amended
to conform to Schedule A (Amended 5/5/00) attached hereto.
3. Conditions to Effectiveness. This Amendment shall become effective on
the date (the "Effective Date") when, and only when, the Administrative Bank
shall have received:
a. Counterparts of this Amendment executed by the Borrower and the
Banks;
b. A Replacement Revolving Note (the "Replacement Revolving Note")
payable to the order of U.S. Bank in the form provided by the
Administrative Bank appropriately completed and duly executed by the
Borrower;
c. A Certificate by the Borrower's Secretary or any Assistant
Secretary in form and substance satisfactory to the Administrative Bank and
the Banks;
d. An opinion of counsel to the Borrower, addressed to the
Administrative Bank and the Banks, in form and substance satisfactory to
the Administrative Bank and the Banks;
e. The payment, in immediately available funds, to the Administrative
Bank solely for the benefit of U.S. Bank of the fee separately agreed upon
by the Borrower and U.S. Bank;
f. A copy of the IBM Credit Loan Agreement and the "Other Documents"
described therein, each in form and substance satisfactory to the
Administrative Bank and the Banks and certified as a true and correct copy
by the Secretary of the Borrower;
g. The payment, in immediately available funds, to the Administrative
Bank of the maximum amount of the "A/R Advance" available to the Borrower
under the IBM Credit Loan Agreement for application to: (i) first the
Revolving B Loans until the Revolving B Loans are paid in full; and (ii)
second, the excess, if any, to the Revolving Loans ratably made by the
Banks in the amount necessary to cause the aggregate outstanding principal
balance such Bank's Revolving Loans, after such application, to be equal to
50% of the aggregate outstanding principal balances of the Revolving Loans;
<PAGE>
h. An executed copy of each Intercreditor Agreement required to be
delivered by the Borrower to IBM Credit pursuant to the IBM Credit Loan
Agreement; and
i. Such other documents, certificates or other items as the
Administrative Bank or the Banks may reasonably request.
4. Representations and Warranties. To induce the Administrative Bank and
the Banks to enter into this Amendment, the Borrower represents and warrants to
the Administrative Bank and the Banks as follows:
a. The execution, delivery and performance by the Borrower of this
Amendment, the Replacement Revolving Note and any other document required
to be executed and/or delivered by the Borrower by the terms of this
Amendment have been duly authorized by all necessary corporate action, do
not require any approval or consent of, or any registration, qualification
or filing with, any government agency or authority or any approval or
consent of any other person (including, without limitation, any
stockholder), do not and will not conflict with, result in any violation of
or constitute any default under, any provision of the Borrower's articles
of incorporation or bylaws, any agreement binding on or applicable to the
Borrower or any of its property, or any law or governmental regulation or
court decree or order, binding upon or applicable to the Borrower or of any
of its property and will not result in the creation or imposition of any
security interest or other lien or encumbrance in or on any of its property
pursuant to the provisions of any agreement applicable to the Borrower or
any of its property except pursuant to the Loan Documents to which the
Borrower is a party;
b. The representations and warranties contained in the Original
Agreement are true and correct as of the date hereof as though made on that
date;
c. (i) No events have taken place and no circumstances exist at the
date hereof which would give the Borrower the right to assert a defense,
offset or counterclaim to any claim by the Administrative Bank or any Bank
for payment of the Obligations now existing or hereafter arising under the
Original Agreement, as amended by this Amendment or any other Loan
Document; and (ii) the Borrower hereby releases and forever discharges the
Administrative Bank, each Bank and their respective successors, assigns,
directors, officers, agents, employees and participants from any and all
actions, causes of action, suits, proceedings, debts, sums of money,
covenants, contracts, controversies, claims and demands, at law or in
equity, which the Borrower ever had or now has against the Administrative
Bank, any Bank or their respective successors, assigns, directors,
officers, agents, employees or participants by virtue of their relationship
to the Borrower in connection with the Original Agreement, as amended by
this Amendment, the other Loan Documents and the transactions related
thereto;
<PAGE>
d. The Original Agreement, as amended by this Amendment, the
Replacement Revolving Note, and each other Loan Document to which the
Borrower is a party remain in full force and effect and are the legal,
valid and binding obligations of the Borrower and are enforceable in
accordance with their respective terms, subject only to bankruptcy,
insolvency, reorganization, moratorium or similar laws, rulings or
decisions at the time in effect affecting the enforceability of rights of
creditors generally and to general equitable principles which may limit the
right to obtain equitable remedies; and
e. After giving effect to this Amendment, there does not exist any
Default, Event of Default or Adverse Event.
5. Reference to and Effect on the Loan Documents.
a. From and after the date of this Amendment, each reference in:
(i) the Original Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Original
Agreement, and each reference to the "Credit Agreement", "Loan
Agreement," "thereunder", "thereof", "therein" or words of like import
referring to the Original Agreement in any other Loan Document shall
mean and be a reference to the Original Agreement as amended hereby;
and
(ii) any Loan Document to "the Revolving Note" payable to U.S.
Bank, "thereunder", "thereof", "therein" or words of like import
referring to such Revolving Note shall mean and be a reference to the
Replacement Revolving Note executed and delivered to U.S. Bank
pursuant to this Amendment.
b. The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Administrative Bank or any Bank under the Original
Agreement or any other Loan Document, nor constitute a waiver of any
provision of the Original Agreement or any such other Loan Document.
6. Costs, Expenses and Taxes. The Borrower agrees to pay on demand all
costs and expenses of the Administrative Bank in connection with the
preparation, reproduction, execution and delivery of this Amendment and the
other documents to be delivered hereunder or thereunder, including the
Administrative Bank's reasonable attorneys' fees and legal expenses. In
addition, the Borrower shall pay any and all stamp and other taxes and fees
payable or determined to be payable in connection with the execution and
delivery, filing or recording of this Amendment and the other instruments and
documents to be delivered hereunder, and agrees to hold the Administrative Bank
and the Banks harmless from and against any and all liabilities
<PAGE>
with respect to, or resulting from, any delay in the Borrower's paying or
omission to pay, such taxes or fees.
7. Governing Law. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS
AMENDMENT AND THE REPLACEMENT REVOLVING NOTE SHALL BE GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES
APPLICABLE TO NATIONAL BANKS.
8. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
9. Counterparts. This Amendment may be executed in separate counterparts
and by separate parties in separate counterparts, each of which shall be an
original and all of which taken together shall constitute one and the same
Amendment.
10. Recitals. The Recitals hereto are incorporated herein by reference.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
PEMSTAR Inc.
By: /s/ illegible
-------------------------------------
Title:
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
U.S. Bank National Association, as
Administrative Bank and a Bank
By:
-------------------------------------
Title:
----------------------------------
M&I Marshall and Ilsley Bank, as a Bank
By:
-------------------------------------
Title:
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
<PAGE>
SCHEDULE A
(Amended 5/5/00)
Banks and Percentages
Banks Percentages
----- -----------
U.S. Bank National Association 50%
M & I Marshall & Ilsley 50%
<PAGE>
EXHIBIT 4.4
PEMSTAR INC.
REVOLVING CREDIT AGREEMENT
Table of Contents
Section 1. DEFINITIONS; ATTACHMENTS ....................................... 1
1.1. Special Definitions............................................. 1
1.2. Other Defined Terms............................................. 6
1.3. Attachments..................................................... 6
Section 2. CREDIT LINE/FINANCE CHARGES/OTHER CHARGES ...................... 6
2.1. Credit Line..................................................... 6
2.2. A/R Advances.................................................... 6
2.3. Finance and Other Charges....................................... 7
2.4. Customer Account Statements..................................... 7
2.5. Shortfall....................................................... 8
2.6. Application of Payments......................................... 8
2.7. Prepayment and Reborrowing By Customer.......................... 8
Section 3. CREDIT LINE ADDITIONAL PROVISIONS............................... 8
3.1. Ineligible Accounts............................................. 8
3.2. Reimbursement for Charges....................................... 9
3.3. Lockbox and Special Account..................................... 10
3.4. Collections..................................................... 10
3.5. Application of Remittances and Credits.......................... 10
3.6. Power of Attorney............................................... 10
3.7. Concentration Accounts.......................................... 11
Section 4. SECURITY -COLLATERAL............................................ 11
4.1. Grant........................................................... 11
4.2. Further Assurances.............................................. 12
Section 5. CONDITIONS PRECEDENT............................................ 12
5.1. Conditions Precedent to the Effectiveness of this Agreement..... 12
5.2. Conditions Precedent to Each Advance............................ 13
Section 6. REPRESENTATIONS AND WARRANTIES.................................. 13
6.1. Organization and Qualifications................................. 13
6.2. Rights in Collateral; Priority of Liens......................... 14
6.3. No Conflicts.................................................... 14
6.4. Enforceability.................................................. 14
6.5. Locations of Offices, Records and Inventory..................... 14
6.6. Fictitious Business Names....................................... 14
6.7. Organization.................................................... 14
-i-
<PAGE>
6.8. No Judgments or Litigation...................................... 14
6.9. No Defaults..................................................... 14
6.10. Labor Matters................................................... 15
6.11. Compliance with Law............................................. 15
6.12. ERISA........................................................... 15
6.13. Compliance with Environmental Laws.............................. 15
6.14. Intellectual Property........................................... 15
6.15. Licenses and Permits............................................ 15
6.16. Investment Company.............................................. 16
6.17. Taxes and Tax Returns........................................... 16
6.18. Status of Accounts.............................................. 16
6.19. Affiliate/Subsidiary Transactions............................... 16
6.20. Accuracy and Completeness of Information........................ 16
6.21. Recording Taxes................................................. 16
6.22. Indebtedness.................................................... 16
Section 7. AFFIRMATIVE COVENANTS .......................................... 16
7.1. Financial and Other Information................................. 16
7.2. Location of Collateral.......................................... 18
7.3. Changes in Customer. .......................................... 18
7.4. Corporate Existence............................................. 18
7.5. ERISA........................................................... 19
7.6. Environmental Matters........................................... 19
7.7. Collateral Books and Records/Collateral Audit................... 19
7.8. Insurance; Casualty Loss........................................ 20
7.9. Taxes........................................................... 20
7.10. Compliance With Laws............................................ 20
7.11. Fiscal Year..................................................... 20
7.12. Intellectual Property........................................... 20
7.13. Maintenance of Property......................................... 20
7.14. Collateral...................................................... 20
7.15. Subsidiaries.................................................... 21
7.16. Financial Covenants; Additional Covenants....................... 21
Section 8. NEGATIVE COVENANTS ............................................. 21
8.1. Liens........................................................... 21
8.2. Disposition of Assets........................................... 22
8.3. Corporate Changes............................................... 22
8.4. Guaranties...................................................... 22
8.5. Restricted Payments............................................. 22
8.6. Investments..................................................... 22
8.7. Affiliate/Subsidiary Transactions............................... 22
8.8. ERISA........................................................... 23
8.9. Additional Negative Pledges..................................... 23
8.10. Storage of Collateral with Bailees and Warehousemen............. 23
-ii-
<PAGE>
8.11. Use of Proceeds................................................. 23
8.12. Accounts........................................................ 23
8.13. Indebtedness.................................................... 23
8.14. Loans........................................................... 23
8.15. Additional Covenants............................................ 23
Section 9. DEFAULT ........................................................ 23
9.1. Event of Default................................................ 23
9.2. Acceleration.................................................... 25
9.3. Remedies........................................................ 25
9.4. Waiver.......................................................... 26
Section 10. MISCELLANEOUS .................................................. 26
10.1. Term; Termination............................................... 26
10.2. Indemnification................................................. 26
10.3. Additional Obligations.......................................... 27
10.4. LIMITATION OF LIABILITY......................................... 27
10.5. Alteration/Waiver............................................... 27
10.6. Severability.................................................... 27
10.7. One Loan........................................................ 27
10.8. Additional Collateral........................................... 28
10.9. No Merger or Novations.......................................... 28
10.10. Paragraph Titles................................................ 28
10.11. Binding Effect; Assignment. ................................... 28
10.12. Notices; E-Business Acknowledgment.............................. 28
10.13. Counterparts. ................................................. 29
10.14. SUBMISSION AND CONSENT TO JURISDICTION
AND CHOICE OF LAW............................................... 29
10.15. JURY TRIAL WAIVER............................................... 30
-iii-
<PAGE>
REVOLVING CREDIT AGREEMENT
This REVOLVING CREDIT AGREEMENT (as amended, supplemented or otherwise
modified from time to time, this "Agreement") is hereby made this ___ day of
__________, 2000, by and between IBM Credit Corporation, a Delaware corporation
with a place of business at 2707 W. Butterfield Road, Suite 205, Oak Brook, IL
60523 ("IBM Credit"), and PEMSTAR INC., a Minnesota corporation with a place of
business at 3535 Technology Drive NW, Rochester, MN 55901 ("Customer").
WITNESSETH
WHEREAS, Customer has requested that IBM Credit finance certain of its
working capital requirements, and IBM Credit is willing to provide such
financing to Customer subject to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
Section 1. DEFINITIONS; ATTACHMENTS
1.1 Special Definitions. The following terms shall have the following respective
meaning in this Agreement:
"A/R Advance": any loan or advance of funds made by IBM Credit to or on behalf
of Customer pursuant to Section 2.2 of this Agreement, including a Takeout
Advance.
"A/R Advance Date": the Business Day on which IBM Credit makes an A/R Advance
under this Agreement.
"A/R Finance Charges": as defined in Attachment A.
"Accounts": as defined in the U.C.C. (as defined pursuant to Section 1.2).
"Advance": any loan or other extension of credit by IBM Credit to or on behalf
of Customer pursuant to this Agreement including, without limitation, A/R
Advances.
"Affiliate": with respect to any Person, any other Person (the "Affiliate")
meeting one of the following: (i) at least 10% of the Affiliate's equity is
owned, directly or indirectly, by such Person; (ii) at least 10% of such
Person's equity is owned, directly or indirectly, by the Affiliate; or (iii) at
least 10% of such Person's equity and at least 10% of the Affiliate's equity is
owned, directly or indirectly, by the same Person or Persons. All of Customer's
officers, directors, joint venturers, and partners shall also be deemed to be
Affiliates of Customer for purposes of this Agreement.
Page 1 of 41
<PAGE>
"Agreement": as defined in the caption.
"Auditors": a nationally recognized firm of independent certified public
accountants selected by Customer and reasonably satisfactory to IBM Credit.
"Available Credit": at any time, (1) the Maximum Advance Amount less (2) the
Outstanding Advances at such time.
"Average Daily Balance": for each Advance for a given period of time, the sum of
the unpaid principal of such Advance as of each day during such period of time,
divided by the number of days in such period of time.
"Borrowing Base": as defined in Attachment A.
"Business Day": any day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are generally closed or on which IBM
Credit is closed.
"Celestica": shall mean Celestica Inc.
"Closing Date": the date on which the conditions precedent to the effectiveness
of this Agreement set forth in Section 5.1 hereof are satisfied or waived in
writing by IBM Credit.
"Code": the Internal Revenue Code of 1986, as amended or any successor statute.
"Collateral": as defined in Section 4.1.
"Collateral Management Report": a report to be delivered by Customer to IBM
Credit from time to time, as provided herein, signed by the chief executive
officer or chief financial officer of Customer, substantially in the form and
detail of Attachment E hereto, detailing and certifying, among other items: a
summary of Customer's inventory on hand financed by IBM Credit and Customer's
Eligible Accounts, the amounts and aging of all of Customer's Accounts, the
amounts and aging of Customer's accounts payable as of a specified date, all of
Customer's IBM Credit borrowing activity during a specified period and the total
amount of Customer's Borrowing Base as well as Customer's Outstanding A/R
Advances, Available Credit and any Shortfall Amount as of a specified date.
"Compliance Certificate": a certificate substantially in the form of Attachment
C.
"Concentration Accounts": shall mean an Eligible Account that, individually, or
when aggregated with all other outstanding Accounts of the same Account debtor
and such Account debtor's Affiliates, constitute more than five percent (5%) of
the net outstanding balance of all Eligible Accounts of the Customer then
outstanding for all Account debtors, other than Eligible Accounts due from IBM
or Celestica or their Subsidiaries.
Page 2 of 41
<PAGE>
"Concentration Account Debtor": shall mean, at any time, any Account debtor
obligated to Customer with respect to, or on account of, a Concentration
Account.
"Credit Line": as defined in Section 2.1.
"Customer": as defined in the caption.
"Default": either (1) an Event of Default or (2) any event or condition which,
but for the requirement that notice be given or time lapse or both, would be an
Event of Default.
"Delinquency Fee Rate": as defined on Attachment A.
"Eligible Accounts": as defined in Section 3.1.
"Environmental Laws": all statutes, laws, judicial decisions, regulations,
ordinances, and other governmental restrictions relating to pollution, the
protection of the environment, occupational health and safety, or to emissions,
discharges or release of pollutants, contaminants, hazardous substances or
wastes into the environment.
"Environmental Liability": any claim, demand, obligation, cause of action,
allegation, order, violation, injury, judgment, penalty or fine, cost or
expense, resulting from the violation or alleged violation of any Environmental
Laws or the imposition of any Lien pursuant to any Environmental Laws.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended, or any
successor statutes.
"Event of Default": as defined in Section 9.1.
"Financial Statements": the consolidated balance sheets (including, without
limitation, securities such as stocks and investment bonds), statements of
operations, statements of cash flows and statements of changes in shareholders
equity of Customer and its Subsidiaries for the period specified, prepared in
accordance with GAAP and consistent with prior practices.
"GAAP": generally accepted accounting principles in the United States as in
effect from time to time.
"Governmental Authority": any nation or government, any state or other political
subdivision thereof, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled (through stock or capital
ownership or otherwise) by any of the foregoing.
"Guarantor": a guarantor under a Guaranty.
Page 3 of 41
<PAGE>
"Guaranty": any guarantee of any or all of Customer's Obligations in favor of
IBM Credit that may be entered into from time to time.
"Hazardous Substances": all substances, wastes or materials, to the extent
subject to regulation as "hazardous substances" or "hazardous waste" under any
Environmental Laws.
"IBM": shall mean International Business Machines Corporation
"IBM Credit": as defined in the caption.
"Indebtedness": with respect to any Person, (1) all obligations of such Person
for borrowed money or for the deferred purchase price of property or services
(other than trade liabilities incurred in the ordinary course of business and
payable in accordance with customary practices) or which is evidenced by a note,
bond, debenture or similar instrument, (2) all obligations of such Person under
capital leases (including obligations under any leases Customer may enter into,
now or in the future, with IBM Credit), (3) all obligations of such Person in
respect of letters of credit, banker's acceptances or similar obligations issued
or created for the account of such Person, (4) liabilities arising under any
interest rate protection, future, option swap, cap or hedge agreement or
arrangement under which such Person is a party or beneficiary, (5) all
obligations under guaranties of such Person and (6) all liabilities secured by
any Lien on any property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof.
"Intercreditor Agreement": as defined in Section 5.1(H).
"Investment": with respect to any Person (the "Investor"), (1) any investment by
the Investor in any other Person, whether by means of share purchase, capital
contribution, purchase or other acquisition of a partnership or joint venture
interest, loan, time deposit, demand deposit or otherwise, and (2) any guaranty
by the Investor of any Indebtedness or other obligation of any other Person.
"Lien(s)": any lien, claim, charge, pledge, security interest, deed of trust,
mortgage, other encumbrance or other arrangement having the practical effect of
the foregoing, including the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Material Adverse Effect": a material adverse effect (1) on the business,
operations, results of operations, assets, or financial condition of the
Customer, (2) on the aggregate value of the Collateral or the aggregate amount
which IBM Credit would be likely to receive (after giving consideration to
reasonably likely delays in payment and reasonable costs of enforcement) in the
liquidation of such Collateral to recover the Obligations in full, or (3) on the
rights and remedies of IBM Credit under this Agreement.
"Maximum Advance Amount": at any time, the lesser of (1) the Credit Line and (2)
the Borrowing Base at such time.
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<PAGE>
"Obligations": all covenants, agreements, warranties, duties, representations,
loans, advances, interest (including interest accruing on or after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to Customer, whether or not a claim
for post-filing or post-petition interest is allowed in such proceeding), fees,
reasonable expenses, indemnities, liabilities and Indebtedness of any kind and
nature whatsoever now or hereafter arising, owing, due or payable from Customer
to IBM Credit.
"Other Documents": all security agreements, mortgages, leases, instruments,
documents, guarantees, schedules of assignment, contracts and similar agreements
executed by Customer and delivered to IBM Credit, pursuant to this Agreement or
otherwise, and all amendments, supplements and other modifications to the
foregoing from time to time.
"Other Charges": as set forth in Attachment A.
"Outstanding Advances": at any time of determination, the sum of (1) the unpaid
principal amount of all Advances made by IBM Credit under this Agreement, and
(2) any finance charge, fee, expense or other amount related to Advances charged
to Customer's account with IBM Credit.
"Outstanding A/R Advances": at any time of determination, the sum of (1) the
unpaid principal amount of all A/R Advances made by IBM Credit under this
Agreement; and (2) any finance charge, fee, expense or other amount related to
A/R Advances charged to Customer's account with IBM Credit.
"Permitted Indebtedness": any of the following:
(1) Indebtedness to IBM Credit;
(2) Indebtedness described in Section VII of Attachment B;
(3) Purchase Money Indebtedness;
(4) guaranties in favor of IBM Credit; and
(5) other Indebtedness consented to by IBM Credit in writing prior to incurring
such Indebtedness.
"Permitted Liens": any of the following:
(1) Liens which are the subject of an Intercreditor Agreement, in effect from
time to time between IBM Credit and any other secured creditor;
(2) Purchase Money Security Interests;
(3) Liens described in Section I of Attachment B;
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(4) Liens of warehousemen, mechanics, materialmen, workers, repairmen, common
carriers, landlords and other similar Liens arising by operation of law or
otherwise, not waived in connection herewith, for amounts that are not yet due
and payable or being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted if an adequate reserve or other appropriate
provisions shall have been made therefor as required to be in conformity with
GAAP and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;
(5) attachment or judgment Liens individually or in the aggregate not in excess
of $100,000.00 (exclusive of (A) any amounts that are duly bonded to the
satisfaction of IBM Credit or (B) any amount fully covered by insurance as to
which the insurance company has acknowledged its obligation to pay such judgment
in full);
(6) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of Customer;
(7) extensions and renewals of the foregoing Permitted Liens; provided that (A)
the aggregate amount of such extended or renewed Liens do not exceed the
original principal amount of the Indebtedness which it secures, (B) such Liens
do not extend to any property other than property already previously subject to
the Lien and (C) such extended or renewed Liens are on terms and conditions no
more restrictive than the terms and conditions of the Liens being extended or
renewed;
(8) Liens arising from deposits or pledges to secure bids, tenders, contracts,
leases, surety and appeal bonds and other obligations of like nature arising in
the ordinary course of the Customer's business;
(9) Liens for taxes, assessments or governmental charges not delinquent or being
contested, in good faith, by appropriate proceedings promptly instituted and
diligently conducted if an adequate reserve or other appropriate provisions
shall have been made therefor as required in order to be in conformity with GAAP
and an adverse determination in such proceedings could not reasonably be
expected to have a Material Adverse Effect;
(10) Liens arising out of deposits in connection with workers' compensation,
unemployment insurance or other social security or similar legislation;
(11) Liens arising pursuant to this Agreement; and
(12) other Liens consented to by IBM Credit in writing prior to incurring such
Lien.
"Person": any individual, association, firm, corporation, partnership, trust,
unincorporated organization or other entity whatsoever.
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"Policies": all policies of insurance required to be maintained by Customer
under this Agreement or any of the Other Documents.
"Prime Rate": as of the date of determination, the average of the rates of
interest announced by Citibank, N.A., Chase Manhattan Bank and Bank of America
National Trust & Savings Association (or any other bank which IBM Credit uses in
its normal course of business of determining Prime Rate) as their prime or base
rate, as of the last Business Day of the calendar month immediately preceding
the date of determination, whether or not such announced rates are the actual
rates charged by such banking institutions to their most creditworthy borrowers.
"Purchase Money Indebtedness": any Indebtedness (including capital leases)
incurred to finance the acquisition of assets to be used in the Customer's
business not to exceed the lesser of (1) the purchase price or acquisition cost
of such asset and (2) the fair market value of such asset.
"Purchase Money Security Interest": any security interest securing Purchase
Money Indebtedness, which security interest applies solely to the particular
asset acquired with the Purchase Money Indebtedness.
"Request for A/R Advance": as defined in Section 2.2.
"Requirement of Law": as to any Person, the articles of incorporation and
by-laws of such Person, and any law, treaty, rule or regulation or determination
of an arbitrator or a court or other governmental authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"Shortfall Amount": as defined in Section 2.5.
"Shortfall Transaction Fee": as defined in Attachment A.
"Subsidiary": with respect to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.
"Takeout Advance": upon request by Customer, an A/R Advance made, only on the
Closing Date, to existing creditors of Customer on behalf of Customer, in an
amount sufficient to discharge Customer's indebtedness to such creditor.
"Termination Date": shall mean the first anniversary of the date of this
Agreement or such other date as IBM Credit and Customer may agree to from time
to time.
"Termination Fee": a fee in the amount of $150,000.00 to be due from Customer to
IBM Credit if Customer terminates the Agreement prior to the one year
anniversary of this Agreement. IBM Credit, in its sole discretion, may reduce
the amount of the Termination Fee.
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"U.S. Bank": shall mean U.S. Bank National Association, together with its
assigns and successors
"U.S. Bank Credit Agreement": shall mean the Credit Agreement dated as of June
4, 1999 among Customer, and U.S. Bank, as amended and modified from time to
time.
"Voting Stock": securities, the holders of which are ordinarily, in the absence
of contingencies, entitled to elect the corporate directors (or persons
performing similar functions).
1.2. Other Defined Terms. Terms not otherwise defined in this Agreement which
are defined in the Uniform Commercial Code as in effect in the State of New York
(the "U.C.C.") shall have the meanings assigned to them therein.
1.3. Attachments. All attachments, exhibits, schedules and other addenda hereto,
including, without limitation, Attachment A and Attachment B, are specifically
incorporated herein and made a part of this Agreement.
Section 2. CREDIT LINE/FINANCE CHARGES/OTHER CHARGES
2.1. Credit Line. Subject to the terms and conditions set forth in this
Agreement, on and after the Closing Date to but not including the date that is
the earlier of (x) the date on which this Agreement is terminated pursuant to
Section 10. and (y) the date on which IBM Credit terminates the Credit Line
pursuant to Section 9., IBM Credit agrees to extend to the Customer a credit
line ("Credit Line") in the amount set forth in Attachment A pursuant to which
IBM Credit will make to the Customer, from time to time, Advances in an
aggregate amount at any one time outstanding not to exceed the Maximum Advance
Amount.
2.2. A/R Advances. (A) Whenever Customer shall desire IBM Credit to provide an
A/R Advance, Customer shall deliver to IBM Credit written notice of Customer's
request for such an Advance ("Request for A/R Advance"). For any requested A/R
Advance pursuant to which monies will be disbursed to Customer or any Person
other than IBM Credit, a Request for A/R Advance shall be delivered to IBM
Credit on or prior to 1:00 p.m. (eastern time) one Business Day prior to the
requested A/R Advance Date. The Request for A/R Advance shall specify (i) the
requested A/R Advance Date; and (ii) the amount of the requested A/R Advance.
Customer may deliver a Request for A/R Advance via facsimile. Any Request for
A/R Advance delivered to IBM Credit shall be irrevocable.
(B) Subject to the terms and conditions of this Agreement, on the A/R
Advance Date specified in a Request for A/R Advance, IBM Credit shall make the
principal amount of each A/R Advance available to the Customer in immediately
available funds to an account maintained by Customer (or in the case of a
Takeout Advance, as directed by Customer). If IBM Credit is making an A/R
Advance hereunder on a day on which Customer is to repay all or any part of an
Outstanding Advance (or any other amount owing hereunder), IBM Credit shall
apply the proceeds of the A/R Advance to such repayment and only an amount equal
to the difference, if
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any, between the amount of the A/R Advance and the amount being repaid shall be
made available to Customer as provided in the immediately preceding sentence.
(C) Each A/R Advance shall accrue a finance charge on the Average Daily
Balance thereof, from and including the date of each A/R Advance to and
including the date such A/R Advance is paid by Customer to IBM Credit, at a per
annum rate equal to the lesser of (a) the finance charge set forth in Attachment
A to this Agreement under the caption "A/R Finance Charge" for such type of A/R
Advance, and (b) the highest rate from time to time permitted by applicable law.
If it is determined that amounts received from the Customer were in excess of
such highest rate, then the amount representing such excess shall be considered
reductions to principal of Advances.
(D) Unless otherwise due and payable at an earlier date, the unpaid
principal amount of each A/R Advance, other than a Takeout Advance, shall be due
and payable on the Termination Date. Notwithstanding any other provision of this
Agreement, a Takeout Advance may only be requested on the Closing Date and such
Takeout Advance shall be limited to an amount sufficient to discharge the
indebtedness that is the subject of a Takeout Advance.
Unless otherwise agreed in writing, a Takeout Advance shall be due pursuant to
the Schedule of Repayments in Attachment D to this Agreement.
2.3. Finance and Other Charges. (A) Finance charges for an Advance for a
calendar month shall be equal to (i) one twelfth (1/12) of the applicable A/R
Finance Charge multiplied by (ii) the Average Daily Balance of such Advance for
the period when such finance charge accrues during such calendar month
multiplied by (iii) the actual number of days during such calendar month when
such finance charge accrues divided by (iv) thirty (30).
Late charges pursuant to subsection (D) of this Section 2.4 for an Advance for a
calendar month shall be equal to (i) one twelfth (1/12) of the Delinquency Fee
Rate multiplied by (ii) the Average Daily Balance of such Advance for the period
when such Advance is past due during such calendar month multiplied by (iii) the
actual number of days during such calendar month when such Advance is past due
divided by (iv) thirty (30).
(B) The Customer hereby agrees to pay to IBM Credit the charges set forth
as "Other Charges" in Attachment A. The Customer also agrees to pay IBM Credit
additional charges for any returned items of payment received by IBM Credit. The
Customer hereby acknowledges that any such charges are not interest but that
such charges, if unpaid, will constitute part of the Outstanding Advances.
(C) The finance charges and Other Charges owed under this Agreement, and
any charges hereafter agreed to in writing by the parties, are payable monthly
on receipt of IBM Credit's bill or statement therefor or IBM Credit may, in its
sole discretion, add unpaid finance charges and Other Charges to the Customer's
Outstanding Advances.
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(D) If any amount owed under this Agreement, including, without limitation,
any Advance, is not paid when due (whether at maturity, by acceleration or
otherwise), the unpaid amount thereof will bear a late charge from and including
the day after such Advance was due and payable to and including the date IBM
Credit receives payment thereof, at a per annum rate equal to the lesser of (a)
the amount set forth in Attachment A to this Agreement as the "Delinquency Fee
Rate" and (b) the highest rate from time to time permitted by applicable law. In
addition, if any Shortfall Amount shall not be paid when due pursuant to Section
2.6 hereof, Customer shall pay IBM Credit a Shortfall Transaction Fee. If it is
determined that amounts received from Customer were in excess of such highest
rate, then the amount representing such excess shall be considered reductions to
principal of Advances.
2.4. Customer Account Statements. IBM Credit will send statements of each
transaction hereunder as well as monthly billing statements to Customer with
respect to Advances and other charges due on Customer's account with IBM Credit.
Each statement of transaction and monthly billing statement shall be deemed,
absent manifest error, to be correct and shall constitute an account stated with
respect to each transaction or amount described therein unless within seven (7)
Business Days after such statement of transaction or billing statement is
received by Customer, Customer provides IBM Credit written notice objecting that
such amount or transaction is incorrectly described therein and specifying the
error(s), if any, contained therein. IBM Credit may at any time adjust such
statements of transaction or billing statements to comply with applicable law
and this Agreement.
2.5. Shortfall. If, on any date, the Outstanding Advances shall exceed the
Maximum Advance Amount (such excess, the "Shortfall Amount"), then the Customer
shall on such date prepay the Outstanding Advances in an amount equal to such
Shortfall Amount.
2.6. Application of Payments. The Customer hereby agrees that all checks and
other instruments delivered to IBM Credit on account of Customer's Obligations
shall constitute conditional payment until such items are actually collected by
IBM Credit. The Customer waives the right to direct the application of any and
all payments at any time or times hereafter received by IBM Credit on account of
the Customer's Obligations. Customer agrees that IBM Credit shall have the
continuing exclusive right to apply and reapply any and all such payments to
Customer's Obligations in such manner as IBM Credit may deem advisable
notwithstanding any entry by IBM Credit upon any of its books and records.
2.7. Prepayment and Reborrowing By Customer. (A) On or after the first
anniversary of this Agreement, Customer may at any time prepay, without notice
or penalty, in whole or in part amounts owed under this Agreement. IBM Credit
may apply payments made to it (whether by the Customer or otherwise) to pay
finance charges and other amounts owing under this Agreement first and then to
the principal amount owed by the Customer.
(B) Subject to the terms and conditions of this Agreement, any amount
prepaid or repaid to IBM Credit in respect to the Outstanding Advances may be
reborrowed by Customer in accordance with the provisions of this Agreement.
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Section 3. CREDIT LINE ADDITIONAL PROVISIONS
3.1. Ineligible Accounts. IBM Credit and Customer agree that IBM Credit shall
have the sole right to determine eligibility of Accounts from an Account debtor
for purposes of determining the Borrowing Base; however, without limiting such
right, the following Accounts will be deemed to be ineligible for purposes of
determining the Borrowing Base:
(A) Accounts created from the sale of goods and/or performance of services
on non-standard terms or that allow for payment to be made more than thirty (30)
days from the date of such sale or performance of services, unless as otherwise
agreed to in writing by IBM Credit;
(B) Accounts unpaid more than ninety (90) days from date of invoice;
(C) Accounts payable by an Account debtor if fifty percent (50%) or more of
the aggregate outstanding balance of all such Accounts remain unpaid for more
than ninety (90) days from the date of invoice;
(D) Accounts payable by an Account debtor that is an Affiliate of Customer,
or an officer, employee, agent, Guarantor, stockholder of Customer or an
Affiliate of Customer, or is related to or has common shareholders, officers or
directors with Customer;
(E) Accounts arising from consignment sales;
(F) Except for state, local and United States government institutions and
public educational institutions, Accounts with respect to which the payment by
the Account debtor is or may be conditional;
(G) Except for state, local and United States government institutions and
public educational institutions, and except for those that are owed to Customer
either generated directly in the US or by enforceable transfer or assignment
from Customer's foreign subsidiaries to Customer, provided that such transfer or
assignment is supported by documents satisfactory to IBM Credit, including a
legal opinion from counsel to Customer regarding the validity and legality of
such transfer or assignment;
Accounts with respect to which:
(i) the Account debtor is not a commercial entity, or
(ii) the Account debtor is not a resident of the United States (it
being understood that non-U.S. Resident affiliates of IBM and Celestica,
and possibly others as agreed to in writing by IBM Credit, are anticipated
to be permitted Account debtors subject to the limitations above);
(H) Accounts payable by any Account debtor to which Customer is or may
become liable for goods sold or services rendered by such Account debtor to
Customer,
(I) Accounts arising from the sale or lease of goods, purchased for a
personal, family or household purpose;
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(J) Accounts arising from the sale or other disposition of goods that have
been used for demonstration purposes or loaned or leased by the Customer to
another party;
(K) Accounts which are progress payment accounts or contra accounts;
(L) Accounts upon which IBM Credit does not have a valid, perfected, first
priority security interest, or which are not the subject of an intercreditor
agreement to which IBM Credit is a party and has obtained a subordination from
any prior filer;
(M) Accounts payable by an Account debtor that is or Customer knows will
become, subject to proceedings under United States Bankruptcy Law or other law
for the relief of debtors;
(N) Accounts that are not payable in US dollars;
(O) Accounts payable by any Account debtor that is a remarketer of computer
hardware and software products and whose purchases of such products from
Customer have been financed by another person who pays the proceeds of such
financing directly to Customer on behalf of such debtor ("Third Party Financer")
unless (i) such Third Party Financer does not have a separate financing
relationship with Customer or (ii) such Third Party Financer has a separate
financing relationship with Customer and has waived its right to set off its
obligations to Customer;
(P) Accounts arising from the sale or lease of goods which are billed to
any Account debtor but have not yet been shipped by Customer;
(Q) Accounts to the extent Customer has permitted or agreed to any
extension, compromise or settlement, or made any change or modification of any
kind or nature, including, but not limited to, any change or modification to the
terms relating thereto, but only to the extent of such extension, compromise,
settlement, change or modification;
(R) Accounts that do not arise from undisputed bona fide transactions
completed in accordance with the terms and conditions contained in the invoices,
purchase orders and contracts relating thereto;
(S) Accounts that are discounted for the full payment term specified in
Customer's terms and conditions with its Account debtors, or for any longer
period of time;
(T) Accounts on cash on delivery (C.O.D.) terms;
(U) Accounts arising from maintenance or service contracts that are billed
in advance of full performance of service;
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(V) Accounts arising from bartered transactions;
(W) Accounts arising from incentive payments, rebates, discounts, credits,
and refunds from a supplier; and
(X) Any and all other Accounts that IBM Credit deems, in its sole and
absolute discretion, to be ineligible.
The aggregate of all Accounts that are not ineligible Accounts shall hereinafter
be referred to as "Eligible Accounts", and as further described in Attachment A.
3.2. Reimbursement for Charges. Customer agrees to pay for all costs and
expenses of Customer's bank in respect to collection of checks and other items
of payment, all fees relating to the use and maintenance of the Lockbox and the
Special Account (each as defined in Section 3.3) and with respect to remittances
of proceeds of the Advances hereunder.
3.3. Lockbox and Special Account. Customer shall establish and maintain
lockbox(es) (each, a "Lockbox") at the address(es) set forth in Attachment A
with the financial institution(s) listed in Attachment A (each, a "Bank")
pursuant to an agreement between the Customer and each Bank in form and
substance satisfactory to IBM Credit. Customer shall also establish and maintain
a deposit account which shall contain only proceeds of Customer's Accounts
("Special Account") with each Bank. Customer shall enter into and maintain a
contingent blocked account agreement with each Bank for the benefit of IBM
Credit in form and substance satisfactory to IBM Credit pursuant to which, among
other things, such Bank shall agree that disbursements from the Special Account
shall be made only as IBM Credit shall direct.
3.4. Collections. Customer shall instruct all Account debtors to remit payments
directly to a Lockbox and shall deliver to IBM Credit written agreements from
each Account obligor that such Account obligor agrees to make all payments due
Customer to the Lockbox unless otherwise instructed by IBM Credit. In addition,
Customer shall have such instruction printed in conspicuous type on all
invoices. Customer shall instruct such Bank to deposit all remittances to such
Bank's Lockbox into its Special Account. Customer further agrees that it shall
not deposit or permit any deposits of funds other than remittances paid in
respect of the Accounts into the Special Account(s) or permit any commingling of
funds with such remittances in any Lockbox or Special Account.
Without limiting the Customer's foregoing obligations, if, at any time, Customer
receives a remittance directly from an Account debtor, then Customer shall make
entries on its books and records in a manner that shall reasonably identify such
remittances and shall keep a separate account on its record books of all
remittances so received and deposit the same into a Special Account. Until so
deposited into the Special Account, Customer shall keep all remittances received
in respect of Accounts separate and apart from Customer's other property so that
they are capable of identification as the proceeds of Accounts in which IBM
Credit has a security interest.
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3.5. Application of Remittances and Credits. Customer shall apply all
remittances against the aggregate of Customer's outstanding Accounts no later
than the end of the Business Day on which such remittances are deposited into
the Special Account. Customer also agrees to apply each remittance against its
respective Account no later than three (3) Business Days from the date such
remittance is deposited into the Special Account. In addition, Customer shall
promptly apply any credits owing in respect to any Account when due.
3.6. Power of Attorney. Customer hereby irrevocably appoints IBM Credit, with
full power of substitution, as its true and lawful attorney-in-fact with full
power, in good faith and in compliance with commercially reasonable standards,
in the discretion of IBM Credit, to:
(A) sign the name of Customer on any document or instrument that IBM Credit
shall deem necessary or appropriate to perfect and maintain perfected the
security interest in the Collateral contemplated under this Agreement and the
Other Documents;
(B) endorse the name of Customer upon any of the items of payment of
proceeds and deposit the same in the account of IBM Credit for application to
the Obligations; and
upon the occurrence and during the continuance of an Event of Default as defined
in Section 9.1 hereof:
(C) demand payment, enforce payment and otherwise exercise all Customer's
rights and remedies with respect to the collection of any Accounts;
(D) settle, adjust, compromise, extend or renew any Accounts;
(E) settle, adjust or compromise any legal proceedings brought to collect
any Accounts;
(F) sell or assign any Accounts upon such terms, for such amounts and at
such time or times as IBM Credit may deem advisable;
(G) discharge and release any Accounts;
(H) prepare, file and sign Customer's name on any Proof of Claim in
Bankruptcy or similar document against any Account debtor;
(I) prepare, file and sign Customer's name on any notice of lien, claim of
mechanic's lien, assignment or satisfaction of lien or mechanic's lien, or
similar document in connection with any Accounts;
(J) endorse the name of Customer upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar document or
agreement relating to any Account or goods pertaining thereto;
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(K) endorse the name of Customer upon any of the items of payment of
proceeds and deposit the same in the account of IBM Credit for application to
the Obligations;
(L) sign the name of Customer to requests for verification of Accounts and
notices thereof to Account debtors;
(M) sign the name of Customer on any document or instrument that IBM Credit
shall deem necessary or appropriate to enforce any and all remedies it may have
under this Agreement, at law or otherwise;
(N) make, settle and adjust claims under the Policies with respect to the
Collateral and endorse Customer's name on any check, draft, instrument or other
item of payment of the proceeds of the Policies with respect to the Collateral;
and
(O) take control in any manner of any term of payment or proceeds and for
such purpose to notify the postal authorities to change the address for delivery
of mail addressed to Customer to such address as IBM Credit may designate.
The power of attorney granted by this Section is for value and coupled with an
interest and is irrevocable so long as this Agreement is in effect or any
Obligations remain outstanding. Nothing done by IBM Credit pursuant to such
power of attorney will reduce any of Customer's Obligations other than
Customer's payment Obligations to the extent IBM Credit has received monies.
3.7. Concentration Accounts. Without limiting IBM Credit's other rights, IBM
Credit reserves the right to, from time to time in its sole discretion, modify
the percentage of the amount of Customer's Concentration Accounts used in
calculating Customer's Borrowing Base or eliminate Concentration Accounts in
calculating Customer's Borrowing Base.
Section 4. SECURITY -COLLATERAL
4.1. Grant. To secure Customer's full and punctual payment and performance of
the Obligations (including obligations under any leases Customer may enter into,
now or in the future, with IBM Credit) when due (whether at the stated maturity,
by acceleration or otherwise), Customer hereby grants IBM Credit a security
interest in all of Customer's right, title and interest in and to the following
property, whether now owned or hereafter acquired or existing and wherever
located:
(A) all inventory and equipment, and all parts thereof, attachments,
accessories and accessions thereto, products thereof and documents therefor;
(B) all accounts, contract rights, chattel paper, instruments, deposit
accounts, obligations of any kind owing to Customer, whether or not arising out
of or in connection with the sale or lease of goods or the rendering of services
and all books, invoices, documents and other records in any form evidencing or
relating to any of the foregoing;
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(C) general intangibles;
(D) all rights now or hereafter existing in and to all mortgages, security
agreements, leases or other contracts securing or otherwise relating to any of
the foregoing; and
(E) all substitutions and replacements for all of the foregoing, all
proceeds of all of the foregoing and, to the extent not otherwise included, all
payments under insurance or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing.
All of the above assets shall be collectively defined herein as the
"Collateral". Customer covenants and agrees with IBM Credit that: (a) the
security constituted to by this Agreement is in addition to any other security
from time to time held by IBM Credit and (b) the security hereby created is a
continuing security interest and will cover and secure the payment of all
Obligations both present and future of Customer to IBM Credit.
4.2. Further Assurances. Customer shall, from time to time upon the request of
IBM Credit, execute and deliver to IBM Credit, or cause to be executed and
delivered, at such time or times as IBM Credit may request such other and
further documents, certificates and instruments that IBM Credit may deem
necessary to perfect and maintain perfected IBM Credit's security interests in
the Collateral and in order to fully consummate all of the transactions
contemplated under this Agreement and the Other Documents. Customer shall make
appropriate entries on its books and records disclosing IBM Credit's security
interests in the Collateral.
Section 5. CONDITIONS PRECEDENT
5.1. Conditions Precedent to the Effectiveness of this Agreement. The
effectiveness of this Agreement is subject to the receipt by IBM Credit of, or
waiver in writing by IBM Credit of compliance with, the following conditions
precedent:
(A) this Agreement executed and delivered by Customer and IBM Credit;
(B) a favorable opinion of counsel for Customer in substantially the form
of Attachment G;
(C) a certificate of the secretary or an assistant secretary of Customer,
substantially in the form and substance of Attachment H hereto, certifying that,
among other items, (i) Customer is a corporation organized under the laws of the
State of its incorporation and has its principal place of business as stated
therein, (ii) Customer is registered to conduct business in specified states and
localities, (iii) true and complete copies of the articles of incorporation and
by-laws of Customer are delivered therewith, together with all amendments and
addenda thereto as in effect on the date thereof, (iv) the resolution as stated
in the certificate is a true, accurate and compared copy of the resolution
adopted by the Customer's Board of Directors authorizing the execution, delivery
and performance of this Agreement and each Other Document executed and delivered
in
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connection herewith, and (v) the names and true signatures of the officers of
Customer authorized to sign this Agreement and the Other Documents;
(D) certificates dated as of a recent date from the Secretary of State or
other appropriate authority evidencing the good standing of Customer in the
jurisdiction of its organization and in each other jurisdiction where the
ownership or lease of its property or the conduct of its business requires it to
qualify to do business;
(E) copies of all approvals and consents from any Person, in each case in
form and substance satisfactory to IBM Credit, which are required to enable
Customer to authorize, or required in connection with, (a) the execution,
delivery or performance of this Agreement and each of the Other Documents, and
(b) the legality, validity, binding effect or enforceability of this Agreement
and each of the Other Documents;
(F) a lockbox agreement executed by Customer and each Bank, in form and
substance satisfactory to IBM Credit;
(G) a contingent blocked account agreement executed by Customer and each
Bank in form and substance satisfactory to IBM Credit;
(H) intercreditor agreements ("Intercreditor Agreement"), in form and
substance satisfactory to IBM Credit, executed by each other secured creditor of
Customer as set forth in Attachment A;
(I) UCC-1 financing statements for each jurisdiction reasonably requested
by IBM Credit executed by Customer and each Guarantor whose Guaranty to IBM
Credit is intended to be secured by a pledge of its assets;
(J) the statements, certificates, documents, instruments, financing
statements, agreements and information set forth in Attachment A and Attachment
B; and
(K) all such other statements, certificates, documents, instruments,
financing statements, agreements and other information with respect to the
matters contemplated by this Agreement as IBM Credit shall have reasonably
requested.
5.2. Conditions Precedent to Each Advance. No Advance will be required to be
made or renewed by IBM Credit under this Agreement unless, on and as of the date
of such Advance, the following statements shall be true to the satisfaction of
IBM Credit:
(A) The representations and warranties contained in this Agreement or in
any document, instrument or agreement executed in connection herewith are true
and correct in all material respects on and as of the date of such Advance as
though made on and as of such date;
(B) No event has occurred and is continuing or after giving effect to such
Advance or the application of the proceeds thereof would result in or would
constitute a Default;
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(C) No event has occurred and is continuing which could reasonably be
expected to have a Material Adverse Effect;
(D) Both before and after giving effect to the making of such Advance, no
Shortfall Amount exists.
Except as Customer has otherwise disclosed to IBM Credit in writing prior to
each request, each request for an Advance hereunder and the receipt (or deemed
receipt) by the Customer of the proceeds of any Advance hereunder shall be
deemed to be a representation and warranty by Customer that, as of and on the
date of such Advance, the statements set forth in (A) through (D) above are true
statements. No such disclosures by Customer to IBM Credit shall in any manner be
deemed to satisfy the conditions precedent to each Advance that are set forth in
this Section 5.2.
Section 6. REPRESENTATIONS AND WARRANTIES
To induce IBM Credit to enter into this Agreement, Customer represents and
warrants to IBM Credit as follows:
6.1. Organization and Qualifications. Customer and each of its Subsidiaries (i)
is a corporation duly organized, validly existing and in good standing under the
law:; of the jurisdiction of its incorporation, (ii) has the power and authority
to own its properties and assets and to transact the businesses in which it
presently is engaged and (iii) is duly qualified and is authorized to do
business and is in good standing in each jurisdiction where it presently is
engaged in business and is required to be so qualified.
6.2. Rights in Collateral; Priority of Liens. Customer and each of its
Subsidiaries owns the property granted by it respectively as Collateral to IBM
Credit, free and clear of any and all Liens in favor of third parties except for
the Liens otherwise permitted pursuant to Section 8.1. The Liens granted by the
Customer and each of its Subsidiaries pursuant to this Agreement, the
Guaranties, if any, and the Other Documents in the Collateral constitute the
valid and enforceable first, prior and perfected Liens on the Collateral, except
to the extent any Liens that are prior to IBM Credit's Liens are (i) the subject
of an Intercreditor Agreement or (ii) Purchase Money Security Interests.
6.3. No Conflicts. The execution, delivery and performance by Customer of this
Agreement and each of the Other Documents (i) are within its corporate power;
(ii) are duly authorized by all necessary corporate action; (iii) are not in
contravention in any respect of any Requirement of Law or any indenture,
contract, lease, agreement, instrument or other commitment to which it is a
party or by which it or any of its properties are bound; (iv) do not require the
consent, registration or approval of any Governmental Authority or any other
Person (except such as have been duly obtained, made or given, and are in full
force and effect); and (v) will not, except as contemplated herein, result in
the imposition of any Liens upon any of its properties.
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6.4. Enforceability. This Agreement and all of the other documents executed and
delivered by the Customer in connection herewith are the legal, valid and
binding obligations of Customer, and are enforceable in accordance with their
terms, except as such enforceability may be limited by the effect of any
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or similar laws affecting creditors' rights generally or the general
equitable principles relating thereto.
6.5. Locations of Offices, Records and Inventory. The address of the principal
place of business and chief executive office of Customer is as set forth on
Attachment B or on any notice provided by Customer to IBM Credit pursuant to
Section 7.7(C) of this Agreement. The books and records of Customer, and all of
its chattel paper (other than the chattel paper delivered to IBM Credit pursuant
to Section 7.14(E)) and records of Accounts, are maintained exclusively at such
location.
There is no jurisdiction in which Customer has any assets, other than those
jurisdictions identified on Attachment B or on any notice provided by Customer
to IBM Credit pursuant to Section 7.7(C) of this Agreement. None of the receipts
received by Customer from any warehouseman states that the goods covered thereby
are to be delivered to bearer or to the order of a named person or to a named
person and such named person's assigns.
6.6. Fictitious Business Names. Customer has not used any corporate or
fictitious name during the five (5) years preceding the date of this Agreement,
other than those listed on Attachment B.
6.7. Organization. All of the outstanding capital stock of Customer has been
validly issued, is fully paid and nonassessable.
6.8. No Judgments or Litigation. Except as set forth on Attachment B, no
judgments, orders, writs or decrees are outstanding against Customer nor is
there now pending or, to the best of Customer's knowledge after due inquiry,
threatened, any litigation, contested claim, investigation, arbitration, or
governmental proceeding by or against Customer.
6.9. No Defaults. The Customer is not in material default under any term of any
indenture, contract, lease, agreement, instrument or other commitment to which
it is a party or by which it, or any of its properties are bound, that gives the
other party the right to accelerate Customer's obligations under such other
party's agreement with Customer. Customer has no knowledge of any dispute
regarding any such indenture, contract, lease, agreement, instrument or other
commitment. No Default or Event of Default has occurred and is continuing.
6.10. Labor Matters. Except as set forth on any notice provided by Customer to
IBM Credit pursuant to Section 7.1(G) of this Agreement, the Customer is not a
party to any labor dispute. There are no strikes or walkouts or labor
controversies pending or threatened against the Customer which could reasonably
be expected to have a Material Adverse Effect.
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6.11. Compliance with Law. Customer has not violated or failed to comply with
any Requirement of Law or any requirement of any self regulatory organization.
6.12. ERISA. Each "employee benefit plan", "employee pension benefit plan",
"defined benefit plan", or " multi-employer benefit plan", which Customer has
established, maintained, or to which it is required to contribute (collectively,
the "Plans") is in compliance with all applicable provisions of ERISA and the
Code and the rules and regulations thereunder as well as the Plan's terms and
conditions. There have been no "prohibited transactions" and no "reportable
event" has occurred within the last 60 months with respect to any Plan. Customer
has no "multi- employer benefit plan".
As used in this Agreement the terms "employee benefit plan", "employee pension
benefit plan", "defined benefit plan", and "multi-employer benefit plan" have
the respective meanings assigned to them in Section 3 of ERISA and any
applicable rules and regulations thereunder. The Customer has not incurred any
"accumulated funding deficiency" within the meaning of ERISA or incurred any
liability to the Pension Benefit Guaranty Corporation (the "PBGC") in connection
with a Plan (other than for premiums due in the ordinary course).
6.13. Compliance with Environmental Laws. Except as otherwise disclosed in
Attachment B:
(A) The Customer has obtained all government approvals required with
respect to the operation of their businesses under any Environmental Law.
(B) (i) the Customer has not generated, transported or disposed of any
Hazardous Substances; (ii) the Customer is not currently generating,
transporting or disposing of any Hazardous Substances; (iii) the Customer has no
knowledge that (a) any of its real property (whether owned, leased, or otherwise
directly or indirectly controlled) has been used for the disposal of or has been
contaminated by any Hazardous Substances, or (b) any of its business operations
have contaminated lands or waters of others with any Hazardous Substances; (iv)
the Customer and its respective assets are not subject to any Environmental
Liability and, to the best of the Customer's knowledge, any threatened
Environmental Liability, (v) the Customer has not received any notice of or
otherwise learned of any governmental investigation evaluating whether any
remedial action is necessary to respond to a release or threatened release of
any Hazardous Substances for which the Customer may be liable; (vi) the Customer
is not in violation of any Environmental Law; (vii) there are no proceedings or
investigations pending against Customer with respect to any violation or alleged
violation of any Environmental Law; provided however, that the parties
acknowledge that any generation, transportation, use, storage and disposal of
certain such Hazardous Substances in Customers or its Subsidiaries' business
shall be excluded from representations (i) and (ii) above, provided, further,
that Customer is at all times generating, transporting, utilizing, storing and
disposing such Hazardous Substances in accordance with all applicable
Environmental Laws and in a manner designed to minimize the risk of any spill,
contamination, release or discharge of Hazardous Substances other than as
authorized by Environmental Laws.
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6.14. Intellectual Property. Customer possesses such assets, licenses, patents,
patent applications, copyrights, service marks, trademarks, trade names and
trade secrets and all rights and other property relating thereto or arising
therefrom ("Intellectual Property") as are necessary or advisable to continue to
conduct its present and proposed business activities.
6.15. Licenses and Permits. Customer has obtained and holds in full force and
effect all franchises, licenses, leases, permits, certificates, authorizations,
qualifications, easements, rights of way and other rights and approvals which
are necessary for the operation of its businesses as presently conducted.
Customer is not in violation of the terms of any such franchise, license, lease,
permit, certificate, authorization, qualification, easement, right of way, right
or approval.
6.16. Investment Company. The Customer is not (i) an investment company or a
company controlled by an investment company within the meaning of the Investment
Company Act of 1940, as amended, (ii) a holding company or a subsidiary of a
holding company, or an Affiliate of a holding company or of a subsidiary of a
holding company, within the meaning of the Public Utility Holding Company Act of
1935, as amended, or (iii) subject to any other law which purports to regulate
or restrict its ability to borrow money or to consummate the transactions
contemplated by this Agreement or the Other Documents or to perform its
obligations hereunder or thereunder.
6.17. Taxes and Tax Returns. Customer has timely filed all federal, state, and
local tax returns and other reports which it is required by law to file, and has
either duly paid all taxes, fees and other governmental charges indicated to be
due on the basis of such reports and returns or pursuant to any assessment
received by the Customer, or made provision for the payment thereof in
accordance with GAAP. The charges and reserves on the books of the Customer in
respect of taxes or other governmental charges are in accordance with GAAP. No
tax liens have been filed against Customer or any of its property.
6.18. Status of Accounts. Each Account is based on an actual and bona fide sale
and delivery of goods or rendition of services to customers, made by Customer,
in the ordinary course of its business; the goods and inventory being sold and
the Accounts created are its exclusive property and are not and shall not be
subject to any Lien, consignment arrangement, encumbrance, security interest or
financing statement whatsoever (other than Permitted Liens). The Customer's
customers have accepted goods or services and owe and are obligated to pay the
full amounts stated in the invoices according to their terms. There are no
proceedings or actions known to Customer which are pending or threatened against
any Material Account Debtor (as defined in Section 7.14(B) of this Agreement) of
any of the Accounts which could reasonably be expected to result in a Material
Adverse Effect on the debtor's ability to pay the full amounts due to Customer.
6.19. Affiliate/Subsidiary Transactions. Customer is not a party to or bound by
any agreement or arrangement (whether oral or written) to which any Affiliate or
Subsidiary of the Customer is a party except (i) in the ordinary course of and
pursuant to the reasonable requirements of Customer's business and (ii) upon
fair and reasonable terms no less favorable to
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Customer than it could obtain in a comparable arm's-length transaction with an
unaffiliated Person.
6.20. Accuracy and Completeness of Information. All factual information
furnished by or on behalf of the Customer to IBM Credit or the Auditors for
purposes of or in connection with this Agreement or any Other Document, or any
transaction contemplated hereby or thereby is or will be true and accurate in
all material respects on the date as of which such information is dated or
certified and not incomplete by omitting to state any material fact necessary to
make such information not misleading at such time.
6.21. Recording Taxes. All recording taxes, recording fees, filing fees and
other charges payable in connection with the filing and recording of this
Agreement have either been paid in full by Customer or arrangements for the
payment of such amounts by Customer have been made to the satisfaction of IBM
Credit.
6.22. Indebtedness. Customer (i) has no Indebtedness, other than Permitted
Indebtedness; and (ii) has not guaranteed the obligations of any other Person
(except as permitted by Section 8.4).
Section 7. AFFIRMATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations:
7.1. Financial and Other Information. Customer shall cause the following
information to be delivered to IBM Credit within the following time periods:
(A) as soon as available and in any event within ninety (90) days after the
end of each fiscal year of Customer (i) audited Financial Statements (provided
that, to the extent not otherwise audited by the Auditors, the consolidated
Financial Statements may be unaudited) as of the close of the fiscal year and
for the fiscal year, together with a comparison to the Financial Statements for
the prior year, in each case accompanied by (a) either an opinion of the
Auditors without a "going concern" or like qualification or exception, or
qualification arising out of the scope of the audit or, if so qualified, an
opinion which shall be in scope and substance reasonably satisfactory to IBM
Credit, (b) such Auditors' "Management Letter" to Customer, if any, (c) a
written statement signed by the Auditors stating that in the course of the
regular audit of the business of Customer and its consolidated Subsidiaries,
which audit was conducted by the Auditors in accordance with generally accepted
auditing standards, the Auditors have not obtained any knowledge of the
existence of any Default under any provision of this Agreement, or, if such
Auditors shall have obtained from such examination any such knowledge, they
shall disclose in such written statement the existence of the Default and the
nature thereof, it being understood that such Auditors shall have no liability,
directly or indirectly, to anyone for failure to obtain knowledge of any such
Default; and (ii) a Compliance Certificate along with a schedule, in
substantially the form of Attachment C hereto, of the calculations used in
determining, as of the end of such fiscal year, whether Customer is in
compliance with the financial covenants set forth in Attachment A;
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(B) as soon as available and in any event within forty-five (45) days after
the end of each fiscal quarter of Customer (i) Financial Statements as of the
end of such period and for the fiscal year to date, together with a comparison
to the Financial Statements for the same periods in the prior year, all in
reasonable detail and duly certified (subject to normal year-end audit
adjustments and except for the absence of footnotes) by the chief executive
officer or chief financial officer of Customer as having been prepared in
accordance with GAAP; and (ii) a Compliance Certificate along with a schedule,
in substantially the form of Attachment C hereto, of the calculations used in
determining, as of the end of such fiscal quarter, whether Customer is in
compliance with the financial covenants set forth in Attachment A;
(C) as soon as available and in any event within twenty (20) days after the
end of each fiscal month of Customer (i) Financial Statements as of the end of
such period and for the fiscal year to date, together with a comparison to the
Financial Statements for the same periods in the prior year, all in reasonable
detail and duly certified (subject to normal year-end audit adjustments and
except for the absence of footnotes) by the chief executive officer or chief
financial officer of Customer as having been prepared in accordance with GAAP;
and (ii) a Compliance Certificate along with a schedule, in substantially the
form of Attachment C hereto, of the calculations used in determining, as of the
end of such fiscal month, whether Customer is in compliance with the financial
covenants set forth in Attachment A;
(D) as soon as available and in any event within sixty (60) days after the
end of each fiscal year of Customer (i) projected Financial Statements, broken
down by quarter, for the current and following fiscal year; and (ii) if
composed, a narrative discussion relating to such projected Financial
Statements;
(E) as soon as available and in any event within thirty (30) days after the
end of each fiscal quarter of Customer, revised projected Financial Statements,
broken down by quarter, for (i) the current fiscal year from the beginning of
such fiscal quarter to the fiscal year end and (ii) the following fiscal year;
(F) promptly after Customer obtains knowledge of (i) the occurrence of a
Default or Event of Default, or (ii) the existence of any condition or event
which would result in the Customers failure to satisfy the conditions precedent
to Advances set forth in Section 5, a certificate of the chief executive officer
or chief financial officer of Customer specifying the nature thereof and the
Customers proposed response thereto, each in reasonable detail;
(G) promptly after Customer obtains knowledge of (i) any proceeding(s)
being instituted or threatened to be instituted by or against Customer in any
federal, state, local or foreign court or before any commission or other
regulatory body (federal, state, local or foreign), or (ii) any actual or
prospective change, development or event which, in any such case, has had or
could reasonably be expected to have a Material Adverse Effect, a certificate of
the chief executive officer or chief financial officer of Customer specifying
the nature thereof and the Customer's proposed response thereto, each in
reasonable detail;
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(H) promptly after Customer obtains knowledge that (i) any order, judgment
or decree in excess of $50,000.00 shall have been entered against Customer or
any of its properties or assets, or (ii) it has received any notification of a
material violation of any Requirement of Law from any Governmental Authority, a
certificate of the chief executive officer or chief financial officer of
Customer specifying the nature thereof and the Customer's proposed response
thereto, each in reasonable detail;
(I) promptly after Customer learns of any material labor dispute to which
Customer may become a party, any strikes or walkouts relating to any of its
plants or other facilities, and the expiration of any labor contract to which
Customer is a party or by which it is bound, a certificate of the chief
executive officer or chief financial officer of Customer specifying the nature
thereof and the Customer's proposed response thereto, each in reasonable detail,
(J) within five (5) Business Days after request by IBM Credit, any written
certificates, schedules and reports together with all supporting documents as
IBM Credit may reasonably request relating to the Collateral or the Customer's
or any guarantor's business affairs and financial condition;
(K) by the fifth (5th) day of each month, or as otherwise agreed in
writing, a Collateral Management Report as of a date no earlier than the last
day of the immediately preceding month;
(L) along with the Financial Statements set forth in Section 7.1 (A) and
(B), the name, address and phone number of each of its Account debtors' primary
contacts for each Account on the Accounts aging report contained in its most
recent Collateral Management Report; and
(M) within five (5) days after the same are sent, copies of all Financial
Statements and reports which Customer sends to its stockholders, and within five
(5) days after the same are filed, copies of all Financial Statements and
reports which Customer may make to, or file with, the Securities and Exchange
Commission or any successor or analogous governmental authority.
Each certificate, schedule and report provided by Customer to IBM Credit shall
be signed by an authorized officer of Customer, and which signature shall be
deemed a representation and warranty that the information contained in such
certificate, schedule or report is true and accurate in all material respects on
the date as of which such certificate, schedule or report is made and does not
omit to state a material fact necessary in order to make the statements
contained therein not misleading at such time. Each Financial Statement
delivered pursuant to this Section 7.1 shall be prepared in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods. Customer shall cause the audited Financial Statements and accompanying
documents set forth in Section 7.1(A)(i) to be delivered directly by the
Auditors to IBM Credit only via first class mail.
7.2. Location of Collateral. The inventory, equipment and other tangible
Collateral shall be kept or sold at the addresses as set forth on Attachment B
or on any notice provided by Customer to IBM Credit in accordance with Section
7.7(C). Such locations shall be certified quarterly to IBM Credit substantially
in the form of Attachment F.
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7.3. Changes in Customer. Customer shall provide thirty (30) days prior written
notice to IBM Credit of any change in Customer's name, chief executive office
and principal place of business, organization, form of ownership or corporate
structure; provided, however, that Customer's compliance with this covenant
shall not relieve it of any of its other obligations or any other provisions
under this Agreement or any Other Document limiting actions of the type
described in this Section.
7.4. Corporate Existence. Customer shall (A) maintain its corporate existence,
maintain in full force and effect all licenses, bonds, franchises, leases and
qualifications to do business, and all contracts and other rights necessary to
the profitable conduct of its business, (B) continue in, and limit its
operations to, the same general lines of business as presently conducted by it
unless otherwise permitted in writing by IBM Credit and (C) comply with all
Requirements of Law.
7.5. ERISA. Customer shall promptly notify IBM Credit in writing after it learns
of the occurrence of any event which would constitute a "reportable event" under
ERISA or any regulations thereunder with respect to any Plan, or that the PBGC
(as defined in Section 6.12 of this Agreement) has instituted or will institute
proceedings to terminate any Plan. Notwithstanding the foregoing, the Customer
shall have no obligation to notify IBM Credit as to any "reportable event" as to
which the 30-day notice requirement of Section 4043(b) has been waived by the
PBGC, until such time as such Customer is required to notify the PBGC of such
reportable event.
Such notification shall include a certificate of the chief financial officer of
Customer setting forth details as to such "reportable event" and the action
which Customer proposes to take with respect thereto, together with a copy of
any notice of such "reportable event" which may be required to be filed with the
PBGC, or any notice delivered by the PBGC evidencing its intent to institute
such proceedings. Upon request of IBM Credit, Customer shall furnish, or cause
the plan administrator to furnish, to IBM Credit the most recently filed annual
report for each Plan.
7.6. Environmental Matters. (A) Customer and any other Person under Customer's
control (including, without limitation agents and Affiliates under such control)
shall (i) comply with all Environmental Laws in all material respects, and (ii)
undertake to use commercially reasonable efforts to prevent any unlawful release
of any Hazardous Substance by Customer or such Person into, upon, over or under
any property now or hereinafter owned, leased or otherwise controlled (directly
or indirectly) by Customer.
(B) Customer shall notify IBM Credit, promptly upon its obtaining knowledge
of (i) any non-routine proceeding or investigation by any Governmental Authority
with respect to the presence of any Hazardous Substances on or in any property
now or hereinafter owned, leased or otherwise controlled (directly or
indirectly) by Customer, (ii) all claims made or threatened by any Person or
Governmental Authority against Customer or any of Customers assets relating to
any loss or injury resulting from any Hazardous Substance, (iii) Customers
discovery of evidence of unlawful disposal of or environmental contamination by
any Hazardous Substance on any property now or hereinafter owned, leased or
otherwise controlled (directly or indirectly) by
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Customer, and (iv) any occurrence or condition which could constitute a
violation of any Environmental Law.
7.7. Collateral Books and Records/Collateral Audit. (A) Customer agrees to
maintain books and records pertaining to the Collateral in such detail, form and
scope as is consistent with good business practice, and agrees that such books
and records will reflect IBM Credit's interest in the Accounts.
(B) Customer agrees that IBM Credit or its agents may enter upon the
premises of Customer at any time and from time to time, during normal business
hours and upon reasonable notice under the circumstances, and at any time at all
on and after the occurrence and during the continuance of an Event of Default
for the purposes of (i) inspecting the Collateral, (ii) inspecting and/or
copying (at Customer's expense) any and all records pertaining thereto, (iii)
discussing the affairs, finances and business of Customer with any officers,
employees and directors of Customer or with the Auditors and (iv) verifying
Eligible Accounts and other Collateral. Customer also agrees to provide IBM
Credit with such reasonable information and documentation that IBM Credit deems
necessary to conduct the foregoing activities, including, without limitation,
reasonably requested samplings of purchase orders, invoices and evidences of
delivery or other performance.
Upon the occurrence and during the continuance of an Event of Default which has
not been waived by IBM Credit in writing, IBM Credit may conduct any of the
foregoing activities in any manner that IBM Credit deems reasonably necessary.
(C) Customer shall give IBM Credit thirty (30) days prior written notice of
any change in the location of any Collateral, the location of its books and
records or in the location of its chief executive office or place of business
from the locations specified in Attachment B, and will execute in advance of
such change and cause to be filed and/or delivered to IBM Credit any financing
statements, landlord or other lien waivers, or other documents reasonably
required by IBM Credit, all in form and substance reasonably satisfactory to IBM
Credit.
(D) Customer agrees to advise IBM Credit promptly, in reasonably sufficient
detail, of any substantial change relating to the type, quantity or quality of
the Collateral, or any event which could reasonably be expected to have a
Material Adverse Effect on the value of the Collateral or on the security
interests granted to IBM Credit therein.
7.8. Insurance; Casualty Loss. Customer agrees to maintain with financially
sound and reputable insurance companies: (i) insurance on its properties, (ii)
public liability insurance against claims for personal injury or death as a
result of the use of any products sold by it and (iii) insurance coverage
against other business risks, in each case, in at least such amounts and against
at least such risks as are usually and prudently insured against in the same
general geographical area by companies of established repute engaged in the same
or a similar business. Customer will furnish to IBM Credit, upon its written
request, the insurance certificates with respect to such insurance. In addition,
all Policies so maintained are to name IBM Credit as an additional insured as
its interest may appear.
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If Customer fails to pay any cost, charges or premiums, or if Customer fails to
insure the Collateral, IBM Credit may pay such costs, charges or premiums. Any
amounts paid by IBM Credit hereunder shall be considered an additional debt owed
by Customer to IBM Credit and are due and payable immediately upon receipt of an
invoice by IBM Credit.
7.9. Taxes. Customer agrees to pay, when due, all taxes lawfully levied or
assessed against Customer or any of the Collateral before any penalty or
interest accrues thereon unless such taxes are being contested, in good faith,
by appropriate proceedings promptly instituted and diligently conducted and an
adequate reserve or other appropriate provisions have been made therefor as
required in order to be in conformity with GAAP and an adverse determination in
such proceedings could not reasonably be expected to have a Material Adverse
Effect.
7.10. Compliance With Laws. Customer agrees to comply with all Requirements of
Law applicable to the Collateral or any part thereof, or to the operation of its
business.
7.11. Fiscal Year. Customer agrees to maintain its fiscal year as a year ending
March 31 unless Customer provides IBM Credit at least thirty (30) days prior
written notice of any change thereof.
7.12. Intellectual Property. Customer shall do and cause to be done all things
necessary to preserve and keep in full force and effect all registrations of
Intellectual Property which the failure to do or cause to be done could
reasonably be expected to have a Material Adverse Effect.
7.13. Maintenance of Property. Customer shall maintain all of its material
properties (business and otherwise) in good condition and repair (ordinary wear
and tear excepted) and pay and discharge all costs of repair and maintenance
thereof and all rental and mortgage payments and related charges pertaining
thereto and not commit or permit any waste with respect to any of its material
properties.
7.14. Collateral. Customer shall:
(A) from time to time upon request of IBM Credit, provide IBM Credit with
access to copies of all invoices, delivery evidences and other such documents
relating to each Account;
(B) promptly upon Customer's obtaining knowledge thereof, furnish to and
inform IBM Credit of all material adverse information relating to the financial
condition of any Account debtor whose outstanding obligations to Customer
constitute two percent (2%) or more of the Accounts at such time (a "Material
Account Debtor");
(C) promptly upon Customer's learning thereof, notify IBM Credit in writing
of any event which would cause any obligation of a Material Account Debtor to
become an Ineligible Account;
(D) keep all goods rejected or returned by any Account debtor and all goods
repossessed or stopped in transit by Customer from any Account debtor segregated
from other
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property of Customer, holding the same in trust for IBM Credit until Customer
applies a credit against such Account debtor's outstanding obligations to
Customer or sells such goods in the ordinary course of business, whichever
occurs earlier;
(E) stamp or otherwise mark chattel paper and instruments now owned or
hereafter acquired by it in conspicuous type to show that the Same are subject
to IBM Credits security interest and immediately thereafter deliver or cause
such chattel paper and instruments to be delivered to IBM Credit or any agent
designated by IBM Credit with appropriate endorsements and assignments to vest
title and possession in IBM Credit;
(F) use commercially reasonable efforts to collect all Accounts owed;
(G) promptly notify IBM Credit of any loss, theft or destruction of or
damage to any of the Collateral. Customer shall diligently file and prosecute
its claim for any award or payment in connection with any such loss, theft,
destruction of or damage to Collateral. Customer shall, upon demand of IBM
Credit, make, execute and deliver any assignments and other instruments
sufficient for the purpose of assigning any such award or payment to IBM Credit,
free of any encumbrances of any kind whatsoever;
(H) consistent with reasonable commercial practice, observe and perform all
matters and things necessary or expedient to be observed or performed under or
by virtue of any lease, license, concession or franchise forming part of the
Collateral in order to preserve, protect and maintain all the rights of IBM
Credit thereunder;
(I) consistent with reasonable commercial practice, maintain, use and
operate the Collateral and carry on and conduct its business in a proper and
efficient manner so as to preserve and protect the Collateral and the earnings,
incomes, rents, issues and profits thereof, and
(J) at any time and from time to time, upon the request of IBM Credit, and
at the sole expense of Customer, Customer will promptly and duly execute and
deliver such further instruments and documents and take such further action as
IBM Credit may reasonably request for the purpose of obtaining or preserving the
full benefits of this Agreement and of the rights and powers herein granted,
including, without limitation, the filing of any financing or continuation
statements under the Uniform Commercial Code in effect in any jurisdiction with
respect to the security interests granted herein and the payment of any and all
recording taxes and filing fees in connection therewith.
7.15. Subsidiaries. IBM Credit may require that any Subsidiaries of Customer
become parties to this Agreement or any other agreement executed in connection
with this Agreement as guarantors or sureties. Customer will comply, and cause
all Subsidiaries of Customer to comply with Sections 7 and 8 of this Agreement,
as if such sections applied directly to such Subsidiaries.
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7.16. Financial Covenants; Additional Covenants. Customer acknowledges and
agrees that Customer shall maintain the financial covenants and other covenants
set forth in the attachments, exhibits and other addenda incorporated in this
Agreement.
Section 8. NEGATIVE COVENANTS
Until termination of this Agreement and the indefeasible payment and
satisfaction of all Obligations hereunder:
8.1. Liens. The Customer will not, directly or indirectly mortgage, assign,
pledge, transfer, create, incur, assume, permit to exist or otherwise permit any
Lien or judgment to exist on any of its property, assets, revenues or goods,
whether real, personal or mixed, whether now owned or hereafter acquired, except
for Permitted Liens.
8.2. Disposition of Assets. The Customer will not, directly or indirectly, sell,
lease, assign, transfer or otherwise dispose of any assets other than (i) sales
of inventory in the ordinary course of business and short term rental of
inventory as demonstrations in amounts not material to Customer, and (ii)
voluntary dispositions of individual assets and obsolete or worn out property in
the ordinary course of business, provided, that the aggregate book value of all
such assets and property so sold or disposed of under this section 8.2 (ii) in
any fiscal year shall not exceed 5% of the consolidated assets of the Customer
as of the beginning of such fiscal year.
8.3. Corporate Changes. The Customer will not without the prior written consent
of IBM Credit, directly or indirectly, merge, consolidate, liquidate, dissolve
or enter into or engage in any operation or activity materially different from
that presently being conducted by Customer.
8.4. Guaranties. The Customer will not, directly or indirectly, assume,
guaranty, endorse, or otherwise become liable upon the obligations of any other
Person, except (i) by the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business, (ii) by
the giving of indemnities in connection with the sale of inventory or other
asset dispositions permitted hereunder, (iii) for guaranties in favor of IBM
Credit, and (iv) guaranty to suppliers of Customer's subsidiaries' obligations
less than five hundred thousand dollars ($500,000.00) individually, or in the
aggregate less than ten million dollars ($10,000,000.00).
8.5. Restricted Payments. The Customer will not, directly or indirectly: (i)
declare or pay any dividend (other than dividends payable solely in common stock
of Customer) on, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of capital stock of
Customer or any warrants, options or rights to purchase any such capital stock,
whether now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of Customer; or (ii) make any optional payment or prepayment on or
redemption (including, without limitation, by making payments to a sinking or
analogous fund) or repurchase of any Indebtedness (other than the Obligations).
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8.6. Investments. The provisions of Section 9.9 of the U.S. Bank Credit
Agreement as in effect on the date hereof, only as modified as follows, and all
applicable defined terms with respect thereto, are hereby incorporated by
reference in this Agreement with the same force and effect as if such provisions
and definitions were set forth in this Agreement in their entirety.
For the purpose of this Agreement:
Section 9.9(k) of the U.S. Bank Credit Agreement is modified by (a) deleting
subclause (i) and (b) substituting the dollar amount "$115,000,000.00" with
"$30,000,000.00" in subclause (ii).
8.7. Affiliate/Subsidiary Transactions. The Customer will not, directly or
indirectly, enter into any transaction with any Affiliate or Subsidiary,
including, without limitation, the purchase, sale or exchange of property or the
rendering of any service to any Affiliate or Subsidiary of Customer except in
the ordinary course of business and pursuant to the reasonable requirements of
Customer's business upon fair and reasonable terms no less favorable to Customer
than could be obtained in a comparable arm's-length transaction with an
unaffiliated Person.
8.8. ERISA. The Customer will not (A) terminate any Plan so as to incur a
material liability to the PBGC (as defined in Section 6.12 of this Agreement),
(B) permit any "prohibited transaction" involving any Plan (other than a
"multi-employer benefit plan") which would subject the Customer to a material
tax or penalty on "prohibited transactions" under the Code or ERISA, (C) fail to
pay to any Plan any contribution which they are obligated to pay under the terms
of such Plan, if such failure would result in a material accumulated funding
deficiency", whether or not waived, (D) allow or suffer to exist any occurrence
of a "reportable event" or any other event or condition, which presents a
material risk of termination by the PBGC of any Plan (other than a
"multi-employer benefit plan"), or (E) fail to notify IBM Credit as required in
Section 7.5. As used in this Agreement, the terms "accumulated funding
deficiency" and "reportable event" shall have the respective meanings assigned
to them in ERISA, and the term "prohibited transaction" shall have the meaning
assigned to it in the Code and ERISA. For purposes of this Section 8.8, the
terms "material liability", "tax", "penalty", "accumulated funding deficiency"
and "risk of termination" shall mean a liability, tax, penalty, accumulated
funding deficiency or risk of termination which could reasonably be expected to
have a Material Adverse Effect.
8.9. Additional Negative Pledges. Customer will not, directly or indirectly,
create or otherwise cause or permit to exist or become effective any contractual
obligation which may restrict or inhibit IBM Credit's rights or ability to sell
or otherwise dispose of the Collateral or any part thereof after the occurrence
and during the continuance of an Event of Default.
8.10. Storage of Collateral with Bailees and Warehousemen. Collateral shall not
be stored with a bailee, warehouseman or similar party without the prior written
consent of IBM Credit unless Customer will, concurrently with the delivery of
such Collateral to such party, cause such party to issue and deliver to IBM
Credit, warehouse receipts in the name of IBM Credit evidencing the storage of
such Collateral.
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8.11. Use of Proceeds. The Customer shall not use any portion of the proceeds of
any Advances other than for its general working capital requirements.
8.12. Accounts. The Customer shall not permit or agree to any extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any Account, including any of the terms relating thereto,
which would affect IBM Credit's ability to collect payment on any Account in
whole or in part, except for such extensions, compromises or settlements made by
Customer in the ordinary course of its business, provided, however, that the
aggregate amount of such extensions, compromises or settlements does not exceed
five percent (5%) of the Customer's Accounts at any time.
8.13. Indebtedness. The provisions of Section 9.10 of the U.S. Bank Credit
Agreement as in effect on the date hereof, and all applicable defined terms with
respect thereto, are hereby incorporated by reference in this Agreement with the
same force and effect as if such provisions and definitions were set forth in
this Agreement in their entirety.
8.14. Loans. The Customer will not make any loans, advances, contributions or
payments of money or goods to any Subsidiary, Affiliate or parent corporation or
to any officer, director or stockholder of Customer or of any such corporation
(except for compensation for personal services actually rendered), except for
transactions expressly authorized in this Agreement.
8.15. Additional Covenants. The provisions of Section 9.8 of the U.S. Bank
Credit Agreement as in effect on the date hereof, and all applicable defined
terms with respect thereto, are hereby incorporated by reference in this
Agreement with the same force and effect as if such provisions and definitions
were set forth in this Agreement in their entirety.
Any amendments or modifications to the provisions or definitions of the U.S.
Bank Credit Agreement incorporated in this Section 8.15 shall not be effective
with respect to this Agreement unless IBM Credit and the Customer shall have
agreed in writing to such amendments or modifications, as the case may be.
Nothing in this paragraph shall be deemed to require IBM Credit's consent to
amend or modify the provisions or definitions of the U.S. Bank Credit Agreement.
Section 9. DEFAULT
9.1. Event of Default. Any one or more of the following events shall constitute
an Event of Default by the Customer under this Agreement and the Other
Documents:
(A) The failure to make timely payment of the Obligations or any part
thereof when due and payable;
(B) (i) Customer fails to comply with any term, covenant or agreement
contained in Sections 7.1 (F), 7.3 and 8 of this Agreement (including provisions
of Sections 9.8, 9.9 and 9.10 of the U.S. Bank Credit Agreement incorporated by
reference therein); and (ii) Customer fails to comply with or observe any term,
covenant or agreement contained in this Agreement or any
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Other Documents (and such failure shall not constitute an Event of Default under
any of the other provisions of this Section 9.1) and, if capable of being
remedied, such failure to comply shall continue for a period of 30 days after
the earlier to occur of Customer's receipt of notice of such failure from IBM
Credit or the date on which such failure first becomes known to any of
Customer's officers;
(C) Any representation, warranty, statement, report or certificate made or
delivered by or on behalf of Customer or any of its officers, employees or
agents or by or on behalf of any Guarantor to IBM Credit was false in any
material respect at the time when made or deemed made;
(D) The occurrence of any event or circumstance which has a Material
Adverse Effect;
(E) Customer, any Subsidiary or any Guarantor shall generally not pay its
debts as such debts become due, become or otherwise declare itself insolvent,
file a voluntary petition for bankruptcy protection, have filed against it any
involuntary bankruptcy petition, cease to do business as a going concern, make
any assignment for the benefit of creditors, or a custodian, receiver, trustee,
liquidator, administrator or person with similar powers shall be appointed for
Customer, any Subsidiary or any Guarantor or any of its respective properties or
have any of its respective properties seized or attached, or take any action to
authorize, or for the purpose of effectuating, the foregoing, provided, however,
that Customer, any Subsidiary or any guarantor shall have a period of sixty (60)
days within which to discharge any involuntary petition for bankruptcy or
similar proceeding;
(F) The use of any funds borrowed from IBM Credit under this Agreement for
any purpose other than as provided in this Agreement;
(G) The entry of any judgment against Customer or any Guarantor in an
amount in excess of $100,000.00 and such judgment is not satisfied, dismissed,
stayed or superseded by bond within thirty (30) days after the day of entry
thereof (and in the event of a stay or supersedes a bond, such judgment is not
discharged within thirty (30) days after termination of any such stay or bond)
or such judgment is not fully covered by insurance as to which the insurance
company has acknowledged its obligation to pay such judgment in full;
(H) The dissolution or liquidation of Customer, any Subsidiary or any
Guarantor, or Customer or any Guarantor or its directors or stockholders shall
take any action to dissolve or liquidate Customer or any Guarantor;
(I) Any "going concern" or like qualification or exception, or
qualification arising out of the scope of an audit by an Auditor of its opinion
relative to any Financial Statement delivered to IBM Credit under this
Agreement;
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(J) There issues a warrant of distress for any rent or taxes with respect
to any premises occupied by Customer in or upon which the Collateral, or any
part thereof, may at any time be situated and such warrant shall continue for a
period of ten (10) Business Days from the date such warrant is issued;
(K) Customer suspends business;
(L) The occurrence of any event or condition that permits the holder of any
Indebtedness arising in one or more related or unrelated transactions to
accelerate the maturity thereof or the failure of Customer to pay when due any
such Indebtedness;
(M) Any Guaranty shall at any time for any reason cease to be in full force
and effect or shall be declared to be null and void by a court of competent
jurisdiction or the validity or enforceability thereof shall be contested or
denied by any such Guarantor, or any such Guarantor shall deny that it has any
further liability or obligation thereunder or any such Guarantor shall fail to
comply with or observe any of the terms, provisions or conditions contained in
any such Guaranty;
(N) Customer is in default under the material terms of any of the Other
Documents after the expiration of any applicable cure periods;
(O) There shall occur a "reportable event" with respect to any Plan, or any
Plan shall be subject to termination proceedings (whether voluntary or
involuntary) and there shall result from such "reportable event" or termination
proceedings a liability of Customer to the PBGC which in the reasonable opinion
of IBM Credit will have a Material Adverse Effect;
(P) Any "person" (as defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) acquires a beneficial interest in 50% or more of the
Voting Stock of Customer.
9.2. Acceleration. Upon the occurrence and during the continuance of an Event of
Default which has not been waived in writing by IBM Credit, IBM Credit may, in
its sole discretion, take any or all of the following actions, without prejudice
to any other rights it may have at law or under this Agreement to enforce its
claims against the Customer: (a) declare all Obligations to be immediately due
and payable (except with respect to any Event of Default set forth in Section
9.1(E) hereof, in which case all Obligations shall automatically become
immediately due and payable without the necessity of any notice or other demand)
without presentment, demand, protest or any other action or obligation of IBM
Credit; and (b) immediately terminate the Credit Line hereunder.
9.3. Remedies. (A) Upon the occurrence and during the continuance of any Event
of Default which has not been waived in writing by IBM Credit, IBM Credit may
exercise all rights and remedies of a secured party under the U.C.C. Without
limiting the generality of the foregoing, IBM Credit may: (i) remove from any
premises where same may be located any and all documents, instruments, files and
records (including the copying of any computer records), and
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any receptacles or cabinets containing same, relating to the Accounts, or IBM
Credit may use (at the expense of the Customer) such of the supplies or space of
the Customer at Customer's place of business or otherwise, as may be necessary
to properly administer and control the Accounts or the handling of collections
and realizations thereon; (ii) bring suit, in the name of the Customer or IBM
Credit and generally shall have all other rights respecting said Accounts,
including without limitation the right to accelerate or extend the time of
payment, settle, compromise, release in whole or in part any amounts owing on
any Accounts and issue credits in the name of the Customer or IBM Credit; (iii)
sell, assign and deliver the Accounts and any returned, reclaimed or repossessed
merchandise, with or without advertisement, at public or private sale, for cash,
on credit or otherwise, at IBM Credit's sole option and discretion, and IBM
Credit may bid or become a purchaser at any such sale; and (iv) foreclose the
security interests created pursuant to this Agreement by any available judicial
procedure, or to take possession of any or all of the Collateral without
judicial process and to enter any premises where any Collateral may be located
for the purpose of taking possession of or removing the same.
(B) Upon the occurrence and during the continuance of any Event of Default
which has not been waived in writing by IBM Credit, IBM Credit shall have the
right to sell, lease, or otherwise dispose of all or any part of the Collateral,
whether in its then condition or after further preparation or processing, in the
name of Customer or IBM Credit, or in the name of such other party as IBM Credit
may designate, either at public or private sale or at any broker's board, in
lots or in bulk, for cash or for credit, with or without warranties or
representations, and upon such other terms and conditions as IBM Credit in its
sole discretion may deem advisable, and IBM Credit shall have the right to
purchase at any such sale.
If IBM Credit, in its sole discretion determines that any of the Collateral
requires rebuilding, repairing, maintenance or preparation, IBM Credit shall
have the right, at its option, to do such of the aforesaid as it deems necessary
for the purpose of putting such Collateral in such saleable form as IBM Credit
shall deem appropriate. The Customer hereby agrees that any disposition by IBM
Credit of any Collateral pursuant to and in accordance with the terms of a
repurchase agreement between IBM Credit and the manufacturer or any supplier
(including any Authorized Supplier) of such Collateral constitutes a
commercially reasonable sale. The Customer agrees, at the request of IBM Credit,
to assemble the Collateral and to make it available to IBM Credit at places
which IBM Credit shall select, whether at the premises of the Customer or
elsewhere, and to make available to IBM Credit the premises and facilities of
the Customer for the purpose of IBM Credit's taking possession of, removing or
putting such Collateral in saleable form. If notice of intended disposition of
any Collateral is required by law, it is agreed that ten (10) Business Days
notice shall constitute reasonable notification.
(C) Unless expressly prohibited by the licensor thereof, if any, IBM Credit
is hereby granted, upon the occurrence and during the continuance of any Event
of Default which has not been waived in writing by IBM Credit, an irrevocable,
non-exclusive license to use, assign, license or sublicense all computer
software programs, data bases, processes and materials used by the Customer in
its businesses or in connection with any of the Collateral.
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(D) The net cash proceeds resulting from IBM Credit's exercise of any of
the foregoing rights (after deducting all charges, costs and expenses, including
reasonable attorneys' fees) shall be applied by IBM Credit to the payment of
Customer's Obligations, whether due or to become due, in such order as IBM
Credit may in it sole discretion elect. Customer shall remain liable to IBM
Credit for any deficiencies, and IBM Credit in turn agrees to remit to Customer
or its successors or assigns, any surplus resulting therefrom.
(E) The enumeration of the foregoing rights is not intended to be
exhaustive and the exercise of any right shall not preclude the exercise of any
other rights, all of which shall be cumulative.
9.4. Waiver. If IBM Credit seeks to take possession of any of the Collateral by
any court process Customer hereby irrevocably waives to the extent permitted by
applicable law any bonds, surety and security relating thereto required by any
statute, court rule or otherwise as an incident to such possession and any
demand for possession of the Collateral prior to the commencement of any suit or
action to recover possession thereof. In addition, Customer waives to the extent
permitted by applicable law all rights of set-off it may have against IBM
Credit. Customer further waives to the extent permitted by applicable law
presentment, demand and protest, and notices of non-payment, non-performance,
any right of contribution, dishonor, and any other demands, and notices required
by law.
Section 10. MISCELLANEOUS
10.1. Term; Termination. (A) This Agreement shall remain in force until the
earlier of (i) the Termination Date, (ii) the date specified in a written notice
by the Customer that they intend to terminate this Agreement which date shall be
no less than ninety (90) days following the receipt by IBM Credit of such
written notice, and (iii) termination by IBM Credit after the occurrence and
during the continuance of an Event of Default. Upon the date that this Agreement
is terminated, all of Customer's Obligations shall be immediately due and
payable in their entirety, notwithstanding any other provisions of this
Agreement.
(B) Until the indefeasible payment in full of all of Customer's
Obligations, no termination of this Agreement or any of the Other Documents
shall in any way affect or impair (i) Customer's Obligations to IBM Credit
including, without limitation, any transaction or event occurring prior to and
after such termination, or (ii) IBM Credit's rights hereunder, including,
without limitation IBM Credit's security interest in the Collateral. On and
after a Termination Date, IBM Credit may, but shall not be obligated to, upon
the request of Customer, continue to provide Advances hereunder.
10.2. Indemnification. The Customer hereby agrees to indemnify and hold harmless
IBM Credit and each of its officers, directors, agents and assigns
(collectively, the "Indemnified Persons") against all losses, claims, damages,
liabilities or other expenses (including reasonable attorneys' fees and court
costs now or hereinafter arising from the enforcement of this Agreement, the
"Losses") to which any of them may become subject insofar as such Losses arise
out of or are based upon any event, circumstance or condition (a) occurring or
existing on or
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before the date of this Agreement relating to any financing arrangements IBM
Credit may from time to time have with (i) Customer, (ii) any Person that shall
be acquired by Customer or (iii) any Person that Customer may acquire all or
substantially all of the assets of, or (b) directly or indirectly, relating to
the execution, delivery or performance of this Agreement or the consummation of
the transactions contemplated hereby or thereby or to any of the Collateral or
to any act or omission of the Customer in connection therewith. Notwithstanding
the foregoing, the Customer shall not be obligated to indemnify IBM Credit for
any Losses incurred by IBM Credit which are a result of IBM Credit's gross
negligence or willful misconduct. The indemnity provided herein shall survive
the termination of this Agreement.
10.3. Additional Obligations. IBM Credit, without waiving or releasing any
Obligation or Default of the Customer, may perform any Obligations of the
Customer that the Customer shall fail or refuse to perform and IBM Credit may,
at any time or times hereafter, but shall be under no obligation to do so, pay,
acquire or accept any assignment of any security interest, lien, encumbrance or
claim against the Collateral asserted by any person. All sums paid by IBM Credit
in performing in satisfaction or on account of the foregoing and any expenses,
including reasonable attorney's fees, court costs, and other charges relating
thereto, shall be a part of the Obligations, payable on demand and secured by
the Collateral.
10.4. LIMITATION OF LIABILITY. NEITHER IBM CREDIT NOR ANY OTHER INDEMNIFIED
PERSON SHALL HAVE ANY LIABILITY WITH RESPECT TO ANY SPECIAL, INDIRECT OR
CONSEQUENTIAL DAMAGES SUFFERED BY CUSTOMER IN CONNECTION WITH THIS AGREEMENT,
ANY OTHER AGREEMENT, ANY DELAY, OMISSION OR ERROR IN THE ELECTRONIC TRANSMISSION
OR RECEIPT OF ANY E-DOCUMENT, OR ANY CLAIMS IN ANY MANNER RELATED THERETO. NOR
SHALL IBM CREDIT OR ANY OTHER INDEMNIFIED PERSON HAVE ANY LIABILITY TO CUSTOMER
OR ANY OTHER PERSON FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT OR THEM
HEREUNDER, EXCEPT FOR ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
IN THE EVENT CUSTOMER REQUESTS IBM CREDIT TO EFFECT A WITHDRAWAL OR DEBIT OF
FUNDS FROM AN ACCOUNT OF CUSTOMER, THEN IN NO EVENT SHALL IBM CREDIT BE LIABLE
FOR ANY AMOUNT IN EXCESS OF ANY AMOUNT INCORRECTLY DEBITED, EXCEPT IN THE EVENT
OF IBM CREDIT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. NO PARTY SHALL BE LIABLE
FOR ANY FAILURE TO PERFORM ITS OBLIGATIONS IN CONNECTION WITH ANY E-DOCUMENT,
WHERE SUCH FAILURE RESULTS FROM ANY ACT OF GOD OR OTHER CAUSE BEYOND SUCH
PARTY'S REASONABLE CONTROL (INCLUDING, WITHOUT LIMITATION, ANY MECHANICAL,
ELECTRONIC OR COMMUNICATIONS FAILURE) WHICH PREVENTS SUCH PARTY FROM
TRANSMITTING OR RECEIVING E-DOCUMENTS.
10.5. Alteration/Waiver. This Agreement and the Other Documents may not be
altered or amended except by an agreement in writing signed by the Customer and
by IBM Credit. No delay or omission of IBM Credit to exercise any right or
remedy hereunder, whether before or after the occurrence of any Event of
Default, shall impair any such right or remedy or shall operate as a waiver
thereof or as a waiver of any such Event of Default. In the event that IBM
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Credit at any time or from time to time dispenses with any one or more of the
requirements specified in this Agreement or any of the Other Documents, such
dispensation may be revoked by IBM Credit at any time and shall not be deemed to
constitute a waiver of any such requirement subsequent thereto. IBM Credit's
failure at any time or times to require strict compliance and performance by the
Customer of any undertakings, agreements, covenants, warranties and
representations of this Agreement or any Other Document shall not waive, affect
or diminish any right of IBM Credit thereafter to demand strict compliance and
performance thereof. Any waiver by IBM Credit of any Default by the Customer
under this Agreement or any of the Other Documents shall not waive or affect any
other Default by the Customer under this Agreement or any of the Other
Documents, whether such Default is prior or subsequent to such other Default and
whether of the same or a different type. None of the undertakings, agreements,
warranties, covenants, and representations of the Customer contained in this
Agreement or the Other Documents and no Default by the Customer shall be deemed
waived by IBM Credit unless such waiver is in writing signed by an authorized
representative of IBM Credit.
10.6. Severability. If any provision of this Agreement or the Other Documents or
the application thereof to any Person or circumstance is held invalid or
unenforceable, the remainder of this Agreement and the Other Documents and the
application of such provision to other Persons or circumstances will not be
affected thereby, the provisions of this Agreement and the Other Documents being
severable in any such instance.
10.7. One Loan. All Advances heretofore, now or at any time or times hereafter
made by IBM Credit to the Customer under this Agreement or the Other Documents
shall constitute one loan secured by IBM Credit's security interests in the
Collateral and by all other security interests, liens and encumbrances
heretofore, now or from time to time hereafter granted by the Customer to IBM
Credit or any assignor of IBM Credit.
10.8. Additional Collateral. All monies, reserves and proceeds received or
collected by IBM Credit with respect to Accounts and other property of the
Customer in possession of IBM Credit at any time or times hereafter are hereby
pledged by Customer to IBM Credit as security for the payment of Customer's
Obligations and shall be applied promptly by IBM Credit on account of the
Customer's Obligations; provided, however, IBM Credit may release to the
Customer such portions of such monies, reserves and proceeds as IBM Credit may
from time to time determine, in its sole discretion.
10.9. No Merger or Novations. Neither the obtaining of any judgment nor the
exercise of any power of seizure or sale shall operate to extinguish the
Obligations of the Customer to IBM Credit secured by this Agreement and shall
not operate as a merger of any covenant in this Agreement, and the acceptance of
any payment or alternate security shall not constitute or create a novation and
the obtaining of a judgment or judgments under a covenant herein contained shall
not operate as a merger of that covenant or affect IBM Credit's rights under
this Agreement.
10.10. Paragraph Titles. The Section titles used in this Agreement and the Other
Documents are for convenience only and do not define or limit the contents of
any Section.
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10.11. Binding Effect; Assignment. This Agreement and the Other Documents shall
be binding upon and inure to the benefit of IBM Credit and the Customer and
their respective successors and assigns; provided, that the Customer shall have
no right to assign this Agreement or any of the Other Documents without the
prior written consent of IBM Credit.
10.12. Notices; E-Business Acknowledgment. (A) Except as otherwise expressly
provided in this Agreement, any notice required or desired to be served, given
or delivered hereunder shall be in writing, and shall be deemed to have been
validly served, given or delivered (i) upon receipt if deposited in the United
States mails, first class mail, with proper postage prepaid, (ii) upon receipt
of confirmation or answerback if sent by telecopy, or other similar facsimile
transmission, (iii) one Business Day after deposit with a reputable overnight
courier with all charges prepaid, or (iv) when delivered, if hand-delivered by
messenger, all of which shall be properly addressed to the party to be notified
and sent to the address or number indicated as follows:
(i) If to IBM Credit at: (ii) If to Customer at:
IBM Credit Corporation PEMSTAR INC.
2707 W. Butterfield Road, Suite 205 3535 Technology Drive NW
Oak Brook, IL 60523 Rochester, MN 55901
Attention: Region Operations Attention: Mr. Philip Jemielita,
Manager, Mr. Paul Slocum International Controller
Facsimile: (630) 573-7510 Facsimile: (507) 280-0838
or to such other address or number as each party designates to the other in the
manner prescribed herein.
(B) (i) Each party may electronically transmit to or receive from the other
party certain documents set forth in Attachment I ("E-Documents") via the
Internet or electronic data interchange ("EDI"). Any transmission of data which
is not an E-Document shall have no force or effect between the parties. EDI
transmissions may be sent directly or through any third party service provider
("Provider") with which either party may contract. Each party shall be liable
for the acts or omissions of its Provider while handling E-Documents for such
party, provided, that if both parties use the same Provider, the originating
party shall be liable for the acts or omissions of such Provider as to such
E-Document. Some information to be made available to Customer will be specific
to Customer and will require Customer's registration with IBM Credit before
access is provided. After IBM Credit has approved the registration submitted by
Customer, IBM Credit shall provide an ID and password(s) to an individual
designated by Customer ("Customer Recipient"). Customer accepts responsibility
for the designated individual's distribution of the ID and password(s) within
its organization and Customer will take reasonable measures to ensure that
passwords are not shared or disclosed to unauthorized individuals. Customer will
conduct an annual review of all IDs and passwords to ensure they are accurate
and properly authorized. IBM CREDIT MAY CHANGE OR DISCONTINUE USE OF AN ID OR
PASSWORD AT ITS DISCRETION AT ANY TIME. E-Documents shall not be deemed to have
been properly received, and no E-Document shall give rise to any obligation,
until accessible to the receiving party at such party's receipt computer at the
address specified herein. Upon proper receipt of an
Page 38 of 41
<PAGE>
E-Document, the receiving party shall promptly transmit a functional
acknowledgment in return. A functional acknowledgment shall constitute
conclusive evidence that an E-Document has been properly received. If any
transmitted E-Document is received in an unintelligible or garbled form, the
receiving party shall promptly notify the originating party in a reasonable
manner. In the absence of such a notice, the originating party's records of the
contents of such E-Document shall control.
(ii) Each party shall use those security procedures which are reasonably
sufficient to ensure that all transmissions of E-Documents are authorized and to
protect its business records and data from improper access. Any E-Document
received pursuant to this Section 10.12 shall have the same effect as if the
contents of the E-Document had been sent in paper rather than electronic form.
The conduct of the parties pursuant to this Section 10.12 shall, for all legal
purposes, evidence a course of dealing and a course of performance accepted by
the parties. The parties agree not to contest the validity or enforceability of
E-Documents under the provisions of any applicable law relating to whether
certain agreements are to be in writing or signed by the party to be bound
thereby. The parties agree, as to any E-Document accompanied by the Customer's
ID, that IBM Credit can reasonably rely on the fact that such E-Document is
properly authorized by Customer. E-Documents, if introduced as evidence on paper
in any judicial, arbitration, mediation or administrative proceedings, will be
admissible as between the parties to the same extent and under the same
conditions as other business records originated and maintained in documentary
form. Neither party shall contest the admissibility of copies of E-Documents
under either the business records exception to the hearsay rule or the best
evidence rule on the basis that the E-Documents were not originated or
maintained in documentary form.
CUSTOMER RECIPIENT INFORMATION for Internet transmissions:
(PLEASE PRINT)
Name of Customer's Designated Central Contact Authorized to Receive IDs and
Passwords:
Mr. Philip Jemielita
e-mail Address: [email protected]
Phone Number: (507) 292-8542
10.13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto were upon the same instrument.
10.14. SUBMISSION AND CONSENT TO JURISDICTION AND CHOICE OF LAW. TO INDUCE IBM
CREDIT TO ACCEPT THIS AGREEMENT AND THE OTHER DOCUMENTS, THE CUSTOMER HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT AND ANY OTHER DOCUMENT, OR FOR THE RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL
JURISDICTION OF THE COURTS OF
Page 39 of 41
<PAGE>
THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT COURT IN NEW YORK, NEW YORK.
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE
OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME.
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO CUSTOMER AT ITS ADDRESS
SET FORTH IN SECTION 10,13 OR AT SUCH OTHER ADDRESS OF WHICH IBM CREDIT SHALL
HAVE BEEN NOTIFIED PURSUANT THERETO;
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN
ANY OTHER JURISDICTION.
(E) AGREES THAT THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS (WITHOUT GIVING EFFECT TO CONFLICT OF
LAW PROVISIONS) OF THE STATE OF NEW YORK.
10.15. JURY TRIAL WAIVER. EACH OF IBM CREDIT AND THE CUSTOMER HEREBY IRREVOCABLY
WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING (INCLUDING ANY
COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE CUSTOMER ARE PARTIES AS TO
ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT OR ANY
DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION HEREWITH.
Page 40 of 41
<PAGE>
IN WITNESS WHEREOF, the Customer has read this entire Agreement, and has
caused its authorized representatives to execute this Agreement and has caused
its corporate seal to be affixed hereto as of the date first written above.
IBM CREDIT CORPORATION PEMSTAR INC.
By:_________________________________ By:_________________________________
Print Name:_________________________ Print Name:_________________________
Title:______________________________ Title:______________________________
Page 41 of 41
<PAGE>
EXHIBIT 4.5
Confidential Corporate Customers Dept.
- ------------
The Management
Pemstar B.V. 31.53.4.825.215
Lelyweg I
7602 EA Almelo G.C. Teekens
The Netherlands
26 May 1999
Dear Sirs,
With reference to our discussions, we are pleased to offer Pemstar B.V. the
following current account facility.
The credit facility shall be subject to the following terms and conditions
below.
Purpose Working Capital Line.
Borrower Pemstar B.V.
Arranger ING Bank District Oost Nederland
Amount NLG. 7,500,000.00 (in words: seven million and five
hundred thousand guilders), to be administered under
account number 67.85.89.577. Repayment or
continuation will be reviewed in consultation with
you before I July 2000. The facility will be reviewed
annually by reference to the annual figures of
Pemstar B.V.
Availability To be made available by way of current account drawings
and/or up to a maximum amount of NLG. 4,000,000.00 by way
of advances.
Borrowing base 70% on receivables.
50% on inventories.
Debit interest
rate 1.5% per annum over and above ING Base Rate (currently
standing at 3.25%), as published by us in the national
newspapers for drawings in current account. In case of
short advances the interest rate will be based on Euribor
(1, 3 or 6 months) plus 1.25%.
<PAGE>
Costs of domestic
funds transfer The costs of funds transfers will be charged on the basis
of a rate per item.
Value dating In the case of single amounts below NLG 500,000.00, the
applicable value date will be the settlement date plus one
day for credits and settlement date less one day for
withdrawals. For transfers of NTLG. 500,000.00 and up, the
value date is the same as the settlement date.
Font-end fee NLG. 12,500.00.
Settlement Interest, commission and costs will be charged in arrears
on 1 January, 1 April, 1 July, 1 October of each year.
Security The following collateral shall be furnished as
security for the credit facility and for all which
the Borrower may now or in the future owe the bank:
- Pledge on the receivables of Pemstar B.V.
- Pledge on the inventories of Pemstar B.V.
- Corporate Quarantee from Pemstar Inc.
The facility will be made available as soon as the
required collateral has been furnished and any
special stipulations have been met.
Financial covenants The Consolidated Tangible Net Worth (inclusive subordinated
intercompany Debt) of Pemstar B.V. shall at all times
exceed NLG. 6,000,000-00.
The Consolidated Net Borrowings shall at all times be
less than 200% of Consolidated Tangible Net Worth
(inclusive subordinated Intercompany Debt) of Pemstar
B.V.
The Operating Income of Pemstar B.V., as mentioned in
the "Income Statement Total" dated 22 April 1999
shall for the relevant period ending on 31 December
2003 be equal to or greater than 2% of annual sales.
Other covenants As discussed the repatriation of the royalties to Pemstar
Inc. will be delayed in accordance with the mentioned
gearing ratio as well as the Consolidated Tangible Net
Worth statement.
Annual figures The Borrower shall provide the Bank with the consolidated
audited accounts of Pemstar B.V. within 6 months after the
end of the accounting period to which they relate.
<PAGE>
The Borrower shall also provide the Bank with the
consolidated interim accounts of Pemstar B.V. within
60 days of the end of the accounting period of which
they relate.
The Borrower shall also provide the Bank with the
consolidated audited accounts of Pemstar Inc. within
6 months after the end of the accounting period to
which they relate.
Termination Both the Borrower and the Bank are at all times
entitled to terminate the current account overdraft
facility.
Other provisions Without prejudice to the above, the provisions of the
clause sheet and the loan agreement, these facility shall
be subject to the General Conditions as drawn up by the
"Nederlandse Vereniging van Banken" (Netherlands Bankers'
Association).
Governing Law The facility shall be governed by Dutch Law.
Validity This offer is valid until two weeks from today's date.
We trust that we have been of service. If you are in agreement with this offer,
please return the enclosed copy and clause sheet, duly signed where required and
having initialed the other pages to indicate your approval, before the expiry
date. By signing this offer the Borrower acknowledges receipt of a copy of the
General Conditions.
Yours faithfully,
ING Bank
Oost Nederland region
/ s / G.C. Teekens
------------------------------------
C.R. Eggink G.C. Teekens
Manager Corporate Customers Department Sr. Relationshipmanager
<PAGE>
[Letterhead of ING Bank]
The undersigned Pemstar Inc., hereby provides a guarantee to ING Bank N.V.,
hereinafter referred to as "the Bank" on behalf of Pemstar B.V., hereinafter
referred to as "the Debtor", for a sum not exceeding NLG. 7,500,000.00 in words
(sevenmillionfivehundredthousand Dutch guilders), the same as security for the
payments by the Debtor of everything which the latter owes or may owe now or at
anytime in the future to the Bank on account of his obligation to repay the
overdraft facility to the agreements concluded between the bank and Debtor on 26
May 1999.
This guarantee consequently binds the undersigned, to pay its own debt and
immediately on request the sums to be specified, provided that they together do
not exceed the sum of NLG. 7,500,000.00, in the event that the Debtor is in
default as described in the mentioned financial covenants in the agreements
between the Bank and the Debtor dated 26 May 1999 regarding the minimum
Consolidated Tangible Net Worth, the minimum Operating Income percentage and /
or the maximum Gearing Ratio as well as the events of default described in the
clause sheet.
N.B. Dutch Law will be applied to this guarantee.
Place Date
Signature ING Bank N.V.
/s/ RR Murphy
Treasurer
PEMSTAR, Inc
<PAGE>
Clause Sheet - conditions of credit facility
This sheet of clauses form part of our offer dated
to:
Clauses
1. The credit facility which is described in more detail in the attached
letter and all further credit facilities or any increases therein which the
bank may make available to the borrower shall, in so far as no other
provision is made in this respect, be governed by the following provisions
as well as the General Conditions, drawn up and filed by the Nederlands
Vereniging van Banken (Netherlands Bankers' Association) with the Registry
of the District Court at Amsterdam, a copy of which the borrower
acknowledges he has received.
2. With regard to the current account credit facility, the bank reserves the
right at all times to alter the percentage of the debit interest, credit
interest and commissions, as well as, if special circumstances or special
credit facilities - including any withdrawal beyond the credit limit -
necessitate this, to charge the rates which it customarily applies.
3. The current account credit facility may at all times be ended by the bank
either orally or in writing or be reduced by such sums as the bank may
specify. As a consequence of the termination of the credit facility, the
balance of the account(s) (or, in the case of a lowering of the credit
limit, the sum owed above the new limit) shall be immediately due and
payable and payment orders of the borrower will be executed only if and in
so far as the account shows a sufficient balance for this purpose. The
provisions of this paragraph shall also apply if a special arrangement for
repayment or reduction of the credit facility is agreed.
4. If the amount of a loan with a fixed rate of interest is not or not
entirely withdrawn within 5 weeks of the date of the offer, the bank may,
but is not obliged to, then disburse to the borrower the undrawn portion of
the loan without any further instruction from the borrower being required.
5. If a fixed interest rate applies, the bank will make a written proposal to
the borrower, no later than two weeks before the end of the agreed
fixed-interest period, for an interest rate that will apply during the next
fixed-interest period. If the bank and the borrower have not reached
agreement on the interest rate by the last day of a fixed-interest period
at the latest, the borrower shall be obliged to pay everything which he
owes to the bank under the loan on the last day of the fixed-interest
period. If the borrower has not reacted to the written proposal of the bank
by the last day of the previous fixed-interest period at the latest, the
borrower will be deemed to have agreed to the interest rate that has been
offered.
6. If the borrower wishes to make a repayment earlier than agreed or to repay
a sum that is larger than agreed or if the borrower wishes to make an early
repayment or a larger repayment without this having been agreed - even if
such repayments is made pursuant to the provisions of clause 7 below the
borrower shall pay the present value of the interest which the bank could
have received during the remainder of the fixed-interest period if the
early repayment had not taken place, less the interest which the bank could
have received on the interbank market on loans which are equal in size to
the early repayment and are equal in term to the remaining fixed-interest
period, subject always to a minimum of 1% of the early repayment. The
present value of the interest will be calculated at the rate which the bank
could obtain on the interbank market.
7. The balance of the current account credit facility and the entire amount of
the medium-term loan or such part of it as has not yet been repaid,
together with outstanding and accrued interest and any commission and
penalties due, shall be immediately due and payable in fall, without any
notice of default either by way of writ or similar instrument being
required, in the following circumstances:
<PAGE>
a. if the borrower is declared bankrupt, files a bankruptcy petition,
applies for a suspension of payment of debts or offers a private
composition to his creditors, or if one or more of the sureties or
jointly and severally liable debtors or one or more of the (legal)
persons who have provided security in rem are declared bankrupt or
obtain a suspension of payment of debts;
b. if property of the borrower and/or his spouse is seized by way of
preliminary relief pending suit or by way of execution or if goods of
third parties which have been provided by such third parties as
security for the loan are seized;
c. if the borrower fails to perform any duty or obligation owed to the
bank under this agreement or under any other agreement concluded with
the bank, whether or not in connection herewith, or fails to do so
fully or in good time, or if repayment of a loan granted by the bank
to an enterprise forming part of the group to which the borrower
belongs is demanded;
d. if the business or professional activities of the borrower are
discontinued or substantially changed or if the borrower merges with
or is taken over by a third party, or if the borrower's business is
split up in any way, or if a decision to this effect is taken by the
borrower,
e. if the borrower (being a partnership, civil partnership or limited
partnership or a legal person) is discontinued or wound up or if any
decision to this effect is taken, or if the borrower (being a natural
person) dies, loses the unfettered control of his assets, waives his
rights to his assets or settles abroad;
f. if, where the borrower is a partnership, civil partnership or limited
partnership or a legal person, the partners or the composition of the
management changes, or the partnership deed or the articles of
association or regulations of a legal person are, in the opinion of
the bank, amended in such a way that the bank would not have concluded
the agreement or would not have concluded it on the same conditions,
unless it approved the amendment in writing;
g. if a declaration or statement made by or on behalf of the borrower is
contrary to the truth, a circumstance of importance to the bank has
been concealed, the security provided for this loan is null and void,
voidable or not of the required rank, or a promised security is not
provided in time or lapses prematurely;
h. if the legal or beneficial entitlement to the security provided is
changed or if any real right relating to the security provided is
created or lost;
i. if, in the opinion of the bank, there are good grounds for believing
that the sum owed by the borrower under this agreement and/or any
other agreement concluded with the bank will not be recoverable;
j. if the borrower uses either all or part of this credit facility to
obtain interest profits (or to conduct interest-rate arbitrage) by
affecting transactions which cannot be regarded as being part of his
normal business.
8. The bank shall be entitled to debit the borrower's current account for the
payment of principal, interest, commission, costs, penalties and the like
at the times which have been agreed for this purpose with the bank or are
customary for the bank. The borrower waives (in advance) his right of
set-off in respect of the said payments.
9. If the credit facility is granted to two or more (legal) persons, they
shall be jointly and severally liable to the bank. Each jointly and
severally liable debtor shall subordinate any provisional claim which he
has on account of the right of recourse and/or subrogation against another
jointly and severally liable debtor to all present and future claims which
the bank has against that other debtor on any account whatsoever.
<PAGE>
Postponement of payment, discharge from joint and several liability and
waiver for no consideration or waiver for consideration which the bank
grants to one of the jointly and severally liable debtors or an offer of
waiver for no consideration or for consideration which the bank makes to
one of the jointly and severally liable debtors shall concern only that one
debtor.
10. At the first written and reasoned request of the bank, the borrower shall
provide the bank at all times with such security as cover for his existing
and future obligations as the bank requires and considers appropriate.
11. As additional security for the repayment or return of everything which the
borrower owes the bank now or at any time in the future on any account
whatsoever, the borrower pledges - in so far as necessary in advance - to
the bank, which accepts such pledge, everything which the bank may now, or
at any time in the future, owe the borrower on any ground whatsoever. In so
far as necessary, the bank declares that in its capacity of debtor in
respect of the claims it has been informed of the pledge. Said pledge is
governed by article 18 of the General Conditions.
12. If the credit facility is discontinued and the debit balance on the
account(s) has not been cleared, the borrower shall be bound to pay the
bank debit interest and commission on said debit balance up to the date of
full and final settlement, in accordance with the provisions of this
agreement.
13. The borrower shall at all times allow the bank, or such persons as are
designated by it, to inspect his books and shall also provide all
information which may be required. The borrower shall also supply the bank
with a copy of his balance sheet and profit and loss account each year
within six months of the end of the financial year, unless a different
frequency or a different date of submission has been agreed.
14. The extract from its books, as prepared and signed by the bank, shall serve
as complete proof of the existence and the amount of the debt owed by the
borrower to the bank, unless the borrower produces evidence to the
contrary.
15. The borrower shall not bind himself as a surety or as a co-debtor having
joint and several liability without the prior knowledge of the bank.
16. The borrower shall whenever possible channel his financial transactions
through the bank.
17. The borrower shall ensure to use now and in the future, also on and after
December 31, 1999, (computer) equipment - including both hardware and
software - which will enable him (to continue) to conduct his business
properly.
18. Any costs, such as all judicial or extra-judicial costs, incurred at any
time under the agreements made with the bank, shall be for the account of
the borrower. The aforementioned costs shall be paid by the borrower at the
bank's first quarter.
N.B. In the event of a discrepancy between this translation and the Dutch
original, the latter shall prevail.
- --------------------------------------------------------------------------------
Place Date
Signature of borrower
/s/ RR Murphy
PEMSTAR, Inc.
Treasurer
<PAGE>
EXHIBIT 10.1
JOINT VENTURE AGREEMENT
THIS JOINT VENTURE AGREEMENT is made as of this __________ day of
___________________, 1998 by and between PEMSTAR INC. ("PEMSTAR"), a corporation
organized under the laws of the State of Minnesota with its principal offices at
2535 Highway 14 West, Rochester, Minnesota 55901, U.S.A. and HONGGUAN
TECHNOLOGIES (S) PTE LTD. ("HongGuan"), a company incorporated under the laws of
Singapore with its registered office at 39 Joo Koon Circle, Singapore 629105.
WHEREAS, PEMSTAR is in the business of precision electro-mechanical
manufacturing, assembling and testing on a contract basis in Rochester,
Minnesota and other locations around the world; and
WHEREAS, HongGuan is in the business of designing and building factory
automation and precision assembly systems, tool and die, and manufacturing of
key modules and devices;
WHEREAS, PEMSTAR and HongGuan desire to incorporate a new private limited
company to be called PEMSTAR-HONGGUAN PTE LTD., or such other name as the
parties may agree and the Registrar of Companies may approve (the "Company") in
Singapore that will initially engage in the business of manufacturing equipment
for the disk drive industry, providing support services for such equipment and
providing engineering and design services for the disk drive industry;
WHEREAS, HongGuan will own 49% of the Company and PEMSTAR will own 51% of the
Company; and
WHEREAS, PEMSTAR and HongGuan desire to set forth in this Agreement the terms
and conditions of the joint ownership of the Company.
NOW, THEREFORE, in consideration of the premises and the respective agreements
herein set forth, the Parties hereto agree as follows:
1. DEFINITIONS
1.1 Defined Terms. The following terms, when used in capitalized form in this
Agreement, shall have the meanings set forth below:
(a) "Affiliate" shall mean a company controlled by, under common control
with, or controlling a Party, where "control" means either (i) the
ownership, either directly or indirectly, of more than 50% of the voting
shares or (ii) the right to elect the majority of the directors of a
company and, in either case, where such control may be exercised without
the consent of any third party.
(b) "Agreement" and "this Agreement" shall mean this Joint Venture
Agreement, including all Exhibits hereto and, except where the context
otherwise clearly requires, all certificates, documents and instruments
executed and/or delivered at or prior to Closing.
<PAGE>
(c) "Ancillary Agreements" shall mean the License Agreement, the Trademark
Agreement and the Services Agreement, to be entered into at the Closing
with respect to the Company.
(d) "Board" or "Board of Directors" shall mean the Company's board of
directors.
(e) "Closing" shall mean the completion of the transactions contemplated by
this Agreement as more fully set forth in Article 12.
(f) "Closing Date" shall mean the date of the Closing as set forth in
Section 12.1.
(g) "Confidential Information" shall have the meaning set forth in Section
9.1.
(h) "Corporate Articles" shall mean the Memorandum and Articles of
Association of the Company.
(i) "Effective Date" shall mean the date of this Agreement as first written
above.
(j) "Fiscal Year" shall mean the financial year of the Company ending in
each year on the 31st of March.
(k) "Parties" shall mean PEMSTAR and HongGuan (or such other party who
becomes a party pursuant to the terms of this Agreement), and "Party" shall
mean either of them.
(l) "Scope" of the Company shall mean the agreed scope of activities of the
Company as defined in Section 2.1, as it may be modified from time to time
pursuant to Section 2.2.
(m) "Shareholders" shall mean PEMSTAR and HongGuan, and any Affiliate(s)
that either may designate to hold some or all of its shares in the Company,
and "Shareholder" shall mean any of them.
(n) "Singapore Dollars" or "S$" shall mean units of the lawful currency of
Singapore.
(o) "Territory" shall mean the continent of Asia, as indicated on the map
attached hereto as Exhibit A; provided, however, that the Territory under
this Agreement shall exclude the Philippines.
(p) "U.S. Dollars" or "U.S.$" shall mean units of the lawful currency of
the United States of America.
2
<PAGE>
1.2 Terms Defined in Ancillary Agreements. All terms, other than those which are
defined in Section 1.1, which are defined in any of the Ancillary Agreements and
are used in capitalized form in this Agreement shall have the meanings set forth
in the relevant Ancillary Agreement.
1.3 Other Rules of Interpretation. Unless the context clearly indicates
otherwise, the following rules shall govern the interpretation of this
Agreement:
(a) The definitions of all terms defined herein shall apply equally to the
singular, plural, and possessive forms of such terms;
(b) All references herein to "days" shall mean calendar days;
(c) All references to "Exhibits" shall mean the corresponding Exhibits of
this Agreement;
(d) All references to "Sections" shall mean the corresponding Section to
this Agreement.
2. PURPOSE AND SCOPE
2.1 General Purpose and Initial Scope. Subject to and upon the terms and
conditions hereinafter set forth, the Parties hereby agree to establish a joint
venture. Notwithstanding the generality of the corporate objectives enumerated
in the Corporate Articles, the activities of the Company shall be limited to its
Scope. The initial Scope of the Company shall consist of providing research and
development, engineering design services and manufacturing of process and test
equipment for the disk drive industry in the Territory, and providing technical
support services for such equipment.
2.2 Future Scope. Subject to Section 6.4, the Scope of the Company may be
expanded, reduced or otherwise altered upon approval of the Board. On or after
September 30, 2002, the Parties shall request the Board to assess the viability
of a public offering of shares of the Company.
2.3 Non-Competition. Each Party agrees that, from and after the Closing Date and
during the term of this Agreement and for two years thereafter if the Company
has not been liquidated, it will not, within the Territory, either directly or
indirectly or through any of its Affiliates (other than the Company), engage in
any business which is within the Scope of the Company, from time to time, or
competitive with any such business without the consent of the Board of Directors
of the Company during the term of this Agreement and without the consent of the
other Party thereafter. If either Party engages in business that may be in
competition with a customer of the Company, the Parties agree to discuss in good
faith such business and its impact on the Company. During the term of this
Agreement, the decision by the Board of Directors of the Company of whether a
Party is competing, and the decision on whether to consent to any potential
competition, shall be made by the directors not appointed by the Party competing
or seeking to compete. A decision by the Board of Directors of the Company that
a Party is
3
<PAGE>
competing shall not be conclusive that the Party is in fact competing; it simply
authorizes the Company to pursue an action against such Party who is in breach
of this Section.
2.4 Sales and Marketing. Each of the Parties agrees that, in connection with
disk drive customers in the Territory, it and its Affiliates will represent the
Company as the primary contact for the disk drive business. Each Party agrees
that it and its Affiliates will not act independently with disk drive customers
in the Territory. Any such potential business to be generated by the Parties or
its Affiliates shall be offered to the Company unless (i) the business is "tools
and fixtures" (not related to equipment supplied by the Company), which will be
performed by HongGuan or its Affiliates or (ii) the business is "systems design
and prototype services" (not within the capabilities of the Company), which will
be performed by PEMSTAR or its Affiliates. The Parties agree to keep informed
the managing director of the Company, in a timely manner, of all customer
contacts. All service agreements and agreements and provisions for spare parts
relative to equipment supplied by the Company shall also be first offered to the
Company.
2.5 Right of First Refusal on Expanded Business. If one of the Parties to this
Agreement desires to enter into a partnership or joint venture with a third
party to manufacture equipment for the manufacturing and testing process in
non-disk drive industries, and if such partnership or joint venture would cover
North America with respect to HongGuan, or Asia with respect to PEMSTAR, then
the Parties agree to negotiate in good faith with each other regarding such a
partnership or joint venture before entering into such a partnership or joint
venture with a third party. If the Parties cannot agree on terms for such a
partnership or joint venture, then the Party desiring to enter into a
partnership or joint venture with a third party shall be free to do so..
3. FORMATION AND CAPITALIZATION
3.1 Formation. Prior to the Closing, PEMSTAR shall incorporate the Company as a
private limited company under the laws of Singapore. In the event of any
inconsistency or conflict between the Corporate Articles and the provisions of
this Agreement, the terms of this Agreement shall as between the Parties prevail
and the Parties shall cause such necessary alterations to be made to the
Corporate Articles as are required to remove such conflict. The Corporate
Articles shall be subscribed as to one share by Mr. Robert D. Ahmann, a duly
appointed nominee of PEMSTAR and as to one share by Mr. James Teo, a duly
appointed nominee of HongGuan. Forthwith on the incorporation of the Company,
PEMSTAR shall procure the transfer to it of the one share subscribed by Mr.
Robert D. Ahmann and HongGuan shall procure the transfer to it of the one share
subscribed by Mr. James Teo.
3.2 Authorized Capital and Subscriptions.
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(a) The authorized share capital of the Company shall be S$5,000,000,
divided into 5,000,000 ordinary shares, having a nominal value of S$1.00
each. All ordinary shares shall have equal rights.
(b) A total of 509,999 shares (representing 51% of the outstanding share
capital) shall be subscribed by PEMSTAR in exchange for Five Hundred Nine
Thousand Nine Hundred Ninety-nine Singapore Dollars (S$509,999). A total of
489,999 shares (representing 49% of the outstanding share capital) shall be
subscribed by HongGuan in exchange for Four Hundred Eighty-nine Thousand
Nine Hundred Ninety-nine Singapore Dollars (S$489,999).
3.3 Substitution of Affiliates as Shareholders. Neither Party may transfer all
or any portion of its shares in the Company to a third party, except as provided
in Section 13.1 or as provided in this Section 3.3. A party may transfer all or
any portion of its shares in the Company to any of its respective Affiliates,
provided that:
(a) the ownership of such shares by any Affiliate shall be subject to all
the conditions set forth in this Agreement and the Corporate Articles;
(b) the Parties shall each procure the performance of their respective
obligations under this Agreement, and under the Corporate Articles, by
their respective Affiliates, and shall cause such Affiliate to execute a
Deed of Adherence pursuant to which that Affiliate shall agree to be bound
by the terms and conditions of this Agreement; and
(c) the shares in the Company held by any Affiliate of a Party shall be
transferred to such Party prior to the completion of any transaction as a
result of which such Affiliate will cease to be an Affiliate of such Party.
4. FINANCING
4.1 Initial Financing. Subject to Section 6.4, if and when necessary, the
Parties shall use their best efforts to arrange a credit or overdraft facility
on behalf of the Company with a bank in Singapore acceptable to the Board.
4.2 Debt Financing. Subject to Section 6.4, the Company's future additional
financing may be obtained through external loans or other financial
arrangements, whenever possible without any additional security by way of
guarantee or otherwise from the Parties, and such financing shall in all cases
be subject to the approval of the Board in accordance with the provisions of
this Agreement. In the event that any guarantees, securities, indemnities or
other undertakings are required to be given for such loans or other financial
arrangements, the Parties shall provide the same in the same proportion as their
respective shareholding percentages at the relevant date.
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5. DIVIDENDS
5.1 Dividends. Subject to Section 6.4(d) and to the approval of the Company in
general meeting, the Board may pay some or all of the Company's profits to the
Parties as dividends. Dividends shall be remitted to the Parties in proportion
to their shareholdings.
5.2 Time of Payment. All dividends required to be paid by the Company at the end
of any Fiscal Year pursuant to this Article 5 shall, unless otherwise determined
by the Board, be paid within thirty (30) days after the date of the annual
general meeting at which the financial statements for the Fiscal Year shall have
been approved.
6. MANAGEMENT
6.1 Board of Directors. The Board shall be comprised of five (5) members, (i)
three (3) directors nominated by PEMSTAR, and (ii) two (2) directors nominated
by HongGuan, one of whom nominated by HongGuan shall be James Teo and one of
whom nominated by HongGuan must be a resident in Singapore (i.e., a citizen of
Singapore, a permanent resident or a foreign national holding an employment
pass). When a Managing Director other than James Teo is appointed, the Parties
shall agree on whether the appointment counts as one of PEMSTAR's three
nominations or one of HongGuan's two nominations. If the Parties agree that the
new Managing Director shall count as one of HongGuan's nominations, then the
Board shall be comprised of seven members, four directors nominated by PEMSTAR
and three directors nominated by HongGuan. If the Parties agree that the new
Managing Director shall count as one of PEMSTAR's nominations, PEMSTAR shall
determine whether the Board shall be comprised of seven members, four directors
nominated by PEMSTAR and three directors nominated by HongGuan, or whether the
number of directors on the Board shall remain as five members, three directors
nominated by PEMSTAR and two directors nominated by HongGuan. Subject to Section
6.4(t), each Party agrees to vote its shares in favor of the other Party's
nominees and replacements thereof. The term of office of each of the directors
shall be one year and they may be reappointed for any number of terms. The
Company shall indemnify any director against any claims that may be brought
against such director except for such claims arising out of or in relation to
any acts not performed in good faith or any acts which are performed in a manner
not in the best interests of the Company, or any acts resulting in violation of
Singapore law. Members of the Board shall serve without compensation, but all
reasonable costs incurred by the directors in performing their duties as members
of the Board (including international travel, hotel expenses and other related
expenses for attending Board meetings) shall be borne by the Company.
6.2 (a) Nomination and Removal of Directors. The right of nomination conferred
on a Party under Section 6.1 shall include a right to remove at any time
from office such person so nominated by that party as a director. Whenever
for any reason a person ceases to be a director, the Party which had
nominated him or would be entitled to nominate him under Section 6.1 shall
nominate forthwith a substitute director. Each nomination or removal of a
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director pursuant to Section 6.1 shall be in writing and signed on behalf
of the Party nominating or removing such director and shall be delivered to
the registered office for the time being of the Company. The rights of
nomination and removal of each director shall be exercised by the Parties
in accordance with the Corporate Articles.
(b) Each Party's Power to Appoint Board Members. Any transfer or assignment
of the shares in the Company by one Party to the other Party or to any
third party pursuant to Sections 3.3 or 13.1 may result in an adjustment of
each Party's power and ability to appoint directors to the Board and such
adjustment shall be made in accordance with the principle that the
Shareholders are entitled to appoint director(s) to the Board in proportion
to their respective shareholdings, provided, however, that any equity owner
of less than ten (10) percent of the shares of the Company shall not be
entitled to a seat on the Board unless it is agreed to by all the other
Shareholders.
6.3 Board Meetings. Meetings of the Board shall be conducted as follows:
(a) The Board shall meet at least twice every year at a location determined
by the Chairman of the Board. At any meetings of the Board, a quorum shall
be one director nominated by PEMSTAR and one director nominated by
HongGuan. A Board meeting shall be called by the Chairman and presided over
by the Chairman. The Chairman shall give each director a written notice
thirty (30) days before a Board meeting and such notice shall include the
agenda, time and location of the meeting to be held.
(b) A special Board meeting shall be called by the Chairman of the Board if
it is so requested by at least two (2) directors. The Chairman shall give
each director a written notice at least seven (7) days before a special
Board meeting and such notice shall include the agenda, time and location
of the meeting to be held. In the event that the Chairman does not convene
a meeting within seven (7) days of the request of at least two (2)
directors, the other directors may convene a meeting by giving notice as
described above.
(c) A director shall be entitled at any time and from time to time to
appoint any person to act as his alternate and to terminate the appointment
of such person. Such appointment shall require the prior written consent of
the Parties unless such alternate is currently a director. Any such
alternate director shall be entitled while holding office as such to
receive notices of meetings of the Board and to attend and vote as a
director at any such meetings at which the director appointing him is not
present and generally to exercise all the powers, rights, duties and
authorities and to perform all functions of the director appointing him.
Further, that alternate director shall be entitled to exercise the vote of
the director appointing him at any meetings of the Board and if such
alternate director represents more than one director, such alternate
director shall be entitled to one vote for every director he represents.
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(d) A meeting of the directors at which a quorum is present shall not
transact any business other than the business stated in the agenda
specified in the notice of that meeting unless the directors present
unanimously agree otherwise. A meeting of the directors at which a quorum
is present shall be competent to exercise all the powers and discretions
for the time being exercisable by the Board. If within 30 minutes from the
time appointed for such meeting a quorum is not present, the meeting shall
stand adjourned to the seventh (7th) working day (or such other date as may
be mutually agreed by the Parties) at the same time and place and if at
such adjourned meeting a quorum shall not be present, then the meeting
shall be dissolved and the deadlock provisions set forth in Section 16.5
may be invoked by either Party.
(e) Upon the request of the Chairman, any meeting of the Board may be
conducted by telephone or video conference. Any action to be taken by the
Board may be taken without a meeting if all members of the Board consent in
writing to such action and such resolution in writing shall be as effective
as a resolution passed at a meeting of the Board duly convened and held,
and may consist of several documents in the like form each signed by one or
more of the directors. In the event that there is a deadlock on the voting
of a proposed action, such action shall be deemed rejected by the Board.
Notwithstanding the timing provisions of Section 6.3(a) or (b), all the
directors present at a meeting of the Board validly convened in accordance
with Section 6.3(a) or (b) may unanimously waive or agree to shorter notice
thereof.
(f) Minutes and resolutions of each meeting shall be kept in the English
language and shall be signed by the Chairman of the Board. In the event
that any Board member proposes any modification or addition to the minutes
for a Board meeting, such director shall submit the same in writing to the
Chairman of the Board within two (2) weeks after receipt by such director
of the minutes and resolutions. The Chairman shall make decisions on such
proposed modifications and additions within four (4) weeks from the receipt
thereof. Copies shall be provided to each of the Parties and the originals
shall be retained at the registered office of the Company.
6.4 Actions Requiring Consent of Both Parties. Subject to the Singapore
Companies Act, Cap. 50, the Parties agree and undertake to exercise all rights
available to them in relation to the Company to ensure that the Company shall
not, except with the prior written consent of both Parties, so long as either
Party owns at least 33% of the outstanding ordinary shares of the Company:
(a) acquire, dispose, or suffer a dilution of any interest in any other
company or partnership (other than the acquisition of the joint venture
referred to in Section 18.10 below);
(b) purchase, sell, mortgage or charge any property or any interest therein
(other than in the ordinary course of business or operation and other than
the acquisition of the joint venture referred to in Section 18.10 below);
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(c) sell or dispose of the whole or a substantial part of its undertaking,
goodwill or assets;
(d) make any distribution of profits amongst its shareholders by way of
dividend, capitalization of reserves or otherwise;
(e) incur any capital commitment in excess of S$200,000 in respect of any
one transaction, except those approved in the annual operating plan and
other than as necessary for the acquisition of the joint venture referred
to in Section 18.10 below;
(f) dispose of any asset with a book value in excess of S$200,000, except
as approved in the annual operating plan;
(g) increase, reduce or cancel its authorized or issued share capital, or
grant any option over its unissued share capital;
(h) issue any shares of any class;
(i) create, allow to arise or issue any debenture;
(j) adopt any policy for managerial staff salary scales, staff benefit
schemes or staff development programs exceeding S$150,000 per person per
annum;
(k) adopt any policy on the payment of directors' fees;
(l) adopt any policy on accounting practices, depreciation practices or
other financial matter which differs substantially from usual Singapore
accounting, depreciation, commercial or financial practices;
(m) borrow, raise, guarantee or lend (excluding suppliers' credit) more
than S$200,000 in any one transaction or more than S$1,000,000 when
aggregated with other similar transactions in the same calendar year other
than as necessary for the acquisition of the joint venture referred to in
Section 18.10 below;
(n) appoint, dismiss or settle the terms of appointment or dismissal of any
managing director or general manager;
(o) change or diversify the scope of its business or undertaking;
(p) amend its Corporate Articles;
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(q) except as provided in Section 2.3, institute, withdraw or settle any
legal action or proceeding in excess or anticipated to be in excess of
S$200,000;
(r) approve financial audits;
(s) take any step for its dissolution or financial reorganization or for
the appointment of a liquidator (including a provisional liquidator),
receiver, judicial manager, trustee, administrator, agent or similar
officer of or over any part of its assets or business.
(t) accept the nomination or election of a director;
(u) increase the number of directors other than as contemplated by Section
6.1;
(v) proceed with a public offering of shares of the Company.
6.5 Managing Director. The Parties agree that the Managing Director shall
initially be James Teo, who shall be appointed for a term of three (3) years,
unless terminated earlier by the Board. HongGuan shall assume all costs of
employing James Teo as the Managing Director until March 31, 1999, or, if
earlier, until such time that the Board appoints his successor. After March 31,
1999, or such earlier date that a successor is appointed, the Company shall bear
the costs of employing the Managing Director, which remuneration shall be
decided by the Board. The Managing Director shall have the full powers and
executive authority, subject to such limitations, conditions and guidelines as
the Shareholders or the Board shall from time to time establish, to act on
behalf of the Company. The Managing Director shall formulate and implement an
annual business plan, subject to the approval of the Board. The Managing
Director shall not take any of the actions listed in Section 6.4 without the
required approval from both Parties.
6.6 General Manager. The Parties shall advertise for and mutually agree on the
hiring of a General Manager who will assist the Managing Director and shall
perform such other roles as designated from time to time by the Managing
Director or the Board.
6.7 Program Manager. PEMSTAR shall assist in appointing the Program Manager, who
shall serve for twenty-four (24) months unless otherwise agreed to by the Board.
The Program Manager shall have such duties and responsibilities as designated by
the General Manager.
6.8 Audits. The company shall keep complete and accurate books and records. An
internationally recognized accounting firm based in Singapore and approved by
the Board shall conduct a formal audit of the financial affairs of the Company
each year and shall provide a report of such formal audit to the Board.
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6.9 Access to Properties, Records. During the term of this Agreement, each Party
(as well as its designated representatives) shall be afforded access, at its
sole expense, during normal business hours and subject to the Company's normal
security procedures, to the facilities, properties, books, records and files of
the Company, as may be available from time to time and requested for purposes
reasonably related to this Agreement, including the audit of the profit and loss
statements, balance sheets and other financial and tax records of the Company by
independent auditors for the Company or, at the option of the Party requesting
any such audit, by the independent auditors for such Party.
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7. GENERAL MEETINGS
7.1 General Meetings. A general meeting of the Shareholders shall be convened by
the Board in accordance with the Corporate Articles and held at least once a
year on a date to be fixed by the agreement of the Parties. An extraordinary
general meeting of the Shareholders may, however, be convened by the Board
whenever deemed necessary.
7.2 Proceedings at General Meeting. The quorum for any general meeting of the
Company shall be two Shareholders, one of whom shall be PEMSTAR and the other
shall be HongGuan. If within 30 minutes of the time appointed for the convening
of the meeting of the Shareholders of the Company the quorum specified above is
not present, the meeting shall stand adjourned to the fifteenth (15th) working
day (or such other date as may be mutually agreed by the Parties) at the same
time and place. If at such adjourned meeting a quorum shall not be present, the
meeting shall be dissolved and the deadlock provisions set forth in Section 16.5
may be invoked by either Party. All resolutions of the Shareholders of the
Company shall be adopted by voting. A Party shall have one vote for each share
which is held by that Party in the capital of the Company. Any general meeting
of the Shareholders may be conducted by telephone or video conference. Any
action to be taken by the Shareholders may be taken without a meeting if all
Shareholders consent in writing to such action and such resolution in writing
shall be as effective as a resolution passed at a general meeting of the
Shareholders duly convened and held, and may consist of several documents in the
like form each signed by one or more Shareholders. In the event that there is a
deadlock on the voting of a proposed action, such action shall be deemed
rejected by the Shareholders.
8. EMPLOYEES.
8.1 Source. The initial employees of the Company shall include, but not be
limited to, management and technical employees of HongGuan and employees of
PEMSTAR, each to be hired by the Company under new terms and conditions which
shall not include any benefits carried over from such employee's prior
employment with either HongGuan or PEMSTAR unless specifically agreed by the
Company or required by Singapore law. Such employees are anticipated to be those
listed in Exhibit B hereto. For two years after the Effective Date, HongGuan
will assist the Company fulfill its staffing requirements on the terms and
subject to the conditions provided in Section 5 of the Services Agreement
referred to in Section 12.2(b)(iii) of this Agreement.
8.2 Non-compete. Each of the Company's employees who are designated as
"managers" or "senior engineers" shall agree as a condition of employment to not
compete with the Company, which will be documented in the employee's employment
agreement or another separate agreement.
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9. CONFIDENTIALITY
9.1 Confidential Information. "Confidential Information" shall mean all
information which is disclosed by either Party or the Company to the other
Party, either directly or through Affiliates of either or both, in written, oral
or physical form, which relates in any way to markets, customers, products,
patents, inventions, procedures, methods, designs, strategies, plans, assets,
liabilities, costs, revenues, profits, organization, employees, agents,
distributors or business in general; provided, however, that the following shall
not be deemed Confidential Information:
(a) information which is or becomes available to the public or to the
industry without the fault or negligence of the Party receiving the same;
(b) information which was already in the possession of the Party receiving
the same, provided that Party is able to prove such prior possession;
(c) information which is subsequently received from a third party without
notice of restriction on further disclosure; or
(d) information which is independently developed by the Party receiving the
same, provided the said Party is able to prove such independent
development.
9.2 Non-Disclosure. Each of the Parties agrees (a) during the term of this
Agreement and for a period of one (1) year after termination thereof not to (i)
use any Confidential Information for any purpose other than as permitted or
required for performance by such Party under this Agreement or any Ancillary
Agreement or (ii) disclose or provide any of such Confidential Information to
any third party and (b) to take all necessary measures to prevent any such
disclosure by its present and future directors, officers, employees and
contractors during the said period. Each Party further agrees to cause its
Affiliates to comply with these provisions in the same manner as if each of them
were a Party.
9.3 Limitation of Prohibition. Nothing herein shall prohibit either of the
following:
(a) the use by the Company at any time after termination of this Agreement
of Confidential Information in the manner in which it had been utilized by
the Company from time to time in the ordinary course of its business and in
compliance with the terms hereof prior to termination; or
(b) the disclosure of Confidential Information to any governmental
authority if and to the extent required by applicable law, provided that
such disclosure is made on a basis providing the maximum confidentiality
permitted by law.
9.4 Solicitation of Employees. During the term of this Agreement and for a
period of one (l) year thereafter, no Party or Affiliate thereof shall employ or
contract for the services of any person, other
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than a person previously employed by such Party or Affiliate, who at the Closing
Date or at any time thereafter is an employee of the Company or of the other
Party or any Affiliate thereof, without the approval of the other Party.
10. REPRESENTATIONS AND WARRANTIES
In order to induce the other Party to enter into and perform this Agreement,
each of the Parties hereby represents and warrants to the other Party as
follows:
10.1 Organization and Standing. Such Party is a corporation duly organized and
validly existing under the laws of the jurisdiction of its organization and has
all requisite corporate authority to carry on its business as now being
conducted by it.
10.2 Authority. Such Party has full power and authority to execute and deliver
this Agreement and the Ancillary Agreements and the other instruments to be
executed and delivered by such Party pursuant hereto and to consummate the
transactions contemplated hereby and thereby. All corporate acts and other
proceedings required to be taken by or on the part of such Party to authorize it
to perform its obligations under this Agreement and the Ancillary Agreements
have been duly and properly taken. This Agreement has been duly executed and
delivered by such Party and constitutes, and the Ancillary Agreements when duly
executed and delivered by such Party will constitute, legal, valid and binding
obligations of such Party enforceable in accordance with their respective terms.
Such Party agrees to use its best efforts to obtain the necessary consent of any
third party to the transactions contemplated hereby.
10.3 Approvals. No approval, authorization, consent or other order or action of
or filing with any court, administrative agency or other governmental authority
is required for the execution and delivery by such Party of this Agreement and
the Ancillary Agreements or its consummation of the transactions contemplated
hereby or thereby.
10.4 Litigation. Such Party has no actual knowledge of any material and adverse
actions, suits, proceedings or investigations pending or threatened against, by
or affecting it in any court or by or before any governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
before any arbitrator of any kind, with respect to, or which may have a material
effect upon, the transactions contemplated by this Agreement or the Ancillary
Agreements. Such Party is not in default with respect to any order, writ,
injunction or decree of any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, affecting or relating to
it or any of the transactions contemplated by this Agreement or the Ancillary
Agreements; nor has such Party received notice of any material violation of any
laws, ordinances, regulations or orders applicable to it or any of the
transactions contemplated hereby or thereby; nor to the knowledge of such Party
is it in violation of any such laws, ordinances, regulations or orders.
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10.5 Absence of Conflict.
(a) The execution and delivery of this Agreement by each Party does not
violate any law or conflict with such Party's, or any of such Party's
Affiliate's, constitutive corporate documents or result in a breach of,
constitute a default under or conflict with any material contract,
agreement or instrument to which such Party or any Affiliate is a party or
by which it or its properties or any Affiliate is a party or by which it or
its Affiliate or any of its Affiliates' properties are bound.
(b) Subject to clause (d) of this Section 10.5, all actions to be taken by
either Party or its Affiliates in furtherance of this Agreement for the
period of time from the date of execution and delivery of this Agreement to
the Closing Date will not violate any law or conflict with such Party's, or
any of such Party's Affiliate's, constitutive corporate documents or result
in a breach of, constitute a default under or conflict with any material
contract, agreement or instrument to which such Party or any Affiliate is a
party or by which it or its properties or any Affiliate or any of its
Affiliates' properties are bound.
(c) The consummation of the transactions contemplated in this Agreement
from and after the Closing Date, and the fulfillment of and compliance with
the terms and conditions hereof and thereof from and after the Closing Date
will not violate any law or conflict with such Party's, or any of such
Party's Affiliate's, constitutive corporate documents or result in a breach
of, constitute a default under or conflict with any material contract,
agreement or instrument to which such Party or any Affiliate is a party or
by which it or its properties or any Affiliate or any of its Affiliates'
properties are bound.
(d) With respect to clause (b) of this Section 10.5, neither Party hereto
(nor any of its Affiliates) nor any of its agents shall take any action in
furtherance of this Agreement from the date of execution and delivery of
this Agreement to the Closing Date until and unless either (a) the consent
of any third party referred to in Section 12.3(e) which is required to take
such action shall have been received by the Party or its Affiliate having
an obligation to obtain such consent, or (b) such Party shall have received
the consent to such action from the other Party together with a
representation (which shall be deemed a modification of this Section 10.5)
to the effect that such action will not result in a breach of, constitute a
default under or conflict with any material contract, agreement or
instrument to which such other Party or any of its Affiliates is a party or
by which such other Party or its properties or any of such other Party's
Affiliates or any of such other Party's Affiliate's properties are bound.
10.6 Financial Statements. Each Party has provided to the other their respective
balance sheets and statements of income and expenditures for the most recent
fiscal period then ended. Such financial statements, together with the notes
thereto, (i) are in accordance with the books and records of such party, (ii)
present fairly and accurately in all material respects the financial condition
of such party as of the dates of the balance sheets, (iii) present fairly and
accurately in all material respects the results of
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operations of the business for the periods covered by such statements, (iv) have
been prepared in all material respects on a basis consistent with the
preparations of such party's prior years' financial statements, and (v) include
all adjustments (consisting only of normal recurring accruals) which are
necessary for a fair presentation of the financial condition of such party and
of the results of operations of its business for the periods covered by such
statements.
10.7 Brokers. Neither such Party nor any third party acting on its behalf has
incurred any liability, either express or implied, to any broker or finder or
similar person in connection with this Agreement or any of the transactions
contemplated hereby or thereby. Such Party shall indemnify the other Party
against, and hold it harmless from, any liability, cost or expense (including,
without limitation, fees and disbursements of counsel) resulting from any
agreement, arrangement or understanding made by such Party with any third party
for brokerage or finders' fees or other commissions in connection with this
Agreement or the Ancillary Agreements or any of the transactions contemplated
hereby or thereby.
11. INDEMNITIES
11.1 Indemnification. Subject to the other provisions of this Article 11,
including Section 11.4, each Party agrees as to its respective representations,
warranties, covenants and agreements set forth in this Agreement and in the
Ancillary Agreements to indemnify and hold harmless the other Party from and
against any and all losses, liabilities, damages, expenses (including, without
limitation, fees and disbursements of counsel), claims, liens or other
obligations whatsoever which
(a) may be payable by virtue of or result from the material inaccuracy of
any representation or the breach of any warranty, covenant or agreement
made in this Agreement, the Ancillary Agreements or any certificate or
other instrument delivered pursuant hereto or thereto; or
(b) may be incurred as a result of the assertion of any claim by any third
party based on allegations which, if true, would constitute such material
inaccuracy or breach.
11.2 Notice and Legal Action. Each Party agrees to give the other Party prompt
written notice of any event or assertion of which it has knowledge concerning
any such loss, liability, expense, claim, lien or other obligation and as to
which it may request indemnification hereunder. Each Party will cooperate with
the other Party in determining the validity of any such claim or assertion.
11.3 Actions by Third Parties.
(a) If and to the extent that any claim is made or any litigation is
instituted against either PEMSTAR or one of its Affiliates or HongGuan or
one of its Affiliates (herein referred to as the "Initial Defendant") by
any third party in any competent court, tribunal or other forum in any
country, which claim or litigation asserts or is based in whole or in part
upon a fact, circumstance, premise or allegation which, if true, would be
subject to indemnification by the
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other Party pursuant to Section 11.1, then (i) the Initial Defendant shall
be permitted to implead, or cross-claim against, or otherwise include as a
defendant, such other Party hereunder, (ii) such other Party hereby
consents to the jurisdiction of any such competent court, tribunal or
forum, (iii) such other Party shall assume the Initial Defendant's defense
of any such claim or litigation and pay the costs thereof, and (iv) if and
to the extent that such claim of, or litigation instituted by, such third
party is successful, and damages are awarded or injunctive relief or other
equitable remedy is granted against the Initial Defendant, then (as between
the Parties hereto) such other Party shall be liable for the payment of
such damages to such third party or shall reimburse the Initial Defendant
for the payment of such damages immediately following the making of such
payment or (to the extent injunctive relief or other equitable remedy is
granted) shall be liable for any damages suffered by the Initial Defendant;
provided that if the claim by the third party is not successful, the
Initial Defendant shall immediately reimburse or indemnify such other Party
in such amount as shall be necessary such that, following such payment,
both Parties shall have shared equally in the costs and expenses incurred
to defend such claim or litigation.
(b) The provisions of clause (a) of this Section 11.3 shall operate
separate and independently of the other provisions of this Article 11
(other than Section 11.4 ). Any dispute relating to liability of either
Party to the other under this Section 11.3 shall be determined only upon
the conclusion of the litigation or other contest referred to in clause
11.3(a), and such dispute shall be settled in accordance with Section 17.2,
provided that in such event the arbitrator shall limit his decision solely
to the question of whether the provisions of such clause (a) are applicable
to the claim or other litigation which was instituted by such third party.
11.4 Conflict with Ancillary Agreements. The provisions of Article 11, as the
same would apply in the case of a breach of or default under any provision of
any Ancillary Agreement, shall not be applicable if and to the extent that such
Ancillary Agreement provides for a specific remedy or specific damages in the
case of a breach or default thereunder or to the extent that such Ancillary
Agreement contains a provision which conflicts with this Article 11.
11.5 Survival. The provisions of this Article 11 shall survive termination of
this Agreement for any reason whatsoever.
12. CLOSING AND CONDITIONS THEREOF
12.1 Closing. The Closing of the transactions contemplated by this Agreement
shall, subject to all conditions precedent set forth in Section 12.3 having been
fulfilled, take place on October 15, 1998 (or such earlier date as the Parties
may agree in writing), at the offices of Lee & Lee, Singapore in person or by
delivery of the appropriate documents.
12.2 Events of Closing. The Parties shall at the Closing take the following
actions:
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(a) The organization of the Company shall be completed as follows to the
extent that it shall not have been completed prior to Closing:
(i) The Corporate Articles referred to in Section 3.1 shall be adopted
in a form which conforms to the requirements of this Agreement;
(ii) The Shareholders of the Company shall each pay for and be issued
their respective shares of the Company as provided in Section 3.2; and
(iii) The Shareholders of the Company shall elect the members of the
Board in accordance with Section 6.1.
(b) The Parties shall execute and deliver the following agreements to the
extent that they have not done so prior to Closing, it being the intention
of the Parties that such agreements when so executed and delivered shall
effect the transactions contemplated therein on and from the date of this
Agreement:
(i) PEMSTAR and the Company shall execute and deliver the License
Agreement in substantially the form attached hereto as Exhibit C;
(ii) PEMSTAR, HongGuan and the Company shall execute and deliver the
respective Trademark Agreements in substantially the form attached
hereto as Exhibit D;
(iii) PEMSTAR, HongGuan and the Company shall execute and deliver the
Services Agreement in substantially the form attached hereto as
Exhibit E;
(iv) HongGuan shall assign its disk drive equipment manufacturing
contracts to the Company identified on Exhibit F attached hereto; and
(v) PEMSTAR shall assign those engineering contracts to the Company
identified on Exhibit G attached hereto.
12.3 Conditions Precedent to Parties' Obligations. All obligations of each Party
hereunder to execute the agreements referred to in Section 12.2 and otherwise
take the action necessary to consummate the Closing, are subject to the
pertinent fulfillment, prior to or at the Closing, of each of the following
conditions:
(a) All actions, proceedings, instruments, opinions and documents required
to carry out this Agreement and the Ancillary Agreements or incidental
hereto or thereto, and all other related legal matters, shall be reasonably
satisfactory to legal counsel to the Parties respectively.
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<PAGE>
(b) All the terms, covenants and conditions of this Agreement and the
Ancillary Agreements to be complied with and performed by the other Party
prior to or at the Closing shall have been complied with and performed in
all material respects (with the right of the Party in compliance with such
terms, covenants and conditions to waive the non-compliance by the other
Party).
(c) No action, suit, proceeding or investigation by or before any court,
administrative agency or other governmental authority shall have been
instituted or threatened to restrain, prohibit or invalidate any of the
transactions contemplated by this Agreement or any Ancillary Agreements.
(d) All governmental approvals, permits, licenses, authorizations and
clearances required for the performance by each Party of this Agreement,
including the execution and delivery of the Ancillary Agreements, the
consummation of the transactions herein or therein contemplated and the
fulfillment of and compliance with the terms and conditions hereof and
thereof, by either Party shall have been obtained, and all filings and
other formalities in connection therewith shall have been completed.
(e) All consents and approvals of third parties required for the
performance by each Party of this Agreement, including the execution and
delivery of the Ancillary Agreements, assignment of contracts to the
Company, the consummation of the transactions herein or therein
contemplated and the fulfillment of and compliance with the terms and
conditions hereof and thereof, shall have been obtained.
Neither Party shall deliberately cause any condition set forth in this Section
12.3 not to be satisfied, and each Party shall, as to events, causes and
circumstances within its control, take such action as shall be reasonably
necessary to cause such condition to be satisfied and shall keep the other Party
currently informed as to the status of such actions. In the event the Closing
takes place, each Party shall be deemed to have represented and warranted to the
other Party as of the Closing Date that all the aforementioned conditions
precedent to such Party's obligations hereunder shall have been fulfilled prior
to or as of the Closing Date.
13. TRANSFER OF SHARES
13.1 Right of First Refusal. If a Party receives an offer to purchase its shares
from a third party after January 31, 2002 and desires to accept such offer, that
Party shall first give the other Party written notice of the receipt of such
offer, which notice shall set forth the name of the third party, the price that
such third party offered to pay for such shares, and the terms and conditions
pursuant to which such purchase and sale would be effected. At any time within
thirty (30) days from and after receipt of such notice, the other Party shall
have the option to purchase all (but not less than all) of the shares referred
to therein at the price and upon the terms described therein, which option shall
be exercised by giving
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written notice to the Party within such thirty (30) day period of its election
to exercise such option. If the other Party does not exercise such option, the
shares may be sold to the third party within sixty (60) days after expiration of
the option.
If PEMSTAR receives an offer to purchase any of its shares from a third
party after January 31, 2002, and if PEMSTAR desires to accept such offer, then
HongGuan shall have the option, at any time within thirty (30) days from and
after receipt of the notice described above, to purchase from PEMSTAR 2% of the
shares of the Company at the per share price and upon the terms described in the
notice, which option shall be exercised by giving written notice to PEMSTAR
within such thirty (30) day period of HongGuan's election to exercise such
option. This option is in addition to the option described above, under which
HongGuan would also have the option to purchase all of the PEMSTAR shares
referred to in the notice. If HongGuan does not exercise such option, the shares
may be sold to the third party within sixty (60) days after expiration of the
option. If HongGuan does exercise the option, all but the 2% acquired by
HongGuan may be sold to the third party within sixty (60) days after expiration
of the option.
Before any transfer shall be made under this Section, the third party shall
execute a Deed of Adherence pursuant to which the third party shall agree to be
bound by the terms and conditions of this Agreement.
13.2 Prohibited Alienation. Except as provided in Section 3.3 and 13.1, neither
Party nor any of its Affiliates which are Shareholders shall sell, convey,
assign or otherwise transfer, pledge or hypothecate its shares in the Company or
any beneficial interest therein at any time during the term of this Agreement
without the prior written consent of the other Party; it is agreed the other
Party may attach conditions to this consent. The Company shall refuse to
transfer or register any transfer on its books any shares attempted to be
transferred in violation of this Agreement. If shares of the Company owned by
either Party or its Affiliates are offered to be or are in fact sold,
transferred, assigned, taken in execution, pledged or hypothecated, in any
manner and under any circumstances in which Section 13.1 is not complied with,
including but not limited to any bankruptcy, insolvency or other legal
proceeding, in violation of this Article 13, then the other Party shall,
immediately upon becoming aware thereof, and for a period ending ninety (90)
days after its receipt of written notice thereof from the offering or
transferring Party, be entitled to purchase such shares from the offeror or
transferee, or to require the transferee to purchase its own shares, upon the
same terms and conditions (mutatis mutandis) as the offeror has offered the same
or the transferee has taken a transfer of the same, and the transferring Party
shall indemnify the other Party against all costs reasonably incurred by the
latter in removing any prohibited liens or encumbrances from the said shares, it
being the intent that the latter Party be left in no worse position than if the
provisions of this Section 13.2 had been complied with.
13.3 Continuing Obligations. Notwithstanding anything contained herein, no sale,
conveyance, assignment or other transfer of the shares of the Company or any
beneficial interest therein shall relieve either Party of those obligations and
duties arising prior to the date thereof which by the terms of the applicable
agreement or by operation of law would survive the termination of this
Agreement.
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13.4 Legend. All certificates evidencing shares of the Company shall bear a
reference to the restrictions herein provided clearly marked thereon, including
specifically a notice that the acquiring party shall be fully bound by the terms
and conditions of this Agreement.
14. FORCE MAJEURE
14.1 Definition. As used in this Agreement the term "Force Majeure" shall mean
any event or condition, not existing as of the date of this Agreement, not
reasonably foreseeable as of such date and not reasonably within the control of
either Party, as the case may be, which prevents or renders so difficult or
costly as to be commercially impracticable performance by either Party of their
respective obligations under this Agreement. Without limiting the generality of
the foregoing, events or conditions of Force Majeure shall include acts of State
or governmental action, including the non-issuance or revocation of any
approvals of any governmental authority that are required for the execution of
this Agreement, riots, war, acts of terrorism, sabotage, strikes, lockouts,
prolonged shortage of energy supplies, fire, flood, hurricane, earthquake,
lightning and explosion.
14.2 Notice. If either Party is thus prevented from performing its obligations
under this Agreement or the Ancillary Agreements or if such performance is
rendered impracticable by an event or condition of Force Majeure, that Party
shall, upon providing prompt written notice to the other Party, be excused from
performance to the extent such event or condition prevents or renders
impracticable such performance, provided that the Party whose performance is so
affected shall use reasonable efforts to avoid or remove the cause of
non-performance and shall continue performance hereunder immediately upon the
removal of such causes. The other Party to this Agreement shall have the right,
for so long as such event or condition of Force Majeure shall continue, to
suspend its own performance and to the extent and for so long as shall be
commercially reasonable.
14.3 Termination. If the event or condition of Force Majeure causing
non-performance shall continue for more than one-hundred eighty (180)
consecutive days and the non-performance shall be material in relation to this
Agreement or the Ancillary Agreements taken as a whole, either Party may, upon
the expiration of the above period and at any time thereafter for so long as the
event or condition of Force Majeure shall continue, terminate this Agreement in
accordance with Section 16.2.
15. DEFAULT
15.1 Definition. Except where otherwise indicated by the context or where the
term is otherwise defined for a specific purpose, the term "Default" shall mean
any of the following described events involving or affecting either Party, such
Party being considered the Party in Default for purposes hereof:
(a) failure of such Party to perform or observe any material obligation
under or pursuant to this Agreement or the Ancillary Agreements for any
reason other than Force Majeure;
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(b) (i) the filing by such Party of a petition in voluntary bankruptcy or
liquidation or the making of a general assignment for the benefit of its
creditors, or the consenting to the appointment of one or more receivers,
trustees or liquidators with respect to all or any substantial part of its
property under any applicable law or statute; (ii) the filing by such Party
of a petition or answer seeking reorganization, readjustment, arrangement,
composition or similar relief under the applicable bankruptcy laws or any
other applicable law or statute; (iii) such Party's becoming unable to pay
its debts generally as they become due; or (iv) the filing of an
involuntary petition in bankruptcy against such Party, or for the
appointment of one or more trustees, liquidators or receivers of such
Party, which petition shall remain unstayed and in effect for a period of
thirty (30) days;
(c) the occurrence of: (i) a sale, transfer, pledge or other encumbrance of
shares, an issuance of shares or any other event, including, without
limitation, merger or consolidation, which gives effective control of such
Party to any third party not a controlling shareholder of such Party as of
the Closing Date hereof; or (ii) a sale, transfer, pledge or other
encumbrance or issue of shares of any Affiliate of such Party or of any
substantial asset of such Party or Affiliate of such Party, which is
directly related to the joint venture described in this Agreement or the
Ancillary Agreements, or any like event which gives effective control of
such shares or assets to any third party who is not a controlling
shareholder of such Party or Affiliate as to the Closing Date hereof,
provided that such a change in control shall not constitute a Default if
prior written notice shall have been given by the Party affected to the
other Party and such other Party shall have given its consent in writing
thereto, which consent shall not be withheld without good commercial
reason.
15.2 Notice. No Default under Section 15.1(a) hereof shall be deemed to have
occurred until the Party not in Default shall first have given written notice of
such Default to the Party in Default and the Party in Default shall have failed
to cure such Default through specific performance within sixty (60) days after
dispatch of such written notice. In the event of Default under Sections 15.l(b)
or (c) hereof, no such notice need be dispatched and remedies in respect thereof
as provided in Section 15.3 hereof shall be available from and after the time
such events occur.
15.3 Rights Upon Default. If a Default shall occur, the Party not in Default
shall have the right, at any time for so long as such Default shall continue, to
do any one or more of the following:
(a) terminate this Agreement in accordance with Section 16.2(b) hereof and
exercise the other rights set forth in Section 16.3(c) hereof;
(b) with respect to a Default under Section 15.1(a) only, obtain injunctive
relief or such other equitable remedies as are reasonably necessary to
specifically enforce this Agreement in accordance with its terms; and/or
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<PAGE>
(c) exercise any other legal or equitable remedy such Party may have as a
result of such Default.
16. TERM AND TERMINATION; DEADLOCK
16.1 Term. Except as provided in Section 16.2, this Agreement shall remain in
full force and effect and shall continue to be binding on the Parties so long as
each Party holds any shares in the Company.
16.2 Events Permitting Termination. Notwithstanding anything to the contrary
contained herein, this Agreement may be terminated:
(a) by either Party upon written notice in the event that performance by
either Party of its respective obligations under this Agreement is
prevented or rendered impracticable by reason of the occurrence of an event
of Force Majeure and the entitlement to terminate exists under Section
14.3;
(b) by either Party upon written notice to the other in the event that the
other Party is at the time of such notice in Default and the entitlement to
terminate exists under Section 15.3;
(c) by either Party upon written notice to the other in the event that the
Closing shall not have occurred on or before October 15, 1998;
(d) by written agreement of the Parties.
16.3 Rights Upon Termination. If termination is called for under this Agreement,
the Parties shall have the following rights:
(a) If this Agreement shall be terminated due to Force Majeure pursuant to
Section 16.2(a), the Parties shall have the following rights:
(i) The Party whose performance of its obligations under this
Agreement or the Ancillary Agreements is not prevented or rendered
impractical by an event or condition of Force Majeure shall have the
option for thirty (30) days from the date of written notice to
terminate this Agreement delivered under Section 16.2, to acquire from
the Party whose performance is prevented or rendered impractical all
of that Party's shares in the Company for their Fair Market Value (as
defined in Section 16.4); and
(ii) If the Party whose performance of its obligations under this
Agreement or the Ancillary Agreements is not prevented or rendered
impractical by an event or condition of Force Majeure does not
exercise its option to acquire from the Party whose performance is so
prevented or rendered impractical all of that Party's shares, then the
Parties shall take all steps necessary to liquidate and dissolve the
Company.
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(b) Upon a Default, the non-defaulting Party shall have the following
rights, without prejudice to the rights of either Party by reason of any
breach of the Agreement:
(i) The non-defaulting Party shall have the option for thirty (30)
days from the notice described in Section 16.2 to acquire from the
defaulting Party all of the defaulting Party's shares in the Company
at a price which shall be equal to seventy-five percent (75%) of the
Fair Market Value of such shares;
(ii) If the non-defaulting Party does not acquire the defaulting
Party's shares in the Company, then it shall have the right for thirty
(30) days from the expiration of the non-defaulting Party's option
(or, if earlier, notice from the non-defaulting Party that it elects
not to exercise the option) to require dissolution of the Company, in
which case the Parties shall take all steps necessary to liquidate and
dissolve the Company.
(c) If this Agreement is terminated pursuant to Section 16.2(c) or (d),
neither Party shall have any liability to the other except as provided in
Article 11.
16.4 Fair Market Value. The term Fair Market Value as used in this Agreement
shall be defined and determined as follows: The Fair Market Value of any share
in the Company shall be equal to the book value per share of the Company, as
determined by the Company's independent auditors as of the end of the month
immediately preceding the event causing the right to acquire shares (Force
Majeure or Default).
16.5 Purchase Procedure upon Deadlock. In the event (1) a quorum is not present
at an adjourned Board meeting or general meeting and the adjourned Board meeting
or, as the case may be, general meeting is dissolved; (2) unanimous approval of
the Parties cannot be obtained for any of the actions specified in Section 6.4;
or (3) that the relationship between the Parties has deteriorated to the extent
that they cannot continue to manage the Company together, either Party may force
a deadlock buy-out. The mechanics of such a buy-out shall be as follows:
(a) If one Party wishes to trigger a deadlock buy-out, it shall furnish
written notice (the "Deadlock Notice") to the other Party that a deadlock
has arisen and the two shall meet to discuss the issues and to attempt to
resolve their differences to each Party's satisfaction.
(b) If the meeting does not satisfactorily resolve the differences within
forty- five (45) days from the date of service of the Deadlock Notice (or
if no meeting is held within ten (10) days of the date of service of the
Deadlock Notice), then either Party (the "offeror Party") may initiate a
purchase buy-out by delivering to the other Party (the "offeree Party") an
irrevocable written offer (the "Cross-Purchase Notice") to purchase all of
the shares in the Company owned by the offeree Party, and the
Cross-Purchase Notice shall specify the purchase price per share which the
offeror Party is willing to pay for the shares. Such Cross-Purchase Notice
shall also be deemed to constitute an irrevocable offer by the offeror
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<PAGE>
Party to sell all of its shares in the Company to the offeree Party at a
price equal to the purchase price per share specified in the Cross-Purchase
Notice. If both Parties shall deliver a Cross-Purchase Notice, then the
Party which is the first to deliver a Cross-Purchase Notice shall be deemed
to be the offeror Party on the terms stated in its Cross-Purchase Notice,
and the other Party's Cross-Purchase Notice shall be of no effect. If both
Cross-Purchase Notices are delivered on the same day, then the Party which
has offered the higher purchase price shall be deemed to be the offeror
Party on the terms stated in its Cross-Purchase Notice, and the other
Party's Cross-Purchase Notice shall be of no effect.
(c) Within thirty (30) days after receipt of the Cross-Purchase Notice, the
offeree Party shall either (i) accept such offer to sell all of the offeree
Party's shares in the Company to the offeror Party; or (ii) accept the
offer to acquire all of the shares in the Company owned by the offeror
Party. Failure of the offeree Party to deliver to the offeror Party a
written notice electing to accept either of the offers of the offeror Party
shall be deemed to constitute an offer by the offeree Party to sell all of
its shares in the Company to the offeror Party.
(d) The closing of the purchase and sale of the shares shall take place at
the registered office of the Company within five days after the acceptance
or deemed acceptance of the offer. On closing, the selling Party shall,
against cash payment of the purchase price by the other Party, be obliged
to transfer all of its shares to the other Party by the delivery of a duly
executed share transfer together with the relative share certificate(s) in
respect of the shares to be sold, and the written resignations of its
appointees as directors to take effect immediately subsequent to a meeting
of the Board at which the transfer of the said shares shall be approved by
the Board. The selling Party shall furnish all necessary documents as are
required by the Stamp Office for purpose of assessing stamp duty payable on
the share transfer.
(e) Notwithstanding any other provision of this Agreement, upon the
transfer of the shares as hereinbefore provided, the selling Party shall
cease to be bound by the provisions of this Agreement save and except for
the due discharge, performance and observance of all its liabilities and
obligations whether actual or contingent arising out of or on or in respect
of or any antecedent breach of the terms of this Agreement at any time up
to and including the date of the transfer of its shares.
16.6. Name Change. In the event that either Party no longer has any shares in
the Company, the other Party shall, as soon as practical and no later than six
months from the date the first mentioned Party ceases to be a shareholder, cause
the name of the Company to be changed to one which does not contain a reference
to the name of the first mentioned Party.
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17. SETTLEMENT OF DISPUTES AND APPLICABLE LAW.
17.1 Consultations. The Parties acknowledge that the expeditious and equitable
settlement of disputes arising under this Agreement or in connection herewith is
to their mutual advantage and in the best interest of the Company. To this end,
the Parties therefore agree to use their best endeavors to resolve all
differences of opinion and to settle all disputes through cooperation and
consultation between a senior executive officer of PEMSTAR and a senior
executive officer of HongGuan.
17.2 Disputes. Any controversy or claim arising out of or relating to this
Agreement that the Parties are unable to settle within thirty (30) days as set
forth under Section 17.1 above shall be determined by arbitration in accordance
with the Arbitration Rules of the Singapore International Arbitration Centre for
the time being in force, which rules are deemed to be incorporated by reference
into this Section 17.2, by one arbitrator, unless otherwise agreed, appointed in
accordance with the said Rules. The place of arbitration shall be Singapore and
the arbitration shall be conducted in the English language. The Party against
whom an arbitration award is made shall be responsible for all fees and expenses
of the arbitration as well as the legal fees of the prevailing Party. If an
award is made to both Parties, then each Party shall pay one-half of the fees
and expenses of the arbitration and shall be responsible for its own legal fees.
17.3 Governing Law. This Agreement shall be governed in all respects by, and
shall be interpreted and construed in accordance with, the laws of Singapore,
which shall be the proper law of this Agreement notwithstanding any rule or
principle therein contained under which any other law or rule would be made
applicable.
18. MISCELLANEOUS
18.1 Notices. Any notice or demand provided for hereunder shall be deemed
sufficiently given if sent by telex, telefax (facsimile), courier or receipted
mail (in each case prepaid) to the address specified in writing by the Party to
which it is sent and shall be deemed effective on the date of delivery specified
in the telex, telefax (facsimile) or the courier or mail receipt. Unless and
until a Party receives written notice to the contrary from another Party, it
shall be entitled to consider the following proper addresses of the other
Parties respectively:
As to PEMSTAR: PEMSTAR INC.
2535 Highway 4 West
Rochester, Minnesota 55901, U.S.A.
Attention: Allen J. Berning
Telefax: (507) 280-0838
with a copy to: DORSEY & WHITNEY LLP
201 First Avenue S.W., Suite 340
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Rochester, MN 55902
Attention: William A. Jonason
Telefax: (507) 288-6190
As to HONGGUAN: HONGGUAN TECHNOLOGIES (S) PTE
LTD.
39 Joo Koon Circle
Singapore 629105
Attention: Chief Executive Officer
Telefax: ________________
with a copy to: BIH, LI & LEE
79 Robinson Road
#24-01 CPF Building
Singapore 068897
Telefax: (65) 2240003
18.2 Amendment. Any and all agreements by the Parties to amend, change, extend,
review or discharge this Agreement, in whole or in part, shall be binding on the
Parties so long as such agreements shall be in writing and executed by both
Parties.
18.3 Headings. The various headings in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any Section or provision hereof.
18.4 Successors. All covenants, stipulations and promises in this Agreement
shall be binding upon and inure to the benefit of the Parties and their
respective successors, and permitted assigns. No Party shall have the right to
assign or otherwise transfer its rights or obligations under this Agreement
except with the written consent of the other Party hereto, and having procured
from the assignee a deed of adherence agreeing to be bound by the terms of this
Agreement.
18.5 Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, and all of which shall
constitute together one and the same agreement. The Parties may each execute
this Agreement by signing any such counterpart.
18.6 Invalidity. In case any provision of this Agreement shall be deemed or
declared to be unenforceable, invalid or void, the same shall not impair any
other provision of this Agreement but the Parties agree to negotiate a
substitute provision or amend the other provisions of this Agreement so as to
produce a result which preserves as nearly as possible the economic balance of
the Agreement, provided that neither Party shall be obligated to accept an
amendment which substantially departs from the essential intent or effect of
this Agreement or any Ancillary Agreement.
18.7 Waivers. No failure on the part of either Party to exercise, and no delay
in exercising, any right or remedy hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any
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<PAGE>
right or remedy hereunder preclude any other or further exercise thereof or the
exercise of any other right or remedy granted hereby or by any related document
or at law or in equity.
18.8 Entire Agreement. Except as provided herein, this Agreement and the
Ancillary Agreements constitute and express the entire agreement of the Parties
as to all the matters herein and therein referred to, all previous discussions,
promises, representations and understandings relative thereto among the Parties
being herein and therein merged and superseded.
18.9 Publicity. Neither Party shall make any disclosure of or concerning the
contents of this Agreement or any Ancillary Agreement without the prior written
consent of the other Party except to comply with mandatory disclosure
requirements imposed under any applicable law or jurisdiction or under the terms
and conditions of any loan or credit agreement to which a Party is bound
contractually.
18.10 Joint Venture in Philippines. The Parties agree to negotiate a joint
venture agreement similar in scope to this Agreement regarding the business in
the Philippines as soon as possible, with the intent that it be entered into by
December 31, 1998. In the event that the Parties have not entered into such
joint venture by December 31, 1998, neither Party shall have any claim against
the other for costs, damages, compensation or otherwise and both Parties shall
be free to compete in the Philippines. The Parties agree that the Company shall
have the right to acquire this joint venture company by December 31, 2001.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PEMSTAR INC. HONGGUAN TECHNOLOGIES (S) PTE LTD.
By: By:
--------------------------------- ----------------------------------
Title: Title:
------------------------------ -------------------------------
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LIST OF EXHIBITS
A Territory
B List of Employees
C License Agreement
D Trademark Agreements
E Services Agreement
F Contracts Assigned by HongGuan
G Contracts Assigned by PEMSTAR
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EXHIBIT 10.2
ASSET PURCHASE AGREEMENT
between
BELL MICROPRODUCTS INC.
and
PEMSTAR INC.
April 30, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
TABLE OF CONTENTS ............................................................i
Page .........................................................................i
INDEX OF EXHIBITS ...........................................................iv
INDEX OF SCHEDULES ...........................................................v
RECITALS .....................................................................1
ARTICLE I SALE AND PURCHASE OF ASSETS ........................................1
1.1 Sale and Purchase of Assets ......................................1
1.2 Assets to be Transferred .........................................1
1.3 Assumption of Liabilities ........................................3
1.4 All Other Liabilities Not Assumed ................................4
ARTICLE II PURCHASE PRICE; CLOSING ...........................................4
2.1 Purchase Price ...................................................4
2.2 Closing ..........................................................4
2.3 Transaction Taxes ................................................5
2.4 Allocation of Consideration ......................................5
2.5 Post-Closing Adjustment ..........................................5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER .....................7
3.1 Organization of the Seller .......................................7
3.2 Authority ........................................................7
3.3 Division Financial Statements ....................................8
3.4 Absence of Changes ...............................................8
3.5 Absence of Undisclosed Liabilities ..............................10
3.6 Intellectual Property Rights ....................................10
3.7 Affiliate Transactions ..........................................10
3.8 Customers and Suppliers .........................................11
3.9 Legal and Other Compliance ......................................11
3.10 Restrictions on Business Activities .............................12
3.11 Title to Properties; Absence of Liens; Condition of Equipment ...12
3.12 Agreements, Contracts and Commitments ...........................13
3.13 Powers of Attorney ..............................................14
3.14 Litigation ......................................................14
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3.15 Environmental Matters ............................................14
3.16 Employment Matters ...............................................16
3.17 Insolvency .......................................................17
3.18 Consents .........................................................17
3.19 Books and Records ................................................17
3.20 Product Warranties ...............................................18
3.21 Inventory ........................................................18
3.22 Accounts Receivable ..............................................18
3.23 Tax Returns and Audits ...........................................18
3.24 Employee Benefit Plans ...........................................18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER ...........................20
4.1 Organization of Buyer ............................................20
4.2 Authority ........................................................20
4.3 No Conflicts .....................................................20
4.4 Litigation .......................................................20
ARTICLE V CONDUCT PRIOR TO THE CLOSING DATE ..................................21
5.1 Conduct of Business ..............................................21
ARTICLE VI ADDITIONAL AGREEMENTS .............................................22
6.1 Approval .........................................................22
6.2 Access to Information ............................................22
6.3 Access to Records After Closing ..................................22
6.4 Confidentiality ..................................................22
6.5 Public Disclosure ................................................23
6.6 Contractual Consents .............................................23
6.7 Legal Conditions to Acquisition ..................................23
6.8 Additional Documents and Further Assurances ......................23
6.9 Notification of Certain Matters ..................................24
6.10 Payment of Trade and Other Creditors .............................24
6.11 No Solicitation ..................................................24
6.12 Non-Competition ..................................................25
6.13 Non-Solicitation of Employees ....................................25
6.14 Continuing Customer Relationship .................................26
6.15 Employment Matters ...............................................26
6.16 Treatment of Other Matters .......................................27
6.17 Profit Sharing ...................................................29
ARTICLE VII CONDITIONS TO OBLIGATIONS TO CLOSE ...............................30
7.1 Conditions to Obligations of Each Party ..........................30
7.2 Additional Conditions to Obligations of the Seller ...............30
7.3 Additional Conditions to the Obligations of Buyer ................31
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ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION .....31
8.1 Indemnification ..................................................31
8.2 Arbitration ......................................................35
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER .................................36
9.1 Termination ......................................................36
9.2 Effect of Termination ............................................37
9.3 Amendment ........................................................37
9.4 Extension; Waiver ................................................37
ARTICLE X GENERAL PROVISIONS .................................................37
10.1 Notices ..........................................................37
10.2 Interpretation ...................................................39
10.3 Expenses .........................................................39
10.4 Counterparts .....................................................39
10.5 Entire Agreement; Assignment .....................................39
10.6 Severability .....................................................39
10.7 Sole Remedy ......................................................39
10.8 Governing Law; Arbitration .......................................39
10.9 Rules of Construction ............................................40
10.10 No Third Party Beneficiaries .....................................40
10.11 Specific Performance .............................................40
10.12 Publicity ........................................................40
10.13 Assignment by Buyer ..............................................41
10.14 Change in Control of Buyer .......................................41
BILL OF SALE AND GENERAL ASSIGNMENT ...........................................2
EXHIBIT C......................................................................6
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME OF THE BUSINESS ...................6
EXHIBIT F......................................................................9
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INDEX OF EXHIBITS
Exhibit Description
------- -----------
Exhibit A December 31, 1998 Balance Sheet
Exhibit B Bill of Sale and General Assignment
Exhibit C Unaudited consolidated statements of income of the Business
for the fiscal year ended December 31, 1998
Exhibit D Unaudited consolidated statements of income of the Business
for the fiscal year ended December 31, 1997
Exhibit E Division Financial Statements
Exhibit F March 31, 1999 Balance Sheet
Exhibit G Form of Opinion of Buyer Counsel
Exhibit H Form of Opinion of Seller Counsel
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INDEX OF SCHEDULES
Schedule Description
-------- -----------
1.2(a) Inventory
1.2(b) Accounts Receivable
1.2(c) Lease Agreements
1.2(d) Contracts
(i) List of outstanding written customer orders,
purchase orders and other customer contracts
(ii) List of customer names
1.2(e) Equipment and Tangible Assets
1.2(g) Prepaid Expenses
1.2(i) Telephone Numbers
1.3(b) Accounts Payable, Goods in Transit, Placed Orders
2.4 Purchase Price Allocation
3 Disclosure Schedule
3.3(b) No Liability, Indebtedness, Etc.
3.3(c) Division Financial Statements
3.4(c) Absence of Changes: Agreements
3.4(f) " " " Discontinued Relationships
3.4(h) " " " Employment
3.4(i) " " " Key Employees
3.4(k) " " " Capital Commitments
3.5 Absence of Undisclosed Liabilities
3.6 Intellectual Property Rights
3.7 Affiliate Transactions
3.8 Customers and Suppliers
3.9(a) Compliance with Applicable Laws, Regulations,
etc.
3.9(b) Non-Environmental Permits; Assignability
3.9(c) Gifts of Money, Other Property or Similar
Benefits
3.11(a) Title to Properties: Absence of Liens
3.11(d) Title to Properties: Assets
3.11(e) Title to Properties: Custody and Control
3.12(ii) Agreements: Asset Acquisitions
3.12(iii) Agreements: Indemnification
3.12(iv) Agreements: Purchase Orders
3.12(vi) Agreements: Losses
3.12(vii) Agreements: Capital Expenditures
3.12(viii) Agreements: Payments Received
3.12(x) Agreements: Credit Agreements
3.12(xiii) Agreements: Distribution Agreements
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3.14 Litigation
3.15 Environmental
3.16(c) Employment: No Liability
3.16(d) Employee Matters
3.18 Consents
3.22 Accounts Receivable
5.1 Conduct of Business Exceptions
6.16(b)(i)(1) Excess Inventory With MRP ($2,287,863)
6.16(b)(i)(2) Excess Inventory Without MRP ($2,433,579)
6.16(d) Excess Bone-Pile Inventory ($825,121)
6.16(e)(i) Amounts Paid in Prior Months Not Billed to Customers
6.16(e)(ii) Prior Months Billings Without Cost
6.16(f) 90-Day A/R
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ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of April 30, 1999 between Bell Microproducts Inc., a California corporation
(the "Seller"), and PEMSTAR INC., a Minnesota corporation (the "Buyer").
RECITALS
WHEREAS, Seller maintains a custom contract manufacturing division of its
corporation known as the Quadrus division (the "Business");
WHEREAS, pursuant to this Agreement, the Buyer (directly or through one of
its wholly owned subsidiaries) wishes to purchase from the Seller, and the
Seller wishes to sell to the Buyer, all the Acquired Assets (as defined herein);
WHEREAS, pursuant to this Agreement, the Buyer (directly or through one of
its wholly owned subsidiaries) wishes to assume from the Seller, and the Seller
wishes to transfer to the Buyer all the Assumed Liabilities;
NOW, THEREFORE, in consideration of the covenants, promises, and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Sale and Purchase of Assets. Subject to the terms and conditions
contained in this Agreement, the Seller agrees to sell, assign, transfer, and
deliver to the Buyer all of the Seller's right, title, and interest in and to
each of the Acquired Assets (as defined below), and Buyer agrees to purchase
such assets on the Closing Date.
1.2 Assets to be Transferred. At the Closing, the Seller shall sell and
deliver to Buyer (or a wholly owned subsidiary of Buyer to be designated by
Buyer), and Buyer (either directly or through a wholly owned subsidiary of Buyer
to be designated by Buyer) shall purchase and accept from the Seller, the
following assets used exclusively or primarily in the Business (the "Acquired
Assets"):
(a) Inventory. Except as otherwise provided in Section 6.16 hereof,
all of Seller's inventory relating to the Business identified in Schedule
1.2(a) attached hereto subject to changes between December 31, 1998 and
Closing in the ordinary course of business.
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(b) Accounts Receivable. Except as otherwise provided in Section
6.16(f) hereof, all of Seller's rights to receive payments currently owed
to the Seller resulting from the sale of goods by the Business identified
on Schedule 1.2(b) subject to changes between December 31, 1998 and Closing
in the ordinary course of business.
(c) Rights Under Leases. All of the Seller's rights under the real
property lease agreements, as amended or supplemented to date, with respect
to the Company's facility located at 2020 S. Tenth Street, San Jose,
California 95112 (the "Real Property"), and the equipment lease agreements,
as amended or supplemented to date, and relating primarily or exclusively
to the Business identified in Schedule 1.2(c) (the "Assumed Leases")
subject to changes between December 31, 1998 and Closing in the ordinary
course of business.
(d) Rights Under Contracts. Except as otherwise provided in Section
6.16 hereof, all of Seller's rights under any contract, agreement, plan or
arrangement relating primarily or exclusively to the Business identified in
Schedule 1.2(d) subject to changes between December 31, 1998 and Closing in
the ordinary course of business. It is the intent of the parties hereto
that all of the Acquired Assets and all of Seller's backlog, if any,
arising out of the operation of the Business be transferred to Buyer.
Accordingly, the parties agree to use their reasonable best efforts to
facilitate such transfer of customers to the extent transferable at the
Closing. Included on Schedule 1.2(d) is (i) a list as of December 31, 1998
of all outstanding written customer orders, purchase orders, and other
customer commitments from Seller's current customers of the Business, and
(ii) the names of all customers of the Business, which list will be updated
as of the Closing Date and provided to Buyer.
(e) Equipment; Tangible Assets. Except as otherwise provided in
Section 6.16 hereof, all equipment and other tangible assets used
exclusively or primarily in the Business or identified in Schedule 1.2(e)
subject to changes between December 31, 1998 and Closing in the ordinary
course of business.
(f) Books and Records. Copies of all books and records related to any
Acquired Assets, including, without limitation, all financial records,
books, ledgers, supplier lists, customer and marketing lists or databases,
marketing plans, management plans, distribution and reseller materials,
advertising materials, manuals, and other materials of the Seller, in each
case only insofar as such items relate exclusively or primarily to the
Business.
(g) Prepaid Expenses. The prepaid expenses for goods or services to be
provided exclusively or primarily to the Business after the Closing Date
(as defined below) identified in Schedule 1.2(g) subject to changes between
December 31, 1998 and Closing in the ordinary course of business. The
actual amount of prepaid inventory, expenses and supplies is to be
determined during a physical inventory to be conducted by Seller and
audited by Buyer between May 1, 1999 and the Closing and only such prepaid
inventory and supplies as are physically identified will be purchased by
Buyer.
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(h) Intellectual Property. All of Seller's right, title and interest
in and to Seller's intellectual property used exclusively or primarily in
the Business, including, without limitation, (i) the trademark "Quadrus,"
(ii) the domain name and website of the Business, (iii) know-how, (iv)
good- will, and (v) all rights under proprietary information agreements
with respect to employees of Seller who become employees of Buyer from and
after the Closing.
(i) Phone Numbers. The phone numbers used exclusively or primarily in
the Business identified in Schedule 1.2(i)
(j) Other Assets. All of Seller's claims against any parties relating
exclusively or primarily to any Acquired Asset, the Business or any
contract rights assigned to Buyer, including without limitation,
unliquidated rights under manufacturers' or vendors' warranties or
guarantees subject to changes between December 31, 1998 and Closing in the
ordinary course of business.
(k) Balance Sheet Assets. All other assets reflected on the December
31, 1998 balance sheet for Quadrus attached hereto as Exhibit A (the
"December 31, 1998 Balance Sheet") subject to changes between December 31,
1998 and Closing in the ordinary course of business.
1.3 Assumption of Liabilities. On the terms and subject to the conditions
set forth herein, from and after the Closing, the Buyer will assume and satisfy
or perform when due the following liabilities of the Seller (the "Assumed
Liabilities"):
(a) Obligations Under Leases. All of Seller's obligations after the
Closing Date (as defined below) under each of the Assumed Leases identified
in Schedule 1.2(c), and each of the contracts, agreements, plans and
arrangements identified in Schedule 1.2(d).
(b) Accounts Payable. The accounts payable, good in transit, placed
orders as set forth on Schedule 1.3(b) as of December 31, 1998 subject to
changes between December 31, 1998 and the Closing Date.
(c) Warranty Liability. All warranty liability relating to warranty
returns and replacements after the Closing relating exclusively or
primarily to the Business.
(d) Sales and Use Taxes. Any and all sales or use taxes imposed by the
sale of the Acquired Assets or the assumption of the Assumed Liabilities.
(e) Balance Sheet Liabilities. All other liabilities reflected on the
December 31, 1998 Balance Sheet subject to changes between December 31,
1998 and Closing in the ordinary course of business, other than liabilities
in respect of (i) "401K Withholding" (shown thereon as $48,124) and (ii)
accrued vacation in excess of 80 hours per person (shown in the books of
Seller as $71,227 (subject to adjustment)). The liabilities in this
subsection (i) and (ii), collectively, are referred to as the "Excluded
Balance Sheet Liabilities."
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(f) Additional Assumed Liabilities. Except as may otherwise be
provided in this Agreement, all of Seller's liabilities and obligations
referred to with an asterisk (*) in the Disclosure Schedule attached
hereto.
1.4 All Other Liabilities Not Assumed. Other than the Assumed Liabilities
set forth in Section 1.3 above, it is agreed that Buyer shall not assume or
perform any other liabilities or obligations.
ARTICLE II
PURCHASE PRICE; CLOSING
2.1 Purchase Price. The purchase price payable by the Buyer to the Seller
as consideration for the sale, assignment, transfer, and delivery by the Seller
to the Buyer (or a wholly owned subsidiary of Buyer to be designated by Buyer)
of the Acquired Assets, and the assumption by Buyer of the Assumed Liabilities,
Buyer, on the terms and conditions set forth herein, shall be $40,500,000.00
(the "Purchase Price"). At the Closing, the Buyer shall deliver to the Seller by
wire transfer in immediately available funds $37,500,000.00 (the "Partial
Purchase Price Payment"). Subject to the Post-Closing Adjustment in Section 2.5,
Buyer will pay the balance of the Purchase Price at the time of the payment to
be made pursuant to Section 2.5(c)(1) or (2).
2.2 Closing.
(a) Delivery. The closing of the purchase and sale of the Acquired
Assets and the consummation of the other transactions contemplated hereby
shall be held at the offices of Wilson Sonsini Goodrich & Rosati, P.C., 650
Page Mill Road, Palo Alto, California 94304-1050, at 1:00 p.m. (local
time), on June 1, 1999 (the "Closing") or at such other date, time and
place not to be later than June 30, 1999, unless Buyer and Seller shall
have agreed in writing (the date of the Closing is hereinafter referred to
herein as the "Closing Date").
(b) Closing Deliveries. At the Closing, Buyer shall deliver the
Partial Purchase Price Payment against delivery by the Seller of such
transfer documents relating to the sale and transfer of the Acquired Assets
as the Buyer shall reasonably request, including, without limitation, the
Bill of Sale and General Assignment of Assets in the form attached hereto
as Exhibit B. At the Closing, the Seller shall put Buyer into full
possession and enjoyment of all the Acquired Assets and Buyer shall be
fully and solely responsible for and perform when due or discharge all of
the Assumed Liabilities.
At any time and from time to time after the Closing, at the request of
the Buyer and without further consideration, the Seller shall execute and
deliver such further instruments of sale, transfer, conveyance, assignment,
and confirmation and take such actions as Buyer may reasonably determine
necessary to transfer, convey, and assign to the Buyer (or such wholly
owned subsidiary as Buyer may designate), and to confirm Buyer's title to
or interest in, the Acquired
4
<PAGE>
Assets, to put Buyer in actual possession and operating control thereof,
and to assist Buyer in exercising all rights with respect thereto.
2.3 Transaction Taxes.
(a) Sales Tax. At the Closing, upon Seller's delivery to Buyer of an
invoice therefor, Buyer shall remit to Seller, and Seller shall timely
remit to the appropriate California state tax authorities, an amount which
is equal to 8.25% of the Allocation(s) (as defined herein) shown on
Schedule 2.4 as subject to collection of California State Sales Tax. Seller
has already paid California State sales tax on the equipment leases.
(b) Buyer will pay and promptly discharge when due (and indemnify
Seller against) all taxes and recording fees imposed or levied by reason
of, in connection with or attributable to the sale of Acquired Assets
contemplated hereby, the transactions contemplated hereby, and the sale of
the Acquired Assets to Buyer, except any income taxes payable by the Seller
because of gain on the sale thereof.
2.4 Allocation of Consideration. Buyer and Seller will allocate the
Purchase Price among the Assets (the "Allocation") in accordance with Schedule
2.4 to be attached to this Agreement at or prior to the Closing in a form
mutually agreeable to the parties. No party will take a position on any federal
or state tax return, before any governmental agency charged with the collection
of any income tax, or in any judicial proceeding that is in any way inconsistent
with the Allocation or prior to the final adjustment of the Purchase Price
pursuant to Section 2.5. To the extent required by Section 1060 of the Code and
any regulations promulgated thereunder, the Allocation will be revised for any
adjustment of the Purchase Price pursuant to Section 2.5.
2.5 Post-Closing Adjustment. The Purchase Price shall be subject to
adjustment after the Closing Date as specified in this Section 2.5.
(a) As soon as practicable, but in any event within fifteen (15)
business days after the Closing Date, Seller, with the assistance of any
necessary Buyer personnel at no cost to Seller, will prepare and deliver to
Buyer a Draft Closing Date Schedule 2.5 (the "Draft Closing Date Schedule")
for the Business as of the close of business on the Closing Date. The Draft
Closing Date Schedule will be prepared and calculated in accordance with
GAAP and consistent with Seller's accounting practices and policies and
consistent with the December 31, 1998 Balance Sheet. For purposes of this
calculation, (v) the Excluded Balance Sheet Liabilities, (w) the Excluded
Excess Inventory (as defined herein), (x) the Excluded Bone-Pile Inventory
(as defined herein), and (y) the Other Excluded Amounts (as defined herein)
(the items described in (v) through (y), collectively, the "Exclusions")
shall be excluded.
(b) In the event Buyer disputes the accuracy or presentation of any
information or determination contained in the Draft Closing Date Schedule,
it will deliver a detailed statement describing its disagreement to Seller
within fifteen (15) business days after receiving the Draft
5
<PAGE>
Closing Date Schedule. Buyer and Seller will use reasonable efforts to
resolve any such disagreement themselves. If the parties are unable to
reach a final resolution within ten calendar days from the delivery of
Buyer's objections, the objections to the Draft Closing Date Schedule will
be submitted for binding resolution to Arthur Andersen (the "Accounting
Firm"), which firm is hereby acknowledged as independent of the parties,
within seven days of the termination of the ten-day resolution period
referred to above. Buyer will bear one-half of Accounting Firm's fees and
expenses, and Seller will bear the other one-half of the fees. Both parties
will make their work papers and other materials available to Accounting
Firm. The determination of Accounting Firm shall be made within thirty (30)
days after the submission of the objections for resolution, and the
determination shall be conclusive, final, and binding on the parties,
absent manifest error. Once the Draft Closing Date Schedule has been agreed
upon or resolved or determined in the manner set forth in this Section 2.5,
it shall be final, and used for the purposes of the Purchase Price
adjustment set forth in Section 2.5(c) below. Such final Schedule shall be
referred to as the "Closing Date Schedule."
(c) The Purchase Price will be adjusted as follows:
1. If the book value of the Business, as reflected on the agreed
to (or resolved or determined) Closing Date Schedule is less than the
book value of the Business as reflected on the unaudited December 31,
1998 balance sheet, then Seller will pay to Buyer within three days of
the agreement to the Closing Date Schedule (or within three days of
resolution, or determination by Accounting Firm, of any objections
thereto) an amount equal to the difference between the book value of
the Business as reflected on the unaudited December 31, 1998 Balance
Sheet minus the book value of the Business as reflected on the agreed
to (or resolved or determined) Closing Date Schedule.
2. If the book value of the Business, as reflected on the agreed
to (or resolved or determined) Closing Date Schedule, is more than the
book value of the Business as reflected on the unaudited December 31,
1998 Balance Sheet, then Buyer will pay to Seller within three days of
the agreement to the Closing Date Schedule (or within three days of
resolution, or determination by the accounting firm, of any objections
thereto) an amount equal to the difference between the book value of
the Business as reflected on the unaudited December 31, 1998 balance
sheet and the book value of the Business as reflected on the agreed to
(or resolved or determined) Closing Date Schedule.
3. If the book value of the Business as reflected on the agreed
to (or resolved or determined) Closing Date Schedule is equal to the
book value of the Business as reflected on the unaudited December 31,
1998 Balance Sheet then there will be no adjustment to the Purchase
Price.
(d) Any amounts required to be paid pursuant to Sections 2.5(c) 1 or 2
above shall bear interest from the Closing Date through the date of payment
hereunder at the rate of interest
6
<PAGE>
announced publicly by Bank of America as its base lending rate calculated
for those dates and shall be paid by wire transfer in immediately available
funds.
(e) During the preparation of the Closing Date Schedule by Seller and
the period of any dispute referred to in Section 2.5(b), Buyer will provide
Seller full access to the books, records, facilities and employees related
to the Business and will cooperate fully with Seller in order to prepare
the Closing Date Schedule and to investigate the basis for any such
dispute; provided, however, that any such investigation will be conducted
in a manner as not to interfere unreasonably with the operations of Buyer
or the Business.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to Buyer subject to the specific
exceptions disclosed in the disclosure schedule (the "Disclosure Schedule")
(each referencing the appropriate section numbers of this Article III as to
which an exception exists) delivered by the Seller to Buyer, and dated as of the
date hereof, as follows:
3.1 Organization of the Seller. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
The Seller has the power and authority to own, lease, and operate its assets and
property and to carry on the Business as now being conducted and is duly
qualified or licensed to do business and is in good standing in each
jurisdiction where the character of the properties owned, leased, or operated by
it or the nature of its activities makes such qualification or licensing
necessary, except where the failure to be so qualified would not have a material
adverse effect on the Business. The Seller has made available to Buyer a true
and correct copy of the constituent documents of the Seller, each as amended to
date, and each such instrument is in full force and effect.
3.2 Authority. The Seller has all requisite power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Seller. This Agreement has been duly
executed and delivered by the Seller and constitutes the valid and binding
obligation of the Seller enforceable against the Seller in accordance with its
terms. The execution and delivery of this Agreement by the Seller does not, and,
as of the Closing Date, the consummation of the transactions contemplated hereby
and thereby will not, conflict with, or result in any violation of, or default
under (with or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
any benefit under (any such event, a "Conflict") (i) any provision of the
constituent documents of the Seller or (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Business or any of its properties or assets. No consent,
waiver, approval, order, or authorization of, or registration, declaration or
filing with,
7
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any court, administrative agency or commission or other federal, state, county
or local governmental authority, instrumentality, agency or commission (any of
the foregoing authorities, instrumentalities, agencies, or commissions, a
"Governmental Entity") (so as not to trigger any Conflict), is required by or
with respect to the Business in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated hereby and
thereby, including any other assignment or instrument of transfer to be
delivered by the Seller at the Closing pursuant to Section 2.2(b).
3.3 Division Financial Statements.
(a) (i) The unaudited consolidated statements of income of the
Business for each of the fiscal years ended December 31, 1998 and 1997
(attached hereto as Exhibit C and Exhibit D, respectively) and (ii) the
unaudited consolidated balance sheets of the Business for each such fiscal
year are complete and correct in all material respects, have been prepared
in accordance with GAAP applied on a consistent basis throughout the
periods indicated (except that the unaudited financial statements do not
have notes thereto and do not have a cash flow statement), and fairly
present the consolidated financial position of the Business, as of the
respective dates and for the respective periods indicated, subject, in the
case of the unaudited financial statements, to normal year-end adjustments.
The Business' unaudited balance sheet at December 31, 1998 is hereinafter
referred to as the "Division Balance Sheet," and all such financial
statements are hereinafter referred to as the "Division Financial
Statements."
(b) The Business has no liability, indebtedness, obligation, expense,
claim, deficiency, guaranty or endorsement of any type, whether accrued,
absolute, contingent, matured, unmatured or other (whether or not required
to be reflected in the Division Financial Statements in accordance with
GAAP) which (i) has not been reflected in the Division Balance Sheet or
(ii) has not arisen in the ordinary course of business since December 31,
1998 consistent in nature and amount with past practices.
(c) A true and correct copy of the Division Financial Statements is
attached hereto as Exhibit E.
3.4 Absence of Changes. Since the date of the Division Balance Sheet (or
such other date specifically set forth herein), the Seller has conducted the
Business only in the ordinary course of business and, except to the extent the
following has occurred in the ordinary course of Business:
(a) There has not been any material adverse change in the business,
financial condition, operations, or results of operations of the Business;
(b) The Seller has not sold, leased, licensed, or disposed of any of
the assets relating to the Business (whether by way of merger, purchase, or
otherwise);
8
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(c) The Seller has not accelerated, terminated, modified or cancelled
any agreement, contract, lease, or license (or series of related
agreements, contracts, leases, and licenses) which relates to the Acquired
Assets;
(d) The Seller has not delayed or postponed the payment of material
accounts payable and other liabilities relating to the Acquired Assets
beyond their due date outside the ordinary course of business, except with
respect to accounts or liabilities that are subject to dispute in good
faith by Seller;
(e) The Seller has not cancelled, compromised, waived, or released any
right or claim (or series of related rights and claims) relating to any
Acquired Asset involving payments of more than $50,000 in the aggregate;
(f) To the Seller's knowledge, Seller has no reason to believe that
any vendors, licensors, licensees, distributors, or customers for any
Acquired Asset intend to discontinue with the Buyer a material business
relationship any such vendor licensor, licensee, distributor, or customer
currently has with the Seller;
(g) No Acquired Asset has been materially damaged, destroyed, or lost
(whether or not covered by insurance), and no material customer of the
Seller has been lost;
(h) The Seller has not entered into any employment contract or
collective bargaining agreement, or modified the terms of any existing
employment contract or collective bargaining agreement, relating to the
Acquired Assets, except in the ordinary course of business;
(i) The Seller has not changed employment or compensation terms for
any employee specified on Schedule 3.4(i) hereto ("Key Employees"), except
in the ordinary course of business;
(j) To Seller's knowledge, there has not been any other occurrence,
event, incident, action, failure to act, or transaction outside the
ordinary course of Seller's business involving the Acquired Assets which
would have a material adverse effect on the Acquired Assets and the
Business;
(k) The Seller has not entered into any capital commitments in
relation to any of the Acquired Assets or the Business which in the
aggregate exceed $100,000;
(l) The Seller has not accelerated the collection or conversion of
accounts receivable or notes receivable relating to the Acquired Assets by
offering any incentive for such acceleration, including but not limited to
prepayment discounts, allowances, or enhancements, except in the ordinary
course of business;
(m) The Seller has not revalued any of the assets of the Business;
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(n) The Seller has not received notice of any claim or potential claim
of ownership of a material Acquired Asset by any person, and to the
knowledge of the Seller, no basis exists for any such claim of ownership;
and
(o) The Seller has not negotiated with respect to or otherwise
committed or agreed to do any of the foregoing (other than negotiations
with Buyer and its representatives regarding the transactions contemplated
by this Agreement).
3.5 Absence of Undisclosed Liabilities. With respect to the Assets or the
operations of the Business, Seller has no liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise, whether known or unknown as of
or prior to the date hereof) arising out of transactions or events heretofore
entered into, or any action or inaction, or any state of facts existing, with
respect to or based upon transactions or events heretofore occurring, except (i)
as reflected in the March 31, 1999 Balance Sheet (attached hereto as Exhibit F),
(ii) liabilities which have arisen after the date of such Balance Sheet in the
ordinary course of business (none of which is a material uninsured liability for
breach of contract, breach of warranty, tort, infringement, claim or lawsuit),
or (iii) as otherwise set forth in the Disclosure Schedule under the caption
referencing this Section.
3.6 Intellectual Property Rights. The Disclosure Schedule describes under
the caption referencing this Section all rights in patents, patent applications,
trademarks, service marks, trade names, corporate names, copyrights mask works,
trade secrets, know-how or other intellectual property rights owned by or
licensed to Seller in connection with the conduct of the Business or used in,
developed for use in or necessary to the conduct of the Business as now
conducted or planned to be conducted, except commercially available software and
hardware subject to standard or shrink-wrap license agreements. Seller owns and
possesses all right, title and interest, or holds a valid license, in and to the
rights set forth under such caption. The Disclosure Schedule describes under the
caption referencing this Section all intellectual property rights which have
been licensed to third parties and those intellectual property rights which are
licensed from third parties, except commercially available software and hardware
subject to standard or shrink-wrap license agreements. Seller has not received
any notice of any infringement or misappropriation by, or conflict from, any
third party with respect to the intellectual property rights listed in the
Disclosure Schedule; no claim by any third party contesting the validity of any
intellectual property rights listed under such caption has been made against the
Company, is currently outstanding or, to the knowledge of the Company, is
threatened against the Company; Seller has not received any notice of any
infringement, misappropriation or violation by Seller of any intellectual
property rights of any third parties and Seller has not infringed,
misappropriated or otherwise violated any such intellectual property rights.
3.7 Affiliate Transactions. Except as disclosed in the Schedule 3.7, and
other than pursuant to this Agreement, no officer, director or employee of
Seller or any member of the immediate family of any such officer, director or
employee, or any entity in which any of such persons owns any beneficial
interest (other than any publicly- held corporation whose stock is traded on a
national securities exchange or in the over-the-counter market and less than one
percent of the
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stock of which is beneficially owned by any of such persons) (collectively
"insiders"), has any agreement with Seller (other than normal employment
arrangements) or any interest in any property, real, personal or mixed, tangible
or intangible, used in or pertaining to the Business of Seller (other than
ownership of capital stock of Seller). None of the insiders has any direct or
indirect interest in any competitor, supplier or customer of Seller or in any
person, firm or entity from whom or to whom Seller leases any property, or in
any other person, firm or entity with whom Seller transacts business of any
nature.
For purposes of this Section, the members of the immediate family of an
officer, director or employee shall consist of the spouse, parents, children,
siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers-
and sisters-in-law of such officer, director or employee.
3.8 Customers and Suppliers. The Disclosure Schedule, under the caption
referencing this Section, lists the largest customers and suppliers of Seller
relating to the Business for the fiscal year ended and for the month period
ended and sets forth opposite the name of each such customer or supplier the
approximate percentage of net sales or purchases by Seller attributable to such
customer or supplier for each such period.
3.9 Legal and Other Compliance.
(a) Seller and its officers, directors, agents and employees have
complied in all material respects with all applicable laws, regulations and
other requirements, including, but not limited to, federal, state, local
and foreign laws, ordinances, rules, regulations and other requirements
pertaining to product labeling, consumer products safety, equal employment
opportunity, employee retirement, affirmative action and other hiring
practices, occupational safety and health, workers' compensation,
unemployment and building and zoning codes, which materially affect the
Business, the Assets or the Real Property and no claims have been filed
against Seller alleging a material violation of any such laws, regulations
or other requirements. Seller has no knowledge of any material action,
pending or threatened, to change the zoning or building ordinances or any
other laws, rules, regulations or ordinances affecting the Assets or the
Real Property. Seller is not relying on any exemption from or deferral of
any such applicable law, regulation or other requirement that would not be
available to Buyer after it acquires the Assets, except, however, Seller
does not make any representation with respect to the continuing
availability to Buyer of any Enterprise Zone benefits.
(b) To the knowledge of Seller, Seller has, in full force and effect,
all material licenses, permits and certificates, from federal, state, local
and foreign authorities (including, without limitation, federal and state
agencies regulating occupational health and safety) necessary to conduct
its Business and own and operate Assets (other than Environmental Permits,
as such term is defined in Section 3.15(c) hereof) (collectively, the
"Permits"). A true, correct and complete list of all the Permits is set
forth under the caption referencing this Section in the Disclosure
Schedule, with an
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indication as to whether the Permit is assignable to Buyer. Seller has
conducted its business in compliance with all material terms and conditions
of the Permits.
(c) In connection with the Business, Seller has not made or agreed to
make gifts of money, other property or similar benefits (other than
incidental gifts or articles of nominal value) to any actual or potential
customer, supplier, governmental employee or any other person in a position
to assist or hinder Seller in connection with any actual or proposed
transaction.
(d) In particular, but without limiting the generality of the
foregoing, Seller has not violated in any material respect and has no
material liability, and has not received a notice or charge asserting any
violation in any material respect of or material liability under, the
federal Occupational Safety and Health Act of 1970 or any other federal or
state acts (including rules and regulations thereunder) regulating or
otherwise affecting employee health and safety in connection with the
Business.
3.10 Restrictions on Business Activities. There is no agreement
(noncompetition, field of use, or otherwise), judgment, injunction, order or
decree which has or reasonably could be expected to have the effect of
prohibiting or impairing any business practice utilizing any Acquired Asset.
Without limiting the foregoing, the Business is not subject to any agreement
which restricts the sale, license, or distribution of any product, service, or
technology to any class of customers, in any geographic area, during any period
of time or in any segment of the market.
3.11 Title to Properties; Absence of Liens; Condition of Equipment.
(a) The Seller does not own any real property that is used in the
Business conducted with respect to any Acquired Asset. The Seller has
delivered to the Buyer a true and correct copy of each Assumed Lease
related to the Real Property. Such Assumed Leases are in full force and
effect, are valid and effective in accordance with its terms, and there is
not, under any of such leases, any material existing default or event of
default (or event which with notice or lapse of time, or both, would
constitute a material default). To the knowledge of the Seller, neither the
business operations conducted on the Real Property, nor such Real Property,
including improvements thereon, violate any applicable law, building code,
zoning requirement, or classification, or pollution control ordinance or
statute relating to the particular property or such operations, and such
non- violation is not dependent, in any instance, on so-called
non-conforming use exceptions. To the knowledge of the Seller, all
approvals of governmental authorities (including licenses and permits)
required in connection with the operation of the Business on such real
property have been obtained.
(b) The Seller has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, each Acquired Asset
being transferred to the Buyer, free and clear of any liens, except as
reflected in the Division Financial Statements.
(c) Each item of equipment is free from material defects and is
reasonably fit and usable for the purposes for which it is presently being
used.
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(d) The Acquired Assets comprise all of the assets, properties, and
rights of every type and description, real, personal, tangible, and
intangible used primarily or exclusively by the Seller in the Business as
currently conducted.
(e) The Seller is in custody and control of all the Acquired Assets
being sold and transferred to the Buyer pursuant to this Agreement or any
assignments or other instruments of transfer delivered or to be delivered
to Buyer pursuant hereto or thereto.
3.12 Agreements, Contracts and Commitments. Except as contemplated by this
Agreement, the Business does not currently have, is not a party to, nor is bound
by with respect to any Acquired Asset or Key Employee:
(i) any collective bargaining agreements;
(ii) any agreement, contract, or commitment relating to the
disposition or acquisition of assets or any interest in any business
enterprise;
(iii) any agreement of indemnification or guaranty;
(iv) any purchase order or contract for the purchase of materials
in excess of $25,000;
(v) any agreement entered otherwise than in the ordinary course
of business;
(vi) any agreement that is likely to result in a loss in excess
of $100,000 on completion of performance;
(vii) any agreement (or group of related agreements) relating to
capital expenditures and involving future payments in excess of
$100,000;
(viii) any agreement (or group of related agreements) under which
payment in excess of $50,000 has already been received by the Seller
(whether in whole or in part) but which requires the performance of
services after the Closing Date;
(ix) any fidelity or surety bond or completion bond;
(x) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the
borrowing of money by the Seller or extension of credit to the Seller
exclusive of routine trade payables, involving obligations in excess
of $50,000 or under which the Seller has imposed any lien on any of
the Acquired Assets;
(xi) any purchase order or contract for the purchase of materials
(excluding capital expenditures) involving $50,000 or more;
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(xii) any agreement concerning confidentiality, except in the
ordinary course;
(xiii) any distribution, joint marketing, development, or
partnership or joint venture agreement; or
(xiv) any other agreement, contract, lease, or license (or series
of related agreements, contracts, leases, and licenses) that involves
payment of $50,000 or more.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in the Disclosure Schedule referencing this Section 3.9
(any such agreement, contract, or commitment, a "Contract"). Each Contract is in
full force and effect and, except as otherwise disclosed, is not subject to any
default thereunder of which the Seller has knowledge by any party obligated to a
Seller pursuant thereto.
3.13 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Seller in respect of any Acquired Asset.
3.14 Litigation. There is no action, suit, proceeding, claim, arbitration,
or investigation pending before any court or administrative agency against the
Seller or any officer or director of the Seller in their capacity as such that
may result in any adverse change in the Business or to the Acquired Assets or
that questions the validity of this Agreement or of any action taken to or to be
taken pursuant to or in connection with this Agreement. To the knowledge of the
Seller, no such action, proceeding, claim, arbitration, or investigation has
been threatened, for any such action, suit, proceeding, claim, arbitration, or
investigation. There are no judgments, orders, decrees, citations, fines, or
penalties heretofore assessed against the Seller affecting the Business or the
Acquired Assets under any federal, state or local law. No governmental entity
has at any time challenged or questioned the legal right of the Seller to
manufacture, offer, or sell any product related to the Acquired Assets in the
present manner or style thereof.
3.15 Environmental Matters.
(a) As used in this Section, the following terms shall have the
following meanings:
(i) "Hazardous Materials" means any dangerous, toxic or hazardous
pollutant, contaminant, chemical, waste, material or substance as
defined in or governed by any federal, state or local law, statute,
code, ordinance, regulation, rule or other requirement relating to
such substance or otherwise relating to the environment or human
health or safety, including without limitation any waste, material,
substance, pollutant, or contaminant that might cause any injury to
human health or safety or to the environment or might subject Seller
to any imposition of costs or liability under any Environmental Law.
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(ii) "Environmental Laws" means all applicable federal, state,
local and foreign laws, rules, regulations, codes, ordinances, orders,
decrees, directives, permits, licenses and judgments relating to
pollution, contamination or protection of the environment (including,
without limitation, all applicable federal, state, local and foreign
laws, rules, regulations, codes, ordinances, orders, decrees,
directives, permits, licenses and judgments relating to Hazardous
Materials in effect as of the date of this Agreement).
(iii) "Release" shall mean the spilling, leaking, disposing,
discharging, emitting, depositing, ejecting, leaching, escaping or any
other release or threatened release, however defined, whether
intentional or unintentional, of any Hazardous Material.
(b) Seller, with respect to the Business and the Real Property, is in
material compliance with all applicable Environmental Laws.
(c) Seller has obtained, and maintained in full force and effect, all
environmental permits, licenses, certificates of compliance, approvals and
other authorizations necessary to conduct the Business and own or operate
the Assets, including the Real Property (collectively, the "Environmental
Permits"). A copy of each Environmental Permit shall be provided by Seller
to Buyer at least 14 days prior to the Closing. Seller has conducted the
Business in compliance with all terms and conditions of the Environmental
Permits. Seller has filed all reports and notifications required to be
filed under and pursuant to all applicable Environmental Laws with respect
to the Business and the Assets.
(d) Except as set forth in the Disclosure Schedule under the caption
referencing this Section, to the best of Seller's knowledge, (i) no
Hazardous Materials have been generated, treated, contained, handled,
located, used, manufactured, processed, buried, incinerated, deposited,
stored, or released on, under or about any part of the Real Property, (ii)
the Real Property and any improvements thereon, contain no asbestos, urea,
formaldehyde, radon at levels above natural background, polychlorinated
biphenyls (PCBs) or pesticides, and (iii) no aboveground or underground
storage tanks are located on, under or about the Real Property, or have
been located on, under or about the Real Property and then subsequently
been removed or filled.
(e) Except as set forth in the Disclosure Schedule under the caption
referencing this Section, Seller has not received notice alleging in any
manner that Seller is, or might be potentially responsible for, any Release
of Hazardous Materials, or any material costs arising out of any violation
of Environmental Laws with respect to the Business or the Assets.
(f) No expenditure in excess of $10,000 in the aggregate (and other
than normal operating, repair, maintenance, and ongoing permitting
expenses) will be required in order for Buyer to comply with any
Environmental Law in effect at the time of the Closing in connection with
the operation or continued operation of the Business or the Real Property
in a manner consistent with the current operation thereof by Seller.
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(g) The Real Property is not and has not been listed on the United
States Environmental Protection Agency National Priorities List of
Hazardous Waste Sites, or any other list, schedule, law, inventory, or
record of hazardous or solid waste sites maintained by any federal, state
or local agency, except as set forth in the Disclosure Schedule under the
caption referencing this Section and except as would not subject the
Business or the Assets to any liability.
(h) Seller has disclosed and delivered to Buyer all environmental
reports and investigations which Seller has obtained or ordered with
respect to the Business and the Assets, including the Real Property.
(i) Except as set forth in the Disclosure Schedule under the caption
referencing this Section, to the best of Seller's knowledge, no part of the
Business or the Assets (including the Real Property) have been used as a
landfill, dump or other disposal, storage, transfer, handling or treatment
area for Hazardous Materials, or as a gasoline service station or a
facility for selling, dispensing, storing, transferring, disposing or
handling petroleum and/or petroleum products.
(j) No lien has been attached or filed against Seller (with respect to
the Business or the Assets) or the Assets or the Real Property in favor of
any governmental or private entity for (i) any liability or imposition of
costs under or violation of any applicable Environmental Law; or (ii) any
Release of Hazardous Materials.
3.16 Employment Matters.
(a) Compliance with Applicable Laws. Seller (i) is in compliance in
all material respects with all applicable foreign, federal, state and local
laws, rules, and regulations respecting employment and employment
practices, including without limitation, those relating to discrimination
in employment, terms and conditions of employment, election of employee
representatives (where applicable), obligations to consult with and inform
employee representatives, calculations and accruals of vacations and of
other accruals, seniority bonuses (if any), and wages and hours; (ii) has
withheld all amounts required by law or by agreement to be withheld from
the wages, salaries and other payments to employees or other persons who by
virtue of their activities performed on behalf of the Seller may be deemed
employees within the meaning of applicable law; (iii) is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any
of the foregoing; and (iv) is not liable for any payment to any trust or
other fund or to any governmental or administrative authority, with respect
to unemployment compensation benefits, social security or other benefits or
obligations for employees or other persons who by virtue of their
activities performed on behalf of the Seller may be deemed employees within
the meaning of applicable law (other than routine payments to be made in
the normal course of business and consistent with past practice).
(b) Labor. No work stoppage or labor strike against the Seller is
pending, nor to the best knowledge of the Seller, threatened or reasonably
anticipated. The Seller is not involved in nor has been threatened with any
labor dispute, grievance, or litigation relating to labor, safety or
discrimination matters involving any employee, including, without
limitation, charges of unfair labor
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practices or discrimination complaints, which, if adversely determined,
would, individually or in the aggregate, result in Liability to the Seller
or Buyer. The Seller has not engaged in any unfair labor practices which
could, individually or in the aggregate, directly or indirectly result in a
liability to the Seller. The Seller is not presently, nor has it in the
past, been a party to, or bound by, any agreement negotiated with its
employees and no collective bargaining agreement is being negotiated by the
Seller.
(c) No Liability. Except as otherwise provided in Section 6.15 hereof,
unless Buyer shall make any independent agreements or arrangements with any
employees or former employees of Seller, Buyer will not have any liability
for making payments or providing benefits of any kind to any employee or
former employee of the Seller including, without limitation, (A) any
obligation to provide former employees of the Seller (including individuals
who become former employees by reason of the consummation of the
transactions contemplated by this Agreement) so-called COBRA continuation
coverage (with respect to U.S. employees of Seller), (B) any liability in
respect of medical and other benefits for existing and future retirees of
the Seller and for claims made after Closing in respect of costs and
expenses incurred prior to Closing, (C) any liability in respect of work-
related employee injuries or worker's compensation claims by employees or
former employees of the Seller occurring prior to the Closing Date, and (D)
any liability in respect of employee bonuses payable to former employees of
the Seller.
(d) Key Employees. Schedule 3.16(d) sets forth the current job title
and the annual base salary of certain employees identified by Buyer to whom
Buyer expects to make an offer of either at-will or term employment.
3.17 Insolvency. No insolvency proceedings of any character, including
bankruptcy, receivership, reorganization, winding up, or arrangement with
creditors, voluntary or involuntary, affecting any of the Acquired Assets are
pending or, to the knowledge of the Seller, are threatened, and the Seller has
not made any assignment for the benefit of creditors, nor taken any other action
which would constitute the basis for the institution of such insolvency
proceedings.
3.18 Consents. Schedule 3.18 sets forth a true, correct, and complete list
of the identities of any person or entity whose consent or approval is required,
and the matter, agreement, or contract to which such consent relates, in
connection with the transfer, assignment or conveyance by the Seller of any
Acquired Asset.
3.19 Books and Records. The books and records of the Seller related to the
Business (i) have been fully and accurately maintained in accordance with
applicable laws and with generally accepted practices and standards in the
jurisdiction(s) in which the Seller operates and (ii) are in the Seller's
possession or under its control. The Acquired Assets include the computer system
used in the Business, although Seller is not transferring to Buyer any rights to
continue to maintain such records on Seller's computer systems or databases.
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3.20 Product Warranties. Each product manufactured, sold, licensed, leased,
or delivered by the Seller in the Business has been in conformity with all
applicable contractual commitments. Except as reflected in the reserve for
warranty claims and the separate reserve for returns on the Division Balance
Sheet, to Seller's knowledge, the Seller has no liability.
3.21 Inventory. The inventory of the Business as reflected on the Division
Balance Sheet consists of raw materials and supplies, manufactured and purchased
parts, goods in process, and finished goods, all of which is merchantable and
fit for the purpose for which it was procured or manufactured, all of which is
reflected on such balance sheet at the lower of cost or market value, subject
only to the reserve for inventory writedown to net realizable value set forth in
such Division Balance Sheet.
3.22 Accounts Receivable. The Seller has delivered to Buyer a complete and
accurate aging of all accounts receivable of the Company as of December 31,
1998. No account receivable reflected on Schedule 1.2(b) and in the Division
Balance Sheet and no account receivable arising after the date of the Division
Balance Sheet and reflected on the books of the Company and the Closing Date
Balance Sheet is uncollectible, subject to counterclaim or offset, except to the
extent reserved against thereon. No such accounts receivable are subject to
discount on volume or rebate or any other reduction. All accounts receivable
have been generated in the ordinary course of business and reflect a bona fide
obligation for the payment of goods or services provided by the Company.
3.23 Tax Returns and Audits. To the extent the failure to do so would
adversely affect Seller's ability to deliver free and clear title to the
Acquired Assets or Buyer's right to hold, own or use the Acquired Assets, Seller
has filed within the time period for filing or any extension granted with
respect thereto all federal, state, local, foreign and other returns, estimates
and reports ("Returns") which it is required to file relating or pertaining to
any and all Taxes attributable to, levied or imposed upon, or incurred in
connection with the Acquired Assets or the Business and each portion of any Tax
Return pertaining or related to the Acquired Assets or the Business is true and
correct and has been completed in accordance with applicable law. Seller has
paid all Taxes relating to all the Acquired Assets and the Business and has
withheld with respect to its employees and paid to the appropriate taxing
authority all federal, state and local income taxes, FICA, FUTA and any other
Taxes required to be withheld with respect to the Acquired Assets. There are
(and immediately following the Closing there will be) no Liens on the Acquired
Assets relating to or attributable to Taxes.
3.24 Employee Benefit Plans. (a) With respect to all employees and former
employees of Seller who perform or performed functions in connection with the
Business and all dependents and beneficiaries of such employees and former
employees: (i) Seller does not maintain or contribute to any nonqualified
deferred compensation or retirement plans, contracts or arrangements; (ii)
Seller does not maintain or contribute to any qualified defined contribution
plans (as defined in Section 3(34) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or Section 414(i) of the Code; (iii) Seller
does not maintain or contribute to any qualified defined benefit plans (as
defined in Section 3(35) of ERISA or Section 414(j) of the Code); and (iv)
Seller
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does not maintain or contribute to any employee welfare benefit plans (as
defined in Section 3(1) of ERISA) other than general medical, dental and vision
plans (copies of which have been provided to Buyer).
(b) To the extent required (either as a matter of law or to obtain the
intended tax treatment and tax benefits), all employee benefit plans (as
defined in Section 3(3) of ERISA) which Seller does maintain or to which it
does contribute (collectively, the "Plans") comply in all material respects
with the requirements of ERISA and the Code. With respect to the Plans, (i)
all required contributions which are due have been made and a proper
accrual has been made for all contributions due in the current fiscal year;
(ii) there are no actions, suits or claims pending, other than routine
uncontested claims for benefits; and (iii) there have been no prohibited
transactions (as defined in Section 406 of ERISA or Section 4975 of the
Code).
(c) Buyer has received true and complete copies of (i) the most recent
determination letter, if any, received by Seller from the Internal Revenue
Service regarding the Plans which Seller maintains or to which it
contributes and any amendment to any Plan made subsequent to any Plan
amendments covered by any such determination letter; (ii) the most recent
financial statements and annual report or return for the Plans; and (iii)
the most recently prepared actuarial valuation reports.
(d) Seller does not contribute (and has not ever contributed) to any
multi-employer plan, as defined in Section 3(37) of ERISA. Seller has no
actual or potential liabilities under Section 4201 of ERISA for any
complete or partial withdrawal from a multi-employer plan. Seller has no
actual or potential liability for death or medical benefits after
separation from employment, other than (i) death benefits under the
employee benefit plans or programs (whether or not subject to ERISA) set
forth under the caption referencing this Section in the Disclosure Schedule
and (ii) health care continuation benefits described in Section 4980B of
the Code.
(e) Neither Seller nor any of its directors, officers, employees or
other "fiduciaries", as such term is defined in Section 3(21) of ERISA, has
committed any breach of fiduciary responsibility imposed by ERISA or any
other applicable law with respect to the Plans which would subject Seller,
Buyer, Buyer's subsidiaries or any of their respective directors, officers
or employees to any liability under ERISA or any applicable law.
(f) Seller has not incurred any liability for any tax or civil penalty
or any disqualification of any employee benefit plan (as defined in Section
3(3) of ERISA) imposed by Sections 4980B and 4975 of the Code and Part 6 of
Title I and Section 502(i) of ERISA.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Seller as follows:
4.1 Organization of Buyer. Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Minnesota. Buyer
has the corporate power to own its properties and to carry on its business as
now being conducted.
4.2 Authority. Buyer has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Buyer. This Agreement has been duly executed and
delivered by Buyer and constitutes the valid and binding obligation of Buyer,
enforceable in accordance with its terms.
4.3 No Conflicts. The execution and delivery of this Agreement by the Buyer
does not, and, as of the Closing Date, the consummation of the transactions
contemplated hereby and thereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (any such event, a "Conflict") (i)
any provision of the constituent documents of the Buyer or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Buyer or any of its properties or assets. No
consent, waiver, approval, order, or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other federal, state, county or local governmental authority, instrumentality,
agency or commission (any of the foregoing authorities, instrumentalities,
agencies, or commissions, a "Governmental Entity") or any third party (so as not
to trigger any Conflict), is required by or with respect to the Buyer in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby and thereby, including any other
assignment or instrument of transfer to be delivered by the Buyer at the Closing
pursuant to Section 2.2(b).
4.4 Litigation. There is no action, suit or proceeding of any nature
pending or, to Buyer's knowledge, threatened against Buyer that could reasonably
be expected to interfere with the consummation of the transactions contemplated
by this Agreement or that questions the validity of this Agreement or of any
action taken or to be taken pursuant to or in connection with the provisions of
this Agreement.
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ARTICLE V
CONDUCT PRIOR TO THE CLOSING DATE
5.1 Conduct of Business. During the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement or the
Closing, the Seller agrees (except to the extent that Buyer shall otherwise
consent in writing) to use reasonable commercial efforts to carry on the
Business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay all debts and taxes when due, to pay or
perform other obligations when due, and, to the extent consistent with such
businesses, to use all reasonable efforts consistent with past practice and
policies to preserve intact its present business organizations, keep available
the services of Key Employees and preserve its relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it, all with the goal of preserving unimpaired the goodwill and
ongoing businesses associated with the Acquired Assets on the Closing Date. The
Seller shall promptly notify Buyer of any event which materially adversely
effects the Business or any Acquired Assets. Except as expressly contemplated by
this Agreement or disclosed in Schedule 5.1, the Seller will not cause the
Business to, without the prior written consent of Buyer:
(a) Enter into any commitment or transaction related to any Acquired
Asset not in the ordinary course of business;
(b) Enter into or amend any agreements pursuant to which any other
party is granted marketing, distribution, or similar rights of any type or
scope with respect to any products, except in the ordinary course of
business;
(c) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements
set forth or described in the Seller schedules;
(d) Commence or settle any litigation regarding the Business, except
to enforce its rights under or to interpret this Agreement or any other
agreement, obligation or arrangement contemplated hereby or entered into or
established in connection herewith which affects the Business, except in
the ordinary course of business;
(e) Sell, lease, license, pledge, or otherwise dispose of any Acquired
Asset other than in the ordinary course of business;
(f) Revalue any of the Acquired Assets, including without limitation
writing down the value of inventory or writing off notes and accounts
receivable other than in the ordinary course of business;
(g) Enter into any strategic alliance, joint development or joint
marketing agreement affecting the Business or any Acquired Asset; or
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(h) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 5.1(a) through (g) above, or any other action that
would prevent the Seller from performing or cause the Seller not to perform
its covenants hereunder.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Approval. The Seller shall promptly after the date hereof take all
action necessary in accordance with applicable law and the constituent documents
of the Seller to obtain all requisite approvals, as the case may be, of this
Agreement and the transactions contemplated hereby.
6.2 Access to Information. The Seller shall afford Buyer and its
accountants, legal counsel, and other representatives reasonable access during
normal business hours during the period prior to the Closing Date to (i) all of
the properties, books, inventory, contracts, commitments, and records of the
Seller relating to the Acquired Assets and (ii) all other information concerning
the Business, properties, and personnel of the Seller which are associated with
the Acquired Assets as Buyer may reasonably request. The Seller agrees to
provide Buyer and its accountants, legal counsel, and other representatives
copies of internal financial statements promptly upon request.
6.3 Access to Records After Closing. For a period of one year after the
Closing Date, the Seller and its representatives, on the one hand, and the Buyer
and its representatives, on the other hand, shall have reasonable access to any
books, records, documents, files, and correspondence to the extent that such
access may reasonably be required in connection with matters relating to or
affected by the operation of the businesses conducted with the Acquired Assets,
in the case of the Seller prior to the Closing Date and, in the case of the
Buyer, after the Closing Date. Such access shall be afforded upon reasonable
advance written notice, during normal business hours and at the expense of the
party seeking access.
6.4 Confidentiality. From the date hereof to and including the Closing
Date, the parties hereto shall maintain, and cause their directors, employees,
agents, and advisors to maintain, in confidence and not to disclose or use for
any purpose, except for the evaluation of the transactions contemplated hereby
and the accuracy of the respective representations and warranties of the parties
contained herein, information concerning the other parties hereto and obtained
directly or indirectly from such parties, or their directors, employees, agents,
or advisors, except such information as is or becomes (i) available to the non-
disclosing party from third parties not subject to an undertaking of
confidentiality; (ii) generally available to the public other than as a result
of a breach by the non-disclosing party hereunder; or (iii) required to be
disclosed under applicable law; and except such information as was in the
possession of such party prior to obtaining such information from such other
party as to which the fact of prior possession such possessing party shall have
the burden of proof. In the event that the transactions contemplated hereby
shall not be consummated, all such information which shall be in writing shall
be returned to the party furnishing the same, including to the extent reasonably
practicable, copies or reproductions thereof which may have been prepared.
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6.5 Public Disclosure. Unless otherwise required by law (including, without
limitation, applicable securities laws) or, as to Buyer, by the rules and
regulations of the Nasdaq National Market, prior to the Closing Date, no
disclosure (whether or not in response to an inquiry) of the subject matter of
this Agreement shall be made by any party hereto unless approved by both parties
prior to release, provided that such approval shall not be unreasonably
withheld.
6.6 Contractual Consents.
(a) The Seller will promptly apply for or otherwise seek and use its
reasonable commercial efforts to obtain, all consents and approvals
required to be obtained by it for the consummation of the transactions
contemplated hereby, and the Seller shall use its reasonable commercial
efforts to obtain all required consents, waivers, or approvals under any of
the agreements, contracts, licenses, or leases of the Seller in order to
preserve for the Buyer the benefits of the Business associated with the
Acquired Assets. Seller will list all of the supplier and similar
agreements that the Business currently has in force on the date of this
Agreement, and Seller will use its reasonable commercial efforts to effect
assignments of all such agreements, except those identified in writing by
Buyer as not material to the Business.
(b) Buyer will use its reasonable commercial efforts to obtain all
consents and approvals required to be obtained it for the consummation of
the transactions contemplated hereby.
6.7 Legal Conditions to Acquisition. The Buyer and the Seller shall take
all reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on such party with respect to this Agreement and the
transactions contemplated hereby and will promptly cooperate with and furnish
information to any other party hereto in connection with any such requirements
imposed upon such other party in connection herewith. Each party will take all
reasonable actions to obtain (and will cooperate with the other parties in
obtaining) any consent, authorization, order or approval of, or any
registration, declaration, or filing (including any filing required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
regulations promulgated thereunder (the "HSR Act")) with, or an exemption by,
any governmental entity, or other third party, required to be obtained or made
by such party or its subsidiaries in connection with this Agreement and
consummating the transactions contemplated hereby or the taking of any action
contemplated thereby or by this Agreement.
6.8 Additional Documents and Further Assurances. Except to the extent
described otherwise, each of the parties to this Agreement shall use its
commercially reasonable efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to closing under
this Agreement. Each party hereto, at the request of another party hereto, shall
execute and deliver such other instruments and do and perform such other acts
and things as may be reasonably necessary or desirable for effecting completely
the consummation of the transactions contemplated by this Agreement.
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6.9 Notification of Certain Matters. The Seller shall give prompt notice to
Buyer, and Buyer shall give prompt notice to the Seller, of (i) the occurrence
or non-occurrence of any event, the occurrence or non-occurrence of which is
likely to cause any representation or warranty of the Seller or the Buyer, as
the case may be, contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Closing Date except as contemplated by this
Agreement (including the Seller Schedules) and (ii) any failure of the Seller or
Buyer, as the case may be, to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 6.9 shall not limit or otherwise affect any remedies available to the
party receiving such notice.
6.10 Payment of Trade and Other Creditors. The Seller shall comply with its
obligation to satisfy amounts due to trade and other creditors of the Seller to
the extent required prior to closing. The Business shall continue to pay on a
current basis and shall be responsible for all obligations included in the
Assumed Liabilities up to the Closing Date.
6.11 No Solicitation. From and after the date of this Agreement until the
earlier to occur of the Closing Date or termination of this Agreement pursuant
to its terms, (a) Seller will not, and the Seller will instruct its respective
directors, officers, employees, representatives, investment bankers, agents, and
affiliates not to, directly or indirectly (i) solicit or encourage submission of
any Acquisition Proposal (as defined herein) by any person, entity, or group
(other than Buyer and its Affiliates (as defined herein), agents, and
representatives) or (ii) participate in any discussions or negotiations with, or
disclose any non-public information concerning the Seller to, or afford access
to the properties, books, or records of the Seller to, or otherwise assist or
facilitate, or enter into any agreement or understanding with, any person,
entity, or group (other than Buyer and its Affiliates, agents, and
representatives) in connection with any Acquisition Proposal with respect to the
Seller. For purposes of this Section 6.11(a), an "Acquisition Proposal" means
any proposal or offer relating to any merger, consolidation, sale or license of
substantial assets or similar transactions involving the Business or the
Acquired Assets (other than sales or licenses of software in the ordinary course
of business or as permitted by this Agreement). The Seller will immediately
cease any and all existing activities, discussion, or negotiations with any
parties conducted heretofore with respect to the foregoing.
(b) Buyer will not, and the Buyer will instruct its respective
directors, officers, employees, representatives, investment bankers,
agents, and affiliates not to, directly or indirectly (i) solicit or
encourage submission of any Acquisition Proposal (as defined herein) by any
person, entity, or group (other than Seller and its Affiliates (as defined
herein), agents, and representatives) or (ii) participate in any
discussions or negotiations with, or disclose any non-public information
concerning Buyer to, or afford access to the properties, books, or records
of Buyer to, or otherwise assist or facilitate, or enter into any agreement
or understanding with, any person, entity, or group (other than Seller and
its Affiliates, agents, and representatives) in connection with any
Acquisition Proposal with respect to the Buyer. For purposes of this
Agreement, an "Acquisition Proposal" means any proposal or offer relating
to any merger, consolidation, sale or license of substantial assets or
similar transactions involving any business similar to the Business or any
assets similar to the
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Acquired Assets (other than sales or licenses of software in the ordinary
course of business or as permitted by this Agreement). The Buyer will
immediately cease any and all existing activities, discussion, or
negotiations with any parties conducted heretofore with respect to the
foregoing.
For purposes of this Section, an "Affiliate" means any entity or person
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with the particular party.
6.12 Non-Competition.
(a) For a period of three (3) years from and after the Closing Date
("Non- Competition Period"), Seller shall not directly or indirectly,
without the prior written consent of Buyer, engage anywhere in the
Restricted Territory, or have any ownership interest in (except for
ownership of one percent (1%) or less of any entity whose securities have
been registered under the Securities Act or the Exchange Act), or
participate in the financing, operation, management or control of, any
firm, partnership, corporation, entity or business that engages or
participates in a "Seller Competing Business Purpose". The term,
"Restricted Territory" shall mean each and every country, province, state,
city or other political subdivision of the world. The term "Seller
Competing Business Purpose" means the Business as conducted at the Closing
Date and the manufacture of print circuit board assemblies. Notwithstanding
the foregoing, it is expressly understood and agreed that nothing contained
in this Section 6.12(a) shall operate so as to (i) prevent Seller from
continuing to conduct its business as currently conducted and as currently
proposed to be conducted related to (w) the sale and distribution of
semiconductors and other electronic components, disk drives and other
computer components, (x) the manufacture of personal computers, servers,
memory storage systems, RAID systems, (y) value-added activities related to
semiconductors and computer products, and (z) systems integration
activities; or (ii) otherwise restrict the ability of Seller to contact and
engage in business transactions with current customers of and supplier to
the Business so long as such contacts or transactions are not related to
the conduct of the Business by Buyer after the Closing.
(b) Seller acknowledges and agrees that its covenants and obligations
with respect to non-competition relate to special, unique and extraordinary
matters and that a violation of any of the terms of such covenants and
obligations will cause irreparable injury for which adequate remedies are
not available at law. Therefore, Seller agrees that Buyer will be entitled
to an injunction, restraining order or such other equitable relief as a
court of competent jurisdiction may deem necessary or appropriate to
restrain Seller from committing any violation of the covenants set forth in
this Section 6.12.
6.13 Non-Solicitation of Employees.
(a) Neither party shall, for a period of two (2) years following the
Closing Date, for its own account or jointly with another, directly or
indirectly, for or on behalf of any individual, partnership, corporation or
other legal entity, as principal, agent or otherwise solicit or induce, or
in any manner attempt to solicit, any person employed by the other party to
leave such employment,
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whether or not such employment is pursuant to a written contract and
whether or not such employment is at will, or hire any person who has been
employed by the other party at any time during the six (6) month period
preceding such hiring.
(b) Each party recognizes the importance of the covenant not to
solicit contained in this subsection (a) above and acknowledges that the
restrictions imposed herein are: (i) reasonable as to scope, time and area;
(ii) necessary for the protection of its legitimate business interests,
including without limitation, trade secrets, goodwill, and its relationship
with customers and suppliers; (iii) not unduly restrictive of its rights;
and (iv) supported by adequate consideration. Each party acknowledges and
agrees that the covenants not to compete contained in this Section 6.13 are
essential elements of this Agreement and that but for these covenants, the
other party would not have agreed to enter into this Agreement. Such
covenants shall be construed as agreements independent of any other
provision of this Agreement.
6.14 Continuing Customer Relationship. Except with respect to Excluded
Excess Inventory (as defined herein) and items identified as being treated like
Excluded Excess Inventory, all of which are subject to the treatment described
in Section 6.16(b)(ii) hereof, Buyer agrees, in good faith to consider Seller as
a preferred products and services provider and, to the extent that Buyer, in its
judgment deems it commercially reasonable to do so, agrees to offer Seller the
opportunity to satisfy Buyer's needs for such products and services as Seller
currently provides the Business.
6.15 Employment Matters. Buyer hereby represents, covenants and warrants
that after the Closing Date, Buyer will not take any action to trigger liability
under the Worker Adjustment and Retraining Notification (hereinafter "WARN")
Act, 29 U.S.C. (S)(S) 2101-09, for the Seller. Buyer hereby further agrees to
indemnify and hold Seller harmless from any claims, demands, deficiencies,
penalties, assessments, executions, judgments, or recoveries for any and all
claims due to any actual or alleged violation of the WARN Act caused by Buyer's
actions or failures to act after the Closing Date. Except as provided
immediately above, Buyer shall be under no duty whatsoever to hire any employee
or group of employees of Seller. Effective as of the Closing Date, Buyer may
offer to hire such persons as are necessary and qualified to operate its
business. All terms, including benefits, of each offer to such person shall be
determined by Buyer in its sole discretion and nothing herein shall constitute
an agreement to assume or be bound by any previous or existing agreement between
Seller and any of Seller's employees or a guaranty that any employee of Seller,
to whom an offer of employment may be made, shall be entitled to remain in the
employment of Buyer for a specified period of time. An employee of the Business
to whom an offer of employment is made by Buyer and who accepts such offer shall
become an employee of Buyer on the day such person reports to work for the
Buyer. Such person who is unable to report to work for Buyer on the Closing Date
due to illness, injury or other reason shall remain an employee of Seller until
such person reports to work for Buyer. Seller shall remain solely responsible
for all salaries, wages, benefits (other than up to 80 hours of accrued vacation
per employee and other than accrued sick pay, which Buyer is assuming),
severance arrangements and all other terms of employment for (a) each person who
may become an
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employee of Buyer accruing prior to the date such person becomes an employee of
Buyer and (b) each employee of the Business who does not become an employee of
Buyer accruing at any time.
6.16 Treatment of Other Matters.
(a) HSR Matters. Each party agrees to make the appropriate filing
pursuant to the HSR Act with respect to the transactions contemplated by
this Agreement as soon as reasonably possible after the date hereof, but in
no case later than seven business days of the date hereof, and to remit
one-half of the required filing fee with such filing. Each party further
agrees to supply as promptly as practicable to the appropriate governmental
authorities any additional information and documentary material that may be
requested pursuant to the HSR Act.
(b) Excluded Excess Inventory. (i) Schedules 6.16(b)(i)(1) and (2),
respectively, set forth all of Sellers "Excess Inventory With MRP"
($2,287,863) and "Excess Inventory Without MRP" ($2,433,579), which,
aggregated, are carried on the books of Seller at $4,721,442 as of April
19, 1999, subject to changes between that date and the Closing in the
ordinary course of business. After excluding amounts for Netro of $165,287
(with MRP) and $565,154 (without MRP), the net amount of Excluded Excess
Inventory is $3,991,001. If either party subsequently should believe that
this net amount is incorrect, the parties agree to work together in good
faith to reach an agreement with respect to the difference. If, between the
date hereof and the Closing, Seller shall receive a purchase order with
respect to such excess inventory, or execute a written contract with a
customer pursuant to which such customer agrees to accept such excess
inventory, then such excess inventory shall be an Acquired Asset for
purposes of this Agreement and shall be transferred to Buyer at Closing,
with a corresponding dollar-for-dollar reduction to appropriate amounts
above. All other such excess inventory shall be considered "Excluded Excess
Inventory" (and valued net of the reduction in the previous sentence) for
purposes of this Agreement and shall not be transferred to Buyer at
Closing.
(ii) Notwithstanding the provisions of subsection (i) above,
Buyer agrees (x) to store, maintain, insure, and protect the Excluded
Excess Inventory in the same manner as it does its own inventory at
the Quadrus facility and at its expense; (y) to use its commercially
diligent efforts to sell such Excluded Excess Inventory; and (z)
dedicate one regular employee whose primary function shall be to
attend to the matters described in these subsections (x) and (y).
Buyer agrees that, in the event it has a use for any of the Excluded
Excess Inventory in any new or current product, it will use (or make a
good faith effort to use) such inventory before procuring such
inventory or substitutes from third parties and promptly (and, in no
case, later than 30 days after receipt of such inventory) pay Seller
the cost of such inventory. For the purposes of this Section 6.16,
"the cost of such inventory" shall be the cost of such inventory to
Seller, provided, however, that if Seller's cost is above market,
Buyer will allow Seller two business days to agree to match the market
price, in which case, "the cost of such inventory" shall be the market
price. Buyer and Seller agree to review the Excluded Excess Inventory
situation quarterly from the date of Closing and, upon the first
anniversary of the Closing, Buyer will have the right to require
Seller to remove any and all such remaining Excluded Excess Inventory
(such inventory, the "Removed Excluded Excess Inventory").
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Upon the first anniversary of the Closing, Buyer and Seller will
conduct a physical inventory of the Excluded Excess Inventory and if
any of such Excluded Excess Inventory should be determined to be
missing, Buyer will promptly pay Seller the cost of such inventory.
(c) Litigation and Other Third-Party Disputes. (i) Netro Arbitration
Matters. Seller's rights in and to any settlement with respect to the Netro
Arbitration, as more fully described in Schedule 3.14 on the Disclosure
Schedule, shall be transferred to Buyer. In the event that Buyer suffers
any Damages (as defined in Section 8.1(c) hereof) or the final unappealable
award is less than $956,000, subject to adjustment in such arbitration,
Seller shall pay Buyer such difference and/or indemnify and hold Buyer
harmless with respect thereto, in which case Seller's indemnification
obligations contained in Article VIII of this Agreement are inapplicable.
(ii) Fore Systems, Inc. Matters. The Fore Systems, Inc.
litigation matter, as more fully described in Schedule 3.14 of the
Disclosure Schedule, is not an Acquired Asset and shall not be an
Account Receivable for purposes of the Draft Closing Date Schedule.
Buyer agrees to render such assistance as Seller may reasonably
request to prosecute this matter to conclusion, with reimbursement of
time and expenses to be made at a fair rate to be agreed upon at the
time.
(iii) CoinWorld, Inc. The CoinWorld, Inc. dispute, as more fully
described in Schedule 3.14 of the Disclosure Schedule, shall not be an
Assumed Liability for purposes of this Agreement. Buyer agrees to
render such assistance as Seller may reasonably request to prosecute
this matter to conclusion, with reimbursement of time and expenses to
be made at a fair rate to be agreed upon at the time.
(iv) Capsco, Enhanced Cable, Advanced Hardware Technology, KBM,
AlliedSPEC, DeltaPac, Jayco, Kalex, Landsburg, Meridan, Nanya,
Paperpn, Prepro, and Wldwiser Inventory Disputes. The Capsco, Enhanced
Cable, Advanced Hardware Technology, KBM, AlliedSPEC, DeltaPac, Jayco,
Kalex, Landsburg, Meridan, Nanya, Paperpn, Prepro, and Wldwiser
Inventory Disputes shall not be an Assumed Liability for purposes of
this Agreement. Buyer agrees to render such assistance as Seller may
reasonably require to resolve these supplier disputes, as more fully
described in Schedule 3.3(b) of the Disclosure Schedule. In the event
the supplier prevails, Seller agrees to purchase the inventory that
was the subject of the dispute. Such inventory, when purchased and
shipped by Seller to Buyer, shall be treated in the manner specified
in Section 6.16(b)(ii) for Excluded Excess Inventory. In the event
that Buyer suffers any Damages (as defined in Section 8.1(c) hereof),
Seller shall indemnify and hold Buyer harmless with respect thereto,
in which case Seller's indemnification obligations contained in
Article VIII of this Agreement are inapplicable. Seller shall
reimburse Buyer for its time and expenses at a fair rate to be agreed
upon at the time.
(d) Excluded Bone-Pile Inventory. Schedule 6.16(d) sets forth all of
Seller's "Excess Bone-Pile Inventory" (carried on Seller's books as of as
of April 19, 1999 at $825,121, subject to changes between that date and the
Closing in the ordinary course of business). If, between the date hereof
and the Closing,
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Seller shall recover, or Buyer, using its reasonable efforts shall debug,
any of such Excess Bone-Pile Inventory, then such excess inventory shall be
an Acquired Asset for purposes of this Agreement and shall be transferred
to Buyer at Closing, with a corresponding dollar-for-dollar reduction to
appropriate amounts above. All other such excess inventory shall be
considered "Excluded Bone-Pile Inventory" (and valued net of the reduction
in the previous sentence) and shall be treated in the manner specified in
Section 6.16(b)(ii) for Excluded Excess Inventory.
(e) Other Excluded Amounts. Schedule 6.16(e)(i) sets forth all of
Seller's "Amounts Paid in Prior Months Not Billed to Customers" and
Schedule 6.16(e)(ii) sets forth all of Seller's "Prior Month Billings
Without Customers" (collectively carried on Seller's books as of March 31,
1999 at $189,616, subject to changes between that date and the Closing in
the ordinary course of business). If, between the date hereof and the
Closing, Seller shall shall receive a purchase order with respect to such
tools/fixtures, or execute a written contract with a customer pursuant to
which such customer agrees to accept such tools/fixtures, then such excess
tools/fixtures shall be an Acquired Asset for purposes of this Agreement
and shall be transferred to Buyer at Closing, with a corresponding dollar-
for-dollar reduction to appropriate amount above. All other such excess
tools/fixtures shall be considered "Other Excluded Amounts" (and valued net
of the reduction in the previous sentence) and shall be treated valued net
of the reduction in the previous sentence) and shall be treated in the
manner specified in Section 6.16(b)(ii) for Excluded Excess Inventory.
(f) Excluded 90-Day A/R. Schedule 6.16(f) will set forth, as of the
Closing, all of Seller's accounts receivable which have aged more than 90
days from their respective invoice dates (the "90-Day A/R"), and all of
which are transferred to Buyer at the Closing. To the extent that, between
the Closing and the date which is 90 days later, Buyer shall not have
collected any of the 90-Day A/R's, Buyer will have the right to require
Seller to repurchase any and all such remaining 90-Day A/R's (the "Excluded
90-Day A/R") and Seller shall repurchase the Excluded 90-Day A/R at face
value (the "Repurchased 90-Day A/R"). This repurchase obligation shall not
be subject to the limitation contained in Section 8.1(f) of this Agreement.
6.17 Profit Sharing. To the extent that Buyer earns a profit on its
operations of the Business from the Closing Date through and including June 30,
1999, Buyer will reimburse Seller for any Operating Losses Seller may incur with
respect to its operations of the Business from April 1, 1999 through and
including the Closing Date. For purposes of this Section 6.17, "Operating
Income/Losses" will be calculated consistently with Seller's accounting
practices and policies employed prior to the Closing Date by Seller, and in the
event of any disagreement, the dispute
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mechanisms provided in Section 2.5(b) will apply. Corporate overhead of Buyer
and Seller, for the respective periods, will not be taken into account in this
calculation, however, in the event Buyer and/or Seller has capital employed in
the Business during their respective operating periods, interest will be allowed
at the rate of 7.20%.
ARTICLE VII
CONDITIONS TO OBLIGATIONS TO CLOSE
7.1 Conditions to Obligations of Each Party. The respective obligations of
each party to this Agreement shall be subject to the satisfaction at or prior to
the Closing of the following conditions:
(a) Government Approvals. All applicable waiting periods (and any
extensions thereof) under the HSR Act shall have expired or otherwise been
terminated, and all authorizations, consents, orders, or approvals of, or
declarations or filings with, or expiration of waiting periods imposed by,
any governmental entity necessary for the consummation of the transactions
contemplated by this Agreement, shall have been obtained.
(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the transactions contemplated
hereby shall be in effect.
7.2 Additional Conditions to Obligations of the Seller. The obligations of
the Seller to consummate the transactions contemplated by this Agreement shall
be subject to the satisfaction at or prior to the Closing of each of the
following conditions, any of which may be waived, in writing, exclusively by the
Seller:
(a) Representations, Warranties, and Covenants. The representations
and warranties of Buyer contained in this Agreement shall be true and
correct in all material respects on the Closing Date except to the extent
such representations and warranties address matters only as of a particular
date (which shall remain true and correct as of such date), and the Buyer
shall have performed and complied in all material respects with all
covenants including the payment of the Consideration, obligations, and
conditions of this Agreement required to be performed and complied with by
it as of the Closing Date.
(b) Certificate of Buyer. The Buyer shall have provided the Seller
with a certificate executed on behalf of Buyer by its President, or any
Vice President, and its Chief Financial Officer to the effect that as of
the Closing Date:
(i) all representations and warranties made by the Buyer under
this Agreement are true and complete in all material respects; and
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(ii) all covenants, obligations, and conditions of this Agreement
to be performed by the Buyer on or before such date have been so
performed in all material respects.
(c) Opinion of Counsel. Seller shall have received an opinion,
addressed to it and dated the Closing Date, of Dorsey & Whitney, counsel to
the Buyer, substantially in the form set forth in Exhibit D.
7.3 Additional Conditions to the Obligations of Buyer. The obligations of
Buyer to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction at or prior to the Closing of each of the following
conditions, any of which may be waived, in writing, exclusively by Buyer:
(a) Representations, Warranties, and Covenants. The representations
and warranties of the Seller contained in this Agreement shall be true and
correct in all material respects on the Closing Date, except to the extent
such representations and warranties address matters only as of a particular
date (which shall remain true and correct as of such date) and the Seller
shall have performed and complied in all material respects with all
covenants, obligations, and conditions of this Agreement required to be
performed and complied with by it as of the Closing Date.
(b) Certificate of the Seller. Buyer shall have been provided with
certificates executed on behalf of the Seller by its respective President,
or any Vice President, and Chief Financial Officer to the effect that as of
the Closing Date:
(i) all representations and warranties made by such entity under
this Agreement are true and complete in all material respects; and
(ii) all covenants, obligations, and conditions of this Agreement
to be performed by such entity on or before such date have been so
performed in all material respects.
(c) Opinion of Counsel. Buyer shall have received an opinion,
addressed to it and dated the Closing Date, of Wilson Sonsini Goodrich &
Rosati, P.C., counsel to the Seller, substantially in the form set forth in
Exhibit E.
(d) Assignment of Facility, Equipment Lessors, Customer and Supplier
Contracts. All consents necessary to assign the Assumed Leases, as well as
the customer and material supplier contracts to Buyer shall have been
obtained.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
8.1 Indemnification.
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(a) Indemnification by the Seller. Subject to the qualifications and
limitations in this Section 8.1, if the Closing is consummated, Seller
shall indemnify and defend and hold Buyer, its subsidiaries, directors,
officers, agents, and other Affiliates harmless against and with respect
to, any and all Damages (as defined in subsection 8.1(c) below) incurred by
Buyer, its subsidiaries, directors, officers, agents or other Affiliates as
a result of any of the following:
(i) any inaccuracy or misrepresentation by Seller in, or breach
of any warranty of Seller in, this Agreement or the related documents
executed and delivered by Seller in connection with this Agreement
(the "Operative Documents");
(ii) any breach or failure by Seller to perform any of its
covenants or agreements under this Agreement or any of the other
Operative Documents; and
(iii) any liability of the Business arising exclusively from
events occurring prior to the Closing Date which are not expressly
being assumed by Buyer hereunder.
(b) Indemnification by Buyer. Subject to the qualifications and
limitations in this Section 8.1, if the Closing is consummated, Buyer shall
indemnify and defend and hold Seller and its directors, officers, agents,
and other Affiliates harmless against and with respect to, any and all
Damages (as defined in subsection 8.1(c) below) incurred by Seller or any
of its directors, officers, agents or other Affiliates as a result of any
of the following:
(i) any inaccuracy or misrepresentation by Buyer in, or breach of
any warranty of Buyer in, this Agreement or the other Operative
Documents;
(ii) any breach or failure by Buyer to perform any of its
covenants or agreements under this Agreement or any of the other
Operative Documents; and
(iii) any Assumed Obligation.
(c) Damages. For purposes of this Section 8.1, "Damages" means all
demands, claims, claims for reimbursement, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, deficiencies,
judgments, awards, fines, sanctions, penalties, charges and amounts paid in
settlement, whether civil, criminal or administrative in nature, including
the reasonable costs, fees and expenses of attorneys, experts, accountants,
appraisers, consultants, witnesses, investigators and agents and all such
costs, fees and expenses incurred in defending against any of the foregoing
or in enforcing this Agreement or the Operative Documents. Notwithstanding
the foregoing definition, when used with reference to amounts recoverable
as the result of any breach of a representation, warranty or covenant
contained in this Agreement or any other Operative Document, Damages shall
not include amounts recoverable solely as lost profits, incidental damages,
indirect damages, special damages, punitive damages or consequential
damages unless such damages arise from a third-party claim.
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(d) Procedure for Indemnification. The procedure for indemnification
shall be as follows:
(i) The party claiming indemnification ("Claimant") shall, within
thirty (30) days after its discovery of any claim for which
indemnification will be sought as provided in this Agreement (the
"Claim"), give notice to the party from whom indemnification is sought
("Indemnitor") of its Claim, specifying in reasonable detail the
factual basis for the Claim and, to the extent known, the amount of
the Claim. Notwithstanding the foregoing, the failure by Claimant to
provide notice of any Claim within the period specified, or any delay
in providing such notice, shall not affect or impair the obligations
of Indemnitor hereunder, except and only to the extent that Indemnitor
has been adversely affected by such failure or delay.
(ii) With respect to Claims between the parties, following
receipt of notice from Claimant of a Claim, Indemnitor shall have
sixty (60) days to make any investigation of the Claim that Indemnitor
deems necessary or desirable. For purposes of this investigation,
Claimant agrees to make available to Indemnitor and its authorized
representatives the information relied upon by Claimant to
substantiate the Claim. If Claimant and Indemnitor cannot agree as to
the validity and amount of the Claim within the sixty (60) day period
(or any mutually agreed upon extension thereof), Claimant may seek
appropriate legal remedy, subject to the provisions of Section 8.3.
(iii) With respect to any Claim by a third party as to which
Claimant is entitled to indemnification hereunder, Indemnitor shall
have the right, exercisable by written notice to Claimant within 30
days after receipt of written notice from Claimant of the commencement
or assertion of any such Claim, at its own expense to participate in
or assume control of the defense of the Claim, and Claimant shall
cooperate fully with Indemnitor, with the right to reimbursement for
actual out-of-pocket expenses incurred by Claimant as a result of any
such request by the Indemnitor. If Indemnitor does not elect to assume
control or otherwise participate in the defense of any third party
Claim within thirty (30) days of its receipt of notice of the Claim
(or any extended period mutually agreed upon in writing by the
parties), Claimant shall have the right to undertake the defense,
compromise or settlement of the Claim for the account of Indemnitor
subject to the right of Indemnitor, at its expense, to assume the
defense of the Claim at any time prior to final settlement, compromise
or determination thereof. In no event shall Indemnitor be liable or
otherwise have any obligation with respect to any settlement,
compromise or determination of any Claim agreed to by Claimant without
the prior written consent of Indemnitor (which consent will not be
withheld unreasonably).
(iv) The defending party shall have reasonable access to the
books, records and personnel which are pertinent to the defense and
which are in control of the other party. The parties agree to furnish
such records, information and testimony, and attend such conferences,
discovery proceedings, hearings, trials and appeals, as may be
reasonably requested by the other party in connection with defending
any third party Claim.
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(e) Limitations and Conditions Applicable to Buyer. The right of Buyer
to obtain indemnification from Seller pursuant to Section 8.1(a) of this
Agreement is subject to the following limitations:
(i) Buyer shall not be entitled to indemnification from Seller
pursuant to Section 8.1(a) until the aggregate Damages for which
Seller is liable under Section 8.1(a) exceed $150,000, whereupon Buyer
shall be entitled to indemnification by Seller for all such Damages
thereafter, and for $75,000 of the first $150,000 of such Damages (and
Buyer shall be responsible for the other $75,000 of the first $150,000
of such Damages).
(ii) Buyer shall not be entitled to indemnification from Seller
pursuant to Section 8.1(a) for that amount in excess of 35% of the
purchase price.
(iii) No Claim shall be brought by Buyer against Seller under
Section 8.1(a) unless notice in writing of such Claim shall have been
given to Seller on or prior to 5:00 p.m. Pacific Standard Time on the
second anniversary of the Closing Date, except for claims based on an
inaccuracy or misrepresentation by Seller with respect to the
representations or warranties made in (i) Section 3.8 hereof with
respect to title to the Assets for which notice in writing of any such
claim must be given to Seller on or prior to the expiration of the
applicable statute of limitations period for any such claims, or (ii)
in Section 3.12 with respect to environmental matters for which notice
in writing of any such claim must be given to seller on or prior to
5:00 p.m. Pacific Standard time on the fifth anniversary of the
Closing Date. Claims may be brought against Seller as to any Damages
(or a potential claim by an appropriate party) asserted in good faith
prior to such dates.
(iv) Buyer shall not be entitled to recover Damages in respect of
any Claim or otherwise obtain reimbursement or restitution more than
once with respect to any claim hereunder. For any matter for which an
adjustment has been made subject to Section 2.5, there will be no
indemnification for such matter for the amount of the adjustment.
(v) In calculating the amount of any indemnifiable Damages, there
shall be deducted any actual tax benefit realized by the Indemnified
Person.
(vi) The Buyer shall first seek recovery from any Damages from
any applicable insurance.
(f) Limitations and Conditions Applicable to Seller. The right of
Seller to obtain indemnification from Buyer pursuant to Section 8.1(b) of
this Agreement is subject to the following limitations:
(i) Seller shall not be entitled to indemnification from Buyer
pursuant to Section 8.1(b) until the aggregate Damages for which Buyer
is liable under Section 8.1(b) exceed $150,000, whereupon Seller shall
be entitled to indemnification by Buyer for all such Damages
thereafter, and for $75,000 of the first $150,000 of such Damages (and
Seller will be responsible for the other $75,000 of the first $150,000
of such Damages).
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(ii) Seller shall not be entitled to indemnification from Buyer
pursuant to Section 8.1(b) for that amount of its aggregate Damages
for which Buyer is liable under Section 8.1(b) which is in excess of
35% of the purchase price; provided, however, that the above
limitation shall not apply as to Damages arising from failure by the
Buyer to pay the Purchase Price or to pay or discharge of the Assume
Liabilities.
(iii) No Claim shall be brought by Seller against Buyer under
Section 8.1(b) unless notice in writing of such Claim shall have been
given to Buyer on or prior to 5:00 p.m. Pacific Standard Time on the
second anniversary of the Closing Date, but Claims may be brought
against Buyer as to any Damages (or a potential claim by an
appropriate party) asserted in good faith prior to such date.
(iv) Seller shall not be entitled to recover Damages in respect
of any Claim or otherwise obtain reimbursement or restitution more
than once with respect to any claim hereunder. For any matter which an
adjustment has been made subject to Section 2.5, there will be no
indemnification for such matter for the amount of the adjustment.
(v) In calculating the amount of any indemnfiable Damages, there
shall be deducted any actual tax benefit realized by the Indemnified
Party.
(vi) The Seller shall first seek recovery for any Damages from
any applicable insurance.
(g) Remedies Exclusive. Except for the remedies provided in Section
6.16(c)(i) and (iv), the remedies provided in this Section 8.1 shall be
exclusive as to any Claims by a party under this Agreement or any other
Operative Document or arising out of the transactions provided for herein
and therein and shall preclude assertion by any party of any other rights
or the seeking of any other remedies against another party; provided,
however, that nothing in this Section 8.1(g) shall limit rights or remedies
expressly provided for in this Agreement in Section 6.12 (non-competition),
rights or remedies for fraud, or rights or remedies which, as a matter of
applicable law or public policy, cannot be limited or waived.
8.2 Arbitration. Any controversy involving a claim by an indemnified party
pursuant to this Article VIII shall be finally settled by arbitration in the
County of Santa Clara, California in accordance with the then current Commercial
Arbitration Rules of the American Arbitration Association; and judgment upon the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. Such arbitration shall be conducted by an arbitrator chosen by mutual
agreement of Buyer and Seller. Failing such agreement, the arbitration shall be
conducted by three independent arbitrators, none of whom shall have any
competitive interests with Buyer or Seller. Buyer shall choose one such
arbitrator, Seller shall choose one such arbitrator, and such two arbitrators
shall mutually select a third arbitrator. Any decision of two such arbitrators
shall be binding on Buyer and Seller. Each party shall pay its own costs and
expenses (including counsel
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fees) of any such arbitration except that the arbitrator can compel one party to
pay all or a portion of the other party's costs and expenses.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Except as provided in Section 9.2 below, this Agreement
may be terminated at any time prior to the Closing Date:
(a) by mutual consent of Buyer and the Seller;
(b) by Buyer or the Seller if (i) the Closing Date has not occurred by
June 30, 1999 (provided that the right to terminate this Agreement under
this clause 9.1(b)(i) shall not be available to any party whose willful
failure to fulfill any obligation hereunder has been the cause of, or
resulted in, the failure of the Closing Date to occur on or before such
date); (ii) there shall be a final nonappealable order of a federal, state,
or foreign court in effect preventing consummation of the transactions
contemplated hereby; or (iii) there shall be any statute, rule, regulation
or order enacted, promulgated or issued or deemed applicable hereto by any
Governmental Entity that would make consummation of the transactions
contemplated hereby illegal;
(c) by Buyer if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable
hereto, by any Governmental Entity, which would prohibit Buyer's ownership
or operation of the Business, which prohibition cannot reasonably be
addressed by allowing Seller to retain the affected portion of the
Business;
(d) by Buyer if it is not in material breach of its obligations under
this Agreement and there has been a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of the Seller
and as a result of such breach the conditions set forth in Section 7.3(a)
would not be satisfied; provided, however, that if such breach is curable
by the Seller within ten days through the exercise of its reasonable
efforts, then for so long as the Seller continues to exercise such
reasonable efforts Buyer may not terminate this Agreement under this
Section 9.1(d) unless such breach is not cured within ten days (but no cure
period shall be required for a breach which by its nature cannot be cured);
(e) by Buyer if there has been a material adverse change in the
Business that reduces the book value of the Business by more than 10% of
the Purchase Price; or
(f) by the Seller if neither Seller nor Buyer are in material breach
of their obligations under this Agreement and there has been a breach of
any representation, warranty, covenant or agreement contained in this
Agreement on the part of Buyer and as a result of such breach the
conditions set forth in Section 7.2(a), would not then be satisfied;
provided, however, that if such breach is curable by Buyer within ten days
through the exercise of its reasonable best efforts, then for so long as
Buyer continues to exercise such reasonable best efforts
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the Seller may not terminate this Agreement under this Section 0 unless
such breach is not cured within ten days (but no cure period shall be
required for a breach which by its nature cannot be cured).
(g) In the event that this Agreement is terminated by Buyer as a
result of "force majeure" events that lead to Buyer's inability to obtain
financing, Buyer shall pay Seller a termination fee in the amount of
$500,000.00 in cash within ten (10) business days of such termination. If
this Agreement is terminated by Buyer for any other reason other than those
specified in subsections (a) through (d) above, Buyer shall pay Seller a
termination fee in the amount of $2,500,000 in cash within ten (10)
business days of such termination. This termination fee shall be the sole
and exclusive remedy of Seller for such termination by Buyer. For the
purposes of this subsection (g), the term "force majeure" shall mean an act
of God, riot, war, civil unrest, flood, earthquake, or other cause beyond
such party's reasonable control that results in significant adverse effects
on the debt and equity capital markets.
9.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 9, this Agreement shall forthwith become void and, there
shall be no liability or obligation on the part of Buyer or the Seller, or their
respective officers, directors or stockholders, provided that (i) the provisions
of Section 6.4 (Confidentiality) and this Article IX shall remain in full force
and effect and survive any termination of this Agreement, and (ii) the
termination of this Agreement shall not relieve any party from any liability for
any willful and knowing breach of this Agreement.
9.3 Amendment. Except as is otherwise required by applicable law, prior to
the Closing, this Agreement may be amended by the parties hereto at any time by
execution of an instrument in writing signed by the Buyer and the Seller. Except
as is otherwise required by applicable law, after the Closing, this Agreement
may be amended by the parties hereto at any time by execution of an instrument
in writing signed by Buyer and the Seller.
9.4 Extension; Waiver. At any time prior to the Closing, Buyer and the
Seller may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. Any request, communication, or other notice required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if sent by facsimile or delivered by recognized overnight or international
courier service or personal delivery (as the
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situation may require) at the respective address or facsimile number of the
party receiving notice as set forth below. Any party hereto may by notice so
given change its address or facsimile number for future notice hereunder. All
such notices and other communications hereunder shall be deemed given (i) upon
confirmation of delivery, if sent by facsimile and (ii) upon delivery, if sent
by recognized overnight or international courier service or personal delivery.
(a) if to Seller, to:
Bell Microproducts Inc.
1941 Ringwood Avenue
San Jose, California 95131-1721
Attn: Bruce M. Jaffe, Senior Vice President
Telephone No.: (408) 451-1685
with a copy (which shall not constitute notice) to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Larry W. Sonsini, Esq. and Thomas C. Klein, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to the Buyer, to:
PEMSTAR INC.
3535 Technology Drive
Rochester, MN 55901
Attn: Al Berning
Telephone No.: (507) 288-6720
Facsimile No.: (507) 280-0838
with a copy (which shall not constitute notice) to:
Dorsey & Whitney LLC
201 First Avenue, SW, Suite 340
Rochester, MN 55902
Attn: Bill Jonason, Esq.
Telephone No.: (507) 529-2207
Facsimile No.: (507) 288-6190
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10.2 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The word "agreement" when used herein shall be deemed in each case
to mean any contract, commitment or other agreement, whether oral or written,
that is legally binding. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.3 Expenses. All fees and expenses incurred in connection with this
Agreement including, without limitation, all legal, accounting, financial
advisory, consulting and all other fees and expenses of third parties incurred
by a party hereto, in connection with the negotiation and effectuation of the
terms and conditions of this Agreement and the transactions contemplated hereby,
shall be the obligation of the respective party incurring such fees and
expenses.
10.4 Counterparts. This Agreement may be executed in counterparts, both of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each of the parties and delivered to the
other party.
10.5 Entire Agreement; Assignment. This Agreement, the schedules and
exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided.
10.6 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
10.7 Sole Remedy. Except for the remedies provided in Section 6.16(c)(i)
and (iv), the indemnification provided by Section 8.1 is the sole remedy of the
parties hereto or any other person or entity claming a remedy for any and all
matters whatsoever arising under or related to the transactions contemplated by
this Agreement or the Operative Documents, except as set forth in Section
8.1(g).
10.8 Governing Law; Arbitration. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof. Any claim or dispute
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arising out of or related to this Agreement, or the interpretation, making,
performance, breach or termination thereof, shall be finally and exclusively
settled by binding arbitration in San Jose, California under the AAA Commercial
Arbitration Rules and Supplemental Procedures for Large Complex Disputes by a
single arbitrator mutually agreeable to the Buyer and the Seller. In the event
that within 45 days after the submission of any dispute to arbitration, the
Buyer and the Seller cannot mutually agree on a single arbitrator, the Buyer and
the Seller shall each select one arbitrator and the AAA shall select a third
arbitrator. The arbitrator(s) shall have the authority to grant any equitable
and legal remedies that would be available in any judicial proceeding instituted
under California substantive law to resolve a dispute. Judgment on the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof. The arbitrator(s) may award to the prevailing party, if any, as
determined by the arbitrator(s), all of its costs and fees, including, without
limitation, AAA administrative fees, arbitrator fees, attorneys' fees, expert
fees, witness fees, travel expenses and out-of- pocket expenses (including,
without limitation, such expenses as copying, telephone, facsimile, postage and
courier fees). The parties to the arbitration may apply to any court of
competent jurisdiction for a temporary restraining order, preliminary injunction
or other interim or conservatory relief, as necessary, without breach of this
arbitration provision and without any abridgement of the powers of the
arbitrator(s). The parties agree that, any provision of applicable law
notwithstanding, they will not request, and the arbitrator(s) shall have no
authority to award, punitive or exemplary damages against any party.
10.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
10.10 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person or entity other than the parties hereto and
their respective successors and permitted assigns.
10.11 Specific Performance. The parties hereto agree that irreparable
damage will occur in the event that any of the provisions of this Agreement are
not performed in accordance with their specific terms or are otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
10.12 Publicity. Buyer and Seller shall not, without the prior written
consent of the other party, make any public announcement in which the other
party is mentioned; provided that either party may make any public disclosure it
believes in good faith to be required by applicable law or stock exchange rule,
in which case the disclosing party will use reasonably commercial efforts to
advise the other party prior to making such disclosure.
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10.13 Assignment by Buyer. Buyer may assign this Agreement to any
subsidiary of Buyer, provided, however, that the indemnification obligations of
Buyer under this Agreement shall remain with Buyer.
10.14 Change in Control of Buyer. In the event that there shall be a change
in control of Buyer, whether through merger, consolidation, or corporate
reorganization, or by acquisition of all or substantially all of the assets of
Buyer, this Agreement and all the rights and obligations hereunder, may be
transferred to the surviving or resulting entity so long as, (a) in the
reasonable opinion of Seller (i) such entity is not then engaged, or does not
then intend to become engaged, in any distribution business competitive with
that of Seller, or (ii) the acquisition by such entity of the Business as then
conducted by Buyer could not otherwise reasonably be expected to adversely
affect the legitimate business or strategic interests of Seller, and (b) such
person agrees to be bound by the provisions of this Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the Buyer and the Seller have caused this Asset
Purchase Agreement to be signed as of the date first written above.
"BUYER" PEMSTAR INC.
a Minnesota Corporation
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
"SELLER" BELL MICROPRODUCTS INC.
a California Corporation
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
[Signature Page to Asset Purchase Agreement]
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EXHIBIT 10.3
EXECUTION COPY
SUPPLY AGREEMENT
This Supply Agreement (the "Agreement") is entered into as of this 30th day
of April, 1999, by and between Pemstar Inc., a Minnesota corporation
("Pemstar"), Pemstar B.V., a corporation formed under the laws of the
Netherlands ("Supplier"), Fluke Corporation, a Washington corporation ("Fluke")
and Fluke Industrial B.V., a corporation formed under the laws of the
Netherlands ("Purchaser").
RECITALS
--------
WHEREAS, Pemstar, Supplier, Fluke and Purchaser are parties to that certain
Asset Purchase Agreement of even date herewith (the "Asset Purchase Agreement");
and
WHEREAS, pursuant to the Asset Purchase Agreement, Purchaser is selling,
assigning and transferring to Supplier certain assets (the "Acquired Assets")
previously used by Purchaser to manufacture certain products; and
WHEREAS, Purchaser desires to purchase from Supplier, and Supplier desires
to sell to Purchaser, on the terms and conditions set forth herein, certain
products previously manufactured by and certain engineering services previously
provided by Purchaser with the Acquired Assets.
NOW THEREFORE, in consideration of the representations, warranties,
covenants, obligations and agreements set forth herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, upon the terms and subject to the conditions
contained herein, agree as follows:
ARTICLE l: CERTAIN DEFINITIONS
------------------------------
1.1 "Affiliates" shall mean any Person that directly, or indirectly
through one or more Persons, controls or is controlled by, or is under
common control with, the Person specified. As used herein, "control",
"controls" and "controlled" means the ownership of 50% or more of the
voting interests of the Person in question.
1.2 "Derivatives" shall mean any product derived from an existing
Product which has the same basic technology and function as the existing
Product, meaning that it is intended to perform substantially the same
basic functions albeit with the same or altered capabilities or features.
1.3 "End of life inventory" shall mean those items identified on
Appendix F and any items added to such list throughout the term of this
Agreement upon the mutual agreement of the parties hereto.
1.4 "Engineering Services" shall mean the engineering and design
services set forth on Appendix B attached hereto.
<PAGE>
1.5 "Facility" shall have the meaning set forth in the Asset Purchase
Agreement.
1.6 "Laws" shall mean all applicable foreign and domestic federal,
state and local statues, laws, common law, case law, rules and regulations.
1.7 "Minimum Annual Commitments" shall mean the commitments set forth
in Appendix C hereto.
1.8 "Nonconforming Engineering Services" shall mean Engineering
Services which do not comply with the Specifications or with applicable
Laws at the time of the performance of the Engineering Services.
1.9 "Nonconforming Products" shall mean Products which do not comply
with the Specifications at the time of shipment by the Supplier.
1.10 "Person" shall mean a corporation, limited liability company,
association, partnership, organization, trust, joint venture or other legal
entity, an individual or a governmental authority.
1.11 "Products" shall mean the products set forth on Appendix A
attached hereto and all revisions and upgrades to and Derivatives thereof.
1.12 "Specifications" shall mean (1) (x) the formulas and
specifications for the Products and their production, processing, packaging
and quality control and the administrative procedures relating thereto, as
set forth in Purchaser's archiving/product data management system (subject
to any modifications described in the next sentence), (y) the
specifications for Engineering Services and the administrative procedures
relating thereto, in each case as set forth in written instructions to be
delivered by Purchaser to Supplier in connection with each request for
Engineering Services, and (z) general and specific standards of quality and
workmanship normal and usual in the type of manufacturing contemplated by
this Agreement, including without limitation ISO 9000 certification and
calibration practices, and (2) to the extent not inconsistent with Section
1.12(l), the actual operating conditions and practices of Supplier, as
amended from time to time upon reasonable advance notice to Purchaser.
Purchaser reserves the right at any time to unilaterally modify, delete or
add to the Specifications provided that Purchaser allows Supplier
reasonable time in each instance to implement any changes necessitated by
such revisions in the Specifications so that the Products and Engineering
Services will remain in compliance with the Specifications. If any such
modifications result in additional costs to Supplier, Supplier shall be
entitled to a mutually agreed increase in the applicable purchase price
equal to the reasonable additional costs resulting therefrom. In case such
modification requires engineering effort, Purchaser shall provide Supplier
with a purchase order.
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ARTICLE 2: TERM AND TERMINATION
-------------------------------
2.1 Term. This Agreement shall commence immediately following the
Closing Date ("Closing Date") set forth in the Asset Purchase Agreement,
and (unless earlier terminated pursuant to Section 2.2) shall continue
until the third anniversary of the Closing Date (the "Term"); provided,
that the Term shall automatically be extended for successive one-year terms
thereafter unless (1) either party delivers written notice of termination
to the other party no less than one hundred and eighty (180) days prior to
the end of the then-current Term, or (2) Purchaser and Supplier fail to
agree on pricing and volume commitments for such renewal period not less
than sixty (60) days prior to the end of the then-current Term.
2.2 Termination for Breach. Notwithstanding the foregoing, either
party may terminate the Agreement at any time if the other party Breaches
this Agreement. The following actions shall each constitute a "Breach" of
this Agreement:
(a) The institution by Supplier or Purchaser of a voluntary, case
under any chapter of the Bankruptcy Code (Title 11, United States
Code), or any equivalent or similar action under any other Law in
effect at such time relating to bankruptcy or insolvency, or if a
petition is filed against Supplier or Purchaser under the Bankruptcy
Code, or if a petition is filed seeking any such equivalent or similar
relief against Supplier or Purchaser under any other Law in effect at
the time relating to bankruptcy;
(b) If Supplier or Purchaser makes a general assignment for the
benefit of creditors;
(c) If Supplier or Purchaser admits in writing an inability to
pay its debts generally as they become due;
(d) If Supplier or Purchaser has appointed (voluntarily or
involuntarily) a trustee, receiver, custodian or agent under
applicable Law or under contract to take charge of property of
Supplier or Purchaser for the purpose of general administration of
such property for the benefit of Supplier's or Purchaser's creditors,
respectively;
(e) If Supplier or Purchaser materially breaches or fails to
observe or perform any of its covenants, obligations, conditions or
agreements under this Agreement and such breach is not cured within
thirty (30) days after written notice to the breaching party advising
of such breach. Without limiting the foregoing, Supplier's continuing
failure to comply with the Performance Standards (as defined in
Section 6.1) shall be deemed a material breach of Supplier's
covenants, obligations, conditions and agreements hereunder;
2.3 Change of Control. Notwithstanding anything to the contrary
herein, Purchaser may in its sole discretion terminate this Agreement
immediately upon a Change of Control. For purposes of this Section 2.3, a
Change of Control shall include the sale, assignment, transfer or disposal
of all or substantially all of the assets of Supplier, or the acquisition
in any manner by any
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person or entity, or related group of persons or entities, of a controlling
interest in the voting stock of Supplier or in the voting stock of any
entity which owns or controls Supplier, in each case made without the prior
written consent of Purchaser (which consent may be withheld in Purchaser's
sole discretion).
2.4 Assistance by Supplier. If Supplier Breaches this Agreement and
Purchaser chooses to terminate this Agreement pursuant to Section 2.2 or if
this Agreement terminates pursuant to Section 2.1, Supplier will provide
Purchaser with all reasonable assistance in implementing Purchaser's
manufacturing and support system for production and distribution of the
Products; provided, however, that Purchaser shall pay Supplier reasonable
compensation for such assistance if the Agreement terminates pursuant to
Section 2.1.
2.5 Return of Retained Equipment. Within thirty (30) days after
termination of this Agreement, Supplier shall make available for delivery
at its dock all Retained Assets (as defined in the Asset Purchase
Agreement). Notwithstanding the foregoing, Purchaser shall have the right
at any time in its sole discretion to remove all or any portion of the
Retained Assets (as defined in the Asset Purchase Agreement) if and only to
the extent such Retained Assets are not necessary for Supplier to perform
its services hereunder, whether located at Supplier's premises or
elsewhere, and such removal shall have no effect on Purchaser's Minimum
Annual Commitments or on any other provision of this Agreement.
2.6 End-of-Life Inventory Purchases. Upon termination of this
Agreement, Purchaser will purchase from Supplier, and Supplier will sell to
Purchaser, all end-of-life inventory relating to the Products, for a
purchase price equal to the net amount actually paid by Supplier for such
end-of-life inventory plus 5%, less any discounts, returns or allowances
provided for such inventory at the time of Supplier's purchase thereof.
ARTICLE 3: PRODUCTS AND PRICING
-------------------------------
3.1 Description. During the Term, Supplier agrees to (1) manufacture
for and sell to Purchaser the products and spare parts described in
Appendix A (including all revisions and upgrades to and Derivatives
thereof, the "Products"), as ordered by Purchaser from time to time, and
(2) provide the engineering and design services described on Appendix B
(the "Engineering Services"), as requested by Purchaser from time to time.
During each year of the Term, Purchaser will purchase Products and
Engineering Services from Supplier in an aggregate purchase price to
Purchaser not less than the target amounts set forth for such year on
Appendix C attached hereto (with respect to each year, the "Minimum Annual
Commitment"); provided, that the amounts set forth on Appendix A, B and C
in United States Dollars shall be converted to Dutch Guilders at a rate of
2.0829 Dutch Guilders per United States Dollar. Each of the Products and
Engineering Services sold by Supplier to Purchaser pursuant to the terms
hereof shall conform to the Specifications. Supplier also agrees to
manufacture and sell to Purchaser, as ordered by Purchaser, spare parts
relating to newly developed products, which spare parts and the prices
therefor the parties shall reasonably agree to.
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3.2 Resale. Supplier will not manufacture for or grant to anyone else
the right to manufacture, sell or distribute the Products, including
without limitation any Derivative of the Products.
3.3 Product Changes. Supplier will make changes to the Products and
Engineering Services for Purchaser in accordance with Purchaser's written
instructions and pursuant to the terms of Section 1.12.
3.4 Pricing. The purchase prices for each of the Products and the
Engineering Services purchased by Purchaser hereunder shall be as set forth
on Appendices A and B attached hereto.
3.5 Equipment. Supplier shall provide all equipment, materials and
personnel necessary to manufacture, package and ship Products and perform
Engineering Services in accordance with the terms hereof without any
additional costs to Purchaser beyond those incorporated into the respective
purchase prices set forth on Appendices A and B attached hereto.
3.6 Non-Competition and Non-Solicitation.
(a) Supplier covenants and agrees that from the date hereof until
the second anniversary of the termination or expiration of this
Agreement, anywhere in the world, it shall not and shall cause each of
its Affiliates not to, for any reason whatsoever, directly or
indirectly:
(i) engage in the manufacture, production, design,
engineering, importation, purchase, marketing, sale,
distribution, research or development of any products which
directly or indirectly compete with, or are the same as, have a
similar purpose as, or are similar to the trade dress of, the
Products; or
(ii) call upon or solicit any employee of Purchaser or any
of Purchaser's affiliates for the purpose or with the intent of
enticing such employee away from or out of the employ of
Purchaser or Purchaser's affiliate, or solicit any then-current
or past representatives, distributors or customers of Purchaser
or of any affiliate of Purchaser for the purpose of carrying,
buying, selling, manufacturing, distributing or soliciting
customers for, any products that compete with the Products.
(b) Purchaser covenants and agrees that from the date hereof
until the second anniversary of the termination of expiration of this
Agreement, any where in the world, it shall not and shall cause each
of its Affiliates not to, for any reason whatsoever, directly call
upon or solicit any employee of Supplier or any of Supplier's
Affiliates for the purpose or with the intent of enticing such
employee away from or out of the employee of Supplier or Supplier's
Affiliate,
(c) Notwithstanding anything to the contrary herein and without
limiting Purchaser's right to terminate pursuant to any other
provision of this Agreement, Purchaser shall have the right to
immediately terminate this Agreement if (i) Supplier breaches any
provision of
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Section 3.6(a)(i), or (ii) Supplier enters into any agreement with any
competitor of Purchaser relating to, or consummates with any
competitor of Purchaser, a Change of Control of Supplier. "Change of
Control" is defined as (a) an acquisition of Supplier by means of a
stock purchase, merger, consolidation or other business combination in
which the shareholders of Supplier immediately prior to such stock
purchase, merger, consolidation or other business combination hold
less than 50% of the outstanding securities (either voting control or
economic interests) of the surviving business entity immediately
following such stock purchase, merger, consolidation or other business
combination, (b) a sale or license of all or substantially all of
Supplier's assets, or (c) a sale or other transfer of Supplier's
rights to manufacture any of the Products that Purchaser is continuing
to purchase.
ARTICLE 4: PURCHASE COMMITMENTS
-------------------------------
4.1 Purchaser Twelve Month Forecasts. For each Product, Purchaser will
provide to Supplier a twelve-month rolling forecast setting forth the
amount of Product Purchaser expects to purchase from Supplier during such
period, and will update each such forecast quarterly in advance. Purchaser
shall have no obligation to purchase the amounts specified in such
forecasts and such forecasts do not represent firm purchase orders and are
subject to change by Purchaser.
4.2 Purchaser Commitments. Purchaser will provide Supplier a rolling
3-month commitment which will be updated every month. Purchaser commits to
purchase the number of units of finished Product set forth in each 3-month
commitment, as updated. Delivery of products will take place only on
committed purchase orders.
4.3 Minimum Annual Commitments.
(a) Supplier shall notify Purchaser within thirty (30) days after
the end of any year during the Term if Purchaser is likely to fall
short of its Minimum Annual Commitment with respect to such year, and
within sixty (60) days after the end of such year shall specify the
amount by which Purchaser is then short of the applicable Minimum
Annual Commitment. If Purchaser fails to purchase at least the Minimum
Annual Commitment applicable to the Products, it may cure that breach
by sending to Supplier a prepaid purchase order for a sufficient
number of Products to meet the commitment. With respect to any year
during the Term during which Supplier has utilized the Facility at or
near single-shift capacity for such year, the parties hereto shall
negotiate in good faith with respect to enforcement of the Minimum
Annual Commitment for such year.
(b) If Purchaser fails to order at least the Minimum Annual
Commitment applicable to the Engineering Services, in either (i)
accepted open purchase orders for services during the term, (ii) paid
or prepaid invoices, or (iii) invoiced amounts (without double
counting such amounts from year to year), then it may cure that breach
by paying an invoice from Supplier for the difference between the sum
of such (1) open purchase orders, (2) paid or prepaid invoices, and
(3) invoiced amounts, and the amount of Minimum Annual Commitment.
Accepted purchase orders for Engineering Services shall be deemed to
include Engineering Services purchase orders
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<PAGE>
rejected by Supplier, due to Supplier's inability to meet the normal
reasonable requirements of Purchaser.
4.4 Supplier will buy end-of-life inventory stock as mutually agreed
with Purchaser and at Purchaser's risk of buy back pursuant to Section 2.6.
ARTICLE 5: DELIVERY & SHIPMENT
------------------------------
5.1 Delivery Terms. Orders for Products and requests for Engineering
Services submitted by Purchaser under this Agreement will be initiated by
written purchase orders to Supplier sent via mail, facsimile or electronic
transfer. Products will be delivered and Engineering Services supplied
against Purchaser purchase orders received by Supplier during the Term. To
the extent not inconsistent with this Agreement, the terms and conditions
set forth on Purchaser's current Standard Terms and Conditions of Sale,
attached hereto as Appendix D, shall govern each order of Products and
request for Engineering Services purchased by Purchaser pursuant to this
Agreement, notwithstanding anything to the contrary in Supplier's
then-current order form. Notwithstanding the foregoing, (i) the
Specifications shall control and override the provisions of Section 5.2 of
Appendix D, and (ii) Purchaser shall be responsible for all duties to be
paid on the Products. Product deliveries and provision of Engineering
Services may occur up to ninety days after the end of the Term.
5.2 Timing of Delivery.
(a) Supplier shall use commercially reasonable efforts to fill
all orders submitted by Purchaser on the date stipulated on the
applicable purchase order, or if no such delivery date is stipulated,
within thirty (30) days after receipt of such purchase order. Products
received more than ten (10) days in advance of the stipulated delivery
date may be rejected at Supplier's risk and expense pursuant to
Section 8.1. Supplier will promptly notify Purchaser in the event
deliveries may be delayed three (3) days or more beyond the scheduled
delivery date.
(b) Supplier shall use commercially reasonable efforts to provide
all Engineering Services by the date stipulated on the applicable
purchase order. Supplier will promptly notify Purchaser in the event
provision of Engineering Services may be delayed three (3) days or
more beyond the scheduled delivery date.
5.3 Delivery Process. All Products delivered pursuant to this
Agreement shall be packed in accordance with the requirements described in
the Specifications and marked for shipment at such address as Purchaser
shall specify in writing in the purchase order (the "Shipping Address").
All deliveries under this Agreement will be delivered to Purchaser or its
carrier agent F.O.B. (as defined in the Uniform Commercial Code) the
shipping point (Supplier's dock). The risk of loss and title in all
deliveries made hereunder shall transfer to Purchaser upon Supplier's
delivery to the carrier.
5.4 Payment Terms. Supplier shall invoice Purchaser upon shipment of
the Product to
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Purchaser and/or provision of the Engineering Services to Purchaser, as
applicable, based on the pricing and terms set forth on Appendix A and/or
B, as applicable. Each invoice will include Purchaser's purchase order and
the aggregate purchase price therefor, plus freight, taxes, duties and
other costs prepaid by Supplier, if any. All payments made under this
Agreement shall be in Euros. Payment terms shall be thirty (30) days after
the later of (i) the date of invoice, or (ii) the date of shipment of
Products to the correct Shipping Address and/or completion of the
Engineering Services, as applicable.
5.5 Cancellation of Orders. Purchaser may cancel orders for Products
or Engineering Services, without further obligation, upon at least thirty
(30) days notice to Supplier; provided, however, that if Purchaser cancels
orders for any Products which are to be custom-manufactured pursuant to
Purchaser's instructions, Purchaser shall pay for raw materials, work in
process and finished Products relating to such custom-manufactured Products
plus 5%. The aggregate number of finished Products and Products in process
at any given time shall not exceed the number placed on confirmed purchased
orders received by Supplier. Purchaser shall not pay for raw materials and
work in process that may be used by Supplier for the manufacture of other
products or diverted for any other purpose; provided that Purchaser shall
pay for any manufacturing charges required to modify such raw materials or
work in process so that they may be so used or diverted.
ARTICLE 6: PERFORMANCE EVALUATION
---------------------------------
6.1 Purchaser and Supplier will meet as necessary to evaluate each
party's performance hereunder, including without limitation its on-time
delivery and quality ratings and volume commitments and forecasts. With
respect to the Products, Supplier shall, on a commercially reasonable
efforts basis, maintain at least a 90% on-time delivery rating (delivery
shall be deemed on-time if no more than three days early and no days late)
and a 98.5% quality rating (as measured by units rejected divided by total
units received) (collectively, the "Product Performance Standards"). With
respect to the Engineering Services, Supplier shall perform the Engineering
Services in accordance with commercially reasonable standards in the
applicable industry (the "Engineering Services Performance Standards" and
together with the Product Performance Standards, the "Performance
Standards"). Should Supplier fail to meet any of the Performance Standards,
Supplier will use commercially reasonable efforts to create or modify
applicable processes to remedy such failure; provided, however, that such
remedial action shall not release Supplier from liability to Purchaser for
damages and other losses incurred by Purchaser as a result of Supplier's
failure to meet the Performance Standards.
6.2 Supplier will use commercially reasonable efforts to achieve a
100% on-time delivery rating and a 100% quality rating, and will work
toward a zero-defect policy in connection with Products and Engineering
Services provided hereunder.
ARTICLE 7: INSPECTION
---------------------
7.1 Records. Supplier shall maintain true, accurate and complete
records in respect of
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Product production, packaging, storage, testing and shipment hereunder, and
the performance of the Engineering Services ("Records") in accordance with
Supplier's records retention policy, a copy of which has been provided to
Purchaser prior to or on the date hereof. Upon written notice from
Purchaser to Supplier, Supplier shall permit Purchaser to (1) inspect the
Records at reasonable times and locations, and (2) take inventory of the
Products, and the materials used to produce the Products, produced and
manufactured by Supplier for Purchaser.
7.2 Plant Inspection. During the Term and upon reasonable prior
written notice, Purchaser may inspect, at Purchaser's cost, areas of the
plant or plants where Products are manufactured, handled, tested, packaged
or stored or Engineering Services are developed, performed or tested
hereunder for the purposes of inspecting such plants and its facilities,
the Products, the Engineering Services and the procedures followed by
Supplier; provided, however, that such inspection(s) shall not relieve
Supplier of any of its other obligations hereunder. Supplier shall, in good
faith, explore the possibility and feasibility of changing its procedure(s)
whenever such changes are determined by Purchaser as necessary or desirable
in order to correct and/or improve the Products and/or the Engineering
Services and the procedures followed hereunder.
7.3 Audit. Purchaser may use its internal personnel or retain an
independent auditor, bound by a standard confidentiality agreement, to
audit Supplier's books and records no more than once annually to determine
and review Supplier's costs and quality in connection with the Products and
Engineering Services provided hereunder. If such independent auditor finds
that Supplier has overcharged Purchaser for purchases of Products or
Engineering Services and Supplier does not dispute the findings, Supplier
shall pay to Purchaser the amount of overcharge by wire transfer of
immediately available funds within ten (10) days after receiving such
independent auditor's report itemizing such overcharges. If Supplier
disputes any of the findings of the independent auditor, Supplier and
Purchaser shall review the findings and attempt to resolve the dispute in
good faith for a period of 30 days. If the parties cannot resolve the
dispute within such 30 day period, the issue shall be submitted to an
independent auditor mutually agreeable to Purchaser and Seller, whose
finding shall be binding upon Purchaser and Seller.
7.4 Product Quality Information. In an effort to analyze and/or
improve Product quality and compare Supplier's information with that
obtained by Purchaser in the field, Purchaser may, no more than twice
annually, obtain Supplier's records pertaining to Product manufacturing
quality and defects. That information shall be for Purchaser's internal use
only and Purchaser shall treat it as Supplier's proprietary and
confidential information.
ARTICLE 8: PRODUCT REJECTION.
-----------------------------
8.1 Supplier shall not knowingly ship any Nonconforming Products or
knowingly provide any Nonconforming Engineering Services to Purchaser.
Nothing contained in this Agreement shall be deemed to obligate Purchaser
to inspect any Products produced hereunder. Without limiting any other
rights available to Purchaser with respect to Nonconforming
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Engineering Services which are in violation of any Laws, in the event
Supplier produces any Nonconforming Product or Nonconforming Engineering
Service and Purchaser returns such Nonconforming Product to Supplier or
rejects such Nonconforming Engineering Service (which return shall be at
Supplier's risk and expense), Supplier shall promptly (and in any event no
later than thirty (30) calendar days after receipt of such returned
Product) replace such Product or reperform such Engineering Service, as
applicable, at no cost to Purchaser (including any additional freight costs
incurred). Supplier shall pay the shipping charges back to Purchaser for
returned Products.
8.2 Within twenty-four (24) hours of receipt of Purchaser's notice of
receipt of any Nonconforming Products, Supplier will provide authorization
to Purchaser for return of such Nonconforming Products at Supplier's risk
and expense.
8.3 If Purchaser sends Supplier a Corrective Action Request (CAR),
Supplier will respond to Purchaser in writing within thirty (30) days after
receipt thereof
ARTICLE 9: REPRESENTATIONS AND WARRANTIES
-----------------------------------------
Supplier hereby represents and warrants to Purchaser as follows:
9.1 General. Supplier's performance hereunder shall be in accordance
with all terms and provisions of this Agreement, including the
Specifications. Without limiting the foregoing, (1) all Products supplied
to Purchaser hereunder will upon shipment (x) comply with all
Specifications and will be free from defects in materials (to the extent
the materials were not specified in the relevant Specifications) and
workmanship by Supplier, and (y) be packed and labeled according to the
Specifications, and (2) all Engineering Services provided to Purchaser
hereunder will upon provision to Purchaser comply with all Specifications.
9.2 Compliance with Laws. All Engineering Services provided to
Purchaser hereunder, and Supplier's performance hereunder (including
without limitation Supplier's processes and Supplier's maintenance of the
plant or plants used to manufacture the Products and perform the
Engineering Services), shall at all times comply with all applicable Laws.
ARTICLE 10: INDEMNIFICATION
---------------------------
10.1 Supplier hereby indemnifies Purchaser and forever holds
Purchaser, its Affiliates and their respective directors, officers,
employees and agents and customers (collectively, "Purchaser Indemnitees")
harmless from and against all claims, suits, actions, proceedings, damages,
losses, liabilities, costs or expenses (including reasonable attorneys'
fees, expenses and amounts paid in settlement) ("Claims") incurred by any
Purchaser Indemnitee arising out of, based
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upon, or in connection with any (i) material breach of any of Supplier's
warranties, representations or covenants under this Agreement, (ii)
injuries or damages to Persons or property arising from or in any way
related to the Engineering Services or to the use or consumption of any
Products produced by Supplier for Purchaser pursuant to this Agreement, to
the extent arising out of the condition of such Product(s) as of the date
of shipment to Purchaser and caused by a failure to comply with the
Specifications or a defect in materials (to the extent the materials were
not specified in the relevant Specifications) or workmanship by Supplier,
(iii) actual or alleged injury to Person or property or death occurring to
any of Supplier's employees, agents or any individual on Supplier's
premises, or (iv) fines and penalties for violations of Laws attributable
to Supplier in connection with Supplier's manufacture of Products and/or
performance of the Engineering Services.
10.2 Purchaser hereby indemnifies Supplier and forever holds Supplier
and its Affiliates and their respective directors, officers, employees and
agents (collectively, "Supplier Indemnitees") harmless from and against all
Claims incurred by Supplier arising out of, based upon, or in connection
with (i) any material breach of any of Purchaser's warranties,
representations or covenants under this Agreement, and (ii) the Products
(except to the extent such claims are caused by Supplier's failure to
comply with the Specifications or defects in workmanship by Supplier).
10.3 Indemnification Procedure.
(a) If any third party shall notify any party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may
give rise to a claim for indemnification against the other party (the
"Indemnifying Party") under this Article 10, then the Indemnified
Party shall promptly notify the Indemnifying Party thereof in writing;
provided, however, that no delay on the part of the Indemnified Party
in notifying the Indemnifying Party shall relieve the Indemnifying
Party from any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is prejudiced by such delay.
(b) The Indemnifying Party shall have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as the
Indemnifying Party notifies the Indemnified Party in writing within 45
days after receipt of notice from the Indemnified Party regarding such
claim. So long as the Indemnifying Party is conducting the defense of
such claim as provided in the immediately preceding sentence, the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and may participate in defense of such claim. The Indemnifying
Party will not consent to the entry of any judgment or enter into any
settlement with respect to a Third Party Claim without the prior
written consent of the Indemnified Party (not to be withheld
unreasonably) unless the judgment or proposed settlement involves only
the payment of money damages and does not impose an injunction or
other equitable relief upon the Indemnified Party.
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(c) Unless and until the Indemnifying Party assumes the defense
of the Third Party Claim as provided above, the Indemnified Party may
defend against the Third Party Claim in any manner it reasonably may
deem appropriate with counsel reasonably acceptable to the
Indemnifying Party. In no event will the Indemnified Party consent to
the entry of any judgment or enter into any settlement with respect to
the Third Party Claim without the prior written consent of the
Indemnifying Party.
(d) In the event that any Indemnified Party has a claim against
any party obligated to provide indemnification pursuant to Article 10
hereof which does not involve a Third Party Claim, the Indemnified
Party shall with reasonable promptness notify the Indemnifying Party
of such claim, specifying the nature of such claim and the amount or
the estimated amount thereof to the extent then feasible (the "Claim
Notice"). If the Indemnifying Party does not notify the Indemnified
Party within 30 days after the date of delivery of the Claim Notice
that the Indemnifying Party disputes such claim, with a detailed
statement of the basis of such position, the amount of such claim
shall be conclusively deemed a liability of the Indemnifying Party
hereunder. In case an objection is made in writing in accordance with
this Section 10.3(d), the Indemnified Party shall respond in a written
statement to the objection within 15 days and, for 60 days thereafter,
the parties shall attempt in good faith to agree upon the rights of
the respective parties with respect to each of such claims (and, if
the parties should so agree, a memorandum setting forth such agreement
shall be prepared and signed by both parties). If the parties do not
so agree, then either party may pursue its remedies under law
following the aforesaid 60-day period.
10.4 The provisions of this Article 10 shall survive the termination
of this Agreement.
ARTICLE 11: PRODUCT RECALLS
---------------------------
11.1 If any Nonconforming Product, or any part thereof, is, or in the
reasonable opinion of Supplier or Purchaser may become, the subject of any
claim suit or proceeding arising out of personal injury or material damage
to real property due to the noncompliance with Specifications, the parties
shall work together to expeditiously recall the Products from Purchaser's
own inventory and from Purchaser's direct and indirect customers. Supplier
will reimburse Purchaser for all shipping and repair costs and other
commercially reasonable out-of-pocket costs directly related to such
recall. In the event of such a recall, Supplier shall use commercially
reasonable efforts to repair or replace the recalled Products to correct
any actual defects. The foregoing provisions of this Section 11.1 shall in
no way diminish or otherwise affect Purchaser's rights and remedies under
Section 10.1.
ARTICLE 12: INTELLECTUAL PROPERTY AND CONFIDENTIALITY
-----------------------------------------------------
12.1 Except to the extent set forth in Section 12.2, nothing in this
Agreement shall be
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construed to grant to Supplier any right, title or interest in, to or under
any Intellectual Property (as defined in the Asset Purchase Agreement). The
Products shall bear Purchaser's trademark, logo and/or trade dress and such
other information as Purchaser selects. Supplier will not use any
confusingly similar or colorable imitation of the Intellectual Property.
12.2 During the Term and solely as necessary in connection with
Supplier's performance hereunder, Supplier shall have the right to use such
patents, trademarks and tradenames of Purchaser as are necessary to
manufacture the Products and perform the Engineering Services purchased by
Purchaser hereunder in conformity with the Specifications. Except for the
rights described in the preceding sentence, nothing in this Section 12.2 or
elsewhere in this Agreement will grant Supplier any right, title or
interest in, to or under any Intellectual Property. At no time during or
after the Term will Supplier or any of its Affiliates directly or
indirectly challenge or assist any other Person or Persons in challenging
any of the Intellectual Property, Purchaser's right, title and interest
therein or the registration thereof, or register or attempt to register any
trademarks, marks or tradenames confusingly similar to any of the
Intellectual Property. Supplier's use of Purchaser's patents, trademarks
and tradenames pursuant to this paragraph shall be of sufficient standards
of quality to preserve the goodwill embodied therein.
12.3 Supplier acknowledges that Purchaser possesses trade identity
rights in the contrasting combination of a dark bodied portable electronic
test instrument and yellow-hued holster or border. In recognition of these
trade identity rights, Supplier agrees not to manufacture, sell, distribute
or promote portable electronic test instruments utilizing a dark body and
contrasting yellow-hued holster or border, unless the instruments are
manufactured, sold, distributed or promoted by Supplier for Purchaser. In
further recognition of Purchasers trade identity rights, Supplier agrees
that all portable electronic test equipment manufactured, sold, distributed
or promoted by Supplier after the date of this Agreement, shall have a
total visual image that is distinctly different from Purchaser's
dark-bodied instrument and contrasting yellow-hued holster/border
combination. Supplier agrees to the foregoing terms on a worldwide basis.
12.4 Covenants Relating to Intellectual Property.
(a) Supplier hereby acknowledges and agrees that all Intellectual
Property and all records, in whatever media (including written works),
discoveries, documents, papers, notebooks, drawings, designs,
technical information, inventions, trade dress, trade names, source
code, object code, processes, methods or other copyrightable or
otherwise protected works Purchaser or any of its Affiliates
conceives, creates, makes, invents, or discovers and that result from
the Engineering Services performed by Supplier or any of its
Affiliates for Purchaser or any of its Affiliates (collectively, the
"Works"), whether conceived, created, discovered, made, or invented
individually or jointly with others, will be and remain the absolute
property of Purchaser or Purchaser's respective Affiliate, as
applicable, as will all the worldwide patent, copyright, trade secret,
or other intellectual property rights in all such Works. Supplier
irrevocably and unconditionally waives all rights that vest in
Supplier or any of its Affiliates (whether before, on,
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<PAGE>
or after the date of this Agreement) in connection with Supplier's or
any of its Affiliate's authorship of any such copyrightable Works.
Without limitation, Supplier waives the right to be identified as the
author of any such Works and the right not to have any such Works
subjected to derogatory treatment. Supplier recognizes any such Works
are "works made for hire" pursuant to Section 101 and subsequent
sections of Title 17 of the United States Code (U.S. Copyright Laws)
of which Purchaser or Purchaser's respective Affiliate, as applicable,
is the author.
(b) Supplier will promptly disclose, grant, and assign ownership
to Purchaser for its sole use and benefit any and all Intellectual
Property (whether patentable or not). Supplier will promptly disclose
and hereby grants and assigns ownership to Purchaser of all patent
applications, letters patent, utility and design patents, copyrights,
and reissues thereof or any foreign equivalents thereof, that may at
any time be filed or granted for or upon any Intellectual Property.
(c) Supplier will, without charge but at Purchaser's expense,
promptly execute and deliver such applications, assignments,
descriptions, and other instruments as Purchaser may consider
reasonably necessary or proper to vest title to any Intellectual
Property (including without limitation all intellectual property of
Purchaser or any Affiliate of Purchaser as of the date hereof) in
Purchaser and to enable it to obtain and maintain the entire worldwide
right and title thereto.
(d) Supplier will provide to Purchaser or Purchaser's Affiliates,
at Purchaser's expense, all such assistance as Purchaser may
reasonably require in the prosecution of applications for patents,
copyrights, or reissues thereof relating to any Intellectual Property
(including without limitation all intellectual property owned by
Purchaser or any Affiliate of Purchaser as of the date hereof), in the
prosecution or defense of interferences that may be declared involving
any such applications, patents, or copyrights and in any litigation in
which Purchaser may be involved relating to any Intellectual Property.
(e) To the extent, if any, that Supplier owns rights to works,
inventions, discoveries, proprietary information, and copyrighted or
copyrightable works, or other forms of intellectual property that are
incorporated in the work product Supplier creates for Purchaser,
Supplier agrees that Purchaser will have an unrestricted,
non-exclusive, royalty-free, perpetual, transferable license to make,
use, sell, offer for sale, and sublicense such works and property in
whatever form and Supplier hereby grants such license to
Purchaser.(pound)
12.5 The parties hereto may during the Term disclose to each other
certain confidential and proprietary information which may include, but
will not be limited to, drawings, schematics, equipment, software, and
financial and other business records ("Proprietary Information"). Neither
party will use the Proprietary Information or disclose it to any third
party without the prior written consent of the other parties hereto, and
both parties will instruct their employees and agents about this
requirement. The term "Proprietary Information" includes the terms and
conditions of this Agreement. Proprietary Information shall not include (1)
any information in the
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<PAGE>
public domain on the date of this Agreement, (2) information that, after
the date of this Agreement, becomes part of the public domain (except by
breach of this Agreement), (3) information that was received by Supplier
from a third party with a right to disclose it, or (4) information that
Supplier is required to disclose pursuant to law. The recipient party's
obligation to protect Proprietary Information will survive this Agreement.
ARTICLE 13: PRODUCT LITERATURE
------------------------------
13.1 To assist Purchaser in marketing the Products, Supplier will
provide to Purchaser in hard copy and on electronic media all user and
technical information, documentation and literature related to the Products
developed by Supplier pursuant to the Engineering Services ("Product
Literature"). Such materials will be provided in sufficient time to allow
Purchaser to create its own materials. Supplier hereby grants Purchaser a
fully paid, perpetual license to use, reproduce and distribute the Product
Literature.
ARTICLE 14: GENERAL PROVISIONS
------------------------------
14.1 Independent Contractors. The relationship of Supplier and
Purchaser established by the Agreement is that of independent contractors,
and nothing contained in this Agreement will be construed to (i) give
either party the power to direct or control the day-to-day activities of
the other, (ii) constitute the parties as partners, joint venturers,
co-owners or otherwise as participants in a joint or common undertaking, or
(iii) allow either party to create or assume any obligation on behalf of
the other party for any purpose whatsoever. Personnel assigned by Supplier
to perform services under this Agreement will be employees of Supplier and
will not for any purpose be considered employees or agents of Purchaser.
Supplier assumes full responsibility for the actions of such personnel
while performing services hereunder and shall be solely responsible for
their supervision, direction and control, payment of salary (including
withholding of income taxes and Social Security), workers' compensation,
disability benefits and similar benefits.
14.2 Applicable Laws. This Agreement shall be governed by and
construed in accordance with the Laws of the state of New York.
14.3 Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been
duly given (a) upon receipt if personally delivered or by overnight
courier, (b) on the date sent if made by facsimile transmission to the
party to whom such notice or communication is directed to the facsimile
number of such Person stated below (or as otherwise provided to or obtained
by the sending party) and if followed by a telephone call to such Person at
the same time to the telephone number stated below (or otherwise provided
to or obtained by the sending party) advising such Person (or leaving a
voice mail for such Person) that the facsimile transmission has been sent,
or (c) on the fifth business day after being sent by registered or
certified mail, return receipt requested, postage prepaid, to the parties
at their respective addresses set forth below.
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<PAGE>
To Purchaser: Fluke Corporation
6920 Seaway Boulevard
Everett, Washington 98023
Attn: Mark Kuhn, Vice President, Finance
(425) 356-5042 (phone)
(425) 356-5102 (telefax)
and a required copy to:
Wilmer Cutler & Pickering
100 Light Street
Baltimore, Maryland 21202
Attn: Mark A. Dewire, Esquire
(202) 663-6658 (phone)
(202) 663-6363 (telefax)
To Supplier: Pemstar, Inc.
3535 Technology Drive N.W.
Rochester, Minnesota 55901
Attn: William Leary
(507) 288-6720 (phone)
(507) 280-0838 (telefax)
and a required copy to:
Dorsey & Whitney LLP
201 First Avenue S.W., Suite 340
Rochester, Minnesota 55902
Attn: William Jonason, Esq.
(507) 288-3156 (phone)
(507) 288-6190 ( telefax)
Any party by written notice to the other may change the address or the
Persons to whom notices or copies thereof shall be directed.
14.4 Force Majeure. Nonperformance of either party will be excused to
the extent that performance is rendered impossible by strike, fire, flood,
earthquake, governmental acts or orders or restrictions, failure of
suppliers, or any other reason where failure to perform is beyond the
reasonable control of and not caused by the negligence of the
non-performing party.
14.5 Binding Effect. This Agreement will be binding upon and inure to
the benefit of the parties hereto, their successors and assigns.
14.6 Partial Invalidity. If any provision of this Agreement is held to
be invalid by a court of competent jurisdiction, then the remaining
provisions will nevertheless remain in full
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<PAGE>
force and effect. The parties agree to renegotiate in good faith any term
held invalid and be bound by the mutually agreed substitute provision.
14.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of which
together will constitute one instrument.
14.8 No Waiver. No waiver of any term or condition of this Agreement
will be valid or binding on either party unless the same will have been
mutually assented to in writing by both parties. The failure of either
party to enforce at any time any of the provisions of the Agreement, or the
failure to require at any time performance by the other party of any of the
provisions of this Agreement, will in no way be construed to be a present
or future waiver of such provisions, nor in any way affect the validity of
either party to enforce each and every such provision thereafter.
14.9 Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties relating to the subject matter herein and
supersedes all prior discussions between them. No modification of or
amendment to this Agreement, nor any waiver of any rights under this
Agreement, will be effective unless in writing signed by an authorized
representative of both parties.
14.10. Survival of Certain Terms. Any termination of this Agreement
shall be without prejudice to any right of action that either party has
against the other at the date of termination. The provisions of the
following Sections and Articles of this Agreement will survive its
termination for any reason: Section 2.4 (Assistance by Supplier), Article 8
(Product Rejection), Article 9 (Representations and Warranties), Article 10
(Indemnification), Article 11 (Product Recalls), Article 12 (Intellectual
Property and Confidentiality), and Article 14 (General Provisions). All
other rights and obligations of the parties will cease upon termination of
this Agreement.
14.11 Public Statements. Public statements, press releases and
announcements by either party pertaining to this Agreement will be in a
form and made in a manner to be agreed upon by both parties and such
agreement will not be withheld unreasonably.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Agreement as of the date first above written.
FLUKE INDUSTRIAL B.V.
By:
-------------------------------------
Name:
-------------------------------
Title:
------------------------------
PEMSTAR B.V.
By:
-------------------------------------
Name:
-------------------------------
Title:
------------------------------
Fluke Corporation joins in this Agreement for the sole purpose of
guaranteeing, and agreeing to take any and all actions necessary to guarantee,
Purchaser's performance in accordance with the terms and conditions of this
Agreement.
FLUKE CORPORATION
By: /s/ James H. Ditkoff
-------------------------------------
Name: James H. Ditkoff
-------------------------------
Title: Vice President
------------------------------
Pemstar, Inc. joins in this Agreement for the sole purpose of guaranteeing,
and agreeing to take any and all actions necessary to guarantee, Supplier's
performance in accordance with the terms and conditions of this Agreement.
PEMSTAR INC.
By:
-------------------------------------
Name:
-------------------------------
Title:
------------------------------
[Supply Agreement Signature Page]
18
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Agreement as of the date first above written.
FLUKE INDUSTRIAL B.V.
By: /s/ Paul van Schendel
-------------------------------------
Name: Paul van Schendel
Title: Managing Director
PEMSTAR B.V.
By: /s/ William Leary
-------------------------------------
Name: William Leary
-------------------------------
Title: Managing Director
------------------------------
Fluke Corporation joins in this Agreement for the sole purpose of
guaranteeing, and agreeing to take any and all actions necessary to guarantee,
Purchaser's performance in accordance with the terms and conditions of this
Agreement.
FLUKE CORPORATION
By:
-------------------------------------
Name:
-------------------------------
Title:
------------------------------
Pemstar, Inc. joins in this Agreement for the sole purpose of
guaranteeing, and agreeing to take any and all actions necessary to guarantee,
Supplier's performance in accordance with the terms and conditions of this
Agreement .
PEMSTAR INC.
By: /s/ William Leary
-------------------------------------
Name: William Leary
-----------------------------------
Title: Managing Director
----------------------------------
[Supply Agreement Signature Page]
<PAGE>
EXHIBIT 10.4
CHANGE IN CONTROL AGREEMENT
---------------------------
This Agreement, made and entered into by and between PEMSTAR Inc., a
Minnesota corporation (the "Company"), with its principal offices at 3535
Technology Drive N.W., Rochester, Minnesota, and ______________________________,
an officer of the Company (the "Employee"), residing at _______________________
____________________________.
WHEREAS, this Agreement is intended to specify the financial arrangements
that the Company will provide to the Employee upon the Employee's separation
from employment with the Company under any of the circumstances described
herein; and
WHEREAS, this Agreement is entered into by the Company in the belief that
it is in the best interest of the Company to provide stable conditions of
employment for the Employee notwithstanding the possibility, threat, or
occurrence of certain types of changes in control, thereby enhancing the
Company's ability to attract and retain highly qualified people.
NOW, THEREFORE, in consideration of the mutual covenants, promises,
payments, and undertakings of the parties hereto, the parties agree as follows:
1. Effect of Agreement; Term. The Employee shall be employed on an at-will
basis, except to the extent otherwise provided by a written employment
agreement, if any, in effect between the Employee and the Company. This
Agreement is not, and shall not be construed as, an employment contract
affecting in any way the duration of the Employee's employment or any terms and
conditions thereof except those set forth herein. Except as set forth herein, or
as otherwise provided by a written employment agreement, if any, in effect
between the Employee and the Company, the Employee or the Company may terminate
their employment relationship at any time, for any reason, or for no reason.
This Agreement will commence on the date hereof and shall continue in
effect until the second anniversary of the date hereof; and, commencing on
the first anniversary of the date hereof and on each anniversary
thereafter, the term of this Agreement shall automatically be extended for
one additional year unless, not later than 90 days prior to any such date
of automatic extension of this Agreement, the Company shall have given
notice to the Employee that the Agreement will not be so extended;
provided, however, if a Change in Control (as defined in section 3(a)
hereof) shall have occurred during the original or any extended term of
this Agreement, this Agreement shall continue in effect for a period of 24
months following such Change in Control (as defined in section 3(a)
hereof), after which 24-month period this Agreement shall terminate.
<PAGE>
2. Termination of Employment.
(a) Prior to a Change in Control. Prior to the date that is six months
before a Change in Control (as defined in section 3(a) hereof), or after
termination of this Agreement, the Employee or the Company may terminate
their employment relationship at any time, for any reason, or for no
reason.
(b) After a Change in Control.
(i) From and after the date that is six months before a Change in
Control (as defined in section 3(a) hereof) and prior to the
termination of this Agreement, the Company shall not terminate the
Employee from employment with the Company except as provided in this
section 2(b), or as a result of the Employee's Disability (as defined
in section 3(d) hereof) or his death.
(ii) From and after the date that is six months before a Change
in Control (as defined in section 3(a) hereof) and prior to the
termination of this Agreement, the Company shall have the right to
terminate the Employee from employment with the Company for Cause (as
defined in section 3(c) hereof), by written notice to the Employee,
specifying the particulars of the conduct of the Employee forming the
basis for such termination.
(iii) From and after the date that is six months before a Change
in Control (as defined in section 3(a) hereof) and prior to the
termination of this Agreement: (a) the Company shall have the right to
terminate the Employee's employment without Cause (as defined in
section 3(c) hereof); and (b) the Employee shall, upon the occurrence
of such termination by the Company without Cause or upon the voluntary
termination of the Employee's employment by the Employee during such
period for Good Reason (as defined in section 3(b) hereof), be
entitled to receive the benefits provided in section 4 hereof. The
Employee shall evidence a voluntary termination for Good Reason by
written notice to the Company given within ten (10) days after the
date of the occurrence of any event that the Employee knows or should
reasonably have known constitutes Good Reason for voluntary
termination. Such notice need only identify the Employee and set forth
in reasonable detail the facts and circumstances claimed by the
Employee to constitute Good Reason. Any notice given by the Employee
pursuant to this section 2 shall be effective ten (10) days after the
date it is given by the Employee.
3. Definitions.
(a) A "Change in Control" shall mean any of the following:
(i) A sale of all or substantially all of the assets of the
Company.
(ii) The acquisition of securities of the Company representing
more than 50% of the combined voting power of the Company's then
outstanding securities by any person or group of persons, except a
Permitted Shareholder as hereinafter defined, acting in
2
<PAGE>
concert. A "Permitted Shareholder" means a holder, as of the date of
this Agreement, of voting capital stock of the Company.
(iii) A consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant to
which shares of the Company's outstanding capital stock are converted
into cash, securities or other property, other than a consolidation or
merger of the Company in which Company shareholders immediately prior
to the consolidation or merger have the same proportionate ownership
of voting capital stock of the surviving corporation immediately after
the consolidation or merger.
(iv) In the event that the shares of voting capital stock of the
Company are traded on an established securities market: a public
announcement that any person has acquired or has the right to acquire
beneficial ownership of securities of the Company representing more
than 50% of the combined voting power of the Company's then
outstanding securities, and for this purpose the terms "person" and
"beneficial ownership" shall have the meanings provided in Section
13(d) of the Securities and Exchange Act of 1934, as amended or
related rules promulgated by the Securities and Exchange Commission
or; the commencement of or public announcement of an intention to make
a tender offer or exchange offer for securities of the Company
representing more than 50% of the combined voting power of the
Company's then outstanding securities.
(v) The Board of Directors of the Company, in its sole and
absolute discretion, determines that there has been a sufficient
change in the share ownership of the Company to constitute a change of
effective ownership or control of the Company.
(b) "Good Reason" shall mean the occurrence of any of the following
events, except for the occurrence of such an event in connection with the
termination or reassignment of the Employee's employment by the Company for
Cause (as defined in section 3(c) hereof), due to the Employee's Disability
(as defined in section 3(d) hereof), or due to the Employee's death:
(i) The assignment to the Employee of employment responsibilities
which are not of comparable responsibility and status as the
employment responsibilities held by the Employee immediately prior to
a Change in Control;
(ii) a reduction by the Company in the Employee's base salary as
in effect immediately prior to a Change in Control;
(iii) the Company's requiring the Employee to be based at a
location that is in excess of 50 miles from the location of the
Employee's principal office immediately prior to the Change in
Control;
(iv) the failure by the Company to provide employee benefit
plans, programs, policies and practices (including, without
limitation, retirement plans and medical, dental, life and disability
insurance coverage) to the Employee and the Employee's family and
dependents (if applicable) that provide substantially similar
benefits, in terms of aggregate
3
<PAGE>
monetary value, to the Employee and the Employee's family and
dependents (if applicable) at substantially similar costs to the
Employee as the benefits provided by those plans, programs, policies
and practices in effect immediately prior to the Change in Control; or
(c) "Cause" shall mean:
(i) Repeated neglect by the Employee of any of his duties or his
repeated failures or omissions to carry out lawful and reasonable
orders which, in the reasonable judgment of the Company, are willful
and deliberate and which are not cured within a reasonable period
after the Employee's receipt of written notice thereof from the
Company;
(ii) Any act or acts of personal dishonesty by the Employee
intended to result in the personal enrichment of the Employee at the
expense of the Company;
(iii) Any willful and deliberate misconduct that is materially
and demonstrably injurious to the Company; or
(iv) Any criminal indictment, presentment, charge or conviction
of the Employee for a felony, whether or not the Company is the victim
of such offense.
(d) "Disability" shall mean any physical or mental condition which
causes the Employee to fail to render services to the Company for a period
of ninety (90) days during any one hundred eighty (180) day period. The
existence or nonexistence of the Employee's Disability will be determined
in good faith by the Board of Directors after notice in writing given to
the Employee at least thirty (30) days prior to such determination. During
such thirty (30) day period, the Employee shall be permitted to make a
presentation to the Board of Directors for its consideration.
(e) "Company" shall mean the Company and any successor to its business
and/or assets which executes and delivers the Agreement provided for in
section 5(a) or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
4. Benefits Upon Termination Under section 2(b)(iii).
(a) Upon the termination (voluntary or involuntary) of the employment
of the Employee pursuant to section 2(b)(iii) hereof, the Company shall pay
to the Employee, in lieu of any further compensation to the Employee for
periods subsequent to the date that the termination of the Employee's
employment becomes effective, as severance pay, one hundred ten percent
(110%) of the Employee's annual base salary in effect at the time the
notice of termination is given or immediately prior to the Change in
Control (whichever is greater), payable in twelve (12) equal monthly
installments beginning in the first month after the termination. At the
option of the Company, the amount due hereunder may be prepaid in whole or
in part at any time or from time to time.
4
<PAGE>
(b) All payments described in this section shall be subject to any
applicable payroll or other taxes required by law to be withheld.
5. Successors and Binding Agreement.
(a) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or
otherwise) to all or substantially all of the business and/or of the assets
of the Company to expressly assume and agree to perform this Agreement.
(b) This Agreement is personal to the Employee, and the Employee may
not assign or transfer any part of his rights or duties hereunder, or any
compensation due to him hereunder, to any other person. Notwithstanding the
foregoing, this Agreement shall inure to the benefit of, and be enforceable
by, the Employee's personal or legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees.
6. Limitation of Damages. If for any reason the Employee believes the
severance provisions of this Agreement have not been properly adhered to by the
Company, and if it is determined that the Company has not, in fact, properly
adhered to the severance provisions of this Agreement, the sole and exclusive
remedy to which the Employee is entitled is the severance payment to which the
Employee is entitled under the provisions of this Agreement.
7. Modification; Waiver. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is agreed
to in a writing signed by the Employee and such officer as may be specifically
designated by the Board of Directors of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
8. Notice. All notices, requests, demands, and all other communications
required or permitted by either party to the other party by this Agreement
(including, without limitation, any notice of termination of employment) shall
be in writing and shall be deemed to have been duly given when delivered
personally or received by certified or registered mail, return receipt
requested, postage prepaid, at the address of the other party as first written
above (directed to the attention of the Board of Directors in the case of the
Company). Either party hereto may change its address for purposes of this
section by giving fifteen (15) days' prior written notice to the other party
hereto.
9. Severability. If any term or provision of this Agreement or the
application hereof to any person or circumstances shall to any extent be
determined to be invalid or unenforceable, the remainder of this Agreement or
the application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
5
<PAGE>
10. Governing Law. This Agreement has been executed and delivered in the
State of Minnesota and shall in all respects be governed by, and construed and
enforced in accordance with, the laws of the State of Minnesota, including all
matters of construction, validity, and performance.
11. Settlement of Disputes. Any claims or disputes of any nature between
the Company and the Employee arising from or related to the performance, breach,
termination, expiration, application or meaning of this Agreement shall, at the
option of either party, be resolved exclusively by arbitration in Olmsted
County, Minnesota, in accordance with the applicable rules of the American
Arbitration Association. In the event of submission of any dispute to
arbitration, each party shall, not later than 30 days prior to the date set for
hearing, provide to the other party and to the arbitrator(s) a copy of all
exhibits upon which the party intends to rely at the hearing and a list of all
persons each party intends to call at the hearing. The fees of the arbitrator(s)
and other costs incurred by the Employee and the Company in connection with such
arbitration shall be paid by the party that is unsuccessful in such arbitration.
The decision of the arbitrator(s) shall be final and binding upon both parties.
Judgment of the award rendered by the arbitrator(s) may be entered in any court
of competent jurisdiction.
12. Effect of Agreement; Entire Agreement. The Company and the Employee
understand and agree that this Agreement is intended to reflect their agreement
only with respect to the subject matter hereof and is not intended to create any
obligation on the part of either party to continue employment. This Agreement
supersedes any and all other oral or written agreements or policies made
relating to the subject matter hereof and constitutes the entire agreement of
the parties relating to the subject matter hereof; provided that this Agreement
shall not supersede or limit in any way the Employee's rights under any benefit
plan or program in accordance with its terms.
6
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement by their signatures below.
Dated: ______________, 2000 PEMSTAR Inc.
By
----------------------------------
Its
----------------------------------
Dated: ______________, 2000
-------------------------------------
(Employee)
7
<PAGE>
EXHIBIT 10.5
Promissory Note
U.S. $_______________ March 31, 2000
Rochester, Minnesota
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay to the
order of PEMSTAR INC. (together with its successors and assigns hereinafter
called "Holder") on the earlier of (a) June 30, 2000, or (b) the date the
Borrower leaves the employment of the Holder, at Rochester, Minnesota, or such
other place as the Holder may designate, the principal sum of
_________________________________ ($____________________), together with
interest thereon from the date of this Note, until paid, at the rate of six and
one-half percent (6.5%) per annum.
If suit is brought to collect this Note, the Holder shall be entitled to
collect all reasonable costs and expenses of suit, including, but not limited
to, reasonable attorney's fees.
Borrower may prepay this Note in whole or in part. All such payments shall
be applied first to accrued interest and then to principal.
Presentment, notice of dishonor, and protest are hereby waived by all
makers, sureties, guarantors and endorsers hereof.
This Note is a full recourse promissory note, but is also secured by a
Stock Pledge Agreement of even date herewith executed by Borrower and delivered
to Holder.
THIS NOTE SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF
MINNESOTA.
AT THE OPTION OF HOLDER, THIS NOTE MAY BE ENFORCED IN OLMSTED COUNTY,
MINNESOTA DISTRICT COURT AND BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF
SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUM NOT CONVENIENT. IN
THE EVENT BORROWER COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER
ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FORM THE RELATIONSHIP
CREATED BY THIS NOTE, HOLDER AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE
TRANSFERRED TO THE JURISDICTION AND VENUE ABOVE-DESCRIBED, OR IF SUCH TRANSFER
CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
IN WITNESS WHEREOF, Borrower has executed this Note as of the date first
above written.
---------------------------------------
<PAGE>
EXHIBIT 10.6
PROMISSORY NOTE
U.S. $____________________ March 31, 2000
Rochester, Minnesota
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay to the
order of PEMSTAR INC. (together with its successors and assigns hereinafter
called "Holder") on March 31, 2002 at Rochester, Minnesota, or such other place
as the Holder may designate, the principal sum of _____________________________
($____________________), together with interest thereon from the date of this
Note, until paid, at the rate of six and one-half percent (6 1/2%) per annum
compounded annually.
If suit is brought to collect this Note, the Holder shall be entitled to
collect all reasonable costs and expenses of suit, including, but not limited
to, reasonable attorney's fees.
Borrower may prepay this Note in whole or in part. All such payments shall
be applied first to accrued interest and then to principal.
Presentment, notice of dishonor, and protest are hereby waived by all
makers, sureties, guarantors and endorsers hereof.
This Note is a full recourse promissory note, but is also secured by a
Stock Pledge Agreement of even date herewith executed by Borrower and delivered
to Holder.
THIS NOTE SHALL BE CONSTRUED UNDER AND GOVERNED BY THE LAWS OF THE STATE OF
MINNESOTA.
AT THE OPTION OF THE HOLDER, THIS NOTE MAY BE ENFORCED IN OLMSTED COUNTY,
MINNESOTA DISTRICT COURT AND BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF
SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUM IS NOT CONVENIENT.
IN THE EVENT BORROWER COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE
UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE
RELATIONSHIP CREATED BY THIS NOTE, HOLDER AT ITS OPTION SHALL BE ENTITLED TO
HAVE THE CASE TRANSFERRED TO THE JURISDICTION AND VENUE ABOVE-DESCRIBED, OR IF
SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.
IN WITNESS WHEREOF, Borrower has executed this Note as of the date first
above written.
--------------------------------------
<PAGE>
EXHIBIT 10.7
PEMSTAR INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------
February 12, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
1. Purchase and Sale of Stock................................................1
1.1 Sale and Issuance of Series A Preferred Stock....................1
1.2 Closing..........................................................1
2. Representations and Warranties of the Company.............................1
2.1 Organization.....................................................1
2.2 Good Standing and Qualification..................................2
2.3 Capitalization and Voting Rights.................................2
2.4 Subsidiaries.....................................................3
2.5 Authorization....................................................3
2.6 Valid Issuance of Preferred and Common Stock.....................3
2.7 Governmental Consents............................................4
2.8 Litigation.......................................................4
2.9 Compliance with Other Instruments................................4
2.10 Agreements, Action...............................................5
2.11 Related-Party Transactions.......................................6
2.12 Permits..........................................................6
2.13 Disclosure.......................................................6
2.14 Minute Books.....................................................7
2.15 Labor Agreements and Actions.....................................7
2.16 Registration Rights..............................................7
2.17 Returns and Complaints...........................................7
2.18 Offering.........................................................7
2.19 Title to Property and Assets, Leases.............................8
2.20 Financial Statements.............................................8
2.21 Changes..........................................................8
2.22 Patents and Trademarks...........................................9
2.23 Manufacturing and Marketing Rights..............................10
2.24 Proprietary Information and Inventions Agreement................10
2.25 Tax Returns, Payments, and Elections............................11
2.26 Insurance.......................................................11
2.27 Environmental and Safety Laws...................................11
2.28 Foreign Corrupt Practices Act...................................12
2.29 Employee Benefit Plans..........................................12
3. Representations and Warranties of the Investor...........................13
3.1 Authorization...................................................13
3.2 Purchase Entirely for Own Account...............................13
3.3 Disclosure of Information.......................................13
<PAGE>
3.4 Investment Experience...........................................13
3.5 Accredited Investor.............................................13
3.6 Restricted Securities...........................................14
3.7 Further Limitations on Disposition..............................14
3.8 Legends.........................................................14
4. Conditions of Investor's Obligations at Closing..........................15
4.1 Representations and Warranties..................................15
4.2 Performance.....................................................15
4.3 Compliance Certificate..........................................15
4.4 Proceedings and Documents.......................................15
4.5 Opinion of Company Counsel......................................15
4.6 Investors' Rights Agreement.....................................15
4.7 Shareholders' Agreement.........................................16
5. Conditions of the Company's Obligations at Closing.......................16
5.1 Representations and Warranties..................................16
6. Miscellaneous............................................................16
6.1 Exculpation Among Investors.....................................16
6.2 Survival of Warranties..........................................16
6.3 Successors and Assigns..........................................16
6.4 Governing Law...................................................16
6.5 Counterparts....................................................17
6.6 Titles and Subtitles............................................17
6.7 Notices.........................................................17
6.8 Finder's Fee....................................................17
6.9 Expenses........................................................17
6.10 Amendments and Waivers..........................................17
6.11 Severability....................................................18
6.12 Entire Agreement................................................18
SCHEDULE A - SCHEDULE OF INVESTORS
EXHIBIT A - CERTIFICATE OF DESIGNATION
EXHIBIT B - INVESTORS RIGHTS AGREEMENT
EXHIBIT C - SHAREHOLDERS' AGREEMENT
SCHEDULE OF EXCEPTIONS
<PAGE>
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made
as of the 12th day of February 1998, by and between Pemstar Inc., a Minnesota
corporation (the "Company"), and the investors listed on Schedule A hereto, each
of which is herein referred to as an "Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series A Preferred Stock.
(a) The Company shall adopt and file with the Secretary of State
of Minnesota on or before the Closing (as defined below) the
Certificate of Designation in the form attached hereto as Exhibit A
(the "Certificate of Designation").
(b) Subject to the terms and conditions of this Agreement each
Investor agrees, severally, to purchase at the Closing and the Company
agrees to sell and issue to each Investor at the Closing, that number
of shares of the Company's Series A Preferred Stock set forth opposite
each Investor's name on Schedule A hereto for the purchase price set
forth thereon. Such purchase price shall be payable by Investor by
delivery to Company by Investor of a check in the amount of the
purchase price set forth opposite such Investor's name on Schedule A
payable to the Company's order or by wire transfer of funds in such
amount to the Company's designated bank account.
1.2 Closing. The purchase and sale of the Series A Preferred Stock
shall take place at Dorsey & Whitney LLP at 10:00 A.M., on February 12,
1998, or at such other time and place as the Company and Investors
acquiring in the aggregate more than half the shares of Series A Preferred
Stock sold pursuant hereto mutually agree upon orally or in writing (which
time and place are designated as the "Closing"). At the Closing the Company
shall deliver to each Investor a certificate representing the number of
shares of Series A Preferred Stock which such Investor is purchasing
against delivery to the Company by such Investor of the purchase price in
the form as set forth above in Section 1.1 (b).
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Investor that except as set forth on a Schedule
of Exceptions attached hereto, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Minnesota and
has all requisite corporate power and authority to carry on its business as
now conducted. Each of PEMSTAR de Mexico S.A. de C.V., a Mexican
corporation and a wholly owned subsidiary of the Company, and
<PAGE>
ITALADE-PEMSTAR LIMITED, a Thailand corporation and a 45%-owned subsidiary
of the Company (each, a "Subsidiary" and collectively, the "Subsidiaries"),
is a corporation duly organized, validly existing and in good standing
under the laws of Mexico and Thailand, respectively, and has all requisite
corporate power and authority to carry on its business as now conducted.
2.2 Good Standing and Qualification. The Company and each of its
Subsidiaries are duly qualified or licensed by and are in good standing in
each jurisdiction in which they conduct their respective businesses and in
which the failure, individually or in the aggregate, to be so licensed or
qualified could have a material adverse effect on the assets, properties,
condition (financial or otherwise), operating results, prospects or
business (as such business is presently conducted and as it is proposed to
be conducted) of the Company or its Subsidiaries (a "Material Adverse
Effect"); and the Company and each of its Subsidiaries are in compliance in
all material respects with the laws, orders, rules, regulations and
directives issued or administered by such jurisdictions.
2.3 Capitalization and Voting Rights.
(a) The authorized capital of the Company consists, or will
consist prior to the Closing, of:
(i) Preferred Stock. 1,000,000 shares of Preferred Stock, of
which 666,667 shares have been designated Series A Preferred
Stock (the "Series A Preferred Stock") of which 533,333 will be
sold pursuant to this Agreement. The rights, privileges and
preferences of the Series A Preferred Stock will be as stated in
the Certificate of Designation.
(ii) Common Stock. 10,000,000 shares of common stock
("Common Stock"), of which 3,362,877 are currently issued and
outstanding. All of the issued shares of Common Stock have been
duly authorized and validly issued, are fully paid and
nonassessable, and have been issued in compliance with applicable
federal and state securities laws and are free and clear of all
liens, security interests, pledges, charges, encumbrances,
defects, shareholder agreements, equities or claims of any nature
whatsoever. None of the issued shares of Common Stock has been
issued or is owned or held in violation of any statutory
preemptive rights of shareholders.
(iii) Except for the conversion privileges of the Series A
Preferred Stock to be issued under this Agreement and the right
to purchase up to 133,333 shares of Common Stock pursuant to
subscription agreements received by the Company from various
investors in response to that Private Placement Memorandum dated
November 21, 1997, there are not outstanding any options,
warrants, rights (including conversion or preemptive rights) or
agreements for the purchase or acquisition from the Company of
any shares of its capital stock; provided that the Company has
reserved 1,000,000 shares, of which options to acquire up to
837,050 shares have been granted, for issuance to employees,
consultants or directors of the Company pursuant to equity
incentive agreements approved by the Board of Directors. The
Company is not a party or subject to any
-2-
<PAGE>
agreement or understanding, and there is no agreement or
understanding between any persons and/or entities, which affects
or relates to the voting or giving of written consents with
respect to any security or by a director of the Company.
2.4 Subsidiaries.
(a) The Company does not presently own or control, directly or
indirectly, any interest in any other corporation, association, or
other business entity other than its Subsidiaries. The Company is not
a participant in any joint venture, partnership, or similar
arrangement.
(b) All of the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and are beneficially used by the Company free
and clear of all liens, security interests, pledges, charges,
encumbrances, defects, shareholders' agreements, voting agreements,
proxies, voting trusts, equities or claims of any nature whatsoever.
2.5 Authorization. All corporate action on the part of the Company or
its Subsidiaries, their officers, directors and stockholders necessary for
the authorization, execution and delivery of this Agreement, the Investors'
Rights Agreement the Shareholders' Agreement and any other agreement to
which the Company is a party, the execution and delivery of which is
contemplated hereby (the "Ancillary Agreements"), the performance of all
obligations of the Company hereunder and thereunder, and the authorization,
issuance (or reservation for issuance), sale and delivery of the Series A
Preferred Stock being sold hereunder and the Common Stock issuable upon
conversion of the Series A Preferred Stock has been taken or will be taken
prior to the Closing, and this Agreement, the Investors' Rights Agreement
the Shareholders' Agreement and any Ancillary Agreements constitute valid
and legally binding obligations of the Company, enforceable 'in accordance
with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally,
(ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (iii) to
the extent the indemnification provisions contained in the Investors'
Rights Agreement may be limited by applicable federal or state securities
laws.
2.6 Valid Issuance of Preferred and Common Stock. The Series A
Preferred Stock which is being purchased by the Investors hereunder, when
issued, sold and delivered 'in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued, fully paid
and nonassessable, will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Investors' Rights
Agreement and Shareholders' Agreement and under applicable state and
federal securities laws and, based in part upon the representations of the
Investors in this Agreement, will be issued in compliance with all
applicable federal and state securities laws. The Common Stock issuable
upon conversion of the Series A Preferred Stock purchased under this
Agreement has been duly and validly reserved for issuance and, upon
issuance in accordance with the
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<PAGE>
terms of the Articles of Incorporation, shall be duly and validly issued,
fully paid and nonassessable, will be free of restrictions on transfer.
other than restrictions on transfer under this Agreement, the Investors'
Rights Agreement, the Shareholders Agreement and under applicable state and
federal securities laws, and issued in compliance with all applicable
securities laws, as presently in effect, of the United States and each of
the states whose securities laws govern the issuance of any of the Series A
Preferred Stock hereunder.
2.7 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration
or filing with, any federal, state, local or provincial governmental
authority on the part of the Company is required in connection with the
consummation of the transactions contemplated by this Agreement except for
the filing pursuant to Section 25102(f) of the California Corporate
Securities Law of 1968, as amended, and the rules thereunder, which filing
will be effected within 15 days of the sale of the Series A Preferred Stock
hereunder.
2.8 Litigation. There is no action, suit proceeding or investigation
pending or currently threatened against the Company or its Subsidiaries or
any of their respective properties, at law or in equity, or before or by
any federal, state, local or foreign governmental or regulatory commission,
board, body, authority or agency which could result in a judgment decree or
order having a Material Adverse Effect or which questions the validity of
this Agreement, the Investors' Rights Agreement the Shareholders' Agreement
or any Ancillary Agreements, or the right of the Company to enter into any
of them, or to consummate the transactions contemplated hereby or thereby,
nor is the Company aware that there is any basis for the foregoing. Neither
the Company nor any of its Subsidiaries is a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court
or government agency or instrumentality. There is no action, suit,
proceeding or investigation by or involving the Company or any its
Subsidiaries currently pending or which the Company or any of its
Subsidiaries intend to initiate.
2.9 Compliance with Other Instruments. Neither the Company nor any of
its Subsidiaries is in breach of, in violation of or in default under (nor
has any event occurred which with notice, lapse of time, or both would
constitute a breach of, or default under), its respective charter or
by-laws or in the performance or observance of any obligation, agreement,
covenant or condition contained in any license, indenture, mortgage, deed
of trust, bank loan or credit agreement or other agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which any of
them or their respective properties may be bound or affected, or, to the
Company's knowledge, of any provision of federal, state, local or foreign
law, regulation or rule or any decree, judgment, writ or order applicable
to the Company or any of its Subsidiaries. Neither the execution, delivery
and performance of this Agreement, the Investors' Rights Agreement, the
Shareholders' Agreement or any Ancillary Agreement nor the consummation of
the transactions contemplated hereby and thereby will conflict with, or
result in any breach of, violation of or constitute a default under (or
constitute any event which with notice, lapse of time, or both would
constitute a breach of, violation of or default under), any provisions of
the charter or by-laws, of the Company or any of its Subsidiaries or under
any provision
-4-
<PAGE>
of any license, indenture, mortgage, deed of trust, bank loan or credit
agreement or other agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which any of them or their respective
properties may be bound or affected, or to the Company's knowledge, of any
provision of federal, state, local or foreign law, regulation or rule or
any decree, judgment, writ or order applicable to the Company or any of its
Subsidiaries.
2.10 Agreements, Action.
(a) Except for agreements explicitly contemplated hereby and by
the investors' Rights Agreement the Shareholders' Agreement and
any-Ancillary Agreements, there are no agreements, understandings or
proposed transactions between the Company or its Subsidiaries and any
of the Company's officers, directors, affiliates, or any affiliate
thereof.
(b) Neither the Company nor any one of its Subsidiaries is a
party to any contract agreement lease, commitment or proposed
transaction, written or oral, absolute or contingent other than (i)
contracts for the purchase of supplies and services that were entered
into in the ordinary course of business and that do not extend for
more than six (6) months beyond the date hereof, (ii) sales contracts
entered into in the ordinary course of business, and (iii) contracts
terminable at will by the Company on no more than thirty (30) days
notice without cost or liability to the Company and that do not
involve any employment or consulting arrangement and are not material
to the conduct of the Company's business. For the purpose of this
paragraph, employment and consulting contracts and contracts with
labor unions, and license agreements and any other agreements relating
to the acquisition or disposition of the Company's or its
Subsidiaries' technology, shall not be considered to be contracts
entered into in the ordinary course of business.
(c) Neither the Company nor any of its Subsidiaries has (i)
declared or paid any dividends, or authorized or made any distribution
upon or with respect to any class or series of its capital stock, (ii)
incurred any indebtedness for money borrowed or any other liabilities
(other than payments due for the purchase of supplies and services
that are due under agreements entered into in the ordinary course of
business) individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000 in
excess of $100,000 in the aggregate, (iii) made any loans or advances
to any person, other than ordinary advances for travel expenses, or
(iv) sold, exchanged or otherwise disposed- of any of its assets or
rights, other than the sale of its inventory in the ordinary course of
business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or
entity (including persons or entities the Company or any of its
Subsidiaries has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar
amounts of such subsections.
-5-
<PAGE>
(e) The Company is not a party to and is not bound by any
contract agreement or instrument or subject to any restriction under
its Articles of Incorporation or Bylaws that would have a Material
Adverse Effect.
(f) The Company has not pursued in the past three (3) months in
any substantive discussion (i) with any representative of any
corporation or corporations regarding the consolidation or merger of
the Company in which the Company is not the surviving corporation,
(ii) with any corporation, partnership, association or other business
entity or any individual regarding the sale, conveyance or disposition
of all or substantially all of the assets of the Company or a
transaction or series of related transactions in which more than fifty
percent (50%) of the voting power of the Company is disposed of, or
(iii) regarding any other form of acquisition, liquidation,
dissolution or winding up of the Company.
2.11 Related-Party Transactions. No employee, officer or director of
the Company or any of its Subsidiaries and no member of the immediate
family of such employee, officer or director is indebted to the Company or
any of its Subsidiaries, nor is the Company or any of its Subsidiaries
indebted (or committed to make loans or extend or guarantee credit) to any
such employee, officer or director. To the best of the Company's knowledge,
none of such persons has any direct or indirect ownership interest in any
firm or corporation with which the Company or any of its Subsidiaries is
affiliated or with which the Company or any of its Subsidiaries has a
business relationship, or any firm or corporation that competes with the
Company or any of its Subsidiaries, except that employees, officers, or
directors of the Company and its Subsidiaries and the members of the
immediate families of such employees, officers or directors may own stock
in publicly traded companies (not to exceed 5% of the issued and
outstanding shares of such publicly traded companies) that may have a
business relationship with or compete with the Company or any of its
Subsidiaries. No member of the immediate family of any employee, officer,
or director of the Company or any of its Subsidiaries is directly or
indirectly interested in any material contract with the Company or any of
its Subsidiaries.
2.12 Permits. Each of the Company and its Subsidiaries has all
necessary licenses, authorizations, consents and approvals and has made all
necessary filings required under any federal, state, local or foreign law,
regulation or rule, and has obtained all necessary authorizations, consents
and approvals from other persons, in order to conduct its respective
business; neither the Company nor any of its Subsidiaries is in violation
of, or in default under, any such license, authorization, consent or
approval or any federal, state, local or foreign law, regulation or rule or
any decree, order or judgment applicable to the Company or any of its
Subsidiaries the effect of which could have a Material Adverse Effect.
2.13 Disclosure. The Company has fully provided each Investor with all
the information which such Investor has requested in connection with the
purchase : of the Series A Preferred Stock hereunder and all information
which the Company believes is reasonably necessary to enable such Investor
to make such decision, including that certain Confidential
-6-
<PAGE>
Private Placement Memorandum dated November 21, 1997 and certain of the
Company's projections describing its proposed business (collectively, the
"Business Plan"). Neither this Agreement, the Investors' Rights Agreement,
the Shareholders' Agreement, the Business Plan nor any Ancillary
Agreements, nor any other statements, certificates or documents made or
delivered in connection herewith or therewith, contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements herein or therein not misleading in light of the
circumstances under which they were made. To the extent the Business Plan
was prepared by management of the Company, the Business Plan and the
financial projections contained in the Business Plan were prepared in good
faith and based upon assumptions that the Company believes are reasonable;
however, the Company does not warrant that it will achieve such financial
projections.
2.14 Minute Books. The minute books of the Company and its
Subsidiaries provided to the Investors contain a complete summary of all
meetings of directors and stockholders since the time of incorporation and
reflect all transactions referred to in such minutes accurately in all
material respects.
2.15 Labor Agreements and Actions. Neither the Company nor any one of
its Subsidiaries is bound by or subject to (and none of its assets or
properties is bound by or subject to) any written or oral, express or
implied, contract, commitment or arrangement with any labor union, and no
labor union has requested or, to the knowledge of the Company, has sought
to represent any of the employees, representatives or agents of the Company
or its Subsidiaries. There is no strike or other labor dispute involving
the Company or its Subsidiaries pending, or to the knowledge of the Company
threatened, which could have a Material Adverse Effect nor is the Company
aware of any labor organization activity involving its employees. The
Company is not aware that any officer or key employee, or that any group of
key employees, intends to terminate their employment with the Company or
its Subsidiaries, nor does the Company or any of its Subsidiaries have a
present intention to terminate the employment of any of the foregoing.
Subject to general principles related to wrongful termination of employees,
the employment of each officer and employee of the Company or its
Subsidiaries is terminable at the will of the Company or its Subsidiaries.
2.16 Registration Rights. Except as provided in the Investors' Rights
Agreement, the Company is not obligated to register under the Securities
Act of 1933, as amended (the "Securities Act") any of its presently
outstanding securities or any of its securities that may subsequently be
issued.
2.17 Returns and Complaints. Neither the Company nor any one of its
Subsidiaries has received customer complaints concerning alleged defects in
the design of its products that, if true, would have a Material Adverse
Effect.
2.18 Offering. Subject in part to the truth and accuracy of each
Investor's representations set forth in this Agreement, the offer, sale and
issuance of the Series A Preferred Stock
-7-
<PAGE>
as contemplated by this Agreement is exempt from the registration
requirements of the Securities Act, and neither the Company nor any
authorized agent acting on its behalf will take any action hereafter that
would cause the loss of such exemption.
2.19 Title to Property and Assets, Leases. Each of the Company and its
Subsidiaries has good title to all properties and assets owned by such
entity and has good leasehold interests in each property and asset leased
by such entity, in each case free and clear of all pledges, liens,
encumbrances, security interests, charges, mortgages and defects, except
such as do not materially affect the value of such property and such as do
not interfere with the use made and proposed to be made of such properties
by each of the Company and its Subsidiaries.
2.20 Financial Statements. The Company has delivered to each investor
its audited financial statements (balance sheet and profit and loss
statement including notes thereto) as at and for the year ended March 31,
1997 and its unaudited financial statements (balance sheet and profit and
loss statement including notes thereto) as at and for nine-month period
ended December 31, 1997 (the "Financial Statements"). Except as set forth
in the' Financial Statement, each of the Company and its Subsidiaries has
no material liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to
December 31, 1997 and (ii) obligations under contracts and commitments
incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition, operating results or prospects of the
Company. Except as disclosed in the Financial Statements, neither the
Company nor any of its Subsidiaries is a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation. The Company and its
Subsidiaries maintain and will continue to maintain a standard system of
accounting established and administered in accordance with generally
accepted accounting principles.
2.21 Changes. Since December 31, 1997, there has not been:
(a) Any change in the assets, liabilities, financial condition,
operating results or prospects of the Company or any of its
Subsidiaries from that reflected in the Financial Statements, except
changes in the ordinary course of business that have not had, in the
aggregate, a Material Adverse Effect;
(b) Any damage, destruction or loss, whether or not covered by
insurance, which would have a Material Adverse Effect;
(c) Any waiver or compromise by the Company or any of its
Subsidiaries of a valuable right or of a material debt owed to it;
(d) Any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or any of its
Subsidiaries, except in the ordinary course of
-8-
<PAGE>
business and which is not material to the business, properties,
prospects or financial condition of the Company and its Subsidiaries
(as such business is presently conducted and as it is proposed to be
conducted);
(e) Any material change to a material contract or arrangement by
which the Company or any of its Subsidiaries, or any of their assets,
are bound or subject;
(f) Any material change in any compensation arrangement or
agreement with any employee, officer, director, or stockholder of the
Company or any of its Subsidiaries;
(g) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets of the Company or
any of its Subsidiaries;
(h) Any resignation or termination of employment of any key
officer of the Company or any of its Subsidiaries; and the Company, to
its knowledge, does not know of the impending resignation or
termination of employment of any such officer;
(i) Receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of the Company or any of its
Subsidiaries;
(j) Any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company or any of its Subsidiaries, with respect
to any of its material properties or assets, except liens for taxes
not yet due or payable;
(k) Any loans or guarantees made by the Company or its
Subsidiaries to or for the benefit of its employees, officers or
directors, or any members of their immediate families, other than
travel advances and other advances made in the ordinary course of
their business;
(1) Any declaration, setting aside or payment or other
distribution in respect of the Company's or any of its Subsidiaries'
capital stock, or any direct or indirect redemption, purchase or other
acquisition of any of such stock by the Company or any of its
Subsidiaries;
(m) Any other event or condition of any character that might have
a Material Adverse Effect; or
(n) Any agreement or commitment by the Company or any of its
Subsidiaries to do any of the things described in this Section 2.21.
2.22 Patents and Trademarks. Each of the Company and its Subsidiaries
owns or possesses sufficient legal rights to all patents, trademarks,
servicemarks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes necessary for its business as
now
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<PAGE>
conducted and as proposed to be conducted without any conflict with or
infringement of the rights of others. The Schedule of Exceptions contains a
complete list of patents and pending patent applications of each of the
Company and its Subsidiaries. Except for agreements with its own employees
or consultants, substantially in the form referenced in Section 2.24 below,
there are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is the Company or any of its Subsidiaries
bound by or a party to any options, licenses or agreements of any kind with
respect to the patents; trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, proprietary rights and processes of
any other person or entity. Neither the Company nor any of its Subsidiaries
has received any communications alleging that the Company or any of its
Subsidiaries has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service marks, trade names,
copyrights, trade secrets or other proprietary rights of any other person
or entity nor is the Company or any of its Subsidiaries aware of any basis
therefor. The Company is not aware that any of its employees is obligated
under any contract (including licenses, covenants or commitments of any
nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of
such employee's best efforts to promote the interests of the Company and
its Subsidiaries or that would conflict with the Company's or any
Subsidiary's business as proposed to be conducted. Neither the execution
nor delivery of this Agreement, nor the carrying on of the Company's or any
Subsidiary's business by the employees of the Company or such Subsidiary,
nor the conduct of the Company's or such Subsidiary's business as proposed,
will, to the best of the Company's knowledge, conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default
under, any contract covenant or instrument under which any of such
employees is now obligated. The Company does not believe it is or will be
necessary to use any inventions of any of its employees (or persons it
currently intends to hire) made prior to the employment of such employees
by the Company or any of its Subsidiaries.
2.23 Manufacturing and Marketing Rights. Neither the Company nor any
of its Subsidiaries has granted rights to manufacture, produce, assemble,
license, market or sell its products to any other person, and is not bound
by any agreement that affects the Company's or any of its Subsidiaries'
exclusive right to develop, manufacture, assemble, distribute, market or
sell its products.
2.24 Proprietary Information and Inventions Agreement. Each employee,
officer and director of the Company has executed an agreement to be bound
by the terms of the Company's Employee Handbook, the Company's Employee
Handbook has been previously delivered to special counsel for the Investors
and contains restrictions on the use of the Company's proprietary
information by its employees and the ownership of inventions. Each of the
Subsidiaries have similar protective measures in place relating to their
respective proprietary information and inventions.
2.25 Tax Returns, Payments, and Elections. The Company and its
Subsidiaries have filed all tax returns and reports as required by law.
These returns and reports are true and correct in all material respects.
The Company and its Subsidiaries have paid all taxes and other assessments
due, except those contested by it in good faith. The provision for taxes of
the Company as shown in the
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<PAGE>
Financial Statements is adequate for taxes due or accrued as of the date
thereof. The Company has not elected pursuant to the Internal Revenue Code
of 1986, as amended ("Code"), to be treated as an S corporation or a
collapsible corporation pursuant to Section 341(f) of Section 1362(a) of
the Code, nor has it made any other elections pursuant to the Code (other
than elections which relate solely to methods of accounting, depreciation
or amortization) which would have a Material Adverse Effect. The Company
has never had any tax deficiency proposed or assessed against it or any of
its Subsidiaries and has not executed any waiver of any statute of
limitations on the assessment or collection of any tax or governmental
charge. None of the Company's federal income tax returns and none of its
state income or franchise tax or sales or use tax returns has ever been
audited by governmental authorities. Since the date of the Financial
Statements, the Company has made adequate provisions on its books of
account for all taxes, assessments and governmental charges with respect to
its business, proper-ties and operations for such period. The Company has
withheld or collected from each payment made to each of its employees, the
amount of all taxes (including, but not limited to, federal income taxes,
Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act
taxes) required to be withheld or collected therefrom, and has paid the
same to the proper tax receiving officers or authorized depositaries.
2.26 Insurance. The Company and its Subsidiaries have in effect with
financially sound insurers, insurance with respect to their businesses and
properties against liability, loss or damage of the kind customarily
insured against by corporations engaged in the same or similar businesses
and similarly situated, or such types -and in such amounts as are
customarily carried under similar circumstances by such other corporations.
2.27 Environmental and Safety Laws. To the best of the Company's
knowledge, the business, operations and facilities of the Company and each
of its Subsidiaries have been and are being conducted in compliance with
all applicable laws, ordinances, rules, regulations, licenses, permits,
approvals, plans, authorizations or requirements relating to occupational
safety and health, pollution, protection of health or the environment, or
reclamation (including, without limitation, those relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants or
hazardous or toxic substances, materials or wastes into ambient air,
surface water, groundwater or land, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of chemical substances, pollutants, contaminants or hazardous or
toxic substances, materials or wastes, whether solid, gaseous or liquid in
nature) or otherwise relating to remediating real property in which the
Company or any of its Subsidiaries has any interest whether owned or
leased, of any governmental department commission, board, bureau, agency or
instrumentality of the United States, any state or political subdivision
thereof or any foreign jurisdiction and all applicable judicial or
administrative agency or regulatory decrees, awards, judgments and orders
relating thereto (collectively "Environmental Regulations"); and neither
the Company nor any of its Subsidiaries has received any notice from a
governmental instrumentality or any third party alleging any violation of
any Environmental Regulation or liability thereunder ('including, without
limitation, liability for costs of investigating or remediating sites
containing hazardous substances or damages to natural resources).
-11-
<PAGE>
2.28 Foreign Corrupt Practices Act. Neither the Company nor any of its
Subsidiaries, nor any director, officer, agent employee, or other person
acting, with actual or apparent authority, on behalf of the Company or any
of its Subsidiaries has, at any relevant time, directly or indirectly: (i)
knowingly, unlawfully and corruptly made contributions, gifts, expenditures
for entertainment, or other unlawful expenditures relating to political
activity for the purpose of obtaining or retaining business; (ii)
knowingly, unlawfully and corruptly made payments to government officials
or employees or to political parties or campaigns for the purpose of
obtaining or retaining business; (iii) violated any applicable provision of
the U.S. Foreign Corrupt Practices Act of 1977, as amended (the "FCPA");
(iv) violated any applicable provision of U.S. "fraud and abuse
legislation" or U.S. "anti-kickback law"; or (v) made any other material
payment in the nature of a bribe, rebate, kickback, payoff or influence
payment which was unlawful under applicable law at the relevant time, and
the Company's internal accounting controls and procedures are sufficient to
provide reasonable assurance that the Company's transactions are executed
and recorded in accordance with the requirements of the FCPA.
2.29 Employee Benefit Plans. The Company and its Subsidiaries do not
maintain, contribute to or have any material liability with respect to any
employee benefit plan, profit sharing plan, employee pension benefit plan,
employee welfare benefit plan, equity-based plan or deferred compensation
plan or arrangements (collectively, "Plans") that are subject to the
provisions of the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder ("ERISA"). All Plans are
in compliance in all material respects with all applicable laws, including
but not limited to ERISA and the Internal Revenue Code of 1986, as amended
(the "Code"), and have been operated and administered in all material
respects in accordance with their terms. No Plan is a defined benefit plan
or multiemployer plan. The Company does not provide retiree life and/or
retiree health benefits or coverage for any employee or any beneficiary of
any employee after such employee's termination of employment except as
required by Section 4980B of the Code or under a Plan which is intended to
be "qualified" under Section 401(a) of the Code. No Plan has been involved
in any prohibited transaction under Section 406 of ERISA or Section 4975 of
the Code. Full payment has been made of all amounts which the Company or
any of its Subsidiaries were required under the terms of the Plans to have
paid as contributions to such Plans on or prior to the date hereof
(excluding any amounts not yet due). No material liability, claim, action
or litigation has been incurred, made commenced or, to the knowledge of the
Company, threatened, by or against the Company or any of its Subsidiaries
with respect to any Plan (other than for benefits payable in the ordinary
course). No material liability has been, or could reasonably be expected to
be, incurred under Title IV of ERISA or Section 4001(b) of ERISA and/or
Section 414(b) of (c) of the Code (and the regulations promulgated
thereunder) with respect to any "employee pension benefit plan" which is
not a Plan. As used in this subsection, the terms "defined benefit plan,"
"employee benefit plan," "employee pension benefit plan," "employee welfare
benefit plan" and "multiemployer plan" shall have the respective meanings
assigned to such terms in Section 3 of ERISA.
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<PAGE>
3. Representations and Warranties of the Investor. Each Investor hereby
represents and warrants that:
3.1 Authorization. This Agreement constitutes its valid and legally
binding obligation, enforceable in accordance with its terms.
3.2 Purchase Entirely for Own Account. This Agreement is made with
each Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Series A Preferred Stock to be received by such
Investor and the Common Stock issuable upon conversion thereof
(collectively, the "Securities") will be acquired for investment for such
Investor's own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof, and that such Investor has
no present intention of selling, granting any participation in, or
otherwise distributing the same. By executing this Agreement, each Investor
further represents that such Investor does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or
grant participations to such person or to any third person, with respect to
any of the Securities. Each Investor represents that it has full power and
authority to enter into this Agreement.
3.3 Disclosure of Information. Such Investor believes it has received
all of the information it considers necessary or appropriate for deciding
whether to purchase the Series A Preferred Stock. Each Investor further
represents that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the offering
of the Series A Preferred Stock. The foregoing, however, does not limit or
modify the representations and warranties of the Company in Section 2 of
this Agreement or the right of the Investors to rely thereon.
3.4 Investment Experience. Such Investor is an investor in securities
of companies in the development stage and acknowledges that it is able to
fend for itself, can bear the economic risk of its investment and has such
knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series
A Preferred Stock.
3.5 Accredited Investor. Such Investor is an "accredited investor"
within the meaning of the Securities and Exchange Commission's (the "SEC")
Rule 501 of Regulation D, as presently in effect. If other than an
individual, Investor also represents that it has not been organized for the
purpose of acquiring the Series A Preferred Stock.
3.6 Restricted Securities. Such Investor understands that the shares
of Series A Preferred Stock it is purchasing are characterized as
"restricted securities" under the federal securities laws inasmuch as they
are being acquired from the Company in a transaction not involving a public
offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act,
only in certain limited circumstances. In this connection, each
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<PAGE>
Investor represents that it is familiar with SEC Rule 144, as presently in
effect and understands the resale limitations imposed thereby and by the
Securities Act.
3.7 Further Limitations on Disposition. Without in any way, limiting
the representations set forth above, each Investor further agrees not to
make any disposition of all or any portion of the Series A Preferred Stock
(or the Common Stock issuable upon the conversion thereof) unless and until
the transferee has agreed in writing for the benefit of the Company to be
bound by this Section 3.7, to the extent such section is then applicable,
the Investors' Rights Agreement, the Shareholders' Agreement and any
applicable Ancillary Agreement and:
(a) there is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition
is made in accordance with such Registration Statement, or
(b) (i) such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed
disposition, and (ii) if reasonably requested by the Company, such
Investor shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not
require registration of such shares under the Securities Act. It is
agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 under the Securities Act except
in unusual circumstances.
(c) notwithstanding the provisions of paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be
necessary for a transfer without value by an Investor which is a
partnership to a partner of such partnership or a retired partner of
such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner or the transfer by gift, will
or intestate succession of any partner to his spouse or to the
siblings, lineal descendants or ancestors of such partner or his
spouse, or to an affiliate (as such term is defined in Rule 405 under
the Securities Act) of such Investor, if the transferee agrees in
writing to be subject to the terms hereof to the same extent as if he
were an original Investor hereunder.
3.8 Legends. It is understood that the certificates evidencing the
Series A Preferred Stock (and the Common Stock issuable upon conversion
thereof) may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in
effect with respect to the securities under such Act or an opinion of
counsel satisfactory to the Company that such registration is not
required or unless sold pursuant to Rule 144 of such Act."
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<PAGE>
(b) Any legend required to be placed thereon by applicable state
securities laws.
4. Conditions of Investor's Obligations at Closing. The obligations of each
Investor under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not, be effective against any Investor who does not
consent in writing thereto:
4.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties
had been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and compiled with
all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the
Closing.
4.3 Compliance Certificate. The President of the Company shall deliver
to each Investor at the Closing a certificate certifying that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled and
stating that there shall have been no adverse change in the business,
affairs, prospects, operations, properties, assets or condition of the
Company since December 31, 1997.
4.4 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsel, and they shall have received all
such counterpart original and certified or other copies of such documents
as they may reasonably request.
4.5 Opinion of Company Counsel. Each Investor shall have received from
Dorsey & Whitney LLP, counsel for the Company, an opinion, dated as of the
Closing, in form and substance satisfactory to special counsel to the
Investors.
4.6 Investors' Rights Agreement. The Company and all other Investors
shall have entered into the Investors' Rights Agreement in the form
attached hereto as Exhibit B.
4.7 Shareholders' Agreement. The Company, all other Investors and the
shareholders of the Company party thereto shall have entered into the
Pemstar Inc. Shareholders' Agreement (the "Shareholders' Agreement"), in
the form attached hereto as Exhibit C.
5. Conditions of the Company's Obligations at Closing. The obligations of
the Company to each Investor under this Agreement are subject to the
fulfillment, on or before the Closing of each of the following conditions by
that Investor:
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<PAGE>
5.1 Representations and Warranties. The representations and warranties
of the Investor contained in Section 3 shall be true on and as of the
Closing 'with the same effect as though such representations and warranties
had been made on and as of the Closing.
5.2 Payment of Purchase Price. The Investor shall have delivered the
purchase price specified in Section 1.2.
6. Miscellaneous.
6.1 Exculpation Among Investors. Each Investor acknowledges that it is
not relying upon any person, firm or corporation (including without
limitation any other Investor), other than the Company and its officers and
directors (acting in their capacity as representatives of the Company), in
deciding to invest and in making its investment in the Company. Each
Investor agrees that no other Investor nor the respective controlling
persons, officers, directors, partners, agents or employees of any other
Investor shall be liable to such Investor for any losses incurred by such
Investor in connection with its investment in the Company.
6.2 Survival of Warranties. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement
and the Closing and shall in no way be affected by any investigation of the
subject matter thereof made by or on behalf of the Investors or the
Company.
6.3 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties
(including transferees of any shares of Series A Preferred Stock or any
Common Stock issued upon conversion thereof). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the
parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement
except as expressly provided in this Agreement.
6.4 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York as applied to agreements among New
York residents entered into and to be performed entirely within New York.
6.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.6 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
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<PAGE>
6.7 Notices. Unless otherwise provided, any' notice required or
permitted under this Agreement shall be given in writing and shall be
deemed effectively given upon (a) personal delivery to the party to be
notified, (b) upon telefacsimile transmission to the party to be notified
at the telefacsimile number indicated for such party on the signature page
hereof, if any, or (c) upon deposit with an overnight courier service or
the United States Post Office, by registered or certified mail, postage
prepaid and addressed to the party to be notified at the address(es)
indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written
notice to the other parties.
6.8 Finder's Fee. Each party represents that it neither is nor will be
obligated for any finder's fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature
of a finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Investor or any of its
officers, partners, employees, or representatives is responsible. The
Company agrees to indemnify and hold harmless each Investor from any
liability for any commission or compensation in the nature of a finder's
fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Company or any of its officers, employees
or representatives is responsible.
6.9 Expenses. Irrespective of whether the Closing is effected, the
Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. If the
Closing is effected, the Company shall, at the Closing, reimburse the
reasonable fees and expenses of special counsel for the Investors, (not to
exceed $10,000). If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement or the Articles of Incorporation,
the prevailing party shall be entitled to reasonable attorneys' fees, costs
and necessary disbursements in addition to any other relief to which such
party may be entitled.
6.10 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively),- only with the written consent of the Company and the
holders of a majority of the Common Stock issued or issuable upon
conversion of the Series A Preferred Stock issued pursuant hereto. Any
amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any securities purchased under this Agreement
at the time outstanding (including securities into which such securities
are convertible), each future holder of all such securities, and the
Company; provided, however, that no condition set forth in Section 5 hereof
may be waived with respect to any Investor who does not consent thereto.
6.11 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the
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<PAGE>
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
6.12 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall
be liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
PEMSTAR INC., a Minnesota corporation
By: / s / Al Berning
--------------------------------------------
Allen J. Berning, Chief Executive Officer
Address: 2535 Highway 14 West
Rochester, Minnesota 55057
INVESTORS:
LB I Group Inc.
By:
-------------------------------------------
Title:
----------------------------------------
Address: 3 World Financial Center
New York, NY 10285
-----------------------------------------------
Jeffrey M. Drazan
Address:
-------------------------------------------------
-------------------------------------------------
[SIGNATURE PAGE TO
SERIES A PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
PEMSTAR INC., a Minnesota corporation
By:
--------------------------------------------
Allen J. Berning, Chief Executive Officer
Address: 2535 Highway 14 West
Rochester, Minnesota 55057
INVESTORS:
LB I Group Inc.
By: /s/
-------------------------------------------
Title: Senior Vice President
----------------------------------------
Address: 3 World Financial Center
New York, NY 10285
-----------------------------------------------
Jeffrey M. Drazan
Address:
-------------------------------------------------
-------------------------------------------------
[SIGNATURE PAGE TO
SERIES A PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
PEMSTAR INC., a Minnesota corporation
By:
--------------------------------------------
Allen J. Berning, Chief Executive Officer
Address: 2535 Highway 14 West
Rochester, Minnesota 55057
INVESTORS:
LB I Group Inc.
By:
-------------------------------------------
Title:
----------------------------------------
Address: 3 World Financial Center
New York, NY 10285
/s/ Jeffrey M. Darzan
-----------------------------------------------
Jeffrey M. Drazan
Address:
-------------------------------------------------
-------------------------------------------------
[SIGNATURE PAGE TO
SERIES A PREFERRED STOCK PURCHASE AGREEMENT]
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
---------------------
Cash Purchase No. of
Name Price Shares
---- ------------- -------
LB I Group Inc. $7,800,000.00 520,000
Jeffrey M. Drazan 199,995.00 13,333
CLOSING TOTALS: $7,999,995.00 533,333
Schedule A- I
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION
--------------------------
(See Tab 3)
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<PAGE>
EXHIBIT B
INVESTORS RIGHTS AGREEMENT
--------------------------
(See Tab 4)
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<PAGE>
EXHIBIT C
SHAREHOLDERS' AGREEMENT
-----------------------
(See Tab 5)
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<PAGE>
EXHIBIT 10.8
FIRST AMENDMENT TO THE
PEMSTAR INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
dated February 12, 1998
This First Amendment ("Amendment") to the Series A Preferred Stock Purchase
Agreement dated February 12, 1998 (the "Agreement") is made as of March 27, 1998
by and among Pemstar Inc., a Minnesota corporation and the investors listed on
Schedule A hereto, each of which is herein referred to as an "Investor" and
collectively as the "Investors." Capitalized terms used herein which are not
defined herein shall have the definition ascribed to them in the Agreement.
RECITALS
--------
WHEREAS, the Company and the Investors have previously entered into the
Agreement pursuant to which, among other things, LB I Group Inc., a Delaware
corporation ("LBI") purchased Five Hundred Twenty Thousand (520,000) shares of
the Company's Series A Preferred Stock.
WHEREAS, the Company and the Investors desire to amend the number of shares
of the Company's Series A Preferred Stock purchased by the Investors so that LBI
shall purchase an additional Thirty Six-Thousand Six Hundred Thirty Three
(36,633) shares of the Company's Series A Preferred Stock at the Second Closing
(as defined below); and
WHEREAS, Section 6.10 of the Agreement provides that the Agreement may be
amended with the written consent of the Company and the holders of a majority of
the Common Stock issued or issuable upon conversion of the Series A Preferred
Stock issued pursuant to the Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. AMENDMENTS TO AGREEMENT.
1.1 Section 1 of the Agreement is hereby amended in its entirety as
follows:
"1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series A Preferred Stock.
(a) The Company shall adopt and file with the Secretary
of State of the State of Minnesota on or before the First
Closing (as defined below) the Certificate of Designation in
the form attached hereto as Exhibit A (the "Certificate of
Designation").
(b) Subject to the terms and conditions of this
Agreement, each Investor agrees, severally and not jointly,
to purchase at each Closing (as defined below) and the
Company agrees to sell and issue to each Investor, severally
and not jointly, at each Closing
<PAGE>
that number of shares of the Company's Series A Preferred
Stock set forth opposite each Investor's name on Schedule A
hereto under the headings "First Closing" and "Second
Closing," respectively, for the purchase price set forth
thereon.
1.2 Closings.
(a) The first purchase and sale of the Series A
Preferred Stock will take place at the offices of Dorsey &
Whitney LLP at 10:00 A.M., on February 12, 1998, or at such
other time and place as the Company and Investors acquiring
in the aggregate more than half the shares of Series A
Preferred Stock sold pursuant hereto shall mutually agree in
writing (the "First Closing").
(b) The second purchase and sale of the Series A
Preferred Stock will take place at the offices of Dorsey &
Whitney LLP at 10:00 A.M., on March __, 1998, or at such
other time and place as the Company and Investors acquiring
in the aggregate more than half the shares of Series A
Preferred Stock sold pursuant hereto shall mutually agree in
writing (the "Second Closing"; each of the First Closing and
the Second Closing is sometimes individually referred to
herein as a "Closing").
(c) At each Closing, the Company shall deliver to each
Investor a certificate representing the shares of Series A
Preferred Stock that such Investor is purchasing against
payment of the purchase price therefor by check, wire
transfer, cancellation of indebtedness or such other form of
payment as shall be mutually agreed upon by such Investor
and the Company."
1.2 The lead-in paragraph to Section 4 of the Agreement is hereby
amended in its entirety as follows:
"4. Conditions of Investor's Obligations at each Closing. The
obligations of each Investor under subsection 1.1 (b) of this
Agreement are subject to the fulfillment on or before each Closing of
each of the following conditions, the waiver of which shall not be
effective against any Investor who does not consent in writing
thereto:"
1.3 Section 4.3 of the Agreement is hereby amended in its entirety as
follows:
"4.3 Compliance Certificate. The President of the Company, or his
designee, shall deliver to each Investor at the Closing a certificate
certifying that the conditions specified in Sections 4.1 and 4.2 have
been fulfilled and stating that there shall have been no adverse
change in the business, affairs, prospects, operations, properties,
assets or condition of the Company since December 31, 1997."
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<PAGE>
1.4 The lead-in paragraph to Section 5 of the Agreement is hereby
amended in its entirety as follows:
"5. Conditions of the Company's Obligations at each Closing. The
obligations of the Company to each Investor under this Agreement are
subject to the fulfillment on or before each Closing of each of the
following conditions by that Investor:"
1.5 Section 6.9 of the Agreement is hereby amended in its entirety as
follows:
"6.9 Expenses. Irrespective of whether either Closing is
effected, the Company shall pay all costs and expenses that it incurs
with respect to the negotiation, execution, delivery and performance
of this Agreement. If the First Closing is effected, the Company
shall, at the First Closing, reimburse the reasonable fees and
expenses of special counsel for the Investors (not to exceed $10,000).
If any action at law or in equity is necessary to enforce or interpret
the terms of this Agreement or the Articles of Incorporation, the
prevailing party shall be entitled to reasonable attorney's fees,
costs and necessary disbursements in addition to any other relief to
which such party may be entitled."
2. AMENDED SCHEDULE A.
Schedule A to the Agreement is amended to read as the Schedule A attached
hereto.
3. Representations and Warranties. Except for Section 2.3 as modified below
the Company hereby represents that the representations and warranties of the
Company contained in Section 2 of the Agreement and LBI hereby represents that
the representations and warranties of LBI contained in Section 3 of the
Agreement, are true and correct on and as of the date hereof.
Section 2.3 of the Agreement is modified in its entirety to read as
follows:
"2.3 Capitalization and Voting Rights.
(a) The authorized capital of the Company consists, or will
consist prior to the Second Closing, of
(i) Preferred Stock. 1,000,000 shares of Preferred Stock, of
which 666,667 shares have been designated Series A Preferred
Stock (the "Series A Preferred Stock") of which 533,333 are
currently issued and outstanding and 36,633 will be sold pursuant
to this Agreement in the Second Closing. The rights, privileges
and preferences of the Series A Preferred Stock will be as stated
in the Certificate of Designation.
-3-
<PAGE>
(ii) Common Stock. 10,000,000 shares of common stock
("Common Stock"), of which 3,459,578 are currently issued and
outstanding. All of the issued shares of Common Stock have been
duly authorized and validly issued, are fully paid and
nonassessable, and have been issued in compliance with applicable
federal and state securities laws and are free and clear of all
liens, security interests, pledges, charges, encumbrances,
defects, shareholder agreements, equities or claims of any nature
whatsoever. None of the issued shares of Common Stock has been
issued or is owned or held in violation of any statutory
preemptive rights of shareholders.
(iii) Except for the conversion privileges of the Series A
Preferred Stock to be issued under this Agreement, there are not
outstanding any options, warrants, rights (including conversion
or preemptive rights) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock;
provided that the Company has reserved 1,000,000 shares, of which
options to acquire up to 846,350 shares have been granted, for
issuance to employees, consultants or directors of the Company
pursuant to equity incentive agreements approved by the Board of
Directors. The Company is not a party or subject to any agreement
or understanding, and there is no agreement or understanding
between any persons and/or entities, which affects or relates to
the voting or giving of written consents with respect to any
security or by a director of the Company."
4. Effect of Amendment. Except as expressly modified by this Amendment the
Agreement shall remain unmodified and in full force and effect.
5. Further Assurances. The parties agree to execute such further
instruments, agreements and documents and to take such further action as may
reasonably be necessary to carry out the intent of this Amendment.
6. Governing Law. This Amendment will be governed by and construed under
the laws of the State of New York as applied to agreements among New York
residents entered into and to be performed entirely within New York.
7. Counterparts. This Amendment 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 instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
PEMSTAR INC., a Minnesota corporation
By: / s / Al Berning CEO
--------------------------------------------
Allen J. Berning, Chief Executive Officer
Address: 2535 Highway 14 West
Rochester, Minnesota 55057
INVESTORS:
LB I Group Inc.
By:
-------------------------------------------
Title:
----------------------------------------
Address: 3 World Financial Center
New York, NY 10285
-----------------------------------------------
Jeffrey M. Drazan
Address:
-------------------------------------------------
-------------------------------------------------
[SIGNATURE, PAGE TO FIRST AMENDMENT TO SERIES A
PREFERRED STOCK PURCHASE AGREEMENT OF PEMSTAR INC.]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
PEMSTAR INC., a Minnesota corporation
By:
--------------------------------------------
Allen J. Berning, Chief Executive Officer
Address: 2535 Highway 14 West
Rochester, Minnesota 55057
INVESTORS:
LB I Group Inc.
By: /s/
-------------------------------------------
Title: Senior Vice President
----------------------------------------
Address: 3 World Financial Center
New York, NY 10285
-----------------------------------------------
Jeffrey M. Drazan
Address:
-------------------------------------------------
-------------------------------------------------
[SIGNATURE, PAGE TO FIRST AMENDMENT TO SERIES A
PREFERRED STOCK PURCHASE AGREEMENT OF PEMSTAR INC.]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
PEMSTAR INC., a Minnesota corporation
By:
--------------------------------------------
Allen J. Berning, Chief Executive Officer
Address: 2535 Highway 14 West
Rochester, Minnesota 55057
INVESTORS:
LB I Group Inc.
By:
-------------------------------------------
Title:
----------------------------------------
Address: 3 World Financial Center
New York, NY 10285
/s/ Jeffrey M. Drazan
-----------------------------------------------
Jeffrey M. Drazan
Address: 3000 Sand Hill Road #4 - 210
-------------------------------------------------
Menlo Park, CA 94025
-------------------------------------------------
[SIGNATURE, PAGE TO FIRST AMENDMENT TO SERIES A
PREFERRED STOCK PURCHASE AGREEMENT OF PEMSTAR INC.]
-7-
<PAGE>
SCHEDULE A
----------
SCHEDULE OF INVESTORS
---------------------
Cash Purchase No. of
Name Price Shares
---- ------------- -------
FIRST CLOSING:
LB I Group Inc. $7,800,000.00 520,000
Jeffrey M. Drazan 199,995.00 13,333
Subtotals: $7,999,995.00 533,333
SECOND CLOSING:
LB I Group Inc. 549,495.00 36,633
Subtotals: $ 549,495.00 36,633
TOTALS: $8,549,490.00 569,966
-8-
<PAGE>
EXHIBIT 10.9
PEMSTAR INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
----------
June 7, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
1. Purchase and Sale of Stock.............................................. 1
1.1 Sale and Issuance of Series B Preferred Stock.................. 1
1.2 Closing........................................................ 1
2. Representations and Warranties of the Company........................... 1
2.1 Organization................................................... 1
2.2 Good Standing and Qualification................................ 2
2.3 Capitalization and Voting Rights............................... 2
2.4 Subsidiaries................................................... 3
2.5 Authorization.................................................. 3
2.6 Valid Issuance of Preferred and Common Stock................... 3
2.7 Governmental Consents.......................................... 4
2.8 Litigation..................................................... 4
2.9 Compliance with Other Instruments.............................. 4
2.10 Agreements; Action............................................. 5
2.11 Related-Party Transactions..................................... 6
2.12 Permits........................................................ 6
2.13 Disclosure..................................................... 6
2.14 Minute Books................................................... 7
2.15 Labor Agreements and Actions................................... 7
2.16 Registration Rights............................................ 7
2.17 Returns and Complaints......................................... 7
2.18 Offering....................................................... 7
2.19 Title to Property and Assets; Leases........................... 7
2.20 Financial Statements........................................... 8
2.21 Changes........................................................ 8
2.22 Patents and Trademarks......................................... 9
2.23 Manufacturing and Marketing Rights............................. 10
2.24 Proprietary Information and Inventions Agreement............... 10
2.25 Tax Returns, Payments, and Elections........................... 10
2.26 Insurance...................................................... 11
2.27 Environmental and Safety Laws.................................. 11
2.28 Foreign Corrupt Practices Act.................................. 11
2.29 Employee Benefit Plans......................................... 12
3. Representations and Warranties of the Investor.......................... 12
3.1 Authorization.................................................. 12
3.2 Purchase Entirely for Own Account.............................. 12
(i)
<PAGE>
3.3 Disclosure of Information...................................... 13
3.4 Investment Experience.......................................... 13
3.5 Accredited Investor............................................ 13
3.6 Restricted Securities.......................................... 13
3.7 Further Limitations on Disposition............................. 13
3.8 Legends........................................................ 14
4. Conditions of Investor's Obligations at Closing......................... 14
4.1 Representations and Warranties................................. 14
4.2 Performance.................................................... 14
4.3 Compliance Certificate......................................... 14
4.4 Proceedings and Documents...................................... 14
4.5 Opinion of Company Counsel..................................... 15
4.6 Investors' Rights Agreement.................................... 15
4.7 Shareholders' Agreement........................................ 15
5. Conditions of the Company's Obligations at Closing...................... 15
5.1 Representations and Warranties................................. 15
5.2 Payment of Purchase Price...................................... 15
6. Miscellaneous........................................................... 15
6.1 Exculpation Among Investors.................................... 15
6.2 Survival of Warranties......................................... 15
6.3 Successors and Assigns......................................... 16
6.4 Governing Law.................................................. 16
6.5 Counterparts................................................... 16
6.6 Titles and Subtitles........................................... 16
6.7 Notices........................................................ 16
6.8 Finder's Fee................................................... 16
6.9 Expenses....................................................... 16
6.10 Amendments and Waivers......................................... 17
6.11 Severability................................................... 17
6.12 Entire Agreement............................................... 17
SCHEDULE A - Schedule of Investors
EXHIBIT A - Certificate of Designation
EXHIBIT B - Investors' Rights Agreement
EXHIBIT C - Shareholders' Agreement
SCHEDULE OF EXCEPTIONS
(ii)
<PAGE>
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
-------------------------------------------
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") is made
as of the 7th day of June 1999, by and between PEMSTAR INC., a Minnesota
corporation (the "Company"), and the investors listed on Schedule A hereto, each
of which is herein referred to as an "Investor."
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series B Preferred Stock.
(a) The Company shall adopt and file with the Secretary of State
of Minnesota on or before the Closing (as defined below) the
Certificate of Designation in the form attached hereto as Exhibit A
(the "Certificate of Designation").
(b) Subject to the terms and conditions of this Agreement, each
Investor agrees, severally, to purchase at the Closing and the Company
agrees to sell and issue to each Investor at the Closing, that number
of shares of the Company's Series B Preferred Stock set forth opposite
each Investor's name on Schedule A hereto for the purchase price set
forth thereon. Such purchase price shall be payable by Investor by
delivery to Company by Investor of a check in the amount of the
purchase price set forth opposite such Investor's name on Schedule A
payable to the Company's order or by wire transfer of funds in such
amount to the Company's designated bank account.
1.2 Closing. The purchase and sale of the Series B Preferred Stock
shall take place at Dorsey & Whitney LLP at 10:00 A.M., on June , 1999, or
at such other time and place as the Company and Investors acquiring in the
aggregate more than half the shares of Series B Preferred Stock sold
pursuant hereto mutually agree upon orally or in writing (which time and
place are designated as the "Closing"). At the Closing the Company shall
deliver to each Investor a certificate representing the number of shares of
Series B Preferred Stock which such Investor is purchasing against delivery
to the Company by such Investor of the purchase price in the form as set
forth above in Section 1.1(b).
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Investor that, except as set forth on a Schedule
of Exceptions attached hereto, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
2.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Minnesota and
has all requisite corporate power and authority to carry on its business as
now conducted. Each of PEMSTAR de Mexico S.A. de
<PAGE>
C.V., a Mexican corporation and a wholly-owned subsidiary of the Company,
PEMSTAR B.V., a Dutch corporation and a wholly-owned subsidiary of the
Company, PEMSTAR (Tianjin) Enterprise Co., Ltd., a Chinese corporation and
a wholly-owned subsidiary of the Company, ITALADE- PEMSTAR LIMITED, a
Thailand corporation and a 75%-owned subsidiary of the Company, and
PEMSTAR-HONG GUAN PTE LTD, a Singapore private company and a 51%-owned
subsidiary of the Company (each, a "Subsidiary" and collectively, the
"Subsidiaries"), is a corporation duly organized, validly existing and in
good standing under the laws of their respective jurisdictions, and has all
requisite corporate power and authority to carry on its business as now
conducted.
2.2 Good Standing and Qualification. The Company and each of its
Subsidiaries are duly qualified or licensed by and are in good standing in
each jurisdiction in which they conduct their respective businesses and in
which the failure, individually or in the aggregate, to be so licensed or
qualified could have a material adverse effect on the assets, properties,
condition (financial or otherwise), operating results, prospects or
business (as such business is presently conducted and as it is proposed to
be conducted) of the Company or its Subsidiaries (a "Material Adverse
Effect"); and the Company and each of its Subsidiaries are in compliance in
all material respects with the laws, orders, rules, regulations and
directives issued or administered by such jurisdictions.
2.3 Capitalization and Voting Rights.
(a) The authorized capital of the Company consists, or will
consist prior to the Closing, of:
(i) Preferred Stock. 5,000,000 shares of Preferred Stock, of
which 666,667 shares have been designated Series A Preferred
Stock (the "Series A Preferred Stock") of which 569,966 are
issued and outstanding and 1,000,000 shares have been designated
Series B Preferred Stock (the "Series B Preferred Stock"), up to
all of which will be sold pursuant to this Agreement. The rights,
privileges and preferences of the Series A Preferred Stock and
the Series B Preferred Stock will be as stated in their
respective Certificate of Designation.
(ii) Common Stock. 50,000,000 shares of common stock
("Common Stock"), of which 3,756,635 are currently issued and
outstanding.
(iii) The outstanding shares of Series A Preferred Stock and
Common Stock have been duly authorized and validly issued, are
fully paid and nonassessable, and have been issued in compliance
with applicable federal and state securities laws and are free
and clear of all liens, security interests, pledges, charges,
encumbrances, defects, shareholder agreements, equities or claims
of any nature whatsoever. None of the issued shares of Series A
Preferred Stock or Common Stock has been issued or held in
violation of any statutory preemptive rights of shareholders.
(iv) Except for the conversion privileges of the Series A
Preferred Stock and the Series B Preferred Stock, there are not
outstanding any options, warrants, rights
-2-
<PAGE>
(including conversion or preemptive rights) or agreements for the
purchase or acquisition from the Company of any shares of its
capital stock; provided that the Company has reserved 1,000,000
shares, of which options to acquire up to 1,000,000 shares have
been granted, for issuance to employees, consultants or directors
of the Company pursuant to equity incentive agreements approved
by the Board of Directors. The Company is not a party or subject
to any agreement or understanding, and there is no agreement or
understanding between any persons and/or entities, which affects
or relates to the voting or giving of written consents with
respect to any security or by a director of the Company.
2.4 Subsidiaries.
(a) The Company does not presently own or control, directly or
indirectly, any interest in any other corporation, association, or
other business entity other than its Subsidiaries. The Company is not
a participant in any joint venture, partnership, or similar
arrangement.
(b) All of the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and are beneficially used by the Company free
and clear of all liens, security interests, pledges, charges,
encumbrances, defects, shareholders' agreements, voting agreements,
proxies, voting trusts, equities or claims of any nature whatsoever.
2.5 Authorization. All corporate action on the part of the Company or
its Subsidiaries, their officers, directors and stockholders necessary for
the authorization, execution and delivery of this Agreement, the First
Amended and Restated Investors' Rights Agreement (the "Investors' Rights
Agreement"), the First Amended and Restated Shareholders' Agreement (the
"Shareholders' Agreement") and any other agreement to which the Company is
a party, the execution and delivery of which is contemplated hereby (the
"Ancillary Agreements"), the performance of all obligations of the Company
hereunder and thereunder, and the authorization, issuance (or reservation
for issuance), sale and delivery of the Series B Preferred Stock being sold
hereunder and the Common Stock issuable upon conversion of the Series B
Preferred Stock has been taken or will be taken prior to the Closing, and
this Agreement, the Investors' Rights Agreement, the Shareholders'
Agreement and any Ancillary Agreements constitute valid and legally binding
obligations of the Company, enforceable in accordance with their respective
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification
provisions contained in the Investors' Rights Agreement may be limited by
applicable federal or state securities laws.
2.6 Valid Issuance of Preferred and Common Stock. The Series B
Preferred Stock which is being purchased by the Investors hereunder, when
issued, sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued, fully paid
and nonassessable, will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Investors' Rights
Agreement and Shareholders' Agreement and under
-3-
<PAGE>
applicable state and federal securities laws and, based in part upon the
representations of the Investors in this Agreement, will be issued in
compliance with all applicable federal and state securities laws. The
Common Stock issuable upon conversion of the Series B Preferred Stock
purchased under this Agreement has been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Articles of
Incorporation, shall be duly and validly issued, fully paid and
nonassessable, will be free of restrictions on transfer other than
restrictions on transfer under this Agreement, the Investors' Rights
Agreement, the Shareholders' Agreement and under applicable state and
federal securities laws, and issued in compliance with all applicable
securities laws, as presently in effect, of the United States and each of
the states whose securities laws govern the issuance of any of the Series B
Preferred Stock hereunder.
2.7 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration
or filing with, any federal, state, local or provincial governmental
authority on the part of the Company is required in connection with the
consummation of the transactions contemplated by this Agreement, except for
(i) the filing of the Certificate of Designation with the Secretary of
State of the State of Minnesota and (ii) such filings as have been made
prior to the Closing, or such post-closing filings as may be required under
applicable state securities laws, which will be timely filed within the
applicable periods therefor.
2.8 Litigation. There is no action, suit, proceeding or investigation
pending or currently threatened against the Company or its Subsidiaries or
any of their respective properties, at law or in equity, or before or by
any federal, state, local or foreign governmental or regulatory commission,
board, body, authority or agency which could result in a judgment, decree
or order having a Material Adverse Effect or which questions the validity
of this Agreement, the Investors' Rights Agreement, the Shareholders'
Agreement or any Ancillary Agreements, or the right of the Company to enter
into any of them, or to consummate the transactions contemplated hereby or
thereby, nor is the Company aware that there is any basis for the
foregoing. Neither the Company nor any of its Subsidiaries is a party or
subject to the provisions of any order, writ, injunction, judgment or
decree of any court or government agency or instrumentality. There is no
action, suit, proceeding or investigation by or involving the Company or
any its Subsidiaries currently pending or which the Company or any of its
Subsidiaries intend to initiate.
2.9 Compliance with Other Instruments. Neither the Company nor any of
its Subsidiaries is in breach of, in violation of or in default under (nor
has any event occurred which with notice, lapse of time, or both would
constitute a breach of, or default under), its respective charter or
by-laws or in the performance or observance of any obligation, agreement,
covenant or condition contained in any license, indenture, mortgage, deed
of trust, bank loan or credit agreement or other agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which any of
them or their respective properties may be bound or affected, or, to the
Company's knowledge, of any provision of federal, state, local or foreign
law, regulation or rule or any decree, judgment, writ or order applicable
to the Company or any of its Subsidiaries. Neither the execution, delivery
and performance of this Agreement, the Investors' Rights Agreement, the
Shareholders' Agreement or any Ancillary
-4-
<PAGE>
Agreement nor the consummation of the transactions contemplated hereby and
thereby will conflict with, or result in any breach of, violation of or
constitute a default under (or constitute any event which with notice,
lapse of time, or both would constitute a breach of, violation of or
default under), any provisions of the charter or by-laws, of the Company or
any of its Subsidiaries or under any provision of any license, indenture,
mortgage, deed of trust, bank loan or credit agreement or other agreement
or instrument to which the Company or any of its Subsidiaries is a party or
by which any of them or their respective properties may be bound or
affected, or to the Company's knowledge, of any provision of federal,
state, local or foreign law, regulation or rule or any decree, judgment,
writ or order applicable to the Company or any of its Subsidiaries.
2.10 Agreements; Action.
(a) Except for agreements explicitly contemplated hereby and by
the Investors' Rights Agreement, the Shareholders' Agreement and any
Ancillary Agreements, there are no agreements, understandings or
proposed transactions between the Company or its Subsidiaries and any
of the Company's officers, directors, affiliates, or any affiliate
thereof.
(b) Neither the Company nor any one of its Subsidiaries is a
party to any contract, agreement, lease, commitment or proposed
transaction, written or oral, absolute or contingent, other than (i)
contracts for the purchase of supplies and services that were entered
into in the ordinary course of business and that do not extend for
more than six (6) months beyond the date hereof, (ii) sales contracts
entered into in the ordinary course of business, and (iii) contracts
terminable at will by the Company on no more than thirty (30) days
notice without cost or liability to the Company and that do not
involve any employment or consulting arrangement and are not material
to the conduct of the Company's business. For the purpose of this
paragraph, employment and consulting contracts and contracts with
labor unions, and license agreements and any other agreements relating
to the acquisition or disposition of the Company's or its
Subsidiaries' technology, shall not be considered to be contracts
entered into in the ordinary course of business.
(c) Neither the Company nor any of its Subsidiaries has (i)
declared or paid any dividends, or authorized or made any distribution
upon or with respect to any class or series of its capital stock, (ii)
incurred any indebtedness for money borrowed or any other liabilities
(other than payments due for the purchase of supplies and services
that are due under agreements entered into in the ordinary course of
business) individually in excess of $50,000 or, in the case of
indebtedness and/or liabilities individually less than $50,000 in
excess of $100,000 in the aggregate, (iii) made any loans or advances
to any person, other than ordinary advances for travel expenses, or
(iv) sold, exchanged or otherwise disposed of any of its assets or
rights, other than the sale of its inventory in the ordinary course of
business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or
entity (including persons or entities the Company or any of its
Subsidiaries has reason
-5-
<PAGE>
to believe are affiliated therewith) shall be aggregated for the
purpose of meeting the individual minimum dollar amounts of such
subsections.
(e) The Company is not a party to and is not bound by any
contract, agreement or instrument, or subject to any restriction under
its Articles of Incorporation or Bylaws that would have a Material
Adverse Effect.
(f) The Company has not pursued in the past three (3) months in
any substantive discussion (i) with any representative of any
corporation or corporations regarding the consolidation or merger of
the Company in which the Company is not the surviving corporation,
(ii) with any corporation, partnership, association or other business
entity or any individual regarding the sale, conveyance or disposition
of all or substantially all of the assets of the Company or a
transaction or series of related transactions in which more than fifty
percent (50%) of the voting power of the Company is disposed of, or
(iii) regarding any other form of acquisition, liquidation,
dissolution or winding up of the Company.
2.11 Related-Party Transactions. No employee, officer or director of
the Company or any of its Subsidiaries and no member of the immediate
family of such employee, officer or director is indebted to the Company or
any of its Subsidiaries, nor is the Company or any of its Subsidiaries
indebted (or committed to make loans or extend or guarantee credit) to any
such employee, officer or director. To the best of the Company's knowledge,
none of such persons has any direct or indirect ownership interest in any
firm or corporation with which the Company or any of its Subsidiaries is
affiliated or with which the Company or any of its Subsidiaries has a
business relationship, or any firm or corporation that competes with the
Company or any of its Subsidiaries, except that employees, officers, or
directors of the Company and its Subsidiaries and the members of the
immediate families of such employees, officers or directors may own stock
in publicly traded companies (not to exceed 5% of the issued and
outstanding shares of such publicly traded companies) that may have a
business relationship with or compete with the Company or any of its
Subsidiaries. No member of the immediate family of any employee, officer or
director of the Company or any of its Subsidiaries is directly or
indirectly interested in any material contract with the Company or any of
its Subsidiaries.
2.12 Permits. Each of the Company and its Subsidiaries has all
necessary licenses, authorizations, consents and approvals and has made all
necessary filings required under any federal, state, local or foreign law,
regulation or rule, and has obtained all necessary authorizations, consents
and approvals from other persons, in order to conduct its respective
business; neither the Company nor any of its Subsidiaries is in violation
of, or in default under, any such license, authorization, consent or
approval or any federal, state, local or foreign law, regulation or rule or
any decree, order or judgment applicable to the Company or any of its
Subsidiaries the effect of which could have a Material Adverse Effect.
2.13 Disclosure. The Company has fully provided each Investor with all
the information which such Investor has requested in connection with the
purchase of the Series B
-6-
<PAGE>
Preferred Stock hereunder and all information which the Company believes is
reasonably necessary to enable such Investor to make such decision. Neither
this Agreement, the Investors' Rights Agreement, the Shareholders'
Agreement, nor any Ancillary Agreements, nor any other statements,
certificates or documents made or delivered in connection herewith or
therewith, contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements herein or therein
not misleading in light of the circumstances under which they were made.
2.14 Minute Books. The minute books of the Company and its
Subsidiaries provided to the Investors contain a complete summary of all
meetings of directors and stockholders since the time of incorporation and
reflect all transactions referred to in such minutes accurately in all
material respects.
2.15 Labor Agreements and Actions. Neither the Company nor any one of
its Subsidiaries is bound by or subject to (and none of its assets or
properties is bound by or subject to) any written or oral, express or
implied, contract, commitment or arrangement with any labor union, and no
labor union has requested or, to the knowledge of the Company, has sought
to represent any of the employees, representatives or agents of the Company
or its Subsidiaries. There is no strike or other labor dispute involving
the Company or its Subsidiaries pending, or to the knowledge of the Company
threatened, which could have a Material Adverse Effect nor is the Company
aware of any labor organization activity involving its employees. The
Company is not aware that any officer or key employee, or that any group of
key employees, intends to terminate their employment with the Company or
its Subsidiaries, nor does the Company or any of its Subsidiaries have a
present intention to terminate the employment of any of the foregoing.
Subject to general principles related to wrongful termination of employees,
the employment of each officer and employee of the Company or its
Subsidiaries is terminable at the will of the Company or its Subsidiaries.
2.16 Registration Rights. Except as provided in the Investors' Rights
Agreement, the Company is not obligated to register under the Securities
Act of 1933, as amended (the "Securities Act") any of its presently
outstanding securities or any of its securities that may subsequently be
issued.
2.17 Returns and Complaints. Neither the Company nor any one of its
Subsidiaries has received customer complaints concerning alleged defects in
the design of its products that, if true, would have a Material Adverse
Effect.
2.18 Offering. Subject in part to the truth and accuracy of each
Investor's representations set forth in this Agreement, the offer, sale and
issuance of the Series B Preferred Stock as contemplated by this Agreement
is exempt from the registration requirements of the Securities Act, and
neither the Company nor any authorized agent acting on its behalf will take
any action hereafter that would cause the loss of such exemption.
2.19 Title to Property and Assets; Leases. Each of the Company and its
Subsidiaries has good title to all properties and assets owned by such
entity and has good leasehold
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interests in each property and asset leased by such entity, in each case
free and clear of all pledges, liens, encumbrances, security interests,
charges, mortgages and defects, except such as do not materially affect the
value of such property and such as do not interfere with the use made and
proposed to be made of such properties by each of the Company and its
Subsidiaries.
2.20 Financial Statements. The Company has delivered to each Investor
its audited financial statements (balance sheet and profit and loss
statement including notes thereto) as at and for the year ended March 31,
1998 and its unaudited financial statements (balance sheet and profit and
loss statement) as at and for the year ended March 31, 1999 (the "Financial
Statements"). Except as set forth in the Financial Statements, each of the
Company and its Subsidiaries has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to March 31, 1999 and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in
the Financial Statements, which, in both cases, individually or in the
aggregate, are not material to the financial condition, operating results
or prospects of the Company. Except as disclosed in the Financial
Statements, neither the Company nor any of its Subsidiaries is a guarantor
or indemnitor of any indebtedness of any other person, firm or corporation.
The Company and its Subsidiaries maintain and will continue to maintain a
standard system of accounting established and administered in accordance
with generally accepted accounting principles.
2.21 Changes. Since March 31, 1999, there has not been:
(a) Any change in the assets, liabilities, financial condition,
operating results or prospects of the Company or any of its
Subsidiaries from that reflected in the Financial Statements, except
changes in the ordinary course of business that have not had, in the
aggregate, a Material Adverse Effect;
(b) Any damage, destruction or loss, whether or not covered by
insurance, which would have a Material Adverse Effect;
(c) Any waiver or compromise by the Company or any of its
Subsidiaries of a valuable right or of a material debt owed to it;
(d) Any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or any of its
Subsidiaries, except in the ordinary course of business and which is
not material to the business, properties, prospects or financial
condition of the Company and its Subsidiaries (as such business is
presently conducted and as it is proposed to be conducted);
(e) Any material change to a material contract or arrangement by
which the Company or any of its Subsidiaries, or any of their assets,
are bound or subject;
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(f) Any material change in any compensation arrangement or
agreement with any employee, officer, director, or stockholder of the
Company or any of its Subsidiaries;
(g) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets of the Company or
any of its Subsidiaries;
(h) Any resignation or termination of employment of any key
officer of the Company or any of its Subsidiaries; and the Company, to
its knowledge, does not know of the impending resignation or
termination of employment of any such officer;
(i) Receipt of notice that there has been a loss of, or material
order cancellation by, any major customer of the Company or any of its
Subsidiaries;
(j) Any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company or any of its Subsidiaries, with respect
to any of its material properties or assets, except liens for taxes
not yet due or payable;
(k) Any loans or guarantees made by the Company or its
Subsidiaries to or for the benefit of its employees, officers or
directors, or any members of their immediate families, other than
travel advances and other advances made in the ordinary course of
their business;
(l) Any declaration, setting aside or payment or other
distribution in respect of the Company's or any of its Subsidiaries'
capital stock, or any direct or indirect redemption, purchase or other
acquisition of any of such stock by the Company or any of its
Subsidiaries;
(m) Any other event or condition of any character that might have
a Material Adverse Effect; or
(n) Any agreement or commitment by the Company or any of its
Subsidiaries to do any of the things described in this Section 2.21.
2.22 Patents and Trademarks. Each of the Company and its Subsidiaries
owns or possesses sufficient legal rights to all patents, trademarks,
servicemarks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes necessary for its business as
now conducted and as proposed to be conducted without any conflict with or
infringement of the rights of others. The Schedule of Exceptions contains a
complete list of patents and pending patent applications of each of the
Company and its Subsidiaries. Except for agreements with its own employees
or consultants, substantially in the form referenced in Section 2.24 below,
there are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is the Company or any of its Subsidiaries
bound by or a party to any options, licenses or agreements of any kind with
respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, proprietary rights and processes of
any other person or entity. Neither the Company nor any of its
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Subsidiaries has received any communications alleging that the Company or
any of its Subsidiaries has violated or, by conducting its business as
proposed, would violate any of the patents, trademarks, service marks,
trade names, copyrights, trade secrets or other proprietary rights of any
other person or entity nor is the Company or any of its Subsidiaries aware
of any basis therefor. The Company is not aware that any of its employees
is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere
with the use of such employee's best efforts to promote the interests of
the Company and its Subsidiaries or that would conflict with the Company's
or any Subsidiary's business as proposed to be conducted. Neither the
execution nor delivery of this Agreement, nor the carrying on of the
Company's or any Subsidiary's business by the employees of the Company or
such Subsidiary, nor the conduct of the Company's or such Subsidiary's
business as proposed, will, to the best of the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions
of, or constitute a default under, any contract, covenant or instrument
under which any of such employees is now obligated. The Company does not
believe it is or will be necessary to use any inventions of any of its
employees (or persons it currently intends to hire) made prior to the
employment of such employees by the Company or any of its Subsidiaries.
2.23 Manufacturing and Marketing Rights. Neither the Company nor any
of its Subsidiaries has granted rights to manufacture, produce, assemble,
license, market, or sell its products to any other person, and is not bound
by any agreement that affects the Company's or any of its Subsidiaries'
exclusive right to develop, manufacture, assemble, distribute, market, or
sell its products.
2.24 Proprietary Information and Inventions Agreement. Each employee,
officer and director of the Company has executed an agreement to be bound
by the terms of the Company's Employee Handbook; the Company's Employee
Handbook has been previously delivered to special counsel for the Investors
and contains restrictions on the use of the Company's proprietary
information by its employees and the ownership of inventions. Each of the
Subsidiaries have similar protective measures in place relating to their
respective proprietary information and inventions.
2.25 Tax Returns, Payments, and Elections. The Company and its
Subsidiaries have filed all tax returns and reports as required by law.
These returns and reports are true and correct in all material respects.
The Company and its Subsidiaries have paid all taxes and other assessments
due, except those contested by it in good faith. The provision for taxes of
the Company as shown in the Financial Statements is adequate for taxes due
or accrued as of the date thereof. The Company has not elected pursuant to
the Internal Revenue Code of 1986, as amended ("Code"), to be treated as an
S corporation or a collapsible corporation pursuant to Section 341(f) of
Section 1362(a) of the Code, nor has it made any other elections pursuant
to the Code (other than elections which relate solely to methods of
accounting, depreciation or amortization) which would have a Material
Adverse Effect. The Company has never had any tax deficiency proposed or
assessed against it or any of its Subsidiaries and has not executed any
waiver of any statute of limitations on the assessment or collection of any
tax or governmental charge. None of the Company's federal income tax
returns and none of its state income or franchise tax or sales or use tax
returns has ever been audited by
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governmental authorities. Since the date of the Financial Statements, the
Company has made adequate provisions on its books of account for all taxes,
assessments and governmental charges with respect to its business,
properties and operations for such period. The Company has withheld or
collected from each payment made to each of its employees, the amount of
all taxes (including, but not limited to, federal income taxes, Federal
Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes)
required to be withheld or collected therefrom, and has paid the same to
the proper tax receiving officers or authorized depositaries.
2.26 Insurance. The Company and its Subsidiaries have in effect, with
financially sound insurers, insurance with respect to their businesses and
properties against liability, loss or damage of the kind customarily
insured against by corporations engaged in the same or similar businesses
and similarly situated, or such types and in such amounts as are
customarily carried under similar circumstances by such other corporations.
2.27 Environmental and Safety Laws. To the best of the Company's
knowledge, the business, operations and facilities of the Company and each
of its Subsidiaries have been and are being conducted in compliance with
all applicable laws, ordinances, rules, regulations, licenses, permits,
approvals, plans, authorizations or requirements relating to occupational
safety and health, pollution, protection of health or the environment, or
reclamation (including, without limitation, those relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants or
hazardous or toxic substances, materials or wastes into ambient air,
surface water, groundwater or land, or relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of chemical substances, pollutants, contaminants or hazardous or
toxic substances, materials or wastes, whether solid, gaseous or liquid in
nature) or otherwise relating to remediating real property in which the
Company or any of its Subsidiaries has any interest, whether owned or
leased, of any governmental department, commission, board, bureau, agency
or instrumentality of the United States, any state or political subdivision
thereof or any foreign jurisdiction and all applicable judicial or
administrative agency or regulatory decrees, awards, judgments and orders
relating thereto (collectively "Environmental Regulations"); and neither
the Company nor any of its Subsidiaries has received any notice from a
governmental instrumentality or any third party alleging any violation of
any Environmental Regulation or liability thereunder (including, without
limitation, liability for costs of investigating or remediating sites
containing hazardous substances or damages to natural resources).
2.28 Foreign Corrupt Practices Act. Neither the Company nor any of its
Subsidiaries, nor any director, officer, agent, employee, or other person
acting, with actual or apparent authority, on behalf of the Company or any
of its Subsidiaries has, at any relevant time, directly or indirectly: (i)
knowingly, unlawfully and corruptly made contributions, gifts, expenditures
for entertainment, or other unlawful expenditures relating to political
activity for the purpose of obtaining or retaining business; (ii)
knowingly, unlawfully and corruptly made payments to government officials
or employees or to political parties or campaigns for the purpose of
obtaining or retaining business; (iii) violated any applicable provision of
the U.S. Foreign Corrupt Practices Act of 1977, as amended (the "FCPA");
(iv) violated any applicable provision of U.S. "fraud and abuse
legislation" or U.S. "anti-
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kickback law"; or (v) made any other material payment in the nature of a
bribe, rebate, kickback, payoff or influence payment which was unlawful
under applicable law at the relevant time, and the Company's internal
accounting controls and procedures are sufficient to provide reasonable
assurance that the Company's transactions are executed and recorded in
accordance with the requirements of the FCPA.
2.29 Employee Benefit Plans. The Company and its Subsidiaries do not
maintain, contribute to or have any material liability with respect to any
employee benefit plan, profit sharing plan, employee pension benefit plan,
employee welfare benefit plan, equity-based plan or deferred compensation
plan or arrangements (collectively, "Plans") that are subject to the
provisions of the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder ("ERISA"). All Plans are
in compliance in all material respects with all applicable laws, including
but not limited to ERISA and the Internal Revenue Code of 1986, as amended
(the "Code"), and have been operated and administered in all material
respects in accordance with their terms. No Plan is a defined benefit plan
or multiemployer plan. The Company does not provide retiree life and/or
retiree health benefits or coverage for any employee or any beneficiary of
any employee after such employee's termination of employment, except as
required by Section 4980B of the Code or under a Plan which is intended to
be "qualified" under Section 401(a) of the Code. No Plan has been involved
in any prohibited transaction under Section 406 of ERISA or Section 4975 of
the Code. Full payment has been made of all amounts which the Company or
any of its Subsidiaries were required under the terms of the Plans to have
paid as contributions to such Plans on or prior to the date hereof
(excluding any amounts not yet due). No material liability, claim, action
or litigation has been incurred, made commenced or, to the knowledge of the
Company, threatened, by or against the Company or any of its Subsidiaries
with respect to any Plan (other than for benefits payable in the ordinary
course). No material liability has been, or could reasonably be expected to
be, incurred under Title IV of ERISA or Section 4001(b) of ERISA and/or
Section 414(b) of (c) of the Code (and the regulations promulgated
thereunder) with respect to any "employee pension benefit plan" which is
not a Plan. As used in this subsection, the terms "defined benefit plan,"
"employee benefit plan," "employee pension benefit plan," "employee welfare
benefit plan" and "multiemployer plan" shall have the respective meanings
assigned to such terms in Section 3 of ERISA.
3. Representations and Warranties of the Investor. Each Investor hereby
represents and warrants that:
3.1 Authorization. This Agreement constitutes its valid and legally
binding obligation, enforceable in accordance with its terms.
3.2 Purchase Entirely for Own Account. This Agreement is made with
each Investor in reliance upon such Investor's representation to the
Company, which by such Investor's execution of this Agreement such Investor
hereby confirms, that the Series B Preferred Stock to be received by such
Investor and the Common Stock issuable upon conversion thereof
(collectively, the "Securities") will be acquired for investment for such
Investor's own account, not as a nominee or agent,
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and not with a view to the resale or distribution of any part thereof, and
that such Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, each Investor further represents that such Investor does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities. Each Investor represents
that it has full power and authority to enter into this Agreement.
3.3 Disclosure of Information. Such Investor believes it has received
all of the information it considers necessary or appropriate for deciding
whether to purchase the Series B Preferred Stock. Each Investor further
represents that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the offering
of the Series B Preferred Stock. The foregoing, however, does not limit or
modify the representations and warranties of the Company in Section 2 of
this Agreement or the right of the Investors to rely thereon.
3.4 Investment Experience. Such Investor is an investor in securities
of companies in the development stage and acknowledges that it is able to
fend for itself, can bear the economic risk of its investment and has such
knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Series
B Preferred Stock.
3.5 Accredited Investor. Such Investor is an "accredited investor"
within the meaning of the Securities and Exchange Commission's (the "SEC")
Rule 501 of Regulation D, as presently in effect. If other than an
individual, Investor also represents that it has not been organized for the
purpose of acquiring the Series B Preferred Stock.
3.6 Restricted Securities. Such Investor understands that the shares
of Series B Preferred Stock it is purchasing are characterized as
"restricted securities" under the federal securities laws inasmuch as they
are being acquired from the Company in a transaction not involving a public
offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act,
only in certain limited circumstances. In this connection, each Investor
represents that it is familiar with SEC Rule 144, as presently in effect,
and understands the resale limitations imposed thereby and by the
Securities Act.
3.7 Further Limitations on Disposition. Without in any way limiting
the representations set forth above, each Investor further agrees not to
make any disposition of all or any portion of the Series B Preferred Stock
(or the Common Stock issuable upon the conversion thereof) unless and until
the transferee has agreed in writing for the benefit of the Company to be
bound by this Section 3.7, to the extent such section is then applicable,
the Investors' Rights Agreement, the Shareholders' Agreement and any
applicable Ancillary Agreement and:
(a) there is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition
is made in accordance with such Registration Statement; or
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(b) (i) such Investor shall have notified the Company of the
proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed
disposition, and (ii) if reasonably requested by the Company, such
Investor shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not
require registration of such shares under the Securities Act. It is
agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 under the Securities Act except
in unusual circumstances.
(c) notwithstanding the provisions of paragraphs (a) and (b)
above, no such registration statement or opinion of counsel shall be
necessary for a transfer without value by an Investor which is a
partnership to a partner of such partnership or a retired partner of
such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner or the transfer by gift, will
or intestate succession of any partner to his spouse or to the
siblings, lineal descendants or ancestors of such partner or his
spouse, or to an affiliate (as such term is defined in Rule 405 under
the Securities Act) of such Investor, if the transferee agrees in
writing to be subject to the terms hereof to the same extent as if he
were an original Investor hereunder.
3.8 Legends. It is understood that the certificates evidencing the
Series B Preferred Stock (and the Common Stock issuable upon conversion
thereof) may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in
effect with respect to the securities under such Act or an opinion of
counsel satisfactory to the Company that such registration is not
required or unless sold pursuant to Rule 144 of such Act."
(b) Any legend required to be placed thereon by applicable state
securities laws.
4. Conditions of Investor's Obligations at Closing. The obligations of each
Investor under subsection 1.1(b) of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions, the
waiver of which shall not be effective against any Investor who does not consent
in writing thereto:
4.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties
had been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the
Closing.
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4.3 Compliance Certificate. The President, or a Vice President and the
Chief Financial Officer, of the Company shall deliver to each Investor at
the Closing a certificate certifying that the conditions specified in
Sections 4.1 and 4.2 have been fulfilled and stating that there shall have
been no adverse change in the business, affairs, prospects, operations,
properties, assets or condition of the Company since March 31, 1999.
4.4 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Investors' special counsel, and they shall have received all
such counterpart original and certified or other copies of such documents
as they may reasonably request. All corporate and other proceedings to be
taken and all waivers, consents and permits necessary or appropriate for
the consummation of the transactions contemplated by this Agreement shall
have been taken or obtained.
4.5 Opinion of Company Counsel. Each Investor shall have received from
Dorsey & Whitney LLP, counsel for the Company, an opinion, dated as of the
Closing, in form and substance satisfactory to special counsel to the
Investors.
4.6 Investors' Rights Agreement. The Company and all other Investors
shall have entered into the Investors' Rights Agreement, in the form
attached hereto as Exhibit C.
4.7 Shareholders' Agreement. The Company, all other Investors and the
shareholders of the Company party thereto shall have entered into the
Pemstar Inc. Shareholders' Agreement (the "Shareholders' Agreement"), in
the form attached hereto as Exhibit D.
4.8. Quadrus Manufacturing Acquisition. The Company, prior to or
simultaneous with the Closing, shall have closed the acquisition of assets
of the Quadrus Manufacturing division of Bell Microproducts Inc. pursuant
to the Asset Purchase Agreement between the Company and Bell Microproducts
Inc. dated April 30, 1999.
4.9. U.S. Bank Financing. The Company, prior to or simultaneous with
the Closing, shall have closed the $40 million Credit Agreement with U.S.
Bank currently being negotiated, on substantially the same terms as
outlined in the summary term sheet dated May 11, 1999 that was provided to
the Investors.
5. Conditions of the Company's Obligations at Closing. The obligations of
the Company to each Investor under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions by that Investor:
5.1 Representations and Warranties. The representations and warranties
of the Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties
had been made on and as of the Closing.
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5.2 Payment of Purchase Price. The Investor shall have delivered the
purchase price specified in Section 1.2.
6. Miscellaneous.
6.1 Exculpation Among Investors. Each Investor acknowledges that it is
not relying upon any person, firm or corporation (including without
limitation any other Investor), other than the Company and its officers and
directors (acting in their capacity as representatives of the Company), in
deciding to invest and in making its investment in the Company. Each
Investor agrees that no other Investor nor the respective controlling
persons, officers, directors, partners, agents or employees of any other
Investor shall be liable to such Investor for any losses incurred by such
Investor in connection with its investment in the Company.
6.2 Survival of Warranties. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to
this Agreement shall survive the execution and delivery of this Agreement
and the Closing and shall in no way be affected by any investigation of the
subject matter thereof made by or on behalf of the Investors or the
Company.
6.3 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties
(including transferees of any shares of Series B Preferred Stock or any
Common Stock issued upon conversion thereof). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the
parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
6.4 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York as applied to agreements among New
York residents entered into and to be performed entirely within New York.
6.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.6 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
6.7 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be
deemed effectively given upon (a) personal delivery to the party to be
notified, (b) upon telefacsimile transmission to the party to be notified
at the telefacsimile number indicated for such party on the signature page
hereof, if any, or (c) upon deposit with an overnight courier service or
the United States Post Office, by registered or certified mail,
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postage prepaid and addressed to the party to be notified at the
address(es) indicated for such party on the signature page hereof, or at
such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
6.8 Finder's Fee. Each party represents that it neither is nor will be
obligated for any finder's fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature
of a finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Investor or any of its
officers, partners, employees, or representatives is responsible. The
Company agrees to indemnify and hold harmless each Investor from any
liability for any commission or compensation in the nature of a finder's
fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Company or any of its officers, employees
or representatives is responsible.
6.9 Expenses. Irrespective of whether the Closing is effected, the
Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. If the
Closing is effected, the Company shall, at the Closing, reimburse the
reasonable fees and expenses of special counsel for the Investors (not to
exceed $20,000). If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement or the Articles of Incorporation,
the prevailing party shall be entitled to reasonable attorneys' fees, costs
and necessary disbursements in addition to any other relief to which such
party may be entitled.
6.10 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the
holders of a majority of the Common Stock issued or issuable upon
conversion of the Series B Preferred Stock issued pursuant hereto. Any
amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any securities purchased under this Agreement
at the time outstanding (including securities into which such securities
are convertible), each future holder of all such securities, and the
Company; provided, however, that no condition set forth in Section 5 hereof
may be waived with respect to any Investor who does not consent thereto.
6.11 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable
in accordance with its terms.
6.12 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall
be liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
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6.13. Like Treatment of Holders. Neither the Company nor any of its
affiliates shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee, payment for the redemptions
or exchange of Preferred Stock, or otherwise, to any holder of Preferred
Stock for or as an inducement to, or in connection with the solicitation
of, any consent, waiver of or amendment of any terms or provisions of the
Preferred Stock or this Agreement, the Investors' Rights Agreement, the
Shareholders' Agreement or any Ancillary Agreement, unless such
consideration is paid to all holders of Preferred Stock bound by such
consent, waiver or amendment, whether or not such holders so consent, waive
or agree to amend and whether or not such holders tender their Preferred
Stock for redemption or exchange.
PEMSTAR INC., a Minnesota corporation
By:
-----------------------------------------
Robert R. Murphy, Chief Financial Officer
Address: 3535 Technology Drive N.W.
Rochester, Minnesota 55901
INVESTORS:
LEHMAN BROTHERS VENTURE
PARTNERS L.P.
By: Lehman Brothers Venture Associates Inc.
Its: General Partner
---------------------------------------------
(Signature)
---------------------------------------------
(Name)
---------------------------------------------
(Title)
Address: 3 World Financial Center
New York, NY 10285
<PAGE>
[SIGNATURE PAGE TO THE SERIES B PREFERRED
STOCK PURCHASE AGREEMENT]
<PAGE>
LEHMAN BROTHERS VENTURE
CAPITAL PARTNERS I, L.P.
By: LB I Group Inc.
Its: General Partner
----------------------------------
(Signature)
----------------------------------
(Name)
----------------------------------
(Title)
Address: 3 World Financial Center
New York, NY 10285
LEHMAN BROTHERS VC
PARTNERS L.P.
By: LB I Group Inc.
Its: General Partner
----------------------------------
(Signature)
----------------------------------
(Name)
----------------------------------
(Title)
Address: 3 World Financial Center
New York, NY 10285
<PAGE>
[SIGNATURE PAGE TO THE SERIES B PREFERRED
STOCK PURCHASE AGREEMENT]
SCHEDULE A
SCHEDULE OF INVESTORS
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Cash Purchase No. of
Name Price Shares
- ------------------------------------------------ ------------- ---------
Lehman Brothers Venture Partners L.P. $3,678,948 204,386
Lehman Brothers Venture Capital Partners I, L.P. $2,201,436 122,302
Lehman Brothers VC Partners L.P. $12,119,616 673,312
CLOSING TOTALS:
<PAGE>
EXHIBIT 10.10
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PEMSTAR INC.
FIRST AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
June 7, 1999
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<PAGE>
TABLE OF CONTENTS
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Page
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1. Registration Rights ...................................................... 1
1.1 Definitions ..................................................... 1
1.2 Request for Registration ........................................ 2
1.3 Company Registration ............................................ 3
1.4 Obligations of the Company ...................................... 4
1.5 Furnish Information ............................................. 5
1.6 Expenses of Demand Registration ................................. 6
1.7 Expenses of Company Registration ................................ 6
1.8 Underwriting Requirements ....................................... 6
1.9 Delay of Registration ........................................... 7
1.10 Indemnification ................................................. 7
1.11 Reports Under Securities Exchange Act of 1934 ................... 9
1.12 Form S-3 Registration ...........................................10
1.13 Assignment of Registration Rights ...............................11
1.14 Limitations on Subsequent Registration Rights ...................11
1.15 "Market Stand-Off" Agreement ....................................11
1.16 Termination of Registration Rights ..............................12
2. Covenants of the Company .................................................12
2.1 Delivery of Financial Statements ................................12
2.2 Inspection ......................................................13
2.3 Termination of Information, Inspection and First Offer
Covenants .....................................................13
2.4 Right of First Offer ............................................13
3. Miscellaneous. ...........................................................14
3.1 Successors and Assigns ..........................................14
3.2 Governing Law ...................................................15
3.3 Counterparts ....................................................15
3.4 Titles and Subtitles ............................................15
3.5 Notices .........................................................15
3.6 Expenses ........................................................15
3.7 Amendments and Waivers ..........................................15
3.8 Severability ....................................................15
3.9 Entire Agreement ................................................16
Schedule A - Schedule of Investors
(i)
<PAGE>
FIRST AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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THIS FIRST AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of
the 7th day of June, 1999, by and among PEMSTAR INC., a Minnesota corporation
(the "Company"), and the investors listed on Schedule A hereto, each of which is
herein referred to individually as an "Investor" and all of which are herein
referred to collectively as the "Investors," and terminates and supersedes in
all respects that certain Investors' Rights Agreement dated February 12, 1998,
by and among the Company and certain of the Investors.
RECITALS
--------
The Company and certain of the Investors have entered into a Series B
Preferred Stock Purchase Agreement (the "Purchase Agreement") of even date
herewith pursuant to which the Company desires to sell to certain of the
Investors and certain of the Investors desire to purchase from the Company
shares of the Company's Series B Preferred Stock. A condition to such Investors'
obligations under the Purchase Agreement is that the Company and the Investors
enter into this Agreement in order to provide such Investors with (i) certain
rights to register shares of the Company's Common Stock issuable upon conversion
of the Series B Preferred Stock held by the Investors, (ii) certain rights to
receive or inspect information pertaining to the Company, and (iii) a right of
first offer with respect to certain issuances by the Company of its securities.
The Company, the Investors and the Founders each desire to induce certain of the
Investors to purchase shares of Series B Preferred Stock pursuant to the
Purchase Agreement by agreeing to the terms and conditions set forth herein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company and the Investors covenant and agree as
follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.13 hereof.
(d) The term "1934 Act" means the Securities Exchange Act of
1934, as amended.
<PAGE>
(e) The term "register", "registered," and "registration" refer
to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration
statement or document.
(f) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock and
the Series B Preferred Stock, and (ii) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of
the shares referenced in (i) above, excluding in all cases, however,
any Registrable Securities sold by a person in a transaction in which
his rights under this Section 1 are not assigned or any Registrable
Securities sold in a public offering or pursuant to SEC Rule 144.
(g) The number of shares of "Registrable Securities then
outstanding" means the number of shares of Common Stock outstanding
which are, and the number of shares of Common Stock issuable pursuant
to then exercisable or convertible securities which are, Registrable
Securities.
(h) The term "SEC" means the Securities and Exchange Commission.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the earlier of
(i) February 12, 2001, or (ii) six (6) months after the effective date
of the first registration statement for a public offering of
securities of the Company (other than a registration statement
relating either to the sale of securities to employees of the Company
pursuant to a stock option, stock purchase or similar plan or a SEC
Rule 145 transaction), a written request from the Holders of at least
thirty-five percent (35%) of the Registrable Securities then
outstanding that the Company file a registration statement under the
Act covering the registration of Registrable Securities then
outstanding, the anticipated aggregate offering price of which would
exceed $10,000,000, then the Company shall:
(i) within ten (10) days of the delivery thereof, give
written notice of such request to all Holders; and
(ii) use its best efforts to effect as soon as practicable,
and in any event within ninety (90) days of the delivery of such
request, the registration under the Act of all Registrable
Securities which the Holders request to be registered, subject to
the limitations of subsection 1.2(b), within twenty (20) days of
the delivery of such notice by the Company.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to
subsection 1.2(a) and the Company shall include such information in
the written
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<PAGE>
notice referred to in subsection 1.2(a). The underwriter will be
selected by the majority in interest of the Initiating Holders and
shall be reasonably acceptable to the Company. In such event, the
right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting (unless otherwise mutually agreed by a
majority in interest of the Initiating Holders and such Holder) to the
extent provided herein. All Holders proposing to distribute their
securities through such underwriting shall (together with the Company
as provided in subsection 1.4(e)) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for
such underwriting. Notwithstanding any other provision of this Section
1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders
of Registrable Securities which would otherwise be underwritten
pursuant thereto, and the number of shares of Registrable Securities
that may be included in the underwriting shall be allocated among all
Holders thereof, including the Initiating Holders, in proportion (as
nearly as practicable) to the amount of Registrable Securities of the
Company owned by each Holder; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting
shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this
Section 1.2, a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such registration statement to be filed and it is
therefore essential to defer the filing of such registration
statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than ninety (90)
days after delivery of the request of the Initiating Holders;
provided, however, that the Company may not utilize this right more
than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to effect, or
to take any action to effect, any registration pursuant to this
Section 1.2:
(i) after the Company has effected two registrations
pursuant to this Section 1.2 and such registrations have been
declared or ordered effective;
(ii) during the period starting with the date ninety (90)
days prior to the Company's good faith estimate of the date of
filing of, and ending on a date one hundred eighty (180) days
after the effective date of, a registration subject to Section
1.3 hereof; provided that the Company is actively employing in
good faith all reasonable efforts to cause such registration
statement to become effective; or
(iii) if the Initiating Holders propose to dispose of shares
of Registrable Securities that may be immediately registered on
Form S-3 pursuant to a request made pursuant to Section 1.12
below.
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<PAGE>
1.3 Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public
offering of such securities solely for cash (other than a registration
relating solely to the sale of securities to participants in a Company
stock plan, a registration on any form which does not include substantially
the same information as would be required to be included in a registration
statement covering the sale of the Registrable Securities), the Company
shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within twenty
(20) days after delivery of such notice by the Company, the Company shall,
subject to the provisions of Section 1.8, cause to be registered under the
Act all of the Registrable Securities that each such Holder has requested
to be registered.
1.4 Obligations of the Company. Whenever required under this Section 1
to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to
cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for
a period of up to one hundred twenty (120) days; provided, however,
that (i) such 120-day period shall be extended for a period of time
equal to the period the Holder refrains from selling any securities
included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company; and (ii) in the
case of any registration of Registrable Securities on Form S-3 which
are intended to be offered on a continuous or delayed basis, such
120-day period shall be extended, if necessary, to keep the
registration statement effective until all such Registrable Securities
are sold, provided that Rule 415, or any successor rule under the Act,
permits an offering on a continuous or delayed basis, and provided
further that applicable rules under the Act governing the obligation
to file a post-effective amendment permit, in lieu of filing a
post-effective amendment which (I) includes any prospectus required by
Section 10(a)(3) of the Act or (II) reflects facts or events
representing a material or fundamental change in the information set
forth in the registration statement, the incorporation by reference of
information required to be included in (I) and (II) above to be
contained in periodic reports filed pursuant to Section 13 or 15(d) of
the 1934 Act in the registration statement.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with
the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
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<PAGE>
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested
by the Holders; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any
such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering.
Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto
is required to be delivered under the Act of the happening of any
event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading or incomplete in the light of the circumstances
then existing, and at the request of any such Holder, prepare and
furnish to such Holder a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such shares, such prospectus
shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading or incomplete in the light
of the circumstances then existing.
(g) Cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company
are then listed.
(h) Provide a transfer agent and registrar and a CUSIP number for
all such Registrable Securities, in each case not later than the
effective date of such registration.
(i) In the event of any underwritten public offering, cooperate
with the selling Holders, the underwriters participating in the
offering and their counsel in any due diligence investigation
reasonably requested by the selling Holders or the underwriters in
connection therewith, and participate, to the extent reasonably
requested by the managing underwriter for the offering or the selling
Holder, in efforts to sell the Registrable Securities under the
offering (including, without limitation, participating in "roadshow"
meetings with prospective investors) that would be customary for
underwritten primary offerings of a comparable amount of equity
securities by the Company.
1.5 Furnish Information.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to
the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of
disposition of such securities as shall be required to effect the
registration of such Holder's Registrable Securities.
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<PAGE>
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 if, due to the
operation of subsection 1.5(a), the number of shares or the
anticipated aggregate offering price of the Registrable Securities to
be included in the registration does not equal or exceed the number of
shares or the anticipated aggregate offering price required to
originally trigger the Company's obligation to initiate such
registration as specified in subsection 1.2(a).
1.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations pursuant to Section 1.2, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees,
and fees and disbursements of counsel for the Company (including fees and
disbursements of one counsel for the selling Holders) shall be borne by the
Company; provided, however, that the Company shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section
1.2 if the registration request is subsequently withdrawn at the request of
the Holders of a majority of the Registrable Securities to be registered
(in which case all participating holders shall bear such expenses), unless
the Holders of a majority of the Registrable Securities agree to forfeit
their right to one demand registration pursuant to Section 1.2.
1.7 Expenses of Company Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to registrations
pursuant to Section 1.3 for each Holder, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto and the fees and disbursements of one
counsel for the selling Holders, but excluding in all cases underwriting
discounts and commissions relating to Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under Section 1.3 to include any of the
Holders' securities in such underwriting unless they accept the terms of
the underwriting as agreed upon between the Company and the underwriters
selected by the Initiating Holders (or by other persons entitled to select
the underwriters), and then only in such quantity as the underwriters
determine in their sole discretion will not materially adversely affect the
success of the offering by the Company. If the total amount of securities,
including Registrable Securities, requested by shareholders to be included
in such offering exceeds the amount of securities sold other than by the
Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be
required to include in the offering only that number of such securities,
including Registrable Securities, which the underwriters determine in their
sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling
shareholders according to the total amount of securities entitled to be
included therein owned by each selling Shareholder or in such other
proportions as shall mutually be agreed to by such selling shareholders)
but in no event shall (i) the amount of securities of the selling Holders
included in the offering be reduced below thirty percent (30%) of the total
amount of securities included in such offering, unless such offering is the
initial public offering of the Company's securities in
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<PAGE>
which case the selling Holders may be excluded if the underwriters make the
determination described above and no other shareholder's securities are
included or (ii) notwithstanding (i) above, any shares being sold by a
shareholder exercising a demand registration right similar to that granted
in Section 1.2 be excluded from such offering. For purposes of the
preceding parenthetical concerning apportionment, for any selling
shareholder which is a holder of Registrable Securities and which is a
partnership or corporation, the partners, retired partners and shareholders
of such holder, or the estates and family members of any such partners and
retired partners and any trusts for the benefit of any of the foregoing
persons shall be deemed to be a single "selling shareholder," and any
pro-rata reduction with respect to such "selling shareholder" shall be
based upon the aggregate amount of shares carrying registration rights
owned by all entities and individuals included in such "selling
shareholder," as defined in this sentence.
1.9 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration
as the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, each of its directors, officers and
employees, and any underwriter (as defined in the Act) for such Holder
and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the 1934 Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, or the 1934 Act, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto,
(ii) the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by
the Company of the Act, the 1934 Act, or any rule or regulation
promulgated under the Act, or the 1934 Act; and the Company will,
promptly upon demand, pay to each such Holder, director, officer,
employee, underwriter or controlling person any legal or other
expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this
subsection 1.10(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such settlement
is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any
such case for any such loss, claim, damage, liability, or action to
the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by
any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the
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<PAGE>
registration statement, each person, if any, who controls the Company
within the meaning of the Act or the 1934 Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against
any losses, claims, damages, or liabilities (joint or several) to
which any of the foregoing persons may become subject, under the Act
or the 1934 Act, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity
with written information furnished by such Holder expressly for use in
connection with such registration; and each such Holder will, promptly
upon demand, pay any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this subsection
1.10(b), in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 1.10(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld;
provided, that, in no event shall any indemnity under this subsection
1.10(b) exceed the net proceeds from the offering received by such
Holder.
(c) Promptly after delivery by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under
this Section 1.10, deliver to the indemnifying party a written notice
of the commencement thereof and the indemnifying party shall have the
right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to
the parties; provided, however, that an indemnified party (together
with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate
counsel, with the reasonable fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due
to actual or potential differing interests between such indemnified
party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action,
if prejudicial to its ability to defend such action, shall relieve
such indemnifying party of any liability to the indemnified party
under this Section 1.10, but the omission so to deliver written notice
to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section
1.10. Notwithstanding the foregoing, any indemnifying party shall not
enter into any settlement of any such loss, claim, damage, liability
or action without the full and complete release of all the indemnified
parties.
(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage,
or expense referred to therein, then the indemnifying party, in lieu
of indemnifying such indemnified party hereunder, shall contribute to
the amount paid or payable by such indemnified party as a result of
such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party
on the one hand and of the indemnified party on the other in
connection with the statements or omissions that
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<PAGE>
resulted in such loss, liability, claim, damage, or expense as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access
to information, and opportunity to correct or prevent such statement
or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the
underwritten public offering are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall control
with respect to the rights and obligations of each of the parties to
such underwriting agreement.
(f) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and
otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees
to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety
(90) days after the effective date of the first registration statement
filed by the Company for the offering of its securities to the general
public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to
enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable
after the end of the fiscal year in which the first registration
statement filed by the Company for the offering of its securities to
the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement
by the Company that it has complied with the reporting requirements of
SEC Rule 144 (at any time after ninety (90) days after the effective
date of the first registration statement filed by the Company), the
Act and the 1934 Act (at any time after it has become subject to such
reporting requirements), or that it qualifies as a registrant whose
securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably
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<PAGE>
requested in availing any Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration
or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive from a
Holder a written request or requests that the Company effect a registration
on Form S-3 with respect to all or a part of the Registrable Securities
owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion
of such Holder's or Holders' Registrable Securities as are specified
in such request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such request as
are specified in a written request given within fifteen (15) days
after delivery of such written notice from the Company; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this section
1.12: (i) if Form S-3 is not available for such offering by the
Holders; (ii) if the Company shall furnish to the Holders a
certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would
be seriously detrimental to the Company and its shareholders for such
Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than ninety (90) days
after delivery of the request of the Holder or Holders under this
Section 1.12; provided, however, that the Company shall not utilize
this right more than once in any twelve month period; (iii) if the
Company has, within the twelve (12) month period preceding the date of
such request, already effected two (2) registrations on Form S-3 for
the Holders pursuant to this Section 1.12; or (iv) in any particular
jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after
delivery of the request or requests of the Holders. All expenses
incurred in connection with a registration requested pursuant to
Section 1.12, including (without limitation) all registration, filing,
qualification, printer's and accounting fees and the reasonable fees
and disbursements of one counsel for the selling Holder or Holders and
counsel for the Company, but excluding any underwriters' discounts or
commissions associated with Registrable Securities, shall be borne by
the Company. Registrations effected pursuant to this Section 1.12
shall not be counted as registrations effected pursuant to Sections
1.2 or 1.3.
1.13 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may
be assigned (but only with all related obligations) by a Holder to a
transferee or assignee of such securities, provided: (a) the Company is,
within a reasonable time after such transfer, furnished with written notice
of the
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<PAGE>
name and address of such transferee or assignee and the Registrable
Securities with respect to which such registration rights are being
assigned; and (b) such transferee or assignee agrees in writing to be bound
by and subject to the terms and conditions of this Agreement, including
without limitation the provisions of Section 1.15 below.
1.14 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder
of any securities of the Company which would allow such holder or
prospective holder (a) to include such securities in any registration filed
under Section 1.2 hereof, unless under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of his securities will
not reduce the amount of the Registrable Securities of the Holders which is
included or (b) to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of
either of the dates set forth in subsection 1.2(a) or within one hundred
eighty (180) days of the effective date of any registration effected
pursuant to Section 1.2.
1.15 "Market Stand-Off" Agreement. Each Investor hereby agrees that,
during the period of duration specified by the Company and an underwriter
of Common Stock or other securities of the Company, following the effective
date of a registration statement of the Company filed under the Act, it
shall not, to the extent requested by the Company and such underwriter,
directly or indirectly sell, offer to sell, contract to sell (including,
without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be
similarly bound) any securities of the Company held by it at any time
during such period except Common Stock included in such registration;
provided, however, that:
(a) such agreement shall not exceed one hundred eighty (180) days
for the first such registration statement of the Company which covers
Common Stock (or other securities) to be sold on its behalf to the
public in an underwritten offering;
(b) such agreement shall not exceed ninety (90) days for any
subsequent registration statement of the Company which covers Common
Stock (or other securities) to be sold on its behalf to the public in
an underwritten offering; and
(c) an Investor shall not be subject to such agreement unless all
executive officers and directors of the Company enter into similar
agreements and all other Investors and holders of other registration
rights are subject to or obligated to enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of
each Investor (and the shares or securities of every other person subject
to the foregoing restriction) until the end of such period.
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<PAGE>
1.16 Termination of Registration Rights. No Holder shall be entitled
to exercise any right provided for in this Section 1 after the earlier of
(i) five (5) years following the consummation of the sale of securities
pursuant to a registration statement filed by the Company under the Act in
connection with the initial firm commitment underwritten offering of its
securities to the general public (the "IPO") and (ii) that date following
the IPO upon which each Holder holds less than 1% of the then issued and
outstanding shares of capital stock of the Company and such shares may be
immediately sold under Rule 144 during any 90 day period.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall deliver to
each Investor:
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and
statement of shareholder's equity as of the end of such year, and a
schedule as to the sources and applications of funds for such year,
such year-end financial reports to be in reasonable detail, prepared
in accordance with generally accepted accounting principles ("GAAP"),
and audited and certified by independent public accountants of
nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five
(45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss
statement, schedule as to the sources and application of funds for
such fiscal quarter and an unaudited balance sheet as of the end of
such fiscal quarter;
(c) within thirty (30) days of the end of each month, an
unaudited income statement and schedule as to the sources and
application of funds and unaudited balance sheet for and as of the end
of such month, in reasonable detail;
(d) as soon as practicable, but in any event thirty (30) days
prior to the end of each fiscal year, a budget and business plan for
the next fiscal year, prepared on a monthly basis, including balance
sheets and sources and applications of funds statements for such
months and, as soon as prepared, any other budgets or revised budgets
prepared by the Company;
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by
the Chief Financial Officer or President of the Company and certifying
that such financial statements were prepared in accordance with GAAP
consistently applied with prior practice for earlier periods (with the
exception of footnotes that may be required by GAAP) and fairly
present the financial condition of the Company and its results of
operation for the period specified, subject to year-end audit
adjustment;
(f) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time
request, provided, however, that the Company shall not be obligated
under this
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<PAGE>
subsection (f) or any other subsection of Section 2.1 to provide
information which it deems in good faith to be a trade secret or
similar confidential information.
2.2 Inspection. The Company shall permit each Investor, at such
Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's
affairs, finances and accounts with its officers, all at such reasonable
times and during normal working hours as may be requested by the Investor;
provided, however, that the Company shall not be obligated pursuant to this
Section 2.2 to provide access to any information which it reasonably
considers to be a trade secret or similar confidential information.
2.3 Termination of Information, Inspection and First Offer Covenants.
The covenants set forth in Sections 2.1, 2.2 and 2.4 shall terminate and be
of no further force or effect upon the IPO or when the Company first
becomes subject to the periodic reporting requirements of Sections 12(g) or
15(d) of the 1934 Act, whichever event shall first occur.
2.4 Right of First Offer. Subject to the terms and conditions
specified in this Section 2.4, the Company hereby grants to each Investor a
right of first offer with respect to future sales by the Company of its
Shares (as hereinafter defined). For purposes of this Section 2.4, Investor
includes any general partners and affiliates of an Investor. An Investor
shall be entitled to apportion the right of first offer hereby granted it
among itself and its partners and affiliates in such proportions as it
deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares
to each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Investors stating (i) its bona fide intention to
offer such Shares, (ii) the number of such Shares to be offered, and
(iii) the price and terms, if any, upon which it proposes to offer
such Shares.
(b) Within twenty (20) calendar days after delivery of the
Notice, the Investor may elect to purchase or obtain, at the price and
on the terms specified in the Notice, up to that portion of such
Shares which equals the proportion that the number of shares of Common
Stock issued and held, or issuable upon conversion of the Series A
Preferred Stock and Series B Preferred Stock then held, by such
Investor bears to the total number of shares of Common Stock of the
Company then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities).
(c) If all Shares which Investors are entitled to obtain pursuant
to subsection 2.4(b) are not elected to be obtained as provided in
subsection 2.4(b) hereof, the Company may, during the 30-day period
following the expiration of the period provided in subsection 2.4(b)
hereof, offer the remaining unsubscribed portion of such Shares to any
person or persons at a price not less than, and upon terms no more
favorable to the offeree than, those
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<PAGE>
specified in the Notice. If the Company does not enter into an
agreement for the sale of the Shares within such period, or if such
agreement is not consummated within thirty (30) days of the execution
thereof, the right provided hereunder shall be deemed to be revived
and such Shares shall not be offered unless first reoffered to the
Investors in accordance herewith.
(d) The right of first offer in this Section 2.4 shall not be
applicable to the issuance or sale of securities issued pursuant to
the exercise or conversion of exercisable or convertible securities;
securities issued pursuant to the terms of any joint venture agreement
or in an acquisition of the business of any other corporation, or
other business entity, by way of merger, reorganization, transfer of
assets or consolidation (or any similar transaction) approved by the
Board of Directors of the Company in good faith as being in the best
interests of the Company and its shareholders; securities issued by
the Company to a lender in connection with any bona fide arm's-length
debt-financing transaction that is approved by the Board of Directors
of the Company in good faith as being in the best interests of the
Company and its shareholders, provided such borrowings do not have any
equity features including warrants, options or other rights to
purchase capital stock and are not convertible into capital stock of
the Company; Common Stock issued pursuant to any arrangement approved
by the Board of Directors to employees, officers and directors of, or
consultants, advisors or other persons performing services for, the
Company; securities issued to vendors or customers or to other persons
in similar commercial situations with the Company if such issuance is
approved by the Board of Directors; securities issued by the Company
to a lessor, guarantor or other person in connection with any bona
fide arm's-length lease financing transaction that is approved by the
Board of Directors of the Company in good faith as being in the best
interests of the Company and its shareholders; securities issued in
connection with any stock split, stock dividend or recapitalization of
the Company; and any right, option or warrant to acquire or any
security convertible into the securities excluded from the definition
of Shares pursuant to subsections (i) through (vii) above.
(e) The right of first offer set forth in this Section 2.4 may
not be assigned or transferred, except that such right is assignable
by each Holder to any wholly owned subsidiary or parent of, or to any
corporation or entity that is, within the meaning of the Act,
controlling, controlled by or under common control with, any such
Holder.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in
this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
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<PAGE>
3.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York as applied to agreements among New
York residents entered into and to be performed entirely within New York.
3.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be
deemed effectively given or delivered upon (a) personal delivery to the
party to be notified, (b) upon telefacsimile transmission to the party to
be notified at the telefacsimile number indicated for such party on the
signature page hereof, if any, or (c) upon deposit with an overnight
courier service or the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified
at the address(es) indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days'
advance written notice to the other parties.
3.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
3.7 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the
holders of a majority of the Registrable Securities then outstanding. Any
amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Registrable Securities then outstanding,
each future holder of all such Registrable Securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted
as if such provision were so excluded and shall be enforceable in
accordance with its terms.
3.9 Entire Agreement. This Agreement (including the Exhibits hereto,
if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and
thereof.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Investors' Rights
Agreement as of the date first above written.
COMPANY:
PEMSTAR INC., a Minnesota corporation
By: /s/ Robert R. Murphy
----------------------------------------
Robert R. Murphy, Chief Financial Officer
Address: 3535 Technology Drive N.W.
Rochester, Minnesota 55901
INVESTORS:
LB I Group Inc.
By: /s/ Michael J. Odrich
-----------------------------------------
Title: Vice President
--------------------------------------
Address: 3 World Financial Center
New York, NY 10285
/s/ Jeffrey M. Drazan
---------------------------------------------
Jeffrey M. Drazan
Address:
---------------------------------------------
---------------------------------------------
[SIGNATURE PAGE TO THE FIRST AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE>
LEHMAN BROTHERS VENTURE
PARTNERS L.P.
By: Lehman Brothers Venture Associates Inc.
Its: General Partner
/s/ Michael J. Odrich
---------------------------------------------
(Signature)
Michael J. Odrich
---------------------------------------------
(Name)
President
---------------------------------------------
(Title)
LEHMAN BROTHERS VENTURE
CAPITAL PARTNERS I, L.P.
By: LB I Group Inc.
Its: General Partner
/s/ Michael J. Odrich
---------------------------------------------
(Signature)
Michael J. Odrich
---------------------------------------------
(Name)
Vice President
---------------------------------------------
(Title)
LEHMAN BROTHERS VC
PARTNERS L.P.
By: LB I Group Inc.
Its: General Partner
/s/ Michael J. Odrich
---------------------------------------------
(Signature)
Michael J. Odrich
---------------------------------------------
(Name)
Vice President
---------------------------------------------
(Title)
<PAGE>
SCHEDULE A
----------
INVESTORS
---------
LB I Group Inc.
Jeffrey M. Drazan
Lehman Brothers Venture Partners L.P.
Lehman Brothers Venture Capital Partners I, L.P.
Lehman Brothers VC Partners L.P.
<PAGE>
EXHIBIT 10.11
PEMSTAR INC.
------------
FIRST AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT
--------------------------------------------------
THIS FIRST AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT is made as of the
day of June 1999, by and among PEMSTAR Inc., a Minnesota corporation (the
"Company"), the holders of Common Stock of the Company listed on the attached
Schedule A (individually, a "Common Holder" and collectively, the "Common
Holders"), and the holders of Series A Preferred Stock and Series B Preferred
Stock of the Company listed on the attached Schedule B (individually, a
"Preferred Holder" and collectively, the "Preferred Holders").
RECITALS
--------
A. Pursuant to that certain Series B Preferred Stock Purchase Agreement
dated as of the date hereof among the Company and certain of the Preferred
Holders, certain of the Preferred Holders are purchasing or agreeing to purchase
an aggregate of 1,000,000 shares of the Company's Series B Preferred Stock (the
"Series B Financing").
B. In order to induce certain of the Preferred Holders to purchase the
Series B Preferred Stock, the Common Holders desire to grant to the Company and
the Preferred Holders rights of first refusal and co-sale with respect to the
Common Holders' shares of Common Stock of the Company.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
the parties agree as follows:
1. Definitions.
a. "Common Stock" shall mean the Company's Common Stock and shares of
Common Stock issued or issuable upon conversion of the Company's
outstanding Preferred Stock.
b. "Preferred Stock" shall mean the Company's Series A Preferred Stock
and Series B Preferred Stock now owned or subsequently acquired by the
Preferred Holders.
c. "Stock" shall mean shares of the Company's Common Stock now owned
or subsequently acquired by the Common Holders.
d. "Transfer" shall mean any direct or indirect sale, exchange,
transfer, assignment, pledge, creation of a security interest in, or
encumbrance on, or other disposition by a Common Holder of all or any
portion of such Common Holder's interest in the Common Stock or any
economic interest therein (including without limitation by means of any
participation or swap transaction).
<PAGE>
2. Right of First Refusal.
a. Notice to the Company and Preferred Holders.
(1) In the event any Common Holder (the "Transferring
Shareholder") desires to Transfer any Stock other than as specifically
provided in Section 5 below, such Transferring Shareholder must
deliver a notice in writing by certified mail ("Notice") to the
Company stating (A) his bona fide intention to Transfer such shares,
(B) the number of such shares to be Transferred, (C) the price, if
any, for which he proposes to Transfer such shares, and (D) the name
of the proposed purchaser or transferee.
(2) In the event the proposed Transfer is partially or completely
in exchange for assets other than cash, then such assets shall be
deemed to have a cash value in the amount determined by the Company's
Board of Directors in its sole good faith opinion, in which case such
cash value ascertained by the Board, when added to any cash to be
exchanged and then divided by the number of shares of Stock to be
Transferred, shall be deemed the price per share set forth in the
Notice. In the event of a gift, property settlement or other Transfer
in which the proposed purchaser or transferee is not paying the full
price for the Stock, which Transfer is not otherwise exempted from the
terms of Section 2 and 3 hereof, the price shall be deemed to be the
fair market value of the Stock as determined in good faith by the
Board of Directors.
b. Company Right of First Refusal. The Company shall have an
exclusive, irrevocable option (the "Company Option"), at any time within
twenty (20) days of receipt of the Notice, to purchase all (but not less
than all) of the Stock to which the Notice refers at the price per share
specified in the Notice (as determined in Section 2(a)(ii)). The Company
shall exercise the Company Option by written notice signed by an officer of
the Company and delivered or mailed to the Transferring Shareholder (the
"Company Settlement Notice"), which notice shall specify the time, place
and date for settlement of such purchase.
c. Company Settlement. Within ten (10) days of receipt of the Company
Settlement Notice, the Transferring Shareholder must deliver to the Company
all certificates for the Stock being acquired by the Company, together with
proper assignments in blank of the Stock with signatures properly
guaranteed and with such other documents as may be required by the Company
to provide reasonable assurance that each necessary endorsement is genuine
and effective, and the Company must thereupon deliver to the Transferring
Shareholder full cash payment for the Stock being acquired, provided that
if the terms of payment set forth in the Notice were other than cash
against delivery, the Company shall pay for said shares on the same terms
and conditions set forth in such Notice.
d. Preferred Holders' Right of First Refusal. In the event that the
Company does not exercise the Company Option, the Company shall, not later
than twenty (20) days from the date of receipt of the Notice, give written
notice to the Preferred Holders of the Company's nonexercise of the Company
Option, which notice
<PAGE>
shall enclose the Notice and shall specify the procedures by which each
Preferred Holder may exercise the option to purchase not more than its Pro
Rata Share (as defined in Section 2(g) below) of the Stock to which the
Notice refers (the "Preferred Holder Option"). For twenty (20) calendar
days following the expiration of the Company Option, each Preferred Holder
may exercise its Preferred Holder Option at the same price and upon the
same terms as set forth in the Notice. Any Preferred Holder desiring to
exercise its Preferred Holder Option shall deliver to the Company and to
the Transferring Shareholder a written notice of election to purchase the
shares with respect to which the Preferred Holder Option is to be
exercised.
e. Assignment of Preferred Holder Option. Each Preferred Holder may
assign its rights under this Section 2 to (i) any of its limited partners
or shareholders, (ii) any entity related to or affiliated with such
Preferred Holder, or (iii) another Preferred Holder; provided, however,
that if payment is to be made in any manner other than all cash against
delivery of the Stock being sold, such assignee must be at least as
creditworthy as the Preferred Holder so assigning its rights or the payment
for the Stock must be guaranteed by the Preferred Holder so assigning its
rights, and provided, further, however, that the issuance of such shares of
Stock to the assignee shall be exempt from registration.
f. Preferred Holder Settlement. Promptly upon expiration of the
Preferred Holder Option, the Company shall deliver a notice in writing to
the Transferring Shareholder and each Preferred Holder and/or assignee who
elected to acquire a portion of the Stock subject to the Preferred Holder
Option (the "Preferred Holder Settlement Notice") setting forth the number
of shares of Stock to be sold to each Preferred Holder and/or assignee and
the price thereof. Within ten (10) days of receipt of the Preferred Holder
Settlement Notice, the Transferring Shareholder must deliver to the Company
any certificates for the Stock being acquired by the Preferred Holders
and/or assignees, together with proper assignments in blank of the Stock
with signatures properly guaranteed and with such other documents as may be
required by the Company to provide reasonable assurance that each necessary
endorsement is genuine and effective. Within ten (10) days of receipt of
the Preferred Holder Settlement Notice, each Preferred Holder and/or
assignee acquiring a portion of the Stock must deliver to the Company full
cash payment for the portion of the subject Stock being so acquired,
provided that if the terms of payment set forth in the Notice were other
than cash against delivery, the Preferred Holders electing to acquire a
portion of the subject Stock and/or their assignees shall pay for said
shares on the same terms and conditions set forth in such Notice. The
Company shall thereafter promptly remit full payment for the Stock acquired
hereby to the Transferring Shareholder and deliver the new or assigned
certificates to the Preferred Holders and/or assignees, as appropriate.
g. Determination of Pro Rata Share. For purposes of Section 2 above,
each Preferred Holder's "Pro Rata Share" is the ratio of (i) the total
number of shares of Common Stock and Preferred Stock held by such Preferred
Holder as of the date of the Notice (on an as-converted to Common Stock
basis) to (ii) the total aggregate shares of Common Stock and Preferred
Stock held by all Preferred Holders
<PAGE>
as of such date that have elected to exercise the Preferred Holder Option
(on an as-converted to Common Stock basis).
3. Co-Sale Rights.
a. Notice to Preferred Holders. In the event that less than all of the
shares of Stock proposed to be Transferred by a Transferring Shareholder
are acquired by the Company and/or Preferred Holders (or their assignees)
pursuant to the Company Option and/or the Preferred Holder Option set forth
in Section 2 above (collectively, the "Options"), the Company shall
deliver, promptly upon expiration of the Options, a notice in writing to
each Preferred Holder (the "Co-Sale Notice") reiterating the names of the
prospective purchaser, a transferee, the number of shares of Stock proposed
to be Transferred and not acquired pursuant to the Options, and the price
per share at which such shares are proposed to be Transferred.
b. Rights of Co-Sale. Each Preferred Holder shall have the right,
exercisable upon written notice to the Transferring Shareholder within ten
(10) days after receipt of the Co-Sale Notice, to participate in such sale
of Stock on the same terms and conditions. To the extent one or more of the
Preferred Holders exercise such right of participation in accordance with
the terms and conditions set forth below, the number of shares of Stock
that the Transferring Shareholder may sell in the transaction shall be
correspondingly reduced.
c. Determination of Participation Right. Each Preferred Holder may
sell all or any part of that number of shares of Preferred Stock or Common
Stock equal to the product obtained by multiplying (i) the aggregate number
of shares of Stock covered by the Co-Sale Notice by (ii) a fraction the
numerator of which is the number of shares of Common Stock owned by or
issuable upon conversion of the shares of Preferred Stock owned by such
Preferred Holder at the time of the Transfer and the denominator of which
is the total number of shares of Common Stock owned by the Transferring
Shareholder plus the number of shares of Common Stock owned by or issuable
upon conversion of the shares of Preferred Stock owned by all of the
Preferred Holders at the time of the Transfer.
d. Rights of Participating Preferred Holders. If any Preferred Holder
fails to elect to fully participate in such Transferring Shareholder's sale
pursuant to this Section 3, the Transferring Shareholder shall give notice
of such failure to the Preferred Holders who did so elect (the
"Participating Preferred Holders"). Such notice may be made by telephone if
confirmed in writing within two (2) days. The Participating Preferred
Holders shall have the right, exercisable upon written notice to the
Transferring Shareholder within five (5) days from the date such notice was
given, to sell additional shares of Common Stock or Preferred Stock equal
to their pro rata share of the unsold portion. For purposes of this Section
3(d), a Participating Preferred Holder's pro rata share of the unsold
portion shall be the ratio of (x) the number of shares of Common Stock held
by or issuable upon conversion of the shares of Preferred Stock held by
such Participating Preferred Holder to (y) the total number of shares of
Common Stock held by or issuable upon conversion of the shares of Preferred
Stock held by all of the Participating Preferred Holders plus the number of
shares of
<PAGE>
Common Stock held by the Transferring Shareholder.
e. Delivery of Shares. Each Participating Preferred Holder shall
effect its participation in the sale by promptly delivering to the
Transferring Shareholder for transfer to the prospective purchaser or
transferee one or more certificates, properly endorsed for transfer, which
represent:
(1) the type and number of shares of Common Stock which such
Participating Preferred Holder elects to sell; or
(2) that number of shares of Preferred Stock which is at such
time convertible into the number of shares of Common Stock which such
Participating Preferred Holder elects to sell; provided, however, that
if the prospective purchaser or transferee objects to the delivery of
Preferred Stock in lieu of Common Stock, such Participating Preferred
Holder shall convert such Preferred Stock into Common Stock and
deliver Common Stock as provided in Section 3(e)(i) above. The Company
agrees to make any such conversion concurrent with the actual transfer
of such shares to the purchaser or transferee.
f. Settlement. The stock certificate or certificates that the
Participating Preferred Holder delivers to the Transferring Shareholder
pursuant to Section 2(e) shall be transferred to the prospective purchaser
or transferee in consummation of the sale of the Stock pursuant to the
terms and conditions specified in the Co-Sale Notice, and the Transferring
Shareholder shall concurrently therewith remit to such Participating
Preferred Holder that portion of the sale proceeds to which such
Participating Preferred Holder is entitled by reason of its participation
in such sale. To the extent that any prospective purchaser or transferee
prohibits such assignment or otherwise refuses to purchase shares or other
securities from a Participating Preferred Holder exercising its rights of
co-sale hereunder, the Transferring Shareholder shall not sell to such
prospective purchaser or transferee any Stock unless and until,
simultaneously with such sale, the Transferring Shareholder shall purchase
such shares or other securities from such Participating Preferred Holder.
g. No Prejudice from Non-Exercise. The exercise or non-exercise of the
rights of the Preferred Holders hereunder to participate in one or more
sales of Stock made by the Transferring Shareholder shall not adversely
affect their rights to participate in subsequent sales of Stock subject to
this Section 3.
4. Additional Rights of Preferred Holders.
a. Prohibited Transfers. In the event a Common Holder should sell any
Stock in contravention of the co-sale rights of the Preferred Holders under
Section 3 (a "Prohibited Transfer"), the Preferred Holders, in addition to
such other remedies as may be available at law, in equity or hereunder,
shall have the put option provided below, and the Common Holder shall be
bound by the applicable provisions of such option.
<PAGE>
b. Grant of Put Option. In the event of a Prohibited Transfer, each
Preferred Holder shall have the right to sell to the Common Holder the type
and number of shares of Stock equal to the number of shares each Preferred
Holder would have been entitled to transfer to the purchaser or transferee
had the Prohibited Transfer been effected pursuant to and in compliance
with the terms of Section 3 above (the "Put Option"). Such sale shall be
made on the following terms and conditions:
(1) The price per share at which the shares are to be sold to the
Common Holder shall be equal to the price per share paid by the
purchaser or transferee to the Common Holder in the Prohibited
Transfer. The Common Holder shall also reimburse each Preferred Holder
for any and all reasonable fees and expenses, including reasonable
legal fees and expenses, incurred pursuant to the exercise of the Put
Option.
(2) Within forty-five (45) days after the later of the dates on
which the Preferred Holder (A) received notice of the Prohibited
Transfer or (B) otherwise becomes aware of the Prohibited Transfer,
each Preferred Holder shall, if exercising the Put Option, deliver to
the Common Holder a notice exercising the Put Option (the "Put Option
Notice").
(3) Immediately upon receipt of the Put Option Notice, the Common
Holder shall make available the aggregate purchase price therefor and
the amount of reimbursable fees and expenses, as specified in Section
4(b)(i), in cash or by other means acceptable to the Preferred Holder.
The Preferred Holder shall concurrently make available to the Common
Holder the certificate or certificates representing the shares to be
sold, each properly endorsed for transfer.
c. Prohibited Transfers Void. Notwithstanding the foregoing, any
attempt by a Common Holder to Transfer Stock in violation of Sections
2 or 3 hereof, whether voluntarily or involuntarily, shall be void and
the Company agrees it will use its reasonable best efforts to not
effect such a Transfer or treat any alleged transferee as the holder
of such Stock.
5. Exempt Transfers.
a. Transfers to Affiliates. Notwithstanding the rights of first
refusal and co-sale rights set forth in Sections 2 and 3 of this Agreement,
a Common Holder may Transfer all or any part of the Stock owned by such
Common Holder:
(1) in the case of individuals, (A) to members of his or her
Immediate Family if by gift, where "Immediate Family" means any
parent, spouse, child, grandchild, brother or sister of the Common
Holder or any trust for the sole benefit of any or all of such
persons, and (B) to his or her heirs, executors or other fiduciaries
pursuant to a last will and testament; and
(2) in the case of any other Common Holder, (A) to its
Affiliates, where "Affiliates" means any other person or entity that,
directly or indirectly,
<PAGE>
through one or more intermediaries, is in control of, is controlled
by, or is under common control with such Common Holder, and (B) to its
successors in interest.
b. De Minimus Transfers. Notwithstanding the Preferred Holders'
co-sale rights set forth in Section 3 of this Agreement, each Common Holder
may Transfer up to a cumulative total of twenty-five thousand (25,000)
shares of Stock (subject to appropriate adjustment for stock splits, stock
dividends, combinations and other recapitalizations) owned by such Common
Holder free of the Preferred Holders' co-sale rights.
c. Prior Agreement. Notwithstanding the rights of first refusal and
co-sale rights set forth in Sections 2 and 3 of this Agreement, a Common
Holder, if a party thereto, may Transfer all or any part of the Stock owned
by such Common Holder to the Company or certain other shareholders of the
Company pursuant to the terms of that certain Shareholder Agreement dated
June 4, 1994 (the "Prior Agreement"), provided, however, that if any of the
shares of Stock to be Transferred by a Common Holder to a third party is
not purchased by the Company or the other shareholders pursuant to the
terms of the Prior Agreement, then such shares shall remain subject to the
Preferred Holder Option.
d. Conditions to Exempt Transfers. Any Transfer of Stock made pursuant
to the provisions of Section 5.a. or 5.c. above shall be subject to the
following:
(1) Prior to the completion of such Transfer, each such
transferee or such transferee's legal representative shall have
executed documents in form and substance satisfactory to the Company,
evidenced by the Company's written acknowledgement of such
satisfaction, assuming the obligations of a Common Holder under this
Agreement with respect to the transferred Stock; and
(2) Such transferred Stock shall remain subject to the provisions
of this Agreement, and the transferee shall be treated as a "Common
Holder" for purposes of this Agreement.
6. Termination of Restrictions on Transfers. The rights of first refusal
and the co-sale rights under Sections 2 and 3 of this Agreement shall terminate
upon the occurrence of any one of the following events: (a) the liquidation,
dissolution or indefinite cessation of the business operations of the Company;
(b) the execution by the Company of a general assignment for the benefit of
creditors or the appointment of a receiver or trustee to take possession of all
or substantially all of the property and assets of the Company; or (c) upon the
effective date of a bona fide firm commitment underwritten public offering of
the Company's Common Stock registered under the Securities Act of 1933, as
amended, on Form S-1 (or any successor form designated by the Securities and
Exchange Commission).
<PAGE>
7. Agreement to Vote for Series A Nominee.
a. For so long as 250,000 shares (subject to appropriate adjustment
for stock splits, stock dividends, combinations and other
recapitalizations) of the Company's Series A Preferred Stock (and/or the
Common Stock issuable upon conversion thereof) are held by any of the
Preferred Holders, the Common Holders agree to vote all shares of Common
Stock now or hereafter owned by them to elect to the Company's board of
directors a nominee of the majority of the holders of the Series A
Preferred Stock (the "Series A Nominee").
b. Prior to each election of directors of the Company, the majority of
the holders of the Series A Preferred Stock shall designate the Series A
Nominee in writing to the Company. The Company shall promptly notify each
of the Common Holders of such nominee. Any vacancy occurring because of the
death, resignation, removal or disqualification of the Series A Nominee
shall be filled according to this Section 7.
c. The Company and the Common Holders agree to use their best efforts
to ensure that the rights given to the holders of the Series A Preferred
Stock pursuant to this Section 7 are effective and that the such holders
shall enjoy the benefits hereof. Such best efforts shall include, without
limitation, the use of the Company's and the Common Holders' best efforts
to cause the Series A Nominee to be elected as a director of the Company at
each election of the board of directors. Neither the Company nor the Common
Holders shall, by any voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be performed hereunder,
but shall at all times in good faith assist in the carrying out of all of
the provisions of this Section 7, and shall use their best efforts to
protect the rights of the holders of the Series A Preferred Stock against
impairment.
8. Legends; Stop Transfer Instructions.
a. Legends. Each certificate representing shares of Stock now or
hereafter owned by the Common Holders or issued to any person in connection
with a Transfer pursuant to Section 5 hereof shall be endorsed with the
following legend:
"THE SALE, PLEDGE, HYPOTHECATION, TRANSFER OR VOTING OF THE SHARES
REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY AND SUBJECT TO THE
PROVISIONS OF A SHAREHOLDERS' AGREEMENT, AS THE SAME MAY BE AMENDED
FROM TIME TO TIME, AMONG THE PARTIES NAMED THEREIN, A COPY OF WHICH IS
AVAILABLE AT THE PRINCIPAL OFFICE OF THE ISSUER OF SUCH SHARES."
b. Stop Transfer Instructions. Each Common Holder agrees that the
Company may instruct its transfer agent to impose transfer restrictions on
the shares represented by certificates bearing the legend referred to in
Section 8(a) above to enforce the provisions of this Agreement and the
Company agrees to promptly do so. The legend shall be removed upon
termination of this Agreement.
<PAGE>
9. "Market Stand-off" Agreement. Each Common Holder hereby agrees that,
during the period of duration specified by the Company and an underwriter of
Common Stock or other securities of the Company, following the effective date of
a registration statement of the Company filed under the Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise Transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except Common Stock included in such
registration; provided, however, that:
a. such agreement shall not exceed one hundred eighty (180) days for
the first such registration statement of the Company which covers Common
Stock (or other securities) to be sold on its behalf to the public in an
underwritten offering; and
b. such agreement shall not exceed ninety (90) days for any subsequent
registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten
offering.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Stock of each Common Holder (and
the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
10. Additional Issuances of Common Stock. The Company agrees that, except
for Common Stock issued pursuant to any arrangement approved by the Board of
Directors to employees, officers and directors of, or consultants, advisors or
other persons performing services for, the Company, it shall not issue any
additional shares of Common Stock or Preferred Stock after the date hereof until
the issuee of such shares agrees to become a party to this Agreement as a Common
Holder and has executed a counterpart signature page to this Agreement provided,
however, that if a Preferred Holder purchases additional shares of Common or
Preferred Stock after the date hereof, then the Company shall not require such
Preferred Holder to become a party to this Agreement as a Common Holder. Except
as provided for in the immediately preceding sentence, any issuance of Common
Stock or Preferred Stock without the issuee becoming a party hereto shall be
void until such issuee has agreed to be bound by the terms hereof and has signed
a counterpart signature page to this Agreement.
11. Miscellaneous.
a. Conditions to Exercise of Rights. Exercise of the rights granted to
the Company and the Preferred Holders under this Agreement shall be subject
to and conditioned upon, and the parties shall use their best efforts to
assist the Company and the Preferred Holders in, compliance with applicable
laws.
<PAGE>
b. Corporate Law Compliance. The right of the Company to repurchase
any of the Stock is subject to the restrictions governing the rights of a
corporation to purchase its own shares contained in the Minnesota Business
Corporation Act and such other pertinent governmental restrictions as may
from time to time be effective.
c. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York as applied to agreements among New
York residents entered into and to be performed entirely within New York.
d. Amendment. Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only by the written
consent of (i) as to the Company, only by the Company, (ii) as to the
Preferred Holders, by persons holding more than fifty percent (50%) in
interest of the Preferred Stock and Common Stock issuable upon the
conversion thereof then held by the Preferred Holders and their assignees
pursuant to Section 11(e) hereof, and (iii) as to the Common Holders, by
persons holding more than fifty percent (50%) in interest of the Common
Stock then held by the Common Holders; provided, however, that the
amendment or waiver of any provision of this Agreement that affects a
Common Holder in a manner that is adverse to such Common Holder and does
not similarly affect all other Common Holders shall require the written
consent of such Common Holder; provided further, that any Preferred Holder
may individually waive any of his rights hereunder without obtaining the
consent of any other Preferred Holder. Any amendment or waiver effected in
accordance with this Section shall be binding upon the Company, each Common
Holder, each Preferred Holder and their successors and permitted assigns,
even if the Common Holder, Preferred Holder or their successors and
permitted assigns has not executed such amendment or waiver.
Notwithstanding the foregoing, any waiver by a Preferred Holder, or the
Preferred Holders, as to any one Common Holder or as to any one transaction
shall not waive any of the Preferred Holders' rights as to any other Common
Holder or as to any other transaction.
e. Assignment of Rights. This Agreement and the rights and obligations
of the parties hereunder shall inure to benefit of, and be binding upon,
their respective successors, permitted assigns and legal representatives.
f. Term. This Agreement shall terminate upon the earlier of (i) the
closing of a firm commitment underwritten public offering of shares of the
Company's capital stock pursuant to a registration statement on Form S-1
under the Securities Act of 1933, as amended, or (ii) the closing of the
Company's sale of all or substantially all of its assets or the acquisition
of the Company by another entity by means of merger or consolidation
resulting in the exchange of the outstanding shares of the Company's
capital stock for securities or consideration issued, or caused to be
issued, by the acquiring entity or its subsidiary.
g. Power of Attorney. Each Common Holder and Preferred Holder, by
executing this Agreement, irrevocably appoints each of the officers of the
Company his, her or its true and lawful attorney-in-fact to execute any
amendments
<PAGE>
hereto for the sole purpose of adding or deleting Common Holders or
Preferred Holders.
h. Entire Agreement. This Agreement constitutes the entire agreement
among the parties and no party shall be liable or bound to any other party
in any manner by any warranties, representations, or covenants except as
specifically set forth herein. This Agreement terminates and supersedes in
all respects that certain Shareholders' Agreement dated February 12, 1998
among the Company, the Common Holders and the holders of Series A Preferred
Stock.
i. Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be
deemed effectively given upon (a) personal delivery to the party to be
notified, (b) upon telefacsimile transmission to the party to be notified
at the telefacsimile number indicated for such party on the signature page
hereof, if any, or (c) upon deposit with an overnight courier service or
the United States Post Office, by registered or certified mail, postage
prepaid and addressed to the party to be notified at the address(es)
indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written
notice to the other parties. Notwithstanding the foregoing, the telephone
notice permitted by Section 3(d) shall be effective at the time it is given
if confirmed in writing within two (2) days.
j. Additional Parties to Agreement. Any individuals and/or entities
that hold any shares of the Common Stock of the Company shall be entitled
to become a party to this Agreement, and the addition of such individuals
and/or entities as parties to this Agreement and any required amendment of
Schedule A in connection therewith shall not be considered an amendment of
this Agreement requiring the consent of the Common Holders or the Preferred
Holders. Upon execution of a counterpart signature page to this Agreement
by any of such individuals and/or entities, such individuals and/or
entities shall become parties to this Agreement to the same extent as if
they had executed this Agreement as of the date hereof and shall be
included in the definition of "Common Holders" under this Agreement for all
purposes. Schedule A to this Agreement shall be automatically amended as
appropriate to reflect the addition of such individuals and/or entities as
Common Holders under this Agreement.
k. Ownership. Each Common Holder represents and warrants that he is
the sole legal and beneficial owner of the shares of Stock subject to this
Agreement and that no other person has any interest (other than a community
property interest) in such shares.
l. Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted
as if such provision were so excluded and shall be enforceable in
accordance with its terms.
m. Attorneys' Fees. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such
dispute
<PAGE>
shall be entitled to recover from the losing party all reasonable fees,
costs and expenses of enforcing any right of such prevailing party under or
with respect to this Agreement, including without limitation, such
reasonable fees and expenses of attorneys and accountants, which shall
include, without limitation, all fees, costs and expenses of appeals.
n. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
o. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
p. Shares Bound by this Agreement. The parties executing this
Agreement as a Common Holder agree that such party is bound by the
obligations of a Common Holder hereunder with regard to any and all shares
of Common Stock of the Company held by such party in such party's sole
name, in joint tenancy, as a trustee or a co-trustee, or in any form of
beneficial ownership (as defined in Rule 13d-3 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of
1934).
<PAGE>
The foregoing Shareholders' Agreement is hereby executed as of the date
first above written.
THE COMPANY:
PEMSTAR INC., a Minnesota corporation
By:
Robert R. Murphy, Chief Financial Officer
Address: 3535 Technology Dr. N.W.
Rochester, Minnesota 55901
PREFERRED HOLDERS:
LB I Group Inc.
By:
Title:
Address: 3 World Financial Center
New York, NY 10285
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
Jeffrey M. Drazan
Address:
------------------------------------------
------------------------------------------
LEHMAN BROTHERS VENTURE
PARTNERS L.P.
By: Lehman Brothers Venture Associates Inc.
Its: General Partner
(Signature
(Name)
<PAGE>
(Title)
Address: 3 World Financial Center
New York, NY 10285
LEHMAN BROTHERS VENTURE
CAPITAL PARTNERS I, L.P.
By: LB I Group Inc.
Its: General Partner
(Signature
(Name)
(Title)
Address: 3 World Financial Center
New York, NY 10285
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE>
LEHMAN BROTHERS VC
PARTNERS L.P.
By: LB I Group Inc.
Its: General Partner
(Signature
(Name)
(Title)
Address: 3 World Financial Center
New York, NY 10285
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE>
COMMON HOLDERS:
Robert D. Ahmann
Address:
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE>
Allen J. Berning
Nancy J. Berning
Address:
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE>
Michael M. Haider, Jr.
Patricia A. Haider
Address:
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE>
Daniel R. Hughes
Rose M. Hughes
Address:
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE>
William B. Leary
Janet A. Leary
Address:
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE>
Gary L. Lingbeck
Address:
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE>
Robert R. Murphy
Patricia J. Murphy
Address:
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE>
Karl D. Shurson
Marlene K. Shurson
Address:
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE>
Hargopal Singh
Karen G. Singh
Address:
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE>
David L. Sippel
Donna L. Sippel
Address:
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE>
SCHEDULE A
----------
COMMON HOLDERS
--------------
Number of Beneficially-
Name of Common Holder Owned Common Shares
---------------------- ----------------------
Robert D. Ahmann 85,000
Allen J. & Nancy J. Berning 263,000
Michael M. & Patricia A. Haider, Jr. 110,334
Daniel R. & Rose M. Hughes 140,000
William B. & Janet A. Leary 158,000
Gary L. Lingbeck 115,000
Robert R. & Patricia J. Murphy 292,000
Karl D. & Marlene K. Shurson 145,000
Hargopal & Karen G. Singh 86,800
David L. & Donna L. Sippel 292,000
TOTAL 1,687,134.000000000
A-1
<PAGE>
SCHEDULE B
----------
PREFERRED HOLDERS
-----------------
Name of Preferred Holder
LB I Group Inc.
Jeffrey M. Drazan
Lehman Brothers Venture Partners L.P.
Lehman Brothers Venture Capital Partners I, L.P.
Lehman Brothers VC Partners L.P.
B-1
<PAGE>
EXHIBIT 10.12
PEMSTAR INC
1994 STOCK OPTION PLAN
1. Purpose of the Plan.
-------------------
This Plan shall be known as the "PEMSTAR INC. 1994 Stock Option Plan" and
is hereinafter referred to as the "Plan." The purpose of the Plan is to aid in
maintaining and developing personnel capable of assuring the future success of
PEMSTAR INC., a Minnesota corporation (the "Company"), to offer such personnel
additional incentives to put forth maximum efforts for the success of the
business, and to afford them an opportunity to acquire a proprietary interest in
the Company through stock options as provided herein. Options granted under this
Plan may be either incentive stock options ("Incentive Stock Options") within
the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or options which do not qualify as Incentive Stock Options.
2. Stock Subject to the Plan,
-------------------------
Subject to the provisions of section 12, the shares of stock to be subject
to options under the Plan shall be shares of the Company's authorized common
stock. Such shares may be either authorized but unissued shares, or issued
shares which have been reacquired by the Company. Subject to the adjustment as
provided in section 12, the maximum number of shares on which options may be
exercised under this Plan shall be Three Hundred Thousand Shares (300,000)
shares. If an option under the Plan expires, or for any reason is terminated or
unexercised with respect to any shares, such shares shall again be available for
options thereafter granted during the term of the Plan.
3. Administration of Plan.
----------------------
(a) The Plan shall be administered by the Board of Directors of the
Company or a committee of three or more directors of the Company. The
members of such committee shall be appointed by and serve at the pleasure
of the Board of Directors. The group administering the Plan shall be
referred to herein as the "Committee."
(b) The Committee shall have plenary authority in its discretion, but
subject to the express provisions of this Plan, (i) to determine the
purchase price of the common shares covered by each option, (ii) to
determine the employees to whom and the time or times at which such options
shall be granted and the number of shares to be subject to each option,
(iii) to determine the terms of exercise of each option, (v) to accelerate
the time at which all or any part of an option may be exercised, (v) to
amend or modify the terms of any option with the consent of the optionee,
(vi) to interpret the Plan, (vii) to prescribe, amend and rescind rules and
regulations relating to the Plan, (viii) to determine the terms and
provisions of each option agreement under this Plan (which agreements need
not be identical), including the designation of those options intended to
be Incentive Stock Options, and (ix) to make all other determinations
necessary or advisable for the administration of the Plan, subject to the
exclusive authority of the Board of Directors under section 13 to amend or
terminate the Plan. The Committee's
<PAGE>
determinations on the foregoing matters, unless otherwise disapproved by
the Board of Directors of the Company, shall be final and conclusive.
(c) The Committee shall select one of its members as its Chairman and
shall hold its meetings at such times and places as it may determine. A
majority of its members shall constitute a quorum. All determinations of
the Committee shall be made by not less than a majority of its members. Any
decision or determination that is set forth in a written document and
signed by all of the members of the Committee shall be fully effective as
if it had been made by a majority vote at a meeting duly called and held.
The granting of an option pursuant to the Plan shall be effective only if a
written agreement shall have been duly executed and delivered by and on
behalf of the Company and-the employee to whom such right is granted. The
Committee may appoint a Secretary and may make such rules and regulations
for the conduct of its business as it shall deem advisable.
4. Eligibility.
-----------
Incentive Stock Options may only be granted under this Plan to any full or
part-time employee (which term as used herein includes, but is not limited to,
officers and directors who are also employees) of the Company and of its present
and future subsidiary corporations (herein called "subsidiaries"). Members of
the Board of Directors of the Company, consultants or independent contractors
providing valuable services to the Company or one of its subsidiaries who are
not also employees thereof shall be eligible to receive options which do not
qualify as Incentive Stock Options. In determining the persons to whom options
shall be granted and the number of shares subject to each option, the Committee
may take into account the nature of services rendered by the respective
employees, their present and potential contributions to the success of the
Company and such other factors as the Committee in its discretion shall deem
relevant. A person who has been granted an option under the Plan may be granted
an additional option or options under the Plan if the Committee shall so
determine; provided, however, that to the extent the aggregate fair market value
(determined at the time the Incentive Stock Option is granted) of the stock with
respect to which all Incentive Stock Options are exercisable for the first time
by an employee during any calendar year (under all plans described in section
422 of the Code of his employer corporation and its parent and subsidiary
corporations described in section 424(e) or 424(f) of the Code) exceeds
$100,000, such options shall be treated as options which do not qualify as
Incentive Stock Options.
5. Price.
-----
The option price for all Incentive Stock Options granted under the Plan
shall be determined by the Committee but shall not be less than 100% of the fair
market value of shares of the Company's common stock at the date of granting of
such option. The option price for options granted under the Plan which do not
qualify as Incentive Stock Options shall also be determined by the Committee.
For purposes of the preceding sentence and for all other valuation purposes
under the Plan, the fair market value of the Company's common stock shall be as
reasonably determined by the Committee. If on the
-2-
<PAGE>
date of grant of any option granted under the Plan, the common stock of the
Company is not publicly traded, the Committee shall make a good faith attempt to
satisfy the option price requirement of this section 5 and in connection
therewith shall take such action as it deems necessary or advisable.
6. Term.
----
Each option and all rights and obligations thereunder shall, subject to the
provisions of section 9, expire on the date determined by the Committee and
specified in the option agreement. The Committee shall be under no duty to
provide terms of like duration for options granted under the Plan, but the term
of an Incentive Stock Option may not extend more than ten (10) years from the
date of granting of such option and the term of options granted under the Plan
which do not qualify as Incentive Stock Options may not extend more th n fifteen
(15) years from the date of granting of such option.
7. Exercise of Option.
------------------
(a) The Committee shall have full and complete authority to determine,
subject to section 9, whether the option will be exercisable in full at any
time or from time to time during the term of the option, or to provide for
the exercise thereof in such installments, upon the occurrence of such
events and at such times during the term of the option as the Committee may
determine.
(b) The exercise of any option granted hereunder shall only be
effective at such time that the sale of common stock pursuant to such
exercise win not violate any state or federal securities or other laws.
(c) An optionee electing to exercise an option shall give written
noti,ce to the Company of such election and of the number of shares subject
to such exercise. The full purchase price of such shares shall be tendered
with such notice of exercise. Payment shall be made to the Company either
in cash (including check, bank draft or money order), or, at the discretion
of the Committee., (i) by delivering certificates for shares of the
Company's common stock already owned by the optionee having a fair market
value equal to the full purchase price of the shares, or (ii) a combination
of cash and such shares, or (iii) by delivering the optionee's full
recourse promissory note, which shall provide for interest at a rate not
less than the minimum rate required to avoid imputation of income, original
issue discount or a below-market-rate loan pursuant to sections 483, 1274
or 7872 of the Code or any successor provisions thereto; provided, however,
that an optionee shall not be entitled to tender shares of the Company's
common stock pursuant to successive, substantially simultaneous exercises
of options granted under this or any other stock option plan of the
Company. The fair market value of such shares shall be determined as
provided in section 5. Until such person has been issued a certificate or
certificates for the shares subject to such exercise, he shall possess no
rights as a stockholder with respect to such shares.
-3-
<PAGE>
8. Additional Restrictions.
-----------------------
The Committee shall have full and complete authority to determine whether
all or any part of the shares of common stock of the Company acquired upon
exercise of any of the options granted under the Plan shall be subject to
restrictions on the transferability thereof or any other restrictions affecting
in any manner the optionee's rights with respect thereto, but any such
restriction shall be contained in the agreement relating to such options.
9. Effect of Termination of Employment or Death,
--------------------------------------------
(a) In the event that an optionee shall cease to be employed by the
Company or its subsidiaries, if any, for any reason other than his gross
and willful misconduct or his death or disability as set forth in section
9(c), such optionee shall have the right to exercise the option at any time
within three months after such termination of employment to the extent of
the full number of shares he was entitled to purchase under the option on
the date of termination, subject to the condition that no option shall be
exercisable after the expiration of the term of the option.
(b) In the event that an optionee shall cease to be employed by the
Company or its subsidiaries, if any, by reason of his gross and willful
misconduct during the course of his employment, inducting but not limited
to wrongful appropriation of funds of his employer or the commission of a
gross misdemeanor or felony, the option shall be terminated as of the date
of the misconduct.
(c) If the optionee shall die while in the employ of the Company or a
subsidiary, if any, or within three months after termination of employment
for any reason other than gross and willful misconduct, or the optionee's
employment is terminated because optionee has become disabled (within the
meaning of Code section 22(e)(3)) while in the employ of the Company or a
subsidiary, if any, and such optionee shall not have fully exercised the
option, such option may be exercised at any time within twelve months after
his death or the date of such disability by the optionee or the personal
representatives of the optionee, as applicable, or by any person or persons
to whom the option is transferred by will or the applicable laws of descent
and distribution, to the extent of the full number of shares he was
entitled to purchase under the option on the date of death (or termination
of employment, if earlier) and subject to the condition that no option
shall be exercisable after the expiration of the term of the option.
(d) Nothing in the Plan or in any agreement thereunder shall confer on
any employee any right to continue in the employ of the Company or any of
its subsidiaries or affect, in any way, the right of the Company or any of
its subsidiaries to terminate his employment at any time.
10. Ten Percent Shareholder Rule.
----------------------------
-4-
<PAGE>
Notwithstanding any other provision in the Plan, if at the time an option
is otherwise to be granted pursuant to the Plan the optionee owns directly or
indirectly (within the meaning of section 424(d) of the Code) shares of common
stock of the Company possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or its parent or
subsidiary corporations (within the meaning of section 424(e) or 424(f) of the
Code), if any, then any Incentive Stock Option to be granted to such optionee
pursuant to the Plan shall satisfy the requirements of section 422(c)(7) of the
Code, the option price shall be not less than 110% of the fair market value of
the common stock of the Company determined as described herein, and such option
by its terms shall not be exercisable after the expiration of five (5) years
from the date such option is granted.
11. Non-Transferability.
-------------------
No option granted under the Plan shall be transferable by an optionee,
otherwise than by will or the laws of descent or distribution as provided in
section 9(c). During the lifetime of an optionee the option shall be exercisable
only by such optionee.
12. Dilution or Other Adjustments.
-----------------------------
If there shall be any change in the shares of the Company's common stock
through merger, consolidation, reorganization, recapitalization, stock dividend
(of whatever amount), stock split or other change in the corporate structure,
appropriate adjustments in the Plan and outstanding options shall be made by the
Committee. In the event of any such changes, adjustments shall include, where
appropriate, changes in the aggregate number of shares subject to the Plan, the
number of shares and the price per share subject to outstanding options, in
order to prevent dilution or enlargement of option rights.
13. Amendment or Discontinuance of Plan.
-----------------------------------
The Board of Directors may amend or discontinue the Plan at any time.
However, no amendment of the Plan shall, without stockholder approval: (i)
increase the maximum number of shares under the Plan as provided in section 2,
(ii) decrease the minimum option price provided in section 5, (iii) extend the
maximum option term under section 6, or (iv) materially modify the eligibility
requirements for participation in the Plan. The Board of Directors shall not
alter or impair any option theretofore granted under the Plan without the
consent of the holder of the option.
14. Time of Granting.
----------------
Nothing contained in the Plan or in any resolution adopted or to be adopted
by the Board of Directors or by the stockholders of the Company, and no action
taken by the Committee or the Board of Directors (other than the execution and
delivery of an option) shall constitute the granting of an option hereunder.
-5-
<PAGE>
15. No Guaranty of Employment.
-------------------------
Nothing in the Plan or in any agreement thereunder shall confer on any
employee any right to continue in the employ of the Company or any of its
subsidiaries or affect, in any way, the right of the Company or any of its
subsidiaries to terminate any employee's employment at any time.
16. Effective Date and Termination of Plan.
--------------------------------------
(a) The Plan was approved by the Board of Directors on May 2,1994, and
shall be approved by the shareholders of the Company within twelve (12) months
thereof.
(b) Unless the Plan shall have been discontinued as provided in section 13,
the Plan shall terminate May 2, 1999. No option may be granted after such
termination, but termination of the Plan shall not, without the consent of the
optionee, alter or impair any rights or obligations under any option theretofore
granted.
-6-
<PAGE>
EXHIBIT 10.13
PEMSTAR INC.
1995 STOCK OPTION PLAN
1. Purpose of the Plan.
-------------------
This Plan shall be known as the "PEMSTAR INC. 1995 Stock Option Plan" and
is hereinafter referred to as the "Plan." The purpose of the Plan is to aid in
maintaining and developing personnel capable of assuring the future success of
PEMSTAR INC., a Minnesota corporation (the "Company"), to offer such personnel
additional incentives to put forth maximum efforts for the success of the
business, and to afford them an opportunity to acquire a proprietary interest in
the Company through stock options as provided herein. Options granted under this
Plan may be either incentive stock options ("Incentive Stock Options") within
the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or options which do not qualify as Incentive Stock Options.
2. Stock Subject to the Plan.
-------------------------
Subject to the provisions of section 12, the shares of stock to be subject
to options under the Plan shall be shares of the Company's authorized common
stock. Such shares may be either authorized but unissued shares, or issued
shares which have been reacquired by the Company. Subject to the adjustment as
provided in section 12, the maximum number of shares on which options may be
exercised under this Plan shall be Two Hundred Thousand Shares (200,000) shares.
If an option under the Plan expires, or for any reason is terminated or
unexercised with respect to any shares, such shares shall again be available for
options thereafter granted during the term of the Plan.
3. Administration of Plan.
----------------------
(a) The Plan shall be administered by the Board of Directors of the
Company or a committee of three or more directors of the Company. The
members of such committee shall be appointed by and serve at the pleasure
of the Board of Directors. The group administering the Plan shall be
referred to herein as the "Committee."
(b) The Committee shall have plenary authority in its discretion, but
subject to the express provisions of this Plan, (i) to determine the
purchase price of the common shares covered by
<PAGE>
each option, (ii) to determine the employees to whom and the time or times
at which such options shall be granted and the number of shares to be
subject to each option, (iii) to determine the terms of exercise of each
option, (iv) to accelerate the time at which all or any part of an option
may be exercised, (v) to amend or modify the terms of any option with the
consent of the optionee, (vi) to interpret the Plan, (vii) to prescribe,
amend and rescind rules and regulations relating to the Plan, (viii) to
determine the terms and provisions of each option agreement under this Plan
(which agreements need not be identical), including the designation of
those options intended to be Incentive Stock Options, and (ix) to make all
other determinations necessary or advisable for the administration of the
Plan, subject to the exclusive authority of the Board of Directors under
section 13 to amend or terminate the Plan. The Committee's determinations
on the foregoing matters, unless otherwise disapproved by the Board of
Directors of the Company, shall be final and conclusive.
(c) The Committee shall select one of its members as its Chairman and
shall hold its meetings at such times and places as it may determine. A
majority of its members shall constitute a quorum. All determinations of
the Committee shall be made by not less than a majority of its members. Any
decision or determination that is set forth in a written document and
signed by all of the members of the Committee shall be fully effective as
if it had been made by a majority vote at a meeting duly called and held.
The granting of an option pursuant to the Plan shall be effective only if a
written agreement shall have been duly executed and delivered by and on
behalf of the Company and the employee to whom such right is granted. The
Committee may appoint a Secretary and may make such rules and regulations
for the conduct of its business as it shall deem advisable.
4. Eligibility.
-----------
Incentive Stock Options may only be granted under this Plan to any full or
part-time employee (which term as used herein includes, but is not limited to,
officers and directors who are also employees) of the Company and of its present
and future subsidiary corporations (herein called "subsidiaries"). Members of
the Board of Directors of the Company, consultants or independent contractors
providing valuable services to the Company or one of its subsidiaries who are
not also employees thereof shall be eligible to receive options which do not
qualify as Incentive Stock Options. In determining the persons to whom options
shall be granted and the
-2-
<PAGE>
number of shares subject to each option, the Committee may take into account the
nature of services rendered by the respective employees, their present and
potential contributions to the success of the Company and such other factors as
the Committee in its discretion shall deem relevant. A person who has been
granted an option under the Plan may be granted an additional option or options
under the Plan if the Committee shall so determine; provided, however, that to
the extent the aggregate fair market value (determined at the time the Incentive
Stock Option is granted) of the stock with respect to which all Incentive Stock
Options are exercisable for the first time by an employee during any calendar
year (under all plans described in section 422 of the Code of his employer
corporation and its parent and subsidiary corporations described in section
424(e) or 424(f) of the Code) exceeds $100,000, such options shall be treated as
options which do not qualify as Incentive Stock Options.
5. Price.
-----
The option price for all Incentive Stock Options granted under the Plan
shall be determined by the Committee but shall not be less than 100% of the fair
market value of shares of the Company's common stock at the date of granting of
such option. The option price for options granted under the Plan which do not
qualify as Incentive Stock Options shall also be determined by the Committee.
For purposes of the preceding sentence and for all other valuation purposes
under the Plan, the fair market value of the Company's common stock shall be as
reasonably determined by the Committee. If on the date of grant of any option
granted under the Plan, the common stock of the Company is not publicly traded,
the Committee shall make a good faith attempt to satisfy the option price
requirement of this section 5 and in connection therewith shall take such action
as it deems necessary or advisable.
6. Term.
----
Each option and all rights and obligations thereunder shall, subject to the
provisions of section 9, expire on the date determined by the Committee and
specified in the option agreement. The Committee shall be under no duty to
provide terms of like duration for options granted under the Plan, but the term
of an Incentive Stock Option may not extend more than ten (10) years from the
date of granting of such option and the term of options granted under the Plan
which do not qualify as Incentive Stock Options may
-3-
<PAGE>
not extend more than fifteen (15) years from the date of granting of such
option.
7. Exercise of Option.
------------------
(a) The Committee shall have full and complete authority to determine,
subject to section 9, whether the option will be exercisable in full at any
time or from time to time during the term of the option, or to provide for
the exercise thereof in such installments, upon the occurrence of such
events and at such times during the term of the option as the Committee may
determine.
(b) The exercise of any option granted hereunder shall only be
effective at such time that the sale of common stock pursuant to such
exercise will not violate any state or federal securities or other laws.
(c) An optionee electing to exercise an option shall give written
notice to the Company of such election and of the number of shares subject
to such exercise. The full purchase price of such shares shall be tendered
with such notice of exercise. Payment shall be made to the Company either
in cash (including check, bank draft or money order), or, at the discretion
of the Committee, (i) by delivering certificates for shares of the
Company's common stock already owned by the optionee having a fair market
value equal to the full purchase price of the shares, or (ii) a combination
of cash and such shares, or (iii) by delivering the optionee's full
recourse promissory note, which shall provide for interest at a rate not
less than the minimum rate required to avoid imputation of income, original
issue discount or a below-market-rate loan pursuant to sections 483, 1274
or 7872 of the Code or any successor provisions thereto; provided, however,
that an optionee shall not be entitled to tender shares of the Company's
common stock pursuant to successive, substantially simultaneous exercises
of options granted under this or any other stock option plan of the
Company. The fair market value of such shares shall be determined as
provided in section 5. Until such person has been issued a certificate or
certificates for the shares subject to such exercise, he shall possess no
rights as a stockholder with respect to such shares.
8. Additional Restrictions.
-----------------------
The Committee shall have full and complete authority to determine whether
all or any part of the shares of common stock of
-4-
<PAGE>
the Company acquired upon exercise of any of the options granted under the Plan
shall be subject to restrictions on the transferability thereof or any other
restrictions affecting in any manner the optionee's rights with respect thereto,
but any such restriction shall be contained in the agreement relating to such
options.
9. Effect of Termination of Employment or Death.
--------------------------------------------
(a) In the event that an optionee shall cease to be employed by the
Company or its subsidiaries, if any, for any reason other than his gross
and willful misconduct or his death or disability as set forth in section
9(c), such optionee shall have the right to exercise the option at any time
within three months after such termination of employment to the extent of
the full number of shares he was entitled to purchase under the option on
the date of termination, subject to the condition that no option shall be
exercisable after the expiration of the term of the option.
(b) In the event that an optionee shall cease to be employed by the
Company or its subsidiaries, if any, by reason of his gross and willful
misconduct during the course of his employment, including but not limited
to wrongful appropriation of funds of his employer or the commission of a
gross misdemeanor or felony, the option shall be terminated as of the date
of the misconduct.
(c) If the optionee shall die while in the employ of the Company or a
subsidiary, if any, or within three months after termination of employment
for any reason other than gross and willful misconduct, or the optionee's
employment is terminated because optionee has become disabled (within the
meaning of Code section 22(e)(3)) while in the employ of the Company or a
subsidiary, if any, and such optionee shall not have fully exercised the
option, such option may be exercised at any time within twelve months after
his death or the date of such disability by the optionee or the personal
representatives of the optionee, as applicable, or by any person or persons
to whom the option is transferred by will or the applicable laws of descent
and distribution, to the extent of the full number of shares he was
entitled to purchase under the option on the date of death (or termination
of employment, if earlier) and subject to the condition that no option
shall be exercisable after the expiration of the term of the option.
(d) Nothing in the Plan or in any agreement thereunder shall confer on
any employee any right to continue in the employ of
-5-
<PAGE>
the Company or any of its subsidiaries or affect, in any way, the right of
the Company or any of its subsidiaries to terminate his employment at any
time.
10. Ten Percent Shareholder Rule.
----------------------------
Notwithstanding any other provision in the Plan, if at the time an option
is otherwise to be granted pursuant to the Plan the optionee owns directly or
indirectly (within the meaning of section 424(d) of the Code) shares of common
stock of the Company possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or its parent or
subsidiary corporations (within the meaning of section 424(e) or 424(f) of the
Code), if any, then any Incentive Stock Option to be granted to such optionee
pursuant to the Plan shall satisfy the requirements of section 422(c)(7) of the
Code, the option price shall be not less than 110% of the fair market value of
the common stock of the Company determined as described herein, and such option
by its terms shall not be exercisable after the expiration of five (5) years
from the date such option is granted.
11. Non-Transferability.
-------------------
No option granted under the Plan shall be transferable by an optionee,
otherwise than by will or the laws of descent or distribution as provided in
section 9(c). During the lifetime of an optionee the option shall be exercisable
only by such optionee.
12. Dilution or Other Adjustments.
-----------------------------
If there shall be any change in the shares of the Company's common stock
through merger, consolidation, reorganization, recapitalization, stock dividend
(of whatever amount), stock split or other change in the corporate structure,
appropriate adjustments in the Plan and outstanding options shall be made by the
Committee. In the event of any such changes, adjustments shall include, where
appropriate, changes in the aggregate number of shares subject to the Plan, the
number of shares and the price per share subject to outstanding options, in
order to prevent dilution or enlargement of option rights.
13. Amendment or Discontinuance of Plan.
-----------------------------------
-6-
<PAGE>
The Board of Directors may amend or discontinue the Plan at any time.
However, no amendment of the Plan shall, without stockholder approval: (i)
increase the maximum number of shares under the Plan as provided in section 2,
(ii) decrease the minimum option price provided in section 5, (iii) extend the
maximum option term under section 6, or (iv) materially modify the eligibility
requirements for participation in the Plan. The Board of Directors shall not
alter or impair any option theretofore granted under the Plan without the
consent of the holder of the option.
14. Time of Granting.
----------------
Nothing contained in the Plan or in any resolution adopted or to be adopted
by the Board of Directors or by the stockholders of the Company, and no action
taken by the Committee or the Board of Directors (other than the execution and
delivery of an option) shall constitute the granting of an option hereunder.
15. No Guaranty of Employment.
-------------------------
Nothing in the Plan or in any agreement thereunder shall confer on any
employee any right to continue in the employ of the Company or any of its
subsidiaries or affect, in any way, the right of the Company or any of its
subsidiaries to terminate any employee's employment at any time.
16. Effective Date and Termination of Plan.
--------------------------------------
(a) The Plan was approved by the Board of Directors on May 2, 1995,
and shall be approved by the shareholders of the Company within twelve (12)
months thereof.
(b) Unless the Plan shall have been discontinued as provided in
section 13, the Plan shall terminate May 2, 2000. No option may be granted
after such termination, but termination of the Plan shall not, without the
consent of the optionee, alter or impair any rights or obligations under
any option theretofore granted.
-7-
<PAGE>
EXHIBIT 10.14
PEMSTAR INC.
1997 STOCK OPTION PLAN
1. Purpose of the Plan.
-------------------
This Plan shall be known as the "PEMSTAR INC. 1997 Stock Option Plan" and
is hereinafter referred to as the "Plan." The purpose of the Plan is to aid in
maintaining and developing personnel capable of assuring the future success of
PEMSTAR INC., a Minnesota corporation (the "Company"), to offer such personnel
additional incentives to put forth maximum efforts for the success of the
business, and to afford them an opportunity to acquire a proprietary interest in
the Company through stock options as provided herein. Options granted under this
Plan may be either incentive stock options ("Incentive Stock Options") within
the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or options which do not qualify as Incentive Stock Options.
2. Stock Subject to the Plan.
-------------------------
Subject to the provisions of section 12, the shares of stock to be subject
to options under the Plan shall be shares of the Company's authorized common
stock. Such shares may be either authorized but unissued shares, or issued
shares which have been reacquired by the Company. Subject to the adjustment as
provided in section 12, the maximum number of shares on which options may be
exercised under this Plan shall be Five Hundred Thousand Shares (500,000)
shares. If an option under the Plan expires, or for any reason is terminated or
unexercised with respect to any shares, such shares shall again be available for
options thereafter granted during the term of the Plan.
3. Administration of Plan.
----------------------
(a) The Plan shall be administered by the Board of Directors of the
Company or a committee of three or more directors of the Company. The
members of such committee shall be appointed by and serve at the pleasure
of the Board of Directors. The group administering the Plan shall be
referred to herein as the "Committee."
(b) The Committee shall have plenary authority in its discretion, but
subject to the express provisions of this Plan, (i) to determine the
purchase price of the common shares covered by each option, (ii) to
determine the employees to whom and the time or times at which such options
shall be granted and the number of shares to be subject to each option,
(iii) to determine the terms of exercise of each option, (iv) to accelerate
the time at which all or any part of an option may be exercised, (v) to
amend or modify the terms of any option with the consent of the optionee,
(vi) to interpret the Plan, (vii) to prescribe, amend and rescind rules and
regulations relating to the Plan, (viii) to determine the terms and
provisions of each option agreement under this Plan (which agreements need
not be identical), including the designation of those options intended to
be Incentive Stock Options, and
<PAGE>
(ix) to make all other determinations necessary or advisable for the
administration of the Plan, subject to the exclusive authority of the Board
of Directors under section 13 to amend or terminate the Plan. The
Committee's determinations on the foregoing matters, unless otherwise
disapproved by the Board of Directors of the Company, shall be final and
conclusive.
(c) The Committee shall select one of its members as its Chairman and
shall hold its meetings at such times and places as it may determine. A
majority of its members shall constitute a quorum. All determinations of
the Committee shall be made by not less than a majority of its members. Any
decision or determination that is set forth in a written document and
signed by all of the members of the Committee shall be fully effective as
if it had been made by a majority vote at a meeting duly called and held.
The granting of an option pursuant to the Plan shall be effective only if a
written agreement shall have been duly executed and delivered by and on
behalf of the Company and the employee to whom such right is granted. The
Committee may appoint a Secretary and may make such rules and regulations
for the conduct of its business as it shall deem advisable.
4. Eligibility.
-----------
Incentive Stock Options may only be granted under this Plan to any full or
part-time employee (which term as used herein includes, but is not limited to,
officers and directors who are also employees) of the Company and of its present
and future subsidiary corporations (herein called "subsidiaries"). Members of
the Board of Directors of the Company, consultants or independent contractors
providing valuable services to the Company or one of its subsidiaries who are
not also employees thereof shall be eligible to receive options which do not
qualify as Incentive Stock Options. In determining the persons to whom options
shall be granted and the number of shares subject to each option, the Committee
may take into account the nature of services rendered by the respective
employees, their present and potential contributions to the success of the
Company and such other factors as the Committee in its discretion shall deem
relevant. A person who has been granted an option under the Plan may be granted
an additional option or options under the Plan if the Committee shall so
determine; provided, however, that to the extent the aggregate fair market value
(determined at the time the Incentive Stock Option is granted) of the stock with
respect to which all Incentive Stock Options are exercisable for the first time
by an employee during any calendar year (under all plans described in section
422 of the Code of his employer corporation and its parent and subsidiary
corporations described in section 424(e) or 424(f) of the Code) exceeds
$100,000, such options shall be treated as options which do not qualify as
Incentive Stock Options.
5. Price.
-----
The option price for all Incentive Stock Options granted under the Plan
shall be determined by the Committee but shall not be less than 100% of the fair
market value of shares of the Company's common stock at the date of granting of
such option. The option price for options granted
-2-
<PAGE>
under the Plan which do not qualify as Incentive Stock Options shall also be
determined by the Committee. For purposes of the preceding sentence and for all
other valuation purposes under the Plan, the fair market value of the Company's
common stock shall be as reasonably determined by the Committee. If on the date
of grant of any option granted under the Plan, the common stock of the Company
is not publicly traded, the Committee shall make a good faith attempt to satisfy
the option price requirement of this section 5 and in connection therewith shall
take such action as it deems necessary or advisable.
6. Term.
----
Each option and all rights and obligations thereunder shall, subject to the
provisions of section 9, expire on the date determined by the Committee and
specified in the option agreement. The Committee shall be under no duty to
provide terms of like duration for options granted under the Plan, but the term
of an Incentive Stock Option may not extend more than ten (10) years from the
date of granting of such option and the term of options granted under the Plan
which do not qualify as Incentive Stock Options may not extend more than fifteen
(15) years from the date of granting of such option.
7. Exercise of Option.
------------------
(a) The Committee shall have full and complete authority to determine,
subject to section 9, whether the option will be exercisable in full at any
time or from time to time during the term of the option, or to provide for
the exercise thereof in such installments, upon the occurrence of such
events and at such times during the term of the option as the Committee may
determine.
(b) The exercise of any option granted hereunder shall only be
effective at such time that the sale of common stock pursuant to such
exercise will not violate any state or federal securities or other laws.
(c) An optionee electing to exercise an option shall give written
notice to the Company of such election and of the number of shares subject
to such exercise. The full purchase price of such shares shall be tendered
with such notice of exercise. Payment shall be made to the Company either
in cash (including check, bank draft or money order), or, at the discretion
of the Committee, (i) by delivering certificates for shares of the
Company's common stock already owned by the optionee having a fair market
value equal to the full purchase price of the shares, or (ii) a combination
of cash and such shares, or (iii) by delivering the optionee's full
recourse promissory note, which shall provide for interest at a rate not
less than the minimum rate required to avoid imputation of income, original
issue discount or a below-market-rate loan pursuant to sections 483, 1274
or 7872 of the Code or any successor provisions thereto; provided, however,
that an optionee shall not be entitled to tender shares of the Company's
common stock pursuant to successive, substantially simultaneous exercises
of options granted under this or any other stock option plan of the
Company. The fair market
-3-
<PAGE>
value of such shares shall be determined as provided in section 5. Until
such person has been issued a certificate or certificates for the shares
subject to such exercise, he shall possess no rights as a stockholder with
respect to such shares.
8. Additional Restrictions.
-----------------------
The Committee shall have full and complete authority to determine whether
all or any part of the shares of common stock of the Company acquired upon
exercise of any of the options granted under the Plan shall be subject to
restrictions on the transferability thereof or any other restrictions affecting
in any manner the optionee's rights with respect thereto, but any such
restriction shall be contained in the agreement relating to such options.
9. Effect of Termination of Employment or Death.
--------------------------------------------
(a) In the event that an optionee shall cease to be employed by the
Company or its subsidiaries, if any, for any reason other than his gross
and willful misconduct or his death or disability as set forth in section
9(c), such optionee shall have the right to exercise the option at any time
within three months after such termination of employment to the extent of
the full number of shares he was entitled to purchase under the option on
the date of termination, subject to the condition that no option shall be
exercisable after the expiration of the term of the option.
(b) In the event that an optionee shall cease to be employed by the
Company or its subsidiaries, if any, by reason of his gross and willful
misconduct during the course of his employment, including but not limited
to wrongful appropriation of funds of his employer or the commission of a
gross misdemeanor or felony, the option shall be terminated as of the date
of the misconduct.
(c) If the optionee shall die while in the employ of the Company or a
subsidiary, if any, or within three months after termination of employment
for any reason other than gross and willful misconduct, or the optionee's
employment is terminated because optionee has become disabled (within the
meaning of Code section 22(e)(3)) while in the employ of the Company or a
subsidiary, if any, and such optionee shall not have fully exercised the
option, such option may be exercised at any time within twelve months after
his death or the date of such disability by the optionee or the personal
representatives of the optionee, as applicable, or by any person or persons
to whom the option is transferred by will or the applicable laws of descent
and distribution, to the extent of the full number of shares he was
entitled to purchase under the option on the date of death (or termination
of employment, if earlier) and subject to the condition that no option
shall be exercisable after the expiration of the term of the option.
-4-
<PAGE>
(d) Nothing in the Plan or in any agreement thereunder shall confer on
any employee any right to continue in the employ of the Company or any of
its subsidiaries or affect, in any way, the right of the Company or any of
its subsidiaries to terminate his employment at any time.
10. Ten Percent Shareholder Rule.
----------------------------
Notwithstanding any other provision in the Plan, if at the time an option
is otherwise to be granted pursuant to the Plan the optionee owns directly or
indirectly (within the meaning of section 424(d) of the Code) shares of common
stock of the Company possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or its parent or
subsidiary corporations (within the meaning of section 424(e) or 424(f) of the
Code), if any, then any Incentive Stock Option to be granted to such optionee
pursuant to the Plan shall satisfy the requirements of section 422(c)(7) of the
Code, the option price shall be not less than 110% of the fair market value of
the common stock of the Company determined as described herein, and such option
by its terms shall not be exercisable after the expiration of five (5) years
from the date such option is granted.
11. Non-Transferability.
-------------------
No option granted under the Plan shall be transferable by an optionee,
otherwise than by will or the laws of descent or distribution as provided in
section 9(c). During the lifetime of an optionee the option shall be exercisable
only by such optionee.
12. Dilution or Other Adjustments.
-----------------------------
If there shall be any change in the shares of the Company's common stock
through merger, consolidation, reorganization, recapitalization, stock dividend
(of whatever amount), stock split or other change in the corporate structure,
appropriate adjustments in the Plan and outstanding options shall be made by the
Committee. In the event of any such changes, adjustments shall include, where
appropriate, changes in the aggregate number of shares subject to the Plan, the
number of shares and the price per share subject to outstanding options, in
order to prevent dilution or enlargement of option rights.
13. Amendment or Discontinuance of Plan.
-----------------------------------
The Board of Directors may amend or discontinue the Plan at any time.
However, no amendment of the Plan shall, without stockholder approval: (i)
increase the maximum number of shares under the Plan as provided in section 2,
(ii) decrease the minimum option price provided in section 5, (iii) extend the
maximum option term under section 6, or (iv) materially modify the eligibility
-5-
<PAGE>
requirements for participation in the Plan. The Board of Directors shall not
alter or impair any option theretofore granted under the Plan without the
consent of the holder of the option.
14. Time of Granting.
----------------
Nothing contained in the Plan or in any resolution adopted or to be adopted
by the Board of Directors or by the stockholders of the Company, and no action
taken by the Committee or the Board of Directors (other than the execution and
delivery of an option) shall constitute the granting of an option hereunder.
15. No Guaranty of Employment.
-------------------------
Nothing in the Plan or in any agreement thereunder shall confer on any
employee any right to continue in the employ of the Company or any of its
subsidiaries or affect, in any way, the right of the Company or any of its
subsidiaries to terminate any employee's employment at any time.
16. Effective Date and Termination of Plan.
--------------------------------------
(a) The Plan was approved by the Board of Directors on March 13, 1997,
and shall be approved by the shareholders of the Company within twelve (12)
months thereof.
(b) Unless the Plan shall have been discontinued as provided in
section 13, the Plan shall terminate March 13, 2002. No option may be
granted after such termination, but termination of the Plan shall not,
without the consent of the optionee, alter or impair any rights or
obligations under any option theretofore granted.
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<PAGE>
EXHIBIT 10.15
PEMSTAR INC.
AMENDED AND RESTATED
1999 STOCK OPTION PLAN
1. Purpose of the Plan.
This Plan shall be known as the "PEMSTAR INC. 1999 Amended and Restated
Stock Option Plan" and is hereinafter referred to as the "Plan." The purpose of
the Plan is to aid in maintaining and developing personnel capable of assuring
the future success of PEMSTAR INC., a Minnesota corporation (the "Company"), to
offer such personnel additional incentives to put forth maximum efforts for the
success of the business, and to afford them an opportunity to acquire a
proprietary interest in the Company through stock options as provided herein.
Options granted under this Plan may be either incentive stock options
("Incentive Stock Options") within the meaning of section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or options which do not qualify
as Incentive Stock Options.
2. Stock Subject to the Plan.
Subject to the provisions of section 12, the shares of stock to be subject
to options under the Plan shall be shares of the Company's authorized common
stock. Such shares may be either authorized but unissued shares, or issued
shares which have been reacquired by the Company. Subject to the adjustment as
provided in section 12, the maximum number of shares on which options may be
exercised under this Plan shall be One Million Shares (1,000,000) shares. If an
option under the Plan expires, or for any reason is terminated or unexercised
with respect to any shares, such shares shall again be available for options
thereafter granted during the term of the Plan.
3. Administration of Plan.
(a) The Plan shall be administered by the Board of Directors of the Company
or a committee of three or more directors of the Company. The members of such
committee shall be appointed by and serve at the pleasure of the Board of
Directors. The group administering the Plan shall be referred to herein as the
"Committee."
(b) The Committee shall have plenary authority in its discretion, but
subject to the express provisions of this Plan, (i) to determine the purchase
price of the common shares covered by each option, (ii) to determine the
employees to whom and the time or times at which such options shall be granted
and the number of shares to be subject to each option, (iii) to determine the
terms of exercise of each option, (iv) to accelerate the time at which all or
any part of an option may be exercised, (v) to amend or modify the terms of any
option with the consent of the optionee, (vi) to interpret the Plan, (vii) to
<PAGE>
prescribe, amend and rescind rules and regulations relating to the Plan, (viii)
to determine the terms and provisions of each option agreement under this Plan
(which agreements need not be identical), including the designation of those
options intended to be Incentive Stock Options, and (ix) to make all other
determinations necessary or advisable for the administration of the Plan,
subject to the exclusive authority of the Board of Directors under section 13 to
amend or terminate the Plan. The Committee's determinations on the foregoing
matters, unless otherwise disapproved by the Board of Directors of the Company,
shall be final and conclusive.
(c) The Committee shall select one of its members as its Chairman and shall
hold its meetings at such times and places as it may determine. A majority of
its members shall constitute a quorum. All determinations of the Committee shall
be made by not less than a majority of its members. Any decision or
determination that is set forth in a written document and signed by all of the
members of the Committee shall be fully effective as if it had been made by a
majority vote at a meeting duly called and held. The granting of an option
pursuant to the Plan shall be effective only if a written agreement shall have
been duly executed and delivered by and on behalf of the Company and the
employee to whom such right is granted. The Committee may appoint a Secretary
and may make such rules and regulations for the conduct of its business as it
shall deem advisable.
(d) The Committee shall, to the extent necessary or desirable, establish
any special rules for employees located in any country other than the United
States. Such rules shall be set forth in Appendices to the Plan, which shall be
deemed incorporated into and form part of the Plan. Such rules may not change
the maximum number of shares on which options may be exercised under the Plan or
the eligibility rules set forth in Section 4.
4. Eligibility.
Incentive Stock Options may only be granted under this Plan to any full or
part-time employee (which term as used herein includes, but is not limited to,
officers and directors who are also employees) of the Company and of its present
and future subsidiary corporations (herein called "subsidiaries"). Members of
the Board of Directors of the Company, consultants or independent contractors
providing valuable services to the Company or one of its subsidiaries who are
not also employees thereof shall be eligible to receive options which do not
qualify as Incentive Stock Options. In determining the persons to whom options
shall be granted and the number of shares subject to each option, the Committee
may take into account the nature of services rendered by the respective
employees, their present and potential contributions to the success of the
Company and such other factors as the Committee in its discretion shall deem
relevant. A person who has been granted an option under the Plan may be granted
an additional option or options under the Plan if the Committee shall so
determine; provided, however, that to the extent the aggregate fair market value
(determined at the time the Incentive Stock Option is granted) of the stock with
respect to which all Incentive Stock Options are exercisable for the first time
by an employee during any calendar year (under all plans described in section
422 of the Code of his employer corporation and its parent and subsidiary
-2-
<PAGE>
corporations described in section 424(e) or 424(f) of the Code) exceeds
$100,000, such options shall be treated as options which do not qualify as
Incentive Stock Options.
5. Price.
The option price for all Incentive Stock Options granted under the Plan
shall be determined by the Committee but shall not be less than 100% of the fair
market value of shares of the Company's common stock at the date of granting of
such option. The option price for options granted under the Plan which do not
qualify as Incentive Stock Options shall also be determined by the Committee.
For purposes of the preceding sentence and for all other valuation purposes
under the Plan, the fair market value of the Company's common stock shall be as
reasonably determined by the Committee. If on the date of grant of any option
granted under the Plan, the common stock of the Company is not publicly traded,
the Committee shall make a good faith attempt to satisfy the option price
requirement of this section 5 and in connection therewith shall take such action
as it deems necessary or advisable.
6. Term.
Each option and all rights and obligations thereunder shall, subject to the
provisions of section 9, expire on the date determined by the Committee and
specified in the option agreement. The Committee shall be under no duty to
provide terms of like duration for options granted under the Plan, but the term
of an Incentive Stock Option may not extend more than ten (10) years from the
date of granting of such option and the term of options granted under the Plan
which do not qualify as Incentive Stock Options may not extend more than fifteen
(15) years from the date of granting of such option.
7. Exercise of Option.
(a) The Committee shall have full and complete authority to determine,
subject to section 9, whether the option will be exercisable in full at any time
or from time to time during the term of the option, or to provide for the
exercise thereof in such installments, upon the occurrence of such events and at
such times during the term of the option as the Committee may determine.
(b) The exercise of any option granted hereunder shall only be effective at
such time that the sale of common stock pursuant to such exercise will not
violate any state or federal securities or other laws.
(c) An optionee electing to exercise an option shall give written notice to
the Company of such election and of the number of shares subject to such
exercise. The full purchase price of such shares shall be tendered with such
notice of exercise. Payment shall be made to the Company either in cash
(including check, bank draft or money order), or, at the discretion of the
-3-
<PAGE>
Committee, (i) by delivering certificates for shares of the Company's common
stock already owned by the optionee having a fair market value equal to the full
purchase price of the shares, or (ii) a combination of cash and such shares, or
(iii) by delivering the optionee's full recourse promissory note, which shall
provide for interest at a rate not less than the minimum rate required to avoid
imputation of income, original issue discount or a below-market-rate loan
pursuant to sections 483, 1274 or 7872 of the Code or any successor provisions
thereto; provided, however, that an optionee shall not be entitled to tender
shares of the Company's common stock pursuant to successive, substantially
simultaneous exercises of options granted under this or any other stock option
plan of the Company. The fair market value of such shares shall be determined as
provided in section 5. Until such person has been issued a certificate or
certificates for the shares subject to such exercise, he shall possess no rights
as a stockholder with respect to such shares.
8. Additional Restrictions.
The Committee shall have full and complete authority to determine whether
all or any part of the shares of common stock of the Company acquired upon
exercise of any of the options granted under the Plan shall be subject to
restrictions on the transferability thereof or any other restrictions affecting
in any manner the optionee's rights with respect thereto, but any such
restriction shall be contained in the agreement relating to such options.
9. Effect of Termination of Employment or Death.
(a) In the event that an optionee shall cease to be employed by the Company
or its subsidiaries, if any, for any reason other than his gross and willful
misconduct or his death or disability as set forth in section 9(c), such
optionee shall have the right to exercise the option at any time within three
months after such termination of employment to the extent of the full number of
shares he was entitled to purchase under the option on the date of termination,
subject to the condition that no option shall be exercisable after the
expiration of the term of the option.
(b) In the event that an optionee shall cease to be employed by the Company
or its subsidiaries, if any, by reason of his gross and willful misconduct
during the course of his employment, including but not limited to wrongful
appropriation of funds of his employer or the commission of a gross misdemeanor
or felony, the option shall be terminated as of the date of the misconduct.
(c) If the optionee shall die while in the employ of the Company or a
subsidiary, if any, or within three months after termination of employment for
any reason other than gross and willful misconduct, or the optionee's employment
is terminated because optionee has become disabled (within the meaning of Code
section 22(e)(3)) while in the employ of the Company or a subsidiary, if any,
and such optionee shall not have fully exercised the option, such option may be
exercised at any time within twelve months after his death or the date of such
disability by the optionee or the personal
-4-
<PAGE>
representatives of the optionee, as applicable, or by any person or persons to
whom the option is transferred by will or the applicable laws of descent and
distribution, to the extent of the full number of shares he was entitled to
purchase under the option on the date of death (or termination of employment, if
earlier) and subject to the condition that no option shall be exercisable after
the expiration of the term of the option.
(d) Nothing in the Plan or in any agreement thereunder shall confer on any
employee any right to continue in the employ of the Company or any of its
subsidiaries or affect, in any way, the right of the Company or any of its
subsidiaries to terminate his employment at any time.
10. Ten Percent Shareholder Rule.
Notwithstanding any other provision in the Plan, if at the time an option
is otherwise to be granted pursuant to the Plan the optionee owns directly or
indirectly (within the meaning of section 424(d) of the Code) shares of common
stock of the Company possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or its parent or
subsidiary corporations (within the meaning of section 424(e) or 424(f) of the
Code), if any, then any Incentive Stock Option to be granted to such optionee
pursuant to the Plan shall satisfy the requirements of section 422(c)(7) of the
Code, the option price shall be not less than 110% of the fair market value of
the common stock of the Company determined as described herein, and such option
by its terms shall not be exercisable after the expiration of five (5) years
from the date such option is granted.
11. Non-Transferability.
No option granted under the Plan shall be transferable by an optionee,
otherwise than by will or the laws of descent or distribution as provided in
section 9(c). During the lifetime of an optionee the option shall be exercisable
only by such optionee.
12. Dilution or Other Adjustments.
If there shall be any change in the shares of the Company's common stock
through merger, consolidation, reorganization, recapitalization, stock dividend
(of whatever amount), stock split or other change in the corporate structure,
appropriate adjustments in the Plan and outstanding options shall be made by the
Committee. In the event of any such changes, adjustments shall include, where
appropriate, changes in the aggregate number of shares subject to the Plan, the
number of shares and the price per share subject to outstanding options, in
order to prevent dilution or enlargement of option rights.
-5-
<PAGE>
13. Amendment or Discontinuance of Plan.
The Board of Directors may amend or discontinue the Plan at any time.
However, no amendment of the Plan shall, without stockholder approval: (i)
increase the maximum number of shares under the Plan as provided in section 2,
(ii) decrease the minimum option price provided in section 5, (iii) extend the
maximum option term under section 6, or (iv) materially modify the eligibility
requirements for participation in the Plan. The Board of Directors shall not
alter or impair any option theretofore granted under the Plan without the
consent of the holder of the option.
14. Time of Granting.
Nothing contained in the Plan or in any resolution adopted or to be adopted
by the Board of Directors or by the stockholders of the Company, and no action
taken by the Committee or the Board of Directors (other than the execution and
delivery of an option) shall constitute the granting of an option hereunder.
15. No Guaranty of Continued Service or Future Benefits.
(a) Nothing in the Plan or in any agreement hereunder shall confer on
any employee, director, consultant or independent contractor any right to
continue in the employ or service of the Company or any of its subsidiaries
or affect in any way the right of the Company or any of its subsidiaries to
terminate any such person's employment or other services at any time.
(b) Options shall be granted under the Plan in the sole discretion of
the Board of Directors or the Committee and will not form part of the
recipient's salary or be used in calculating severance benefits or entitle
the recipient to similar option grants in the future.
16. Effective Date and Termination of Plan.
(a) The Plan was approved by the Board of Directors on May 26, 1999, and
shall be approved by the shareholders of the Company within twelve (12) months
thereof.
(b) Unless the Plan shall have been discontinued as provided in section 13,
the Plan shall terminate May 25, 2009. No option may be granted after such
termination, but termination of the Plan shall not, without the consent of the
optionee, alter or impair any rights or obligations under any option theretofore
granted.
-6-
<PAGE>
17. Income Tax; Withholding; Tax Bonuses.
(a) Persons receiving Options under the Plan ("optionees") are responsible
for the payment of all income taxes, employment, social insurance, welfare and
other taxes under applicable law relating to any amounts deemed under the laws
of the country of their residency or of the organization of the subsidiary which
employs them to constitute income arising out of the Plan, the grant of options
under the Plan and the purchase and sale of shares of Common Stock pursuant to
the Plan.
(b) Withholding. In order to comply with all applicable domestic or foreign
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal, state or local payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of the optionee under the Plan, are withheld or collected from
such optionee. In order to assist the optionee in paying all or a portion of the
federal, state or local taxes to be withheld or collected upon exercise or
receipt of (or the lapse of restrictions relating to) an option, the Committee,
in its discretion and subject to such additional terms and conditions as it may
adopt, may permit the optionee to satisfy such tax obligation by (i) electing to
have the Company withhold a portion of the Shares otherwise to be delivered upon
exercise or receipt of (or the lapse of restrictions relating to) such option
with a fair market value equal to the amount of such taxes, or (ii) delivering
to the Company shares of Common Stock other than Shares issuable upon exercise
or receipt of (or the lapse of restrictions relating to) such option with a fair
market value equal to the amount of such taxes. The fair market value of shares
of Common Stock shall be determined in accordance with Section 5. The election,
if any, must be made on or before the date that the amount of tax to be withheld
is determined.
(c) Tax Bonuses. The Committee, in its discretion, shall have the
authority, at the time of grant of any option under this Plan or at any time
thereafter, to approve cash bonuses to designated optionees to be paid upon
their exercise or receipt of (or the lapse of restrictions relating to) the
option in order to provide funds to pay all or a portion of federal, state or
local taxes due as a result of such exercise or receipt (or the lapse of such
restrictions). The Committee shall have full authority in its discretion to
determine the amount of any such tax bonus.
-7-
<PAGE>
EXHIBIT 10.16
PEMSTAR INC.
2000 STOCK OPTION PLAN
1. Purpose of the Plan.
This Plan shall be known as the "PEMSTAR INC. 2000 Stock Option Plan" and
is hereinafter referred to as the "Plan." The purpose of the Plan is to aid in
maintaining and developing personnel capable of assuring the future success of
PEMSTAR INC., a Minnesota corporation (the "Company"), to offer such personnel
additional incentives to put forth maximum efforts for the success of the
business, and to afford them an opportunity to acquire a proprietary interest in
the Company through stock options as provided herein. Options granted under this
Plan may be either incentive stock options ("Incentive Stock Options") within
the meaning of section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or options which do not qualify as Incentive Stock Options.
2. Stock Subject to the Plan.
Subject to the provisions of section 12, the shares of stock to be subject
to options under the Plan shall be shares of the Company's authorized common
stock. Such shares may be either authorized but unissued shares, or issued
shares which have been reacquired by the Company. Subject to the adjustment as
provided in section 12, the maximum number of shares on which options may be
exercised under this Plan shall be Five Hundred Thousand Shares (500,000)
shares. If an option under the Plan expires, or for any reason is terminated or
unexercised with respect to any shares, such shares shall again be available for
options thereafter granted during the term of the Plan.
3. Administration of Plan.
(a) The Plan shall be administered by the Board of Directors of the Company
or a committee of three or more directors of the Company. The members of such
committee shall be appointed by and serve at the pleasure of the Board of
Directors. The group administering the Plan shall be referred to herein as the
"Committee."
(b) The Committee shall have plenary authority in its discretion, but
subject to the express provisions of this Plan, (i) to determine the purchase
price of the common shares covered by each option, (ii) to determine the
employees to whom and the time or times at which such options shall be granted
and the number of shares to be subject to each option, (iii) to determine the
terms of exercise of each option, (iv) to accelerate the time at which all or
any part of an option may be exercised, (v) to amend or modify the terms of any
option with the consent of the optionee, (vi) to interpret the Plan, (vii) to
prescribe, amend and rescind rules and regulations relating to the Plan, (viii)
to determine the terms and provisions of each option agreement under this Plan
(which agreements need not be identical), including the designation of those
options intended to be Incentive Stock Options, and
<PAGE>
(ix) to make all other determinations necessary or advisable for the
administration of the Plan, subject to the exclusive authority of the Board of
Directors under section 13 to amend or terminate the Plan. The Committee's
determinations on the foregoing matters, unless otherwise disapproved by the
Board of Directors of the Company, shall be final and conclusive.
(c) The Committee shall select one of its members as its Chairman and shall
hold its meetings at such times and places as it may determine. A majority of
its members shall constitute a quorum. All determinations of the Committee shall
be made by not less than a majority of its members. Any decision or
determination that is set forth in a written document and signed by all of the
members of the Committee shall be fully effective as if it had been made by a
majority vote at a meeting duly called and held. The granting of an option
pursuant to the Plan shall be effective only if a written agreement shall have
been duly executed and delivered by and on behalf of the Company and the
employee to whom such right is granted. The Committee may appoint a Secretary
and may make such rules and regulations for the conduct of its business as it
shall deem advisable.
(d) The Committee shall, to the extent necessary or desirable, establish
any special rules for employees located in any country other than the United
States. Such rules shall be set forth in Appendices to the Plan, which shall be
deemed incorporated into and form part of the Plan. Such rules may not change
the maximum number of shares on which options may be exercised under the Plan or
the eligibility rules set forth in Section 4.
4. Eligibility.
Incentive Stock Options may only be granted under this Plan to any full or
part-time employee (which term as used herein includes, but is not limited to,
officers and directors who are also employees) of the Company and of its present
and future subsidiary corporations (herein called "subsidiaries"). Members of
the Board of Directors of the Company, consultants or independent contractors
providing valuable services to the Company or one of its subsidiaries who are
not also employees thereof shall be eligible to receive options which do not
qualify as Incentive Stock Options. In determining the persons to whom options
shall be granted and the number of shares subject to each option, the Committee
may take into account the nature of services rendered by the respective
employees, their present and potential contributions to the success of the
Company and such other factors as the Committee in its discretion shall deem
relevant. A person who has been granted an option under the Plan may be granted
an additional option or options under the Plan if the Committee shall so
determine; provided, however, that to the extent the aggregate fair market value
(determined at the time the Incentive Stock Option is granted) of the stock with
respect to which all Incentive Stock Options are exercisable for the first time
by an employee during any calendar year (under all plans described in section
422 of the Code of his employer corporation and its parent and subsidiary
corporations described in section 424(e) or 424(f) of the Code) exceeds
$100,000, such options shall be treated as options which do not qualify as
Incentive Stock Options.
5. Price.
The option price for all Incentive Stock Options granted under the Plan
shall be determined by the Committee but shall not be less than 100% of the fair
market value of shares of the Company's common stock at the date of granting of
such option. The option price for options granted
-2-
<PAGE>
under the Plan which do not qualify as Incentive Stock Options shall also be
determined by the Committee. For purposes of the preceding sentence and for all
other valuation purposes under the Plan, the fair market value of the Company's
common stock shall be as reasonably determined by the Committee. If on the date
of grant of any option granted under the Plan, the common stock of the Company
is not publicly traded, the Committee shall make a good faith attempt to satisfy
the option price requirement of this section 5 and in connection therewith shall
take such action as it deems necessary or advisable.
6. Term.
Each option and all rights and obligations thereunder shall, subject to the
provisions of section 9, expire on the date determined by the Committee and
specified in the option agreement. The Committee shall be under no duty to
provide terms of like duration for options granted under the Plan, but the term
of an Incentive Stock Option may not extend more than ten (10) years from the
date of granting of such option and the term of options granted under the Plan
which do not qualify as Incentive Stock Options may not extend more than fifteen
(15) years from the date of granting of such option.
7. Exercise of Option.
(a) The Committee shall have full and complete authority to determine,
subject to section 9, whether the option will be exercisable in full at any time
or from time to time during the term of the option, or to provide for the
exercise thereof in such installments, upon the occurrence of such events and at
such times during the term of the option as the Committee may determine.
(b) The exercise of any option granted hereunder shall only be effective at
such time that the sale of common stock pursuant to such exercise will not
violate any state or federal securities or other laws.
(c) An optionee electing to exercise an option shall give written notice to
the Company of such election and of the number of shares subject to such
exercise. The full purchase price of such shares shall be tendered with such
notice of exercise. Payment shall be made to the Company either in cash
(including check, bank draft or money order), or, at the discretion of the
Committee, (i) by delivering certificates for shares of the Company's common
stock already owned by the optionee having a fair market value equal to the full
purchase price of the shares, or (ii) a combination of cash and such shares, or
(iii) by delivering the optionee's full recourse promissory note, which shall
provide for interest at a rate not less than the minimum rate required to avoid
imputation of income, original issue discount or a below-market-rate loan
pursuant to sections 483, 1274 or 7872 of the Code or any successor provisions
thereto; provided, however, that an optionee shall not be entitled to tender
shares of the Company's common stock pursuant to successive, substantially
simultaneous exercises of options granted under this or any other stock option
plan of the Company. The fair market
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<PAGE>
value of such shares shall be determined as provided in section 5. Until such
person has been issued a certificate or certificates for the shares subject to
such exercise, he shall possess no rights as a stockholder with respect to such
shares.
8. Additional Restrictions.
The Committee shall have full and complete authority to determine whether
all or any part of the shares of common stock of the Company acquired upon
exercise of any of the options granted under the Plan shall be subject to
restrictions on the transferability thereof or any other restrictions affecting
in any manner the optionee's rights with respect thereto, but any such
restriction shall be contained in the agreement relating to such options.
9. Effect of Termination of Employment or Death.
(a) In the event that an optionee shall cease to be employed by the Company
or its subsidiaries, if any, for any reason other than his gross and willful
misconduct or his death or disability as set forth in section 9(c), such
optionee shall have the right to exercise the option at any time within three
months after such termination of employment to the extent of the full number of
shares he was entitled to purchase under the option on the date of termination,
subject to the condition that no option shall be exercisable after the
expiration of the term of the option.
(b) In the event that an optionee shall cease to be employed by the Company
or its subsidiaries, if any, by reason of his gross and willful misconduct
during the course of his employment, including but not limited to wrongful
appropriation of funds of his employer or the commission of a gross misdemeanor
or felony, the option shall be terminated as of the date of the misconduct.
(c) If the optionee shall die while in the employ of the Company or a
subsidiary, if any, or within three months after termination of employment for
any reason other than gross and willful misconduct, or the optionee's employment
is terminated because optionee has become disabled (within the meaning of Code
section 22(e)(3)) while in the employ of the Company or a subsidiary, if any,
and such optionee shall not have fully exercised the option, such option may be
exercised at any time within twelve months after his death or the date of such
disability by the optionee or the personal representatives of the optionee, as
applicable, or by any person or persons to whom the option is transferred by
will or the applicable laws of descent and distribution, to the extent of the
full number of shares he was entitled to purchase under the option on the date
of death (or termination of employment, if earlier) and subject to the condition
that no option shall be exercisable after the expiration of the term of the
option.
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<PAGE>
(d) Nothing in the Plan or in any agreement thereunder shall confer on any
employee any right to continue in the employ of the Company or any of its
subsidiaries or affect, in any way, the right of the Company or any of its
subsidiaries to terminate his employment at any time.
10. Ten Percent Shareholder Rule.
Notwithstanding any other provision in the Plan, if at the time an option
is otherwise to be granted pursuant to the Plan the optionee owns directly or
indirectly (within the meaning of section 424(d) of the Code) shares of common
stock of the Company possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or its parent or
subsidiary corporations (within the meaning of section 424(e) or 424(f) of the
Code), if any, then any Incentive Stock Option to be granted to such optionee
pursuant to the Plan shall satisfy the requirements of section 422(c)(7) of the
Code, the option price shall be not less than 110% of the fair market value of
the common stock of the Company determined as described herein, and such option
by its terms shall not be exercisable after the expiration of five (5) years
from the date such option is granted.
11. Non-Transferability.
No option granted under the Plan shall be transferable by an optionee,
otherwise than by will or the laws of descent or distribution as provided in
section 9(c). During the lifetime of an optionee the option shall be exercisable
only by such optionee.
12. Dilution or Other Adjustments.
If there shall be any change in the shares of the Company's common stock
through merger, consolidation, reorganization, recapitalization, stock dividend
(of whatever amount), stock split or other change in the corporate structure,
appropriate adjustments in the Plan and outstanding options shall be made by the
Committee. In the event of any such changes, adjustments shall include, where
appropriate, changes in the aggregate number of shares subject to the Plan, the
number of shares and the price per share subject to outstanding options, in
order to prevent dilution or enlargement of option rights.
13. Amendment or Discontinuance of Plan.
The Board of Directors may amend or discontinue the Plan at any time.
However, no amendment of the Plan shall, without stockholder approval: (i)
increase the maximum number of shares under the Plan as provided in section 2,
(ii) decrease the minimum option price provided in section 5, (iii) extend the
maximum option term under section 6, or (iv) materially modify the eligibility
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<PAGE>
requirements for participation in the Plan. The Board of Directors shall not
alter or impair any option theretofore granted under the Plan without the
consent of the holder of the option.
14. Time of Granting.
Nothing contained in the Plan or in any resolution adopted or to be adopted
by the Board of Directors or by the stockholders of the Company, and no action
taken by the Committee or the Board of Directors (other than the execution and
delivery of an option) shall constitute the granting of an option hereunder.
15. No Guaranty of Continued Service or Future Benefits.
(a) Nothing in the Plan or in any agreement hereunder shall confer on any
employee, director, consultant or independent contractor any right to continue
in the employ or service of the Company or any of its subsidiaries or affect in
any way the right of the Company or any of its subsidiaries to terminate any
such person's employment or other services at any time.
(b) Options shall be granted under the Plan in the sole discretion of the
Board of Directors or the Committee and will not form part of the recipient's
salary or be used in calculating severance benefits or entitle the recipient to
similar option grants in the future.
16. Effective Date and Termination of Plan.
(a) The Plan was approved by the Board of Directors on March 14, 2000, and
shall be approved by the shareholders of the Company within twelve (12) months
thereof.
(b) Unless the Plan shall have been discontinued as provided in section 13,
the Plan shall terminate March 14, 2010. No option may be granted after such
termination, but termination of the Plan shall not, without the consent of the
optionee, alter or impair any rights or obligations under any option theretofore
granted.
17. Income Tax; Withholding; Tax Bonuses.
(a) Persons receiving Options under the Plan ("optionees") are responsible
for the payment of all income taxes, employment, social insurance, welfare and
other taxes under applicable law relating to any amounts deemed under the laws
of the country of their residency or of the organization of the subsidiary which
employs them to constitute income arising out of the Plan, the grant of options
under the Plan and the purchase and sale of shares of Common Stock pursuant to
the Plan.
(b) Withholding. In order to comply with all applicable domestic or foreign
income tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal, state or local payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of the optionee under the Plan, are withheld or collected from
such optionee. In order to assist the optionee in paying all or a portion of the
federal, state or local taxes to be withheld or collected upon exercise or
receipt of (or the lapse of restrictions relating to) an option, the Committee,
in its discretion and subject to such additional terms and conditions as it may
adopt, may permit the optionee to satisfy such tax obligation by (i) electing to
have the Company withhold a portion of the Shares otherwise to be delivered upon
exercise or receipt of (or the lapse of restrictions relating to) such option
with a fair market value equal to the amount of such taxes, or (ii) delivering
to the Company shares of Common Stock other than Shares issuable upon exercise
or receipt of (or the lapse of restrictions relating to) such option with a fair
market value equal to the amount of such taxes. The fair market value of shares
of Common Stock shall be determined in accordance with Section 5. The election,
if any, must be made on or before the date that the amount of tax to be withheld
is determined.
(c) Tax Bonuses. The Committee, in its discretion, shall have the authority,
at the time of grant of any option under this Plan or at any time thereafter, to
approve cash bonuses to designated optionees to be paid upon their exercise or
receipt of (or the lapse of restrictions relating to) the option in order to
provide funds to pay all or a portion of federal, state or local taxes due as a
result of such exercise or receipt (or the lapse of such restrictions). The
Committee shall have full authority in its discretion to determine the amount of
any such tax bonus.
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<PAGE>
EXHIBIT 10.17
[Final, 032600]
SUPPLEMENTARY CONTRACT
THIS SUPPLEMENTARY CONTRACT ("this Contract") is entered into as of March
24, 2000, by and between TIANJIN YAT-SEN SCIENTIFIC-INDUSTRIAL PARK
INTERNATIONAL, INC., a Chinese corporation incorporated and established under
Chinese law, with its registered address at: the Economic and Technological
Development Zone of Tianjin City, China, ("Seller"), and PEMSTAR (TIANJIN)
ENTERPRISE CO. LTD., a wholly foreign owned enterprise incorporated and
established under Chinese law, with its registered address at: the Economic and
Technological Development Zone of Tianjin City, China, ("Buyer").
WHEREAS, Seller and Buyer entered into a Commercial House Sales Contract of
Tianjin City (the "Tianjin Contract") as of _________________, 2000, according
to which Seller will sell to Buyer the Property as defined below; and
WHEREAS, Seller and Buyer acknowledge and agree that the Tianjin Contract
does not fully cover and elaborate all the intentions and agreements expressed
and reached between Seller and Buyer in connection with the sale and purchase
transaction of the Property as defined below.
NOW, THEREFORE, Seller and Buyer have hereby agreed to the following terms
and conditions in connection with the Tianjin Contract:
1. PROPERTY DESCRIPTION
--------------------
Seller hereby sells to Buyer, and Buyer hereby buys from Seller, the
factory building and the improvements, parking lot, driveways, sidewalks
and landscaping within the factory area and the land-use rights associated
therewith and thereunder, together with all other rights and interests
which relate thereto at Tianjin Yat-Sen Scientific-Industrial Park, in
Tianjin City, China, more fully described and illustrated on Exhibit A (the
"Property").
2. REPRESENTATIONS
---------------
Seller warrants and represents:
a. that at the time of delivery of the Property to Buyer, the Property is
in good and safe condition, structurally sound and that all heating,
ventilating and cooling systems, plumbing systems, electrical systems,
fire safety systems and other building systems are in good working
condition, and in compliance with all applicable Chinese state and
local laws, statutes, rules, regulations and ordinances and with the
specifications for the Property described on Exhibit A.
b. that the Property complies with all applicable Chinese state and local
laws, statutes, rules, regulations and ordinances, and that the
Property is properly zoned
<PAGE>
and permitted for use as a manufacturing plant and related offices as
intended by Buyer.
c. that it has provided to Buyer a true copy of the Land-use Right
Certificate, Sales Permit, Fire-Safety Permit and all other
governmental approvals and permits required for owning, using and
transferring the Property.
d. that upon full payment of the purchase price for the Property by Buyer
to Seller, Buyer shall be approved to obtain the Land-use Right
Certificate, Building Ownership Certificate and Fire-Safety Permit
relating to the Property, and all other governmental approvals and
permits required for owning, using and transferring the Property.
e. that the Property is connected to water, sewer, gas and electric lines
and that there are separate utility meters for all utilities, except
sewer, serving the Property.
f. that:
i. Seller promises that the land on which the Property is located
was farm land without any contamination as described in Section 5
below.
ii. The land testing report for the Property provided by Seller to
Buyer is truthful and reliable, which can be relied upon by
Buyer.
iii. The Introduction to the Current Environmental Status of Tianjin
Yat-Sen Scientific-Industrial Park of the Economic and
Technological Development Zone of Tianjin City made by the
Environmental Protection Bureau of the Economic and Technological
Development Zone of Tianjin City and the Administration Bureau of
Tianjin Yat-Sen Scientific-Industrial Park of Tianjin City and
provided by Seller to Buyer is truthful and reliable, which can
be relied upon by Buyer.
Seller's obligations and liabilities under Section 2.a and 2.e shall
be good and effective within the relevant warranty period as required
by law. Seller's other obligations and liabilities under this Section
2 shall survive the expiration or termination of this Contract.
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<PAGE>
3. SELLER OBLIGATIONS
------------------
a. Prior to delivering possession of the Property to Buyer, Seller, at
its sole expense, shall cause the Property to comply with all Chinese
state and local laws, codes, ordinances, rules and regulations and
shall be responsible for and shall remedy any noncompliance of the
Property with such laws, codes, ordinances, rules and regulations.
Without limitation, Seller, at its sole expense and within the
relevant warranty period as required by law, shall maintain in good
condition and repair (including replacement, if necessary) the roof,
heating, air conditioning and ventilating systems, plumbing and
electrical systems, fire safety systems and structural components of
the Property. Seller, at its sole expense and within relevant warranty
period as required by law, shall also make all repairs or replacements
to the Property, where such repairs or replacements are necessary due
to construction quality or latent defects, or are subject to
construction or material warranties.
b. Buyer may submit to Seller at any time and from time to time during
the relevant warranty period as required by law, a list of defective
items in the Property. Seller shall correct all such defective items,
at Seller's sole expense, as soon as reasonably possible, but in no
event more than thirty (30) days after receipt of notice from Buyer.
If the nature of the defect requires more than thirty (30) days to
correct, Buyer and Seller may extend such correction time to a
reasonable extent through consultation, provided that Seller must
start correcting the defect within the aforesaid thirty (30) days
period and Seller's correction must not be interrupted. Without
limitation, Seller, at its sole expense, shall make all repairs or
replacements to the Property, where such repairs or replacements are
necessary due to construction quality or latent defects, or are
subject to construction or material warranties.
c. Seller shall indemnify, defend and hold Buyer harmless from and
against any and all Environmental Damages incurred or to be incurred
as a result of the breach, by Seller, of its representations hereunder
or with respect to Existing Contamination or Seller Contamination or
failure to comply with any environmental Regulations. Seller shall
perform any remediation required by any Government in such a manner as
to have as little impact on Buyer's business being conducted at the
Property as reasonably possible. If Existing Contamination or Seller
Contamination actually prevents Buyer, or its employees or customers,
from occupying any material part of the Property in a manner that
materially adversely affects Buyer's business being conducted at the
Property for any period of sixty (60) or more continuous calendar
days, Buyer shall have the right to terminate the Contract by giving
written notice to Seller, in which event the Deposit under Section 7
of this Contract shall be refunded to Buyer, with interest.
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<PAGE>
Seller's obligations and liabilities under Sections 3.a and 3.b shall
be good and effective within the relevant warranty period as required
by law. Seller's obligations and liabilities under Section 3.c shall
survive the expiration or termination of this Contract
4. BUYER OBLIGATIONS
-----------------
a. Through the Term of this Contract, Buyer shall be responsible for the
daily operation and maintenance of the Property and the related
equipment and systems (e.g., oiling and cleaning), including
replacement of the parts and components which are easy to wear and
tear (e.g., light bulbs). Notwithstanding the foregoing, Buyer shall
not be responsible for repairs of any damage, defect and break-down
which am caused to the Property and the related equipment and systems
by construction quality or latent defects, or are subject to
construction or material warranties.
b. Buyer shall indemnify, defend and hold Seller harmless from and
against any and all Environmental Damages incurred or to be incurred
as a result of violation by Buyer of any Environmental Regulations.
5. DEFINITIONS
-----------
For purposes of this Contract the following terms shall have the following
meanings:
a. "Existing Contamination" means prior to delivery of possession of the
Property to Buyer, contamination, if any, which exists on, in, below,
or is migrating on, under or in the direction of the Property, whether
known or unknown on the date Buyer takes possession of the Property.
b. "Seller Contamination" means contamination at the Property which is
caused by or arises out of any act, omission, neglect or fault of
Seller, its predecessors as owners and/or users of the Property or its
agents, employees, contractors or invitees and occurs without the
neglect of fault of Buyer.
c. "Contamination" means the uncontained or uncontrolled presence of or
release of Hazardous Substances into any environmental media from,
upon, within, below, into or on the Property.
d. "Hazardous Substances" means any toxic or hazardous chemicals, wastes,
materials or substances, including, without limitation, lead, radon,
asbestos, asbestos containing materials, polychlorinated biphenyls,
dioxin, urea-formaldehyde, nuclear fuel or waste, radioactive
materials, explosives, carcinogens, petroleum products, or any
pollutants or contaminants, as those terms
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<PAGE>
and the highest permissible levels (if any) thereof are defined in any
applicable Government law, statute, ordinance, code, rule or
regulation.
e. "Environmental Regulations" means all laws, statutes, ordinances,
codes, rules and regulations relating to Hazardous Substances or the
protection of the environment.
f. "Environmental Damages" means all claims, judgments, arbitral awards,
losses, penalties, fines, liabilities, encumbrances, liens, costs and
reasonable expenses of investigation, defense or good faith settlement
resulting from violations of Environmental Regulations, and including,
without limitation: (i) damages for personal injury and injury to
property or natural resources; (ii) reasonable fees and disbursement
of attorneys, consultants, contractors, experts and laboratories;
(iii) costs of any cleanup, remediation, removal, response, abatement,
containment, closure, restoration or monitoring work required by any
Environmental Regulation and other costs reasonably necessary to
restore full economic use of the Property; and (iv) third-party claims
relating to the immediately preceding subsections (i) - (iii).
g. "Government" means the City of Tianjin, and any other governmental
authority having jurisdiction over the matter in question.
h. "Term" means the period from the date of this Contract through earlier
of (a) the effective date of termination of this Contract or (b) the
date when the purchase price has been paid in full and all transfer
documents contemplated by Section 6 have been delivered, approved by
applicable authority and the Property has been fully transferred to
Buyer.
i. "Deposit" means the sum deposited by Seller with Buyer pursuant to
Section 7 below.
6. TRANSFER
--------
Buyer shall be deemed the equity owner of the Property. However, prior to full
payment of the purchase price for the Property by Buyer to Seller, Seller will
keep and possess the Land-use Right Certificate, the Sales Permit and other
relevant certificates. Upon full payment of the purchase price for the Property
by Buyer to Seller, Seller shall execute, and/or deliver to Buyer all documents
and/or authentic copies thereof as legally required to enable Seller to own, use
and transfer the land-use right, the building ownership and all other elements
of the Property in China, including the following, all in form and content in
compliance with the relevant laws and regulations:
a. a transfer instrument with warranties of ownership of the rights
transferred, a Land-use Right Certificate, a Sales Permit and any
other documents required to
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<PAGE>
convey the Property to Buyer, free and clear of all encumbrances
including governmental liens, taxes and fees, but not including
matters which Buyers have created after the date of this Contract,
b. appropriate assignments of all other elements of the Property,
c. an affidavit by Seller indicating that there are no outstanding,
unsatisfied judgments, arbitral awards, tax liens or bankruptcies or
any other legal and/or administrative proceedings against or involving
Seller or the Property; that them has been no skill, labor or material
furnished to the Property by or on behalf of Seller for which payment
has not been made or for which mechanics' liens could be filed; and
that there are no other unrecorded interests in the Property other
than interests created by Buyer,
d All of Seller's authorization documents which are notarized, bear
Seller's original corporate seal and authorize sale by Seller of the
Property; such documents are valid and binding obligations of Seller,
enforceable in accordance with their terms,
e. all other documents, certificates and approvals reasonably determined
by Buyer to be necessary to transfer the Property to Buyer free and
clear of all encumbrances.
7. TOTAL PURCHASE PRICE, DEPOSIT
-----------------------------
Buyer shall pay to Seller, in Tianjin, China, the sum of Fourteen Million Four
Hundred and Fifty-one Thousand Four Hundred and Ninety-eight Chinese Renminbi
(RMB14,451,498) as and for the principal of the total purchase price for the
Property (the "Total Purchase Price"). The Total Purchase Price and the interest
thereon at Eight Percent (8%) per annum shall be payable in installments. The
interest herein shall accrue from January 15, 2000. The Total Purchase Price
shall be adjusted in accordance with the relevant provisions of the Tianjin
Contract. Each installment shall be applied first to accrued but unpaid interest
and the balance to principal. The payment of the Total Purchase Price shall be
made as set forth in a schedule attached hereto as Exhibit B. Buyer shall pay
Seller the due amount of the Total Purchase Price for the current month within
the first seven (7) business days of the current month.
Buyer has deposited with Seller the sum of One Hundred Thousand Chinese Renminbi
(RMB100,000) (the "Deposit") as collateral for its obligations under this
Contract. If this Contract is terminated due to Buyer's reason prior to the last
date of the third anniversary of the execution date of this Contract, Seller
shall have the right to retain such Deposit as liquidated damages for such
termination. If this Contract has not been terminated prior to the last date of
the third anniversary of the execution date of this Contract, or if the Contract
is terminated other than for Buyer's reason, Seller shall promptly repay to
Buyer
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<PAGE>
the amount of the Deposit, together with interest thereon at Eight Percent
(8%) per annum computed from the date of deposit to the date of repayment. There
shall be no accumulative interest accrued on such interest. If the Deposit and
interest thereon are not promptly repaid to Buyer, Buyer may elect to apply such
Deposit and interest thereon to any payments thereafter coming due under this
Contract.
8. PREPAYMENT
----------
Buyer shall have the right to fully or partially prepay all the amounts under
this Contract at any time without penalty. Any partial prepayment shall be
applied first to payment of amounts then due under this contract, including
unpaid accrued interest, and the balance shall be applied to the principal
installments to be paid in the inverse order of their maturity. Partial
prepayment shall not postpone the due date of the installments to be paid
pursuant to this Contract or change the amount of such installments.
Specifically, Buyer may prepay all the amounts under this Contract in full at
any time by paying the then unpaid principal balance to Seller.
9. REAL ESTATE TAXES
-----------------
Seller warrants that all the applicable taxes and fees currently due in
connection with the Property and applicable to Seller as legally required have
been paid by Seller in full without any delay. Seller shall continue to pay any
and all further taxes and fees in connection with the Property and applicable to
Seller as legally required. Buyer shall be responsible for payment of any and
all taxes and fees in connection with the Property and applicable to Buyer as
legally required.
10. PROPERTY INSURANCE
------------------
a. INSURED RISKS AND AMOUNT. Seller shall keep the Property insured
against loss or damage by "all risks" coverage, including, malicious
mischief and vandalism, and boiler and machinery coverage, in an
amount sufficient to prevent Seller or Buyer from being a co-insurer
under the terms of the applicable policies, but in any event, in an
amount not less than One Hundred Percent (100%) of the then full
market replacement value of the Property. Such insurance shall be
issued by financially responsible insurers duly authorized to do
business in China. Seller shall pay any deductible or co-insurance
amount applicable in the event of loss or damage first, then receive a
reimbursement amount from Buyer based upon the ratio between the
amount of the principal of the Total Purchase Price already paid by
Buyer and the Total Purchase Price. Seller shall pay all the currently
due insurance expenses first, then receive a reimbursement amount from
Buyer based upon the ratio between the amount of the principal of the
Total Purchase Price already paid by Buyer and the Total Purchase
Price.
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<PAGE>
b. OTHER TERMS. The Seller's insurance policy shall contain a loss
payable clause in favor of both Seller and Buyer and a clause which
provides that Buyer's right to recover under the insurance shall not
be impaired by any acts or omissions of Buyer or Seller.
c. NOTICE OF DAMAGE. In the event of damage to the Property by fire or
other casualty, Buyer shall promptly give notice of such damage to
Seller and the insurance company.
11. DAMAGE TO THE PROPERTY
----------------------
a. APPLICATION OF INSURANCE PROCEEDS. If the Property is damaged by fire
or other casualty ("Casualty") and this Contract is not terminated,
all proceeds of insurance as described above shall be used in the
following order: first, for the cost of reconstruction as set forth in
the next paragraph; second, for the cost of finding a substitute
location for Buyer's operations and any other related cost. Unless
this Contract is terminated in accordance with the next paragraph, any
proceeds not so applied shall be paid to and become the sole property
of Buyer. If this Contract is terminated in accordance with the next
paragraph, the proceeds of insurance as described above shall be
allocated between Buyer and Seller based upon the ratio between the
amount of the Total Purchase Price already paid by Buyer and the Total
Purchase Price. However, in any event, the amount of proceeds of
insurance to be received by Seller shall not exceed the original Total
Purchase Price. The amount of the Total Purchase Price already paid by
Buyer to Seller shall not be returned to Buyer.
b. BUYER'S ELECTION TO REBUILD OR TERMINATE. Unless Buyer gives notice of
termination as set forth below, if the Property is damaged by
Casualty, the damage (excluding damage to Buyer's personal property)
shall be repaired by Seller at its expense to a condition as near as
reasonably possible to the condition prior to the Casualty.
If Buyer determines in its good faith judgment that it is unlikely
that the Property can and will be so repaired within 90 days from the
date of the Casualty, Buyer may elect to terminate this Contract by
giving written notice to Seller within thirty (30) days after the date
of the Casualty. If such notice is not given, Seller shall begin
repairs within thirty (30) days after the Casualty and complete the
repairs within one hundred and twenty (120) days after the Casualty.
If Seller fails to begin or complete the repairs as required, Buyer
may give Seller notice to do so. If Seller has not begun the repairs
or completed the repairs, as applicable, within fifteen (15) days
after Buyer's notice, Buyer may terminate this Contract by written
notice to Seller given within thirty (30) days after expiration of the
fifteen (15) days period.
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<PAGE>
If this Contract is terminated because of the Casualty, payments
otherwise due hereunder shall be prorated as of the later of the date
of such Casualty or the date when Buyer ceased doing business in the
Property and shall be proportionately refunded to Buyer or paid to
Seller, as the case may be. During any period in which Buyer elects to
cease business in the Property or any portion of the Property as a
result of the Casualty (whether or not the Property itself was damaged
by the Casualty), all payments otherwise due hereunder, including
principal and interest thereon, shall be postponed for the period of
time Buyer is not operating its business therein, plus thirty (30)
days for Buyer to reuse all of the Property after the completion of
Seller's repairs, in proportion to the areas not being used as a
result of the Casualty. Through the aforesaid period of time, no
interest shall be accrued on all the payments otherwise due hereunder.
Such interest shall not continue to accrue until the date on which
Buyer reuses all of the Property. If the plans and contracts for the
repairs are prepared by Buyer, such plans and contracts shall have
Seller's consent, which shall not be unreasonably withheld or delayed.
If this Contract is not terminated, upon completion of such repair
work, the proceeds of insurance as described above shall be provided
to Seller for the reasonably necessary costs and expenses of
performing such repairs. The remaining proceeds of insurance as
described above shall be used for the cost of finding a substitute
location for Buyer's operations and any other related cost If Buyer
shall determine that such insurance proceeds are insufficient to
complete such repair work, the additional funds needed for such repair
work shall be allocated between Buyer and Seller based upon the ratio
between the amount of the Total Purchase Price already paid by Buyer
and the Total Purchase Price to secure the funds for such repair work.
Any costs exceeding the proceeds of insurance and the additional funds
as described above shall be allocated between Buyer and Seller based
upon the ratio as described above. The proceeds of insurance and the
additional funds and costs as described above will be disbursed only
in accordance with generally accepted sound construction disbursement
procedures. If the repair work is conducted by Buyer, Buyer shall
complete the repair work as soon as reasonably possible and in a good
and workmanlike manner, and in any event the repair work shall be
completed by Buyer within one year after the Casualty.
In the event of termination of this Contract pursuant to this Section
11, the Deposit under Section 7 of this Contract shall be refunded to
Buyer, with interest.
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12. LIABILITY INSURANCE
-------------------
Buyer may, at its own expense, procure and maintain liability insurance against
claims for bodily injury, death and property damage occurring on or about the
Property and name Seller as an additional insured.
13. INSURANCE, GENERALLY
--------------------
The insurance which Seller is required to procure and maintain pursuant to this
contract shall be issued by an insurance company or companies licensed to do
business in China. The insurance shall be maintained by Seller at all times
during the Term. The insurance policies shall provide for not less than ten (10)
days written notice to Buyer before cancellation, non-renewal, termination or
change in coverage, and Seller shall deliver to Buyer a duplicate original or
certificate of such insurance policy or policies.
14. CONDEMNATION
------------
If all or any part of the Property is taken in condemnation proceedings
instituted under power of eminent domain or is conveyed in lieu thereof under
threat of condemnation, the funds paid pursuant to such condemnation or
conveyance in lieu thereof shall, at Buyer's option, be first applied to any
costs necessary to repair, restore or otherwise make changes to the Property to
make it usable by Buyer. Any excess of such funds shall be applied to payment of
the amounts payable by Buyers under this Contract, even if such amounts are not
then due to be paid. Such funds shall be applied first to unpaid accrued
interest and next to the installments of the principal to be paid as provided in
this Contract in the inverse order of their maturity. The balance, if any, shall
be the property of Buyers. If such funds are insufficient for repair,
restoration or reconstruction of the Property, Buyer and Seller shall agree to
terminate this Contract, and all such funds shall be allocated between Buyer and
Seller based upon the ratio between the amount of the Total Purchase Price
already paid by Buyer and the Total Purchase Price. Buyer and Seller shall not
to each other have any further obligations and liabilities hereunder. However,
in any event, the amount of such funds to be received by Seller shall not exceed
the original Total Purchase Price. The amount of the Total Purchase Price
already paid to Seller by Buyer shall not be returned to Buyer. However, the
Deposit and the interest thereon shall be repaid to Seller in accordance with
Section 7 of this Contract.
15. WASTE AND CHANGE
----------------
Prior to full performance of this Contract by Buyer, Buyer shall not remove, add
or demolish (herein collectively, the "Change") any buildings, improvements or
fixtures now or later located on or a part of the Property without Seller's
prior written consent, which shall not be unreasonably withheld or delayed.
Buyer shall not commit or allow waste of the Property. Buyer shall maintain the
Property in good condition and repair.
-10-
<PAGE>
16. NOTICE OF ASSIGNMENT
--------------------
If either Seller or Buyer assigns its interest in the Property, a copy of the
agreement of such assignment shall promptly be furnished to the non-assigning
party. No such assignment shall release the assigning party from its obligation
to pay and perform (or cause to be paid and performed) all its obligations under
this Contract. It shall be stipulated in the agreement of such assignment as
described above that the assignee shall continue to perform all of the
assignor's unperformed obligations under this Contract.
17. PROTECTION OF INTERESTS
-----------------------
If Seller fails to pay any sum of money required under the terms of this
Contract or fails to perform any of its other obligations set forth in this
Contract and such failure damages and affects any of Buyer's rights under this
Contract, Buyer may, at Buyer's option, pay the same or cause the same to be
performed, or both, and Seller shall pay Buyer the amounts so paid by Buyer and
the cost of such performance upon demand, with interest at the rate stated in
Section 7 of this Contract. Buyer may also elect to apply and offset the sums so
payable by Seller against any or all sums due or to become due hereunder by
Buyer in such order as Buyer may elect. Any balance not so applied will continue
to be payable by Seller upon demand of Buyer.
Seller shall, not create, suffer or permit to accrue, any mortgage, lien or
encumbrance against the Property which is not herein expressly assumed by Buyer
and if any such mortgage, lien or encumbrance shall exist, Seller shall timely
pay all amounts due thereon, and if Seller fails to do so, Buyer may, at its
option, pay any such delinquent amounts and deduct the amounts paid from the
installments next coming due under this Contract
18. TERMINATION RIGHT
-----------------
Buyer may, at its sole election, terminate this contract by giving Seller not
less than sixty (60) days notice of such election and surrendering possession of
the Property to Seller. If such termination occurs prior to the last date of the
third anniversary of the execution date of this Contract, the Deposit shall be
forfeit to Seller as its sole remedy for such termination. If such termination
occurs on or after the last date of the third anniversary of the execution date
of this Contract, the Deposit shall not be forfeit, but shall be refunded to
Buyer as provided in Section 7 above, and Buyer shall be released from all
farther liability hereunder. In such situation, the amount of the Total Purchase
Price already paid by Buyer to Seller shall not be returned to Buyer. Buyer
shall return the Property to Seller in good condition. Buyer shall be
responsible for repair of any damage and defect caused by Buyer to the Property,
excluding normal wearing and tearing and non-structural damage and defect caused
by Buyer's normal business operations.
-11-
<PAGE>
19. DEFAULT
-------
In the event that:
a. Buyer defaults in the payments due hereunder and the default continues
for thirty (30) days after written notice by Seller to Buyer which
affirmatively specifies that this Contract will terminate unless such
payments are made; or
b. Buyer defaults in any other obligations under this Lease and the
default continues for thirty (30) days after written notice by Seller
to Buyer which affirmatively specifies that this Contract will
terminate unless such default is timely cured (unless such default is
of a nature that cannot reasonably be cured within such thirty (30)
days period, in which case Buyer shall have such time to cure the
default as is reasonably necessary, provided Buyer commences to cure
such default within the original thirty (30) days period and continues
to diligently and continuously pursue the cure thereof to completion),
then Seller may, at Seller's option, elect to declare this Contract canceled and
terminated by notice to Buyer. Buyer shall pay off all the payments, including
principal and interest, due for the period of time from the date of breach of
this Contract by Buyer to the date of cancellation and termination of this
Contract by Seller. All rights and interest acquired under this Contract by
Buyer shall then cease and terminate, and all improvements made upon the
Property and all payments made by Buyer pursuant to this Contract shall belong
to Seller as liquidated damages for breach of this Contract. After service of
notice of default and failure to cure such default within the periods set forth
in Sections 19.a and 19.b above, Buyer shall, upon demand, surrender possession
of the Property to Seller in good condition. Buyer shall be responsible for
repair of any damage and defect caused by Buyer to the Property, excluding
normal wearing and tearing and non-structural damage and defect caused by Buyers
normal business operations.
If a representation or warranty of Seller hereunder shall be false or if Seller
fails or neglects to keep and perform any of its covenants or agreements in this
Contract, Buyer may notify Seller thereof and if Seller does not cure such
default within thirty (30) days (or such shorter period as may be reasonable
under the circumstances, in the event of an emergency) after the date of
receiving such notice (or if the default is of such a character as to require
more than thirty (30) days to cure, Seller does not commence to cure such
default within thirty (30) days and proceed with the cure with reasonable
diligence), Buyer may, in addition to all other remedies now or hereafter
afforded or provided by law, expend such money as may be reasonably necessary to
eliminate such falsity or perform such covenant or agreement for or on behalf of
Seller or make good any such default, and any amount or amounts which Buyer
advances on Seller's behalf shall be repaid by Seller to Buyer on demand,
together with interest thereon at the interest rate
-12-
<PAGE>
provided in Section 7 of this Contract from the date of such advance to the
repayment thereof in full, and if Seller does not repay any such amount or
amounts upon demand, Buyer may, without forfeiture of its rights under this
Contact, deduct the same, together with interest thereon as provided above, from
any installment or installments which may be or become due under this Contract.
20. Force Majeure
-------------
Buyer and Seller shall not to each other be responsible and liable for any
non-performance and/or delay of performance of this Contract which is caused by
an event of force majeure, including, but not limited to, war, fire, any natural
disaster, strike, social disturbance and governmental compulsory action, which
on the execution date of this Contract cannot be reasonably foreseen, is not
within the reasonable control of either Buyer or Seller or both and cannot be
cured or overcome by either Buyer or Seller or both with reasonable efforts
after the occurrence thereof. If an event of force majeure has made the
continuous performance of this Contract impossible and lasted for ninety (90)
days or more, one party may terminate this Contract by written notice to the
other party. All the rights of the two parties under this Contract shall cease
and terminate, and Buyer and Seller shall not to each other be responsible and
liable for any further obligations hereunder. The amount of the Total Purchase
Price already paid by Buyer to Seller shall not be returned to Buyer. However,
the Deposit shall be repaid to Buyer in accordance with Section 7 of this
Contract.
21. NOTICES
-------
Any notice under this Contract shall be in writing, and shall be sent by prepaid
certified mail or reputable express courier or by facsimile confirmed by
certified mail or reputable express courier, addressed to Buyer at: No. 8,
Yat-Sen Scientific-Industrial Park, Tianjin, China, 301726 (with a copy to
______________________________________), and to Seller at:
_______________________________________________________ or, in each case, to
such other address as is designated in a notice given under this Section 21,
which change of address shall be effective 10 days after the giving of notice of
such change. A notice shall be deemed given on the date of first attempted
delivery (if sent by certified mail or express courier) or upon completed
facsimile transmission to the proper fax number. Routine mailings by either
party may be sent by regular mail.
22. DISPUTE RESOLUTION
------------------
a. Both parties agree to consult and negotiate in good faith to resolve
any dispute, controversy or claim arising out of or in connection with
this Contract. If such dispute, controversy or claim cannot be
resolved in this manner withing thirty (30) days after the
commencement of negotiation or such longer period as both parties
-13-
<PAGE>
shall agree to in writing, then the parties may submit such dispute,
controversy or claim for arbitration as provided in Section 22.b.
b. Provided that the parties have complied with Section 22.a, any and all
disputes arising from or in connection with this Contract shall be
submitted to the China International Economic and Trade Arbitration
Commission ("CIETAC") in 13 Beijing, China for arbitration in
accordance with the existing CIETAC rules of arbitration. The
arbitration award is final and binding upon both parties.
23. RESERVATION OF ADDITIONAL LAND
------------------------------
To the extent permitted by the relevant Chinese laws and regulations, Seller
shall give Buyer the right of first refusal to purchase the land-use rights of
the land as described on Exhibit C hereto (the "Reserved Land"). If Seller wants
to use for itself or to sell to a third party the land-use rights of the
Reserved Land, Seller shall notify Buyer in writing of its such intention.
Within a period of time as short as reasonably possible, but in any event not
more than fifteen (15) working days, after receipt by Buyer of Seller's written
notice and other written documents which may evidence Buyer's such intention as
described above, under the same terms and conditions as provided by Seller to
such third party, Buyer shall have the right of first refusal to purchase the
land-use rights of the Reserved Land by written notice to Seller of Buyer's such
intention within the aforesaid period of time. Upon receipt of Buyer's such
written notice, Seller shall immediately negotiate with Buyer the sale and
transfer of the land-use rights of the Reserved Land to Buyer, and shall not
further engage in any transaction with such third party above or any other third
party or parties in connection with the land-use rights of the Reserved Land. If
Buyer does not notify Seller in writing within the aforesaid period of time,
claiming for the right of first refusal to purchase the land-use rights of the
Reserved Land, Seller may dispose of the land-use rights of the Reserved Land at
its sole discretion.
24. GOVERNING LAW
-------------
This Contract shall be governed by and construed and interpreted under Chinese
law.
25. LANGUAGE
--------
This Contract is written both in English and Chinese. In the event of conflict
in interpretation between the two languages, the Chinese version shall prevail.
26. ENTIRE AGREEMENT
----------------
This Contract constitutes and expresses the entire agreement of the parties as
to all the matters herein referred to, all previous discussions, promises,
representations and understandings relative thereto among the parties being
herein merged and superseded.
-14-
<PAGE>
27. AMENDMENT
---------
This Contract shall only be amended by a written document agreed to and signed
by both parties.
28. SEVERABILITY
------------
In case any provision of this Contract shall be deemed or declared to be
unenforceable, invalid or void, the same shall not impair any other provision of
this Contract but the parties agree to negotiate a substitute provision or amend
the other provisions of this Contract so as to produce a result which preserves
as nearly as possible the original legal objectives of this Contract, provided
that neither party shall be obligated to accept an amendment which substantially
departs from the essential intent or effect of this Contract.
29. EFFECTIVE DATE
--------------
This Contract shall take effect on the date on which it is duly executed by both
parties.
30. BINDING EFFECT
--------------
The terms of this Contract shall run with the land and bind the parties hereto
and their successors in interest. Upon full payment of the amounts due under
this Contract, the obligations of Buyer hereunder shall cease and be of no
further force or effect.
31. SPECIAL AGREEMENT
-----------------
Seller and Buyer hereby covenant and agree, in particular, that this Contract
shall constitute an inseparable integral part of the Tianjin Contract as
described above, and shall have the same and equal legal binding force.
NOW, IN WITNESS WHEREFOR, each of Buyer and Seller has caused its
authorized representative to have executed and delivered this Contract on the
date first written above.
-15-
<PAGE>
SELLER:
Tianjin Yat-Sen Scientific-Industrial
Park International, Inc.
By: / s /
-------------------------------------
Name:
------------------------------
Title:
------------------------------
BUYER:
Pemstar (Tianjin Enterprise Co., Ltd.)
By: / s /
-------------------------------------
Name:
-------------------------------
Title:
------------------------------
-16-
<PAGE>
EXHIBIT 10.18
EXHIBIT B
LEASE AGREEMENT
---------------
This Agreement is made on this 4th day of June 1997, by and between:
ITALADE TECHNOLOGY (THAILAND) LIMITED, with its office located at No. 733/736
Phaholyothin Road, Tambhol Kukot, Amphur Lumloogka, Pathumthani Province,
Thailand (hereinafter referred to as "the Lessor"), and
ITALADE - PEMSTAR LIMITED, with its office located at No. 733/736 Phaholyothin
Road, Tambhol Kukot, Amphur Lumloogka, Pathumthani Province, Thailand
(hereinafter referred to as "the Lessee").
WHEREAS the Lessor is the legal and real owner of a factory building located at
No. 733/736 Phaholyothin Road, Tambhol Kukof, Amphur Lumloogka, Pathumthani
Provice.
WHEREAS the Lessor agrees to let and the Lessee agrees to lease a portion of the
factory building mentioned above, covering an approximate area of 1,861.07
square metres or approximately 20,025 square feet, the details of which are as
shown in the chart and floor plans attached hereto and which shall be deemed an
integral part hereof, which has access and is sufficient for the conduct of the
Lessee's business as now conducted or as presently proposed to be conducted, to
public roads and to all utilities, including electricity, sanitary, potable
wate, and other utilities used in the operation of the Lessee's business
(hereinafter referred to as "the Premises")
NOW, THEREFORE, both parties hereby agree as follows:
1. The Purpose of the Lease
The lessee shall use the Premises for the manufacturing of the flex circuit
assemblies, precision electro-mechanical assemblies, micro component
assemblies and other electronic circuit assemblies manufacuring.
2. Term of the Lease
The lease shall be 3 (three) years commencing from the execution date
hereof.
<PAGE>
LEASE AGREEMENT
Between : Italade Technology (Thailand) Limited
: Italade - Pemstar Limited
Page 2
- ------------------------------------------------------------------------
3. Rent and Rental Payment
3.1 During the initial 18 (eighteen) months of the lease term mentioned
under the above Clause 2;
a) the Lessor agrees to let the Lessee take on lease of the certain
area of 10,000 square feet in the Premises on a free rent basis,
and
b) the Lessee agrees to pay to the Lessor the monthly rental for the
remaining 10,025 square feet of the Premises at the rate of Baht
25 per square feet, or totaling Baht 250,625 per month.
3.2 After the 18 (eighteen) months period mentioned in the above 3.1, the
Lessee shall pay the rent for the total area of 20,025 square feet of
said Premises to the Lessor on monthly instalment basis and at the
rental rate as mentioned in the above 3.1(b).
3.3 If, in any particular time after the date of this Agreement, the
Lessee requires more area in the Lessor's factory building for its
business operation in addition to the certain area of the Premises
under this Agreement, and the Lessor agrees to let the Lessee take on
lease of the requested additional area in its factory building for
such purpose. Then, both parties will come into an agreement on the
details of such additional area in the Lessor's factory building to be
leased and let by and between them (the "Additional Lease").
Said Additional Lease shall be subject to the terms and conditions of
this Agreement, except where the rent-free basis is referred under the
above 3.1(a). Any chart or floor plan relating to said Additional
Lease shall be attached hereto and shall accordingly be deemed an
integral part hereof.
4. Renewal
Upon the expiration of the lease term mentioned under Clause 2 of this
Agreement, the parties hereto may, by mutual agreement, renew this lease
term for another 3 years under the terms and conditions and at the rate of
rental as to be subsequently renegotiated by both parties.
<PAGE>
LEASE AGREEMENT
Between : Italade Technology (Thailand) Limited
: Italade - Pemstar Limited
Page 3
- ------------------------------------------------------------------------
5. Utilities
The Lessee shall be responsible for the payment of water, electricity and
telephone consumed or installed at the leased Premises at the rate
prescribed by the authority concerned.
6. Assignment
The Lessee shall not assign or sublet the Premises to any third party
without receiving prior written consent or approval from the Lessor,
provided that the purpose of such assignment or sublet shall be consistent
with the purpose of this Agreement.
7. Taxes
The Lessor shall be responsible for the payment of the household and land
tax or any other tax incurred or to be incurred in connection with the
leased Premises, while the Lessee shall be responsible for any tax incurred
or to be incurred in connection with its business operation as prescribed
by the law.
8. Ownership Transfer
During the term of this Agreement, the Lessor shall not transfer the
ownership of the leased Premises without receiving prior consent from the
Lessee.
9. Termination
9.1 Each party hereto is entitled to terminate this Agreement with
immediate effect at any time by giving 90 (ninety) days prior written
notice to the other party, whereby both parties agree not to claim any
damages incident thereto.
9.2 Should the Lessor breach any material terms or conditions of this
Agreement and fail to remedy such breach within 15 (fifteen) days
commencing from the date of receipt of the written notification from
the Lessee, the Lessee is entitled to terminate this Agreement and
claim any damages incurred therefrom as prescribed by the law.
9.3 Should the Lessee breach the material terms or conditions of this
Agreement and fail to remedy such breach within 15 (fifteen) days
commencing from the date of receipt of the
<PAGE>
LEASE AGREEMENT
Between : Italade Technology (Thailand) Limited
: Italade - Pemstar Limited
Page 4
- ------------------------------------------------------------------------
written notification from the Lessor, the Lessor is entitled to
terminate this Agreement and claim any damages incurred therefrom as
prescribed by the law.
This Agreement is made in duplicate of the same tenor and meaning; one copy is
kept by the Lessor, and the other is kept by the Lessee.
<PAGE>
LEASE AGREEMENT
Between : Italade Technology (Thailand) Limited
: Italade - Pemstar Limited
Page 5
- ------------------------------------------------------------------------
IN WITNESS WHEREOF the parties have executed this Agreement on the day, month
any year first above written.
The Lessor: The Lessee:
ITALADE TECHNOLOGY ITALADE-PEMSTAR LIMITED
(THAILAND) LIMITED
By: /s / By: / s / Al Berning
------------------------------- -----------------
( ) (Al Berning )
By:________________________________ By:_____________________________________
( ) ( )
Witness ____________________________ Witness: ________________________________
( ) ( )
<PAGE>
EXHIBIT 10.19
EXECUTION COPY
================================================================================
LEASE
(ENTIRE BUILDING)
Between
Leslie E. Nelson as Trustee of the Leslie E. Nelson Revocable Trust
dated December 20, 1994, as amended
Landlord
And
PEMSTAR INC.
Tenant
Address of Premises:
2535 Highway 14 West, Rochester, Minnesota
Dated as of June 29, 1998
================================================================================
<PAGE>
BASIC TERMS
-----------
The information provided on this page is for convenience purposes only. In the
event of any conflict or inconsistency between the terms set forth below and the
terms of the attached Lease, the terms of the Lease shall be controlling.
DATE: June 29, 1998
BUILDING ADDRESS: 2535 Highway 14 West
Rochester, Minnesota 55901
USE: Any lawful business purpose
LANDLORD'S NAME AND ADDRESS: Leslie E. Nelson as Trustee of the Leslie E.
Nelson
Revocable Trust dated December 20, 1994, as
amended
P.O. Box G
Clear Lake, Iowa 50428
Telephone No.: (515) 357-2121
Telecopy No.: (515) 357-6122
TENANT'S NAME AND ADDRESS: PEMSTAR INC.
2535 Highway 14 West
Rochester, Minnesota 55901
Telephone No.: (507) 288-6720
Telecopy No.: (507) 280-0838
LEASE TERM: June 29, 1998, through June 30, 2012
OPTIONS TO EXTEND: Three (3) Five (5) Year options
INITIAL TERM BASE RENT:
Period Monthly Base Rent
------ -----------------
June 29, 1998 through June 30, 2003 $25,500.00
July 1, 2003 through June 30, 2008 $27,500.00
July 1, 2008 through June 30, 2012 $30,000.00
i
<PAGE>
INDEX
Article Title of Article Page
- ------- ---------------- ----
1 Definitions............................................. 1
2 Premises................................................ 4
3 Lease Term.............................................. 5
4 Rent.................................................... 5
5 Impositions, Assessments................................ 7
6 Use..................................................... 8
7 Surrender............................................... 9
8 Insurance............................................... 10
9 Indemnification of Landlord............................. 11
10 Operation, Repairs and Maintenance; Alterations......... 11
11 Discharge of Liens...................................... 14
12 Compliance with Laws.................................... 15
13 Damage or Destruction................................... 16
14 Condemnation............................................ 17
15 Assignment.............................................. 19
16 Default................................................. 19
17 Tenant Equipage......................................... 21
18 Subordination........................................... 21
19 Entry by Landlord; Performance of Covenants............. 22
20 Certificates............................................ 23
21 Notices................................................. 23
22 Miscellaneous........................................... 24
ii
<PAGE>
LEASE
-----
(ENTIRE BUILDING)
THIS LEASE ("Lease") is made as of June 29, 1998, by and between Leslie E.
Nelson as Trustee of the Leslie E. Nelson Revocable Trust dated December 20,
1994, as amended, having an office at P.O. Box G, Clear Lake, Iowa 50428
("Landlord"), and PEMSTAR INC., a Minnesota corporation having an office at 2535
Highway 14 West, Rochester, Minnesota 55901 ("Tenant").
ARTICLE 1
---------
Definitions
-----------
1.1 Certain Definitions. Landlord and Tenant agree that the following
capitalized terms when used herein shall, unless the context otherwise requires,
have the following meanings:
"Accessibility Regulation" shall mean a Law relating to accessibility
of facilities or properties for disabled, handicapped and/or physically
challenged persons, including, without limitation, the Americans With
Disabilities Act of 1991, as amended.
"Additional Rent" shall mean all sums payable by Tenant pursuant to
this Lease, except Base Rent.
"Base Rent" shall mean the sums payable to Landlord pursuant to
Section 4.1.1 hereof.
"Building" shall mean the warehouse/manufacturing building located on
the Land, together with all Building Elements thereof, but excluding any
Tenant Equipage.
"Building Elements" shall mean the structural elements of the
Building, together with those portions of the building systems therein
which provide electrical, gas, water and sewer services to the Building for
general warehouse and office uses (as opposed to such systems which are
specific to the particular uses of Tenant). Building Elements expressly
excludes all Tenant Improvements and Tenant Equipage. In illustration of
the foregoing, the general electrical and plumbing systems providing
electrical service to a main breaker box and making water and sewer service
available to common lavatories and washbasins are Building Elements,
distribution wiring to work areas and plumbing and sewer work to
operational areas of the Premises are Tenant Improvements and any
specialized wiring and plumbing unique to a particular activity being
conducted by Tenant in the Premises are Tenant Equipage.
"Commencement Date" shall mean the day the Lease Term begins as
identified in Section 3.1 hereof.
<PAGE>
"Consumer Price Index" means the All Items portion of the "Consumer
Price Index for All Urban Consumers", U.S. City Average (1982-84=100)
published by the Bureau of Labor Statistics of the United States Department
of Labor. If the base year selected by the United States Department of
Labor for calculation of such index shall be changed, then the resultant
index derived from such change shall be readjusted to reflect the base
initially established. In the event said index shall be discontinued,
Landlord shall select another index published by a department or agency of
the United States Government to be substituted for the prior index, with
any appropriate adjustment required because of differences in the prior
index and the substituted index. This procedure shall continue until such
time as no such index is so published, at which time Landlord shall
reasonably substitute an index prepared by an appropriate corporation or
other entity.
"Environmental Regulation" shall mean a Law relating to the
environment and/or the impact thereof on human health or safety, or
governing, regulating or pertaining to the generation, treatment, storage,
handling, transportation, use or disposal of any Hazardous Substance.
"Event of Default" shall mean any of the events or circumstances
described in Section 16.1 hereof.
"Expiration Date" shall mean the day the initial Lease Term expires as
identified in Section 3.1 hereof (or, if Tenant exercises its early
termination option pursuant to Section 3.3 hereof, the Expiration Date set
forth in the notice given pursuant to such Section).
"Full Insurable Value" shall mean the replacement cost of the
Building, without allowance for depreciation, but excluding footings,
foundations and other portions of improvements which are not insurable. A
determination of Full Insurable Value shall be made at least once every
three (3) years at Tenant's expense by a firm of qualified property
insurance appraisers satisfactory to Landlord and to property insurance
companies generally.
"Hazardous Substance" means any substance or material defined in or
governed by any Environmental Regulation as a dangerous, toxic or hazardous
pollutant, contaminant, chemical, waste, material or substance, and also
expressly including urea-formaldehyde, polychlorinated biphenyls, dioxin,
asbestos, asbestos containing materials, nuclear fuel or waste, radioactive
materials, explosives, carcinogens and petroleum products, including but
not limited to crude oil or any fraction thereof, natural gas, natural gas
liquids, gasoline and synthetic gas, or any other waste, material,
substance, pollutant or contaminant which would subject the owner or
operator of the Premises to any damages, penalties or liabilities under any
applicable Environmental Regulation.
"Impositions" shall mean all real estate taxes, water, sewer, heat,
electricity, gas and all other utility rates and other similar governmental
charges, which are assessed, levied, confirmed, imposed or shall become
payable upon or with respect to the Premises during the term hereof. There
shall also be included with such term any taxes which may hereafter be
imposed upon or payable with respect to the
2
<PAGE>
Rent payable by Tenant hereunder, excluding income and franchise taxes
imposed with respect to all income of Landlord.
"Land" shall mean the parcel of land described as the East 20 feet of
Lot 7 and all of Lots 8, 9, 10 & 11, Block 1, Arend's Industrial Park First
Subdivision, according to the recorded plat thereof, Rochester, Olmsted
County, Minnesota, together with all appurtenances thereto and easements
benefitting such parcel.
"Law" shall mean any federal, state or local law, statute, code,
ordinance, rule or regulation which is applicable to the Premises or the
use or operation thereof.
"Lease Term" shall mean the term of this Lease as identified in
Article 3 hereof, including any extensions of the initial term made in
accordance with the provisions thereof.
"Permitted Encumbrances" shall mean:
1. Any state of facts which an accurate survey of the Premises would
show, and/or which a physical inspection thereof would disclose
or reveal.
2. All Laws.
3. The revocable nature of the right, if any, to maintain vaults,
vault spaces, basement and sub-basement spaces, areas,
structures, coal chutes, fuel pipes, sidewalk doors and
elevators, canopies, marquees, signs, ledges, cornices, parapets,
window sills, facade ornamentation, standpipes, doors, show
windows, exhaust pipes and any other encroachment or projection
across or beyond the building lines.
4. All notes or notices of violations of Law heretofore or hereafter
noted in or issued by any governmental or municipal board, body,
agency, authority or department, whether or not affecting the
Premises as of date hereof, including, without limitation, any
such violations which might be disclosed by an examination,
inspection or search of the Premises by any governmental or
municipal board, body, agency or department, or any condition
which, following an inspection of the Premises, might give rise
to such a note or notice of violation, all of which Tenant
covenants and agrees to promptly remove or to correct in
accordance with the provisions of Article 12 hereof.
5. All covenants, restrictions, easements, conditions, and
agreements, including, without limitation, any party wall
agreements, of record, if any.
6. All rights, grants or easements affecting the Premises, whether
or not of record, heretofore or hereafter given, afforded to or
acquired by any public utility company or governmental authority
furnishing utilities to the Premises, or in or to the area in
which
3
<PAGE>
the Premises are located, including easements to maintain wires,
pipes, conduits, and other facilities which enter or cross the
Premises.
7. The present condition and state of repair of the structures
included in the Premises.
8. All Impositions.
"Premises" shall mean the Land and Building and all other buildings
now, or at any time hereafter, erected or situated on the Land.
"Rent" shall mean all Base Rent, Additional Rent and other sums
payable to Landlord or on behalf of Landlord under this Lease, whether or
not specifically denominated as rent.
"Tenant Equipage" shall mean all personal property, equipment,
temporary dividers and partitions, and special use building and utility
systems, from time to time located on the Premises. In illustration, and
not in limitation of the foregoing, Tenant Equipage shall include all
project-specific equipment and support systems now existing or installed
from time to time to meet the requirements of a specific manufacturing
project or process as opposed to being of general utility in the Premises.
Tenant Equipage includes, without limitation, such items as compressed air
systems, demineralized water systems and nitrogen systems.
"Tenant Improvements" shall mean the internal non-load bearing walls,
internal general-purpose building and utility systems, such items as
general use heating and air conditioning units and systems as well as all
internal walls and offices.
ARTICLE 2
---------
Premises
--------
2.1 Leasing. Landlord hereby leases the Premises to Tenant and Tenant
hereby leases the Premises from Landlord, subject to the Permitted Encumbrances
and upon all of the terms, covenants and conditions set forth herein.
2.2 Acceptance "As Is". Tenant has investigated the Premises to Tenant's
satisfaction, and has had the benefit of a full physical inspection thereof; and
Tenant represents that it is fully familiar with the physical condition and
state of repair of the Premises, with any notices of existing violations, and
with any conditions constituting, or which might constitute violations. Tenant
accepts the Premises and all appurtenances thereto "as is", in their present
condition and state of repair, without any representation or warranty, express
or implied, having been made by Landlord or by any person on Landlord's behalf
with respect thereto.
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ARTICLE 3
---------
Lease Term
----------
3.1 Initial Term. The Premises are leased to Tenant, for a term commencing
on June 29, 1998, and ending on June 30, 2012, unless sooner terminated or
further extended, as hereinafter provided.
3.2 Option to Extend. Provided that no Event of Default shall exist
hereunder at the time of exercise of such option, Tenant shall have the right
and option to extend the Lease Term for three (3) additional periods of five
years each (each an "Extension Period"), commencing on the day following the
Expiration Date. Such option shall be exercised by Tenant giving written notice
(an "Extension Notice") thereof to Landlord not later than 9 months prior to
what would otherwise be the last day of the Lease Term, time being strictly of
the essence. If Tenant so exercises its option to extend the Lease Term, all of
the terms, covenants, conditions and provisions of this Lease shall continue to
be applicable during such additional period, except that the monthly Base Rent
payable by Tenant during the additional period shall be equal to 95% of the Fair
Rental Value as determined in accordance with the provisions contained in
Section 4.1.2 hereof.
3.3 Option for Early Termination. Tenant shall have the right and option to
terminate the Lease Term early, with such termination to be effective at any
time after the June 29, 2008. Such option shall be exercised by Tenant giving
written notice of Tenant's election to terminate early and setting forth a new
Expiration Date, which new Expiration Date shall not be earlier than June 29,
2008. Such notice must be given to Landlord not later than 9 months prior to
such new Expiration Date. If Tenant gives such notice, Tenant shall pay, as a
termination fee the sum of $465,000.00 on the new Expiration Date.
ARTICLE 4
---------
Rent
----
4.1 Rent. Tenant agrees to pay to Landlord, without demand, at the address
set forth hereinabove, or at such other place as Landlord may from time to time
designate in writing, Rent for the Premises as follows:
4.1.1 Base Rent. A monthly Base Rent shall be due and payable in
advance on the first day of each and every calendar month during the Lease
Term. Base Rent for any period between the Commencement Date and the first
day of the first full calendar month during the Lease Term shall be
prorated and paid on the Commencement Date. The monthly Base Rent shall be
in the following amounts for the following periods:
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Period Monthly Base Rent
------ -----------------
June 29, 1998 through June 30, 2003 $25,500.00
July 1, 2003 through June 30, 2008 $27,500.00
July 1, 2008 through June 30, 2012 $30,000.00
4.1.2 Extension Rent. If Tenant shall elect to extend the term of this
Lease pursuant to Section 3.2 above, the Base Rent for each such Extension
Period shall be equal to 95% of the Fair Rental Value determined as
follows:
(a) After the receipt of an Extension Notice, Landlord may
propose a monthly Fair Rental Value of the Premises as of the
commencement of the applicable Extension Period, (i) by reference to
comparable warehouse/manufacturing space, (ii) taking into account the
location of the Premises, (iii) taking into account the cost of
duplicating the Building Elements, based on remaining useful life, and
(iv) giving consideration to an amount for which a willing landlord
would lease, the Premises to a willing tenant, each without
compulsion, on the same terms and conditions of this Lease, other than
Base Rent (the "Fair Rental Value") (the amount so determined by
Landlord is referred to herein as the "Proposed Fair Rental Value").
Landlord shall advise Tenant in writing of the Proposed Fair Rental
Value at least seven (7) months prior to the commencement of the
applicable Extension Period (a "Market Rent Notice"). In the event
Landlord shall fail to so advise Tenant, the annual amount of Base
Rent for the applicable Extension Period shall be the monthly of Base
Rent in effect immediately prior to the applicable Extension Period.
In the event Landlord shall so advise Tenant, the monthly Base Rent
for the applicable Extension Period shall be 95% of the Proposed Fair
Rental Value if Tenant elects to accept such Proposed Fair Rental
Value. If Tenant does not accept, the Base Rent shall be determined by
the Appraisal Procedure set forth in Section 4.1.2(b).
(b) Within ninety (90) days after an Extension Notice is given in
which a Proposed Fair Rental Value is not accepted, Landlord and
Tenant shall each appoint a disinterested appraiser who shall be a
member of the American Institute of Appraisers and shall notify the
other promptly following such appointment. If either Landlord or
Tenant fails to appoint such an appraiser within the time specified,
then the party who has timely appointed its appraiser, after giving
thirty (30) days additional written notice to the other, may cause the
Fair Rental Value to be determined solely by the appraiser appointed
by such party in accordance with the foregoing procedure. If Landlord
and Tenant do each appoint such an appraiser as provided herein, then
within fifteen (15) days after the appointment of the second of the
two appraisers, the two appraisers shall select a third appraiser. If
the two original appraisers are unable to agree upon the selection of
a third appraiser, then either Tenant or Landlord may request that the
American Institute of Appraisers appoint a third appraiser. All
appraisers shall be charged with determining the Fair Rental Value.
Within thirty (30) days of the appointment of the third appraiser,
Landlord, Tenant and the three appraisers shall meet at the Premises,
and
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in a proceeding held in accordance with the rules of the American
Arbitration Association, Landlord and Tenant shall each be allowed to
present such evidence and testimony on such Fair Rental Value as is
allowed under the rules of the American Arbitration Association. The
appraisers shall be instructed that within thirty (30) days after the
date on which Landlord, Tenant and the appraisers conclude such
meeting, the appraisers shall determine the Fair Rental Value of the
premises. The Fair Rental Value figure selected by a majority of the
appraisers shall be binding upon Landlord and Tenant. Each party shall
pay for its appraiser and shall equally share the cost of the third
appraiser. If the 95% of the appraisers' determination of the Fair
Rental Value is more than 10% in excess of the monthly Base Rent in
effect immediately prior to the applicable Extension Period, and
Tenant does not accept such determination of Fair Market Value, Tenant
may rescind its exercise of the option to extend by serving written
notice of such rescission on Landlord within such twenty day after
notice of such determination is given to Tenant, but if Tenant so
rescinds its exercise, it shall pay for all three appraisers and shall
not thereafter be entitled to re-exercise its option under Section
3.2. If Tenant does not rescind its exercise within twenty-day period,
a sum equal to the greater of (a) 95% of the Fair Rental Value
determined in accordance with the Appraisal Procedure or (b) the
monthly Base Rent in effect immediately prior to the applicable
Extension Period, shall be the monthly Base Rent for the applicable
Extension Period.
Tenant shall pay as Additional Rent all other sums of money required to be
paid pursuant to this Lease, which shall be paid at the time and in the
amounts set forth elsewhere in this Lease.
ARTICLE 5
---------
Impositions, Assessments
------------------------
5.1 Tenant to Pay Impositions. Tenant covenants to pay, as Additional Rent,
when due and before any fine or penalty is added thereto for the nonpayment
thereof, all Impositions which become due and payable during the years which are
included in whole or in part in the Lease Term; provided, however, that if any
such Imposition may be paid in installments, Tenant may pay each installment
before any fine or penalty is added to any such installment for the nonpayment
thereof. Impositions due and payable during the years when the Lease Term
commences and terminates shall be prorated according to the number of days in
such years which are included in the Lease Term. With respect to Impositions
which are payable in installments which extend beyond the Lease Term, Tenant
shall only be obligated to pay those installments which fall within the Lease
Term. Tenant shall also reimburse Landlord for sales or rental taxes, if any,
paid or payable by Landlord on rentals from the Premises.
5.2 Payment of Assessments. Tenant covenants to pay when due and before any
fine or penalty is added thereto for the nonpayment thereof, all assessments for
local improvements and betterments which become due and payable during the years
which are included in whole or in part in the Lease Term; provided, however,
that if any such assessment may be paid in installments, Tenant shall be
required to pay only those installments which come due during the Lease Term. If
any such
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<PAGE>
assessments are proposed, and if Tenant so requests, Landlord agrees to
cooperate with and assist Tenant in seeking to have such assessments made
payable in installments, spread over the longest period then available under
applicable law and/or governmental policies.
5.3 Evidence; Contents. Tenant shall deliver to Landlord from time to time
duplicate receipts or photostatic copies thereof showing payment of all
Impositions within 10 days after Tenant's request therefor from time to time.
Landlord shall, at its option, have the right at any time during the Lease Term
to pay, without the necessity of inquiring into the validity or legality
thereof, any delinquent Impositions and interest and penalties thereon, and the
amount so paid, including reasonable expenses incurred in connection therewith,
shall be so much Additional Rent due from the Tenant to Landlord at the next
rental payment date after such payment; provided, however, that if Tenant shall
in good faith proceed to contest any such Impositions or the validity thereof by
proper legal proceedings which shall operate to prevent the collection thereof
and the sale of the Premises or any part thereof to satisfy the same, Tenant
shall not be required to pay, discharge or remove any Impositions so long as
such proceeding is pending and Tenant is diligently prosecuting such proceeding;
provided further that Tenant, not less than 10 days before any such Impositions
shall become delinquent, shall give notice to Landlord of Tenant's intention to
contest the validity thereof and shall deposit with Landlord an amount
sufficient to pay the contested Impositions, plus penalty and interest through
the period of contest.
5.4 Utilities. Tenant expressly agrees that Landlord shall not be required
to furnish to Tenant any water, sewer, gas, heat, electricity, light, power or
any other facilities, equipment, labor, materials or any services of any kind
whatsoever. Tenant shall make its own arrangements, at its own cost and expense,
for the furnishing to the Premises of all utilities, facilities or services
required for Tenant's use, and Tenant shall pay for all such utilities,
facilities or services to the Premises.
ARTICLE 6
---------
Use
---
6.1 Use. The Leased Premises may be used and occupied by Tenant for any
lawful business purpose, and for no other purposes, and such use and occupancy
shall be in compliance with all Laws. The Premises shall not be used in such
manner that, in accordance with any requirement of Law, including but not
limited to any Accessibility Regulation, Landlord shall be obligated to make any
addition or alteration to or in the Building.
6.2 Compliance with Environmental Regulations. Except for substances and in
quantities which are normally used in the operation of Tenant's business or for
the maintenance or operation of the Premises, and which are used, stored and
disposed of in accordance with all applicable Environmental Regulations, Tenant
shall not, nor shall it permit others to, place, store, locate, generate,
produce, create, process, treat, handle, transport, incorporate, discharge,
emit, spill, release, deposit or dispose of any Hazardous Substance in, upon,
under, over or from the Premises. Tenant shall cause all Hazardous Substances
found in or under the Premises which are not permitted under the foregoing
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sentence and which exist in quantities which violate applicable Environmental
Regulations to be properly removed therefrom and properly disposed of at
Tenant's expense. Tenant shall not install or permit to be installed any
underground storage tank on or under the Land. Tenant shall, promptly after
obtaining actual knowledge thereof, give notice to Landlord of (i) any activity
in material violation of any applicable Environmental Regulation relating to the
Premises, (ii) any governmental or regulatory actions instituted or threatened
under any Environmental Regulation affecting the Premises, (iii) all claims made
or threatened by any third party against Tenant or the Premises relating to any
Hazardous Substance or a violation of any Environmental Regulation, and (iv) any
discovery by Tenant of any occurrence or condition on or under the Premises
which could subject Landlord, Tenant or the Premises to a claim under any
Environmental Regulation. Any investigation, remedial or corrective action taken
with respect to the Premises shall be done under the supervision of a qualified
engineer or consultant acceptable to Landlord who shall, at Tenant's expense and
at the completion of such investigation or action, provide a written report
thereon to Landlord.
6.3 Compliance with Accessibility Regulations. Tenant shall, at its sole
cost and expense, comply with all Accessibility Regulations which are applicable
to the Leased Premises.
ARTICLE 7
---------
Surrender
---------
7.1 Time; Condition. Upon termination of this Lease, whether by reason of
lapse of time, forfeiture or otherwise, Tenant shall immediately surrender
possession of the Premises to Landlord in good order, condition and repair,
ordinary wear and tear and loss by insured casualty excepted, and all Tenant
Equipage not removed from the Premises by Tenant shall become the property of
Landlord without any obligation on the part of Landlord to compensate Tenant
therefor. If possession be not immediately surrendered, Landlord may forthwith
re-enter the Premises and repossess the same or any part thereof and expel and
remove therefrom all persons and property without being deemed guilty of any
unlawful act or liable for damages by reason of such re-entry and without
prejudice to any other legal remedy available to Landlord.
7.2 Removal of Tenant Equipage. Notwithstanding the preceding Section
hereof, Tenant or Tenant's lender(s) may remove any or all of the Tenant
Equipage, provided that such removal shall be made prior to the end of the Lease
Term. Any damage resulting from removal shall be repaired by Tenant or such
lender.
ARTICLE 8
---------
Insurance
---------
8.1 Required Insurance. Tenant, at its sole cost and expense, shall
maintain in effect at all times during the Lease Term the following insurance:
9
<PAGE>
8.1.1 A Commercial General Liability Insurance policy, which policy
shall include coverage for bodily injury, property damage, personal injury,
contractual liability (applicable to this Lease), independent contractors
and products-completed operations liability. Such policy shall provide
coverage of at least $1,000,000 for each occurrence and annual aggregate
coverage of at least $2,000,000.
8.1.2 Insurance on the Building against loss by fire and other hazards
covered by the so-called "all-risk" form of policy, and including
contingent liability from operation of building laws coverage, in an amount
not less than the Full Insurable Value. Such policy shall have an "agreed
amount" endorsement or otherwise exclude co-insurance participation by the
insured, and may include a deductible in an amount not greater than
$10,000.00. While any building or other improvement is in the course of
being constructed or rebuilt on the Land, such insurance shall be in
builder's risk form or Tenant will require its contractor to carry such
builder's risk coverage.
8.1.3 If the Building includes steam boilers or other equipment
excluded from coverage under the "all-risk" form of policy, boiler and
machinery insurance in an amount not less than the Full Insurable Value.
8.2 Insured Parties; Other Provisions. All property insurance policies
shall name Landlord as the insured party and loss payee. All liability insurance
policies shall name both Landlord and Tenant as insured parties. If Landlord so
elects, such policies shall also include the holders of any mortgages now or
hereafter encumbering the Premises. In the event that the holder of such a
mortgage is named as an insured under any of the foregoing property insurance
policies, the proceeds under such policies shall be made payable to such
mortgagee or mortgagees pursuant to standard mortgagee clauses. Each of the
foregoing policies shall contain the agreement of the insurer that:
8.2.1 Such policies shall not be canceled except upon 15 days' prior
notice to each named insured;
8.2.2 The coverage afforded thereby shall not be affected by the
performance of any work or alterations in or about the Premises;
8.2.3 The insurer waives all rights of subrogation against all named
insureds; and
8.2.4 The insurance provided to Landlord thereunder shall not be
affected by any defense the insurer may have against Tenant or any other
person.
8.3 Companies; Renewals; Failure to Provide. All policies required by this
Article shall be carried in such companies and upon such forms as Landlord and
Landlord's mortgagee from time to time reasonably approve. All policies required
to be furnished hereunder shall be deposited with the
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Landlord prior to the commencement of the Lease Term, and renewals thereof, and
evidence of the payment of premium to continue coverage in force shall all be
deposited with Landlord not less than 30 days prior to the date on which such
insurance would otherwise expire. At Landlord's option, exercised in writing, in
the event Tenant shall fail to provide such policies, Landlord may obtain such
insurance and the entire cost thereof shall be due and payable as Additional
Rent upon billing by Landlord.
ARTICLE 9
---------
Indemnification of Landlord
---------------------------
9.1 Indemnity. Tenant shall indemnify and hold Landlord harmless against
and from all liabilities, obligations, damages, penalties, claims, costs,
charges and expenses, including reasonable attorneys' and other consultants'
fees, which may be imposed upon, incurred by or asserted against Landlord by
reason of any accident, injury, death or damage to property occurring in, on or
about the Premises during the Lease Term, unless and except to the extent
arising out of the negligence or misconduct of Landlord or its agents or
employees. In case any action or proceeding is brought against Landlord by
reason of such indemnified liabilities, obligations, damages, penalties, claims,
costs, charges, and expenses, Tenant, upon written notice from Landlord, shall
at Tenant's expense resist or defend such action or proceeding by counsel
approved by Landlord in writing.
ARTICLE 10
----------
Operation, Repairs and Maintenance; Alterations
-----------------------------------------------
10.1 Landlord Repairs and Maintenance. Throughout the Lease Term, Landlord
shall, at Landlord's sole cost and expense, keep all structural elements of the
Premises, the exterior supporting walls and the foundations of the Premises
(other than the roof and spouting) in good, watertight condition and repair.
Notwithstanding anything to the contrary herein, Tenant shall repair any and all
damage to the Premises that shall have been caused by the negligence of Tenant
or shall occur in connection with Alterations (as defined in Section 10.3 below)
performed by or on behalf of Tenant. Landlord will do or cause others to do all
necessary shoring of foundations and walls of the Building and every other act
or thing for the safety and preservation thereof which may become necessary by
reason of any excavation or other building operation upon any adjoining property
or street, alley or passageway.
10.2 Tenant Operation, Repairs and Maintenance. Throughout the Lease Term
(and except for the matters which Landlord is required to repair and maintain
pursuant to Section 10.1 above), Tenant shall, at Tenant's sole cost and
expense, take good care of the Premises, including the, roof and spouting, all
passageways, sidewalks, curbs and vaults adjoining the Premises, and shall put
and keep the same in good order, condition and repair, and shall make all
non-structural repairs thereto, all as may be necessary to keep the Premises and
the fixtures, appurtenances, and installations therein contained in good order
and condition and in compliance with all Laws. When used in this Lease, the
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term "repairs" shall include all replacements, renewals, and alterations, when
necessary and appropriate. All repairs made by Tenant shall be comparable in
quality and class to the original work. Tenant shall keep the Building
adequately heated during all months of the year when temperatures are below
freezing to prevent damage to the Building by freezing or heaving and further
shall make all repairs necessary to avoid any structural damage or injury to the
Premises whether caused by freezing or heaving, ordinary wear and tear or any
other reason. Tenant shall also keep and maintain all portions of the Premises,
and all passageways, roadways, entrances, curbs and sidewalks adjoining the
Premises, in a clean and orderly condition, reasonably free of accumulated dirt,
rubbish, snow and ice, and any other unlawful obstructions; and Tenant shall not
permit or suffer the overloading of any of the floors of the Building. Without
limitation of the foregoing, Tenant shall not do, permit or suffer to be
committed any waste or damage, disfigurement or injury to the Premises, or any
part or portion thereof, except as expressly provided in this Article 10.
10.3 Alterations. Landlord and Tenant acknowledge that Tenant's anticipate
use of the Premises may require periodic remodeling and alterations of the
Premises to accommodate the varying needs of Tenant and/or its customers.
Landlord also has legitimate rights to approve ceratin changes to the Premises.
To balance these interest, the parties agree as follows:
10.3.1 Work Not Requiring Consent. Tenant may at any time and from
time to time do the following at Tenant's sole cost and expense and without
obtaining the consent of Landlord
(a) make changes, alteration, additions, restorations or
improvements in, to or of the Tenant Equipage.
(b) add or make changes to Tenant Improvements costing $100,000
(as such sum may be adjusted as set forth below) or less, in any 12
month period (herein collectively referred to as a "Tenant Improvement
Alteration")
(c) make non-structural alterations to Building Elements costing
$50,000 (as such sum may be adjusted as set forth below) or less, in
the any 12 month period (herein collectively referred to as a "Minor
Building Alteration")
The amount of Tenant Improvement Alterations and Minor Building Alterations
which can be made without Landlord consent shall be increased from time to
time in proportion to the increase, if any, in the Consumer Price Index
between the date of this Lease and the date the work is being performed.
10.3.2 Work Requiring Consent. Tenant may not make any change,
alteration, addition, restoration or improvement in, to or of the Building
Elements other than Minor Building Alterations (herein collectively
referred to as a "Major Building Alteration") without
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<PAGE>
first, in each instance, obtaining the written consent of Landlord and
compliance with the provisions of Section 10.3.3. below. Such consent shall
not be unreasonably withheld unless in the reasonable opinion of Landlord,
the Major Building Alteration would materially impair the structural
integrity of the Building, or any part thereof, and shall not be withheld
to the extent to which such an Building Alteration is in fact required to
effect compliance with any Law. Before the commencement of any Major
Building Alteration herein:
(a) Tenant shall, except in emergency, give 60 days' prior
written notice thereof to Landlord;
(b) Tenant shall obtain Landlord's prior written approval of a
licensed architect or a licensed professional engineer selected and
paid for by Tenant who shall supervise any such Major Building
Alteration; and
(c) Tenant shall obtain Landlord's prior written approval of
plans and specifications prepared by said approved architect or
engineer, which approval shall not be unreasonably withheld or
delayed. No such Major Building Alterations shall be made except such
as are in all material respects in accordance with said plans and
specifications. The reasonable cost and expense, if any, of reviewing
the plans and specifications for each such Major Building Alteration,
whether by Landlord, or by the holders of any first mortgage, if for
any reason billed by them or by any of them to Landlord, shall be paid
by Tenant to Landlord, as Additional Rent, forthwith upon demand.
10.3.3 For purposes of this Section, Tenant Improvement Alterations,
Minor Building Alterations and Major Building Alterations are collectively
called "Alterations."
(a) No Alteration shall be undertaken until Tenant shall have
procured and paid for, so far as the same may be required from time to
time, all permits and authorizations of any federal, state or
municipal government or department, or subdivision of any of them,
having or asserting jurisdiction. Landlord shall join in the
application for such permits or authorizations, if and to the extent
required, but at Tenant's sole cost and expense.
(b) Any Alteration shall be made promptly and in a good and
workmanlike manner and in compliance with all applicable permits and
authorizations and building and zoning laws, and with all other Laws.
(c) The cost of any Alteration shall be paid when due so that the
Premises shall at all times be free of liens for labor and materials
supplied or claimed to have been supplied to the Premises and free
from any encumbrances, chattel mortgages, conditional bills of sale,
or security interests.
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(d) Whenever appropriate, the property insurance required to be
maintained during the Lease Term shall be endorsed or supplemented to
provide, at Tenant's sole cost and expense, during any period when
Building Alterations are in progress, for builder's risk insurance.
Workman's compensation insurance covering all persons employed in
connection with the work and with respect to whom death or bodily
injury claims could be asserted against Landlord, Tenant or the
Premises, and comprehensive general public liability insurance,
providing full coverage with respect to any accident, injury or
occurrence involving, relating to, or arising during or as a result of
such Building Alteration, naming Landlord and Tenant as insureds, with
limits of not less than those required for commercial general
liability insurance hereunder, shall be maintained by Tenant (or
Tenant's independent contractor) at Tenant's (or at such contractor's)
sole cost and expense at all times when any work is in progress in
connection with any such Building Alteration.
(e) No Alteration shall materially increase the height of the
Building, or combine, tie-in or connect the Building and/or any other
portion of the Premises, or any structure or improvement thereon
erected or situated, with any other building or improvement located on
any adjoining property; and Tenant shall in no event include or
attempt to include the Premises with other properties in a common
zoning lot under any zoning ordinance or related statute which may now
or hereafter be applicable to the Premises in such respect.
ARTICLE 11
----------
Discharge of Liens
------------------
11.1 No Liens. If any lien for work performed or materials supplied after
the commencement of the Lease Term is filed against the Premises or Landlord's
or Tenant's interest therein, other than liens arising as a result of acts of
Landlord, Tenant shall bond over such lien or cause same to be discharged of
record within 30 days after notice of such filing. Tenant, at its sole expense,
shall defend the Premises and Landlord against all suits for the enforcement of
any such lien or any bond in lieu of such lien, and Tenant hereby indemnifies
Landlord against any and all loss, cost, damage, expense or liability resulting
from any such lien or suit. Should Tenant fail to so discharge any such lien,
Landlord may do so by payment, bond or otherwise on 30 days' written notice to
Tenant, and the amount paid or incurred therefor by Landlord shall be reimbursed
to Landlord by Tenant as Additional Rent upon demand, with interest from the
date of demand at the maximum rate of interest lawfully permitted to be
collected (limited to the rate of 18% per annum).
11.2 Right to Contest. Tenant shall have the right to contest any such
mechanic's or other lien claim filed against the Premises or any part thereof if
Tenant notifies Landlord in writing of its intention so to do, diligently
prosecutes any such contest, at all times effectually stays or prevents any
official or judicial sale of the Premises under execution or otherwise, and pays
or otherwise satisfies any final
14
<PAGE>
judgment adjudicating or enforcing such contested mechanic's or other lien and
thereafter promptly procures and records a satisfaction and release of same,
provided Tenant has deposited with Landlord a sum sufficient to cover the lien
so contested, plus interest, costs and attorneys' fees which will accrue during
the period of such contest.
11.3 No Consent. Nothing in this Lease shall be deemed to constitute the
consent or request of Landlord to any contractor, subcontractor or material
supplier for the performance of any labor or the furnishing of any materials for
any specific improvement to the Premises. Notice is hereby given that Landlord
has assumed no obligation and shall not be liable or responsible for or in
connection with any labor or materials hereafter furnished to Tenant, or to any
other party, whether on credit, or otherwise, and that no mechanic's or other
lien for any such labor or materials shall attach to or affect the Premises, or
Landlord's reversionary interest and estate therein. Landlord shall have the
right to post and maintain on the Premises, notice of nonresponsibility under
the laws of the State of Minnesota.
ARTICLE 12
----------
Compliance with Laws
--------------------
12.1 Compliance. Throughout the Lease Term, Tenant shall at Tenant's sole
cost and expense, promptly remove of record any and all violations noted or
filed against the Premises, shall correct all conditions constituting
violations, and shall promptly comply with all present and future Laws and
directives of all federal, state and municipal governments, departments,
commissions, boards and officers, and all orders, rules and regulations of the
National Board of Fire Underwriters, or any other body or bodies exercising
similar functions, which may be applicable to the Premises and the sidewalks,
alleyways, passageways, curbs and vaults adjoining the Premises, or to the use
or manner of use of the Premises, or to the owners, tenants or occupants
thereof, whether or not any such Law or directive shall necessitate structural
changes or improvements, or interfere with the use and enjoyment of the
Premises.
12.2 Insurance Requirements. Tenant shall likewise at Tenant's sole expense
observe and comply with the requirements of all policies of public liability and
property insurance, and all other policies of insurance at any time in force
with respect to the Premises, and Tenant shall, in the event of any violation or
any attempted violation of the provisions of this Article by any subtenant or
occupant, take all required steps, immediately upon knowledge of such violation
or attempted violation, to remedy or prevent the same, as the case may be.
ARTICLE 13
----------
Damage or Destruction
---------------------
13.1 Casualty. Notwithstanding any provisions of this Lease to the
contrary, in the event that the Premises shall be damaged or destroyed by fire
or other casualty, whether or not covered by insurance, Tenant shall promptly
give written notice thereof to Landlord, and Tenant shall promptly
15
<PAGE>
repair, restore, replace, or rebuild the same, as nearly as may be practicable,
to its condition and character immediately prior to such damage or destruction.
Such restoration, repairs, replacements, rebuilding or alterations shall be
commenced promptly and prosecuted with reasonable diligence, subject only to
unavoidable delays. The net insurance proceeds, if any, on account of such
damage or destruction to or of the Building Elements, and collected by Landlord
and/or Tenant shall be held in trust by Landlord or Landlord's designee and
shall be made available to Tenant as the work progresses (subject to periodic
delivery to Landlord of appropriate architect's certifications as to the cost of
the required work remaining until full completion, and title company
certifications as to the absence of any liens, or encumbrances relating to such
work) for use in making payments when due for the repairs, restoration or
replacement required under this Article 13, and pursuant to such controls and
subject to such approvals as Landlord or Landlord's mortgagee shall reasonably
require. If such insurance money shall be insufficient to pay the entire cost of
such work, Tenant agrees to pay the deficiency. At any time after the completion
of such work, the balance of the insurance money not theretofore used pursuant
to the foregoing provisions of this section shall be paid to Landlord or
Landlord's mortgagee as their interests shall appear.
13.2 Restoration Controls. The provisions and conditions of Articles 9 and
10 shall apply to the repairs, restoration or replacement required to be
performed by Tenant under this Article 13.
13.3 Option to Terminate. In the event (a) the Premises are damaged by
fire, explosion or other casualty insured under the fire and extended coverage
insurance policy required hereunder (an "Insured Casualty") to the extent that
such damage materially adversely affects Tenant's ability to use the Premises
for its business purposes and the Premises cannot be repaired, replaced and
restored by Tenant within 12 months from the date of the casualty, (b) the
Premises are damaged by a casualty or occurrence other than an Insured Casualty,
and Landlord elects not to rebuild at its cost, (c) such damage occurs at any
time within the last twelve (12) months of the Lease Term, or (d) the Premises
or any portion thereof, is damaged by fire, explosion or other casualty and the
Premises cannot be repaired, rebuilt or restored to substantially the same or
similar condition, under any applicable law, code, ordinance or other
governmental order or under any other agreement to which the Premises are
subject (a "Prohibited Casualty"), then in such event, Tenant may terminate this
Lease by giving Landlord written notice of termination within forty five (45)
days after the happening of the event causing the damage or the date Tenant
discovers the casualty was a Prohibited Casualty. In any such event, all Rent
payable hereunder shall be apportioned to the date of such damage or destruction
and Landlord shall be entitled to receive and retain all insurance proceeds
relating to the Building Elements payable by reason of such occurrence.
Insurance proceeds relating to the Tenant Equipage payable by reason of such
occurrence shall be paid to and be the property of Tenant. Tenant shall also
have the right and option to terminate this Lease as of the date of such damage
or destruction if the holder of any mortgage covering the Premises refuses to
make the net insurance proceeds available for restoration and Landlord also
refuses to provide such funds. Such option shall be exercised by Tenant giving
written notice thereof to Landlord within 30 days after Landlord notifies Tenant
that the funds will not be available.
16
<PAGE>
13.4 Release. Landlord releases Tenant from all claims, and all liability
or responsibility to Landlord and to anyone claiming through or under Landlord,
by way of subrogation or otherwise, for any loss or damage to the Building
caused by fire or other peril, even if such fire or other peril was caused in
whole or in part by the negligence or other act or omission of Tenant or its
agents or employees; provided, however, that this release and waiver of
subrogation shall (i) only be effective to the extent that the loss or damage is
covered by the insurance maintained by Tenant pursuant to this Lease, (ii) not
apply to the extent of any deductible applicable to such insurance, and (iii)
only apply if such insurance includes a full release from liability and waiver
of subrogation privilege permitting the release and waiver contemplated by this
provision without jeopardizing the rights of Landlord to recover under such
insurance.
ARTICLE 14
----------
Condemnation
------------
14.1 Total Taking. If the entire Premises shall be condemned or taken
through or under the power of eminent domain, or if such a material portion of
the Premises is so taken that in the reasonable opinion of Tenant the
restoration of the remaining portions of the Premises for the uses thereof at
the time of such partial taking is economically unfeasible, this Lease and the
term hereof shall cease and terminate upon the date of the vesting of title in
the condemning authority, and all Rent, Impositions and other Additional Rent
hereunder shall be apportioned to such date of termination, and any payments
theretofore made in advance by Tenant shall be refunded ratably to Tenant.
Landlord shall be entitled in such event to receive the entire award for the
Land and Building Elements so taken or condemned which may be made in such
condemnation proceeding, and Tenant shall not be entitled to receive any portion
thereof. Tenant hereby assigns and transfers to Landlord any and all claims to
such award and waives and relinquishes any right to make any claim for an award
for the value of this Lease, or otherwise; provided, however, that Tenant shall
be permitted to make separate claims for all Tenant Equipage, and for relocation
expenses and allowances, to the extent available.
14.2 Partial Taking. If less than such a material portion of the Premises
shall be taken or condemned, as aforesaid, this Lease shall continue and shall
remain in full force and effect; provided, however, that the Base Rent hereunder
shall thereafter be reduced in an equitable manner in proportion to the
reduction in value of the Premises for Tenant's use. The Base Rent shall be
reduced to the product obtained when the Base Rent otherwise payable hereunder
is multiplied by a fraction, the numerator of which shall be the total floor
area of the Building (expressed in square feet) remaining following the
condemnation and restoration, and the denominator of which shall be the total
floor area thereof (expressed in square feet) upon the Commencement Date. Such
reduction in Base Rent shall first become effective as of the first day of the
month next succeeding the date of vesting of title in the condemning authority,
and shall not in any event diminish, reduce or abate the Impositions, Additional
Rent and other charges payable hereunder by Tenant. In the event of such a
partial condemnation, Tenant shall promptly make, or cause to be made, all
demolition, repairs, reconstruction, restoration,
17
<PAGE>
replacement or rebuilding and all other work necessary, as nearly as may be
practicable, to restore the Building Elements to the utility and condition
immediately prior to such taking (and including any new parking areas and/or
demolition of the existing Building, to the extent the same may be reasonably
necessary to accommodate Tenant's use of the Premises after the condemnation).
The net proceeds of the award in respect of such partial taking or condemnation,
after the payment of all fees and expenses incurred in connection with the
collection of such award, shall be paid over to Landlord, and shall be held in
trust by Landlord or Landlord's designee and shall be made available to Tenant
as work progresses (subject to periodic delivery to Landlord of appropriate
architect's certifications as to the cost of the required work remaining until
full completion, and title company certifications as to the absence of any
liens, or encumbrances relating to such work) for use in making payments when
due for the demolition, repairs, restoration or replacement required under this
Article 14, and pursuant to such controls and subject to such approvals as
Landlord or Landlord's mortgagee shall reasonably require. If such proceeds
shall be insufficient to pay the entire cost of such work, Tenant agrees to pay
the deficiency. At any time after the completion of such work, the balance of
the proceeds not theretofore used pursuant to the foregoing provisions of this
section shall be paid to Landlord or Landlord's mortgagee as their interests
shall appear.
14.3 Temporary Taking. If the whole or any part of Tenant's estate or
interest under this Lease shall be taken or condemned by any governmental agency
or authority for its temporary use or occupancy, this Lease shall not terminate
by reason thereof, and Tenant shall continue to pay, in the manner and at the
times herein specified, the Base Rent, the Impositions and all other Additional
Rent, and all other charges payable by Tenant hereunder, without any abatement
or reduction thereof, and, except only to the extent that Tenant may be
prevented from so doing pursuant to the terms of the order of the condemning
authority, Tenant shall perform and observe all of the other terms, covenants,
conditions and obligations hereof upon the part of Tenant to be performed and
observed, as though such taking had not occurred. Tenant shall be entitled to
receive the entire award paid for or in connection with such a taking, whether
by way of damages, as rent, or otherwise, so long as Tenant shall not be in
default hereunder; provided, however, that if the award is paid in a lump sum,
or shall be payable less frequently than in monthly installments, the award
shall be paid to and held jointly by Landlord and Tenant, in Landlord's and
Tenant's names, in an interest-bearing account with a commercial banking
organization designated by Landlord and such award shall be applied as follows:
(a) If the award shall be made in a lump sum, it shall be divided by
the number of months included in the period of such temporary use or
occupancy and, so long as Tenant shall not be in default hereunder, an
amount equal to the quotient shall be paid over to Tenant monthly; and
(b) If the award or awards shall be paid less frequently than in
monthly installments, each such installment shall be divided by the number
of months to which it is attributable and, so long as Tenant shall not be
in default hereunder, an amount equal to the quotient shall be paid over to
Tenant monthly;
18
<PAGE>
provided, however, that if such period of temporary use or occupancy shall
extend beyond the expiration of the Lease Term, Landlord shall be entitled to
receive and retain the amount of the award attributable to the period subsequent
to the expiration of the Lease Term. Upon the termination of any such period of
temporary use or occupancy, Tenant shall, at its sole cost and expense, restore
the Premises, as nearly as may be practicable, to the condition thereof
immediately prior to such taking.
ARTICLE 15
----------
Assignment
----------
15.1 Assignment by Tenant. No assignment of this Lease or sublease of the
Premises or any part thereof shall be deemed a release of Tenant, which shall
continue to be jointly, severally, unconditionally and primarily liable for
payment and performance of all obligations hereunder with any assignee.
15.2 Assignment by Landlord. In the event that Landlord, or any successor
owner of the Premises, or the lessee under any ground or underlying lease, or
any holder of Landlord's interest in this Lease, or any fee owner of all or any
portion of the Premises (or the owner of any interest or estate therein), shall
convey or otherwise dispose of such title, interest or estate, or shall assign
Landlord's interest in this Lease to any ground or underlying lessee, then all
liabilities and obligations thereafter accruing or maturing on the part of
Landlord or any such successor-owner of the Premises, or former holder of
Landlord's interest under this Lease, or former fee owner of the Premises or any
interest or estate therein, shall cease and terminate, and each successor-owner
of the Premises or holder of Landlord's interests under this Lease, shall,
without further agreement, be bound by Landlord's covenants and obligations, but
only during the respective periods of the ownership by such parties; and Tenant
shall continue to be bound by this Lease, and shall recognize the successor to
Landlord's interests as the Landlord hereunder.
ARTICLE 16
----------
Default
-------
16.1 Events of Default. There shall be an "Event of Default" hereunder and
the Landlord may terminate this Lease upon 30 days' notice to Tenant:
16.1.1 If Tenant shall be in default in the payment of any Rent and
such default is not cured within 10 days after written notice thereof given
by Landlord; or
16.1.2 If Tenant shall be in default in the performance of any of the
terms, covenants, conditions and provisions of this Lease on Tenant's part
to be performed (other than the covenants for the payment of Rent) and such
default is not cured within 30 days after written notice thereof given by
Landlord; or if such default shall be of such nature that it cannot be
cured completely within said 30 day period, if Tenant shall not have
promptly commenced
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<PAGE>
curing such default within such period and shall not thereafter proceed
with reasonable diligence and dispatch and in good faith to remedy such
default; or
16.1.3 If Tenant shall be adjudicated a bankrupt, shall make a general
assignment for the benefit of its creditors, or invoke the benefit of any
insolvency act, or if a permanent receiver or trustee in bankruptcy be
appointed for Tenant's property and such appointment is not vacated within
90 days; or
16.2 Termination. If Landlord shall give the 30 days' notice of termination
provided in Section 16.1, then, upon the expiration of such 30 day period, this
Lease shall terminate and Tenant shall then quit and surrender the Premises to
Landlord. If this Lease shall so terminate, it shall be lawful for Landlord, at
its option, without formal demand or notice of any kind, to re-enter the
Premises by summary dispossession proceedings, or by any other lawful means, and
to remove Tenant therefrom without being liable for any damages therefor.
16.3 Remedies. Notwithstanding such termination as provided in Section
16.2, and such re-entry by Landlord, or in the event Landlord shall dispossess
Tenant by summary proceedings, or otherwise, the obligations of Tenant shall
survive and Tenant shall remain liable for all of its obligations hereunder for
the balance of the Lease Term, and shall reimburse Landlord for all costs and
expenses as Landlord may reasonably sustain or incur for attorneys' and
accountants' fees and disbursements, brokerage fees, and/or putting the Premises
in good order, and for preparing the same for re-rental; and Landlord may re-let
the Premises, or any part or parts thereof, either in the name of Landlord, or
as agent for Tenant, on such conditions and for such term or terms as Landlord
may deem advisable, if Landlord so elects, which terms may at Landlord's option
be less than or exceed the unexpired period which would otherwise have
constituted the remainder of the Lease Term; and Tenant shall pay to the
Landlord, as damages for the failure of Tenant to observe and perform this
Lease, and Tenant's undertakings and obligations hereunder, any deficiency
(herein called the "deficiency") between the Rent hereby reserved and/or
covenanted to be paid, including all Impositions and other charges required to
be paid by Tenant hereunder, and the net amounts, if any, of the rents collected
on account of such re-lettings of the Premises for each month of the period
which would otherwise have constituted the unexpired Lease Term, if this Lease
had remained in effect. Landlord agrees to exercise good faith efforts to
mitigate its damages hereunder. Tenant shall pay such deficiency to Landlord
monthly, in advance, on the days on which the Rent would have been payable under
this Lease if this Lease were still in effect, and Landlord shall be entitled to
recover from Tenant each monthly deficiency as the same shall arise or accrue.
At any time after any such expiration or termination, whether or not Landlord
shall have collected any monthly deficiencies, Landlord shall be entitled to
recover from Tenant, and Tenant shall pay to Landlord, on demand, as and for
liquidated and agreed final damages for Tenant's default, an amount equal to the
then present worth (computed using 10% per annum as the discount factor) of the
excess of the Rent, Impositions and other charges reserved under this Lease from
the date of such expiration or termination for what would have been the then
unexpired Lease Term if the
20
<PAGE>
same had remained in effect, above the then fair market rental value of the
Premises for the same period.
16.4 No Release. The remedies of Landlord and Tenant provided in this Lease
are cumulative and shall not exclude any other remedies to which either may be
lawfully entitled. The failure of either party to insist upon strict performance
by the other of any term, covenant or condition herein contained shall not be a
waiver of such term, covenant or condition by the non-objecting party for the
future. The acceptance by Landlord of the payment of fewer than three monthly
installments of Rent after notice of an Event of Default to state of affairs
which, but for the giving of notice and/or passage or time would be an Event of
Default is received by Landlord shall not constitute a waiver of such Event of
Default or state of affairs.
16.5 Costs; Interest. In the event it is necessary to commence an action to
enforce the terms hereof, the party prevailing in such action shall be entitled
to its reasonable attorneys' fees and expenses, including those incurred at the
appellate level. Tenant shall be liable to Landlord for interest on all sums not
paid to Landlord when due hereunder from the date due until paid at the rate of
10% per annum, or such lesser rate as shall be the maximum permitted by law.
ARTICLE 17
----------
Tenant Equipage
---------------
17.1 Tenant Equipage. The Tenant Equipage shall be and be deemed the sole
property of Tenant until and unless it becomes the property of Landlord pursuant
to Article 7 above. Tenant shall have the right from time to time to pledge the
Tenant Equipage and/or grant security interests in the Tenant Equipage to its
lender(s) and Landlord agrees to execute such Lessors' Agreements, Landlord
Waivers or other agreements as may be required by such lender(s) in connection
with any lending secured thereby.
ARTICLE 18
----------
Subordination
-------------
18.1 Lease Subordinate. This Lease shall be and it hereby is made, and
shall at all times be and remain, subject and subordinate to the lien of any
duly recorded first mortgage, whether heretofore or hereafter made, affecting or
encumbering the Premises, and to all extensions, renewals, modifications or
replacements thereof; provided that provisions substantially as follows with
respect to this subordination shall be contained in such mortgage (or in a
separate instrument), and at all times duly observed by the holder thereof,
namely that so long as this Lease has not been terminated by reason of any
default by Tenant hereunder, and so long as Tenant is not in default in the
payment of Rent or any Imposition or other charge payable by Tenant as in this
Lease provided, Tenant shall not (unless required by law) be made a party to any
action or proceeding to foreclose any such mortgage, or to
22
<PAGE>
any judgment of foreclosure and sale, and Tenant's use, possession, tenancy and
occupancy hereunder shall remain undisturbed and shall survive any such action,
proceeding, order or judgment and the proceeds of all insurance and/or
condemnation affecting the Premises shall be applied as herein provided.
18.2 Attornment. The subordination of this Lease and Tenant's rights
hereunder, as provided in Section 18.1, shall be effective without the execution
of any further or other instruments by Tenant, but Tenant shall, at Landlord's
request, and without charge therefor to Landlord, execute and deliver any
further document or instrument to evidence the subordination of this Lease to
such mortgage as shall comply with the provisions of Section 18.1; and, to the
extent requested by the holder of any such mortgage, Tenant shall execute and
deliver such instruments and documents as shall confirm Tenant's undertaking and
agreement hereunder to attorn under the terms and provisions of this Lease to
such a mortgagee, or to the designee or nominee of such mortgagee, or to the
purchaser of the mortgaged premises at a foreclosure sale, or at a sale of the
premises pursuant to such power of sale as may be contained in such mortgage,
and to recognize such mortgagee, its designee or nominee, or such purchaser, as
the Landlord hereunder from and after the date of such a transfer of title, with
the same force and effect as if the Premises had been sold or conveyed to such
new landlord by the prior landlord hereunder.
ARTICLE 19
----------
Entry by Landlord; Performance of Covenants
-------------------------------------------
19.1 Entry. Tenant shall permit Landlord or its agents to enter the
Premises during normal business hours (and at any time in cases of emergency)
(i) for the purpose of inspection thereof, (ii) for showing the Premises to
persons wishing to purchase the same, or in connection with mortgage or other
financing, and (iii) at any time within 12 months prior to the expiration of the
Lease Term, for exhibition to persons wishing to rent the same.
19.2 Cure of Covenants. If Tenant shall be in default hereunder, Landlord
may, with or without declaring an "Event of Default", upon 10 days' prior notice
to Tenant, or without notice in case of an emergency, cure such default on
behalf of Tenant (unless Tenant shall itself, within such period, commence and
thereafter diligently proceed to cure such default), and for the purpose thereof
may enter upon the Premises, and upon demand Tenant shall reimburse Landlord for
any reasonable and necessary expenses incurred to effect such cure, together
with interest thereon at the maximum rate which may be legally collected by
Landlord (not to exceed 18% per annum).
19.3 No Eviction. No entry of Landlord or its employees, agents or
representatives, or by any other party at the direction of Landlord, shall ever
be construed or interpreted as an ouster of Tenant from possession or as a
constructive eviction or to alter, diminish or abate Landlord's rights or
Tenant's obligations under this Lease.
22
<PAGE>
ARTICLE 20
----------
Certificates
------------
20.1 Estoppel Certificates. Tenant agrees, at any time, and from time to
time, upon not less than 10 days' prior written notice by Landlord, to execute,
acknowledge and deliver to Landlord, or to any existing or prospective ground or
underlying lessee or mortgagee, or to any prospective purchaser, of the
Premises, a statement or certificate in writing setting forth the Rent,
Impositions and other charges then payable, and specifying each element thereof,
and certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications, that this Lease is in full force and effect, as
modified, and setting forth the modifications), and the dates to which the Rent,
Impositions, and other charges payable hereunder have been paid, and stating (to
the extent known to Tenant) whether or not the Landlord is in default in
keeping, observing or performing any of the terms contained in this Lease and,
if in default, specifying each such default. It is intended that any such
statement or certificate delivered pursuant hereto may be relied upon by
Landlord, by any prospective purchaser of the Premises, or by any existing or
prospective ground or underlying lessee, mortgagee, or lender.
ARTICLE 21
----------
Notices
-------
21.1 Notices. All notices, demands, consents, or requests under this Lease
must be in writing and shall be sent postage prepaid by United States registered
or certified mail addressed, or telecopied and followed within one day by
registered or certified mail, if the party for whom intended is the Landlord, to
Landlord at the following addresses and telecopy numbers:
Leslie E. Nelson, Trustee
P.O. Box G
Clear Lake, Iowa 50428
Telecopy No.: (515) 357-6122
and if such party is the Tenant, to Tenant at the following addresses and
telecopy numbers:
PEMSTAR INC.
2535 Highway 14 West
Rochester, Minnesota 55901
Telecopy No.: (507) 280-0838
with copy to: Dorsey & Whitney LLP
Suite 340, 201 First Avenue S.W.
Rochester, MN 55902
Telecopy No.: (507) 288-6190
23
<PAGE>
Notices, demands, consents or requests served or given as aforesaid shall be
deemed sufficiently served or given for all purposes hereunder on the day on
which such telecopying or mailing shall occur; provided, however, that in lieu
of such notice by United States registered or certified mail, the party giving
the notice may do so by personal delivery to the addresses above specified.
Either party shall have the right to change the address or telecopy number to
which notices shall thereafter be sent to it by giving notice to the other party
as aforesaid, but not more than two addresses shall be in effect at any given
time for Landlord and Tenant hereunder.
ARTICLE 22
----------
Miscellaneous
-------------
22.1 Quiet Possession. Landlord covenants that Tenant shall peaceably and
quietly enjoy the Premises for as long as Tenant performs and observes its
obligations hereunder.
22.2 Holding Over by Tenant. In the event of holding over by Tenant after
expiration or termination of the Lease Term, without the written consent of
Landlord, Tenant shall pay as monthly Base Rent 110% of the Base Rent applicable
to the last month of the Lease Term for the entire holdover period. No holding
over by Tenant after the expiration of the Lease Term shall operate to extend
the Lease Term except on a month to month basis.
22.3 Binding Effect. The terms, covenants, conditions and agreements herein
contained shall run with the Premises and shall bind and inure to the benefit of
the parties hereto and their respective representatives, successors and assigns.
22.4 Captions. The captions of this Lease are for convenience and ease of
reference only, and in no way define, limit or describe the scope or intent of
this Lease, nor in any way affect this Lease, and shall be disregarded in the
interpretation hereof.
22.5 Severable. If any provisions of this Lease shall be declared invalid
or unenforceable, the remainder hereof shall remain unaffected thereby and shall
continue in full force and effect.
22.6 Interpretation. It is acknowledged that in preparation of this Lease,
indistinguishable contributions have been made by representatives of both
Landlord and Tenant, and that Landlord and Tenant each waives any and all
rights, either at law or in equity, to have this Lease, or any term or provision
herein contained, construed in favor of either party over the other by reason of
who drafted the same.
22.7 Entire Agreement. This Lease contains the entire and only agreement
between the parties hereto with respect to the Premises; and no oral statements,
agreements or representations not embodied in this Lease shall have any force or
effect. This Lease shall not be modified or amended in any manner except in
writing, by instrument executed by both parties.
24
<PAGE>
22.8 Interpretation of Terms. All personal pronouns used in this agreement
shall include the other genders whether used in the masculine or feminine or
neuter gender, and the singular shall include the plural whenever and as often
as may be appropriate.
22.9 No Partnership. This Lease does not create the relationship of
principal and agent or of partnership or of joint venture or of any association
between Landlord and Tenant, the sole relationship between the parties being
that of landlord and tenant. The laws of the State of Minnesota shall govern the
validity, performance and enforcement of this Lease.
22.10 Brokers. Tenant shall pay a commission to Hamilton Realty, Inc. and a
$42,000 commission to Coldwell Banker Burnet Realty for their services in
connection with the sale of the Premises by Tenant to Landlord and this Lease.
Landlord will be responsible for any other charges or commissions of Coldwell
Banker Burnet Realty. Landlord and Tenant each represents and warrants to the
other that no other realtors, brokers or agents were involved in the negotiation
and execution of this Lease. Each party hereby indemnifies the other and agrees
to hold the other harmless from and against the claim of any other realtor,
broker or agent with whom such party may have dealt with regard to such sale,
this Lease or the Premises.
IN WITNESS WHEREOF, Landlord and Tenant have each duly executed this Lease
as of the date and year first above written.
LANDLORD: Leslie E. Nelson as Trustee of the Leslie E. Nelson
Revocable Trust dated December 20, 1994, as amended
By
------------------------------------------------
Leslie E. Nelson, Trustee
TENANT: PEMSTAR INC.
By
-------------------------
Its
------------------------
<PAGE>
EXHIBIT 10.20
DATED THE 3rd DAY OF FEBRUARY, 1999
BETWEEN
HONGGUAN TECHNOLOGIES (S) PTE LTD,
...of the one part
AND
PEMSTAR-HONGGUAN PTE LTD
...of the other part
SUB-LEASE AGREEMENT
BIH LI & LEE
Advocates & Solicitors
79 Robinson Road
#24-01 CPF Building
Singapore 06097
<PAGE>
THIS SUB-LEASE is made the 3rd day of February, 1999 BETWEEN
(1) HONGGUAN TECHNOLOGIES (S) PTE LTD, a company incorporated in Singapore
and having its registered address at 39 Joo Koon Circle, Singapore
629105 (the "Landlord") and
(2) PEMSTAR-HONGGUAN PTE LTD, a company incorporated in Singapore and
having its registered address at 39 Joo Koon Circle, Singapore 629105
(the "Tenant").
WHEREAS:
(A) By a Lease Agreement dated 24th day of May, 1995 (hereinafter called
"the Lease Agreement") made between Jurong Town Corporation (hereinafter
called "JTC") of the one part and the Landlord of the other part, JTC
agreed to lease and the Landlord agreed to take a lease of the premises
known as 39 Joo Koon Circle, Singapore 629105 comprised in Lot A14679 of
Mukim 7 Tuas (hereinafter called "the Factory") for a term of 30 years from
1 December 1994 upon the terms and subject to the conditions in the said
Lease Agreement.
(B) Subject always to the consent and terms and conditions which may from
time to time be laid down by JTC and all other relevant authorities with
regal s to the proposed use of and renovations to PART of the Factory
estimated to contain a total floor area of 4,000 square feet (372.00 square
metres) and shown for identification purposes only edged and marked in red
on the plans annexed hereto (hereinafter called "the Premises"), the
Landlord has agreed to let and the Tenant has agreed to take the Premises
on the terms and conditions herein contained.
NOW THIS SUB-LEASE WITNESSETH as follows:
1. THE DEMISE
1.1 In consideration of the rent and the covenants reserved by and
contained in this Sub-Lease, the Landlord HEREBY DEMISES to the Tenant
ALL the Premises TOGETHER WITH (but to the exclusion of all other
liberties easements rights or advantages and subject to the Landlord's
right to refuse access hereinafter contained):
(a) the right for the Tenant and others duly authorised by the Tenant
of ingress to and egress from the Premises in over and along all the
usual entrances, landings, lifts, lobbies and corridors leading
thereto in common with the Landlord and all others so authorised by
the Landlord and all other persons entitled thereto, such right being
only so far as is necessary and as the Landlord can lawfully grant;
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<PAGE>
(b) the right for the Tenant and others duly authorised by the Tenant
to use all water, telephone and electric conduits, mains, pipes, wires
and cables or conducting media and all or any other services now or
hereafter provided for the Premises and made in, on or over the
Premises and the Factory for the passage of water and sewerage from and
water, electricity and other services to and from them; and
(c) the right for the Tenant and others duly authorised by the Tenant
to use such sufficient toilet facilities in the Factory as shall be
designated from time to time in writing by the Landlord but such user
shall be in common with the Landlord and all others so authorised by
the Landlord and all other persons entitled thereto.
EXCEPTING AND RESERVING unto the Landlord the free and uninterrupted
use of all gas water and other pipes electric telephone and other wires
conduits flues and drains in through or under the Premises TO HOLD the
Premises unto the Tenant for a term of one (1) year commencing on 1
November 1998 and expiring on 31 October 1999 (hereinafter referred to as
"the Term") YIELDING AND PAYING THEREFOR unto the Landlord the total
monthly rent of SINGAPORE DOLLARS FOUR THOUSAND AND SIX HUNDRED ONLY
(S$4,600.00) (hereinafter referred to as the "total monthly rent")
comprising:
(a) the monthly rent for the Premises of SINGAPORE DOLLARS FOUR
THOUSAND ONLY (S$4,000.00); and
(b) the monthly service of SINGAPORE DOLLARS SIX HUNDRED ONLY
(S$600.00) for the services stated in Clause 3.2 herein
(hereinafter referred to as "the service charge").
the total monthly rent to be payable monthly in advance clear of all
deductions on the first day of each month or proportionately for any part
of a month.
1.2 The floor area of the Premises is 4,000 square feet (372.00 square
metres)
2. TENANT'S COVENANTS
2.1 To pay the total monthly rent hereby reserved on the days and in the
manner aforesaid without any deduction set-off or demand whatsoever.
In the event of any increase in the costs to the Landlord of supplying
the services for which the service charge is payable, the Landlord
shall be entitled from time to time to notify the Tenant, with
satisfactory supporting evidence of such increase in the costs, and
the Tenant shall pay to the Landlord an additional monthly service
charge equal to so much of the extra costs as is attributable to the
Premises at the same times and in the same manner as hereinbefore
provided for payment of the monthly total rent.
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2.2 The total monthly rent and other sums expressed to be payable by the
Tenant under this Sub- Lease Agreement shall be exclusive of any
applicable Goods and Services Tax, imposition, duty and levy
(hereinafter collectively called "Taxes") which from time to time may
be imposed or charged by any government, statutory or tax authority on
or calculated by reference to the amount of rent any other sums
received or receivable by the Landlord under this Agreement and upon
receipt of the relevant tax invoice from the Landlord the Tenant shall
pay all such Taxes in the manner and within the period prescribed in
accordance with the applicable laws and regulations. For the avoidance
of doubt, taxes shall exclude only income tax payable by the Landlord.
2.3 At all times to sue and occupy the Premises for office administration
and assembly of equipment in connection with the Tenant's trade and
not to effect any changes in the Tenant's use of the Premises without
obtaining the prior written approval of JTC and the Landlord and not
to do or permit to be done upon the Premises any thing which may or
may become a nuisance or annoyance to or cause damage or inconvenience
to the Landlord, the owners of licensees or occupiers of any adjoining
or neighbouring premises and not to use the same for any illegal or
immoral purpose.
2.4 Not to demise, assign, charge, create a trust or agency, mortgage,
let, sublet, grant a license or part with or share the possession or
occupation of the Premises or any part thereof or permit any other
party or person by way of a license or otherwise to occupy the
Premises or any part thereof at anytime during the term hereby
created.
2.5 To permit JTC and/or the Landlord or their respective servants or
agents with or without workmen, tools and equipment during the term
hereby created at all reasonable times by prior appointment to enter
upon the Premises and every part thereof to examine the state and
condition of the same and of defects decays and wants of reparation
and of all breaches of covenant there found.
2.6 Not to erect or put up any temporary sheds or structures at the
Premises or any part thereof.
2.7 Not to cause or do or suffer to be done any act or thing which may as
between the Landlord and JTC constitute or cause a breach by the
Landlord of any of the terms, covenants, conditions or stipulations on
the part of the Landlord to be observed or performed by virtue of the
Lease Agreement between the Landlord and JTC but shall do or permit to
be done any act or thing to comply with or to prevent a breach of any
of such terms, covenants, conditions or stipulations with no liability
on the part of JTC for any inconvenience, loss, damage, costs,
expenses or compensation whatsoever in the event that JTC, its
employees, servants or authorised agents with or without workmen,
tools and equipment should enter upon the Factory or the Premises to
do any act or thing which JTC is entitled to do by virtue of the Lease
Agreement or sublease or of any laws, by-laws, rules or regulations.
The Landlord shall for the
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purposes herein acquaint the Tenant in writing with the terms,
covenants, conditions and stipulations of the said Lease Agreement
between the Landlord and JTC and any variations or amendments thereto.
Provided Always that in the event of any inconsistency between the
terms of this lease and the lease between the Landlord and JTC, the
terms of this lease shall prevail.
2.8 To pay or reimburse the Landlord on demand all charges including any
taxes now or in the future imposed in respect of water, gas,
electricity, and any other services supplied and metered separately to
the Premises and charged by the relevant utilities company or other
appropriate authority or undertaking, and in the event of such water,
gas electricity and other services not being metered separately to the
Premises to pay to the Landlord a proportionate part of the charges
and taxes therefor, such amount to be calculated by the Landlord on
the basis of the proportion that the floor area of the Premises bears
in relation of the total floor area of the Factory, and notified to
the Tenant by a statement in writing and supported by the relevant
bills and invoices from the relevant utilities company or other
appropriate competent authority or undertaking which shall be
conclusive as to the amount thereof (save for manifest error).
2.9 To install at the Tenant's own costs and expenses all
telecommunication equipment (as the Tenant may require) in such a
manner that the wires shall not run across the floor or ceiling or
along the walls of the Premises so as to be visible in the Premises
but shall be concealed. All such works shall be carried out by workmen
of or engaged by a telecommunications company approved by the
Telecommunication Authority of Singapore or such other appropriate
authority or undertaking for such purpose, or in the absence of such
workmen, by a contractor nominated or approved by the Landlord.
2.10 Not to make or permit to be made any alterations or additions to the
Premises or any part thereof or the fixtures, fittings, decorations
and electrical or mechanical installations therein of the Landlord
without first having obtained the written consent of the Landlord and
in the event of such consent being given to carry out at the Tenant's
cost and expense such alterations or additions by a contractor
nominated or approved by the Landlord with such materials and in such
manner and at such times as shall be designated by the Landlord and to
obtain at the Tenant's costs and expense all planning and other
approvals which may be required to be obtained under any of the
prevailing laws applicable thereto and upon determination of the Term,
if requested by the Landlord at least two (2) months prior, to restore
the Premises to their original state and condition (fair wear and tear
and act of God excepted) at the cost and expense of the Tenant by a
contractor nominated or approved by the Landlord.
2.11 To keep the interior finishes of walls, ceilings and floors and the
fixtures and fittings therein including electrical installation, all
pipes, wires, drains and other conducting media solely servicing the
Premises and every part thereof and all additions thereto clean and in
good and tenantable repair (fair wear and tear and act of God
excepted) and to replace or repair any part
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<PAGE>
of the interior finishes of the walls, ceilings and floors of the
Premises and the fixtures and fittings therein which shall be damaged
or broken due to the Tenants act or negligence.
2.12 To keep the Premises including the interior surfaces of the windows
thereof clean and not to employ or continue to employ in or about the
Premises any cleaners other than the cleaning contractor or
contractors authorised by the Landlord to carry out the cleaning works
in the Factory Provided Always that the Landlord shall not be liable
for any misconduct or negligent acts or defaults of the cleaning
contractor. Any cleaners so employed by the Tenant for the purpose of
cleaning the Premises shall be at the sole expense and responsibility
of the Tenant.
2.13 Not to affix, erect, paint, attach or otherwise exhibit or permit or
suffer so to be upon any part of the exterior or interior of the
Premises, the windows, the glass-panelled walls or shop-fronts thereof
any name, writing, drawing, sign-board, plate, placard, poster, sign
post, flag pole, television or wireless mast or advertisement
whatsoever without the prior written consent of JTC and the Landlord.
2.14 Not to load or permit or suffer to be loaded any part of the floors of
the Factory or the Premises to a weight greater than the weight per
square metre permitted by the Landlord as shown in Schedule "A"
attached and shall if required by the Landlord distribute the load on
any part of the floor of the Premises in accordance with the
directions and requests of the Landlord and in the interpretation and
application of the provisions of this Clause relating to the loading
requirements the decision of the surveyor or engineer or architect of
the Landlord shall be final and binding on the Tenant.
2.15 Not at any time during the Term to do or permit or suffer to be done
any act, matter or thing upon the Premises whereby any policies of
insurance in respect thereof may be violated or rendered void or
voidable or whereby the rate of premium on any insurance policy shall
be liable to be increased and to make good all damage suffered by the
Landlord and to pay to the Landlord all reasonable and necessary sums
paid by it by way of increased premium and all reasonable and
necessary expenses incurred by it in or about any renewal of such
policy or policies rendered necessary by a breach or non-observance of
this covenant.
2.16 At all times during the Term and during any period of holding over at
its sole cost and expense to keep in force the following insurance
policies with an insurance company or companies approved by the
Landlord which approval shall not be unreasonably withheld:
(a) an adequate insurance policy to be taken out in the joint names of
the Landlord and the Tenant on internal partitions and all goods
belonging to or held in trust by the Tenant in the Premises against
loss or damage by fire flood water damage or discharge from sprinkler
systems;
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<PAGE>
(b) an adequate insurance policy which shall be taken out in the joint
names of the Landlord and the Tenant against loss as a result of
burglary on the Premises; and
(c) a comprehensive general liability insurance policy to be taken out
in the joint names of the Landlord and the Tenant against claims for
personal injury death or property damage or loss arising out of all
operations of the Tenant in or from the Premises of an amount not less
than S$500,000.
2.17 To indemnify and keep the Landlord indemnified from and against:
(a) all claims demand writs summonses actions suits proceedings
judgements orders decrees damages costs losses and expenses of any
nature whatsoever which the Landlord may suffer or incur in connection
with loss of life personal injury and/or damage to property arising
from or out of any occurrence in upon or at the Premises or use of the
Premises or any part thereof by the negligence or arising out of the
acts or defaults of the Tenant or any of the Tenant's employees
independent contractors agents invitees or licensees; and
(b) all losses and/or damage to the Premises and to all property
therein caused directly or indirectly by the negligence or acts of
default of the Tenant or the Tenant's employees independent
contractors agents invitees or licensees and in particular but without
limiting the generality of the foregoing caused directly or indirectly
by the use or misuse of waste or abuse of water gas or electricity or
faulty fittings or fixtures of the Tenant.
2.18 The Landlord shall not be under any liability whatsoever to the
Tenant, or to any person whomsoever, in respect of:
(a) any injury or damage to any property or sustained by the Tenant,
or such other persons as aforesaid or any consequential loss, caused
by, or through, or in any way owing to circumstances beyond the
control of the Landlord.
(b) any damage caused by or other tenants or person in the Factory or
other buildings or operations in the neighbourhood beyond the control
of the Landlord.
2.19 At the expiration or sooner determination of the term hereby created,
to yield up the Premises with the fixtures (other than the Tenant's
trade fixtures as shall belong to the Tenant) unless the Tenant has
received written notice from the Landlord two (2) months prior to the
expiry or sooner determination of the term requiring the same to be
renewed, in good and tenantable repair and condition (fair wear and
tear and act of God excepted) together with the keys to the Premises
and all doors therein and if so required by the Landlord two (2)
months prior to the expiry or sooner determination of the term to
remove all letterings internal partitions fixtures and installations
of the Tenant as are specified by the Landlord from the Premises and
to reinstate all
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<PAGE>
electrical installations to their original state in accordance with
the layout, mechanical and electrical plans annexed (fair wear and
tear and act of God excepted). Such removal and/or reinstatement shall
be carried out by a reliable contractor appointed by the Tenant. All
damage done to the Premises by such removal shall be made good by the
Tenant on or prior to the expiration of the term hereby created and if
the Tenant fails to do so the Landlord may make good all such damage.
All reasonable and necessary costs incurred by the Landlord in such
removal or disposal or in making such good damage shall be paid by the
Tenant to the Landlord within fourteen (14) days of the Landlord
notifying the Tenant of the amount thereof.
3. LANDLORD'S COVENANTS
3.1 The Landlord hereby agrees with the Tenant that the Tenant paying the
rent and service charge hereby reserved and observing and performing
the several covenants and stipulations on the Tenant's part herein
contained shall peaceably and quietly hold and enjoy the Premises
during the term hereby created without any interruption by the
Landlord or any person rightfully claiming under or in trust for the
Landlord.
3.2 In consideration of the service charge payable by the Tenant, the
Landlord shall provide or procure the provision of the following
services to the Tenant:
(a) the use, repair, servicing and replacement of parts of the air
compressor and overhead cranes;
(b) the provision of security to the Factory daily on a twenty-four
(24)-hour basis;
(c) daily clearing of rubbish from the Premises;
(d) daily cleaning of the Premises and toilets; and
(e) to keep the common areas in the Factory including but not limited
to all toilets in the Factory well lit, clean and in good repair
at all times.
Provided that notwithstanding anything in this Sub-Lease Agreement
contained the Landlord shall not be liable to the Tenant nor shall the
Tenant have any claim against the Landlord in respect of:
(i) any interruption in any of the services hereinbefore
mentioned by reason of necessary repair or maintenance of any
installations or apparatus or damage thereto or destruction
thereof by fire, water, riot, act of God or other cause howsoever
caused including by reason of mechanical or other defect or
breakdown or other inclement conditions or shortage of manpower,
fuel, electricity or water or by reason of any lawful disputes;
or
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<PAGE>
(ii) any damage, injury or loss arising out of the leakage or
defect in or of the piping, wiring and sprinkler system in the
Factory and/or defect in or of the Factory unless due directly or
indirectly to want of repair or maintenance or the act, omission,
default, misconduct of the Landlord or its employee, independent
contractor or agent.
3.3 To pay all taxes, rates and assessments imposed upon or in respect of
the Premises save and except those which the Tenant has agreed to pay.
3.4 To replace such damaged parts of, to service and repair within a
reasonable time the air- conditioning units within the Premises at the
Landlord's costs.
3.5 To obtain, maintain and renew all consents, approvals or permission
required from the relevant authorities, including but not limited to
JTC, for the lease of the Premises to the Tenant for use as office
premises and assembly of equipment in connection with the Tenant's
trade.
3.6 To repair and maintain the structural condition of the Premises,
including but not limited to the walls and ceiling of the Premises.
4. GENERAL AGREEMENT
It is expressly agreed as follows:
4.1 If the rent hereby reserved or any part thereof and/or the service
charge or any part thereof shall at any time be unpaid for twenty-one
(21) days after the same shall have become due (whether formally
demanded or not) or if the Landlord has given the Tenant written
notice of the Tenant's breach of a material agreement or stipulation
on the Tenant's part herein mentioned and the Tenant does not within
twenty-one (21) days of receipt of the said notice proceed to rectify
the said breach or if the Tenant being a company shall go into
liquidation whether voluntarily (save for the purpose of amalgamation
or reconstruction) or compulsorily or a receiver or a judicial manager
shall be appointed of its undertaking property or assets or if the
Tenant shall make any arrangement with creditors for liquidation of
its debts by composition or otherwise or if any execution of
attachment shall be levied upon or issued against any of the property
or assets of the Tenant and shall not be paid off or discharged within
seven (7) days thereof then and in any one of the said cases it shall
be lawful for the Landlord at any time thereafter to re-enter upon the
Premises or any part thereof in the name of the whole and thereupon
the term hereby created shall forthwith and absolutely cease and
determine but without prejudice to any right of action which has
accrued either party against the other under this Agreement.
4.2 In addition and without prejudice to any other right power or remedy
of the Landlord if the rent hereby reserved or any part thereof shall
at any time remain unpaid for twenty-one (21) days
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after the same shall have become due (whether any formal or legal
demand therefor shall have been made or not) then the Tenant shall pay
to the Landlord interest thereon at two per cent (2%) above the
current prime rate for advances for the time being prescribed by a
leading local bank in Singapore selected by the Landlord. The Landlord
shall be entitled to recover such interest from the Tenant as if such
interest were rent in arrears.
4.3 If the Premises or any part thereof shall be damaged or destroyed by
fire, act of God or other causes beyond the control of the Landlord so
as to render the Premises unfit of occupation and use (except where
such damage or destruction has been caused by the act or default of
the Tenant his servant independent contractor agent visitors invitees
or licensees) the rent and service charge hereby agreed to be paid or
a fair and just proportion thereof according to the nature and extent
of the damage sustained shall be suspended until the Premises shall
again be rendered fit for occupation and use and any dispute
concerning this clause shall be determined by a single arbitrator in
accordance with the Arbitration Act (Cap. 10) or any statutory
modification or re-enactment thereof for the time being in force.
Where however JTC continues to collect rental from the Landlord during
such period, and if the damage is not caused by the Landlord, the
Tenant shall continue to pay the rental herein to the Landlord.
Provided Always that in the event that the Premises are so badly
damaged as to necessitate rebuilding either party may within thirty
(30) days after such damage has been sustained give notice to the
other in writing to terminate this lease and thereupon this lease
shall terminate and the Tenant shall (if still in occupation) vacate
the Premises without compensation from the Landlord but without
prejudice to any rights and/or remedies which have accrued to either
party against the other under this Agreement.
4.4 In the event that JTC at any time before the expiry of the term hereby
created gives three (3) months' notice in writing requiring that this
Agreement be terminated or becomes entitled to and re-enters the
Premises or any part thereof in the name of the whole the said term
shall upon the expiry of the said notice or upon the said re-entry
absolutely determine without prejudice to any rights and/or remedies
which have accrued to either party against the other under this
Agreement and without JTC being liable for any inconvenience, loss,
damages, compensation, costs or expenses whatsoever. Provided Always
that the Landlord shall indemnify the Tenant against all damages costs
losses and expenses of any nature whatsoever not caused directly or
indirectly by any act, default or negligence of the Tenant which the
Tenant may suffer or incur due to the termination of this Agreement
pursuant to this Clause.
4.5 No condoning excusing overlooking or delay in taking action by the
Landlord of any default breach or non-observance or non-performance by
the Tenant at any time or times of any of the Tenant's obligations
herein contained shall operate as a waiver of the Landlord's rights
hereunder in respect of any continuing or subsequent default breach or
non-observance or non- performance or so as to defeat or affect in any
way the rights of the Landlord herein in respect of any such
continuing or subsequent default, breach or non-observance or
non-performance
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<PAGE>
and no waiver the Landlord shall be inferred from or implied by
anything done or admitted by the Landlord unless expressed in writing
and signed by the Landlord. Any consent given by the Landlord shall
operate as a consent only for the particular matter to which it
relates and shall in no way operate as a waiver or release of any of
the provisions hereof nor shall it be construed as dispensing with the
necessity of obtaining the specific written consent of the Landlord in
future unless expressly so extended.
4.6 The Landlord shall on the written request of the Tenant made three (3)
months before the expiration of the term hereby created and if there
shall not at the time of such request be any existing breach or
non-observance of any of the obligations undertakings and conditions
on the part of the Tenant herein contained, grant to the Tenant a
tenancy of the demised premises for an additional term of one (1) year
at a rate to be agreed between the Landlord and the Tenant and upon
the same terms and conditions with the exception of this clause for
renewal and at the then prevailing market rate. Provided Always in the
event that the then prevailing market rate is more than 110% of the
rent for the Premises for the Term, the rent for the additional Term
shall be 110% of the rent of the Premises for the Term. Provided that
the Landlord shall not be obliged to grant the further term above
stated unless and until JTC has granted its approval in writing to the
sub-letting by the Landlord for the further term, and on such terms,
if any, as may be acceptable to the Landlord. The Landlord shall
immediately upon receipt of the Tenant's said written request for a
tenancy of the Premises for an additional term, apply to JTC for its
approval to the sub-lease for the said additional term. The Landlord
will comply with all terms imposed by JTC as a condition for granting
its approval to the sub-lease for the said additional term including
but not limited to payment of any fees.
4.7 In the event that Joint Venture Agreement dated 25 September 1998
entered into between the Landlord and the Tenant is terminated for any
reason whatsoever, this Agreement shall forthwith determine absolutely
without prejudice to any right of the Tenant against the Landlord.
Provided Always that in the event that this Agreement is terminated
pursuant to this Clause, the Tenant will only be required to deliver
up the Premises in the state and condition as specified in Clause 2.19
herein within fourteen (14) days of the date of termination of this
Agreement.
4.8 Any notice served under or in connection with this Agreement shall be
sufficiently served on the Tenant if sent by registered post to the
Tenant marked to the attention of Assistant General manager on the
Premises or at the address specified above and shall be sufficiently
served on the Landlord if sent by registered post or delivered to the
Landlord at the abovementioned address.
4.9 Any provision in this Agreement referring to the consent or approval
of the Landlord shall be construed as implying that the Landlord shall
not unreasonably delay or refuse any such consent or approval nor
shall the Landlord impose any unreasonable conditions as part of its
consent.
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IN WITNESS WHEREOF the authorised representatives of the parties hereto
have hereunto set their hands.
The Landlord )
- ------------
)
SIGNED by / s / Teo Cher Cheong )
---------------------
Teo Cher Cheong )
)
for and on behalf of )
HONGGUAN TECHNOLOGIES (S) PTE LTD )
in the presence of: / s / Tan Citee Chow )
--------------------
Tan Citee Chow
The Tenant )
- ----------
)
SIGNED by / s / Pay Eng Hong )
------------------
Pay Eng Hong )
)
for and on behalf of )
PEMSTAR-HONGGUAN PTE LTD )
in the presence of: / s / Pang You Hin )
------------------
Pang You Hin
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<PAGE>
EXHIBIT 10.21
LEASE AGREEMENT
This Lease Agreement (the "Agreement") is entered into by and between
GUADALAJARA INDUSTRIAL TECHNOLOGICO, S.A. DE C.V. (hereinafter referred to as
"Lessor") represented herein by Daniel Dubrowski, its legal representative, and
PEMSTAR DE MEXICO, S.A. DE C.V., represented herein by Hargopal Singh, its legal
representative, (hereinafter referred to as "Lessee") under the following
recitals and clauses.
RECITALS
--------
I. The Lessor, through its legal representative, hereby represents that:
a) It is a mercantile corporation incorporated under the laws of Mexico.
b) It is the owner of a parcel of land with an area of approximately
104,950 square meters, as more fully described in Exhibit "A" hereto
(the "Park"), and is the owner of a building being constructed thereon
identified as Building No. 1, with a total area of approximately
15,954 square meters (the "Building"), located at Prol. Las Fuentes
No. 4500, Col. Pinar de la Calma, Tlaquepaque, Jalisco, Mexico, CP
45080. The Park and the Building are described in the blueprint
attached hereto as Exhibit "B" which is incorporated herein by
reference.
c) It desires to design and construct for Lessee, as part of this
Agreement, certain leasehold improvements (the "Improvements") in and
around the Building, in accordance with the terms and subject to the
conditions of this Agreement.
d) It desires to lease approximately 5,575 m2 in total area in the
Building and associated Common Area (collectively referred to
hereinafter as the "Property") to the Lessee under the terms and
conditions hereof.
e) Lessor and its legal representative have the necessary authority to
execute this Agreement. Said authority has not been limited nor
revoked in any manner whatsoever.
II. The Lessee, through its legal representative, hereby represents that:
a) It is a mercantile corporation incorporated under the laws of Mexico.
b) It wishes to lease the Property from Lessor under the terms and
conditions hereof.
c) The Lessee and its legal representative have the necessary authority
to execute this Agreement. Said authority has not been limited nor
revoked in any manner whatsoever.
Based on the foregoing premises and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee
mutually agree as follows:
<PAGE>
AGREEMENT
ARTICLE ONE
THE PROPERTY
------------
(a) The Lessor warrants and represents that as of the first day of the
Initial Term (as hereinafter defined) it will have free, clear, absolute,
complete and unrestricted ownership of the Property, and that the Lessee shall
have the uninterrupted, quiet use and enjoyment of the Property. Lessor shall
design, construct and lease to Lessee, and Lessee shall lease from Lessor, the
Property, including the Improvements.
(b) Pursuant to the terms of this Lease Agreement, the Lessor shall deliver
to the Lessee the temporary use and possession of the Property including the
Improvements in accordance with the terms hereof, and Lessee shall accept the
delivery of same and covenants and agrees to use and enjoy the Property pursuant
to the provisions hereof.
ARTICLE TWO
CONSTRUCTION OF THE BASE BUILDING AND THE IMPROVEMENTS
------------------------------------------------------
(a) Lessor shall furnish, at Lessor's sole cost and expense, all of the
material, labor and equipment necessary for the design and construction of the
Building and the Improvements in accordance with the terms of this Agreement.
Lessor shall construct the Building and the Improvements in a good and
workmanlike manner and shall construct the Improvements in accordance with the
scope of work dated June 26, 1998, which is found in the attached Exhibit "C",
as modified by the Lessor's comments and changes to those specifications
provided in the attached Exhibit "D". Lessor shall complete the construction of
the Building and the Improvements in accordance with all applicable statutes and
building codes, governmental rules, regulations and orders in effect to the
Municipio de Tlaquepaque, Estado de Jalisco, Republic of Mexico (collectively
referred to as the "Legal Requirements"). Lessor shall provide Lessee with one
set of "as-built" drawings of the Improvements within sixty (60) days after
substantial completion.
(b) Lessor shall substantially complete the Building and the Improvements
within six and one-half months from the date this Lease Agreement is fully
executed by both Lessee and Lessor, contingent upon Lessee's responding in a
timely fashion to all construction issues and questions that require Lessee's
input or approval. Commencing sixty (60) days in advance of that projected date
of completion, with Lessor's written permission, Lessee's employees and
contractors may enter the Improvements for the purpose of installing, in
accordance with Legal Requirements, Lessee's machinery, equipment, fixtures and
other personal property, as described in detail in Exhibit "E" hereto
(hereinafter "Lessee's Equipment"). Lessee will be responsible for installing
its Equipment in a manner that will not damage or alter the Building and the
Improvements. Upon vacating the premises at the end of the Lease Term, Lessee
will be responsible for repairing and/or replacing any damage or alterations
made to the Building due to the installation of its Equipment. Lessee will
submit an overview plan explaining the installation of Equipment to the Lessor,
prior to beginning these installations, for Lessor's review and approval. Lessee
may exercise this early entry privilege only if Lessee ensures that its
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employees and contractors do not interfere with Lessor's completion of the
construction of the Building and Improvements. Entry by Lessee's employees and
contractors for this limited purpose will not constitute Lessee's acceptance of
the Improvements or give rise to any obligation to pay rent with respect to the
Improvements.
(c) Lessee, upon satisfactory inspection of the completed Improvements,
shall deliver a formal notice of acceptance of the Improvements ("Notice") to
Lessor. Lessee shall have no obligation to pay rent and Lessor shall have no
obligation to permit lessee to occupy the Improvements until Lessee delivers
said Notice to Lessor. However, if, prior to Lessee's delivery of the Notice,
the Improvements are partially ready for occupancy and Lessee desires to
partially occupy the Property, Lessee may, with Lessor's prior written approval,
occupy the portion of the Improvements that is ready for occupancy and, in the
event of such occupancy, Lessee shall pay to Lessor a proportionate part of the
rent as equitably calculated on the basis of the value and area of that part of
the Improvements Lessee occupies. If, prior to substantial completion of the
construction of the Improvements, Lessee occupies a portion of the Improvements,
the terms of this Agreement will apply to that occupancy and such occupancy
shall signify Lessee's acceptance of Lessor's construction of the Improvements,
an acceptance which will only be applicable to the areas which are occupied
prior to final completion of the total building and improvements.
(d) Lessor must afford Lessee and its contractors reasonable access to the
Improvements during construction for the purposes of making preparations for
work that Lessee must undertake to ready the Improvements for Lessee's use. The
Lessee will obtain written approval from the Lessor for such early access and
evaluations.
(e) During the construction of the Building and Improvements, Lessee and
Lessor may jointly agree to Change Orders as to the specifications and design of
the Improvements. Only in cases where these Change Orders affect the original
scope of work described in the specifications in Exhibit "C" as modified by the
Lessor's alterations thereto described in Exhibit "D", the rent described in
Article Six below will be adjusted based on the project costs added to or
deducted from the original total cost of the construction project. The final
costs of the total Change Orders, if the result is an increase in overall
project cost on behalf of the Lessor, will be added to the monthly rent to be
paid by Lessee based on a capitalization rate of fifteen (15%) percent per
annum. Likewise, should the total Change Orders result in a lower project cost
on behalf of the Lessor, the final value of the Change Orders will be deducted
from the rent based on the same capitalization rate.
The Lessee and Lessor will work together in regard to Change Orders that affect
the original scope of work as described in Exhibit "C" and as modified by
Exhibit "D" in terms of bidding and analyzing the costs to be incurred in
implementing these Change Orders.
Moreover, Lessor will maintain the right to affect its own Change Orders in
regard to the construction of the Building and Improvements and will not be
required to obtain Lessee's approval for these Change Orders as long as said
changes do not substantially affect the scope of work described in Exhibit "C"
and Lessor's alterations thereto described in Exhibit "D".
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(f) Lessor shall ensure that the computer controlled systems which are
installed by or used by the Lessor in the Building and Improvements are
Millennium Compliant. The Millennium Compliant status shall be verified at
Lessor's option by either (a) a written warranty from the system manufacturer;
or (b) by physical testing of the system by a qualified third party. Lessor
shall give Lessee at least three (3) days notice in advance of any testing and
shall afford Lessee an opportunity to observe all such testing. Upon Lessee's
request, Lessor shall promptly provide Lessee with copies of written warranties
made by manufacturers of any systems affecting the Premises.
Millennium Compliant shall mean the ability of a system to provide the
following functions:
(i) consistently handle date information before, during and after
January 1, 2000, including but not limited to accepting date input,
providing date output, and performing calculations on dates or portions of
dates;
(ii) function accurately in accordance with all specifications and
without interruption before, during and after January 1, 2000, without any
change of operations associated with the advent of the new century;
(iii) respond to two-digit date input to the system in a way that
resolves any ambiguity as to century in a disclosed, defined and
predetermined manner; and
(iv) store and, if any system display or other output is available,
provide output of date information in ways that are unambiguous as to
century.
ARTICLE THREE
EXPANSION OPTION
----------------
(a) The Lessee will have the right to expand its total rentable area to
approximately 11,150 m2 (the difference between the initial rentable area of the
Property and the rentable area as expanded being called the "Expansion Space")
during a twenty-four (24) month period (the "Option Period"). The Option Period
shall begin upon the Lessee's delivery to Lessor of its Notice of acceptance of
the Improvements.
(b) During months 1-12 of the Option Period, the Expansion Space will be
held off the market for the benefit of the Lessee.
(c) During months 13-24 of the Option Period, Lessor will have the right to
market the space as available for lease. However, each time during that period
that Lessor is solicited for a proposal by a third party in writing in regard to
the Lessee's Expansion Space, Lessor will be required to submit to the Lessee,
in writing, a notice that a proposal is forthcoming in regard to the Expansion
Space. The Lessee will then have seven (7) days within which to decide in
writing if it desires to exercise its option to expand at that immediate time.
If the Lessee does not respond as such, Lessor will proceed in negotiations with
the third party. Once Lessor has begun
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negotiations with a third party on the Expansion Space, the Lessee will have no
right to exercise its right to expand until the matter with that particular
third party is concluded.
Lessor's negotiation period with the third party will be limited to forty-five
(45) days from the time Lessee's seven-day response time expires. If Lessor and
the third party have not concluded their negotiations within that time frame,
Lessor will be required to submit an additional Notice of Proposal to the Lessee
in order to extend negotiations with the third party, and the Lessee will then
have an additional seven (7) days to decide if it desires to expand in the
Expansion Space.
If Lessor rents the Expansion Space to the third party, then the Lessee's right
to expand automatically expires. If the third party in question decides not to
rent the Lessee's Expansion Space then the Lessee's right to expand will be
restored, but not extended, and Lessor will be required to notify Lessee in
writing when and if another third party solicits a proposal on the space again
in the future until the expiration of the Option Period.
At any time during the Option Period, Lessor will have the right to construct
that portion of the Building which will be the Expansion Space in accordance
with the Lessor's specification as long as it complies with its twenty-four (24)
month commitment to the Lessee. If that portion of the building is already
constructed when and if the Lessee chooses to exercise its option to expand, the
Lessee will be required to move into the new space and begin paying rent within
a maximum period of thirty (30) days.
If the Expansion Space is not already constructed or completed for occupancy
when and if the Lessee chooses to exercise its option to expand, the Lessee will
be required to move into the new space and begin paying rent at the time the
space does become "substantially complete". It is estimated that the time-frame
for the construction of the Expansion Space will be approximately five (5) to
six (6) months.
At such time that Lessee exercises its option to expand, the rent to be paid per
square meter for the Expansion Space will be the same amount that is being paid
per square meter for the Property at the time Lessee exercises its right to
expand. Furthermore, the rent to be paid in regard to the Expansion Space shall
be subject to the annual increases in rent to be paid for the original space,
pursuant to Article Six of this agreement.
The construction specifications, materials and design for the Improvements in
the Expansion Space shall be in accordance with the same standards and design to
be implemented in the construction of the Property.
Lessor will make its best efforts to first least all of the other buildings to
be constructed in the Park, prior to constructing the Expansion Space and
offering it as available to other clients. Although it is Lessor's intent to
build the Expansion Space once all other space in the Park has been rented,
Lessor cannot guarantee that that will occur.
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ARTICLE FOUR
LEASE TERM
----------
(a) The initial term of this Lease (Initial Term) will begin upon Lessee's
delivery to Lessor of the Notice and extend until the last day of the one
hundred and twentieth (120th) full calendar month thereafter.
(b) Lessee shall receive two (2) five-year options ("Option Period') to
extend the original Lease Term. The Lease Price to be paid during any Option
Period will be negotiated at the time that said Option is exercised, but the
Lease Price will be no less than the amount Lessee is paying at the time of the
Option and will, at least, be subject to the same annual rent escalations
referred to in Article Six below.
ARTICLE FIVE
USE AND ENJOYMENT OF THE PROPERTY
---------------------------------
(a) The Lessor agrees that, as provided by Article [2409] of the Federal
District Civil Code and its corresponding Article of the Civil Code for the
State of Jalisco, this Lease Agreement shall survive any ownership conveyance
with respect to the Property or the foreclosure of any lien or mortgage of
Lessor and/or its assignees, transferees, successors and any and all other third
parties in the chain of title of the Property, and that any default in payment
of such liens or mortgages shall in no way prejudice the terms of this Lease
Agreement or any extensions hereof.
(b) The Lessee shall use the Property only for those purposes set forth in
detail in Exhibit "F" attached hereto and made a part hereof for all purposes,
and hereby agrees to notify Lessor in the event it wishes to modify the intended
use of the Property as set forth therein. Lessee's intended use of the Property
shall comply with all applicable laws and regulations necessary for the quiet
use of the Property and the Property shall not be used in any way which
contravenes the laws and regulations of the Municipality of Guadalajara, the
State of Jalisco, or the Federal Republic of Mexico.
(c) As stated above in Article 2(b), Lessee's Equipment which is to be
installed on the Property is described in detail in EXHIBIT "E" hereto. The
installation of Lessee's Equipment shall be carried out in a manner consistent
with all applicable municipal, state and federal regulations. Lessor's
requirement for approval as to any new equipment to be installed in the Building
following those conditions described in Article Two above, shall be limited to
the installation of new equipment that will cause alteration to the Building and
Improvements.
ARTICLE SIX
LEASE PRICE
-----------
(a) Lessee shall pay Lessor a Lease Price per month equal to U.S. $5.85 per
square meter of rentable area (the "Lease Price") in the Property. The parties
to this agreement mutually agree that at the time of the execution of this
lease, the rentable area of the property is 5,575 square meters. Should the
rentable area change at some time prior to Lessee's occupancy of the building
and the receipt of Lessee's Notice, the total Lease Price will be adjusted to
reflect this
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per square meter lease rate. In addition to the Lease Price, Lessee
will also be responsible for paying Additional Rent (i.e., CAM, Property Taxes
and other rental payments) and the applicable Value Added Tax ("IVA") (these
three items being hereafter collectively referred to as the "Lease Payment").
(b) The Lease Price shall be fixed and shall remain unchanged until January
1, 2000. At that point and thereafter, the Lease Price will be annually
increased 2% on January 1 of each of the Initial Term.
(c) The Lease Payment shall become due and be paid on the first Friday of
each month; however, there shall be a proration for the period between the date
of delivery of the Notice and the last day of the calendar month in which the
Notice was delivered. The Lessee shall be responsible for ensuring that the
Lease Payment amount is delivered to Lessor's bank account in Guadalajara at
each billing cycle.
(d) The Lease Payment may be paid in Mexican Pesos calculated at the rate
of exchange of the Mexican Peso for the purchase of U.S. Dollars quoted in
Mexico's Federal Gazette (Diario Oficial de la Federaci?n) for the discharge of
obligations denominated in foreign currency published on the day when actual
payment is made, showing the rate as of the closing of the previous day.
(e) If Lessee becomes delinquent with respect to the payment of any amount
due under the terms of this Agreement, including, without limitation, the Lease
Payment, such amount, calculated in U.S. Dollars, will bear interest from the
third day following the date that amount becomes due until the date paid at a
monthly interest rate (the "Delinquency Rate") of 2%.
ARTICLE SEVEN
LEASE DEPOSIT
-------------
As a condition of occupying the Property, Lessee hereby agrees to pay to Lessor,
upon execution of this Agreement, a Lease Deposit, which shall consist of the
Lease Payments due for two (2) full months of the Initial Term. The Lease
Deposit shall be returned to Lessee upon expiration of the Lease and upon
Lessee's vacancy of the Property, following Lessor's approval of the condition
of the Property, which shall not be unreasonably withheld.
ARTICLE EIGHT
TAXES
-----
(a) The Lessee shall be responsible for payment of the Value Added Tax
("IVA") applicable to the Lease Price. The Lessee shall also be responsible for
paying its pro-rata share of the Property Tax corresponding to the Property.
Such Property Tax shall be considered part of additional rent and shall be
invoiced directly by Lessor or Lessor's designee to Lessee. Should Lessee opt to
expand its leased space pursuant to Article Three, the Lessee's pro-rata share
of Property Tax shall be immediately increased accordingly. All charges for
Property Tax shall be identified separately.
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(b) The Lessor shall be responsible for payment of its own Income Tax and
the Asset Tax associated with the Property.
ARTICLE NINE
COMMON AREA MAINTENANCE ("CAM") AND PARK MANAGEMENT CHARGES
-----------------------------------------------------------
Beginning at the time of Lessor's acceptance of Lessee's Notice or at the time
of any partial occupancy of the Building by Lessee, Lessee shall pay, on a
monthly basis as invoiced, its pro-rata share of the Common Area Maintenance
costs ("CAM") and management charges in the Park, as invoiced by the Property
Manager designated by the Lessor. The CAM will include, but not be limited to
costs related to Park access control, landscaping, public lights, preventive
maintenance, repair of utilities as required, and other common area services
rendered in the Park. The CAM will also include the costs of salaries, bonuses,
wages and any other direct or indirect cost related to the employment of
personnel sufficient to complete the responsibilities of the Manager, to include
a prorated portion of Accounting, Management and Technical personnel working
off-site, but contributing directly to the Park. CAM and management charges are
considered part of additional rent for purposes of this Lease. Lessee shall pay
the CAM charges within ten (10) days of receipt of each monthly invoice.
Not later than thirty (30) days prior to Substantial Completion of the Building,
the Park Manager shall deliver to Client a Notice advising the Lessee of the
monthly payments to be made by Lessee for the CAM charges for the remainder of
1999, such payments beginning at the time of Substantial Completion of the
Building. Such amount shall represent the Park Manager's good faith estimate of
anticipated CAM Services for such year. Lessee's CAM charges for 1999 shall not
exceed US$800.00 per month.
Lessee's CAM charges will be determined from year-to-year thereafter based on
Lessee's pro-rata share of the total CAM costs incurred annually by the Park.
Lessee's pro-rata share will be the percentage that the total square meters of
Lessee's Building bear to the entirety of the Rentable Area of the Park. The
"Rentable Area" shall be the entirety of all buildings in the Park that will be
developed. At this time, it is estimated that Lessor will ultimately construct
approximately a total of 60,000 square meters of buildings in the Park. As a
result, it is estimated that Lessee's pro-rata share of the total CAM costs
annually by the Park will be approximately 9%, assuming the square meter size of
Lessee's rentable area at this time as defined in Article Six above and assuming
the total area of the Park as defined in Recital I(b) above.
Beginning in 1999 and during the last ninety (90) days of each calendar year of
the Lease, the Park Manager will provide Lessee with its good faith estimate of
the CAM charges to be incurred during the following year. Lessee will then pay
its monthly pro-rata share of CAM charges during the following year based on
that estimate. Within ninety (90) days following the end of each calendar year,
the Park Manager shall reconcile and report to Lessee the amounts paid for CAM
Services and the amount received for CAM charges during the previous calendar
year. Any payments made by Lessee in excess of its pro-rata share of the CAM
charges shall then be credited to the Lessee's account. Conversely, if Lessee's
CAM payments during the previous year were less than Lessee's pro-rata share of
actual CAM costs accrued by the Park
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Manager, the additional amounts shall then
be invoiced to the Lessee at that time and Lessee will be responsible for
payment of this additional amount within thirty (30) days of receiving the
invoice.
The Lessee will have the right at any time and from time to time, to audit the
books and records of the Park Manager, at Lessee's sole cost and expense, for
the purpose of verifying its obligation to make any CAM charge payment and the
amount thereof. Such audit shall be upon reasonable notice, at reasonable
frequency and duration.
ARTICLE TEN
MAINTENANCE
-----------
(a) The exact responsibilities of Lessor and Lessee with regard to
maintenance of the Property is set forth in detail in Exhibit "G" attached
hereto and made a part hereof for all purposes. Lessee will receive a monthly
invoice from the Park Manager for Building management and maintenance services
that reflects Lessee's pro-rata share of total Building management and
maintenance expenses.
(b) If, in order for a structural component of the Building to remain in
good condition, replacement of that component becomes necessary, Lessor's
obligation with respect to that structural component includes the obligation to
replace it.
(c) Any need for maintenance or replacement which arises as a result of
Lessee's conduct or negligence shall be accomplished by Lessee at his sole cost
and expense. Such maintenance or replacement will require Lessor's written
approval.
(d) Lessor shall accomplish all maintenance for which it is responsible as
soon as practicable following receipt of notice from Lessee.
(e) If, following notice from Lessor, Lessee fails to make any necessary
repairs or perform any necessary maintenance for which Lessee is responsible,
Lessor may cause the repairs or maintenance to be performed and Lessor's costs
of doing so will be payable as additional rent with the next installment of
Lease Payment that becomes due, or Lessee agrees to reimburse Lessor for these
costs within a period of thirty (30) days following invoicing by Lessor,
whichever comes later. If, following notice from Lessee, Lessor fails to make
any necessary repairs or perform any necessary maintenance for which Lessor is
responsible, Lessee may cause the repairs or maintenance to be performed and
Lessee's costs of doing so will be reimbursed to Lessee by Lessor within thirty
(30) days following invoicing by Lessee and final resolution of Lessor's
responsibility for said repairs. There will be no reduction of the rental
payments in this event.
ARTICLE ELEVEN
ALTERATIONS
-----------
Lessee may, with the prior written approval of Lessor, make modifications or
alterations to the Property, at Lessee's own risk and expense, so long as they
do not result in irreversible damage
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to the Property. Lessee may make minor changes and modifications which do not
alter the structure of the property and do not compromise the quality of the
construction specifications, without the previous consent of the Lessor. All
fixtures and/or equipment of any nature installed in or about the Property by
the Lessee during the term of this Agreement, whether permanently affixed or
not, shall continue being property of the Lessee and shall be removed by Lessee
at the expiration or termination of this Agreement or any extension thereof,
unless Lessee requests and obtains written consent from Lessor, in advance, that
the improvements may remain in or about the Property at the expiration of this
Agreement, such consent not to be unreasonably withheld. Lessee shall promptly
reimburse Lessor for any and all damage caused to the Property by reason of said
removal of fixtures and equipment, or Lessee will also have the option of
repairing said damage at its own cost and restoring the Building to its original
condition.
ARTICLE TWELVE
LIABILITIES OF THE PARTIES
--------------------------
(a) The Lessor and the Lessee shall each be responsible for damages to the
Property caused by their respective fault or negligence, or that of their
respective agents, employees, visitors or suppliers.
(b) In the event that the Lessee should be prevented, by any reason
attributable to the Lessor, from using any part of the Property, then Lessor
shall, within thirty (30) days following receipt of written notice from Lessee
setting forth the nature of the problem, provide a schedule of restoration
repairs to Lessee, and shall begin completion of the restoration repairs
immediately thereafter in order to restore the Property to its full use as soon
as practicable. During the time from Lessor's receipt of Lessee's notice to the
completion of the restoration repairs, Lessee's Lease Payments shall be reduced
in the same proportion that the non-usable area represents of the total area of
the Property during the period of repair, as will be agreed to in writing by the
parties.
(c) Lessor and Lessee agree that:
(i) The replacement value of any damage or destruction to the Property
shall be determined in good faith.
(ii) Any amounts payable by Lessee to Lessor for damages to the
Property shall be reduced in the amount of any proceeds of any insurance
paid to the Lessor.
ARTICLE THIRTEEN
PERMITS AND LICENSES
--------------------
As a condition to Lessee's obligation to pay rent hereunder and to be bound by
the terms of this Agreement, Lessor warrants that, as of the first day of the
Initial Term and throughout the term of the Agreement and any extension thereof,
the Property is zoned industrial for all legal purposes and the Park has been
totally approved by all competent Mexican governmental authorities. Lessee shall
be responsible for obtaining all pertinent permits and licenses required
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in order to allow Lessee to carry out its specific operations at the Property
prior to final occupancy.
ARTICLE FOURTEEN
ASSIGNMENT AND SUBLEASING
-------------------------
The Lessee may not sublease the Property in whole or in part or assign this
Agreement to a third party without the previous written consent of Lessor, which
consent shall not be unreasonably withheld. At such time that Lessee and Lessor
agree to sublease the Property to a third party, Lessee will still be held
responsible for the Sublessee's adherence to the terms and conditions of this
Lease and to the terms and conditions of any subsequent Sublease Agreement.
ARTICLE FIFTEEN
INSURANCE
---------
(a) During the term of this Agreement and any extensions thereof, the
Lessor shall contract for and maintain blanket insurance to cover the Property
against any loss or damage by fire, lightning, explosion, hurricane, hail,
airplanes, vehicles, smoke, earthquake and/or volcanic eruption, strikes, riots,
vandalism, malfunction by boiler or compressor, explosion of a high pressure
boiler or compressor, and any other risk now or hereafter customarily covered
and reasonably available by extended coverage insurance, including glass
insurance, in amounts sufficient to prevent the Lessor or the Lessee from
becoming a coinsurer under the terms of the applicable policies, but in any
event in an amount not less than one hundred percent (100%) of the then full
insurable value (replacement value), which for the purposes of this Article
shall be deemed to be the cost of replacing the Property less the cost of
excavation and foundations of the Property. Such "full insurable value" shall be
determined from time to time, but not more frequently than once every twelve
(12) months, by the mutual agreement of the parties, and in lieu thereof, by
means of an appraisal to be performed by one of the three certified appraisers
designated by the Lessor and accepted by the Lessee, which appraisal shall be
paid for by the Lessor.
(b) Lessee's pro-rata share of the cost of this insurance shall be billed
to Lessee by Lessor on a monthly basis.
(c) Lessee shall, at Lessee's cost, be required to maintain its own
liability insurance to cover Lessee's equipment and personnel, and the equipment
and personnel of other occupants of the building, against any loss or damage
caused by Lessee or Lessee's equipment or personnel. Such policy shall name
Lessor as additional insured and shall be maintained through an insurance
company in good standing and acceptable to Lessor.
ARTICLE SIXTEEN
INDEMNITY
---------
Lessee shall indemnify, defend, save and hold Lessor harmless from and against
all losses, demands, claims, payments, suits, actions, recoveries and judgments
of any nature and type
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brought by any third party against Lessor by reason of any negligence or acts or
omissions of Lessee, its agents or employees, during the term of this Agreement.
Lessor shall indemnify, defend, save and hold Lessee harmless from and against
all losses, demands, claims, payments, suits, actions, recoveries and judgments
of any nature and type brought by any third party against Lessee by reason of
any negligence or acts of omissions of Lessor, its agents or employees, during
the term of this Agreement.
ARTICLE SEVENTEEN
DEFAULT BY LESSEE
-----------------
The occurrence of any one or more of the following events (the "Events of
Default") will constitute a default and breach of this Agreement by Lessee:
(i) Lessee's failure to pay the Lease Payment or additional rent when
due and the continuation of that failure for more than five (5) days after
the date on which Lessor gives Lessee written notice of the delinquency.
(ii) Lessee's permanent vacating or abandonment of the Property for a
period of sixty (60) or more consecutive days; with exception of cause
force majeure, acts of God or strikes.
(iii) Lessee's failure to observe or perform any of the covenants,
conditions or provisions of this Agreement that Lessee must observe or
perform, other than the late payment of the Lease Payment, where the
failure continues for a period of thirty (30) days after Lessee's receipt
of written notice from Lessor; if however, the nature of the obligation
that Lessee has failed to perform is such that more than thirty (30) days
are reasonably required for rectification, Lessee will be entitled to an
additional period of time to cure its failure, as reasonably determined by
Lessor, and an Event of Default will not occur so long as Lessee commences
the rectification within that thirty (30)-day period and diligently and
continuously prosecutes the rectification to completion;
(iv) The making by Lessee of any general assignment or general
arrangement for the benefit of its creditors; the filing by or against
Lessee of a petition seeking relief under any law relating to bankruptcy
(unless, in the case of a petition filed against Lessee, Lessee causes the
petition to be dismissed within 60 days after the date of its filing); the
appointment of a lessee or a receiver to take possession of substantially
all of Lessee's assets located in the Property or of Lessee's interest in
this Agreement, where possession is not restored to Lessee within 60 days
after the date of the appointment; or the attachment, execution or other
judicial seizure of substantially all of Lessee's assets located in the
Property or of Lessee's interest in this Agreement unless Lessee causes the
seizure to be discharged within 60 days after the date of the initiation of
the seizure; or
(v) Lessee's failure to discharge any lien placed upon the Property in
violation of this Agreement within 60 days after the lien or encumbrance is
filed against the Property.
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ARTICLE EIGHTEEN
LESSOR'S REMEDIES
-----------------
At any time after the occurrence of an Event of Default, with or without
additional notice or demand, Lessor may do one or more of the following:
(a) terminate Lessee's right to possession of the Property and repossess
the Property by any lawful means without terminating this Agreement. In that
event Lessor shall use good faith and reasonable efforts under the circumstances
to re-let the Property for the account of Lessee on such terms and conditions as
Lessor in its sole discretion may determine to be appropriate (including a term
different than the Term, rental concessions, alterations and repair of the
Property). Lessor reserves the right, however, (i) to lease any other comparable
space available in any other building Lessor owns prior to offering the Property
for lease and (ii) to refuse to lease the Property to any potential lessee that
does not meet Lessor's standards and criteria for leasing space in the Park.
Except where Lessor fails to use good faith and reasonable efforts to re-let the
Property, as required above, Lessor will not be liable for, and Lessee's
obligation under this Agreement will not be diminished because of, Lessor's
failure to relet the Property or collect rental due in respect of a reletting.
For the purposes of that re-letting, Lessor may repair, remodel or alter the
Property. If Lessor fails to re-let the Property, Lessee shall pay to Lessor the
Lease Payment reserved in this Agreement for the balance of the Term as those
amounts become due in accordance with the terms of this Agreement. If Lessor
re-lets the Property, but fails to realize a sufficient sum for the re-letting
to pay the full amount of Lease Payments and additional rent reserved in this
Agreement for the balance of the Term as those amounts become due in accordance
with the terms of this Agreement, after paying all of the costs and expenses of
all decoration, repairs, remodeling, alterations and additions and the expenses
of the reletting and of the collection of the rent accruing from the reletting,
Lessee shall pay to Lessor the amount of any deficiency upon Lessor's demand
from time to time made;
(b) terminate this Agreement and repossess the Property by any lawful
means. In that event Lessor may recover from Lessee as damages (i) all Lease
Payments that became due prior to the termination and that remain unpaid, plus
interest accruing in respect of the delinquent sums at the Delinquency Rate, as
defined in Article 4(g), (ii) the discounted presented value (determined based
on the Amortization Rate) of the amount, if any, by which (A) the Base Rent due
under the terms of this Agreement for the balance of the Term that remained as
of the effective date of the termination exceeds (B) the fair market rental
value for the Property (including both base and additional rent components) for
the balance of the Term after deduction of all anticipated reasonable expenses
of re-letting for that period (such as the cost of preparation of the Leased
Property, leasing commissions and reasonable attorneys' fees associated with
occupancy by a new Lessee), (iii) the cost of recovering the Property (including
reasonable attorneys' fees and costs of suit), (iv) all reasonable costs and
expenses Lessor reasonably incurs in connection with the enforcement of Lessee's
obligation to pay those damages, including, without limitation, reasonable
attorneys' fees, and (v) any other sum of money and damages Lessee owes to
Lessor. If the amount described in division (B) above exceeds the amount
described in division (A) above, Lessor has no obligation to pay Lessee any part
of the excess or to credit any part of the excess against any other sums or
damages for which Lessee may be liable to Lessor at the time of the termination;
or
13
<PAGE>
(c) pursue any other remedy available to Lessor under the laws of the
jurisdiction in which the Property is located.
For purposes of computing the additional rent that would have accrued and become
payable under the terms of this Agreement, the parties will assume that the
additional rental for the calendar year in which the Event of Default occurs and
each future calendar year for the balance of the Term that remained as of the
effective date of the termination equals Lessee's additional rent for the
calendar year prior to the year in which the Event of Default occurs compounded
at a rate equal to the mean average rate of inflation for the three (3) calendar
years preceding the calendar year in which the Event of Default occurs, as
determined by using the United States Department of Labor, Bureau of Labor
Statistics Consumer Price Index (All Urban Consumers, all items, 1982-84 equals
100) for the Dallas, Texas metropolitan area. If that Index is discontinued or
revised during the term of this Agreement, all parties will use such other
government index or computation with which it is replaced in order to obtain
substantially the same result as would be obtained if the Index had not been
discontinued or revised. If no replacement Index exists, Lessor may select as a
replacement index an index that, in Lessor's reasonable opinion, is generally
recognized as the successor index.
If Lessor repossesses the Property in accordance with the terms of this
Agreement, Lessor has the right to keep in place and use, or to remove and
store, at Lessee's expense, all of the furniture, fixtures and equipment at the
Property, including that which is owned by or leased to Lessee at all times
prior to any foreclosure or repossession by any lessor or security interest
holder having an interest in that furniture, fixtures or equipment (a
"Claimant"). Lessor also has the right to relinquish possession of all or any
portion of the furniture, fixtures, equipment and other property to any Claimant
who presents to Lessor a copy of any instrument that the Claimant represents to
have been executed by Lessee (or any predecessor of Lessee) granting Claimant
the right under various circumstances to take possession of the furniture,
fixtures, equipment or other property, without the necessity on the part of
Lessor to inquire into the authenticity or legality of the instrument. At
Lessor's sole option and without prejudice to, or waiver of any rights it may
have, Lessor may i) escort Lessee to the Property to retrieve any personal
belongings of Lessee and its employees not covered by a lien in favor of Lessor,
or ii) obtain a list from Lessee of the personal property of Lessee and its
employees that is not covered by a lien in favor of Lessor, and make that
property available to Lessee or Lessee's employees, provided that Lessee first
pays in cash all costs and estimated expenses to be incurred in connection with
the removal of the property. Any property that Lessee does not remove within
five days after Lessor's demand will be conclusively presumed to have been
abandoned by Lessee, and Lessor may take over possession of that property and
declare it to be Lessor's property written notice to Lessee. Lessee stipulates
that the rights granted Lessor in this Article are commercially reasonable.
ARTICLE NINETEEN
EACH PARTY'S RIGHT TO PERFORM THE OTHER PARTY'S OBLIGATIONS
-----------------------------------------------------------
If at any time during the Initial Term or any extension thereof, Lessee fails to
perform one or more of its obligations under this Agreement, the Lessor, after
thirty (30) days written notice to
14
<PAGE>
Lessee (or without notice in the case of
emergency) and without waiving or releasing the Lessee from any of its
obligations hereunder may, but shall be under no obligation to, perform Lessee's
obligations hereunder and may enter the Property for such purpose, and perform
all the necessary works needed. All reasonable expenses incurred and paid by
Lessor in connection herewith shall be payable by Lessee to Lessor on demand.
If at any time during the Initial Term or any extension thereof, Lessor fails to
perform one or more of its obligations under this Agreement, the Lessee, after
thirty (30) days written notice to Lessor (or without notice in the case of
emergency) and without waiving or releasing the Lessor from any of its
obligations hereunder may, but shall be under no obligation to, perform Lessor's
obligations hereunder and may enter the Property for such purpose, and perform
all the necessary works needed. All reasonable expenses incurred and paid by
Lessee in connection herewith shall be payable by Lessor to Lessee on demand.
ARTICLE TWENTY
SURRENDER OF PROPERTY
---------------------
(a) The Lessee shall, on the last day of the Initial Term of this Agreement
or of its extensions or upon early termination, surrender and deliver the
Property to the Lessor, without delay, in the same conditions in which the
Lessee received such, except for normal wear and tear, and the effects of the
elements and casualties covered by insurance. All signs installed or caused to
be installed by the Lessee shall be removed on or prior to the expiration of the
Initial Term of this Agreement or any of its extensions.
(b) In the event that upon the expiration of the Initial Term or any of its
extensions, Lessee does not vacate and deliver the Property to the Lessor,
Lessee shall pay as new rent the amount established in Article Six above, plus
fifty percent (50%). This fifty percent (50%) penalty shall not be applicable if
Lessee and Lessor are negotiating a renewal or extension of the Lease. In the
event that no negotiations are conducted, Lessee shall not holdover for more
than one month after expiration of the Initial Term of this Agreement or any of
its extensions. Acceptance of holdover payment by the Lessor shall not be
construed as a waiver by the Lessor to any right to recover possession of the
Property.
ARTICLE TWENTY-ONE
ENTRY ON THE LEASED PROPERTY BY LESSOR
--------------------------------------
Lessee shall permit Lessor and its authorized representative to enter the Leased
Property during reasonable business hours time for the purpose of inspecting
same and performing any necessary work therein, following twenty-four (24) hour
written notice from Lessor, except in the case of any emergency, in which case
no notice will be required. The Lessor shall have the right to enter the
Property during business hours during the period of six (6) months prior to
expiration of this lease for the purpose of showing the Property to prospective
Lessees following at least forty-eight (48) hours written notice to Lessee.
Notwithstanding the above, Lessor shall not in any way interfere with Lessee's
operation when entering on the Property and shall be liable to Lessee for any
damage caused by such interference.
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<PAGE>
ARTICLE TWENTY-TWO
SUBORDINATION
-------------
Lessee agrees, upon written request of Lessor, to subordinate this Agreement
(including any extension hereof) to any mortgage on the Property provided that
the mortgagee agrees, in writing, to acknowledge all the rights of the Lessee
under this Agreement. Likewise, the mortgagee shall agree not to disturb the
possession and other rights of Lessee hereunder. In the event that the mortgagee
acquires title to the Property through a foreclosure procedure or otherwise, the
mortgagee must agree to fully honor this Agreement and accept the Lessee as
lessee under this Agreement and to assume the Lessor's obligations hereunder. In
such event, Lessee agrees to recognize the mortgagee as the new lessor. Lessor
and Lessee agree to execute and deliver any appropriate instruments necessary to
carry out the agreements contained herein.
ARTICLE TWENTY-THREE
BROKERS
-------
Lessee is herein represented by CB Commercial/Richard Ellis in its capacity as
Lessee's real estate representative ("broker"). Lessor agrees to pay the broker
a commission per separate agreement with Broker.
ARTICLE TWENTY-FOUR
ENVIRONMENTAL
-------------
Lessor represents that (1) at the beginning of the Initial Term of the Lease,
the Property will comply with applicable environmental laws and regulations, (2)
Lessor has not, and has no knowledge of any other person who has, caused any
release, threatened release or disposal of any hazardous substances, materials
or waste on, in, at or from the Property, (3) to the best of Lessor's knowledge
the Property is not subject to any imminent restrictions on the ownership,
occupancy, intended use or transferability of the Property in connection with
environmental laws or regulations, (4) to the best of Lessor's knowledge there
are no conditions or circumstances at the Property which pose a risk to the
environment or the health or safety of any persons.
Lessee has the right to inspect the Property and the surrounding area to ensure
that the current environmental condition of the Park and the construction
complies with Lessee's standards and expectations. By virtue of execution of
this Lease Agreement, Lessee accepts the environmental condition of the Property
as acceptable. Lessee is explicitly responsible and liable, both during and
after the term of this Agreement, for any environmental problems caused by
Lessee during its occupancy of the Property and shall indemnify, defend and hold
Lessor harmless against all said environmental liabilities. Should an incident
occur during the Initial Term of the Property or surrounding the Building which
is caused by a party other than Lessee and which Lessee deems as a possible risk
to Lessee's health or to Lessee's long-term environmental liability in regard to
the Property, the Building, and the surrounding land, Lessee will be expressly
responsible for reporting said incident to Lessor. At that time, both Lessee and
Lessor will make an assessment of the incident and any damages resulting
therefrom and will determine in good faith which party is at fault. A
remediation or clean-up plan will be formulated at that time, as well as a final
determination of fault, and all parties will be required to endorse said
16
<PAGE>
determination and clean-up plan in writing. At that time, the responsible party
will be responsible for all costs and liabilities involved in the clean-up
effort.
ARTICLE TWENTY-FIVE
MODIFICATION TO THE CONTRACTUAL DOCUMENTS
-----------------------------------------
Unless otherwise agreed by the parties, any modification, release or discharge
of this Agreement or waiver of any of the provisions hereof, shall not be valid
or obligatory, unless made in writing and signed by the Lessor and the Lessee.
ARTICLE TWENTY-SIX
GUARANTY
--------
PEMSTAR Inc., herein represented by Mr. Allen J. Burning, shall act as
GUARANTOR, and jointly obligates itself with the Lessee, guaranteeing in an
absolute and joint manner the compliance with all the obligations and
responsibilities derived from this Agreement, which obligations shall not cease
until the Lessee delivers the Property to the Lessor at the end of the Initial
Term or any extension thereof.
The GUARANTOR, by this means, expressly waives any and all order and
exclusion rights and all those rights granted by the Civil Code for the Federal
District under articles 2812, 2814, 2815, 2846 and 2849, and their correlative
articles of the Civil Code for the State of Jalisco. The GUARANTOR designates as
its domicile to receive notices under the terms of Article 2802 and 34 of the
civil Code for the Federal District, and the correlative articles of the Civil
Code.
PEMSTAR Inc.
3535 Technology Drive
Rochester, MN 55901
ARTICLE TWENTY-SEVEN
ENTIRE AGREEMENT
----------------
The parties hereto agree that this Agreement and its exhibits contain all the
obligations and agreements between the parties, and supersedes any other
agreement either oral or in writing between the parties with respect to the
subject matter hereof.
ARTICLE TWENTY-EIGHT
TRANSLATION OF THE LEASE
------------------------
The Lessor and Lessee agree that this Lease document will be translated to
Spanish within ninety (90) days following execution of this English version. The
parties will agree in writing at that time that the Spanish version is an exact
translation which will be acceptable to both parties in the resolution of any
dispute under Mexican law.
17
<PAGE>
ARTICLE TWENTY-NINE
REGISTRATION OF LEASE
---------------------
Pursuant to Article 2045 of the Civil Code of the State of Jalisco, the parties
hereto agree to sign original counterparts of the Spanish version of this
Agreement, to be coordinated per Article 28 above, before the presence of a
Notary Public of the State of Jalisco and protocalize the execution of the
Spanish version of this Agreement or obtain the Apostille of the Notary's
signature from the authority with jurisdiction over the county, municipality or
province where this Agreement is executed. The parties also hereby agree to take
all actions necessary to register this Agreement in the Public Registry of
Property and Commerce in Guadalajara, Jalisco, Mexico. All costs associated with
the protocolization of the Agreement before a Notary Public and registration of
this Agreement in the Public Registry of Property and Commerce in Guadalajara,
Jalisco shall be the responsibility of Lessee.
ARTICLE THIRTY
APPLICABLE LAW AND JURISDICTION
-------------------------------
THIS AGREEMENT SHALL BE SUBJECT TO THE PROVISIONS OF THE CIVIL CODE FOR THE
STATE OF JALISCO, MEXICO. LESSOR AND LESSEE EXPRESSLY AGREE TO SUBMIT THEMSELVES
TO THE JURISDICTION OF THE COMPETENT COURTS OF GUADALAJARA, JALISCO, MEXICO,
WAIVING ANY OTHER LAW AND JURISDICTION WHICH MIGHT APPLY BY REASON OF THEIR
PRESENT OR FUTURE DOMICILES OR FOR ANY OTHER REASON.
ARTICLE THIRTY-ONE
NOTICES
-------
All notices, demands and requests provided for in this Agreement shall be made
in writing and shall be deemed to have been properly given (i) on the date of
receipt, if served personally or (ii) on date of receipt, if sent by overnight
courier, with proof of receipt, addressed to the Lessor or to the Lessee, as the
case may be, at its respective address last designated by notice to the other
party for that purpose. All notices shall either be delivered personally or by
overnight courier. Until the parties designate other addresses, their respective
addresses shall be as follows:
Lessee: PEMSTAR Inc.
3535 Technology Drive
Rochester, MN 55901
Attention: Hargopal Singh
Telecopier: 507-289-8797
18
<PAGE>
Lessor: GUADALAJARA INDUSTRIAL TECNOLOGICO, S.A. DE C.V.
Ave. 5 de febrero, No. 2125-E
Plaza del Norte - Jurica
76100 Queretaro, QRO
MEXICO
Telecopier: (42) 18-6399
Attention: Mr. William Dore
With Copy to: Arturo D. Torres
Martin, Drought & Torres, Inc.
200 South 10th Street
McAllen, Texas 78501
Tel: (956) 686-2348
Fax: (956) 686-2610
19
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the 30th day of
November, 1998.
Lessor: Lessee:
GUADALAJARA INDUSTRIAL PEMSTAR DE MEXICO, S.A. DE C.V.
TECNOLOGICO, S.A. DE C.V.
By: /s/ Daniel R. Dubrowski By: /s/ Hargopal Singh
------------------------------ -------------------------------------
Daniel R. Dubrowski Hargopal Singh
Its: Its: President
----------------------------- ------------------------------------
Authorized Representative
Witness Witness
/s/
- --------------------------------- -----------------------------------------
Guarantor:
PEMSTAR Inc.
By: /s/ Al Berning
-------------------------------------
Its: CEO
------------------------------------
Witness
-----------------------------------------
20
<PAGE>
EXHIBIT 10.22
- --------------------------------------------------------------------------------
SUBLEASE FOR OFFICE PREMISES
and other business premises not subject to section 7A: 1624 CC of the
Netherlands Civil Code
- --------------------------------------------------------------------------------
according to the model decided upon by the Read voor Onroerende Laken (Council
for Property Matters) in February 1996. Reference to this model is only
permitted if the inserted, added or divergent text can easily be recognised as
such. Additions and divergences should preferably be included in the article
'Special Stipulations'. The Council accepts no responsibility for adverse
consequences &rising from the use of the text of the model.
- --------------------------------------------------------------------------------
The undersigned:
Pemstar B.V.
with its registered office in Almelo
, hereinafter referred to as 'the Lessor',
represented by Mr ...........
and
Fluke Industrial BV
with its registered office in Almelo, Lelyweg 1 (7602 EA)
,hereinafter referred to as 'the Lessee',
listened in the Trade Register of Enschede
under number .............
represented by Mr
have agreed to the following Sublease:
Premises, Purpose, Use
Initials Lessor: Initials Lessee:
- --------------------------------------------------------------------------------
By courtesy we provide this translation for our client. Nor our client or any
third parties can derive any rights from this translation or the contents
thereof. We will not accept any liability for this translation or the contents
thereof. DRZ Zadelhoff v.o.f.
- --------------------------------------------------------------------------------
<PAGE>
-2-
1.1 This agreement concerns approx. 290 M2 of office space, hereinafter referred
to as 'the leased space', in the CD complex no. 72 (partially), known locally as
Lelyweg 1 in Almelo, sufficiently known to the parties and further indicated on
the drawing of the leased space, which forms part of this lease, attached to
this deed and certified by the parties. The lessee will have joint use of
entrance gates, site roads, grounds and bicycle shed.
1.2 The leased space may be used exclusively as office space.
1.3 The lessee is not allowed to put the leased space to any other use than that
described in 1.2 without the prior written permission of the Lessor.
1.4 The highest permissible load on the floor(s) of the leased space is unknown
to the parties. If the lessee wishes to fit any facilities of fixtures of which
it expects or reasonably should reasonably expect that it can have and adverse
influence on the leased space, the lessee must obtain the lessor's prior written
approval.
Conditions
2.1 The general conditions for the leasing of office premises and other business
premises not subject to section 7A: 1624 CC of the Netherlands Civil Code,
deposited at the office of the District Court of The Hague on 29 February 1996
and registered under number 34/1996, hereinafter referred to as 'the General
Conditions', from part of this lease. The parties are fully informed of these
General Conditions, of which the lessee has received a copy.
2.2 The conditions referred to in 2.1 are applicable except in so far as the
conditions mentio-ned below expressly deviate from them or applicability in
relation to the leased space is not possible.
Term, Extension and Termination of the Lease
3.1 This lease is entered into for a period of 6 (six) months, commencing on 1
May 1999 and ending on 31 October 1999.
Initials Lessor: Initials Lessee:
- --------------------------------------------------------------------------------
By courtesy we provide this translation for our client. Nor our client or any
third parties can derive any rights from this translation or the contents
thereof. We will not accept any liability for this translation or the contents
thereof. DRZ Zadelhoff v.o.f.
- --------------------------------------------------------------------------------
<PAGE>
-3-
3.2 If Lessee delivers notice to Lessor at least one (1) month prior to the
expiry of the period referred to in 3. 1, this lease will be extended for a
contiguous period of 6 (six) months, that is until 30 April 2000.
3.3 Subject to Section 3.2, termination of this lease will take place by giving
notice before the end of a lease term with due observance of a period of notice
of at least 1 (one) month.
3.4 Termination of the lease may only occur by means of a writ or by registered
letter.
3.5 Premature termination of this lease is possible under one of the
circumstances referred to in 7 of the General Conditions.
Payment Obligations and Payment Term
4.1 The Lessee will be obliged to make the following payments:
- - rent;
- - payment for additional supplies and services plus the turnover tax payable
thereon,
- - turnover tax on the rent and or a corresponding sum in accordance
with and with due observance of 15.2 and 15.3 of the General Conditions, if
the parties have opted for the rent to be subject to turnover tax.
4.2 The rent amounts to an annual sum of NLG 25.123,58
in words TWENTY-FIVE THOUSAND ONE-HUNDRED AND TWENTY-THREE
GUILDERS.
4.3 [Reserved]
4.4 The payment for additional supplies and services will be determined in
accordance with 12 of the General Conditions and as is stipulated therein, a
system of advance payments with settlement at a later date will be applied to
this payment.
4.5 The payments to be made by the Lessee to the Lessor will be due in a lump
sum in advance, in successive terms of payment as referred to in 4.6, and must
have been made in full before or on the
Initials Lessee: Initials Lessor:
- --------------------------------------------------------------------------------
By courtesy we provide this translation for our client. Nor our client or any
third parties can derive any rights from this translation or the contents
thereof. We will not accept any liability for this translation or the contents
thereof. DRZ Zadelhoff v.o.f.
- --------------------------------------------------------------------------------
<PAGE>
-4-
first day of the period to which the payments apply.
For each term of payment of one calendar month the following amounts will be
payable for:
- the rent NLG 2.093,63
- the advance payment for additional
supplies and services provided
by or on behalf of the lessor to be agreed upon (see Art, 6)
---------------------
Total amount NLG 2,093,63
in words: TWO THOUSAND AND NINETY-THREE GUILDERS AND SIXTY- THREE
CENTS.
These amounts are exclusive of turnover tax.
With a view to the date of commencement of this lease, the first term of payment
relates to the period from 1 May up to and including 31 May 1999 and the amount
payable for this period is NLG 2.093,63, exclusive of turnover tax. The lessee
will pay this amount including any turnover tax charged thereon before or on 1
May 1999.
Turnover tax
All amounts mentioned in this lease are exclusive of turnover tax. The lessee is
required to pay turnover tax on the payments for additional supplies and
services. In the event of taxed rent, this also applies to the rent. Turnover
tax will be charged by the lessor and is required to be paid together with the
rent and the payment for additional supplies and services, or the advance
payment for these.
5.2 The parties agree that the lessor will charge the lessee turnover tax on the
rent.
If it has been agreed that turnover tax will be charged on the rent, the lessee
herewith
Initials Lessor: Initials Lessee:
- --------------------------------------------------------------------------------
By courtesy we provide this translation for our client. Nor our client or any
third parties can derive any rights from this translation or the contents
thereof. We will not accept any liability for this translation or the contents
thereof. DRZ Zadelhoff v.o.f.
- --------------------------------------------------------------------------------
<PAGE>
-5-
irrevocably authorizes the lessor and its successor(s) in title to submit on
its/their behalf an application as referred to in Section 11, subsection 1,
under b., 5o of the Turnover tax Act of 1968 (Wet op de Omzelbelasting 1968)
(with regard to opting for taxed rent). If so required, the lessee will co-sign
this application and return it to the lessor within 14 days of receiving it.
Supplies and services
6. For the supplies and services, please refer to the service contract between
the property manager and the lessee. The parties must have reached agreement on
its contents. With respect to the supplies and services relating to the
building/grounds, the obligatory services to be agreed upon include.
- - maintenance of grounds, boundary partition and site lighting
- - maintenance contracts for the technical systems including:
* heating
* cooling
* air conditioning
- - maintenance contracts infrastructure:
* fire detectors/doors
* breakdown alarms
* building security system
- - provision for repairs to the infrastructure
- - energy supply (gas, water, light)
- - sanitary facilities, towel dispensers, etc.
- - cleaning costs of shared areas, exterior glazing
- - security
- - reception desk.
Property management
Until the lessor announces otherwise, the management of the property will be
carried out by the lessor.
Initials Lessor: Initials Lessee:
- --------------------------------------------------------------------------------
By courtesy we provide this translation for our client. Nor our client or any
third parties can derive any rights from this translation or the contents
thereof. We will not accept any liability for this translation or the contents
thereof. DRZ Zadelhoff v.o.f.
- --------------------------------------------------------------------------------
<PAGE>
-6-
9. Special stipulations
BTW
Article 4. 1, third dash, is to be replaced by 'the turnover tax due on the rent
or a corresponding amount, in accordance with and taking into account the
stipulations in 9.1.2 up to and including 9.1.8 of the special conditions. The
stipulations in 15.2 and 15.3 of the general conditions which form part of this
agreement are hereby explicitly declared inapplicable'.
The lessee and the lessor explicitly declare that the starting point for
determining the rent was that the lessee will continue to use the space for the
percentage determined by law (at least 90%) for activities which entitle the
lessee to deduct turnover tax, in such a way that the parties can opt for taxed
rent.
If the lessee does not use or no longer uses the leased space for activities
which entitle it to deduct BTW as referred to in Article 9.1.2, the lessee will
no longer owe the lessor BTW on the rent, but the lessee will owe the lessor in
addition to the rent exclusive of BTW com-mencing on the date on which the rent
is exempted from BTW by way of a separate payment to the lessor such an amount
that the latter is fully compensated for:
The BTW which is no longer deductible as a result of the cancellation of the
possibility to deduct BTW from the operating costs of or from investments in
the leased space.
The BTW which the lessor has to pay to the tax authorities and/or can no longer
reclaim from the tax authorities as a result of the cancellation of the
possibility to deduct BTW due to a recalculation of the taxed rent as
referred to in Section 15, subsection 4 of the Wet op de Omzetbelasting 1968
Turnover Tax Act 1968) or revision as referred to in Sections 11, 12 and 13
of the Uitvoeringsbeschikking omzelbelasting 1968 (Turnover Tax
(Implementation) Decree 1968).
All other loss which the lessor incurs as a result of the cancellation of the
possibility to deduct BTW.
If a situation as referred to in Article 9.1.3 occurs, the lessor will inform
the lessee what amounts must be paid by the lessor to the tax authorities and
provide insight into the other losses as referred to in 9.1.3.
The lessor will give its cooperation if the lessee wishes to have the lessor's
specification checked by an independent registered accountant. The costs of this
will be at the lessee's expense.
Initials Lessor: Initials Lessee:
- --------------------------------------------------------------------------------
By courtesy we provide this translation for our client. Nor our client or any
third parties can derive any rights from this translation or the contents
thereof. We will not accept any liability for this translation or the contents
thereof. DRZ Zadelhoff v.o.f.
- --------------------------------------------------------------------------------
<PAGE>
-7-
The financial loss incurred by the lessor as a result of the cancellation of the
taxed rent must be paid by the lessee on the lessor's demand.
The stipulations in 9.1.3 and 9.1.4 also apply if the request opting for taxed
rent under Section 11 subsection b, under 5 of the Wet op de Omzethelasting 1968
(Turnover Tax Act 1968) is not granted by the tax authorities for whatever
reason. The stipulations in Sections 9. 1.3 and 9.1.4 also apply if the request
opting for taxed rent is granted commencing on a later date than requested, for
the period from the agreed commencement date of the taxed rent until the date of
commencement of the rent subject to turnover tax.
If the lessee, however, proves that it is due to acts or omissions of the lessor
that the request opting for taxed rent was not granted or not granted on the
agreed date, the lessee will not owe the payment referred to in 9.1.3.
The lessee will be obliged to inform the lessor by means of a signed statement
within four weeks of the end of its financial year in which it started to lease
the space (also if it has been has been made available wholly or partially to a
third party) whether or not it has used the leased space in the past financial
year for purposes for which a right to make a complete or practically complete
(at least 90%) deduction of BTW exists as laid down in Section 15 of the Wet op
de Omzelhelasting 1968.
The lessee shall furthermore be obliged to inform the lessor after each
successive financial year by means of a signed statement within four weeks
following the end of the financial year concerned if the leased space (also if
it has been has been made available wholly or partially to a third party) was
not used for purposes for which a right to make a complete or practically
complete (at least 90%) deduction of BTW exists as laid down in Section 15 of
the Wet op de Omzelbelasting 1968. In both cases the lessee will be obliged to
send a copy of the statement to the tax authorities within the same period.
If the lessee does not fulfil the aforementioned obligation to provide
information or if it turns out in retrospect that its assumptions were
incorrect, and it turns out in retrospect that the lessor has wrongly charged
BTW on the rent, the lessee shall be in default, and the lessor shall be
entitled to recover the resulting financial disadvantage from the lessee. This
disadvantage concerns
Initials Lessor: Initials Lessee:
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By courtesy we provide this translation for our client. Nor our client or any
third parties can derive any rights from this translation or the contents
thereof. We will not accept any liability for this translation or the contents
thereof. DRZ Zadelhoff v.o.f.
- --------------------------------------------------------------------------------
<PAGE>
-8-
the full BTW still due by the lessor to the tax authorities plus interest, as
well as the BTW which the lessor cannot deduct.
The stipulations in this article contain an arrangement for compensation in the
event that the taxed rent ceases to be applicable with retroactive effect, in
addition to the arrangement set out in Articles 9.1.3 and 9.1.4. The additional
loss which results for the lessor from the retroactive effect, will be payable
by the lessee immediately, in full and as a lump sum. The lessor will give its
cooperation if the lessee wishes to have the lessor's specification of this
additional loss checked by an independent registered accountant. The costs of
this will be at the lessee's expense.
The stipulations set out in 9.1.3, 9.1.5 and 9.1.7 will also apply if the lessor
is confronted with a loss after the termination of the lease, whether premature
or not, due to the cancellation of the taxed rent agreed upon by the parties.
This loss will then be payable by the lessee to the lessor immediately, in full
and as a lump sum.
Other special stipulations
Each time in the context of this sublease, the word 'lessor' must be construed
as 'sublessor' and the word 'lessee' as 'sublessee' in as far as applicable.
The sublessor guarantees that the required permission to sublet has been granted
by the owner.
12. The sublessor makes available to the sublessee the existing:
- - prefabricated dividing walls
- - floor covering
- - sun blinds, internally and externally.
The sublessee will maintain these items with due care and on the expiry of this
sublease make them once more available to the sublessor, who does not undertake
any obligation to maintain or replace them.
13. The lessee has the joint use of the large car park outside the entrance
gate. Within the gate, the lessee is entitled to two parking spaces to be
indicated later. The lessee's visitors may use the
Initials Lessor: Initials Lessee:
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Pemstar's visitors' parking spaces within the gate.
14. Any alterations in, on or to the leased space may only take place after
consultation with and with the written approval by the property manager.
15. The parties recognize and agree that the present lease ends on 30 April 2000
and that the lessee will deliver the leased space on this date completely
cleared and in a good state to the lessor, failing which it will now for then
forfeit a penalty of NLG 5,000 for each day on which it remains in default after
30 April 2000. The lessee hereby therefor expressly and irrevocably waives its
right to protection from eviction as provided in Article 28c sub 1 huurwet, and
expressly agrees to leave the leased space on 30 April 2000, as provided in
Article 28 c sub 2 Huurwet
Initials Lessor: Initials Lessee:
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16. Parties agree to delete the words "in a good state without faults", from
Article 1.2 of the General Provisions to the sublease Agreement s, as it is the
intention of the parties that Fluke will accept the leases space "as is, where
is".
17. Deletions
Deletion of Article 3.2 (partially): approved.
Delection of Article 4.3 (completely): approved.
Deletion of Article 7 (completely): approved.
Drawn up and signed in triplicate,
..........place, ..........date Almelo, ..........date
The lessor The lessee
Pemstar B.V. Fluke Industrial B.V.
On its behalf, On its behalf,
- -------------------- --------------------
(Name of authorized person) (Name of authorized person)
Enclosures:
** the general conditions
** drawing of the leased space.
Initials Lessor: Initials Lessee:
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GENERAL CONDITIONS FOR LEASING OFFICE SPACE and other business premises not
under section 7A:1624 CC
According to the standard text decided upon by the Raad voor Onrverende Zaken
(Council for Real Est2te deposited on 29 FebrU2rV 19%, Una;-r registration
number 34/19% with the Clerk of the Court in the Hague. The Council is not
liable for any adverse consequences of the use of the standard text. The purpose
of the hUdings above the articles in these General Conditions is only to improve
their readability. The content and import of the C12USe covered by the heading
is therefore not limited to such heading.
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The Leased Premises
1.1 The Leased Premises include the installations and facilities which are
present, in as much as these are not excluded in the certified description
accompanying the lease.
1.2 The Leased Premises will be made available for occupation and accepted in
the state outlined in the certified description accompanying the lease or, in
the absence of such a description, in the state at the commencement of the
lease, in a good state without faults.
Use
2.1 The Lessee will make actual and proper use of the Leased Premises himself
during the entire term of the lease, exclusively for the purpose stipulated in
the lease. He shall in doing so observe existing limited rights and requirements
which have been or may be made by government authorities or public utility
companies. He shall provide the Leased Premises with sufficient furniture and
fixtures and keep the same so provided.
2.2 The Lessee shall act in accordance with the law and local regulations and in
accordance with accepted practice as regards leasing, with regulations issued by
the authorities, public utility companies, the insurers and, if applicable, with
the regulations of the agency responsible for the sprinkler system and the
"Sighting Nederkznds Instituut voor Lifttechniek" and other competent
authorities to issue the necessary certificates. The Lessee shall also observe
the instructions given in writing or by word of mouth by or on behalf of the
Lessor in the interests of the proper use of the Leased Premises and of the
inside and outside areas, the installations and fixtures in the building or
complex which the Leased Premises are part of. This shall include instructions
regarding the maintenance, appearance, noise level, public order, fire
protection, parking and the correct operation of the installations and the
building or the complex which the Leased Premises are part of.
2.3 The Lessee may not create any nuisance or cause any inconvenience when using
the Leased Premises or the building or the complex of which the Leased Premises
form a part and will ensure that any third party present on his behalf do
likewise.
2.4 The Lessor has the right and the duty to use the common facilities and
services which are or will be available in the interest of the proper
functioning of the complex which the Leased Premises are part of.
Licenses
2.5.1 The Lessee shall obtain the licenses and/or exemptions required to carry
on the business for which the Leased Premises are intended. Refusal or
suspension of the same shall not give cause for cancelling or annulling the
lease or for undertaking any other action against the Lessor.
2.5.2 If alterations or improvements to the Leased Premises are necessary in
connection with 2.5.1, whether or not as a result of regulations issued by
authorities, it is the Lessee's responsibility (without prejudice to the
conditions in 2.6 and 2. 10) to ensure that the activities to that purpose are
carried out in accordance with the requirements made or
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to be made by the authorities and that any necessary licences are obtained,
while the costs of the alterations or improvements will be met by the Lessee.
Environment
2.6.1 If upon commencement or during the term of the lease an environmental
investigation is started with respect to the Leased Premises and afterwards
during the term of the lease or immediately upon termination of the lease - in a
similar investigation -the concentrations of one or more substances found on,
in, at or around the Leased Premises are higher than those of the earlier
investigation, the Lessee shall compensate the damage arising from the
contamination and he shall be liable to the Lessor for expenses relating to the
removal of such contamination or for the taking of actions. The Lessee shall
indemnify the Lessor against claims of third parties, including government
agencies.
2.6.2 The provision of 2.6.1 is not applicable if the Lessee shows
that the contamination has neither been caused by any fault or negligence of
himself, his personnel or persons or objects under his supervision, nor by any
circumstances which can be imputed to the Lessee.
2.6.3 The Lessor shall not indemnify the Lessee against (government) orders for
further investigation or the taking of actions.
Waste products/chemical waste
2.7 Where directives or regulations by the government or other competent
authorities are applicable to the (differentiated) presentation of waste
products, the Lessee shall continuously and carefully observe the same. In case
of non-observance or incomplete observance of this obligation the Lessee shall
be liable for any resulting financial, criminal and possibly other consequences.
Advertisements
2.8 Where the Leased Premises are part of a building or complex, the Lessor
shall have the right to make use of the roofs, outer walls, gardens and grounds
of that building or complex for (illuminated) advertisements, signs and the
like, both for his own benefit and for the benefit of the Lessee or any third
party.
In exercising this right, the Lessor will take account of the Lessee's
interests.
Apartment titles (Apparrementsrecht)
2.9.1 If the building, or the complex of which the Leased Premises are part, is
or is to be subdivided into apartment titles, the Lessee will be required to
observe the regulations arising from the property division agreement and rules
governing their use. The same applies if the building or complex of buildings is
or becomes the property of a cooperative.
2.9.2 Insofar as this is within his power, the Lessor shall not assist in the
formulation of regulations which are in conflict with the lease.
2.9.3 The Lessor will ensure that the Lessee is provided with the regulations
regarding use as referred to in 2.9. 1.
Prohibitions and regulations regarding Public Order
2.10.1 The Lessee is not permitted:
b. to have environmentally hazardous materials, including malodorous,
inflammable or explosive substances, in, on, attached to or in the
immediate vicinity of the Leased Premises, unless such materials are part
of the normal carrying on of a profession or business;
c. to burden floors of the Leased Premises or the building or complex of which
the Leased Premises form a part more than is technically permissible or
specified in the lease;
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d. to make such use of the Leased Premises that as a result of this use the
soil or environment becomes polluted, the Leased Premises suffer damage, or
the appearance of the Leased Premises is adversely affected, which is
understood to include the use of vehicles as a result of which the floors
may be damaged;
e. to make any alterations or additions in, on or to the Leased Premises which
are in conflict with regulations of the authorities and of public utility
companies or with the conditions under which the owner of the Leased
Premises acquired ownership of the Leased Premises or with any other
limited rights, or to make alterations or additions which create a nuisance
for other Lessees or the neighbours or hinder them in their use.
2.10.2 Without the Lessor's prior written permission the Lessee shall not be
permitted:
a. to make alterations or additions in, on or to the Leased Premises , which
shall include making holes in the outer walls;
b. to affix or have in, on, or to the Leased Premises or in the immediate
vicinity, any objects, including name boards, advertisements, bill boards,
announcements, publications, buildings, wooden structures, scaffolding,
packing materials, goods, vending machines, lighting, awnings, aerials with
fittings, flag poles, etc., or to render windowpanes opaque;
c. to enter or allow others to enter the service and installation areas, roof
terraces, roofs and drains and the areas and places not reserved for general
use in the Leased Premises or the complex of which the Leased Premises form
a part, unless for work which the Lessee is required to carry out under this
agreement.
d. to park vehicles in places other than those appropriated for this purpose.
2.10.3 The Lessor shall not be liable in any way whatsoever for any alterations
or additions referred to in 2.10.2(a) and (b).
2.10.4 The Lessee shall keep fire fighting equipment and fire exits in the
Leased Premises free and clear at all times.,
2.10.5 If the Leased Premises include a lift, rolling carpet, escalator or
automatic door mechanism, or if the Leased Premises can be reached by one or
more of the said facilities, the use of such facilities shall be entirely at a
person's own risk. All regulations issued or to be issued by or on behalf of the
Lessor, the installer concerned or the authorities must be carefully observed.
If and for as long as this is necessary, the Lessor may put the said facilities
out of operation without the Lessee being entitled to any damages or a reduction
in rent.
2.10.6 Where objects installed by the Lessee (including advertisements or other
signs) must be removed temporarily, in connection with maintenance or repair
work to the Leased Premises, or the building or complex of which the Leased
Premises form part, the expenses or removal, possible storage and reinstallment
shall be at the Lessee's expense and risk, regardless of whether the Lessor has
given permission for the installations of the objects concerned.
Applicarions1permission
2.11.1 If the Lessee requires any deviation form and/or addition to any
provision of this agreement, the Lessee shall file his application for such
deviation of and/or addition in writing.
2.11.2 If and to the extent that any Provision of this agreement requires the
Lessor's permission, it shall only be deemed granted if given in writing.
2.11.3 Any permission granted by the Lessor shall be for one instance only and
shall not apply to other or subsequent cases. The Lessor shall be entitled to
make his permission conditional.
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Subletting
3.1 Subject to the Lessee's prior permission, the Lessee shall not be permitted
to relinquish all or part of the Leased Premises to any third party letting,
subletting or allowing the use of the same, or by transferring the rights of
lease in whole or in part to any third party or by bringing these rights into a
partnership, or al legal entity.
3.2 In the event that the Lessee acts in breach of the above provision he will
forfeit to the Lessor for every calendar day that the breach continues an
immediately payable fine, equal to two times the then current daily rent payable
by the Lessee, without prejudice to the Lessor's right to demand compliance or
cancellation, as well as damages.
Rent Adjustment
4.1 Any adjustment of the rent as agreed in 4.3 of the lease will occur on the
basis of the revisions of the monthly index figure according to the consumer's
price index (CP) series CPl Employees Low (1990 = 100), as published by the
Central Bureau of Statistics (CBS).
The adjusted rent will be calculated according to the following formula: the
adjusted rent is equal to the current rent on the adjustment date, multiplied by
the index figure of the calendar month which lies four calendar months before
the calendar month in which the rent is adjusted, divided by the index figure of
the calendar month which lies sixteen calendar months before the calendar month
in which the rent is adjusted.
4.2 The rent will not be adjusted if such adjustment would lead to a lower rent
than the most recent rent. In that case that most recent rent shall remain
unchanged, until at a next indexing the index figure of the calendar month,
which lies four calendar months before the calendar month in which the rent is
adjusted, is higher than the index figure of the calendar month, which lies four
calendar months before the calendar month in which the last rent adjustment
occurred. At that time the index figures of the calendar months referred to in
the previous sentence shall be used in that adjustment.
4.3 The adjusted rent will come into force even if the Lessee is not informed of
this.
4.4 If the CBS discontinues publication of the said consumer index figure or if
the basis of the calculation is changed, an index figure adjusted to this or as
similar to this as possible will be used. In the event of any dispute in this
regard, the party who takes action first may request a statement from the
director of the CBS which will be binding on all parties. Each party will pay
half of any costs arising from this.
End of Lease or Use
5.1 Subject to any statutory right the Lessee shall at the end of the lease, or
on termination of the use, deliver the Leased Premises to the Lessor in the
original state, as set out in the certified description drawn up at the
commencement of the lease as referred to in 1.2 and, in the absence of such
description, in a good state, entirely vacated, free of use or rights to use and
properly cleaned and return all keys, keycards and the like to the Lessor. The
Lessee shall remove at his own expense all objects added to the Leased Premises
or acquired by him from the previous Lessee or user. The Lessor shall not be
required to pay any sum for objects that are not removed.
5.2 If the Lessee has terminated the use of the Leased Premises, whether or not
in due time, without returning the keys to the Lessor, the Lessor shall be
entitled to consider the lease to have expired, to gain access to the Leased
Premises at the Lessee's expense and to take possession of it, without the
Lessee having any right to damages or any other rights.
5.3 Any objects which the Lessee may be deemed to have abandoned by leaving them
in the Leased Premises on actually vacating the Leased Premises may be removed
at the expense of the Lessee by the Lessor, at the latter's discretion and
without any liability on his account, unless the Lessor has been informed that
the subsequent lessee has taken over the objects.
5.4 The parties shall inspect the Leased Premises together in good time before
the end of the lease or the use of it. The parties shall make a report of this
inspection, in which they shall record their findings. This report will also set
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out which work 1r, respect or repairs which appeared to be necessary at the time
of the inspection and the established outstanding maintenance for which the
Lessee is required to meet the costs, must still be carried out at the Lessee's
expense and in what way this must be done.
5.5 If the Lessee does not cooperate in the inspection and/or in the recording
of the findings and agreements in the inspection report within a reasonable
period, after having been duly given the opportunity to that effect, the Lessor
shall have the right to carry out the inspection without the Lessee being
present and to determine the report to be binding on both parties. The Lessor
shall giver the Lessee a copy of the report without delay.
5.6 The Lessee shall carry out or cause the carrying out of the repairs he is
required to carry out on the basis of the inspection report within the term
specified in the report - or to be further agreed by the parties - to the
satisfaction of the Lessor. If the Lessee, after having been given notice of
default, fails completely or party to fulfil the obligations arising from the
report, the Lessor shall have the right to have the relevant work carried out
himself and to recover the consequential costs from the Lessee.
5.7 For the period required to carry out the repairs, calculated from the date
of termination of the lease, the Lessee will be in debt to the Lessor for a sum
calculated on the basis of the most recent rent and additional supplies and
services, without prejudice to the Lessor's claim for compensation four further
damages and costs.
Damage
6.1 The Lessee shall take appropriate steps in due time to prevent and limit
damage to the Leased Premises, such as damage caused by short circuits, fire,
leakage, storms, frost and any other weather condition, the inward or outward
flow of liquids and gases. The Lessee shall inform the Lessor immediately if
such damage or an event such as referred to in 6.5 occurs or seems likely to
occur.
6.2 If the Lessee has the possibility to do so, the foregoing shall also apply
to the building or complex of which the Leased Premises form part.
6.3 The Lessee shall be responsible to the Lessor for any damage and loss to the
Leased Premises, unless the Lessee proves that he, the persons he has admitted
to the Leased Premises, his staff or the persons for whom he is responsible are
not to blame or that negligence cannot be held against him in that respect.
6.4 The Lessee shall indemnify the Lessor against penalties which are imposed on
the Lessor for actions or negligence of the Lessee.
6.5 The Lessor shall not be liable for any damage done to the person or goods of
the Lessee or of third parties - and the Lessee shall indemnify the Lessor
against liability for claims from third parties in this respect - due to the
emergence and the consequences of visible and invisible faults in the Leased
Premises or the complex of which the Leased Premises form part, or which arise
due to the occurrence of weather conditions, impediments to the accessibility of
the Leased Premises, impediments to the supply of gas, water, electricity,
heating, ventilation or air conditioning, due to faults in the installations and
apparatuses, due to the inward and outward flow of liquids and gases, due to
fire, explosion and other occurrences, due to disruption of the benefits of
leasehold or due to disruption or faults in supplies or services, all of which
to the exception of cases of damage resulting from gross faults or serious
negligence on the part of the Lessor in respect of the state of repair of the
Leased Premises or of the building or complex of which the Leased Premises form
a part.
6.6 The Lessor shall not be responsible for the Lessee's loss in trade resulting
from the activities of other lessees or obstructions to the use of the Leased
Premises caused by third parties, except in the event Of gross fault or serious
negligence of the Lessor in that respect.
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Interim Termination, Default
7.1 If the Lessee
- - does not pay the sums due by him at the specified times;
- - ceases to practise his profession or carry on his business wholly or for al
large part in the Leased Premises;
- - does not comply with any other condition of the lease;
- - does not heed any condition attached to permission given by the Lessor;
- - loses power to dispose of his capital or a part of it;
- - loses his status as a legal entity, is wound up or in actual fact is
liquidated, provided that the Lessee is not a natural person;
- - is declared to be bankrupt;
- - offers a settlement in lieu of bankruptcy, or if the goods of the Lessee are
attached;
- - dies;
the Lessor shall have the right to terminate the lease prematurely. This shall
only be preceded by a notice if the law so requires.
7.2 If any specified period of payment should lapse or if any situation as
mentioned above should arise, the Lessee will be in default as a consequence.
7.3 The Lessee shall compensate the Lessor for a damage, costs and interests as
a result of a situation as mentioned in 7.1 and as a result of premature
termination of the lease, even in the event that he is granted a moratorium of
payments or is declared bankrupt.
This damage shall include in any case the rent, the expenses for additional
supplies and services, including heating costs, V.A.T and the other amounts due,
the costs of reletting the Leased Premises as well as all costs incurred by the
Lessor in actions in and out of court, including those for legal assistance with
regard to a situation as referred to in 7.1
7.4 The provisions of 7.1 to and including 7.3 shall not exclude the Lessor's
right to exercise his other rights, including his right to demand payment or
performance with damages.
Bank Guarantee
8.1 As security for the correct fulfilment of his obligations arising from the
lease, the Lessee shall present the Lessor with a bank guarantee at the signing
of the lease according to a specimen indicated by the Lessor, for an amount to
be specified in the lease and related to the Lessee's payment obligations to the
Lessor, increased by the applicable V.A.T. This bank guarantee shall also apply
to extensions of the lease including amendments to it and shall remain valid
until six months after the date on which the Leased Premises are actually
vacated and the lease is terminated. This bank guarantee shall in addition apply
to the Lessor's assigns.
8.2 The Lessee may not demand a settlement for any amount against the bank
guarantee.
8.3 In the event that a claim is made against the bank guarantee, the Lessee
shall at the Lessor's first request arrange for an new bank guarantee which
meets the requirement stated in 8.1 and 8.4, for the full sum.
8.4 After an upward adjustment of the rent, of the expenses for supplies and
services or of the advance payments for these, the Less" shall take immediate
steps to ensure that a new bank guarantee is issued for a sum adjusted to the
new payment obligations.
8.5 If the Lessee does not fulfil his obligations as set out in this clause, he
shall forfeit to the Lessor for every breach an immediately payable fine of NLG
500.00 per calendar day he remains in default after he has been informed of his
omission by registered letter.
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Maintenance and Preservation
At the Lessor's expense
9.1 Unless it concerns work which may be considered to be of a limited nature
and day-to-day repairs as referred to in the law (section 7A: 1619 Dutch Civil
Code) or work on objects which are not installed by or on behalf of the Lessor,
the following shall be at the expense of the Lessor:
a. maintenance, repair and renovation of structural parts of the Leased
Premises, such as foundations, pillars, beams, concrete floors, roofs,
terraces, structural walls, outer walls;
b. maintenance, repairs and renovation of staircases, stairs, sewers, drains,
gutters, outer casings of windows and doors, and the like. In respect of
sewers the condition set out in 9.2.4 shall remain in full force;
c. replacement of parts and renovation of installations such as lifts, central
heating installations and fire hydrant boosters;
d. exterior paint work.
At the Lessee's expense 9.2.1 All other maintenance, repairs and renovations
such as the following shall be at the expense of the Lessee:
a. exterior maintenance if and insofar as it concerns work which must be
considered to be of a limited nature and day-to- day maintenance in terms
of the law (section 7A: 1619 Dutch Civil Code), as well as interior
maintenance which does not include maintenance as referred to in 9.1
without prejudice to the further conditions hereof;
b. maintenance, repair and renovation of hinges and locks, plate glass, window
glass and other glass, both inside and out;
c. maintenance, repair and renovation of roller blinds, Venetian blinds,
awnings and other blinds;
d. maintenance, repair and renovation of switches, sockets, doorbell systems,
light bulbs, lighting (including fittings), carpeting, upholstery, interior
paint work, sinks, toilet facilities;
e. maintenance, repair and renovation of pipes and taps of gas, water,
electricity from the metre or main tap with all appurtenances, subject to
renovation for normal wear;
f. maintenance, repair and renovation of fences as well as maintenance of
gardens and maintenance of the grounds;
g. daily maintenance and repair (and renovation of small parts) of the
technical installations of the Leased Premises.
9.2.2 The Lessee shall pay for maintenance, repair and renovation of objects
which have been or will be installed by or on behalf of the Lessee under an
approximate estimate made available to him by the Lessor.
9.2.3 The Lessee shall furthermore pay for the care for cleaning the Leased
Premises and keeping the same clean, both inside and out, which shall include
the cleaning of windows, window frames and outer walls of the Leased Premises.
9.2.4 In addition the Lessee shall be responsible for the emptying of grease
traps, the cleaning and unblocking of cesspits, gutters and all drains/sewers of
the Leased Premises up to the municipal main sewers, the sweeping of chimneys
and the cleaning of ventilation ducts.
9.3 If the Lessee fails to carry out maintenance, repairs or renovations at his
own expense after being reminded - or if these are carried out badly or
injudiciously in the opinion of the Lessor - the Lessor shall be entitled to
carry out this work or have it carried out at the expense and risk of the
Lessee.
if the work to be carried out at the expense of the Lessee can brook no delay,
the Lessor shall be entitled to carry out this work or to have it carried out at
the Lessee's expense.
9.4 In the event of maintenance, repair and renovation work to be carried out by
the Lessor, the Lessor will consult with the Lessee in advance in which case the
latter interests may be taken into consideration where possible. Extra costs for
work to be carried out at the Lessee's request outside normal working hours,
shall be at the Lessee's expense.
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9.5 The Lessee shall be responsible for the proper and competent use and
maintenance of the Leased Premises including the technical installations in the
Leased Premises. The Lessee shall at his own expense and risk conclude service
contracts. Service contracts for the installations shall be approved in advance
by the Lessor. As far as the maintenance is concerned the above conditions shall
apply except and to the extent that 12.2 is applicable.
9.6 The Lessee shall notify the Lessor immediately in writing of any faults to
the Leased Premises.
9.7 If the Lessee an the Lessor have agreed that the objects which are at the
expense of the Lessee under this clause are not carried out on the instruction
of the Lessee but of the Lessor, the costs of the same shall be passed on by the
Lessor to the Lessee. The Lessor shall in a number of cases conclude maintenance
contracts for such purpose.
Adjustments
10. If the Lessor considers it necessary to carry out maintenance, repairs,
renewals, including extra facilities and alterations, renovations or other work
in, on or to the Leased Premises or the building or complex of which the Leased
Premises form part or on the adjoining properties, or to have such work carried
out, or if such work is necessary due to (environmental) requirements or
measures by the authorities or public utility companies, the Lessee shall permit
and suffer this work and these. measures and-the inconvenience, if any, without
being able to claim damages, reduction of his payment obligations or
cancellation of the lease, even if all of this lasts for longer than forty days,
without prejudice to the provisions of section 7A: 1589 Dutch Civil Code. In the
execution of the work the Lessor shall take account of the Lessee's interests
where possible.
Access of the Lessor
11.1 If the Lessor wants (to have) an assessment of the Leased Premises, or
wants to carry out the work as referred to in 2.6, 5, 9.3 or 10, the Lessee
shall give the Lessor, or the person who will report to the Lessee for this
purpose, access to the Leased Premises and enable the latter to carry out the
necessary work.
11.2 For the purpose of 11.1 the Lessor and all persons designated by him shall
be entitled to enter the Leased Premises after consultation with the Lessee on
working days between 7.00 a.m. and 5.30 p.m. The Lessor shall be entitled to
enter the Leased Premises in cases of emergency without consultation and where
necessary outside the specified times.
11.3 In the event of the intended sale or auction of the Leased Premises and
after termination of the lease, the Lessee shall, after prior notice by le
Lessor or his attorney, without compensation, provide an opportunity for
inspection of the Leased Premises during at least two working days every week.
He will permit the usual notices or posters "To Let" or "For Sale" on or near
the Leased Premises.
Costs of Supplies and Services
12.1 In addition to the rent, the Lessee will meet the costs incurred for the
use of water and electricity for the Leased Premises, including the costs for
concluding an agreement for the supply and for the hiring of a meter, as well as
any other costs and penalties charged by public utility companies. T"he Lessee
shall himself conclude the agreements for supplies with the institutions
involved, unless the Leased Premises have no separate connections and the Lessor
sees to these matters as pan of the agreed supplies and services.
12.2 If the parties have agreed on additional supplies and services to be
rendered by the Lessor, the Lessor will determine the sum payable by the Lessee
on the basis of the costs arising from the supplies and services and the
accompanying administrative tasks. This also applies to technical installations
and other supplies and services. If the Leased Premises form part of a building
or a complex and the supplies or services also relate to other pans of the same,
the Lessor shall determine a reasonable sum payable by the Lessee for the
Lessee's share of the cost of such supplies
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By courtesy we provide this translation for our client. Nor our client or any
third parties can derive any rights from this translation or the contents
thereof. We will not accept any liability for this translation or the contents
thereof. DRZ Zadelhoff v.o.f.
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and services. The Lessor need not take account of the fact that the Lessee may
not make use of one or more of these supplies or services. If one or more
sections of the building or the complex are not in use, the Lessor will ensure
when determining the Lessee's share that this share is not larger than it would
be if the entire building or complex were in use.
12.3 The Lessor shall render to the Lessee on an annual basis an itemised
statement of the cost of supplies and services, specifying the way in which
these have been calculated and the Lessee's share of the costs, where
applicable.
12.4 At the end of the lease a statement shall be provides for the period not
yet covered. This last statement shall be provided after expiry of a maximum of
14 months calculated from the period on which the previous statement was
provided. Neither the Lessee nor the Lessor shall claim early settlement.
12.5 If the statement on the period in question, taking account of advance
payments, shows any shortfall in payments by the Lessee or any excess receipts
by the Lessor, these will be paid or reimbursed within one month of the
statement being issued. Any disputes as to the correctness of the statement
shall provide no grounds for suspension of this obligation.
12.6 The Lessor has the right to alter or cancel the type and range of supplies
and services after consulting the Lessee.
12.7 The Lessor has the right to adjust the advance payments payable by the
Lessee of the expenses for supplies and services prematurely to the costs he
expects to incur, inter alia in an event as referred to in 12.6
12.8 In the event that heating and/or hot water are included in the supplies and
services, the Lessor may adjust the method of determining the consumption of
these and the Lessee's share in the cost of this consumption after consultation
with the Lessee.
12.9 If the consumption of heating and/or hot water is measured using meters and
a dispute arises regarding the Lessee's share in the costs of consumption as a
result of the failure of malfunctioning of these meters, this share shall be
determined by a company specialised in measuring and determining consumed
heating and/or warm water consulted by the Lessor. This shall also apply in case
of damage, destruction of fraud in relation to meters, without prejudice to any
other claims the Lessor may have against the Lessee in such a case, such as a
claim for repairs to or replacement of the meters and compensation for damage
suffered.
12.10 Save in the event of serious negligence or gross fault, the Lessor shall
not be liable for any damage as a result of the malfunctioning or improper
supply of the supplies and services referred to herein. Nor shall the Lessee be
able to claim rent reduction in such cases.
Costs
13. In all cases in which the Lessor has a warning notice, a notice of default
or a writ served on the Lessee, or in the case of actions against the Lessee to
coerce him to act in accordance with the lease or to evict him, the Lessee shall
be required to reimburse the Lessor for all costs incurred, both in and out of
court, except for legal costs payable by the Lessor by virtue of a final
decision by the court. Ile costs to be incurred will be set in advance by the
parties at an amount which shall not be less than the usual rate charged by
bailiffs.
Payments
14.1 The payment of rent and all amounts payable under this lease will be made
at the latest on the due date in legal Dutch tender - without any suspension,
discount, reduction, or settlement with a claim which the Lessee has, or has in
his opinion, against the Lessor - by payment or transfer to an account specified
by the Lessor. The Lessor shall be free to alter the place or manner in which
payment is to be made by giving the Lessee written notice to this effect. The
Lessor shall be entitled to determine the outstanding amount under the lease
from which payments received from the Lessee will be deducted, unless the Lessee
specifically states otherwise upon payment. In the latter case section 6:50 of
the Dutch Civil Code shall not be applicable.
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By courtesy we provide this translation for our client. Nor our client or any
third parties can derive any rights from this translation or the contents
thereof. We will not accept any liability for this translation or the contents
thereof. DRZ Zadelhoff v.o.f.
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14.2 Every time when an amount owed by the Lessee by virtue of the lease is not
paid promptly on the due date, the Lessee will forfeit to the Lessor by
operation of the law as of the due date an immediately payable fine of 2 per
cent a month of the amount, owing with a minimum of NLG 250-00 per calendar
month, with each month after commencement counting as a full month,
Taxes, Expenses, Levies, Premiums etc.
15.1 If it has been agreed that V.A.T. will be charged on the rent, the Lessor
shall file an application as referred to in 5.2 of the lease to the inspection
in question.
15.2 If the application is not to be granted, the Lessee shall owe the Lessor an
amount over and above the rent corresponding with the amount of V.A.T. that
would have been payable had the application been granted. If an application is
granted with effect from al later date than requested, the Lessee shall owe the
Lessor an amount over and above the rent corresponding with the amount of V.A.T
as of the agreed commencement date up to the date of commencement of the taxed
rent.
15.3 If the Lessee shows the application was not granted or not granted on the
agreed date by the Lessor's action, the amount corresponding with the V.A.T as
referred to in 15.2, shall not be payable.
Other taxes, expenses, levies, premiunu etc.
15.4 The Lessee shall pay, even if the Lessor is assessed for the same:
a. the real estate tax and the district water board charges or polder dues
regarding the actual use of the Leased Premises and the actual joint use of
service areas, general areas and areas in common use;
b. other current or future taxes, sufferance dues, charges, levies and
utilisation taxes with respect to the Leased Premises and property of the
Lessee, except for the real estate tax and the district water board charges
or polder dues in respect of the. enjoyment under a right in rem and except
for the sewerage charges;
c. environmental levies including surface water purification levies and
charges for waste water purification and any other amounts on account of
environmental protection.
15.5 If the Lessor or other lessees in the building or the complex are charged a
higher premium for fire insurance for the building or the inventory of the
Leased Premises or the complex of which the Leased Premises form part, as a
consequence of the nature of performance of the profession or business of the
Lessee, the Lessee shall reimburse the amount over and above the normal premium
to the Lessor or such other lessees. The Lessor and the other lessees shall be
free to choose their insurance company, to set the value insured and to assess
the reasonableness of the premium payable.
"Normal Premium" shall be understood to mean the premium the Lessor of the
Lessee may stipulate from any reputable insurer established in the Netherlands
for the insurance of the Leased Premises or his inventory and goods, against
fire risk at the time immediately preceding the conclusion of the lease, without
taking account of the nature of the business or profession to be carried on by
the Lessee in the Leased Premises, as well as - for the duration of the lease -
each adjustment of this premium, which does not result from any change of the
nature or extent of the risk insured.
Severability
16.1 If several (natural or legal) persons have committed themselves as Lessees,
they shall always be severally liable and each for the whole to the Lessor for
all commitments arising from the lease. Suspension of payments or discharge by
the Lessor to or of one of the Lessees or an offer to that effect, shall only
concern such Lessee.
16.2 The commitments arising from the lease are severable, also with respect to
the heirs and assigns of the Lessee.
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By courtesy we provide this translation for our client. Nor our client or any
third parties can derive any rights from this translation or the contents
thereof. We will not accept any liability for this translation or the contents
thereof. DRZ Zadelhoff v.o.f.
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<PAGE>
Untimely Availability
17.1 If the Leased Premises are not available on the agreed commencement date of
the lease, as a result of the fact that the Leased Premises are not ready on
time - not being due to the Lessee's request -, the previous user has not
vacated the Leased Premises on time or the Lessor has not yet obtained from the
authorities the licences for which he, the Lessee, is responsible, the Lessee
shall be exempt from payment of rent or expenses for additional supplies and
services until the date on which the Leased Premises are available to him and
his other obligations and the agreed terms of the lease will be postponed
accordingly. The price index date shall remain unchanged.
17.2 The Lessor shall not be liable for damage to the Lessee resulting from the
delay, unless serious negligence or gross fault can be imputed to him in this
respect. 17.3 The Lessee may not claim cancellation, unless the overdue delivery
is a result of premeditated action or negligence on the part of the Lessor, and
as a consequence leads to such a delay that the Lessee cannot reasonably be
expected to uphold the agreement without amendments.
Data Protection Act (Wet Persoonsregistratie)
18. If the Lessee is a natural person, the Lessee's personal data may have been
recorded by the Lessor and the administrator (if any) in a personal data file.
Domicile
19.1 From the commencement date of the lease all communications from the Lessor
to the Lessee relating to the fulfilment of this lease, shall be addressed to
the Leased Premises.
19.2 The Lessee shall immediately notify the Lessor if he no longer actually
carries on his business in the Leased Premises, stating his new domicile in the
Netherlands.
19.3 In the event that the Lessee should leave the Leased Premises without
giving the Lessor his new domicile in the Netherlands, the address of the Leased
Premises shall be the Lessee's domicile.
Complaints
20. The Lessee shall submit his complaints and requests in writing. In urgent
cases, he may do so by word of mouth. In such cases, the Lessee shall confirm
his complaint or request in writing as soon as possible.
Administrator
21. Where an administrator is or has been appointed by the Lessor, the Lessee
will consult the administrator in all matters relating to the lease.
Final Clause
22. Should any part of the lease or of these General Conditions be null or
voidable, this shall not affect the remaining parts of the lease and these
General Conditions. In stead of the annulled or null part, the agreements which
are nearest to what the parties would have agreed, had they known of the nullity
or voidance, shall be considered to be agreed.
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By courtesy we provide this translation for our client. Nor our client or any
third parties can derive any rights from this translation or the contents
thereof. We will not accept any liability for this translation or the contents
thereof. DRZ Zadelhoff v.o.f.
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EXHIBIT 10.23
ARTICLE ONE: BASIC TERMS
This Article On contains the Basic Terms of this Lease between the Landlord
and Tenant named below. Other Articles, Sections and Paragraphs of the Lease
referred to in this Article One explain and define the Basic Terms and are to be
read in conjunction with the Basic Terms.
Section 1.01. Date of Lease: December 22, 1995
Section 1.02. Landlord (include legal entity): DiNapoli, DiNapoli and
Mulcahy Trust, a California general partnership.
Address of Landlord: 99 Almaden Boulevard, Suite 565
San Jose, CA 95113
Section 1.03. Tenant (include legal entity): Journal Communications,
Inc., a Wisconsin Corporation and Imperial Printing Co., a Michigan
Corporation, a wholly owned subsidiary of Journal Communications, Inc., as
joint and several co-tenants.
Address of Tenant: 333 West State Street
Milwaukee, Wisconsin 53201-0661
Section 1.04. Property (include street address, approximate square
footage and description): 2020 South Tenth Street, San Jose, California,
approximately 141,520 +/- square foot, single story facility and connector
building.
Section 1.05. Lease Term: 9 years 1 months beginning on February 1,
1997 or such other date as is specified in this Lease, and ending on
February 28, 2006.
Section 1.06. Permitted Uses (see Article Five): Office, sales,
research and development, light assembly and distribution of software
products, and related legal uses.
Section 1.07. Tenant's Guarantor (if none, so state): None
Section 1.08. Brokers (see Article Fourteen) (if none, so state):
Landlord's Broker: Cornish & Carey Commercial
Tenant's Broker: CB Commercial
Section 1.09. Commission Payable to Landlord's Broker (see Article
Fourteen): per 1/11/95 Exclusive Leasing Listing Agreement.
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Section 1.10. Initial Security Deposit (see Section 3.03): $35,000.00
Section 1.11. Vehicle Parking Spaces Allocated to Tenant:
Approximately 400 spaces.
Section 1.12. Rent and Other Charges Payable by Tenant:
(a) BASE RENT: ______________(see Rider to
Lease)_____________________ Dollars ($______) per month, for the first
_________ months, as provided in Section 3.01, and shall be increased
on the first day of the ___________ month(s) after the Commencement
Date, either (i) as provided in Section 3.02, or (ii)
______________________________________________________. (If (ii) is
completed, then (i) and Section 3.02 are inapplicable.)
(b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes (see Section
4.02); (ii) Utilities (see Section 4.03); (iii) Insurance Premiums
(see Section 4.04); (iv) Impounds for Insurance Premiums and Property
Taxes (see Section 4.07); (v) Maintenance, Repairs and Alterations
(see Article Six).
Section 1.13. Landlord's Share of Profit on Assignment or Sublease
(see Section 9.05): fifty percent (50%) of the Profit (the "Landlord's
Share") or profit on any assignment or sublease during the time period from
the Commencement Date through October 31, 1998, so long as IBM is the
sublessee/assignee.
Section 1.14. Riders: The following Riders are attached to and made a
part of this Lease (if none, so state): Rider containing (8) sections is
attached hereto.
ARTICLE TWO: LEASE TERM
Section 2.01. Lease of Property for Lease Term. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the
Lease Term. The Lease Term is for the period stated in Section 1.05 above
and shall begin and end on the dates specified in Section 1.05 above,
unless the beginning or end of the Lease Term is changed under any
provision of this Lease. The "Commencement Date" shall be the date
specified in Section 1.05 above for the beginning of the Lease Term, unless
advanced or delayed under any provision of this Lease.
Section 2.02 Delay in Commencement. Landlord shall not be liable to
Tenant if Landlord does not deliver possession of the Property to Tenant on
the Commencement Date. Landlord's non- delivery of the Property to Tenant
on that date shall not affect this Lease or the obligations of Tenant under
this Lease except that the Commencement Date shall be delayed until
Landlord delivers possession of the
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Property to Tenant and the Lease Term shall be extended for a period equal
to the delay in delivery of possession of the Property to Tenant, plus the
number of days necessary to end the Lease Term on the last day of a month.
If Landlord does not deliver possession of the Property to Tenant within
sixty (60) days after the Commencement Date, Tenant may elect to cancel
this Lease by giving written notice to Landlord within ten (10) days after
the sixty (60)-day period ends. If Tenant gives such notice, the Lease
shall be cancelled and neither Landlord nor Tenant shall have any further
obligations to the other. If Tenant does not give such notice, Tenant's
right to cancel the Lease shall expire and the Lease Term shall commence
upon the delivery of possession of the Property to Tenant. If delivery of
possession of the Property to Tenant is delayed, Landlord and Tenant shall,
upon such delivery, execute an amendment to this Lease setting forth the
actual Commencement Date and expiration date of the Lease. Failure to
execute such amendment shall not affect the actual Commencement Date and
expiration of the Lease.
Section 2.03. Early Occupancy. If Tenant occupies the Property prior
to the Commencement Date, Tenant's occupancy of the Property shall be
subject to all of the provisions of this Lease. Early occupancy of the
Property shall not advance the expiration date of this Lease. Tenant shall
pay Base Rent and all other charges specified in this Lease for the early
occupancy period.
Section 2.04. Holding Over. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord
incurs from Tenant's delay in vacating the Property. If Tenant does not
vacate the Property upon the expiration or earlier termination of the Lease
and Landlord thereafter accepts rent from Tenant, Tenant's occupancy of the
Property shall be a "month-to-month" tenancy, subject to all of the terms
of this Lease applicable to a month-to-month tenancy, except that the Base
Rent then in effect shall be increased by twenty-five percent (25%).
ARTICLE THREE: BASE RENT
Section 3.01. Time and Manner of Payment. Upon execution of this
Lease, Tenant shall pay Landlord the Base Rent in the amount stated in
Paragraph 1.12(a) above for the first month of the Lease Term. On the first
day of the second month of the Lease Term and each month thereafter, Tenant
shall pay Landlord the Base Rent, in advance, without offset, deduction or
prior demand. The Base Rent shall be payable at Tenant Landlord's address
or at such other place as Landlord may designate in writing.
Section 3.02. [Deleted]
Section 3.03. Security Deposit; Increases.
(a) Upon the execution of this Lease, Tenant shall deposit with
Landlord a cash Security Deposit in the amount set forth in Section
1.10 above. Landlord may apply all or part of the Security
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Deposit to any unpaid rent or other charges due from Tenant or to cure
any other defaults of Tenant. If Landlord uses any part of the
Security Deposit, Tenant shall restore the Security Deposit to its
full amount within ten (10) days after Landlord's written request.
Tenant's failure to do so shall be a material default under this
Lease. No Interest shall be paid on the Security Deposit. Landlord
shall not be required to keep the Security Deposit separate from its
other accounts and no trust relationship is created with respect to
the Security Deposit.
(b) Each Time the Base Rent is increased, Tenant shall deposit
additional funds with Landlord sufficient to increase the Security
Deposit to an amount which bears the same relationship to the adjusted
Base Rent as the initial Security Deposit bore to the Initial Base
Rent.
Section 3.04. Termination; Advance Payments. Upon termination of this
Lease Agreement pursuant to Article Seven (Damage or Destruction), Article
Eight (Condemnation), or any other termination not resulting from Tenant's
default, and after Tenant has vacated the Property in a manner required by
this Lease, Landlord shall refund or credit to Tenant (or Tenant's
successor) the unused portion of the Security Deposit, any advance rent or
other advance payments made by Tenant to Landlord, and any amounts paid for
real property taxes and other reserves which apply to any time periods
after termination of the Lease.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01. Additional Rent. All charges payable to Tenant other
than Base Rent are called "Additional Rent." Unless this Lease provides
otherwise, Tenant shall pay all Additional Rent then due with the next
monthly installment of Base Rent. The term "rent" shall mean Base Rent and
Additional Rent.
Section 4.01. Property Taxes.
(a) Real Property Taxes. Tenant shall pay all real property taxes on
the Property (including any fees, taxes or assessments against, or as a
result of, any tenant improvements installed on the Property by or for the
benefit of Tenant) during the Lease Term. Subject to Paragraph 4.02(c) and
Section 4.07 below, such payment shall be made at least ten (10) days prior
to the delinquency date of the taxes. Within such ten (10)-day period,
Tenant shall furnish Landlord with satisfactory evidence that the real
property taxes have been paid. Landlord shall reimburse Tenant for any real
property taxes paid by Tenant covering any period of time prior to or after
the Lease Term. If Tenant fails to pay the real property taxes when due,
Landlord may pay the taxes and Tenant shall reimburse Landlord for the
amount of such tax payment as Additional Rent.
(b) Definition of "Real Property Tax." "Real property tax" means: (i)
any fees, license fee, license tax, business license fee, commercial rental
tax, levy, charge, assessment, penalty or tax imposed by any taxing
authority against the Property; (ii) any tax on the Landlord's right to
receive, or the receipt
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of, rent or income from the Property or against Landlord's business of
leasing the Property; (iii) any tax or charge for fire protection, streets,
sidewalks, road maintenance, refuse or other services provided to the
Property by any governmental agency; (iv) any tax imposed upon this
transaction or based upon a re- assessment of the Property due to a change
of ownership, as defined by applicable law, or other transfer of all or
part of Landlord's interest in the Property; and (v) any charge or fee
replacing any tax previously included within the definition of real
property tax. "Real property tax" does not, however, include Landlord's
federal or state income, franchise, inheritance or estate taxes.
(c) Joint Assessment. If the Property is not separately assessed,
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.02(a) from the assessor's worksheets or
other reasonably available information. Tenant shall pay such share to
Landlord within fifteen (15) days after receipt of Landlord's written
statement.
(d) Personal Property Taxes.
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to
Tenant. Tenant shall try to have personal property taxed separately
from the Property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal
property within fifteen (15) days after Tenant receives a written
statement from Landlord for such personal property taxes.
(e) Tenant's Right to Contest Taxes. Tenant may attempt to have the
assessed valuation of the Property reduced or may initiate proceedings to
contest the real property taxes. If required by law, Landlord shall join in
the proceedings brought by Tenant. However, Tenant shall pay all costs of
the proceedings, including any costs or fees incurred by Landlord. Upon the
final determination of any proceeding or contest, Tenant shall immediately
pay the real property taxes due, together with all costs, charges, interest
and penalties incidental to the proceedings. If Tenant does not pay the
real property taxes when due and contest such taxes, Tenant shall not be in
default under this Lease for nonpayment of such taxes if Tenant deposits
funds with Landlord or opens an interest-bearing account reasonably
acceptable to Landlord in the joint names of Landlord and Tenant. The
amount of such deposit shall be sufficient to pay the real property taxes
plus a reasonable estimate of the interest, costs, charges and penalties
which may accrue if Tenant's action is unsuccessful, less any applicable
tax impounds previously paid by Tenant to Landlord. The deposit shall be
applied to the real property taxes due, as determined at such proceedings.
The real property taxes shall be paid under protest from such deposit if
such payment under protest is necessary to prevent the Property from being
sold under a "tax sale" or similar enforcement proceeding.
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Section 4.03. Utilities. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied
to the Property. However, if any services or utilities are jointly metered
with other property, Landlord shall make a reasonable determination of
Tenant's proportionate share of the cost of such utilities and services and
Tenant shall pay such share to Landlord within fifteen (15) days after
receipt of Landlord's written statement.
Section 4.04 Insurance Policies.
(a) Liability Insurance. During the Lease Term, Tenant shall
maintain a policy of commercial general liability insurance (sometimes
known as broad form comprehensive general liability insurance)
insuring Tenant against liability for bodily injury, property damage
(including loss of use of property) and personal injury arising out of
the operation, use or occupancy of the Property. Tenant shall name
Landlord and Landlord's lender as an additional insured under such
policy. The initial amount of such insurance shall be One Million
Dollars ($1,000,000) per occurrence and shall be subject to periodic
increase based upon inflation, increased liability awards,
recommendation of Landlord's professional insurance advisers and other
relevant factors. The liability insurance obtained by Tenant under
this Paragraph 4.04(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord
against Tenant's performance under Section 5.05, if the matters giving
rise to the indemnity under Section 5.05 result from the negligence of
Tenant. The amount and coverage of such insurance shall not limit
Tenant's liability nor relieve Tenant of any other obligation under
this Lease. Landlord may also obtain comprehensive public liability
insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership,
operation, use or occupancy of the Property. The policy obtained by
Landlord shall not be contributory and shall not provide primary
insurance.
(b) Property and Rental Income Insurance. During the Lease Term,
Landlord shall maintain policies of Insurance covering loss of or
damage to the Property in the full amount of its replacement value.
Such policy shall contain an Inflation Guard Endorsement and shall
provide protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious
mischief special extended perils (all risk), sprinkler leakage and any
other perils which Landlord deems reasonably necessary. Landlord shall
have the right to obtain flood and earthquake insurance if required by
a lender holding a security interest in the Property. Landlord shall
not obtain insurance for Tenant's fixtures or equipment or building
improvements installed by Tenant on the Property. During the Lease
Term, Landlord shall also maintain a rental income insurance policy,
with loss payable to Landlord, in an amount equal to one year's Base
Rent, plus estimated real property taxes and insurance premiums.
Tenant shall be liable for the payment of any deductible amount under
Landlord's or Tenant's insurance policies maintained pursuant to this
Section 4.04, in an amount not to exceed Ten Thousand Dollars
($10,000). Tenant shall not do or permit anything to be done which
invalidates any such insurance policies.
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(c) Payment of Premiums. Subject to Section 4.07, Tenant shall
pay all premiums for the insurance policies described in Paragraphs
4.01(a) and (b) (whether obtained by Landlord or Tenant) within
fifteen (15) days after Tenant's receipt of a copy of the premium
statement of other evidence of the amount due, except Landlord shall
pay all premiums for non-primary comprehensive public liability
insurance which Landlord elects to obtain as provided in Paragraph
4.04(a). If insurance policies maintained by Landlord cover
improvements on real property other than the Property, Landlord shall
deliver to Tenant a statement of the premium applicable to the
Property showing in reasonable detail how Tenant's share of the
premium was computed. If the Lease Term expires before the expiration
of an insurance policy maintained by Landlord, Tenant shall be liable
for Tenant's prorated share of the insurance premiums. Before the
Commencement Date, Tenant shall deliver to Landlord a copy of any
policy of insurance which Tenant is required to maintain under this
Section 4.04. At least thirty (30) days prior to the expiration of any
such policy, Tenant shall deliver to Landlord a renewal of such
policy. As an alternative to providing a policy of insurance, Tenant
shall have the right to provide Landlord a certificate of insurance,
executed by an authorized officer of the insurance company, showing
that the insurance which Tenant is required to maintain under this
Section 4.04 is in full force and effect and containing such other
information which Landlord reasonably requires.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain under
this Lease shall include a provision which requires the Insurance
carrier to give Landlord not less than thirty (30) days' written
notice prior to any cancellation or modification of such
coverage.
(ii) If Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within the
prescribed time period or if any such policy is cancelled or
modified during the Lease Term without Landlord's consent,
Landlord may obtain such insurance, in which case Tenant shall
reimburse Landlord for the cost of such insurance within fifteen
(15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant shall maintain all insurance required under
this Lease with companies holding a "General Policy Rating" of
A-12 or better, as set forth in the most current issue of Best
Key Rating Guide. Landlord and Tenant acknowledge the insurance
markets are rapidly changing and that insurance in the form and
amounts described in this Section 4.04 may not be available in
the future. Tenant acknowledges that the insurance described in
this Section 4.04 is for the primary benefit of Landlord. If at
any time during the Lease Term, Tenant is unable to maintain the
insurance required under the Lease, Tenant shall nevertheless
maintain insurance coverage which is customary and commercially
reasonable in the insurance industry for Tenant's type of
business, as that coverage may change from time to time. Landlord
makes no representation as to the adequacy of such insurance to
protect Landlord's or Tenant's interests. Therefore, Tenant shall
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obtain any such additional property or liability insurance which
Tenant deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance
policies maintained, Landlord and Tenant each hereby waive any
and all rights of recovery against the other, or against the
officers, employees, agents, or representatives of the other, for
loss of or damage to its property or the property of others under
its control, if such loss or damage is covered by any insurance
policy in force (whether or not described in this Lease) at the
time of such loss or damage. Upon obtaining the required policies
of insurance, Landlord and Tenant shall give notice to the
insurance carriers of this mutual waiver of subrogation.
Section 4.05. Late Charges. Tenant's failure to pay rent promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs
are impractical or extremely difficult to ascertain. Such costs may
include, but are not limited to, processing and accounting charges and late
charges which may be imposed on Landlord by any ground lease, mortgage or
trust deed encumbering the Property. Therefore, if Landlord does not
receive any rent payment within ten (10) days after it becomes due, Tenant
shall pay Landlord a late charge equal to ten percent (10%) of the overdue
amount. The parties agree that such late charge represents a fair and
reasonable estimate of the costs Landlord will incur by reason of such late
payment.
Section 4.06. Interest on Past Due Obligations. Any amount owed by
Tenant to Landlord which is not paid when due shall bear interest at the
rate of fifteen percent (15%) per annum from the due date of such amount.
However, interest shall not be payable on late charges to be paid by Tenant
under this Lease. The payment of interest on such amounts shall not excuse
or cure any default by Tenant under this Lease. If the interest rate
specified in this Lease is higher than the rate permitted by law, the
interest rate is hereby decreased to the maximum legal interest rate
permitted by law.
Section 4.07. Impounds for Insurance Premiums and Real Property Taxes.
If requested by any ground lessor or lender to whom Landlord has granted a
security interest in the Property, or if Tenant is more than ten (10) days
late in the payment of rent mor than once in any consecutive twelve (12)-
month period, Tenant shall pay Landlord a sum equal to one-twelfth (1/12)
of the annual real property taxes and insurance premiums payable by Tenant
under this Lease, together with each payment of Base Rent. Landlord shall
hold such payments in a non-interest bearing impound account. If unknown,
Landlord shall reasonably estimate the amount of real property taxes and
insurance premiums when due. Tenant shall pay any deficiency of funds in
the impound account to Landlord upon written request. If Tenant defaults
under this Lease, Landlord may apply any funds in the impound account to
any obligation then due under this Lease.
ARTICLE FIVE: USE OF PROPERTY
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Section 5.01. Permitted Uses. Tenant may use the Property only for the
Permitted Uses set forth in Section 1.06 above.
Section 5.02. Manner of Use. Tenant shall not cause or permit the
Property to be used in any way which constitutes a violation of any law,
ordinance, or governmental regulation or order, which annoys or interferes
with the rights of other tenants of Landlord, or which constitutes a
nuisance or waste. Tenant shall obtain and pay for all permits, including a
Certificate of Occupancy, required for Tenant's occupancy of the Property
and shall promptly take all actions necessary to comply with all applicable
statutes, ordinances, rules, regulations, orders and requirements
regulating the use by Tenant of the Property, including the Occupational
Safety and Health Act.
Section 5.03. [Deleted] See Rider.
Section 5.04. Signs and Auctions. Tenant shall not place any signs on
the Property without Landlord's prior written consent. Tenant shall not
conduct or permit any auctions or sheriff's sales of the Property.
Section 5.05. Indemnity. Tenant shall indemnify Landlord against and
hold Landlord harmless from any and all costs, claims or liability arising
from : (a) Tenant's use of the Property; (b) the conduct of Tenant's
business or anything else done or permitted by Tenant to be done in or
about the Property, including any contamination of the Property or any
other property resulting from the presence or use of Hazardous Material
caused or permitted by Tenant; (c) any breach or default in the performance
of Tenant's obligations under this Lease; (d) any misrepresentation or
breach of warranty by Tenant under this Lease; or (e) other acts or
omissions of Tenant. Tenant shall defend Landlord against any such cost,
claim or liability at Tenant's expense with counsel reasonably acceptable
to Landlord or, at Landlord's election, Tenant shall reimburse Landlord for
any legal fees or costs incurred by Landlord in connection with any such
claim. As a material part of the consideration to Landlord, Tenant assumes
all risk of damage to property or injury to persons in or about the
Property arising from any cause, and Tenant hereby waives all claims in
respect thereof against Landlord, except for any claim arising out of
Landlord's gross negligence or willful misconduct. As used in this Section,
the term "Tenant" shall include Tenant's employees, agents, contractors and
invitees, if applicable.
Section 5.06. Landlord's Access. Landlord or its agents may enter the
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect
and conduct tests in order to monitor Tenant's compliance with all
applicable environmental laws and all laws governing the presence and use
of Hazardous Material; or for any other purpose Landlord deems necessary.
Landlord shall give Tenant prior notice of such entry, except in the case
of an emergency. Landlord may place customary "For Sale" or "For Lease"
signs on the Property.
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Section 5.07. Quiet Possession. If Tenant pays the rent and complies
with all other terms of this Lease, Tenant may occupy and enjoy the
Property for the full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. Existing Conditions. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded
matters, laws, ordinances, and governmental regulations and orders. Except
as provided herein, Tenant acknowledges that neither Landlord nor any agent
of Landlord has made any representation as to the conditions of the
Property or the suitability of the Property for Tenant's intended use.
Tenant represents and warrants that Tenant has made its own inspection of
and inquiry regarding the condition of the Property and is not relying on
any representations of Landlord or any Broker with respect thereto. If
Landlord or Landlord's Broker has provided a Property Information Sheet or
other Disclosure Statement regarding the Property, a copy is attached as an
exhibit to the Lease.
Section 6.02. Exemption of Landlord from Liability. Landlord shall not
be liable for any damage or injury to the person, business (or any loss of
income therefrom), goods, wares, merchandise or other property of Tenant,
Tenant's employees, invitees, customers or any other person in or about the
Property, whether such damage or injury is caused by or results from: (a)
fire, steam, electricity, water, gas or rain; (b) the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures or any other cause; (c)
conditions arising in or about the Property or upon other portions of the
Project, or from other sources or places; or (d) any act or omission of any
other tenant of the Project. Landlord shall not be liable for any such
damage or injury even though the cause of or the means of repairing such
damage or injury are not accessible to Tenant. The provisions of this
Section 6.02 shall not, however, exempt Landlord from liability for
Landlord's gross negligence or willful misconduct.
Section 6.03. Landlord's Obligations. Subject to the provisions of
Article Seven (Damage or Destruction) and Article Eight (Condemnation),
Landlord shall have absolutely no responsibility to repair, maintain or
replace any portion of the Property at any time, except that Landlord shall
be responsible to maintain and repair the structural portions of the
building and the roof. Additionally, Landlord shall maintain and repair the
roof membrane until a new ten (10) year or better roof membrane is
installed at Landlord's sole cost, after which time, the maintenance,
repair and replacement of the roof membrane shall become Tenant's sole
obligation. Tenant waives the benefit of any present or future law which
might give Tenant the right to repair the Property at Landlord's expense or
to terminate the Lease due to the condition of the Property.
Section 6.04. Tenant's Obligations.
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(a) Except as provided in Article Seven (Damage or Destruction)
and Article Eight (Condemnation), Tenant shall keep all portions of
the Property (including structural, nonstructural, interior, exterior,
and landscaped areas, portions, systems and equipment) in good order,
condition and repair (including interior repainting and refinishing,
as needed). If any portion of the Property or an system or equipment
in the Property which Tenant is obligated to repair cannot be fully
repaired or restored, Tenant shall promptly replace such portion of
the Property or system or equipment in the Property, regardless of
whether the benefit of such replacement extends beyond the Lease Term;
but if the benefit or useful life of such replacement extends beyond
the Lease Term (as such term may be extended by exercise of any
options), the useful life of such replacement shall be prorated over
the remaining portion of the Lease Term (as extended), and Tenant
shall be liable only for that portion of the cost which is applicable
to the Lease Term (as extended). Tenant shall maintain a preventive
maintenance contract providing for the regular inspection and
maintenance of the heating and air condition system by a licensed
heating and air conditioning contractor. If any part of the Property
is damaged by any act or omission of Tenant, Tenant shall pay Landlord
the cost of repairing or replacing such damaged property, whether or
not Landlord would otherwise be obligated to pay the cost of
maintaining or repairing such property. It is the intention of
Landlord and Tenant that at all times Tenant shall maintain the
portions of the Property which Tenant is obligated to maintain in an
attractive, first-class and fully operative condition, in compliance
with all existing applicable laws and regulations, codes and
ordinances except that Tenant shall not be required to make any
alterations for the purpose of complying with any code or ordinance in
effect as of December 31, 1995.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.04 at Tenant's sole expense. If Tenant fails to maintain,
repair or replace the Property as required by this Section 6.04,
Landlord may, upon ten (10) days' prior written notice to Tenant
(except that no notice shall be required in the case of an emergency),
enter the Property and perform such maintenance or repair (including
replacement, as needed) on behalf of Tenant. In such case, Tenant
shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
Section 6.05. Alterations, Additions, and Improvements.
(a) Tenant shall not make any alterations, additions, or
improvements to the Property without Landlord's prior written consent,
except for non-structural alterations which do not exceed Ten Thousand
Dollars ($10,000) in cost cumulatively over the Lease Term and which
are not visible from the outside of any building of which the Property
is party. Landlord may require Tenant to provide demolition and/or
lien and completion bonds in form and amount satisfactory to Landlord.
Tenant shall promptly remove any alterations, additions, or
improvements constructed in violation of this Paragraph 6.05(a) upon
Landlord's written request. All alterations, additions, and
improvements shall be done in a good and workmanlike manner, in
conformity with all applicable laws and regulations, and by a
contractor approved by Landlord. Upon completion of any such work,
Tenant shall provide Landlord with "as-built" plans, copies of all
construction contracts, and proof of payment for all labor and
materials.
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(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty
(20) days' prior written notice of the commencement of any work on the
Property, regardless of whether Landlord's consent to such work is
required. Landlord may elect to record and post notices of
non-responsibility on the Property.
Section 6.06. Condition upon Termination. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in
the same condition as received except for ordinary wear and tear which
Tenant was not otherwise obligated to remedy under any provision of this
Lease. However, Tenant shall not be obligated to repair any damage which
Landlord is required to repair under Article Seven (Damage or Destruction).
In addition, Landlord may require Tenant to remove any alterations,
additions or improvements (whether or not made with Landlord's consent)
prior to the expiration of the Lease and to restore the Property to its
prior condition, all at Tenant's expense. All alterations, additions, and
improvements which Landlord has not required Tenant to remove shall become
Landlord's property and shall be surrendered to Landlord upon the
expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense,
any damage to the Property caused by the removal of any such machinery or
equipment. In no event, however, shall Tenant remove any of the following
materials or equipment (which shall be deemed Landlord's property) without
Landlord's prior written consent: any power wiring or power panels;
lighting or lighting fixtures; wall coverings; drapes, blinds or other
window coverings; carpets or other floor coverings; heaters, air
conditioners or any other heating or air conditioning equipment; fencing or
security gates; or other similar building operating equipment and
decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. Partial Damage to Property.
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only
partially damaged (i.e., less than fifty percent (50%) of the Property
is untenantable as a result of such damage or less than fifty percent
(50%) of Tenant's operations are materially impaired) and if the
proceeds received by Landlord from the insurance policies described in
Paragraph 4.04(b) are sufficient to pay for the necessary repairs,
this Lease shall remain in effect and Landlord shall repair the damage
as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or
improvements.
(b) If the insurance proceeds received by Landlord are not
sufficient to pay the entire cost of repair, or if the cause of the
damage is not covered by the insurance policies which Landlord
maintains under Paragraph 4.04(b), Landlord may elect either to (i)
repair the damage as soon as reasonably possible, in which case this
Lease shall remain in full force and effect, or (ii) terminate this
Lease as of the
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date the damage occurred. Landlord shall notify Tenant within thirty
(30) days after receipt of notice of the occurrence of the damage
whether Landlord elects to repair the damage or terminate the Lease.
If Landlord elects to repair the damage, Tenant shall pay Landlord the
"deductible amount" (if any) under Landlord's insurance policies and,
if the damage was due to an act or omission of Tenant, or Tenant's
employees, agents, contractors or invitees, the difference between the
actual cost of repair and any insurance proceeds received by Landlord.
If Landlord elects to terminate the Lease, Tenant may elect to
continue this Lease in full force and effect, in which case Tenant
shall repair any damage to the Property and any building in which the
Property is located. Tenant shall pay the cost of such repairs, except
that upon satisfactory completion of such repairs, Landlord shall
deliver to Tenant any insurance proceeds received by Landlord for the
damage repaired by Tenant. Tenant shall give Landlord written notice
of such election within ten (10) days after receiving Landlord's
termination notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty
(30) days to repair, either Landlord or Tenant may elect to terminate
this Lease as of the date the damage occurred, regardless of the
sufficiency of any insurance proceeds. The party electing to terminate
this Lease shall give written notification to the other party of such
election within thirty (30) days after Tenant's notice to Landlord of
the occurrence of the damage.
Section 7.02. Substantial or Total Destruction. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the
damage to the Property is greater than partial damage as described in
Section 7.01), and regardless of whether Landlord receives any insurance
proceeds, this Lease shall terminate as of the date the destruction
occurred. Notwithstanding the preceding sentence, if the Property can be
rebuilt within six (6) months after the date of destruction, Landlord may
elect to rebuild the Property at Landlord's own expense, in which case this
Lease shall remain in full force and effect. Landlord shall notify Tenant
of such election within thirty (30) days after Tenant's notice of the
occurrence of total or substantial destruction. If Landlord so elects,
Landlord shall rebuild the Property at Landlord's sole expense, except that
if the destruction was caused by an act or omission of Tenant, Tenant shall
pay Landlord the difference between the actual cost of rebuilding and any
insurance proceeds received by Landlord.
Section 7.03. Temporary Reduction of Rent. If the Property is
destroyed or damaged and Landlord or Tenant repairs or restores the
Property pursuant to the provisions of this Article Seven, any rent payable
during the period of such damage, repair and/or restoration shall be
reduced according to the degree, if any, to which Tenant's use of the
Property is impaired. However, the reduction shall not exceed the sum of
one year's payment of Base Rent, insurance premiums and real property
taxes. Except for such possible reduction in Base Rent, insurance premiums
and real property taxes, Tenant shall not be entitled to any compensation,
reduction, or reimbursement from Landlord as a result of any damage,
destruction, repair or restoration of or to the Property.
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Section 7.04. Waiver. Tenant waives the protection of any statute,
code or judicial decision which grants a tenant the right to terminate a
Lease in the event of the substantial or total destruction of the leased
property. Tenant agrees that the provisions of Section 7.02 above shall
govern the rights and obligations of Landlord and Tenant in the event of
any substantial or total destruction to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of eminent
domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after receipt of written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
takes title or possession). If neither Landlord nor Tenant terminates this
Lease, this Lease shall remain in effect as to the portion of the Property not
taken, except that the Base Rent and Additional Rent shall be reduced in
proportion to the reduction in the floor area of the Property. Any Condemnation
award or payment shall be distributed in the following order: (a) first, to any
ground lessor, mortgagee or beneficiary under a deed of trust encumbering the
Property, the amount of its interest in the Property; (b) second, to Tenant,
only the amount of any award specifically designated for loss of or damage to
Tenant's trade fixtures or removable personal property; and (c) third, to
Landlord, the remainder of such award, whether as compensation for reduction in
the value of the leasehold, the taking of the Property, or otherwise. If this
Lease is not terminated, Landlord shall repair any damage to the Property caused
by the Condemnation, except that Landlord shall not be obligated to repair any
damage for which Tenant has been reimbursed by the condemning authority. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. Landlord's Consent Required. No portion of the Property
or of Tenant's interest in this Lease may be acquired by any other person
or entity, whether by sale, assignment, mortgage, sublease, transfer,
operation of law, or act of Tenant, without Landlord's prior written
consent, except as provided in Section 9.02 below. Landlord has the right
to grant or withhold its consent as provided in Section 9.05 below. Any
attempted transfer without consent shall be void and shall constitute a
non- curable breach of this Lease. If Tenant is a partnership, any
cumulative transfer or more than twenty percent (20%) of the partnership
interests shall require Landlord's consent. If Tenant is a corporation, any
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change in the ownership of a controlling interest of the voting stock of
the corporation shall require Landlord's consent.
Section 9.02. Tenant Affiliate. Tenant may assign this Lease or
sublease the Property, without Landlord's consent, to any corporation which
controls, is controlled by or is under common control with Tenant, or to
any corporation resulting from the merger of or consolidation with Tenant
("Tenant's Affiliate"). In such case, any Tenant's Affiliate shall assume
in writing all of Tenant's obligations under this Lease.
Section 9.03. No Release of Tenant. No transfer permitted by this
Article Nine, whether with or without Landlord's consent, shall release
Tenant or change Tenant's primary liability to pay the rent and to perform
all other obligations of Tenant under this Lease. Landlord's acceptance of
rent from any other person is not a waiver of any provision of this Article
Nine. Consent to one transfer is not a consent to any subsequent transfer.
If Tenant's transferee defaults under this Lease, Landlord may proceed
directly against Tenant without pursuing remedies against the transferee.
Landlord may consent to subsequent assignments or modifications of this
Lease by Tenant's transferee, without notifying Tenant or obtaining its
consent. Such action shall not relieve Tenant's liability under this Lease.
Section 9.04. Offer to Terminate. If Tenant desires to assign the
Lease or sublease the Property, Tenant shall have the right to offer, in
writing, to terminate the Lease as of a date specified in the offer. If
Landlord elects in writing to accept the offer to terminate within twenty
(20) days after notice of the offer, the Lease shall terminate as of the
date specified and all the terms and provisions of the Lease governing
termination shall apply. If Landlord does not so elect, the Lease shall
continue in effect until otherwise terminated and the provisions of Section
9.05 with respect to any proposed transfer shall continue to apply.
Section 9.05. Landlord's Consent.
(a) Tenant's request for consent to any transfer described in
Section 9.01 shall set forth in writing the details of the proposed
transfer, including the name, business and financial condition of the
prospective transferee, financial details of the proposed transfer
(e.g., the term of and the rent and security deposit payable under any
proposed assignment or sublease), and any other information Landlord
deems relevant. Landlord shall have the right to withhold consent, if
reasonable, or to grant consent, based on the following factors: (i)
the business of the proposed assignee or subtenant and the proposed
use of the Property; (ii) the net worth and financial reputation of
the proposed assignee or subtenant; (iii) Tenant's compliance with all
the obligations under the Lease; and (iv) such other factors as
Landlord may reasonably deem relevant. If Landlord objects to a
proposed assignment solely because of the net worth and/or financial
reputation of the proposed assignee, Tenant may nonetheless sublease
(but no assign), all or a portion of the Property to the proposed
transferee, but only on the other terms of the proposed transfer.
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(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under
the Lease the Landlord's Share (stated in Section 1.13) of the
Profit (defined below) on such transaction as and when received
by Tenant, unless Landlord gives written notice to Tenant and the
assignee or subtenant that Landlord's share shall be paid by the
assignee or subtenant to Landlord directly. The "Profit" means
(A) all amounts paid to Tenant for such assignment or sublease,
including "key" money, monthly rent in excess of the monthly rent
payable under the Lease, and all fees and other consideration
paid for the assignment or sublease, including fees under any
collateral agreements, less (B) costs and expenses directly
incurred by Tenant in connection with the execution and
performance of such assignment or sublease for real estate
broker's commissions and costs of renovation or construction of
tenant improvements required under such assignment or sublease.
Tenant is entitled to recover such costs and expenses before
Tenant is obligated to pay the Landlord's Share to Landlord. The
Profit in the case of a sublease of less than all the Property is
the rent allocable to the subleased space as a percentage on a
square footage basis.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease
of the Property within thirty (30) days after the transaction
documentation is signed, and Landlord may inspect Tenant's books
and record to verify the accuracy of such statement. On written
request, Tenant shall promptly furnish to Landlord copies of all
the transaction documentation, all of which shall be certified by
Tenant to be complete, true and correct. Landlord's receipt of
Landlord's Share shall not be a consent to any further assignment
or subletting. The breach of Tenant's obligation under this
Paragraph 9.05(b) shall be a material default of the Lease
Section 9.06. No Merger. No merger shall result from Tenant's sublease
of the Property under this Article Nine, Tenant's surrender of this Lease
or the termination of this Lease in any other manner. In any such event,
Landlord may terminate any or all subtenancies or succeed to the Interest
of Tenant as sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. Covenants and Conditions. Tenant's performance of each
of Tenant's obligations under this Lease is a condition as well as a
covenant. Tenant's right to continue in possession of the Property is
conditioned upon such performance. Time is of the essence in the
performance of all covenants and conditions.
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Section 10.02. Defaults. Tenant shall be in material default under
this Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of
the Property results in the cancellation of any insurance described in
Section 4.04;
(b) If Tenant fails to pay rent or any other charge when due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after
written notice from Landlord; provided that if more than thirty (30)
days are required to complete such performance, Tenant shall not be in
default if Tenant commences such performance within the thirty
(30)-day period and thereafter diligently pursues its completion.
However, Landlord shall not be required to give such notice if
Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy
any and all notice requirements imposed by law on Landlord and is not
in addition to any such requirement.
(d) (i) If Tenant makes a general assignment or general
arrangement for the benefit of creditors; (ii) if a petition for
adjudication of bankruptcy or for reorganization or rearrangement is
filed by or against Tenant and is not dismissed within thirty (30)
days; (iii) if a trustee or receiver is appointed to take possession
of substantially all of Tenant's assets located at the Property or of
Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of
Tenant's assets located at the Property or of Tenant's interest in
this Lease is subjected to attachment, execution or other judicial
seizure which is not discharged within thirty (30) days. If a court of
competent jurisdiction determines that any of the acts described in
this subparagraph (d) is not a default under this Lease, and as
trustee is appointed to take possession (or if Tenant remains a debtor
in possession) and such trustee or Tenant transfers Tenant's interest
hereunder, then Landlord shall receive, as Additional Rent, the
excess, if any, of the rent (or any other consideration) paid in
connection with such assignment or sublease over the rent payable by
Tenant under this Lease.
(e) If any guarantor of the Lease revokes or otherwise
terminates, or purports to revoke or otherwise terminate, any guaranty
of all or any portion of Tenant's obligations under the Lease. Unless
otherwise expressly provided, no guaranty of the Lease is revocable.
Section 10.03. Remedies. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or
demand and without limiting Landlord in the exercise of any right or remedy
which Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant
shall immediately surrender possession of the Property to Landlord. In
such event, Landlord shall be entitled to recover from Tenant all
damages incurred by Landlord by
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reason of Tenant's default, including (i) the worth at the time of the
award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at
the time of the award of the amount by which the unpaid Base Rent,
Additional Rent and other charges which Landlord would have earned
after termination until the time of the award exceeds the amount of
such rental loss that Tenant proves Landlord could have reasonably
avoided; (iii) the worth at the time of the award of the amount by
which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the
time of award exceeds the amount of such rental loss that Tenant
proves Landlord could have reasonably avoided; and (iv) any other
amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations
under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but no limited to, any costs or
expenses Landlord incurs in maintaining or preserving the Property
after such default, the cost of recovering possession of the Property,
expenses of reletting, including necessary renovation or alteration of
the Property, Landlord's reasonable attorneys' fees incurred in
connection therewith, and any real estate commission paid or payable.
As used in subparts (i) and (ii) above, the "worth at the time of the
award" is computed by allowing interest on unpaid amounts at the rate
of fifteen percent (15%) per annum, or such lesser amount as may then
be the maximum lawful rate. As used in subpart (iii) above, the "worth
at the time of the award" is computed by discounting such amount at
the discount rate of the Federal Reserve Bank of San Francisco at the
time of the award, plus one percent (1%). If Tenant has abandoned the
Property, Landlord shall have the option of (i) retaking possession of
the Property and recovering from Tenant the amount specified in this
Paragraph 10.03(a), or (ii) proceeding under Paragraph 10.03(b);
(b) Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant has abandoned the
Property. In such event Landlord shall be entitled to enforce all of
Landlord's rights and remedies under this Lease, including the right
to recover the rent as it becomes due;
(c) Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the state in which
the Property is located.
Section 10.04. Repayment of "Free" Rent. If this Lease provides for a
postponement of any monthly rental payments, a period of "free" rent or
other rent concession, such postponed rent or "free" rent is called the
"Abated Rent." Tenant shall be credited with having paid all of the Abated
Rent on the expiration of the Lease Term only if Tenant has fully,
faithfully, and punctually performed all of Tenant's obligations hereunder,
including the payment of all rent (other than the Abated Rent) and all
other monetary obligations and the surrender of the Property in the
physical condition required by this Lease. Tenant acknowledges that its
right to receive credit for the Abated Rent is absolutely conditioned upon
Tenant's full, faithful and punctual performance of its obligations under
this Lease. If Tenant defaults and does not cure within any applicable
grace period, the Abated Rent shall immediately become due and payable in
full
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and this Lease shall be enforced as if there were no such rent abatement or
other rent concession. In such case, Abated Rent shall be calculated based
on the full initial rent payable under this Lease.
Section 10.05. Automatic Termination. Notwithstanding any other term
or provision hereof to the contrary, the Lease shall terminate on the
occurrence of any act which affirms the Landlord's intention to terminate
the Lease as provided in Section 10.03 hereof, including the filing of an
unlawful detainer action against Tenant. On such termination, Landlord's
damages for default shall include all costs and fees, including reasonable
attorneys' fees that Landlord incurs in connection with the filing,
commencement, pursuing and/or defending of any action in any bankruptcy
court or other court with respect to the Lease; the obtaining of relief
from any stay in bankruptcy restraining any action to evict Tenant; or the
pursuing of any action with respect to Landlord's right to possession of
the Property. All such damages suffered (apart from Base Rent and other
rent payable hereunder) shall constitute pecuniary damages which must be
reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.06. Cumulative Remedies. Landlord's exercise of any right
or remedy shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. Subordination. Landlord shall have the right to
subordinate this Lease to any ground Lease, deed of trust or mortgage
encumbering the Property, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or extensions
thereof, whenever made or recorded. Tenant shall cooperate with Landlord
and any lender which is acquiring a security interest in the Property or
the Lease. Tenant shall execute such further documents and assurances as
such lender may require, provided that Tenant's obligations under this
Lease shall not be increased in any material way (the performance of
ministerial acts shall not be deemed material), and Tenant shall not be
deprived of its rights under this Lease. Tenant's right to quiet possession
of the Property during the Lease Term shall not be disturbed if Tenant pays
the rent and performs all of Tenant's obligations under this Lease and is
not otherwise in default. If any ground lessor, beneficiary or mortgager
elects to have this Lease prior to the lien of its ground lease, deed of
trust or mortgage and gives written notice thereof to Tenant, this Lease
shall be deemed prior to such ground lease, deed of trust or mortgage or
the date of recording thereof.
Section 11.02. Attornment. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust,
mortgagee, or purchaser at a foreclosure sale, Tenant shall attorn to the
transferee of or successor to Landlord's interest in the Property and
recognize such transferee or successor as Landlord under this Lease. Tenant
waives the protection of any statute or rule of law which
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gives or purports to give Tenant any right to terminate this Lease or
surrender possession of the Property upon the transfer of Landlord's
interest.
Section 11.03. Signing of Documents. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such
attornment or subordination or agreement to do so. If Tenant fails to do so
within ten (10) days after written request, Tenant hereby makes,
constitutes and irrevocably appoints Landlord, or any transferee or
successor of Landlord, the attorney-in-fact of Tenant to execute and
deliver any such instrument or document.
Section 11.04. Estoppel Certificates.
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying:
(i) that none of the terms or provisions of this Lease have been
changed (or if they have been changed, stating how they have been
changed); (ii) that this Lease has not been cancelled or terminated;
(iii) the last date of payment of the Base Rent and other charges and
the time period covered by such payment; (iv) that the Landlord is not
in default under this Lease (or, if Landlord is claimed to be in
default, stating why); and (v) such other representations or
information with respect to Tenant or the Lease as Landlord may
reasonably request or which any prospective purchaser or encumbrancer
of the Property may require. Tenant shall deliver such statement to
Landlord within ten (10) days after Landlord's request. Landlord may
give any such statement by Tenant to any prospective purchaser or
encumbrancer of the Property. Such purchaser or encumbrancer may rely
conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such abatement to Landlord within
such ten (10)-day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following
facts: (i) that the terms and provisions of this Lease have not been
changed except as otherwise represented by Landlord; (ii) that this
Lease has not been cancelled or terminated except as otherwise
represented by Landlord; (iii) that not more than one month's Base
Rent or other charges have been paid in advance; and (iv) that
Landlord is not in default under the Lease. In such event, Tenant
shall be estopped from denying the truth of such facts.
Section 11.05. Tenants Financial Condition. Within ten (10) days after
written request from Landlord, Tenant shall deliver to Landlord such
financial statements as Landlord reasonably requires to verify the net
worth of Tenant or any assignee, subtenant, or guarantor of Tenant. In
addition, Tenant shall deliver to any lender designated by Landlord any
financial statements required by such lender to facilitate the financing or
refinancing of the Property. Tenant represents and warrants to Landlord
that each such financial statement is a true and accurate statement as of
the date of such statement. All financial statements shall be confidential
and shall be used only for the purposes set forth in this Lease.
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ARTICLE TWELVE: LEGAL COSTS
Section 12.01. Legal Proceedings. If Tenant or Landlord shall be in
breach or default under this Lease, such party (the "Defaulting Party")
shall reimburse the other party (the "Nondefaulting Party") upon demand for
any costs or expenses that the Nondefaulting Party incurs in connection
with any breach or default of the Defaulting Party under this Lease,
whether or not suit is commenced or judgment entered. Such costs shall
include legal fees and costs incurred for the negotiation of a settlement,
enforcement of rights or otherwise. Furthermore, if any action for breach
of or to enforce the provisions of this Lease is commenced, the court in
such action shall award to the party in whose favor a judgment is entered,
a reasonable sum as attorneys' fees and costs. The losing party in such
action shall pay such attorneys' fees and costs. Tenant shall also
indemnify Landlord against and hold Landlord harmless from all costs,
expenses, demands, and liability Landlord may incur if Landlord becomes or
is made a party to any claim or action (a) instituted by Tenant against any
third party, or by any third party against Tenant, or by or against any
person holding any interest under or using the Property by license of or
agreement with Tenant; (b) for foreclosure of any lien for labor or
material furnished to or for Tenant or such other person; (c) otherwise
arising out of or resulting from any act or transaction of Tenant or such
other person; or (d) necessary to protect Landlord's interest under the
Lease in a bankruptcy proceeding, or other proceeding under Title 11 of the
United States Code, as amended. Tenant shall defend Landlord against any
such claim or action at Tenant's expense with counsel reasonably acceptable
to Landlord or, at Landlord's election, Tenant shall reimburse Landlord for
any legal fees or costs Landlord incurs in any such claim or action.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. Non-Discrimination. Tenant promises, and it is a
condition to the continuance of this Lease, that there will be no
discrimination against, or segregation of, any person or group of persons
on the basis of race, color, sex, creed, national origin or ancestry in the
leasing, subleasing, transferring, occupancy, tenure or use of the Property
or any portion thereof.
Section 13.02. Landlord's Liability; Certain Duties.
(a) As used in this Lease, the term "Landlord" means only the
current owner or owners of the fee title to the Property or the
leasehold estate under a ground Lease of the Property at the time in
question. Each Landlord is obligated to perform the obligations of
Landlord under this Lease only during the time such Landlord owns such
interest or title. Any Landlord who transfers its title or interest is
relieved of all liability with respect to the obligations of Landlord
under this Lease to be performed on or after the date of transfer.
However, each Landlord shall deliver to its transferee all funds that
Tenant previously paid if such funds have not yet been applied under
the terms of this Lease.
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(b) Tenant shall give written notice of any failure by Landlord
to perform any of its obligations under this Lease to Landlord and to
any ground lessor, mortgagee or beneficiary under any deed of trust
encumbering the Property whose name and address have been furnished to
Tenant in writing. Landlord shall not be in default under this Lease
unless Landlord (or such ground lessor, mortgagee or beneficiary)
fails to cure such non-performance within thirty (30) days after
receipt of Tenant's notice. However, if such non-performance
reasonably requires more than thirty (30) days to cure, Landlord shall
not be in default if such cure is commenced within such thirty
(30)-day period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary,
the liability of Landlord for the performance of its duties and
obligations under this Lease is limited to Landlord's interest in the
Property, and neither the Landlord nor its partners, shareholders,
officers or other principals shall have any personal liability under
this Lease.
Section 13.03. Severability. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is
illegal or unenforceable shall not cancel or invalidate the remainder of
such provision of this Lease, which shall remain in full force and effect
Section 13.04. Interpretation. The captions of the Articles or
Sections of this Lease are to assist the parties in reading this Lease and
are not a part of the terms or provisions of this Lease. Whenever required
by the context of this Lease, the singular shall include the plural and the
plural shall include the singular. The masculine, feminine and neuter
genders shall each include the other. In any provision relating to the
conduct, acts or omissions of Tenant, the term "Tenant" shall include
Tenant's agents, employees, contractors, invitees, successors or others
using the Property with Tenant's expressed or implied permission.
Section 13.05. Incorporation of Prior Agreements; Modifications. This
Lease is the only agreement between the parties pertaining to the lease of
the Property and no other agreements are effective. All amendments to this
Lease shall be in writing and signed by all parties. Any other attempted
amendment shall be void.
Section 13.06. Notices. All notices required or permitted under this
Lease shall be in writing and shall be personally delivered or sent by
certified mail, return receipt requested, postage prepaid. Notices to
Tenant shall be delivered to the address specified in Section 1.03 above,
except that upon Tenant's taking possession of the Property, the Property
shall be Tenant's address for notice purposes. Notices to Landlord shall be
delivered to the address specified in Section 1.02 above. All notices shall
be effective upon delivery. Either party may change its notice address upon
written notice to the other party.
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Section 13.07. Waivers. All waivers must be in writing and signed by
the waiving party. Landlord's failure to enforce any provision of this
Lease or its acceptance of rent shall not be a waiver and shall not prevent
Landlord from enforcing that provision or any other provision of this Lease
in the future. No statement on a payment check from Tenant or in a letter
accompanying a payment check shall be binding on Landlord. Landlord may,
with or without notice to Tenant, negotiate such check without being bound
to the conditions of such statement.
Section 13.08. No Recordation. Tenant shall not record this Lease
without prior written consent from Landlord. However, either Landlord or
Tenant may require that a "Short Form" memorandum of this Lease executed by
both parties be recorded. The party requiring such recording shall pay all
transfer taxes and recording fees.
Section 13.09. Binding Effect; Choice of Law. This Lease binds any
party who legally acquires any rights or interest in this Lease from
Landlord or Tenant. However, Landlord shall have no obligation to Tenant's
successor unless the rights or interests of Tenant's successor are acquired
in accordance with the terms of this Lease. The laws of the state in which
the Property is located shall govern this Lease.
Section 13.10. Corporate Authority; Partnership Authority. If Tenant
is a corporation, each person signing this Lease on behalf of Tenant
represents and warrants that he has full authority to do so and that this
Lease binds the corporation. Within thirty (30) days after this Lease is
signed, Tenant shall deliver to Landlord a certified copy of a resolution
of Tenant's Board of Directors authorizing the execution of this Lease or
other evidence of such authority reasonably acceptable to Landlord. If
Tenant is a partnership, each person or entity signing this Lease for
Tenant represents and warrants that he or it is a general partner of the
partnership, that he or it has full authority to sign for the partnership
and that this Lease binds the partnership and all general partners of the
partnership. Tenant shall give written notice to Landlord of any general
partner's withdrawal or addition. Within thirty (30) days after this Lease
is signed, Tenant shall deliver to Landlord a copy of Tenant's recorded
statement of partnership or certificate of limited partnership.
Section 13.11. Joint and Several Liability. All parties signing this
Lease as Tenant shall be jointly and severally liable for all obligations
of Tenant.
Section 13.12. Force Majeure. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to
the duration of such events. Events beyond Landlord's control include, but
are not limited to, acts of God, war, civil commotion, labor disputes,
strikes, fire, flood or other casualty, shortages of labor or material,
government regulation or restriction and weather conditions.
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Section 13.13. Execution of Lease. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the
counterparts shall constitute a single binding instrument. Landlord's
delivery of this Lease to Tenant shall not be deemed to be an offer to
Lease and shall not be binding upon either party until executed and
delivered by both parties.
Section 13.14. Survival. All representations and warranties of
Landlord and Tenant shall survive the termination of this Lease.
ARTICLE FOURTEEN: BROKERS
Section 14.01. Broker's Fee. When this Lease is signed by and
delivered to both Landlord and Tenant, Landlord shall pay a real estate
commission to Landlord's Broker named in Section 1.08 above, if any, as
provided in the written agreement between Landlord and Landlord's Broker,
or the sum stated in Section 1.09 above for services rendered to Landlord
by Landlord's Broker in this transaction. Landlord shall pay Landlord's
Broker a commission if Tenant exercises any option to extend the Lease Term
or to buy the Property, or any similar option or right which Landlord may
grant to Tenant, or if Landlord's Broker is the procuring cause of any
other lease or sale entered into between Landlord and Tenant covering the
Property. Such commission shall be the amount set forth in Landlord's
Broker's commission schedule in effect as of the execution of this Lease.
If a Tenant's Broker is named in Section 1.00 above, Landlord's Broker
shall pay an appropriate portion of its commission to Tenant's Broker if so
provided in any agreement between Landlord's Broker and Tenant's Broker.
Nothing contained in this Lease shall impose any obligation on Landlord to
pay a commission or fee to any party other than Landlord's Broker.
Section 14.02. Protection of Brokers. If Landlord sells the Property,
or assigns Landlord's interest in this Lease, the buyer or assignee shall,
by accepting such conveyance of the Property or assignment of the Lease, be
conclusively deemed to have agreed to make all payments to Landlord's
Broker thereafter required of Landlord under this Article Fourteen.
Landlord's Broker shall have the right to bring a legal action to enforce
or declare rights under this provision. The prevailing party in such action
shall be entitled to reasonable attorneys' fees to be paid by the losing
party. Such attorneys' fees shall be fixed by the court in such action.
This Paragraph is included in this Lease for the benefit of Landlord's
Broker.
Section 14.03. Agency Disclosure; No Other Brokers. Landlord and
Tenant each warrant that they have dealt with no other real estate
broker(s) in connection with this transaction except: CB Commercial Real
Estate Group, Inc., who represents Tenant.
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ARTICLE FIFTEEN: COMPLIANCE
The parties hereto agree to comply with all applicable federal, state and
local laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this Agreement,
including, but not limited to, the 1964 Civil Rights Act and all amendments
thereto, the Foreign Investment in Real Property Tax Act, the Comprehensive
Environmental Response Compensation and Liability Act, and The Americans With
Disabilities Act.
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
Landlord and Tenant have signed this Lease Tenant the place and on the
dates specified adjacent to their signatures below and have initialed all Riders
which are attached to or incorporated by reference in this Lease.
LANDLORD
Signed on June 4, 1996 DiNapoli, DiNapoli and Mulcahy Trust, a California
at: general partnership
--------------------- By: /s/ J. Philip DiNapoli
-----------------------------------------------
Its: as Trustee of the DiNapoli Revocable
-----------------------------------------
UTA, dated July 6, 1982, a general partner
By:
-----------------------------------------------
Its:
-----------------------------------------
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TENANT
Signed on January 4, 1996 Journal Communications, Inc., a Wisconsin
---------------------------------------------------
corporation
at: By: /s/ Gregory H. Lodez
----------------------- -----------------------------------------------
Its: Vice President
-----------------------------------------
By:
------------------------------------------------
Its:
-----------------------------------------
IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH A
PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON
WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE
POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.
THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION
OF THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS(R), INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN
CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICER REALTORS (R), INC.,
ITS LEGAL COUNSEL, THE REAL ESTATE BROKERS NAMED HEREIN, OR THEIR EMPLOYEES OR
AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS
LEASE OR OF THIS TRANSACTION. LANDLORD AND TENANT SHOULD RETAIN LEGAL COUNSEL TO
ADVISE THEM ON SUCH MATTERS AND SHOULD RELY UPON THE ADVICE OF SUCH LEGAL
COUNSEL.
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RIDER TO LEASE AGREEMENT
1. BASE RENT: The monthly Base Rent shall be as follows:
Months Base Rent per Month
------ -------------------
From the date of occupancy to
Commencement Date No Base Rent*
1 - 12 $26,532.00
13 - 30 $50,947.20
31 - 60 $53,777.60
61 - 90 $55,192.80
91 - 109 $56,608.00
* Although no Base Rent shall be paid during this time period,
Tenant shall still be responsible for payment of all other
obligations under the Lease including payment of real property
taxes, insurance premiums, utilities and all other expenses.
This Base Rent schedule is based on Landlord providing a Tenant Improvement
Allowance of a maximum of $414,600.00 (the "TI Allowance"). If Tenant
elects, in writing, not to utilize any or all of the TI Allowance for the
planning, construction and installation of the Tenant Improvements in
building on the Property, the amount of the monthly Base Rent for the
Property shall be reduced at the rate of $.01 per square foot per month for
each unused $1.00 of the TI Allowance. Promptly after substantial
completion of construction of the Tenant Improvements, Landlord and Tenant
shall execute a certificate in the form attached here to as Exhibit B,
indicating the amount of any such reduction in the monthly Base Rent
payable to Tenant hereunder.
2. CONSTRUCTION OF TENANT IMPROVEMENTS: Landlord will plan, construct and
install certain alternations and improvements (the "THIS") to the building
on the Property as Tenant may desire be made for Tenant's intended use of
the Property. Notwithstanding anything to the contrary in the Lease, the
construction and installation of the THIS will not affect nor extend the
Commencement Date of the Lease it being the intention of Landlord and
Tenant that Tenant commence paying monthly Base Rent on the Commencement
Date regardless of whether or not the THIS are substantially completed by
said date. The THIS shall be constructed in accordance with the plans and
specifications prepared by Landlord's architect and as approved by both
Landlord and Tenant. Such plans and specifications and the budget for the
construction of the THIS shall be reasonably approved, in writing, by both
Landlord and Tenant as soon as practicable after execution of the Lease,
but prior to the commencement of construction of the THIS. The THIS shall
be installed by Landlord's general contractor. Landlord shall provide a
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Tenant Improvement Allowance of a maximum of Four Hundred Fourteen Thousand
Six Hundred Dollars ($414,600.00) (the "TI Allowance") for the planning,
construction and installation of the THIS and all costs associated with
such construction, including, but not limited to, architectural and
engineering fees, general contractor fees and costs, costs to prepare plans
and specifications, all permit and approval fees and cots, and all other
direct and indirect costs of procuring, constructing and installing the
THIS (collectively, the "TI Costs"). Landlord shall not charge nor be paid
any construction management fee in connection with the planning,
construction and installation of the THIS. If the TI Allowance is
exhausted, any additional funds necessary to pay the balance of the TI
Costs (including all change order costs and cost escalations) in order to
cause the THIS to be substantially completed will be paid for by Tenant, in
cash, within thirty (30) days after Landlord delivers to Tenant a written
demand therefor. The TI Allowance shall be used solely for improvements to
real property and not for the acquisition or installation of any of
Tenant's equipment, trade fixtures, furniture, furnishings telephone
equipment, computer equipment or other personal property. If the Lease is
terminated at any time prior to the scheduled expiration date for any
reason due to the default of Tenant of its obligations under this Lease, in
addition to any other remedies available to Landlord under the Lease,
Tenant shall immediately pay to Landlord as additional rent under the Lease
any and all costs incurred by Landlord in connection with the planning,
construction and installation of the THIS and not reimbursed or otherwise
paid by Tenant as part of the Base Rent or otherwise through the date of
termination together with any costs related to the removal of any
improvements constructed by Tenant subsequent to the Commencement Date and
the restoration of any damage caused to the Property, ordinary wear and
tear excepted.
3. ENTERPRISE ZONE: As of the date of this Lease the Property is located
within a designated Enterprise Zone of the City of San Jose, and, as such,
certain tax credits may be available to Tenant. Landlord has no knowledge
of the specific tax credits that may be available or of Tenant's
eligibility to benefit from same. Tenant acknowledges that Landlord has
made no representations with regard to the availability or applicability to
Tenant of any benefits arising from such an Enterprise Zone.
4. ENVIRONMENTAL MATTERS/HAZARDOUS MATERIALS: Concurrently with executing this
Lease, and within fifteen (15) days of a written request from Landlord,
Tenant shall execute, and deliver to Landlord, the Hazardous Materials
Disclosure Certificate in substantially the form attached hereto as Exhibit
C, and any other reasonably necessary documents as requested by Landlord.
Subject to the remaining provisions of this paragraph, Tenant shall be
entitled to use and store only those Hazardous Materials (defined below),
that are necessary for Tenant's business and to the extent disclosed in the
Hazardous Materials Disclosure Certificate, provided that such usage and
storage is in full compliance with any and all local, state and federal
environmental, health and/or safety-related laws, statutes, orders,
standards, courts' decisions, ordinances, rules and
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regulations (as interpreted by judicial and administrative decisions),
decrees, directives, guidelines, permits or permit conditions, currently
exiting and as amended, enacted, issued or adopted in the future which are
or become applicable to Tenant or the Property (collectively, the
"Environmental Laws"). Landlord shall have the right at all times during
the term of this Lease to (i) inspect the Property; (ii) conduct tests and
investigations to determine whether Tenant is in compliance with the
provisions of this paragraph, and (iii) request lists of all Hazardous
Materials used, stored or located on, under or about the Property; the cost
of all such inspections, tests and investigations shall be borne by Tenant
if Hazardous Materials are indicated by such inspection, test or
investigation to be present in, on or about the Property arising from or
related to the intentional or negligent acts or omissions of Tenant or any
of Tenant's Representatives (defined below). Tenant shall give to Landlord
immediate oral and follow-up written notice of any spills, releases or
discharges of Hazardous Materials on, under or about the Property. Tenant
covenants to promptly investigate, clean up and otherwise rededicate
(including without limitation, monitoring and closures) any spill, release
or discharge of Hazardous Materials caused by the intentional or negligent
acts or omissions of Tenant or its agents, employees, representatives,
invitees, licensees, subtenants customers or contractors (collectively,
"Tenant's Representatives") at Tenant's sole cost and expense; such
investigation, clean up and remediation to be performed after Tenant has
obtained Landlord's written consent, which shall not be unreasonably
withheld; provided, however, that Tenant shall be entitled to respond
immediately to an emergency without first obtaining Landlord's written
consent. If Tenant fails to so promptly investigate, clean up or otherwise
remediate (including without limitation, any monitoring and closures),
Landlord may, but without obligation to do so, take any and all steps
necessary to rectify the same and Tenant shall promptly reimburse Landlord,
upon demand, for all costs and expenses to Landlord of performing
investigation and remediation work. Tenant shall indemnify, defend (with
counsel acceptable to Landlord) and hold Landlord and Landlord's lenders,
partners, property management company (if other than Landlord), directors
officers, employees, representatives, contractors and shareholders and each
of their respective successors and assigns harmless from and against any
and all claims, judgments, damages, penalties, fines, liabilities, losses,
suits, administrative proceedings and costs (including, but not limited to,
attorneys' and consultant fees and court cost s) arising at any time during
or after the term of this Lease in connection with or related to the use,
presence, transportation, storage, disposal, spill, release or discharge of
Hazardous Materials on, in or about the Property as a result (directly or
indirectly) of the intentional or negligent acts or omissions of Tenant or
any of Tenant's Representatives. The burden of proof shall rest with Tenant
with regard to the determination of the cause or source of any Hazardous
Materials found to exist in, on or about the Property. Tenant shall not be
entitled to install any tanks under, on or about the Property for the
storage of Hazardous Materials without the express written consent of
Landlord, which may be given or withheld in Landlord's sole discretion.
Neither the written consent of Landlord to the presence of Hazardous
Materials on, under or about the Property nor the strict compliance by
Tenant with all Environmental Laws shall excuse Tenant from its obligations
of
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indemnification pursuant hereto. As used in this Lease, the term Hazardous
Materials shall mean and include (a) any hazardous or toxic wastes,
materials or substances, and other pollutants or contaminants, which are or
become regulated by any Environmental Laws; (b) petroleum, petroleum
by-products, gasoline, diesel fuel, crude oil or any fraction thereof; (c)
asbestos and asbestos-containing material, in any form, whether friable or
non-friable; (d) polychlorinated biphenyls; (e) radioactive materials; (f)
lead and lead-containing materials; (g) any other material, waste or
substance displaying toxic, reactive, ignitable or corrosive
characteristics, as all such terms are used in their broadest sense, and
are defined or become defined by any Environmental Laws; or (h) any
materials which cause or threatens to cause a nuisance upon or waste to any
portion of the Property or any surrounding property; or poses or threatens
to pose a hazard to the health and safety of persons on the Property or any
surrounding property. The provisions of this Paragraph 4 of the Rider to
Lease shall survive the expiration or earlier termination of this Lease. If
Tenant fails to fully and timely observe, perform or comply with any of the
conditions, covenants or provisions of this Paragraph 4 of the Rider, and
such failure is not curd within ten (10) days of the ate on which Landlord
delivers written notice of such failure to Tenant then Tenant shall be
considered to be in material default of this Lease. However, Tenant shall
not be in material default of its obligations hereunder if such failure
cannot reasonably be cured within such ten (10)-day period. and Tenant
promptly commences, and thereafter diligently proceeds with same to
completion, all actions necessary to cure such failure as soon as is
reasonably possible, but in no event shall the completion of such cure be
later than sixty (60) days after the date on which Landlord deliver to
Tenant written notice of such failure, unless Landlord, acting reasonably
and in good faith, otherwise expressly agrees in writing to a longer period
of time based upon the circumstances relating to such failure as well as
the nature of the failure and the nature of the actions necessary to cure
such failure. Tenant covenants and agrees that the provisions of Section
10.02(c) of the Lease shall not be applicable (nor available) to any
failure of Tenant under this Paragraph 4 of the Rider. If it is determined
by Landlord pursuant to the results of any tests or investigations that
have been performed or pursuant to a notice from any regulatory authority,
that Tenant, its use of th Property, or the condition of the Property is
not in compliance with all Environmental Laws at the expiration or earlier
termination of this Lease due to the intentional or negligent acts or
omissions of Tenant or Tenant's Representatives, then at Landlord's sole
option, Landlord may require Tenant to hold over possessions of the
Property until Tenant can surrender the Property to Landlord in compliance
with all Environmental Laws. Any such holdover by Tenant will be with
Landlord's consent, will not be terminable by Tenant in any event or
circumstance and will otherwise be subject to the provisions of Section
2.04 of this Lease except that Tenant may terminate such holdover if (i)
Tenant has remediated the contamination by Hazardous Materials in
accordance with a plan approved by the appropriate regulatory authority,
(ii) such regulatory authority has approved the results of the remediation
as being in compliance with its requirements, and (iii) the only additional
requirement of such regulatory authority is periodic monitoring in
anticipation of closure.
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5. EXISTING LEASE. The existing lease of the Property dated November 3, 1995,
between D & D Ranch, a California general partnership and Imperial Printing
Company, a Michigan corporation, dba, IPC Software Services, shall
terminate as of the ate of the execution of this Lease by both Landlord and
Tenant and be of no further force or effect thereafter except for any
provisions which are (a) intended to survive its termination, and (b) not
superseded or replaced by the terms and provisions of this Lease.
6. SIMULTANEOUS EXECUTION OF LEASES. Notwithstanding any other provision
contained in this Lease to the contrary, this Lease shall not have any
force or effect and shall not be binding on the parties unless and until
the lease of eve date herewith between Tenant and D & D Ranch, a California
general partnership, regarding the premises at 2011 Senter Road, San Jose,
California (the "Second Lease") is executed and delivered by Tenant
concurrently with this Lease.
7. OPTIONS TO EXTEND. If Tenant is not in default in the performance of any of
its obligations under this Lease at the time of Tenant's exercise of the
then applicable option to extend the then applicable terms of this Lease,
Tenant shall have the right at its option to extend the term of the Lease
for two (2) successive five (5)-year periods (individually the "First
Extended Term" and the "Second Extended Term," respectively, and
collectively, the "Extended Terms"). The Lease of the Property during the
Extended Terms shall be upon the same terms, covenants and conditions as
are set forth in this Lease, other than the monthly Base Rent and the term
of the Lease. If Landlord does not receive from Tenant written notice of
Tenant's exercise of this option on a date which is not less than eighteen
(18) months prior to the end of the initial term of the Lease or the end of
the First Extended Term of this Lease, as the case may be (the "Option
Notice"), all rights under this option shall automatically lapse and
terminate and shall be of no further force and effect. Time is of the
essence herein. Additionally, if Tenant fails to timely or duly exercise
this option for the First Extended Term, all rights of Tenant under this
option to extend into the First Extended Term and the Second Extended Term
shall automatically lapse, terminate and shall be of no further force and
effect, and Tenant shall have no further rights to extend the term of this
Lease. Notwithstanding any other provision contained in this Section 7 to
the contrary, Tenant may only exercise the options to extend the term of
this Lease for each of the Extended Terms if, concurrently with Tenant's
exercise of such option hereunder, Tenant simultaneously exercises the same
option granted to Tenant to extend the corresponding term under the Second
Lease. If Tenant does not so simultaneously extend the term of both leases,
Tenant shall have no right to extend the term of this Lease and thereafter
the options granted to Tenant herein shall lapse and be of no force or
effect.
The monthly Base Rent for each of the First Extended Tem and the Second
Extended Term shall be the then fair market rent for the Property (the
"Fair Rental Value") agreed upon solely by and between Landlord and Tenant
and their agents appointed for this purpose.
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The "Fair Rental Value" of the Property shall be defined to mean the fair
market rental value of the Property as of the commencement of the First
Extended Term or the Second Extended Term, as applicable, taking into
consideration all relevant factors, including length of term, the uses
permitted under the Lease, the quality, size, design and location of the
Property, including the condition and value of existing tenant
improvements, and the monthly base rent paid by tenants for premises
comparable to the Property, and located in San Jose, California.
Landlord and Tenant each, at its cost and by giving notice to the other
party, shall appoint a competent and disinterested commercial real estate
broker (hereinafter "broker") with at least five (5) years' full-time
commercial real estate brokerage experience in the geographical area of the
Property to set the Fair Rental Value fo the First Extended Term or the
Second Extended Term, as the case may be. If either Landlord or Tenant does
not appoint a broker within ten (10) days after the other party has given
notice of the name of its broker, the single broker appointed shall be the
sole broker and shall set the Fair Rental Value for the First Extended Term
or the Second Extended Term, as the case may be. If two (2) brokers are
appointed by Landlord and Tenant as stated in this paragraph, they shall
meet promptly and attempt to set the Fair Rental Value. If the two (2)
brokers are unable to agree within ten (10) days after the second broker
has been appointed, they shall attempt to select a third broker, meeting
the qualifications stated in this paragraph within ten (10) days after the
last day the two (2) brokers are given to set the Fair Rental Value. If
they are unable to agree on the third broker, either Landlord or Tenant by
giving ten (10) days; notice to the other party, can apply to the Presiding
Judge of the Superior Court of the county in which the Property is located
for the selection of a third broker who meets the qualifications stated in
this paragraph. Landlord and Tenant each shall bear one-half (1/2 ) of the
cost of appointing the third broker and of paying the third broker's fee.
The third broker, however selected, shall be a person who has not
previously acted in any capacity for either Landlord or Tenant. Within
fifteen (15) days after the selection of the third broker, the third broker
shall select one of the two Fair Rental Values submitted by the first two
brokers as the Fair Rental Value for the First Extended Term or the Second
Extended Term, as the case may be. If either of the first two brokers fails
to submit their opinion of the Fair Rental Value, then the single Fair
Rental Value submitted shall automatically be the monthly Base Rent for the
First Extended Term or the Second Extended Term, as applicable.
8. Any default of Tenant under the Second Lease shall also be a default under
this Lease.
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SUBLEASE
CB COMMERCIAL REAL ESTATE GROUP, INC.
BROKERAGE AND MANAGEMENT
LICENSED REAL ESTATE BROKER
1. PARTIES.
This Sublease, dated November 12, 1996, is made between Journal
Communications, Inc., a Wisconsin corporation and Imperial Printing
Company, * ("Sublessor"); and Bell Microproducts, Inc., a California
corporation, ("Sublessee").
**SEE RIDER NO. 1
2. MASTER LEASE.
Sublessor is the lessee under a written lease dated December 22, 1995,
wherein DiNapoli, DiNapoli and Mulcahy Trust, a California general
partnership ("Lessor") leased to Sublessor the real property located in the
City of San Jose, County of Santa Clara, State of California, described as
2020 South Tenth Street, San Jose, California, containing approximately
141.520+/- square feet, single story facility and connector building
("Master Premises"). Said lease has been amended by the following
amendments A Rider with eight (8) sections, Exhibit A, Exhibit B, Exhibit C
and Disclosure of Special Studies said lease and amendments are herein
collectively referred to as the "Master Lease" and are attached hereto as
Exhibit "A."
***SEE RIDER NO. 2
3. PREMISES.
Sublessor hereby subleases to Sublessee on the terms and conditions set
forth in this Sublease the following portion of the Master Premises
("Premises"): 2020 South Tenth Street, San Jose, California, containing
141.520+/- square feet, single-story facility and connector building as
shown in Exhibit B attached hereto and made a part hereof..
4. WARRANTY BYU SUBLESSOR.
Sublessor warrants and represents to Sublessee that the Master Lease has
not been amended or modified except as expressly set forth herein, that
Sublessor is not now, and as of the commencement of the Term hereof will
not be, in default or breach of any of the provisions of the Master Lease,
and that Sublessor has no knowledge of any claim by Lessor that Sublessor
is in default or breach of any of the provisions of the Master Lease.
5. TERM. SEE RIDER NO. 5
6. RENT.
6.1 Minimum Rent. Sublessee shall pay to Sublessor as minimum rent,
without deduction, setoff, notice, or demand, at IPC Communication
Services, Inc. 2011 Senter Road, San Jose, California or at such other
place as Sublessor shall designate from time to time by notice to
Sublessee, SEE RIDER NO. 6.1. Sublessee shall pay to Sublessor upon
execution of this Sublease the sum of Seventy-Nine Thousand Five
Hundred Eight-Six and No./100 Dollars ($79,586.00) as rent for
February 1997. If the Term begins or ends on a day other than the
first or last day of a month, the rent for the partial months shall be
prorated on a per diem basis. Additional provisions: SEE RIDER NO.
6.2.
6.2 Operating Costs. If the Master Lease requires Sublessor to pay to
Lessor all or a portion of the expenses of operating the building
an/or project of which the Premises are a part ("Operating Costs"),
including but not limited to taxes, utilities, or insurance, then
Sublessee shall pay to Sublessor as additional rent One Hundred
percent (100%) of the amounts payable by Sublessor for Operating Costs
incurred during the Term. Such additional rent shall be payable as and
when Operating Costs are payable by Sublessor to Lessor. If the Master
Lease provides for the payment by Sublessor of Operating Costs on the
basis of an estimate thereof, then as and when adjustments between
estimated and actual Operating Costs are made under the Master Lease,
the obligations of Sublessor and Sublessee hereunder shall be adjusted
in a like manner; and if any such adjustment shall occur after the
expiration or earlier termination of the Term, then the obligations of
Sublessor and Sublessee under this Subsection 6.2 shall survive such
expiration or termination. Sublessor shall, upon request by Sublessee,
furnish Sublessee with copies of all statements submitted by Lessor of
actual or estimated Operating Costs during the Term.
7. SECURITY DEPOSIT.
Sublessee shall deposit with Sublessor upon execution of this Sublease the
sum of Eighty Thousand and No/100 Dollars ($80,000.00) as security for
Sublessee's faithful performance of Sublessee's obligations hereunder
("Security Deposit"). If Sublessee fails to pay rent or other charges when
due under this Sublease, or fails to perform any of its other obligations
hereunder, Sublessor may use or
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<PAGE>
apply all or any portion of the Security Deposit for the payment of any
rent or other amount then due hereunder and unpaid, for the payment of any
other amount then due hereunder and unpaid, for the payment of any other
sum for which Sublessor may become obligated by reason of Sublessee's
default or breach, or for any loss or damage sustained by Sublessor as a
result of Sublessee's default or breach. If Sublessor so uses any portion
of the Security Deposit, Sublessee shall, within ten (10) days after
written demand by Sublessor, restore the Security Deposit to the full
amount originally deposited, and Sublessee's failure to do so shall
constitute a default under this Sublease. Sublessor shall not be required
to keep the Security Deposit separate from its general accounts, and shall
have no obligation or liability for payment of interest on the Security
Deposit. In the event Sublessor assigns its interest in this Sublease,
Sublessor shall deliver to its assignee so much of the Security Deposit as
is then held by Sublessor.
**SEE RIDER NO. 7
8. USE OF PREMISES.
The Premises shall be used and occupied only for office sales, research and
development, light assembly, light manufacturing, and distribution of
electronic products and related legal uses, and for no other use or
purpose.
9. ASSIGNMENT AND SUBLETTING.
Sublessee shall not assign this Sublease or further sublet all or any part
of the Premises without the prior written consent of Sublessor (and the
consent of Lessor, if such is required under the terms of the Master
Lease).
**SEE RIDER NO. 9
10. OTHER PROVISIONS OF SUBLEASE.
Except as otherwise provided in RIDER NO. 10, all applicable terms and
conditions of the Master Lease are incorporated into and made a part of
this Sublease as if Sublessor were the lessor or Landlord thereunder,
Sublessee the lessee or Tenant thereunder, and the Premises the Master
Premises, except for the following: Sections 1.03, 1.04, 1.05, 1.06, 1.08,
1.09, 1.11, 1.11, 1.12(a). 2.01, 2.02. 3.01, 3.03, 5.01, 13.02(c), 13.06,
Article 14, Rider Paragraphs 1, 5, 6, 7, and 8 of the Rider to Lease
Agreement. Sublessee shall not commit or suffer any act or omission that
will violate any of the provisions of the Master Lease. Sublessor shall
exercise due diligence in attempting to cause Lessor to perform its
obligations under the master Lease for the benefit of Sublessee. If the
Master Lease terminates, this Sublease shall terminate and the parties
shall be relieved of any further liability or obligation under this
Sublease, provided however, that if the Master Lease terminates as a result
of a default or breach by Sublessor or Sublessee under this Sublease and/or
the Master Lease, then the defaulting party shall be liable to the
nondefaulting party for he damage suffered as a result of such termination.
Notwithstanding the foregoing, if the Master Lease gives Sublessor any
right to terminate the Master Lease in the event of the partial or total
damage, destruction or condemnation of the Master Premises or the building
or project of which master Premises are a part, the exercise of such right
by Sublessor shall not constitute a default or breach hereunder.
11. ATTORNEYS' FEES. **SEE RIDER NO. 10A
**SEE RIDER NO. 11
12. AGENCY DISCLOSURE.
Sublessor and Sublessee each warrant that they have dealt with no other
real estate broker in connection with this transaction except: CB
COMMERCIAL REAL ESTATE GROUP, INC., who represents Sublessor Journal
Communications, Inc., a Wisconsin corporation and Imperial Printing
Company, a Michigan corporation ("Broker") and Cornish and Carey Commercial
Real Estate, who represents Bell Microproducts, Inc., a California
corporation. In the event that CB COMMERCIAL REAL ESTATE GROUP, INC.,
represents both Sublessor and Sublessee, Sublessor and Sublessee hereby
confirm that they were timely advised of the dual representation and that
they consent to the same, and that they do not expect said broker to
disclose to either of them the confidential information of the other party.
13. COMMISSION.
Upon execution of this Sublease, and consent thereto by Lessor (if such
consent is required under the terms of the Master Lease), Sublessor shall
pay Broker a real estate brokerage commission in accordance with
Sublessor's contract with Broker for the subleasing of the Premises, if
any, and otherwise in the amount of Two Hundred Sixty-Five Thousand and
No/100 Dollars ($265,000.00), for services rendered in effecting this
Sublease. Broker is hereby made a third party beneficiary of this Sublease
for the purpose of enforcing its right to said commission.
14. NOTICES **SEE RIDER NO. 14
2
<PAGE>
15. CONSENT BY LESSOR.
THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY LESSOR
WITHIN 10 DAYS AFTER EXECUTION HEREOF, IF SUCH CONSENT IS REQUIRED UNDER
THE TERMS OF THE MASTER LEASE.**
**SEE RIDER NO. 15
16. COMPLIANCE.
The parties hereto agree to comply with all applicable federal, state and
local laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this
Agreement, including, but not limited to, the 1964 Civil Rights Act and all
amendments thereto, the Foreign Investment in Real Property Tax Act, the
Comprehensive Environmental Response Compensation and Liability Act, and
The Americans With Disabilities Act.
Sublessor: Journal Communications, Inc. Sublessee: Bell Microproducts, Inc.
By: /s/ Douglas Hosking By: /s/ ATD
Title: Vice President Title: Vice President Operations
By: _________________ By: /s/ REL
Title: ________________ Title: V.P. of Finance
Date: November 12, 1996 Date: November 19, 1996
* SEE SIGNATURE BLOCK BELOW.
- --------------------------------------------------------------------------------
CONSULT YOUR ADVISORS - This document has been prepared for approval by your
attorney. No representation or recommendation is made by Broker as to the legal
sufficiency or tax consequences of this document or the transaction to which it
relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
- --------------------------------------------------------------------------------
Sublessor: Imperial Printing Company
By: /s/ Douglas Hosking
Title: President
Date: November 12, 1996
3
<PAGE>
11\11\96
RIDER TO SUBLEASE
This RIDER TO SUBLEASE ("Rider") pertains to and is hereby made a part of
the Sublease Agreement dated as of November 12, 1996, by and between JOURNAL
COMMUNICATIONS, INC., a Wisconsin corporation and IMPERIAL PRINTING COMPANY, a
Michigan corporation (collectively "Sublessor"), and BELL MICROPRODUCTS, INC.
("Sublessee"). This Rider shall be attached to the Sublease and made a part
thereof.
Rider No. 1:
"Sublessor" is defined in the Master Lease as "Tenant."
Rider No. 2:
"Lessor" is defined in the Master Lease as "Landlord."
Rider No. 5:
Term: The term of this Sublease shall commence February 1, 1997 (the
"Commencement Date") and shall expire on January 31, 2002 (the "Termination
Date") unless either of these dates are advanced, delayed, or otherwise changed
in accordance with any other specific provisions of this Sublease. Sublessee
shall have all early rights of occupancy Sublessor has under the Master Lease
subject to all conditions set forth therein. If Sublessor does not deliver
possession of the Premises to Sublessee on November 1, 1996, Sublessor shall
deliver a notice to Sublessee which sets forth the actual Termination Date which
shall be binding upon Sublessee unless Sublessee objects to the notice in
writing within five (5) days of Sublessee's receipt of the same.
Delay in Delivery of Possession: Sublessor shall not be liable to Sublessee if
Sublessor does not deliver possession of the Premises to Sublessee on the date
of this Sublease. Sublessor's non- delivery of the Premises to Sublessee on that
date shall not affect this Sublease or the obligations of Sublessee under this
Sublease, except that the Termination Date shall be extended one (1) day for
each day delivery of possession of the Premises to Sublessee is delayed past
November 1, 1996, but no longer than thirty (30) days. Provided that this
Sublease is still in full force and effect and has not been terminated,
immediately upon Sublessor's receipt of possession of the Premises, Sublessor
shall deliver possession of the Premises to Sublessee.
Sublease Cancellation Rights: If Sublessor does not deliver possession of the
Premises to Sublessee on or prior to December 1, 1996, Sublessee may elect to
cancel this Sublease by giving written notice to Sublessor prior to the earlier
of December 5, 1996, or the date possession of the Premises is delivered to
Sublessee. If Sublessee gives such notice, (i) the Sublease shall be deemed
immediately canceled,
<PAGE>
11\11\96
(ii) any consideration previously paid by Sublessee to Sublessor on account of
this Sublease shall be returned to Sublessee, (iii) this Sublease shall have no
further force or effect, (iv) Sublessor shall have no further liability to
Sublessee on account of such delay or cancellation, and (v) neither Sublessor
nor Sublessee shall have further obligations to the other. If Sublessee does not
give such notice, Sublessee's right to cancel the Sublease shall expire and the
Term shall commence upon the delivery of possession of the Premises to
Sublessee.
Condition of Premises: Sublessor shall have no obligation to make any
improvement or alterations to the Premises. By taking possession of the
Premises, Sublessee will be deemed to have accepted the Premises in its
condition on the date of delivery of possession. Sublessee acknowledges that
neither Sublessor nor any agent of Sublessor has made any representation or
warranty with respect to the Premises, the parking area surrounding the
Premises, or any portions thereof, or with respect to the suitability of same,
for the conduct of Sublessee's business and Sublessee further acknowledges that
Sublessor will have no obligation to construct or complete any additional
buildings or improvements within or about the Premises.
Rider No. 6.1:
Commencing February 1, 1997 and continuing through July 1999, Sublessee shall
pay as minimum rent the sum of Seventy-Nine Thousand Five Hundred Eighty-Six and
No/100 Dollars ($79,586.00) per month in accordance with all other provisions of
Paragraph 6.1. Subject to the provisions of Rider No. 26, commencing August 1,
1999 and continuing through the Termination Date, Sublessee shall pay as minimum
rent the sum of Eighty-Two Thousand Four Hundred Sixteen and No/100 Dollars
($82,416.00) per month in accordance with all other provisions of Paragraph 6.1.
Sublessee shall have no obligation to pay minimum rent for the months of
November and December 1996 and January 1997. Sublessee's obligation to pay the
minimum rent set forth in this Paragraph 6.1 shall commence February 1, 1997,
whether or not Sublessor delivers to Sublessee possession of the Premises on
November 1, 1996. The minimum rent is payable on the twenty-fifth (25th) day of
the calendar month immediately prior to each calendar month for which minimum
rent is payable. For example, the minimum rent due for February 1997 is due and
payable on January 25, 1997.
Rider No. 6.2:
Although no minimum rent shall be payable by Sublessee for the months of
November and December 1996 and January 1997, Sublessee shall be responsible,
after Sublessor has delivered possession of the Premises to Sublessee, for
payment of all other monetary obligations under this Sublease including, without
limitation, the payment of real property taxes, insurance premiums, utilities,
and all other Operating Costs payable by Sublessor to Lessor under the Master
Lease.
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<PAGE>
11\11\96
Rider No. 7:
The Security Deposit shall be refunded to Sublessee after Sublessee vacates the
Premises within the time period required under then California law, less any
application of the Security Deposit made pursuant to this Sublease or charges
necessary or reasonably estimated to compensate Sublessor for any loss or
damages sustained by Sublessor due to any default or breach by Sublessee of any
obligation hereunder, including, but not limited to, expenses, dues, and costs
incurred by Sublessor in securing full possession of the Premises.
Rider No. 9:
Sublessor's consent to any proposed assignment of the Sublease or sublease of
the Premises shall not be unreasonably withheld or delayed. Any consent granted
by Sublessor shall be made with the understanding that Sublessee shall not be
released from any past, present, or future obligation under this Sublease, and
shall remain liable for the prompt payment of rent and the keeping and
performance of all conditions and covenants of this Sublease by Sublessee to be
kept and performed.
Rider No. 10:
Notwithstanding any provision in this Sublease or the Master Lease to the
contrary:
A. To the extent that the Master Lease provides or requires that Lessor:
(1) Shall pay any sum (including, without limitation, any tenant
improvement allowance);
(2) Make any representation or warranty;
(3) Prepare plans and/or construct or install any tenant improvements
or alterations;
(4) Not unreasonably withhold or delay any consent; or
(5) Provide, obtain, or maintain services, utilities, insurance,
repairs, maintenance, or any and all other landlord obligations
rendered in connection with the use, occupancy, ownership, or
operation of the Premises, the building of which the Premises is
a part, or any parking and landscape area;
Sublessor shall have no liability to Sublessee or any person or entity
acting by or through Sublessee arising from Lessor's breach or default
with respect thereto. In addition, Sublessor
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<PAGE>
11\11\96
shall not be required to perform or satisfy any such obligations
except to make a reasonable effort to cause Lessor to perform its
obligations under the Master Lease. Notwithstanding any provision in
this Rider No. 10 to the contrary, Sublessor shall retain the
obligation to (i) refund to Sublessee any amounts Sublessor actually
receives from Lessor for excess Additional Rent in accordance with the
provisions of Article 4 of the Master Lease, (ii) not unreasonably
withhold or delay its consent when Sublessee is obligated to obtain
Sublessor's consent and the Sublease does not allow Sublessor to
withhold or delay its consent in its discretion, and (iii) pay
attorneys' fees it may owe (as opposed to Lessor) under Article 12.
B. With respect to Article 4 of the Master Lease:
(1) All references to insurance premiums and deductibles for which
Sublessee is required to pay shall be deemed to be the premiums
and deductibles of Lessor and not Sublessor;
(2) Sublessor shall have no obligation to perform any of Lessor's
obligations thereunder; and
(3) Sublessee agrees that any of its obligations to Sublessor under
Section 4.04 shall also be obligations to Lessor, and Sublessor
shall be deemed to have satisfied any obligations it may have as
the tenant under Section 4.04 if such obligations are satisfied
by Sublessee.
C. With respect to Rider to Lease Agreement Paragraph 2 of the Master
Lease (or the provisions of any work letter agreement executed by
Sublessor, Sublessee, and Lessor ("Work Letter Agreement")):
(1) Sublessor shall have no obligation to perform any of Lessor's
obligations thereunder;
(2) Sublessee shall be entitled to utilize all or any portion of the
TI Allowance or Subtenant Improvement Allowance;
(3) Sublessor shall consent to the initial tenant improvements
approved and constructed by Lessor in accordance with the
provisions of this Paragraph 2 of the Rider to the Master Lease
and/or the provisions of any Work Letter Agreement (the "Initial
Sublease Improvements");
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(4) Subject to the provisions of Rider No. 26, Sublessee shall have
no obligation to remove any of the Initial Sublease Improvements
made to the Premises; and
(5) If Sublessor incurs, or could incur, any liabilities, costs,
expenses or damages as a result of Sublessee's failure to satisfy
any of Sublessee's obligations under any Work Letter Agreement,
such obligations shall be deemed to be obligations of Sublessee
under this Sublease.
D. Deleted.
E. Sublessor may not place "for sale" or "for lease" signs on the
Premises or within the parking or landscape areas around the Premises
prior to the last twelve (12) months of the Term of this Sublease.
F. With respect to Sections 5.05 and 6.02 of the Master Lease, Sublessee
shall neither release Sublessor from, nor indemnify Sublessor, with
respect to: (i) the negligence or willful misconduct of Sublessor or
its respective agents, employees, contractors, or invitees; or (ii) a
breach of Sublessor's obligations or representations under this
Sublease. The provisions of the previous sentence, however, will have
no force or effect to the extent they result in any increased
liability to Sublessor arising from any claims, actions, or
proceedings made or commenced by Lessor. The provisions of this Rider
No. 10, Paragraph F shall survive the expiration or sooner termination
of the Sublease.
G. With respect to Section 6.06 of the Master Lease: upon surrendering
the Premises at the expiration or sooner termination of the Term of
this Sublease, Sublessee shall not be:
(1) Responsible for repairing casualty damage covered by Article 7 of
the Master Lease or for Hazardous Materials not introduced,
discharged, emitted, or released in, under, on, or about the
Premises by Sublessee or Sublessee's agents, employees,
contractors, representatives, invitees, successors, assignees, or
subtenants, unless Lessor has the right to, and actually does,
hold Sublessor responsible for the same under the Master Lease or
California law; and
(2) Subject to the provisions of Rider No. 26, required to remove any
improvements to the Premises existing as of: the Commencement
Date, or the Initial Sublease Improvements.
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The provisions of this Rider No. 10, Paragraph G shall survive the
expiration or sooner termination of the Sublease.
H. With respect to Articles 7 and 8:
(1) Sublessor shall have no obligation to perform any of Lessor's
obligations under either article;
(2) Sublessor shall retain all rights it has under the Master Lease
as the "Tenant" to terminate the same in accordance with the
provisions of either article;
(3) Sublessor and Sublessee shall deliver all notices to the other
that each receives from, or delivers to, Lessor, immediately upon
receipt or the delivery of such notices;
(4) References to "Landlord's" rights to elect to make repairs or to
terminate the Lease and to "Landlord's" receipt of insurance
proceeds and maintenance of insurance shall mean "Lessor";
(5) Sublessor shall immediately deliver notices received from
Sublessee to Lessor which implement the matter contained in
Sublessee's notices to Sublessor pursuant to which Sublessee
exercises its rights under either article; and
(6) Any abatement of rent granted to Sublessor pursuant to either
article shall operate to abate the rent under this Sublease.
With respect to Article 10 of the Master Lease, Sublessee shall not be
in material default of this Sublease if it fails to make any payments
of minimum rent or additional rent, or any other payment or escrow
deposit required to be made by Sublessee under this Sublease, as and
when due, unless such failure continues for a period of five (5) days
after written notice of such failure from Sublessor to Sublessee is
received (or deemed received); provided, however, that any such notice
will be in lieu of, and not in addition to, any notice required under
applicable law (including, without limitation, the provisions of
California Code of Civil Procedure Section 1161 regarding unlawful
detainer actions or any successor statute or law of a similar nature).
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Rider No. 10A:
Sublessee agrees to fully perform the "Tenant's" obligations under the Master
Lease (excluding those arising from the provisions "excepted" in the previous
sentence of this Paragraph 10) to the extent that such obligations are
applicable to the Premises or arise, directly or indirectly, from Sublessee's
use and occupancy of the Premises.
Rider No. 11:
The provisions of Article 11 of the Sublease are intentionally omitted with the
understanding that the provisions of Article 12 of the Master Lease will be
applicable to Sublessor and Sublessee.
Rider No. 14:
A. Unless otherwise specifically provided in this Sublease, a bill,
demand, statement, consent, notice, or communication which Sublessor may
desire or be required to give to Sublessee shall be deemed sufficiently
given or rendered only if it is in writing, delivered personally to
Sublessee, or sent by certified mail (return receipt requested) or private
overnight courier (e.g., Federal Express or similar courier) (postage fully
prepaid) addressed to Sublessee at:
Prior to the Commencement Date: After the Commencement Date:
Bell Microproducts Bell Microproducts
1941 Ringwood Avenue 2020 South Tenth Street
San Jose, CA 95131 San Jose, CA 95112
Attention: Bob Sturgeon Attention: Bob Sturgeon
or at such other address as Sublessee shall designate by notice given as
herein provided.
B. Unless otherwise specifically provided in this Sublease, a bill,
demand, statement, consent, notice, or communication which Sublessee may
desire or be required to give to Sublessor shall be deemed sufficiently
given or rendered only if it is in writing, delivered personally to
Sublessor, or sent by certified mail (return receipt requested) or private
overnight courier (e.g., Federal Express or similar courier) (postage fully
prepaid) addressed to Sublessor at:
Imperial Printing Company
2011 Senter Road
San Jose, CA 95112
Attention: Doug Hosking, President
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11\11\96
or at such other address as Sublessor shall designate by notice given as
herein provided.
C. The time of the receipt of such bills or statements and of the
giving of such consents, notices, demands, requests, or communications
(collectively "notice") by Sublessee or Sublessor shall be deemed to be the
earlier of (i) the date delivered if personally delivered, (ii) if the
notice is sent by certified mail, the date the U.S. Post Office certifies
delivery or refusal to accept delivery, or if the U.S. Post Office fails to
provide such certification, then five (5) days after the same is, mailed,
or (iii) if the notice is sent by private overnight courier prior to the
time deadline for next day delivery, one (1) day after the same is picked
up by or delivered to such courier. Rejection or refusal to accept a
notice, request, demand, or the inability to deliver same because of a
changed address of which no notice was given shall be deemed to be a
receipt of the notice, request, or demand sent. The absence or non-
availability of Bob Sturgeon or Doug Hosking, as the case may be, for any
reason whatsoever shall not extend the time of delivery of any notice sent
by certified mail or private overnight courier which otherwise complies
with this Sublease.
Rider No. 15:
In the event Lessor does not consent to this Sublease within such time period
and this Sublease is deemed to have no force or effect, then Sublessor shall
promptly refund to Sublessee any security deposit and prepaid rent paid
hereunder by Sublessee.
Rider No. 17:
SUBLESSEE PARKING.
Sublessee shall have the exclusive right to use the parking spaces in the area
designated for Sublessee's use in Exhibit B-1 attached hereto. Sublessor shall
not be required to tow parked cars, provide sanctions against improper parking,
or otherwise take steps to free occupied parking spaces for Sublessee's use.
Sublessor shall retain the exclusive right to use the parking spaces in the area
designated for Sublessor's use in Exhibit B-1.
Rider No. 18:
SUBLESSOR'S OBLIGATIONS.
Sublessor shall fully perform all of its obligations as the "Tenant" under the
Master Lease to the extent (i) Sublessee has not agreed to perform such
obligations under this Sublease, and (ii) Sublessor is not otherwise relieved of
such obligations pursuant to the provisions of this Sublease. Until the term of
this Sublease expires or is sooner terminated, Sublessor shall not amend or
waive any provision under the
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11\11\96
Master Lease in a manner which would materially adversely affect Sublessee's
rights and obligations under this Sublease without Sublessee's prior written
consent, which consent shall not be unreasonably withheld or delayed. Sublessor,
with respect to the obligations of Lessor under the Master Lease, shall use
Sublessor's diligent good faith efforts to cause Lessor to perform such
obligations for the benefit of Sublessee. Such diligent good faith efforts shall
include, without limitation: (a) upon Sublessee's written request, immediately
notifying Lessor of its nonperformance under the Master Lease, and requesting
that Lessor perform its obligations under tile Master Lease; and (b) permitting
Sublessee to commence a lawsuit or other action in Sublessor's name to obtain
the performance required from Lessor under the Master Lease; provided, however,
that (i) Sublessee does not allege a constructive eviction in such lawsuit, (ii)
such lawsuit cannot result in the termination of the Master Lease, and (iii) if
Sublessee commences a lawsuit or other action, Sublessee shall pay all costs and
expenses incurred in connection therewith, and Sublessee shall indemnify
Sublessor against, and hold Sublessor harmless from, all reasonable costs and
expenses incurred by Sublessor in connection therewith. Sublessor shall not:
(i) Exercise any right to terminate the Master Lease pursuant to Section
2.02 thereof; or
(ii) Enter into any agreement to terminate the Master Lease where the
effective date of such termination is prior to the expiration or
sooner termination of the term of this Sublease,
without Sublessee's prior written consent, which consent shall not be
unreasonably withheld or delayed.
Rider No. 19:
SUBLESSOR'S REPRESENTATIONS AND WARRANTIES.
As an inducement to Sublessee to enter into this Sublease, to the best of
Sublessor's actual knowledge, Sublessor represents and warrants that (i) the
Master Lease is in full force and effect, and (ii) there exists under the Master
Lease no default or event of default by either Lessor or Sublessor, nor has
there occurred any event which, with the giving of notice or passage of time or
both, could constitute such a default or event of default. Sublessor further
represents and warrants that the copy of the Master Lease attached to this
Sublease as Exhibit A is a true and complete copy of the Master Lease and that
there are no addenda, amendments, exhibits, or modifications to the Master Lease
except those which are attached hereto as part of the Master Lease.
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Rider No. 20:
AUTHORIZATION TO DIRECT SUBLEASE PAYMENTS.
Sublessor hereby acknowledges that Sublessor's failure to pay the rent and other
sums owing by Sublessor to Lessor under the Master Lease will cause Sublessee to
incur damages, costs, and expenses, especially in those cases where Sublessee
has paid sums to Sublessor hereunder which correspond in whole or in part to the
amounts owing by Sublessor to Lessor under the Master Lease. Accordingly,
Sublessee shall have the right to pay directly to Lessor the rent and additional
rent owed by Sublessor to Lessor under the Master Lease (including, without
limitation, Lessor's Share of the Profits, as defined in the Master Lease) on
the following terms and conditions:
A. Sublessee reasonably believes that Sublessor has failed to make any
payment required to be made by Sublessor to Lessor under the Master Lease
and Sublessor fails to provide adequate proof of payment within two (2)
business days after Sublessee's written demand requesting such proof.
B. Sublessee shall not prepay any amounts owing by Sublessor without
the prior written consent of Sublessor.
C. Sublessee shall provide to Sublessor concurrently with any payment
to Lessor reasonable evidence of such payment.
D. Sublessee shall pay directly to Sublessor the difference between
the sum of all rent, additional rent, and any other sums payable by
Sublessee to Sublessor under the Sublease, and the amount Sublessee is
allowed to, and does in fact, pay directly to Lessor in accordance with the
provisions of this Rider No. 20.
E. If Sublessor notifies Sublessee that it disputes any amount
demanded by Lessor, Sublessee shall not make any such payment to Lessor
unless Lessor has provided a three (3) day notice to pay such amount or
forfeit the Master Lease. Notwithstanding any provision in this Sublease to
the contrary, Sublessor's notice under this Paragraph D shall be made by
telephone to Sublessee followed by written notice sent in a manner which
would be deemed received the following day under the notice provisions of
this Sublease.
Any sums paid directly by Sublessee to Lessor in accordance with this paragraph
shall be credited toward the amounts payable by Sublessee to Sublessor under the
Sublease. In the event Sublessee tenders payment directly to Lessor in
accordance with this paragraph and Lessor refuses to accept such payment,
Sublessee shall have the right to deposit such funds in an account with a
national bank
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11\11\96
for the benefit of Sublessee and Sublessor, and the deposit of said funds in
such account shall discharge Sublessee's obligation under the Sublease to make
the payment in question.
Rider No. 21:
HAZARDOUS MATERIALS.
In addition to all other provisions in the Sublease and Master Lease which
pertain to Hazardous Materials (as defined in the Master Lease), Sublessor and
Sublessee agree to the following additional provisions:
A. Sublessee agrees to complete and sign the Hazardous Materials
Disclosure Certificate in the form attached hereto as Exhibit C
concurrently with its full execution of this Sublease with the
understanding that Sublessor will deliver a copy of the same to Lessor.
B. Sublessor makes no representations or warranties with respect to
the presence or absence of any Hazardous Materials in, on, or about the
Premises.
C. Sublessee acknowledges that the preparation and completion of a
Hazardous Materials report or study is not a condition of this Sublease.
Sublessor shall ask Lessor for a copy of any report or study relating to
the absence or presence of Hazardous Materials in, on, or about the
Premises which Lessor has in its possession or anticipates to receive.
Sublessor shall deliver to Sublessee a copy of any such report or study it
receives from Lessor.
Rider No. 22.
SUBORDINATION.
Sublessor shall ask Lessor to assist it in efforts to obtain from any lenders or
ground lessors of the Premises or the building in which the Premises are located
a written agreement providing for the non- disturbance and recognition of both
Sublessor's and Sublessee's interests under the Master Lease and Sublease in the
event of a foreclosure of the lender's security interest or termination of the
ground lease.
Rider No. 23:
FIRST RIGHT TO NEGOTIATE.
Subject to and subordinate to (i) the right of Sublessor or Sublessor's
successors and assigns, to use, possess, and/or occupy all or any portion of the
Premises pursuant to the Master Lease, and
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11\11\96
(ii) Sublessor's and/or Sublessor's successors and assigns' right to sublease
the Premises or assign the Master Lease to any of their subsidiary companies,
parent company, or any other entity related or affiliated with Sublessor or
Sublessor's successors or assigns (collectively the "Superior Entities")
Sublessor hereby grants Sublessee a one-time right of first opportunity to
negotiate (the "First Right to Negotiate") an agreement to extend the Term of
this Sublease. Sublessee's First Right to Negotiate shall be a one-time right
only, except that one or more good faith unsolicited inquiries from Sublessee
shall not operate so as to terminate Sublessee's right of first opportunity
hereunder.
A. When and if Sublessor determines that it desires to sublease the
Premises or assign the Master Lease to a person or entity other than the
Superior Entities for the period immediately following the expiration of
the Sublease term, Sublessor shall so inform Sublessee by written notice
("Notice to Sublease"). Within ten (10) days after the Notice to Sublease,
Sublessee shall inform Sublessor by written notice ("Sublessee's Notice")
either: (i) that Sublessee does not desire an extension of the Term of the
Sublease or an assignment of the Master Lease, in which event Sublessor
shall have the right to negotiate a sublease of the Premises or an
assignment of the Master Lease to any person or entity without further
obligation to Sublessee with respect to the First Right to Negotiate
granted pursuant to this Rider No. 23; or (ii) that Sublessee desires an
extension of the Term of the Sublease or an assignment of the Master Lease.
Sublessee's failure to deliver to Sublessor Sublessee's Notice within such
ten (10) day time period shall constitute Sublessee's rejection of the
opportunity to enter into negotiation to extend the Term of the Sublease or
to take an assignment of the Master Lease.
B. In the event Sublessee informs Sublessor of Sublessee's desire for
an extension of the Term of the Sublease or an assignment of the Master
Lease, then Sublessor and Sublessee shall negotiate in good faith a written
agreement. In the event Sublessor and Sublessee do not execute a final
written agreement which fully sets forth the terms and conditions of an
extension of the Term of this Sublease or an assignment of the Master Lease
within thirty (30) days of the Notice to Sublease, then Sublessor shall
have the right to negotiate and enter into a sublease of the Premises or an
assignment of the Master Lease with any person or entity at any time
thereafter under any terms, covenants, and conditions, whether or not they
conform to those offered to Sublessee, without further obligation to
Sublessee with respect to the First Right to Negotiate granted pursuant to
this Rider No. 23.
C. Sublessee's First Right to Negotiate an agreement for an extension
of the Term of the Sublease or an assignment of the Master Lease granted
under this Sublease (i) is personal to Bell Microproducts, Inc., the
Sublessee named in this Sublease or to a "Tenant's Affiliate" (as defined
in Section 9.02 of the Master Lease), and no assignee or sublessee of
Sublessee shall have any such right, and (ii) shall automatically terminate
if:
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11\11\96
(1) At or after the date Sublessor gives the Notice to Sublease and
before the consummation of any written agreement contemplated in
this Rider No. 23, Sublessee is in material default under this
Sublease;
(2) Sublessee has entered into one or more sub-subleases covering
more than twenty percent (20%) of the net rentable square footage
of the Premises and such sub- subleases have not terminated on or
prior to Sublessee's Notice or will not terminate prior to the
original Termination Date, or an assignment of the Sublease; or
(3) This Sublease is terminated or has expired.
Rider No. 24:
LIMITATION OF LIABILITY.
A. In consideration of the benefits accruing hereunder, Sublessee
on behalf of itself and all successors and assigns of Sublessee,
covenants and agrees that in the event of any actual or alleged
failure, breach, or default hereunder by Sublessor: (a) Sublessee's
recourse against Sublessor for monetary damages will be limited to the
amount equal to Lessor's equity interest in the Property (as defined
in the Master Lease); (b) except as may be necessary to secure
jurisdiction of the corporation or partnership, no partner, director,
officer, legal counsel, agent, or shareholder of Sublessor shall be
sued or named as a party in any suit or action and no service of
process shall be made against any such person or entity; (c) no
partner, director, officer, legal counsel, agent, or shareholder of
Sublessor shall be required to answer or otherwise plead to any
service of process; (d) no judgment will be taken against any partner,
director, officer, legal counsel, agent, or shareholder of Sublessor
and any judgment taken against any such person or entity may be
vacated and set aside at any time after the fact; (e) no writ of
execution will be levied against the assets of any partner, director,
officer, legal counsel, agent, or shareholder of Sublessor; (f) the
obligations under this Sublease do not constitute personal obligations
of the individual partners, directors, officers, legal counsel,
agents, or shareholders of Sublessor, and Sublessee shall not seek
recourse against the individual partners, directors, officers, legal
counsel, agents, or shareholders of Sublessor or any of their personal
assets for satisfaction of any liability in respect to this Sublease;
and (g) these covenants and agreements are enforceable both by
Sublessor and also by any partner, director, officer, legal counsel,
agent, or shareholder of Sublessor.
B. Notwithstanding anything to the contrary contained in this
Sublease, Sublessor shall not be liable for consequential damages
arising out of any loss of the use and enjoyment of the Premises or
any equipment or facilities therein by Sublessee or any other person
or entity.
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Rider No. 25:
CONSTRUCTION WARRANTIES.
For the term of this Sublease, Sublessor shall cooperate with Sublease to
enforce any warranties arising from the construction of any tenant improvements
in the Premises, but shall have no obligation to incur any out of pocket costs
or expense in rendering such cooperation.
Rider No. 26:
RESTORATION OF PREMISES AND REDUCTION OF MINIMUM RENT.
Sublessor, at its sole election, may require Sublessee to remove all or any
portion of the Initial Sublease Improvements, and/or the heating, ventilation,
and air conditioning system that services any portion of the manufacturing area
within the Premises (the "HVAC System"), and to repair any damage to the
Premises caused by such removal prior to the expiration or termination of the
Sublease (collectively the "Removal Work"). Sublessor shall notify Sublessee of
Sublessor's election to exercise its rights under this Rider No. 26 any time
prior to the date which is thirty (30) days prior to the expiration date of this
Sublease ("Sublessor's Removal Work Notice"). In the event Sublessor exercises
its rights under this Rider No. 26:
A. Sublessor and Sublessee shall cooperate with each other in
obtaining bids from one or more contractors to perform the Removal Work,
provided that Sublessor shall have the right to determine the exact scope
of the Removal Work, and to select the contractor to perform the Removal
Work in its sole discretion;
B. The minimum monthly rent payable by Sublessee under this Sublease
shall be reduced by an amount equal to the cost of the Removal Work;
C. The phrase "cost of the Removal Work" shall include all
out-of-pocket payments made or payable to any third party person or entity
in connection with, relating to, or arising from the performance of the
Removal Work;
D. If the cost of the Removal Work is less than Twenty Eight Thousand
Six Hundred Thirty-Eight Dollars and Forty Cents ($28,638.40), the
reduction in monthly minimum rent shall be made to the last minimum rent
payment covering at least a thirty (30) day period;
E. If the cost of the Removal Work is more than Twenty Eight Thousand
Six Hundred Thirty-Eight Dollars and Forty Cents ($28,638.40), the
reduction in monthly minimum rent shall be
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11\11\96
spread over the last payments of minimum rent payable by Sublessee in any
manner reasonably determined by Sublessor so that the minimum rent payable
by Sublessee under this Sublease shall not be less than Fifty-Three
Thousand Seven Hundred Seventy-Seven Dollars and Sixty Cents ($53,777.60)
for any month;
F. In the event the actual Cost of the Removal Work is greater than
the reduction in minimum rent granted to Sublessee (the "Excess Removal
Work Cost"), and Sublessee has satisfied all rent and additional rent
obligations under this Sublease, Sublessor shall promptly refund to
Sublessee from such prior minimum rent payments a sum equal to the Excess
Removal Work Cost; and
G. Notwithstanding any provision to the contrary, Sublessee shall not
be required to expend any amounts under this Rider No. 26 greater than the
amount the minimum rent is reduced and/or refunded;
H. Sublessor shall have the right to require Sublessee to deposit the
amount of savings in minimum rent realized by Sublessee or refunded
pursuant to this Rider No. 26 (concurrently with its rent payments to
Sublessor or its receipt of any refund) into an escrow or reserve account
to insure the payment of the Removal Work. Any amount not utilized for the
payment of the cost of the Removal Work shall be disbursed to Sublessor as
rent. Any minimum rent refunded shall be treated as a reduction of minimum
rent in accordance with the provisions of subparagraphs D and E above;
Notwithstanding the foregoing to the contrary, if Sublessee is not in material
default under this Sublease when Sublessor's Removal Work Notice is received (or
deemed received) (i) Sublessor (and not Sublessee) shall be responsible for the
Removal Work, (ii) the Removal Work shall not be commenced until after the
expiration or earlier termination date of the term of this Sublease, (iii)
Sublessor (and not Sublessee) shall enter into a contract with the contractor of
Sublessor's choice to have the Removal Work performed, (iv) Sublessor shall
determine the date (after such expiration or earlier termination date) the
Removal Work shall commence, and (v) all other provisions of this Rider No. 26
shall be applicable. Sublessor shall have the right to retract its election set
forth in the Sublessor's Removal Work Notice (i) at any time and for any reason
whatsoever without Sublessee's consent or approval if Sublessee has not entered
into a contract to have the Removal Work performed, or (ii) with Sublessee's
consent (which shall not be unreasonably withheld or delayed) if Sublessee has
entered into such a contract.
Rider No. 27:
All references to this "Sublease" herein shall be deemed to refer to the
Sublease, any exhibits, addenda, or riders thereto, and any and all of the
provisions of the Master Lease incorporated herein.
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The foregoing Rider provisions are accepted and agreed to by the undersigned:
SUBLESSOR:
JOURNAL COMMUNICATIONS, INC.,
a Wisconsin corporation
By: /s/ Douglas Hosking
-------------------------------------
Title: Vice President
----------------------------------
Date: 11/20/96
-----------------------------------
IMPERIAL PRINTING COMPANY,
a Michigan Corporation
By: /s/ Douglas Hosking
-------------------------------------
Title: President
----------------------------------
Date: 11/20/96
-----------------------------------
SUBLESSEE:
BELL MICROPRODUCTS, INC.,
a California corporation
By: /s/ ATD
-------------------------------------
Title: Vice President Operations
----------------------------------
Date: 11/19/96
-----------------------------------
/s/ REL
VP of Finance
11/19/96
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<PAGE>
FIRST ADDENDUM TO SUBLEASE
This First Addendum to that certain Sublease dated September 27, 1996, by
and between JOURNAL COMMUNICATIONS, INC., A WISCONSIN CORPORATION AND IPC
COMMUNICATION SERVICES, INC., FORMERLY KNOWN AS IMPERIAL PRINTING COMPANY, A
WHOLLY-OWNED SUBSIDIARY OF JOURNAL COMMUNICATIONS, INC., AS JOINT AND SEVERAL
CO-TENANTS ("Sublessor"), and BELL MICROPRODUCTS, INC., A CALIFORNIA CORPORATION
("Sublessee"), for Premises located at 2020 South Tenth Street, San Jose,
California, whereby Sublessor and Sublessee agree that:
1. The "Termination Date" of this Sublease agreement shall be changed
from midnight of January 31, 2002, to midnight of February 27, 2006.
2. Commencing February 1, 2002, and continuing through the Termination
Date Sublessee shall pay as minimum rent the sum of Ninety-Three Thousand
Four Hundred Three and No/100 Dollars ($93,403.00) per month in accordance
with all other provisions of Paragraph 6.1 of the Rider To Sublease.
3. The Sublease shall remain in full force and effect through and
including the Termination Date except to the extent that it is modified by
this Addendum.
4. The provisions of the Sublease respecting payment of attorneys'
fees shall also apply to this Addendum.
AGREED AND ACCEPTED:
SUBLESSEE:
BELL MICROPRODUCTS, INC.
By: /s/ BM Jaffa
Date: November 24, 1997
<PAGE>
SUBLESSOR:
JOURNAL COMMUNICATIONS, INC
IMPERIAL PRINTING COMPANY
By: /s/ Douglas Hosking
Date: November 24, 1997
CONSENTED TO BY LANDLORD:
DINAPOLI, DINAPOLI AND MULCAHY TRUST, a
California general partnership
By: /s/ J. Philip DiNapoli
Its: General partner
Date: December 8, 1997
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<PAGE>
CONSENT TO SUBLEASE
-------------------
THIS CONSENT TO SUBLEASE ("Agreement") is entered into as of the 12th day
of November, 1996, by and among DiNapoli, DiNapoli & Mulcahy Trust, a California
general partnership ("Landlord"), and Journal Communications, Inc., a Wisconsin
corporation, and Imperial Printing Company, a Michigan corporation, a
wholly-owned subsidiary of journal communications, Inc., as joint and several
co-tenants (collectively, "Tenant"), and Bell Microproducts, Inc., a California
corporation ("Subtenant").
THE PARTIES ENTER this Agreement on the basis of the following facts,
intentions and understandings:
A. Landlord leases to Tenant, and Tenant leases from Landlord certain
premises ("Premises") pursuant to an Industrial Real Estate Lease and Rider
to Lease Agreement ("Lease") dated December 22, 1995 and First Amendment to
Lease of even date herewith (the Lease and First Amendment are
collectively, "Master Lease") , a copy of which is attached hereto as
Exhibit A. The Premises are more particularly described in the Master
Lease.
B. Tenant and Subtenant entered into a sublease ("Sublease") dated
November 12, 1996, a copy of which is attached hereto as Exhibit B, whereby
Tenant subleases to Subtenant, and Subtenant subleases from Tenant the
Premises. Tenant has retained the right to use certain parking areas
described in the Sublease. Subtenant is also granted the right to use
certain parking areas described in the Sublease ("Parking Area").
C. The terms of the Master Lease require the written consent of
Landlord as a condition precedent to the Sublease.
D. Landlord hereby grants its consent to the Sublease on the terms and
conditions contained herein.
NOW THEREFORE, IN CONSIDERATION of the mutual covenants and promises of the
parties, the parties hereto agree as follows:
1. Consent. Landlord hereby consents to the Sublease subject to all of the
terms and conditions of this Agreement.
2. Representations.
a. Landlord represents and warrants to Tenant and Subtenant that:
(1) The Master Lease is a true and correct copy of the Master
Lease, and there exist no amendments, modifications, or extensions of
or to the Master Lease except as specified herein, and the Master
Lease is now in full force and effect; and
<PAGE>
(2) No Offsets. To Landlord's actual knowledge, there exist no
defenses or offsets to enforcement of the Master Lease by Landlord or
Tenant. To Landlord's actual knowledge, Tenant is not in default in
the performance of the Master Lease. To Landlord's actual knowledge,
Tenant has not committed any breach thereof, nor to Landlord's actual
knowledge, has any event occurred which, with the passage of time, or
the giving of notice, or both, would constitute a default or breach by
Tenant.
b. Tenant represents-and warrants to Landlord and Subtenant that:
(1) The Master Lease is a true and correct copy of the Master
Lease, and there exist no amendments, modifications, or extensions of
or to the Master Lease except as specified herein, and the Master
Lease is now in full force and effect; and
(2) To Tenant's actual knowledge, there exist no defenses or
offsets to enforcement of the Master Lease by Landlord or Tenant. To
Tenant's actual knowledge, Landlord is not in default in the
performance of the Master Lease. To Tenant's actual knowledge,
Landlord has not committed any breach thereof, nor to Tenant's actual
knowledge, has any event occurred which, with the passage of time, or
the giving of notice, or both, would constitute a default or breach by
Landlord.
3. Subordinate. The Sublease shall be subject and subordinate to the Master
Lease and all of the Master Lease's provisions, covenants, and conditions. In
case of any conflict between the provisions of the Master Lease and the
provisions of the Sublease, as between Tenant and Landlord, the provisions of
the Master Lease shall prevail unaffected by the Sublease. Subtenant shall not
violate any of the terms and conditions of the Master Lease to the extent
applicable to the use and occupancy of the Premises and/or Parking Area. Any
breach of the Master Lease by Tenant or any breach of the Sublease by Subtenant
which results in a breach of the Master Lease shall entitle Landlord -to all the
rights and remedies provided in the Master Lease in the event of a breach, and
any other available remedy, against Tenant.
4. No Ratification. This Agreement shall not operate as an approval of, or
ratification by Landlord of any of the provisions of the Sublease and Landlord
shall not be bound or estopped in any way by the provisions of the Sublease.
This Agreement shall not create in Subtenant or Landlord, as a third party
beneficiary or otherwise, any rights except as herein set forth.
5. No waiver. Notwithstanding any term, covenant, provision or agreement
contained in the Sublease or any other agreement between Tenant and Subtenant
(including, without limitation, Rider No. 10 to the Sublease), except as
specifically set forth in this Agreement or required by law, neither the
Sublease nor any other agreement (including, without limitation, Rider No. 10 to
the Sublease) shall be construed to modify, waive or affect (i) any breach or
default on the part of Tenant under the Master Lease; (ii) any of the
provisions, covenants, or conditions in the Master Lease; (iii)
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<PAGE>
any of Tenant's obligations under the Master Lease; or (iv) any rights or
remedies of Landlord under the Master Lease or to enlarge or increase Landlord's
or Tenant's obligations or Tenant's or Landlord's rights under the Master Lease.
6. Not Assignable. This Agreement is personal to Tenant and Subtenant and
may not be assigned by Tenant or Subtenant, except in accordance with the
provisions of Article 9 of the Master Lease, including, when and as specified in
such Article 9, obtaining the consent of Landlord as set forth in the Master
Lease. Any attempted assignment in violation of this section shall be void.
7. No Release. Neither the Sublease nor this Agreement shall release or
discharge Tenant from any liability under the Master Lease and Tenant shall
remain liable and responsible for the full performance and observance of all of
the provisions, covenants, and conditions set forth in the Master Lease on the
part of Tenant to be performed and observed. The breach of the Sublease by
Subtenant which results in a material default of the Master Lease shall
constitute a material default by Tenant in fulfilling such provision. Tenant
shall indemnify Landlord, hold Landlord harmless from and defend Landlord
against any loss, cost, or expense, including attorneys' fees or costs, which
arise by virtue of Subtenant's use and/or occupancy of the Premises and Parking
Area, except such indemnification shall not apply in the event of Landlord's
negligence, willful misconduct or a material default of Landlord under the
Master Lease.
8. Consent to Subsequent Sublease. This Agreement by Landlord shall not be
construed as a consent by Landlord to any future assignment or subletting either
by Tenant or Subtenant. The Sublease may not be assigned, renewed, or extended
nor shall the Premises and/or Parking Area, or any part thereof, be further
sublet except as provided in the Sublease and Master Lease.
9. Termination. Except as provided in the Non-Disturbance (defined below),
upon the expiration or earlier termination of the term of the Master Lease, or
upon the surrender of the Master Lease by Tenant to Landlord, the Sublease shall
terminate as of the effective date ("Termination Date") of such expiration,
termination, or surrender, and Subtenant shall vacate the Premises and Parking
Area on or before the Termination Date. The foregoing is not intended to and
shall not operate to permit Tenant to terminate the Master Lease except as
permitted by the Sublease.
10. Non-Disturbance Agreement. Concurrently with the execution of this
Agreement, Tenant, Landlord and Subtenant shall execute and promptly thereafter
record a Non-Disturbance, Recognition and Attornment Agreement
("Non-Disturbance") in the form attached hereto as Exhibit C.
11. Continuing Liability. Tenant and Subtenant shall be jointly and
severally liable for all bills rendered by Landlord for charges incurred by or
imposed upon Subtenant which arise during the term of the Sublease for services
rendered and materials supplied to the Premises and/or
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<PAGE>
Parking Area pursuant to the Master Lease, Sublease and/or this Agreement;
provided Tenant and Subtenant shall not be liable for such amounts in the event
Landlord shall have been obligated to provide such services and materials at
Landlord's own cost and expense under the Master Lease. The provisions of this
Paragraph 11 shall not relieve Subtenant of Subtenant's obligation to pay such
bills pursuant to the Sublease.
12. Sale of the Building. In the event of attornment by Subtenant
hereunder, Landlord's liability to Subtenant shall be limited to matters arising
during Landlord's ownership of the Building, and in the event that Landlord (or
any successor owner) shall convey or dispose of the Building to another party,
such party shall thereupon be and become landlord hereunder and shall be deemed
to have fully assumed and be liable for all obligations of this Sublease to be
performed by Landlord which first arise after the date of conveyance, including
the return of any security deposit (in the event Landlord transferred such
security deposit to such successor owner or transferee), and Subtenant shall
attorn to such other party, and Landlord (or such successor owner) shall from
and after the date of conveyance, be free of all liabilities and obligations
hereunder that accrue after such date. Landlord shall remain liable for the
return of the security deposit or such portion thereof as has not been applied
prior to the date of such conveyance in the event Landlord did not transfer the
security deposit to such successor owner or transferee. The liability of
Landlord to Subtenant for any default by Landlord under this Sublease after such
attornment, or arising in connection with Landlord's operation, management,
leasing, repair, renovation, alteration, or any other matter relating to the
Premises and/or Parking Area, shall be limited to the interest of Landlord in
the Property (as defined in the Master Lease) (and proceeds thereof).
13. Subrents. In the event Tenant is in material default under any of the
terms and provisions of the Master Lease, Landlord may elect to receive directly
from Subtenant all sums due or payable to Landlord under the Master Lease,
including without limitation, any Additional Rent (including Landlord's Share of
the Profit (as defined in the Master Lease) in the amount specified by Landlord
to Subtenant in writing), and upon receipt of Landlord's notice Subtenant shall
thereafter pay to Landlord any and all such sums. Neither the service of-such
written notice nor the receipt of such direct payments shall cause Landlord to
assume any of Tenant's duties, obligations and/or liabilities under the
Sublease. Tenant hereby authorizes Subtenant to pay those sums due to Landlord
as set forth in the Master Lease, including without limitation, any Additional
Rent (including Landlord's Share of the Profit), in accordance with the terms of
the Sublease. Tenant shall credit all such sums paid against sums due under the
Sublease. Subtenant shall have no liability or obligation in connection with the
calculation of the sums payable to Landlord pursuant to this paragraph and shall
be entitled to rely on Landlord's written statement of such sums. Under no
circumstances shall Subtenant have any liability to pay to Landlord any sums in
excess of sums which Subtenant would otherwise be obligated to pay to Tenant
under the Sublease.
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<PAGE>
14. Surrender of Premises.
a. HVAC System. In addition to the provisions contained in section
6.06 of the Master Lease, the following shall be applicable upon surrender
of the Premises by Tenant: at least eighteen (18) months prior to the
expiration of the initial Lease Term (or, if Tenant exercises its option
for the First Extended Term (as defined in the Master Lease), at least
eighteen (18) months prior to the expiration of the First Extended Term) ,
Tenant shall inform Landlord in writing that Tenant shall or shall not, at
no cost to Landlord, remove all or any portion of the heating, ventilating,
and air conditioning system ("HVAC System") serving the manufacturing area
of the Premises ("Manufacturing Area"), which Manufacturing Area is
described in Exhibit E-1 attached hereto and incorporated herein by
reference, or (ii) render such HVAC System in the Manufacturing Area
inoperable; provided, however, Tenant shall not have the right to remove
all or any portion of the HVAC System serving the front office area
described on Exhibit E-2 attached hereto ("Front Office Area"). To the
extent the HVAC System in the Manufacturing Area is not removed from the
Premises or rendered inoperable, and is utilized by Tenant, during the Term
of the Master Lease, Tenant shall maintain or cause such HVAC System to be
maintained in accordance with the terms and provisions of the Master Lease,
including without limitation, Section 6.04 of the Master Lease. Upon the
expiration or earlier termination of the Master Lease, if all or any
portion of the HVAC System in the Manufacturing Area has not been removed
prior to such time, Landlord, in Landlord's sole discretion, may require
Tenant to remove the HVAC System or any portion thereof then remaining in
the Manufacturing Area, whether such HVAC System is then operable or not
(and Landlord shall inform Tenant of such decision within sixty (60) days
prior to the expiration or earlier termination of the Master Lease). If
Landlord shall not require Tenant to remove the HVAC System in the
Manufacturing Area within the time period set forth in the preceding
sentence, Tenant shall have no further obligation to remove, repair or
restore such HVAC System in the Manufacturing Area. In the event Tenant
removes all or any portion of the HVAC System in the Manufacturing Area
subsequent to the expiration or earlier termination of the Sublease, Tenant
and its employees, contractors and agents shall remove such HVAC System in
the Manufacturing Area in accordance with industry standards, Tenant shall
promptly repair any damage to the Premises caused by such removal, and
Tenant shall restore the Premises to the extent required by the Master
Lease. With respect to the HVAC System serving the remainder of the
Premises, Tenant shall maintain or cause the HVAC System to be maintained
in accordance with the terms and provisions of the Master Lease.
b. Rear Office Area. Tenant, at no cost and expense to Landlord, shall
have the right to remove all or any portion of the offices located in the
rear office area as described in Exhibit E-3 attached hereto and made a
part hereof (the "Rear office Area"). Landlord shall have the right to
require Tenant, at Tenant's sole cost and expense, to remove all or any
portion of the offices in the Rear Office Area not previously removed by
Tenant in connection with Tenant's surrender of the Premises to Landlord,
provided that Landlord notifies Tenant of such election at least eighteen
(18) months prior to the expiration of the initial Lease Term (or, if
Tenant exercises its option for the First
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<PAGE>
Extended Term, at least eighteen (18) months prior to the expiration of the
First Extended Term). Tenant shall restore such portion of the Premises to
the extent required by the Master Lease.
c. Restoration Obligations. Except for the restoration obligations set
forth in this Agreement with respect to the Rear Office Area and HVAC
System in the Manufacturing Area, Tenant shall not have the obligation to
remove any portion of the Subtenant Improvements (as defined in Exhibit D
attached hereto).
d. Demolition. Prior to or in connection with the construction of the
Subtenant Improvements, Landlord shall, at Landlord's sole cost and
expense, demolish those certain walls in the Front Office Area described in
Exhibit-E-2 attached hereto and the Manufacturing Area described in Exhibit
E-1 attached hereto. The cost of such demolition shall not be (i) deducted
from the Tenant Improvement Allowance described in Exhibit D attached
hereto or (ii) billed to Tenant or Subtenant.
e. Conflict. In the event of any conflict or inconsistency between the
terms of this Paragraph 14 and the terms of the Master Lease and/or
Sublease, the terms of this Paragraph 14 shall govern and control.
15. Bonus Rent. Tenant acknowledges and agrees that Landlord is entitled to
Landlord's Share of the Profit (as such terms are defined in the Master Lease)
as and when set forth in the Master Lease. In determining the amount of
"Landlord's Share of Profit" payable by Tenant to Landlord pursuant to Section
9.05(b) of the Master Lease, no reduction in the Base Rent (as defined in the
Master Lease) or refund granted to Subtenant pursuant to Rider No. 26 of the
Sublease or any amount paid by Subtenant pursuant to the Sublease in lieu of
Base Rent in connection with, relating to or arising from the performance of the
Removal Work (as defined in Rider No. 26 of the Sublease) shall be deemed to be
an amount, fee or other consideration paid to Tenant for the Sublease, whether
or not the Removal Work is Subtenant's or Tenant's responsibility to perform.
16. No Options. Subtenant shall have no right to exercise any option to
extend contained in the Master Lease. Such options are personal to and not
assignable by Tenant.
17. Delivery of Possession; Early Occupancy. Tenant acknowledges and agrees
that, upon the effectiveness of this Agreement, Landlord shall have delivered
possession of the Property (as defined in the Master Lease), Premises and
Parking Area to Tenant. Landlord agrees that Tenant shall have the right to
early occupancy described in Section 2.03 of the Master Lease pursuant to and in
accordance with the terms thereof upon the effectiveness of this Agreement.
18. Condition of Premises. Except as provided in Paragraph 14d and this
Paragraph 18, Landlord shall deliver possession of the Premises to Tenant in the
condition set forth in Section 6.01 of the Master Lease. Subtenant acknowledges
and agrees that the existing HVAC System serving the Premises is not adequate to
serve the needs of Subtenant, as such needs of
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<PAGE>
Subtenant have been communicated to both Landlord and Tenant. However, Landlord
shall make certain that, prior to the completion of the Subtenant Improvements,
the existing HVAC System is serviced such that the HVAC System is in operational
condition, but subject to the provisions below. In no event shall Landlord be
required to perform any additional work to the HVAC System, other than as set
forth above, or to maintain, upgrade, enhance or improve such HVAC System.
Subtenant acknowledges and agrees that (i) Subtenant is subleasing the Premises
and Parking Area based solely upon its inspections and investigations of the
Premises and Parking Area, and that Subtenant is subleasing the Premises and
Parking Area "AS IS" and "WITH ALL FAULTS," based upon the condition of the
Premises and Parking Area as of the date of this Agreement, ordinary wear and
tear and loss by fire or other casualty or condemnation excepted, and (ii)
neither Landlord nor Tenant make any warranty or representation to Subtenant,
express or implied, or arising by operation of law, including, but not limited
to, any warranty of condition, habitability, merchantability or fitness for a
particular purpose, in respect of the Premises and Parking Area, including the
HVAC System. Without limiting the foregoing, Subtenant acknowledges that, except
as may otherwise be specifically set forth elsewhere in this Agreement or the
Master Lease, neither Landlord nor Tenant have made any representations or
warranties of any kind upon which Subtenant is relying as to any matters
concerning the Premises and Parking Area, including, but not .limited to: (i)
the existence or non-existence of any pollutant, toxic waste and/or any
hazardous materials or substances; (ii) the utilities serving Premises; (iii)
the suitability of the Premises and Parking Area, including the HVAC System, for
any and all activities and uses which Subtenant may elect to conduct thereon; or
(iv) the compliance of the Premises and Parking Area, including the HVAC System,
with any zoning, environmental, building or other laws, rules or regulations
affecting the Premises and Parking Area. Neither Landlord nor Tenant make any
representation or warranty to Subtenant that the Premises or Parking Area
complies with the Americans with Disabilities Act or any fire or building code.
19. Tenant Improvements. Paragraph 2 of Rider to Lease Agreement attached
to the master Lease is hereby deleted in its entirety. The Subtenant
Improvements (as defined in Exhibit D to this Agreement) shall be constructed in
accordance with the terms of Exhibit D attached hereto and incorporated herein.
Tenant has reviewed such Exhibit D and consents to each and every provision
contained therein. Upon payment of the Subtenant Improvement Allowance and the
construction of the Subtenant improvements (as each term is defined in Exhibit D
attached hereto), except as otherwise provided in the Matter Lease, neither
Tenant nor Subtenant shall be entitled to any further improvement to be made, or
any further amounts to be paid, by Landlord for tenant improvements to the
Premises. The foregoing is not intended to and shall not relieve Landlord from
liability for any maintenance and repair obligations of Landlord under the
Master Lease.
20. Waiver of Subrogation. Notwithstanding anything to the contrary in the
Sublease or the Master Lease, the parties hereto release each other and their
respective agents, employees, successors, assignees and subtenants from all
liability for injury to any person or damage to any property that is caused by
or results from a risk which is actually insured against or which is required to
be insured against under the Master Lease or the Sublease, without regard to the
negligence
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<PAGE>
or willful misconduct of the entity so released. Each party shall use its
commercially reasonable efforts to cause each insurance policy it obtains to
provide that the insurer thereunder waives all right of recovery by way of
subrogation as required herein in connection with any injury or damage covered
by the policy. If such insurance policy cannot be obtained with such waiver of
subrogation or if such waiver of subrogation is only available at additional
cost and the party for whose benefit the waiver is not obtained does not pay
such additional cost, then the party obtaining such insurance shall immediately
notify the other party of that fact. By execution of this Consent, Landlord
agrees that the provisions contained in this paragraph concerning waiver of
subrogation shall apply to Landlord, and Subtenant as well as to Landlord and
Tenant. This waiver of subrogation shall survive the expiration or early
termination of the Master Lease and Sublease.
21. Condition Precedent. As a condition precedent to the effectiveness of
this Agreement, each of the Non-Disturbance, Exhibit D and those certain First
Amendments to the Master Lease and to that certain Industrial Real Estate Lease
dated December 22, 1995 by and between Landlord and Tenant with respect to
certain premises located at 2011 Senter Road, San Jose, California, in the form
of Exhibit F-1 and Exhibit F-2 attached hereto and incorporated herein by
reference, shall have been fully executed and delivered to Landlord.
22. Miscellaneous.
a. Attorneys' Fees. In the event of any litigation between the parties
hereto with respect to the subject matter hereof, the unsuccessful party
agrees to pay the successful party all costs, expenses and reasonable
attorney's fees incurred therein by the successful party, which shall be
included as a part of the judgment therein rendered.
b. Brokerage Commission. Tenant agrees to indemnify and hold Landlord
harmless from and against any loss, cost, expense, damage or liability,
including reasonable attorneys, fees, incurred as a result of a claim by
any person or entity who claims or did in fact act on Tenant's behalf (i)
that any such person or entity is entitled to a commission, finder's fee or
like payment in connection with the Sublease or (ii) relating to or arising
out of the Sublease or any related agreements or dealings. Subtenant agrees
to indemnify and hold Landlord harmless from and against any loss, cost,
expense, damage or liability, including reasonable attorneys' fees,
incurred as a result of a claim by any person or entity who claims or did
in fact act on Subtenant's behalf (i) that any such person or entity is
entitled to a commission, finder's fee or like payment in connection with
the Sublease or (ii) relating to or arising out of the Sublease or any
related agreements or dealings.
c. Entire Agreement. There are no oral or side agreements among the
parties affecting this Agreement, and this Agreement contains the entire
agreement of the parties with respect to Landlord's consent to the
Sublease.
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<PAGE>
d. Governing Law. The laws of the State of California shall govern
this Agreement.
e. Copies of Default Notices. Copies of any notices of default sent by
(i) Landlord to Tenant under the Master Lease shall be delivered by
Landlord to Subtenant at the address set forth in the Sublease at the same
time such notices are sent to Tenant as set forth in the Master Lease, (ii)
Tenant under the Master Lease or Sublease, as applicable, shall be
delivered to Landlord and Subtenant at the addresses for each set forth in
the Master Lease and Sublease, as applicable, at the same time such notices
are sent to Landlord or Subtenant, as applicable, as set forth in the
Master Lease or Sublease, as applicable, and (iii) Subtenant to Tenant
under the Sublease shall be delivered by Subtenant to Landlord at the
address set forth in the Master Lease at the same time such notices are
sent to Tenant as set forth in the Sublease.
f. Use. Subtenant shall be permitted to use the Premises for light
manufacturing in addition to the other permitted uses under the Master
Lease.
g. Sublease. No provision in this Agreement shall release, waive,
limit or modify any obligation, liability or responsibility Subtenant or
Tenant may have to one another under the Sublease, including but not
limited to, any obligations, liabilities or responsibilities created by the
exhibits to this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
"LANDLORD" "TENANT"
DiNapoli, DiNapoli & Mulcahy Trust, Journal Communications, Inc.,
a California General Partnership a Wisconsin corporation, a joint and several
co-tenant
By: /s/ J. Philip DiNapoli By: /s/ Douglas Hosking
Its: General Partner Its: Vice President
Date: Date: November 12, 1996
-------------------------
By:
----------------------------------------
Its:
---------------------------------------
Date:
--------------------------------------
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<PAGE>
Imperial Printing
Company, a
Michigan
corporation, a
wholly-owned
subsidiary of
Journal
Communications, a
joint and several
co-tenant
By: /s/ Douglas Hosking
Its: President
Date: November 12, 1996
By:
----------------------------------------
Its:
---------------------------------------
Date:
--------------------------------------
"SUBTENANT"
Bell Microproducts, Inc.
a California corporation
By: /s/ ATD
Its: Vice President Operations
Date: November 12, 1996
By: /s/ REL
Its: Vice President of Finance
Date: November 19, 1996
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SUBLEASE ASSIGNMENT AGREEMENT
THIS SUBLEASE ASSIGNMENT AGREEMENT (the "Agreement") shall be effective as
of June 8, 1999 (the "Effective Date"), and is made by and between BELL
MICROPRODUCTS INC., a California corporation ("Assignor"), and PEMSTAR, INC., a
Minnesota corporation ("Assignee").
This Agreement is made with reference to the following facts and
objectives:
A. DiNapoli, DiNapoli & Mulcahy Trust, a California general
partnership ("Master Landlord"), as landlord, and Journal Communications,
Inc., a Wisconsin corporation, and Imperial Printing Company, a Michigan
corporation (collectively, "Sublessor"), as tenant, entered that certain
Industrial Real Estate Lease and that certain Rider to Lease Agreement
dated December 22, 1995, and that certain First Amendment to Industrial
Real Estate Lease dated November 12, 1996, whereby Master Landlord leased
to Sublessor those certain Premises (the "Premises") described as 2020
South Tenth Street, San Jose, California. Such Lease, as so amended, is
referred to herein as the "Master Lease."
B. Sublessor and Assignor entered that certain Sublease and that
certain Rider to Sublease dated November 12, 1996, whereby Sublessor
subleased the Premises to Assignor. Such Sublease and Rider to Sublease
were consented to and modified by that certain Consent to Sublease dated
November 12, 1996, by Master Landlord, Sublessor and Assignor. Sublessor
and Assignor further entered that certain First Addendum to Sublease dated
November 24, 1997, which was consented to by Master Landlord on December 8,
1997. Such Sublease, Rider to Sublease, Consent to Sublease, and First
Addendum to Sublease are referred to herein collectively as the "Sublease."
C. Assignor and Assignee entered into that certain Asset Purchase
Agreement, dated April 30, 1999, (the "Asset Purchase Agreement") pursuant
to which Assignor shall sell and deliver to Assignee, and Assignee shall
purchase and accept from Assignor, at the closing of the transactions
contemplated thereby, all of Assignor's rights with respect to the
Premises.
D. Assignor desires to assign to Assignee all of Assignor's right,
title and interest in, under and to the Sublease, and Assignee desires to
accept such assignment and assume all of the obligations of the "Sublessee"
under the Sublease.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Assignor and Assignee hereby agree as follows:
1. Agreement and Assumption. Assigner hereby assigns, transfers and conveys
to Assignee, and Assignee hereby accepts, all of Assignor's rights, title and
interest in, under and to the Sublease and the Premises. Assignee hereby accepts
this assignment and assumes and agrees to keep,
<PAGE>
perform and fulfill, as a direct obligation to Sublessor and for the benefit of
Assignor, all of the terms, covenants, conditions and obligations required to be
kept, performed and fulfilled by the "Sublessee" under the Sublease accruing
from and after the Effective Date.
2. Security Deposit. The parties acknowledge that Assignor has deposited
with Sublessor the sum of Eighty Thousand Dollars ($80,000) to be held by
Sublessor as a security deposit under Section 7 of the Sublease. From and after
the Effective Date, the security deposit deposited by Assignor with Sublessor
shall be for the benefit of Assignee, subject to the provisions of the Sublease.
3. Responsibilities Under Sublease; Indemnification.
A. Assignor shall be responsible for the payment of all rents and
other amounts and the performance of all obligations required under the
Sublease to be paid or performed by Assignor for any period prior to the
Effective Date, including, without limitation, any and all indemnity
obligations of Assignor accrued with respect to facts or circumstances
first occurring prior to the Effective Date.
B. Assignee shall be responsible for the payment of all rents and
other amounts and the performance of all obligations required under the
Sublease to be paid or performed for any period on or after the Effective
Date, including, without limitation, (i) any and all indemnity obligations
of the "Sublessee" under the Sublease accruing with respect to facts or
circumstances first occurring on or after the Effective Date, (ii) the
performance of all "Removal Work" under Rider No. 26 of the Rider to
Sublease, and (iii) all obligations of the "Sublessee" to remove
improvements and equipment and restore the Premises under Section 14 of the
Consent to Sublease.
C. Subject to the other terms and conditions of this Agreement, to the
extent that Assignor has made payments pursuant to the Sublease that relate
to periods on or after the Effective Date and to the extent that Assignee
shall make payments pursuant to the Sublease that relate to periods prior
to the Effective Date, such amounts shall be prorated as of the Effective
Date and the party with a net obligation to the other shall promptly pay
such amount on or after the Effective Date.
D. Assignee shall indemnify, defend, protect and hold harmless
Assignor, its subsidiaries, directors, officers, agents and other entities
or persons that, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with
Assignor ("Indemnitee"), from and against any and all losses, costs,
claims, liabilities and damages, including reasonable attorneys' fees
arising from or related to (i) the Premises and/or the Sublease that accrue
on or after the Effective Date, (ii) any event or condition that occurs or
exists on or with respect to the Sublease and/or the Premises on or after
the Effective Date, and (iii) Assignee's breach, or alleged breach, of its
obligations under the Sublease or this Agreement (collectively, "Claims").
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E. Notwithstanding anything contained herein, the rights of Assignor
under Rider No. 23 of the Rider to Sublease are personal to Assignor and
are not being assigned or otherwise transferred to Assignee, and Assignee
shall have no power to exercise any "First Right to Negotiate" set forth in
such Rider No. 23. Assignor hereby waives, releases and terminates such
First Right to Negotiate.
F. Assignor agrees, upon the request of Assignee, to join in any
agreement reasonably acceptable to Assignor for early termination of the
Sublease, whether for the purpose of allowing Assignee to enter into a new
lease or sublease covering the Premises or otherwise, provided that
Assignor incurs no costs or liabilities, contingent or otherwise, in
connection with any such agreement.
4. Covenants of Assignee.
A. From and after the Effective Date, Assignee shall (i) pay all rent
and perform all other payment obligations pursuant to this Agreement that
are due pursuant to the Sublease directly to Sublessor and Master Landlord,
and (ii) render performance of all other obligations that are due pursuant
to the Sublease directly to Sublessor and Master Landlord.
B. Assignee shall provide the insurance and insurance certificates
required of the "Sublessee" under the Sublease from and after the Effective
Date and shall cause Assignor to be named as an additional insured on any
policy of insurance carried by Assignee pursuant to the Sublease (or which
is carried by Assignee and relates to the Premises) upon which Assignee is
a named insured. Assignee shall deliver to the Assignor certificates of
insurance, copies of policies and evidence of renewal at the same times and
in the same manner that such items are required to be provided to Sublessor
and Master Landlord under the Sublease.
C. Assignee shall not (i) waive or amend any term or condition of the
Sublease, (ii) exercise any election, option, right or remedy under the
Sublease, (iii) grant any consent or approval under the Sublease, (iv)
improve or otherwise alter any of the Premises, if the cost to remove any
such improvement or alteration and restore the Premises to their prior
condition could exceed $100,000 (the foregoing clause (iv) is not, however,
intended to modify the Tenant's obligations and/or Master Landlord's rights
under the Master Lease or the Sublease Consent), (v) use or otherwise
permit to be present at the Premises any "Hazardous Materials" (as defined
in Section 4 of the Rider to Lease), or (vi) assign, sublease, mortgage,
pledge or encumber any interest in or under this Agreement, the Sublease or
the Premises, without in each such case having obtained the prior written
consent of Assignor, which consent shall not be unreasonably withheld (but
which consent may be conditioned upon Assignee's provision of adequate
security for the performance of Assignee's obligations under this Agreement
and the Sublease); provided, however, that Assignee may not in any event
amend the Sublease to increase the rent or other sums payable thereunder,
to extend the term thereof, to expand the premises subject thereto, or
otherwise to increase the subtenant's obligations thereunder.
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D. Assignee shall promptly deliver to Assignor copies of all notices,
demands, correspondence and other communications given or received by
Assignee to or from Sublessor or Master Landlord under the Sublease.
E. Assignor and its agents and representatives shall have the right to
enter the Premises at reasonable times and from time to time to inspect
such Premises and ensure Assignee's compliance with this Agreement and the
Sublease, subject to Assignee's reasonable security and confidentiality
limitations required by Assignee to protect itself and its customers.
Assignee shall cooperate reasonably with Assignor to demonstrate such
compliance and shall provide Assignor with such evidence of compliance as
Assignor may reasonably request from time to time.
5. Default. In the event that Assignee fails to pay any sum or perform any
obligation to be paid or performed by Assignee under this Agreement or the
Sublease, then, in addition to all other rights and remedies provided at law and
in equity, Assignor shall have the following remedies to which Assignor may
resort cumulatively or alternatively:
A. Right to Cure. Assignor may make such payment or perform such
obligation without waiving or releasing Assignee from its obligations.
Assignor shall be entitled (but not required) to take such action at such
time as is necessary to avoid the occurrence of an event of subtenant's
default under the Sublease. All sums paid by Assignor and all costs of such
performance by Assignor, together with interest at the lesser of (i) the
maximum rate allowed by law and (ii) a rate four (4) percentage points over
the prime rate of interest from time to time published in The Wall Street
Journal, from the date the sum is paid until repaid, shall be reimbursed by
Assignee to Assignor upon Assignor's written demand.
B. Right to Terminate. Assignor may terminate this Agreement by
written notice of termination, in which event this Agreement and the
assignment contained herein shall terminate on the date specified in the
notice. Upon termination of this Agreement, and without prejudice to any
other remedies Assignor may have, Assignor shall have all remedies for
default set forth in Section 10.03 of the Master Lease, including without
limitation, the right to (i) peaceably re-enter the Premises upon voluntary
surrender by Assignee; (ii) expel or remove Assignee and any other
occupants from the Premises using any legal proceedings then available,
including those proceedings contemplated by California Code of Civil
Procedure Section 1161 et seq.; (iii) enter, repossess, use or, subject to
the terms of the Sublease, relet the Premises or any part thereof, for such
term, at such rent, and upon such other terms and conditions as Assignor
may accept; and (iv) remove all property of Assignee from the Premises at
Assignee's expense in accordance with the provisions of California Civil
Code Sections 1980-1991. If and to the extent this Agreement is
characterized as a sublease for purposes of determining Assignor's rights
and remedies against Assignee, (i) Assignor shall have the remedy described
in California Civil Code Section 1951.4 (which provides that a lessor may
continue a lease in effect after the lessee's breach and abandonment and
recover rent as it becomes due, if the lessee has the right to sublet or
assign, subject only to reasonable limitations), and (ii) Assignor shall
have the right
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to recover damages in accordance with the provisions of California Civil
Code Section 1951.2, including the right to recover the worth at the time
of the award of the amount by which the unpaid rent which would have been
earned after termination until the time of the award exceeds the amount of
rental loss that Assignee proves could have been reasonably avoided.
C. Damages on Termination. If Assignor terminates this Agreement
pursuant to Section 5B, Assignor shall be entitled to damages for all
detriment proximately caused by Assignee's failure to perform its
obligations under the Master Lease, the Sublease and this Agreement, or
which in the ordinary course of things would be likely to result therefrom,
including, without limitation, all amounts paid or payable to Sublessor
and/or Master Landlord by Assignee under the terms of the Sublease or on
account of Assignee's default in performance thereof and all other damages
recoverable by Assignor under California law.
Notwithstanding the foregoing, Assignor shall not exercise any rights under
this Section 5 to perform any non-monetary obligation of Assignee under this
Agreement or the Sublease or to terminate this Agreement for any such failure to
perform such an obligation unless either Master Landlord, Sublessor or Assignor
has first given Assignee at least fifteen (15) days prior written notice of such
default, nor if Assignee shall reasonably and in good faith commence to remedy
such default within such fifteen (15)-day period and thereafter diligently
pursue such remedy to completion in a manner satisfactory to Master Landlord,
Sublessor and Assignor. No such notice shall be required, however, if Assignee's
failure to perform constitutes a non-curable breach of the Sublease or this
Agreement. Any such notice under this paragraph shall satisfy any and all notice
requirements imposed by law and is not in addition to any such requirement.
6. Condition. This Agreement and the assignment contained herein shall not
become effective unless and until Sublessor and Master Landlord shall have given
their written consent to this Agreement in a form reasonably satisfactory to
Assignor and Assignee.
7. Estoppel Certificates and Financial Statements. At any time during the
term of the Sublease, Assignee or Assignor shall, following any request by the
other, promptly execute and deliver to the requesting party within ten (10) days
following delivery of a request therefor an estoppel certificate: (i) certifying
that the Sublease is unmodified and in full force and effect or, if modified,
stating the nature of such modification and certifying that the Sublease, as so
modified, is in full force and effect; (ii) stating the date to which the rent
and other charges have been paid in advance, if any; (iii) acknowledging that
there are not, to such party's knowledge, any uncured defaults on the part of
Assignor, Assignee, Sublessor or Master Landlord under the Sublease or, if there
are uncured defaults, specifying the nature of such defaults; and (iv)
certifying such other information about the Sublease and the Premises as may be
reasonably requested by the requesting party. At any time during the term of the
Sublease, Assignee shall, upon ten (10) day's prior written notice from
Assignor, provide Assignee's most recent financial statements, which statements
shall be prepared in accordance with generally accepted accounting principles.
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8. Miscellaneous. Time is of the essence of this Agreement. The language in
all parts of this Agreement shall in all cases be construed as a whole according
to its fair meaning and not strictly for or against either Assignor or Assignee,
both of whom were represented by counsel in connection with the negotiation and
preparation of this Agreement. The terms "shall," "will," and "agree" are
mandatory. The term "may" is permissive. When a party is required to do
something by this Agreement, it shall do so at its sole cost and expense without
right of reimbursement from the other party unless a provision of this Agreement
expressly requires reimbursement. Assignor and Assignee shall execute and
deliver such additional documents and take such additional actions as either may
reasonably request to carry out the purposes of this Agreement. This Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, successors and assigns. If either party brings an action
or legal proceeding with respect to this Agreement, the prevailing party shall
be entitled to recover its reasonable attorneys' fees and costs. All captions
contained in this Agreement are for convenience of reference only and shall not
affect the construction of this Agreement. This Agreement may be executed in one
or more counterparts, each of which shall be an original, but all of which,
taken together, shall constitute one and the same Agreement. If any one or more
of the provisions of this Agreement shall be invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
9. Brokerage Commissions. Each party hereto (i) represents to the others
that it has not had any dealings with any real estate brokers, leasing agents or
salesmen, or incurred any obligations for the payment of real estate brokerage
commissions or finders' fees which would be earned or due and payable by reason
of the execution of this Agreement, and (ii) agrees to indemnify, defend and
hold harmless the other party from any claim for any such commission or fees
which result from the actions of the indemnifying party.
10. Notices. Except for legal process which may also be served as provided
by law or as provided herein, all notices, demands, requests, consents and other
communications ("Notices") which may be given or are required to be given by any
party under this Agreement to the other shall be in writing and shall be deemed
given to and received by the party intended to receive such Notice (i) when hand
delivered, (ii) on the date on which the United States Postal Service certified
delivery or refusal to accept delivery of such Notice which shall have been
deposited, postage prepaid, in the United States mail, certified return receipt
requested, properly addressed to the address specified herein, or (iii) on the
date of delivery sent to the address specified herein by reputable overnight
courier (e.g., Federal Express or other comparable service), as evidenced by
such courier's records. All such Notices to Assignor shall be sent to Assignor
at Bell Microproducts, Inc., 1941 Ringwood Avenue, San Jose, California 95131,
Attention: Chief Financial Officer. All such Notices to Assignee shall be sent
to Assignee at PEMSTAR INC., 3535 Technology Drive, Rochester, Minnesota 55901,
Attention: Al Berning.
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11. Entire Agreement. This Agreement constitutes the entire agreement
between Assignor and Assignee regarding the Sublease and the Premises, and there
are no binding agreements or representations between the parties except as
expressed in this Agreement; provided, however, that, in the event a Claim
arises under this Agreement as to which an Indemnitee is entitled to
indemnification hereunder, Assignor shall be entitled to elect to seek
indemnification under this Agreement or under the Asset Purchase Agreement so
long as Indemnitee does not realize a double recovery with respect to any such
Claim. Such indemnification shall be the sole and exclusive remedy of Indemnitee
with respect to such Claim and shall preclude assertion by any other party of
any other rights or the seeking of any other remedies against another party. An
Indemnitee's right to indemnification under this Agreement is in addition to,
and not in derogation, modification, or replacement of, Assignor's rights to
indemnification, or any other rights or obligations of either Assignor or
Assignee, under the Asset Purchase Agreement. By way of example, which is merely
illustrative and not intended to be exhaustive, should a Claim by Assignor for
indemnification by Assignee arise under this Agreement, Assignor may, in its
sole discretion, elect to receive indemnification in accordance with Section 3D
of this Agreement or Section 8.1(b) of the Asset Purchase Agreement. Assignee
acknowledges that neither Assignor nor any party acting on behalf of Assignor
has made any legally binding representation as to any matter except those
expressly set forth in this Agreement or in the Asset Purchase Agreement, and
Assignee agrees that it may not reasonably rely on any representation made by,
or purportedly made by, Assignor or any party acting on behalf of Assignor
unless such representation is expressly set forth in this Agreement or in the
Asset Purchase Agreement. There are no oral agreements between Assignor and
Assignee affecting this Agreement, and, except as provided above, this Agreement
supersedes and cancels any and all previous negotiations, arrangements,
agreements, and understandings, if any, between Assignor and Assignee with
respect to the subject matter of this Agreement. This Agreement shall not be
legally binding until it is executed by Assignor and Assignee. No subsequent
change or addition to this Agreement, nor any waiver of any term or condition
hereof, shall be binding unless in writing and signed by the party sought to be
bound thereby.
12. Counterparts. For the convenience of the parties, this Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same document.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
14. Authority. Each party hereto represents and warrants to the other party
that (i) the person or persons executing this Agreement on behalf of such party
are duly authorized to execute this Agreement on behalf of such party, and (ii)
such party has the right, power and authority to execute and deliver this
document to the other party and to perform its obligations as set forth herein.
IN WITNESS WHEREOF, Assignor and Assignee have executed this Agreement
intending it to be effective as of the Effective Date.
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ASSIGNOR:
BELL MICROPRODUCTS, INC.
By: /s/ BM Jaffe
Title: Sr. Vice President
Date: June 4, 1999
ASSIGNEE:
PEMSTAR, INC.
By: /s/ Gary Lingbeck
Title: Executive Vice President
Date: June 4, 1999
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CONSENT TO ASSIGNMENT OF SUBLEASE
THIS AGREEMENT ("Agreement") is made as of June 7, 1999, by and between
DiNapoli, DiNapoli & Mulcahy Trust, a California general partnership ("Master
Landlord"), Journal Communications, Inc., a Wisconsin corporation, and Imperial
Printing Company, a Michigan corporation, a wholly owned subsidiary of Journal
Communications, Inc., as Joint arid several co-tenants (collectively,
"Sublessor"), Bell Microproducts, Inc., a California corporation, as subtenant
("Assignor"), and PEMSTAR, INC., a Minnesota corporation, as assignee of
subtenant ("Assignee") with reference to the following facts:
A. Master Landlord and Sublessor entered into that certain Industrial
Real Estate Lease arid that certain Rider to Lease Agreement dated December
22, 1995, and that certain First Amendment to Industrial Real Estate Lease
dated November 12, 1996, whereby Master Landlord leased to Sublessor those
certain premises described as 2020 South Tenth Street, San Jose, California
and certain parking areas described in the Sublease (defined below)
(collectively, "Premises"). Such Lease, as so amended, is referred to
herein as the "Master Lease."
B. Sublessor and Assignor entered into that certain Sublease and that
certain Rider to Sublease dated November 12, 1996, whereby Sublessor
subleased the Premises to Assignor. Such Sublease arid Rider to Sublease
were consented to and modified by that certain Consent to Sublease dated
November 12, 1996, by and among Master Landlord, Sublessor and Assignor
("Sublease Consent"). Sublessor and Assignor further entered into that
certain First Addendum to Sublease dated November 24, 1997, which was
consented to by Master Landlord on December 8, 1997. Such Sublease, Rider
to Sublease, Consent to Sublease, and First Addendum to Sublease are
referred to herein collectively as the "Sublease."
C. Assignor and Assignee entered into that certain Sublease Assignment
Agreement dated June 7, 1999 ("Assignment") pursuant to which Assignor
assigned to Assignee and Assignee accepted and assumed all of Assignor's
right, title and interest in, under and to the Sublease, subject to each of
Master Landlord's and Sublessor's consent. A true and correct copy of the
Assignment is attached hereto as Exhibit A and incorporated herein by this
reference.
D. Assignor has requested that Master Landlord consent to Assignor's
assignment of the Sublease to Assignee pursuant to the Sublease and
Assignment. Master Landlord has agreed to consent to the assignment on the
following terms and conditions.
NOW, THEREFORE, in consideration of the foregoing, and in consideration of
the mutual agreements and covenants hereinafter set forth, Master Landlord,
Sublessor, Assignor and Assignee agree as follows:
<PAGE>
1. Definitions. Unless otherwise defined in this Agreement, all defined
terms used in the Agreement shall have the meaning and definition given them in
the Master Lease.
2. Master Lease.
2.1 The Sublease and Assignment shall be at all times subject and
subordinate to all of the terms and conditions of the Master Lease. In case
of any conflict between the provisions of the Master Lease and the
provisions of the Sublease and Assignment, as between Sublessor and Master
Landlord, the provisions of the Master Lease shall prevail unaffected by
the Sublease and Assignment. Assignor and Assignee shall not violate any of
the terms and conditions of the Master Lease to the extent applicable to
the use and occupancy of the Premises. Subject to the terms of that certain
Nondisturbance, Recognition and Attornment Agreement dated November 12,
1996 by and among Master Landlord, Sublessor and Assignor
("Nondisturbance"), any breach of the Master Lease by Sublessor shall
entitle Master Landlord to all the rights and remedies provided in the
Master Lease. Any breach of the Sublease or Assignment by Assignor or
Assignee that results in a breach of the Master Lease shall entitle Master
Landlord to all the rights and remedies provided in the Master Lease.
2.2 Except as provided in the Nondisturbance, upon the expiration or
earlier termination of the term of the Master Lease, or upon the surrender
of the Master Lease by Sublessor to Master Landlord, the Sublease and
Assignment shall terminate as of the effective date ("Termination Date") of
such expiration, termination, or surrender, and Assignor and Assignee shall
vacate the Premises on or before the Termination Date. The foregoing is not
intended to and shall not operate to permit Sublessor to terminate the
Master Lease except as permitted by the Master Lease. Except to the extent
set forth in the Master Lease and Sublease Consent, neither Assignor nor
Assignee shall have any right and there shall not be vested in either of
them any right to exercise rights of first refusal, option or other similar
preferential rights, if any (collectively, "Option Rights"), given to
Sublessor under the Master Lease; notwithstanding the foregoing, Assignor
and Assignee acknowledge and agree that under no event or circumstance
shall any of such Option Rights be or otherwise assignable or transferable
to any other person or entity, by operation of law or otherwise, without
Master Landlord's prior written consent, which consent may be withheld by
Master Landlord in its sole and absolute discretion.
2.3 Sublessor represents and warrants to Master Landlord that (a)
there exist no amendments, modifications, or extensions of or to the Master
Lease except as specified herein, and the Master Lease is now in full force
and effect; and (b) to Sublessor's actual knowledge, there exist no
defenses or offsets to enforcement of the Master Lease by Master Landlord
or Sublessor. To Sublessor's actual knowledge, (i) Master Landlord is not
in default in the performance of the Master Lease, (ii) Master Landlord has
not committed any breach thereof, and (iii) no event has occurred which,
with the passage of time, or the giving of notice, or both, would
constitute a default or breach by Master Landlord.
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2.4 Sublessor represents and warrants to Master Landlord that (a)
there exist no amendments, modifications, or extensions of or to the
Sublease except as specified herein, and the Sublease is now in full force
and effect; and (b) to Sublessor's actual knowledge, there exist no
defenses or offsets to enforcement of the Sublease by Sublessor or
Assignor. To Sublessor's actual knowledge, except as contained in the
Letter (defined below) (i) Sublessor is not in default in the performance
of the Sublease, (ii) Sublessor has not committed any breach thereof, and
(iii) no event has occurred which, with the passage of time, or the giving
of notice, or both, would constitute a default or breach by Sublessor.
Notwithstanding anything in this consent to the contrary, nothing contained
in this consent shall be deemed an admission by Sublessor, Assignor, or
Assignee that any of the matters described in the Letter constitutes a
default under the Master Lease.
2.5 Assignor represents and warrants to Master Landlord that (a) there
exist no amendments, modifications, or extensions of or to the Sublease and
Assignment except as specified herein, and the Sublease and Assignment is
now in full force and effect; and (b) to Assignor's actual knowledge, there
exist no defenses or offsets to enforcement of the Sublease and Assignment
by Assignor or Assignee. To Assignor's actual knowledge, except as to
matters described in a letter dated May 12, 1999, from Master Landlord to
Sublessor ("Letter"), (i) Assignor is not in default in the performance of
the Sublease and Assignment, (ii) Assignor has not committed any breach
thereof, and (iii) no event has occurred which, with the passage of time,
or the giving of notice, or both, would constitute a default or breach by
Assignor. Assignee represents and warrants to Master Landlord that there
exist no amendments, modifications, or extensions of or to the Assignment
except as specified herein, and the Assignment is now in full force and
effect; and (b) to Assignee's actual knowledge, there exist no defenses or
offsets to enforcement of the Assignment by Assignor or Assignee. To
Assignee's actual knowledge, except as contained in the Letter, (i)
Assignee is not in default in the performance of the Assignment, (ii)
Assignee has not committed any breach thereof, and (iii) no event has
occurred which, with the passage of time, or the giving of notice, or both,
would constitute a default or breach by Assignee.
2.6 Assignor and Assignee represent and warrant to Master Landlord
that there are no additional payments of rent or consideration of any type
payable by Assignee to Assignor or payable by Assignee to Sublessor, with
regard to the Premises other than as disclosed in the Assignment. Sublessor
represents and warrants to Master Landlord that no payments of rent or
consideration of any type are being paid to Sublessor by Assignor or
Assignee.
3. Consent of Master Landlord. Master Landlord hereby consents to the
assignment of the Sublease to Assignee pursuant to the terms of the Assignment.
Master Landlord's consent shall not release or discharge Sublessor of any of its
obligations under the Master Lease or release, discharge or alter the primary
liability of Sublessor to pay rent and all other sums due under the Master Lease
and to perform and comply with all other obligations of Sublessor under the
Master Lease. As between Master Landlord and Sublessor, the Sublease and
Assignment shall not alter, amend or otherwise modify the provisions of the
Master Lease. Master Landlord shall have no obligations to any party in
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<PAGE>
connection with the Premises other than those obligations set forth in the
Master Lease and Sublease Consent. Master Landlord shall not be bound or
estopped in any way by the provisions of the Sublease and Assignment.
4. Insurance.
4.1 Assignee shall, at its own expense, with respect to the Premises,
secure and keep in force during the term of the Sublease and Assignment
such insurance as is required of Sublessor under the Master Lease. Such
policy or policies of insurance shall name Master Landlord and its lenders,
if any, as additional insured(s). A certificate evidencing such insurance
shall be delivered to Master Landlord promptly after the date hereof.
Nothing contained in this Section 4.1 shall affect Sublessor's obligations
to maintain such insurance as is required of Sublessor under the Master
Lease.
4.2 Notwithstanding anything to the contrary in the Sublease,
Assignment or the Master Lease, the parties hereto release each other and
their respective agents, employees, successors, assignees, and subtenants
from all liability for injury to any person or damage to any property that
is caused by or results from a risk which is actually insured against or
which is required to be insured against under the Master Lease, Sublease or
Assignment, without regard to the negligence or willful misconduct of the
entity so released. Each party shall use its commercially reasonable
efforts to cause each insurance policy it obtains to provide that the
insurer thereunder waives all right of recovery by way of subrogation as
required herein in connection with any injury or damage covered by the
policy. If such insurance policy cannot be obtained with such waiver of
subrogation, or if such waiver of subrogation is only available at
additional cost and the party for whose benefit the waiver is not obtained
does not pay such additional cost, then the parry obtaining such insurance
shall immediately notify the other party of that fact. By execution of this
Agreement, each party to this Agreement agrees that the provisions
contained in this paragraph concerning waiver of subrogation shall apply
equally to all parties hereto. This waiver of subrogation shall survive the
expiration or early termination of the Master Lease, Sublease and/or
Assignment.
5. Assignment and Sub-Subletting. Assignee shall not voluntarily or by
operation of law, (1) mortgage, pledge, hypothecate or encumber the Sublease or
Assignment or any interest therein, (2) assign or transfer the Assignment or any
interest therein, sub-sublet the Premises or any part thereof, or any right or
privilege appurtenant thereto, or allow any other person (the employees, agents
and invitees of Assignee excepted) to occupy or use the Premises, or any portion
thereof, without first obtaining th written consent of Master Landlord.
6. Tenant Improvements. In the event Assignee desires to make any tenant
improvements or alterations to the Premises, Master Landlord shall notify
Sublessor, Assignor and Assignee of Master Landlord's consent or disapproval
within ten (10) business days after Assignee submits to Master Landlord (i) a
request for Master Landlord's consent together with drawings or a detained
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<PAGE>
description o the proposed improvements or alterations, as appropriate, and (ii)
such additional information as Master Landlord shall request. If Master Landlord
disapproves Assignee's request, then Master Landlord shall notify Sublessor,
Assignor and Assignee of the reasons for its disapproval.
7. Miscellaneous Provisions.
7.1 Assignor shall pay to Master Landlord, upon Master Landlord's
demand, the fee specified in the Master Lease, or if no fee is so
specified, Master Landlord's reasonable fees incurred in connection with
Master Landlord's review and processing of documents relating to the
assignment of the Premises to Assignee.
7.2 Sublessor, Assignor and Assignee agree not to amend, modify,
supplement, or otherwise change in any respect the Sublease or Assignment
except as provided in the Sublease and the Master Lease. This Agreement
shall not create in Assignee, as a third party beneficiary or otherwise,
any rights except as set forth in this Agreement.
7.3 All notices under this Agreement which any party desires to give
or provide to the other shall be personally delivered or sent by registered
or certified U.S. mail, postage prepaid, return receipt requested, to the
respective addresses set forth immediately below each party's signature
hereto. Each party shall have the right to change its address for notices
by giving written notice thereof to the other party in accordance with this
Section 7.3. Any notice given in accordance with this Section 7.3 shall be
deemed delivered upon the actual receipt (or attempted delivery if delivery
is refused). Copies of any notices of default sent by (i) Assignor under
the Sublease or Assignment, as applicable, shall be delivered to Master
Landlord at the same time such notices are sent to Assignee and (ii)
Assignee under the Sublease and Assignment shall be delivered by Assignee
to Master Landlord at the same time such notices are sent to Assignor by
Assignee.
7.4 This Agreement, together with the Master Lease, Sublease,
Nondisturbance and Assignment, contains the entire agreement between the
parties hereto regarding the matters which are the subject of this
Agreement. This Agreement shall not be assignable by any party hereto
except in conjunction with and except as may be permitted by the Master
Lease, Sublease and Assignment, respectively. Any attempted assignment in
violation of this section shall be void. The terms, covenants and
conditions of this Agreement shall apply to and bind the heirs, successors,
the executors and administrators and permitted assigns of all the parties
hereto. The parties acknowledge and agree that no rule or construction, to
the effect that any ambiguities are to be resolved against the drafting
party, shall be employed in the interpretation of this Agreement. If any
provision of this Agreement is determined to be illegal or unenforceable,
such determination shall not affect any other provisions of this Agreement,
and all such other provisions shall remain in full force and effect.
7.5 If any party hereto fails to perform any of its obligations under
this Agreement or if any dispute arises between the parties hereto
concerning the meaning or interpretation of any
-5-
<PAGE>
provision of this Agreement, then the defaulting party or the party not
prevailing in such dispute, as the case may be, shall pay any and all costs
and expenses incurred by the other party on account of such default and/or
in enforcing or establishing its rights hereunder, including, without
limitation, court costs and reasonable attorneys' fees and disbursements.
Any such attorneys' fees and other expenses incurred by any parry in
enforcing a judgment in its favor under this Agreement shall be recoverable
separately from and in addition to any other amount included in such
judgment, and such attorneys' fees obligation is intended to be severable
from the other provisions of this Agreement and to survive and not be
merged into any such judgment.
7.6 This Agreement may be executed in any number of counterparts,
provided each of the parties hereto executes at least one counterpart
hereof shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement. The parties agree
that the delivery of an executed copy of this Agreement by facsimile shall
be legal and binding and shall have the same full force and effect as if an
original of this Agreement had been delivered. Facsimile signatures shall
be binding upon the parties.
7.7 Sublessor, Assignor and Assignee covenant and agree that under no
circumstances shall Master Landlord be liable for any brokerage commission
or other charge or expense in connection with the Assignment or this
Agreement and each of Sublessor, Assignor and Assignee agree to protect,
defend, indemnify and hold Master Landlord harmless from the same and from
any cost or expense (including but not limited to attorneys' fees) incurred
by Master Landlord in resisting any claim for any such brokerage
commission.
7.8 This Agreement shall in no manner be construed as limiting Master
Landlord's ability to exercise its rights, if any, to recapture any portion
of the Premises, as set forth in the Master Lease, in the event of a
proposed future sublease or assignment of such portion of the Premises.
7.9 The terms and provisions of this Agreement shall be construed in
accordance with and governed by the laws of the State of California.
7.10 Sublessor, Assignor and Assignee agree that the liability of
Master Landlord hereunder and any recourse by Sublessor, Assignor and/or
Assignee against Master Landlord shall be subject to the limitations on
liability set forth in the Master Lease and Sublease Consent. In addition,
neither Master Landlord, nor any of its constituent members, partners,
subpartners, or agents, shall have any personal liability, and each of
Sublessor, Assignor and Assignee each hereby expressly waives and releases
such personal liability on behalf of itself and all persons claiming by,
through or under any of them.
7.11 Sublessor, Assignor and Assignee shall be jointly and severally
liable for all bills rendered by Master Landlord for charges incurred by or
imposed upon Assignee which arise during the term of the Sublease and
Assignment for services rendered and materials supplied to the Premises
-6-
<PAGE>
pursuant to the Master Lease, Sublease, Assignment and/or this Agreement;
provided, Assignor and Assignee shall not be liable for such amounts in the
event Master Landlord shall have been obligated to provide such services
and materials at Master Landlord's own cost and expense under the Master
Lease. The provisions of this Paragraph 7.11 shall not relieve Assignor or
Assignee of Assignor's or Assignee's obligation to pay such bills pursuant
to the Sublease.
7.12 Except as set forth in the Sublease Consent and the
Nondisturbance, the voluntary or other surrender of the Master Lease by
Sublessor or a mutual cancellation, termination or expiration thereof,
shall not work as a merger, and shall, at the option of Master Landlord,
terminate all or any existing subleases or subtenancies, or may, at the
option of Master Landlord, operate as an assignment to Master Landlord of
any or all such subleases or subtenancies.
7.13 As a condition precedent to the effectiveness of this Agreement,
Assignee shall have delivered to Master Landlord a fully complete and
executed Hazardous Materials Disclosure Statement in the form attached
hereto as Exhibit B and incorporated herein by reference.
7.14 Sublessor, Assignor and Assignee acknowledge and agree that (i)
under no event or circumstance shall Master Landlord be required to perform
any work to the Premises, whether to maintain, upgrade, enhance or improve
any of the building systems, except as required by the express provisions
of the Master Lease and the Sublease Consent, (ii) the Premises are being
subleased and the Sublease is being assigned based solely upon the
inspections and investigations of the Premises by Assignor and Assignee,
and that the Premises are being subleased on an "AS-IS" basis and "WITH ALL
FAULTS," based upon the condition of the Premises as of the date of this
Agreement, ordinary wear and tear and loss by fire or other casualty or
condemnation excepted, and (iii) Master Landlord nor Sublessor make any
warranty or representation to Assignor or Assignee, express or implied, or
arising by operation of law, including but not limited to, any warranty of
condition, habitability, merchantability or fitness for a particular
purpose, in respect of any portion of the Premises. Without limiting the
foregoing, Assignor and Assignee acknowledge and agree that, except as may
otherwise be specifically set forth elsewhere in this Agreement, the
Sublease Consent or the Master Lease (or the Sublease, with respect to
Sublessor only) neither Master Landlord nor Sublessor has made any
representations or warranties of any kind upon which Assignor or Assignee
is relying as to any matters concerning the Premises including, but not
limited to: (a) the existence or nonexistence of any pollutant, toxic waste
and/or any hazardous materials or substances; (b) the utilities serving the
Premises; (c) the suitability of the Premises for any and all activities
and uses which Assignor or Assignee may elect to conduct thereon; or (d)
the compliance of the Premises with any zoning, environmental, building or
other laws, rules or regulations affecting the Premises. Neither Master
Landlord nor Sublessor makes any representation or warranty to Assignor or
Assignee that the Premises complies with the Americans with Disabilities
Act or any other law, ordinance, regulation or code. Nothing contained in
this paragraph, however, shall release or relieve (i) Master Landlord from
any of its obligations or liabilities under the Master Lease or Sublease
Consent or (ii) Sublessor from any of its obligations or liabilities under
the Master Lease, Sublease or Sublease Consent.
-7-
<PAGE>
IN WITNESS WHEREOF, Master Landlord, Sublessor, Assignor and Assignee have
executed this Agreement as of the day and year first hereinabove written.
MASTER LANDLORD:
DiNapoli, DiNapoli & Mulcahy Trust, a
California general partnership
By: DiNapoli Family Limited Partnership,
Its: Managing Partner
By: JP DINAPOLI COMPANIES, Inc.
Its: General Partner
By: /s/ J. DiNapoli
--------------------------------
Its: Vice President
Master Landlord's Address for Notices:
DiNapoli, DiNapoli & Mulcahy Trust
c/o DiNapoli Companies
99 Almaden Boulevard, Suite 565
San Jose, California 95113
Attention: Ms. Eire Stewart
SUBLESSOR:
Journal Communications, Inc.,
a Wisconsin corporation
By:
----------------------------------------
Its:
---------------------------------------
By:
----------------------------------------
Its:
---------------------------------------
-8-
<PAGE>
Imperial Printing Company,
a Michigan corporation, a wholly owned
subsidiary of Journal Communications, Inc.
By:
----------------------------------------
Its:
---------------------------------------
By:
----------------------------------------
Its:
---------------------------------------
Sublessor's Address for Notices:
Journal Communications, Inc. and
Imperial Printing Company
333 West State Street
Milwaukee, Wisconsin 53201-0661
Attention:
--------------------------
ASSIGNOR:
Bell Microproducts, Inc.,
a California corporation
By: /s/ REL
----------------------------------------
Its: CFO
---------------------------------------
By: /s/ M. Bell
----------------------------------------
Its: President
---------------------------------------
Assignor's Address for Notices:
Bell Microproducts, Inc.
1941 Ringwood Avenue
San Jose, California 95131
Attention: Chief Financial Officer
-9-
<PAGE>
ASSIGNEE:
PEMSTAR, INC., a Minnesota corporation
By:
----------------------------------------
Its:
---------------------------------------
By:
----------------------------------------
Its:
---------------------------------------
Assignee's Address for Notices:
PEMSTAR, INC.
3535 Technology Drive
Rochester, Minnesota 55901
Attention:
-10-
<PAGE>
SUBLESSOR'S CONSENT AND AGREEMENT
(Assignment of Sublease)
This Sublessor's Consent and Agreement ("Consent Agreement") is made and
entered into as of June 8, 1999(the "Effective Date"), by and between, JOURNAL
COMMUNICATIONS, INC., a Wisconsin corporation and IPC COMMUNICATION SERVICES,
INC., (formerly known as IMPERIAL PRINTING COMPANY) a Michigan Corporation
(collectively "Sublessor"), BELL MICROPRODUCTS, INC., a California corporation
("Sublessee") and PEMSTAR INC., a Minnesota corporation ("Assignee").
RECITALS
A. DiNapoli, DiNapoli & Mulcahy Trust, a California general partnership
("Landlord") and Sublessor entered into the following written agreements: (i)
Industrial Real Estate Lease and Rider To Lease Agreement dated December 22,
1995, and (ii) First Amendment to Industrial Real Estate Lease dated November
12, 1996 (collectively referred to as the "Lease") whereby Sublessor leased to
Sublessor the premises commonly described as 2020 South Tenth Street, Son Jose,
California and as more particularly described in the Lease (the "Premises").
B. Sublessor and Sublessee entered into that certain Sublease and that
certain Rider to Sublease dated November 12, 1996 (collectively the "Original
Sublease"), whereby Sublessor subleased the Premises to Sublessee. The Original
Sublease was consented to by Sublessor and modified by that certain Consent to
Sublease dated November 12, 1999 and executed by Landlord, Sublessor and
Sublessee. The Original Sublease was further modified by that certain First
Addendum to Sublease dated November 24, 1997 executed by Sublessor and Sublessee
and Landlord consented to the same on December 8, 1997. The Original Sublease,
Consent to Sublease and First Addendum to Sublease are collectively referred to
herein as the "Sublease."
C. Sublessee and Assignee entered into that certain Sublease Assignment
Agreement dated June 4, 1999, a copy of which is attached hereto as Exhibit A
("Assignment of Sublease") whereby Sublessee assigns and Assignee assumes all of
Sublessee's assignable rights, title and interest in and to the Sublease.
D. Sublessee and Assignee requests Sublessor's consent io the Assignment of
Sublease and Sublessor desires to grant its consent to the same in accordance
with the terms, covenants and conditions set forth in this Consent Agreement.
NOW, THEREFORE, IN CONSIDERATION of the foregoing and the mutual agreements
herein set forth, and other valuable consideration, receipt of which is hereby
acknowledged, Sublessor, Sublessee and Assignee agree as follows:
<PAGE>
1. The recitals set forth above are true and correct expressions of facts
and/or the intent of the parties hereto. Unless otherwise stated any capitalized
term used herein is hereby given the same meaning as sat forth in the Sublease.
2. Subject to the terms, covenants and conditions of this Consent Agreement
Sublessor hereby consents to the Assignment of Sublease.
3. The Assignment of Sublease is subject to the Sublease and to all of the
terms covenants, conditions, provisions, and agreements set forth in the
Sublease, whether or not they have accrued prior to the Effective Date.
4. Sublessor's consent to the Assignment of Sublease shall not be deemed,
or act as, a release of Sublessee from any past, present or future obligations
and liabilities under the Sublease. Sublessee shall remain liable for the prompt
payment of rent and the keeping and performance of all conditions and covenants
of the Sublease by the Sublessee to be kept and performed. Sublessee's
obligation to pay rent to Sublessor and to perform Sublessee's other obligations
as Sublessee under the Sublease shall not be conditional upon the payment of
rent by Assignee to Sublessee or the performance by Assignee of Sublessee's
other obligations under the Sublease or the Lease.
5. Neither the Assignment of Sublease nor this Consent Agreement shall:
(a) Operate as an agreement or approval by Sublessor to or of any of
the terms, covenants, conditions, provisions, or agreements of the Sublease
(except those provisions of the Sublease which benefit Sublessor) and
Sublessor shall not be bound thereby;
(b) Be construed to modify, waive, or affect any of the terms,
covenants, conditions, provisions, or agreements of the Sublease or to
waive any breach thereof, or any of Sublessor's rights as Sublessor
thereunder; or to enlarge or increase Sublessor's obligations as Sublessor
thereunder; or
(c) Be construed as a consent by Sublessor to any further assignment
or any subletting by Assignee, whether or not the Sublease purports to
permit the same.
6. This Consent Agreement is not assignable, nor shall this Consent
Agreement be a consent to any amendment, modification, extension, or renewal of
the Assignment of Sublease, without Sublessor's prior written consent.
7. Sublessee and Sublessee covenant and agree that, under no circumstances
shall Sublessor be liable for any brokerage commission or other charge or
expense in connection with the Assignment of Sublease, and Sublessee and
Assignee agree to indemnify Sublessor against same and
-2-
<PAGE>
against any cost or expense (including, but not limited, to attorneys' fees)
incurred by Sublessor in resisting any claim for any such brokerage commission.
8. Sublessee and Assignee understand and acknowledge that Sublessor's
consent hereto is not a consent to any improvement or alteration work being
performed in the Premises, and that Sublessor's consent must be separately
sought for such work. Sublessee and Assignee acknowledge and agree that (i) they
have reviewed a copy of that certain letter from Landlord to Sublessor dated May
12, 1999 (a copy of which is attached hereto as Exhibit B and made a part
hereof) wherein Landlord summarizes certain points of concerns relating to
repairs and/or maintenance presently being demanded or requested to be performed
by Landlord at or about the Premises pursuant to the Lease, (ii) Sublessor shall
have no responsibility or obligation to satisfy such repair and/or maintenance
demands under the Sublease, (iii) such repairs and maintenance obligations are
the responsibility of Sublessee under the Sublease, and (iv) Sublessee's or
Assignee's failure to satisfy such demands could result in default under the
Sublease and/or Lease.
9. Notwithstanding any provision of the Sublease or this Consent Agreement
to the contrary, Sublessee and Assignee agree that Sublessor shall not be (i)
liable for any act or omission of Assignee or Sublessee under the Assignment of
Sublease or Sublease; (ii) subject to any offsets or defenses which Assignee may
have against Sublessee; or (iii) bound by any amendment or modification of the
Assignment of Sublease made without Sublessor's prior written consent, which may
be withheld in the sole and absolute discretion of Sublessor.
10. Sublessee and Assignee represent and warrant to Sublessor that there
are no additional payments of rent or consideration of any type payable by
Assignee to Sublessee with regard to the Premises.
11. In the event of Assignee's default under the provisions of the
Assignment of Sublease, the rent due from the Assignee under the Assignment of
Sublease and/or Sublease shall be deemed assigned to Sublessor, Sublessor shall
credit Assignee and Sublessee with any rent received by Sublessor under such
Assignment of Sublease and/or Sublease, but the acceptance of any payment on
account of rent from the Assignee or Sublessee as the result of any such default
shall in no manner whatsoever be deemed an attornment by the Assignee to
Sublessor, or by the Sublessee to Sublessor, or serve to release Sublessee or
Assignee from any liability under the terms, covenants, conditions, provisions,
or agreements under the Sublease. Notwithstanding the foregoing, any other
payment of rent from the Assignee or Sublessee directly to Sublessor, regardless
of the circumstances or reasons therefor, shall in no manner whatsoever be
deemed an attornment by the Assignee or Sublessee to Sublessor in the absence of
a specific written agreement signed by Sublessor to such an effect.
12. The term of the Sublease shall expire and come to an end upon the
earlier of; (i) its natural expiration date or any premature termination date
thereof, (ii) subject to the Nondisturbance, Recognition and Attornment
Agreement dated November 12, 1996, among Landlord, Sublessor and
-3-
<PAGE>
Sublessee, concurrently with any premature termination of the Lease (whether by
consent or other right, now or hereafter agreed to by Sublessor or Sublessee
(with or without Sublessee approval or consent), or by operation of law or at
Sublessor's option in the event of default by Sublessee), or (iii) the
expiration date of the Sublease.
13. Intentionally Deleted.
14. This Consent Agreement shall for all purposes be construed in
accordance with and governed by the laws of the State of California. This
Consent Agreement shall not be effective until executed and delivered by all the
parties hereto.
15. If any one or more of the provisions contained in this Consent
Agreement shall be invalid, illegal, or unenforceable in any respect, the
validity, legality, and enforceability of the remaining provisions contained in
this Consent Agreement shall not in any way be affected or impaired thereby.
16. Assignee and Sublessee agree that this Consent Agreement satisfies the
condition of the Assignment of Sublease and/or Sublease that Sublessor shall not
unreasonably withhold its written consent to the Sublease.
17. This Consent Agreement shall be governed by the laws of the State of
California.
18. All of the provisions hereof shall inure to the benefit of and be
binding upon the successors and assigns of each of the parties hereto.
19. If any party hereto brings an action to enforce the terms hereof or to
declare rights hereunder, the prevailing party in any such action, trial or
appeal shall be entitled to its reasonable attorneys' fees to be paid by the
losing party or parties as fixed by the court.
20. This Consent Agreement shall be construed according to its fair
meaning, and shall not be construed for or against any party regardless of which
party is deemed to have drafted this Consent Agreement or any portion hereof.
21. This Consent Agreement may be executed in any number of counterparts.
Each counterpart hereof shall be deemed an original, but all counterparts shall
constitute one and the same agreement.
22. Time is of the essence of all of the provisions of this Consent
Agreement.
23. The covenants and agreements of Assignee and Sublessee contained herein
shall survive the expiration or sooner termination of the Assignment of
Sublease, Sublease and the Lease.
-4-
<PAGE>
24. Sublessee hereby acknowledges and agrees that its First Right to
Negotiate (as defined in Rider 23 of the Sublease) automatically terminates upon
the effectiveness of the Assignment of Sublease.
25. Concurrent with the execution of Consent Agreement, Sublessee shall pay
to Sublessor an amount equal to One Thousand Nine Hundred Twenty-Two Dollars
($1,922), representing Sublessor's attorneys' fees and costs incurred in
connection with the review of the Assignment of Sublease, the preparation of
this Consent Agreement and an amount equal to __________________ Dollars
($_______) representing the charges Sublessor has incurred from Landlord in
connection with Landlord's review of the Assignment of Sublease and its
preparation of a consent.
26. All insurance policies which are required to be obtained under the
Sublease shall name Sublessor and Landlord as additional insured and copies of
such policies and not merely certificates of insurance shall be delivered to
Sublessor and Landlord in accordance with the Sublease.
27. The termination of the Assignment of Sublease by Sublessee or Assignee
shall not release Assignee or Sublessee of any obligations they have to
Sublessor and/or Landlord under the Sublease.
28. This Consent Agreement may be executed in two or more counterparts,
each of which will constitute an original, but all of which, when taken
together, will constitute one instrument.
29. Sublessor, Sublessee and Assignee (i) have each agreed to permit the
use, from time to time and where appropriate, of faxed signatures in order to
expedite the transaction contemplated by this Consent Agreement, (ii) each
Intend to be bound by its respective faxed signature, (iii) are each aware that
the other will rely on the faxed signature, and (iv) each acknowledge such
reliance and waiver any defenses to the enforcement of the documents effecting
the transaction contemplated by this Consent Agreement based on a faxed
signature.
The execution of a copy of this Consent Agreement by Assignee and Sublessee
shall indicate Sublessee's and Assignee's confirmation of the foregoing
conditions and agreement to be bound thereby and shall constitute Assignee's
acknowledgment that it has received a copy of the Sublease.
IN WITNESS WHEREOF, the parties hereto have executed this Consent Agreement
as of the day and year of the Sublease.
-5-
<PAGE>
SUBLESSEE:
PEMSTAR INC.
a Minnesota corporation
By:
-----------------------------------------
Print name:
--------------------------------
Title:
--------------------------------------
By:
-----------------------------------------
Print name:
--------------------------------
Title:
-------------------------------------
SUBLESSEE:
BELL MICROPRODUCTS, INC.
a California corporation
By: /s/ Bruce M. Jaffe
----------------------------------------
Print name: Bruce M. Jaffe
--------------------------------
Title: Sr. Vice President
-------------------------------------
By: /s/ Phil Roussey
----------------------------------------
Print name: Phil Roussey
--------------------------------
Title: Sr. Vice President
-------------------------------------
-6-
<PAGE>
SUBLESSOR:
JOURNAL COMMUNICATIONS, INC.
a Wisconsin corporation
By:
-----------------------------------------
Print name:
--------------------------------
Title:
--------------------------------------
By:
-----------------------------------------
Print name:
--------------------------------
Title:
-------------------------------------
IPC COMMUNICATION SERVICES, INC.
(formerly known as IMPERIAL PRINTING
COMPANY), a Michigan corporation
By:
-----------------------------------------
Print name:
--------------------------------
Title:
--------------------------------------
By:
-----------------------------------------
Print name:
--------------------------------
Title:
-------------------------------------
-7-
<PAGE>
EXHIBIT 16.1
Securities and Exchange Commission
Washington, DC 20549
We were previously the independent accounants for Pemstar Inc., and on May
10, 1999, we reported on the consolidated financial statements of Pemstar Inc.
and subsidiaries as of and for the two years ended March 31, 1999. We were
subsequently dismissed as independent accountants of Pemstar Inc. We have read
Pemstar Inc.'s statements included under the caption "Experts" of its Form S-1
for May 16, 2000 and we agree with such statements.
/s/ McGLADREY & PULLEN, LLP
Rochester, Minnesota
May 15, 2000
<PAGE>
Exhibit 21.1
Subsidiaries of Pemstar Inc.:
Subsidiary Country of Incorporation
- ---------- ------------------------
Pemstar de Mexico, S.A. de C.V. Mexico
Pemstar (Tianjin) Enterprise Co. Ltd. China
Pemstar Luxembourg S.A.R.L. Luxembourg
Pemstar B.V. Netherlands
Pemstar Netherland Holding B.V. Netherlands
Pemstar-Hongguan PTE Ltd. Singapore
Italade-Pemstar Ltd. Thailand
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report, dated May 10, 1999, relating to the consolidated financial
statements and to the schedule of Pemstar Inc. We also consent to the reference
to our Firm under the captions "Unaudited Pro Forma Consolidated Financial
Data," "Selected Consolidated Financial," and "Experts" in the Prospectus. We
also consent to the use in this Registration Statement of our report, dated
January 13, 2000, relating to the financial statements of Quadrus
Manufacturing, a Division of Bell Microproducts, Inc.
/s/ McGLADREY & PULLEN, LLP
Rochester, Minnesota
May 15, 2000
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the reference to our firm under captions "Selected
Consolidated Financial Data," "Unaudited Pro Forma Consolidated Financial Data"
and "Experts" and to the use of our reports dated May 5, 2000, in the
Registration Statement (Form S-1 No. 333-00000) and related Prospectus of
Pemstar Inc. dated May 16, 2000.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
May 15, 2000
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned person whose
signature appears below hereby constitutes and appoints Allen J. Berning and
William J. Kullback, and each of them, his true and lawful attorney-in-fact and
agents, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign (i) the Registration
Statement on Form S-1 (as defined herein) under the Securities Act of 1933, as
amended, related to the offering of shares of common stock, $.01 par value, of
Pemstar Inc., up to a maximum aggregate offering price of $115,000,000 (the
"Registration Statement"); (ii) amendments (including post-effective amendments)
and additions to the Registration Statement; and (iii) any registration
statements, and any and all amendments thereto (including post-effective
amendments), pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, related to the offering contemplated by the Registration Statement and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Robert D. Ahmann
- ------------------------------ Director May 13, 2000
Robert D. Ahmann
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned person whose
signature appears below hereby constitutes and appoints Allen J. Berning and
William J. Kullback, and each of them, his true and lawful attorney-in-fact and
agents, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign (i) the Registration
Statement on Form S-1 (as defined herein) under the Securities Act of 1933, as
amended, related to the offering of shares of common stock, $.01 par value, of
Pemstar Inc., up to a maximum aggregate offering price of $115,000,000 (the
"Registration Statement"); (ii) amendments (including post-effective amendments)
and additions to the Registration Statement; and (iii) any registration
statements, and any and all amendments thereto (including post-effective
amendments), pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, related to the offering contemplated by the Registration Statement and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Allen J. Berning
- ------------------------------ Director May 13, 2000
Allen J. Berning
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned person whose
signature appears below hereby constitutes and appoints Allen J. Berning and
William J. Kullback, and each of them, his true and lawful attorney-in-fact and
agents, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign (i) the Registration
Statement on Form S-1 (as defined herein) under the Securities Act of 1933, as
amended, related to the offering of shares of common stock, $.01 par value, of
Pemstar Inc., up to a maximum aggregate offering price of $115,000,000 (the
"Registration Statement"); (ii) amendments (including post-effective amendments)
and additions to the Registration Statement; and (iii) any registration
statements, and any and all amendments thereto (including post-effective
amendments), pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, related to the offering contemplated by the Registration Statement and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Thomas A. Burton
- ------------------------------ Director May 13, 2000
Thomas A. Burton
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned person whose
signature appears below hereby constitutes and appoints Allen J. Berning and
William J. Kullback, and each of them, his true and lawful attorney-in-fact and
agents, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign (i) the Registration
Statement on Form S-1 (as defined herein) under the Securities Act of 1933, as
amended, related to the offering of shares of common stock, $.01 par value, of
Pemstar Inc., up to a maximum aggregate offering price of $115,000,000 (the
"Registration Statement"); (ii) amendments (including post-effective amendments)
and additions to the Registration Statement; and (iii) any registration
statements, and any and all amendments thereto (including post-effective
amendments), pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, related to the offering contemplated by the Registration Statement and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Bruce M. Jaffe
- ------------------------------ Director May 13, 2000
Bruce M. Jaffe
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned person whose
signature appears below hereby constitutes and appoints Allen J. Berning and
William J. Kullback, and each of them, his true and lawful attorney-in-fact and
agents, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign (i) the Registration
Statement on Form S-1 (as defined herein) under the Securities Act of 1933, as
amended, related to the offering of shares of common stock, $.01 par value, of
Pemstar Inc., up to a maximum aggregate offering price of $115,000,000 (the
"Registration Statement"); (ii) amendments (including post-effective amendments)
and additions to the Registration Statement; and (iii) any registration
statements, and any and all amendments thereto (including post-effective
amendments), pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, related to the offering contemplated by the Registration Statement and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ William J. Kullback
- ------------------------------ Director May 13, 2000
William J. Kullback
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned person whose
signature appears below hereby constitutes and appoints Allen J. Berning and
William J. Kullback, and each of them, his true and lawful attorney-in-fact and
agents, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign (i) the Registration
Statement on Form S-1 (as defined herein) under the Securities Act of 1933, as
amended, related to the offering of shares of common stock, $.01 par value, of
Pemstar Inc., up to a maximum aggregate offering price of $115,000,000 (the
"Registration Statement"); (ii) amendments (including post-effective amendments)
and additions to the Registration Statement; and (iii) any registration
statements, and any and all amendments thereto (including post-effective
amendments), pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, related to the offering contemplated by the Registration Statement and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ William B. Leary
- ------------------------------ Director May 13, 2000
William B. Leary
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned person whose
signature appears below hereby constitutes and appoints Allen J. Berning and
William J. Kullback, and each of them, his true and lawful attorney-in-fact and
agents, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign (i) the Registration
Statement on Form S-1 (as defined herein) under the Securities Act of 1933, as
amended, related to the offering of shares of common stock, $.01 par value, of
Pemstar Inc., up to a maximum aggregate offering price of $115,000,000 (the
"Registration Statement"); (ii) amendments (including post-effective amendments)
and additions to the Registration Statement; and (iii) any registration
statements, and any and all amendments thereto (including post-effective
amendments), pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, related to the offering contemplated by the Registration Statement and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Gary L. Lingbeck
- ------------------------------ Director May 13, 2000
Gary L. Lingbeck
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned person whose
signature appears below hereby constitutes and appoints Allen J. Berning and
William J. Kullback, and each of them, his true and lawful attorney-in-fact and
agents, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign (i) the Registration
Statement on Form S-1 (as defined herein) under the Securities Act of 1933, as
amended, related to the offering of shares of common stock, $.01 par value, of
Pemstar Inc., up to a maximum aggregate offering price of $115,000,000 (the
"Registration Statement"); (ii) amendments (including post-effective amendments)
and additions to the Registration Statement; and (iii) any registration
statements, and any and all amendments thereto (including post-effective
amendments), pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, related to the offering contemplated by the Registration Statement and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Robert R. Murphy
- ------------------------------ Director May 13, 2000
Robert R. Murphy
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned person whose
signature appears below hereby constitutes and appoints Allen J. Berning and
William J. Kullback, and each of them, his true and lawful attorney-in-fact and
agents, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign (i) the Registration
Statement on Form S-1 (as defined herein) under the Securities Act of 1933, as
amended, related to the offering of shares of common stock, $.01 par value, of
Pemstar Inc., up to a maximum aggregate offering price of $115,000,000 (the
"Registration Statement"); (ii) amendments (including post-effective amendments)
and additions to the Registration Statement; and (iii) any registration
statements, and any and all amendments thereto (including post-effective
amendments), pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, related to the offering contemplated by the Registration Statement and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Michael J. Odrich
- ------------------------------ Director May 13, 2000
Michael J. Odrich
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned person whose
signature appears below hereby constitutes and appoints Allen J. Berning and
William J. Kullback, and each of them, his true and lawful attorney-in-fact and
agents, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign (i) the Registration
Statement on Form S-1 (as defined herein) under the Securities Act of 1933, as
amended, related to the offering of shares of common stock, $.01 par value, of
Pemstar Inc., up to a maximum aggregate offering price of $115,000,000 (the
"Registration Statement"); (ii) amendments (including post-effective amendments)
and additions to the Registration Statement; and (iii) any registration
statements, and any and all amendments thereto (including post-effective
amendments), pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, related to the offering contemplated by the Registration Statement and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Steve V. Petracca
- ------------------------------ Director May 13, 2000
Steve V. Petracca
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned person whose
signature appears below hereby constitutes and appoints Allen J. Berning and
William J. Kullback, and each of them, his true and lawful attorney-in-fact and
agents, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign (i) the Registration
Statement on Form S-1 (as defined herein) under the Securities Act of 1933, as
amended, related to the offering of shares of common stock, $.01 par value, of
Pemstar Inc., up to a maximum aggregate offering price of $115,000,000 (the
"Registration Statement"); (ii) amendments (including post-effective amendments)
and additions to the Registration Statement; and (iii) any registration
statements, and any and all amendments thereto (including post-effective
amendments), pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, related to the offering contemplated by the Registration Statement and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Karl D. Shurson
- ------------------------------ Director May 13, 2000
Karl D. Shurson
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned person whose
signature appears below hereby constitutes and appoints Allen J. Berning and
William J. Kullback, and each of them, his true and lawful attorney-in-fact and
agents, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign (i) the Registration
Statement on Form S-1 (as defined herein) under the Securities Act of 1933, as
amended, related to the offering of shares of common stock, $.01 par value, of
Pemstar Inc., up to a maximum aggregate offering price of $115,000,000 (the
"Registration Statement"); (ii) amendments (including post-effective amendments)
and additions to the Registration Statement; and (iii) any registration
statements, and any and all amendments thereto (including post-effective
amendments), pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, related to the offering contemplated by the Registration Statement and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite or necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ David L. Sippel
- ------------------------------ Director May 13, 2000
David L. Sippel
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26,549
0
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