EXHIBIT 10.2
ACKNOWLEDGMENT, WAIVER AND AMENDMENT #10
TO
FINANCING AGREEMENT
This ACKNOWLEDGMENT, WAIVER AND AMENDMENT #10 ("Amendment") TO THE AMENDED
AND RESTATED REVOLVING CREDIT AGREEMENT is made as of January 29, 2003 by and
between Pemstar Inc., duly organized under the laws of the State of Minnesota
("Customer"), Turtle Mountain Corporation, duly organized under the laws of the
State of North Dakota ("Turtle Mountain") and Pemstar Pacific Consultants Inc.,
duly organized under the laws of the State of California ("Pemstar Pacific
Consultants") (Customer, Turtle Mountain and Pemstar Pacific Consultants,
collectively, the "Credit Parties", individually, a "Credit Party"), and IBM
Credit LLC, a Delaware limited liability company ("IBM Credit").
RECITALS:
WHEREAS, the Credit Parties and IBM Credit have entered into that certain
Amended and Restated Revolving Credit Agreement dated as of June 29, 2001 (as
amended, supplemented or otherwise modified from time to time, the "Agreement");
WHEREAS, the Credit Parties are in default (as more specifically explained
in Section 2 hereof);
WHEREAS, the Credit Parties are requesting that IBM Credit waive certain
defaults; and
WHEREAS, IBM Credit is willing to waive such defaults subject to the terms
and conditions set forth below.
AGREEMENT
NOW THEREFORE, in consideration of the premises set forth herein, and
for other good and valuable consideration, the value and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
Section 1. Definitions. All capitalized terms not otherwise defined herein
shall have the respective meanings set forth in the Agreement.
Section 2. Acknowledgment.
A. The Credit Parties acknowledge that the following financial covenants (which
are also set forth in Attachment A to Agreement) are applicable to the financial
results of the Credit Parties for the fiscal quarter ending December 31, 2002,
and the Credit Parties were required to maintain such financial covenants at all
times. The Credit Parties further acknowledge that their actual attainment was
as follows:
Covenant Actual for the fiscal quarter
--------------------------------------
Covenant Covenant Requirement ending December 31, 2002
-------- -------------------- ------------------------
(a) Net Profit after Tax
to Revenue (on a monthly ($3,700,000) for the fiscal
basis) quarter ending December 31, 2002 ($1,943,803)
(b) Total Liabilities to Greater than Zero and
Tangible Net Worth Equal to or Less than 1.6:1.0 1.598:1.0
(c) Current Assets to Greater than 1.60:1.0 for the fiscal
Current Liabilities month ending December 31, 2002 1.37:1.0
(d) Maximum Capital Less than or equal to $18,000,000
Expenditures for the fiscal year ending March
31, 2003 and all
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fiscal quarters thereafter
provided, however, no Credit
Party may make any Capital
Expenditure in excess of
$1,000,000 without the prior
written consent of IBM Credit. $7,520,559
(e) Net Profit After Net loss not greater than
Tax to Revenue $6,200,00 for the three month
(U.S. Credit Parties period ending December 31,
operations only) 2002 ($3,307,627)
(f) EBITDA Equal to or less than
(U.S. Credit Parties ($1,300,000) for the three
operations only) months ending December 31,
2002 $1,289,327
(g) EBITDA Equal to or Greater than $3,900,000
for the three month period ended
December 31, 2002 $5,103,658
Section 3. Waivers to Agreement. Subject to the terms and conditions set
forth herein including, without limitation, Section 5 hereof, IBM Credit hereby
waives the defaults of the Credit Parties with the terms of the Agreement to the
extent such defaults are set forth in Section 2 hereof and for the periods
indicated above and ending December 31, 2002. The waiver shall not be effective
until the conditions to effectiveness set forth in Section 5 have been fulfilled
to IBM Credit's satisfaction in its sole discretion and shall not be deemed a
waiver of compliance with these Sections after the date hereof. The waiver set
forth herein shall not apply to any other or subsequent failures to comply with
the Agreement or this Amendment or any failures to comply with the financial
covenants after December 31, 2002.
Section 4. Amendment.
The Agreement is hereby amended as follows:
A. Attachment A to the Agreement is hereby amended by deleting such
Attachment A in its entirety and substituting, in lieu thereof, the Attachment A
attached hereto. Such new Attachment A shall be effective as of the date
specified in the new Attachment A. The changes contained in the new Attachment A
include, without limitation, the following:
1. Section I of Attachment A is amended in its entirety to read as follows:
"I. Fees, Rates and Repayment Terms:
(A) Credit Facility:
Revolving A: Sixty-five Million Dollars ($65,000000) Revolving
Credit Facility
(B) Borrowing Base:
(i) (a) 90% of the amount of each Credit Party's Eligible Accounts
from International Business Machines Corp. ("IBM") or its domestic
subsidiaries as account debtor pursuant to agreements between such
Credit Party and IBM in form and substance satisfactory to IBM
Credit_ as of the date of determination as reflected in the
Customer's most recent Collateral Management Report;
(b) 90% of the amount of each Credit Party's accounts from
IBM's foreign subsidiaries as account debtor as of the date of
determination as reflected in the Customer's most recent
Collateral Management Report but in no event shall the aggregate
amount permitted under this Section IB(i)(b) exceed One Million
Dollars ($1,000,000);
Notwithstanding Section 3.1 (A) of the Agreement, for purposes of
this Section (i), Accounts from IBM that allow for payment to be
made within 60 days shall be included for purposes of calculating
the Borrowing Base provided that such Accounts are on standard
terms and
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otherwise satisfy the criteria for eligibility in IBM Credit's
sole discretion.
(ii) 80% of the amount of each Credit Party's Eligible Accounts
from Honeywell Inc. ("Honeywell"), Minnesota Mining &
Manufacturing Company ("3M"), and Applied Materials, Inc.
("Applied Materials") as account debtor, provided such account
debtors remain investment grade, in IBM Credit's sole discretion,
and pursuant to agreements between such Credit Party and such
account debtor, in form and substance satisfactory to IBM Credit
as of the date of determination as reflected in the Customer's
most recent Collateral Management Report;
Notwithstanding Section 3.1 (A) of the Agreement, for purposes of
this Section (ii), Accounts from Honeywell that allow for payment
to be made within 60 days shall be included for purposes of
calculating the Borrowing Base provided that (x) such Accounts
from Honeywell are on standard terms and otherwise satisfy the
criteria for eligibility in IBM Credit's sole discretion, (y) the
aggregate amount permitted for Honeywell under this Section (ii)
shall not exceed Three Million Dollars ($3,000,000) and (z)
Honeywell remains investment grade.
(iii) 80% of the amount of each Credit Party's other Eligible
Accounts, other than Concentration Accounts, as of the date of
determination as reflected in the Customer's most recent
Collateral Management Report provided, however, IBM Credit has a
first priority security interest in such Eligible Account;
(iv) a percentage, determined from time to time by IBM Credit in
its sole discretion, of the amount of Customer's Concentration
Accounts for a specific Concentration Account Debtor as of the
date of determination as reflected in the Customer's most recent
Collateral Management Report; unless otherwise notified by IBM
Credit, in writing, the percentage for Concentration Accounts for
a specific Concentration Account Debtor shall be the same as the
percentage set forth in paragraph (ii) of the Borrowing Base;
The following subsections (v), (vi), (vii) and (viii) specify
valuation rates for Eligible Finished Goods Inventory, Eligible
Parts Inventory and Eligible Inventory (as such terms are defined
below) for the following Credit Parties' at the specified
locations:
Pemstar Inc. = Rochester, MN
Pemstar Inc. = San Jose, CA
Pemstar Inc. = Taunton, MA
Turtle Mountain Corporation = Dunseith, ND
(v) Rochester, MN = 95%, Xxx Xxxx, XX x 0%, Xxxxxxx, XX = 0%,
Dunseith, ND = 95% of the lower of (x) book value or (y) fair
market value of each Credit Party's Eligible Finished Goods
Inventory destined for IBM less than 180 days old;
(vi) Rochester, MN = 84%, Xxx Xxxx, XX x 0%, Xxxxxxx, XX = 0%,
Dunseith, ND = 85% of the lower of (x) book value or (y) fair
market value of each Credit Party's Eligible Parts Inventory
destined for IBM less than 180 days old;
(vii) Rochester, MN = 64%, Xxx Xxxx, XX x 0%, Xxxxxxx, XX = 0%,
Dunseith, ND = 70% of the lower of (x) book value or (y) fair
market value of each Credit Party's Eligible Inventory destined
for Honeywell, 3M, and Applied Materials less than 180 days old;
(viii) Rochester, MN (other than Eligible Finished Goods
Inventory, Eligible Parts Inventory and Eligible Inventory
destined for Celestica) = 53%, Rochester, MN (for Eligible
Finished Goods Inventory, Eligible Parts Inventory and Eligible
Inventory destined for Celestica) = 0%, San Jose, CA = 33%,
Taunton, MA = 41%, Dunseith, ND = 55% of the lower of (x) book
value or (y) fair market value of each Credit Party's other
Eligible Inventory less than 180 days old provided, however, IBM
Credit has a first priority security interest in such Eligible
Inventory.
(ix) Less Two Million Dollars ($2,000,000.00).
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Eligible Finished Goods Inventory shall mean finished goods
inventory in salable condition less than 180 days old, owned by a
Credit Party free and clear of any Liens (other than Liens
pursuant to this Agreement), and designated and identified as
product to be sold to IBM as evidenced by (i) non-cancellable
purchase orders from IBM or (ii) a non-cancellable written
agreement that IBM will purchase such inventory, in each case, in
form and substance satisfactory to IBM Credit.
Eligible Parts Inventory shall mean parts inventory and floor
stock raw materials in good condition less than 180 days old,
owned by a Credit Party free and clear of any Liens (other than
Liens pursuant to this Agreement), and designated and identified
as parts to be used to manufacture product (the Eligible Finished
Goods Inventory) to be sold to IBM as evidenced by (i)
non-cancellable purchase orders from IBM to such Credit Party or
(ii) a non-cancellable written agreement that IBM will purchase
such inventory, in each case, in form and substance satisfactory
to IBM Credit.
Eligible Inventory shall mean raw materials, floor stock raw
materials and finished goods inventory less than 180 days old
owned by a Credit Party free and clear of any Liens (other than
Liens pursuant to this Agreement) designated and identified by the
Customer in its periodic collateral report or borrowing request to
IBM Credit as inventory applicable to product sold, or to be
manufactured and sold, by a Credit Party to an end user pursuant
to non-cancellable purchase orders or other written agreements
binding such end user to purchase such product, in each case, in
form and substance satisfactory to IBM Credit.
Notwithstanding the foregoing, IBM Credit may consider Eligible
Finished Goods Inventory, Eligible Parts Inventory and/or Eligible
Inventory in the Borrowing Base greater than 180 days old provided
that (i) a purchase order is in place between the end-user and the
Credit Party, in form and substance satisfactory to IBM Credit or
(ii) Credit Party provides evidence to IBM Credit, in form and
substance satisfactory to IBM Credit, that the end-user is paying
all carrying costs associated with such Eligible Finished Goods,
Eligible Parts Inventory and/or Eligible Inventory. Under no
circumstances will Eligible Finished Goods, Eligible parts
Inventory or Eligible Inventory be considered in the Borrowing
Base if older than 365 days.
IBM Credit will consider Eligible Finished Goods Inventory,
Eligible Parts Inventory and/or Eligible Inventory to be
ineligible if the end-user customer with respect to such Eligible
Finished Goods Inventory, Eligible Parts Inventory and/or Eligible
Inventory becomes delinquent in its payments of accounts
receivable to the Credit Parties and such accounts receivable
_owing from such account debtor are not eligible pursuant to the
terms of Section 3.1 (C) of the Agreement.
Notwithstanding the foregoing, assets of Pemstar Pacific
Consultants shall not be included for the purposes of calculating
the Borrowing Base. For purposes of calculating the Borrowing
Base, Pemstar Pacific Consultants shall not be deemed a Credit
Party.
In addition, to the extent IBM Credit does not have first priority
security interest in any Eligible Accounts, Eligible Finished
Goods Inventory, Eligible Parts Inventory and Eligible Inventory
such item will not be included for purposes of calculating the
Borrowing Base.
(C) Collateral Insurance Amount: Seventy Million Dollars ($70,000,000).
(D) Applicable Margin: Prime Rate plus 3.50%.
(E) Delinquency Fee Rate: Prime Rate plus 6.500%.
(F) Shortfall Transaction Fee: Shortfall Amount multiplied by 0.30%.
(G) Other Charges:
(i) Unused Line Fee: 0.375% per annum on the daily average unused
portion of the Credit Line for each day from the closing date of
the Agreement and shall be computed on the basis of a 360 day year
and payable monthly in arrears and upon the maturity or
termination of the Agreement.
(ii) Prepayment Fee: A prepayment premium, payable to IBM Credit
in the event that the
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Customer terminates the Credit Line prior to Termination Date,
in an amount equal to the amount of the Credit Line in effect as
of the date of notice of termination or date of default,
multiplied by one half of one percent (0.50%).
(iii) Waiver Fee of Sixty-five Thousand Dollars ($65,000.00)."
2. Section III. Financial Covenants of Attachment A is amended and
restated as follows:
"Definitions: The following terms shall have the following respective meanings
in this Attachment A. All amounts shall be determined in accordance with
generally accepted accounting principles (GAAP).
"Capital Expenditure" shall mean any amount debited to the fixed asset
account on the Customer's consolidated balance sheet in respect of: (a)
the acquisition (including, without limitation, acquisition by entry
into a capitalized lease), construction, improvement, replacement or
betterment of land, buildings, machinery, equipment or of any other
fixed assets or capitalized leaseholds; and (b) to the extent related
to and not included in (a) above, materials, contract labor and direct
labor (excluding expenditures charged to repairs or maintenance in
accordance with GAAP.
"Consolidated Net Income" shall mean, for any period, the net income
(or loss), after taxes, of Customer on a consolidated basis for such
period determined in accordance with GAAP.
"Current" shall mean within the ongoing twelve month period.
"Current Assets" shall mean assets that are cash or expected to become
cash within the ongoing twelve months.
"Current Liabilities" shall mean payment obligations resulting from
past or current transactions that require settlement within the ongoing
twelve month period (excluding the Indebtedness owed by any of the
Credit Parties to IBM Credit under the Agreement), as determined in
accordance with GAAP.
"EBITDA" shall mean, for any period (determined on a consolidated basis
in accordance with GAAP), (a) the Consolidated Net Income of Customer
for such period, plus (b) each of the following to the extent reflected
as an expense in the determination of such Consolidated Net Income: (i)
the Customer's provisions for taxes based on income for such period;
(ii) Interest Expense for such period; and (iii) depreciation and
amortization of tangible and intangible assets of Customer for such
period.
"Fixed Charges" shall mean, for any period, an amount equal to the sum,
without duplication, of the amounts for such as determined for the
Customer on a consolidated basis, of (i) scheduled repayments of
principal of all Indebtedness (as reduced by repayments thereon
previously made), (ii) Interest Expense, (iii) capital expenditures
(iv) dividends, (v) leasehold improvement expenditures and (vi) all
provisions for U.S. and non U.S. Federal, state and local taxes.
"Fixed Charge Coverage Ratio" shall mean the ratio as of the last day
of any fiscal period of (i) EBITDA as of the last day of such fiscal
period to (ii) Fixed Charges.
"Interest Expense" shall mean, for any period, the aggregate
consolidated interest expense of Customer during such period in respect
of Indebtedness determined on a consolidated basis in accordance with
GAAP, including, without limitation, amortization of original issue
discount on any Indebtedness and of all fees payable in connection with
the incurrence of such Indebtedness (to the extent included in interest
expense), the interest portion of any deferred payment obligation and
the interest component of any capital lease obligations.
"Long Term" shall mean beyond the ongoing twelve month period.
"Long Term Assets" shall mean assets that take longer than a year to be
converted to cash. They are divided into four categories: tangible
assets, investments, intangibles and other.
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"Long Term Debt" shall mean payment obligations of indebtedness which
mature more than twelve months from the date of determination, or
mature within twelve months from such date but are renewable or
extendible at the option of the debtor to a date more than twelve
months from the date of determination.
"Net Profit after Tax" shall mean Revenue plus all other income, minus
all costs, including applicable taxes.
"Revenue" shall mean the monetary expression of the aggregate of
products or services transferred by an enterprise to its customers for
which said customers have paid or are obligated to pay, plus other
income as allowed.
"Subordinated Debt" shall mean Customer's unsecured indebtedness to
third parties as evidenced by an executed Notes Payable Subordination
Agreement in favor of IBM Credit including, without limitation, the
Subordinated Debt (2002).
"Tangible Net Worth" shall mean:
Total Net Worth minus;
(a) goodwill, organizational expenses, pre-paid expenses,
deferred charges, research and development expenses, software
development costs, leasehold expenses, trademarks, trade
names, copyrights, patents, patent applications, privileges,
franchises, licenses and rights in any thereof, and other
similar intangibles (but not including contract rights) and
other current and non-current intangible assets as identified
in Customer's financial statements;
(b) all accounts receivable from employees, officers, directors,
stockholders and affiliates; and
(c) all callable/redeemable preferred stock.
"Total Assets" shall mean the total of Current Assets and Long Term
Assets.
"Total Liabilities" shall mean the Current Liabilities and Long Term
Debt less Subordinated Debt, resulting from past or current
transactions, that require settlement in the future.
"Total Net Worth" (the amount of owner's or stockholder's ownership in
an enterprise) is equal to Total Assets minus Total Liabilities.
"Working Capital" shall mean Current Assets minus Current Liabilities.
Customer will be required to maintain the following financial ratios,
percentages and amounts as of the last day of the fiscal period under review by
IBM Credit:
On a consolidated basis:
Covenant Covenant Requirement
-------- --------------------
(a) Net Profit after Tax (on a I. ($2,100,000) for the fiscal month ending January 31, 2003
monthly basis) II. ($2,600,000) for the two fiscal month period ending February 28,
2003
III. ($2,000,000) for the fiscal month ending March 31, 2003, and
IV. Equal to or greater than .75 percent of Revenues quarterly for
the fiscal quarter ending June 30, 2003 and for all fiscal quarters
thereafter
(b) Net Profit After Tax to V. Equal to or greater than 1.25 percent at fiscal year ending
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Revenue (on an annual March 31, 2004, and for all fiscal year ends thereafter
basis)
(c) Total Liabilities to Tangible VI. Greater than Zero and Equal to or Less than 1.6:1.0
Net Worth VII. measured on a monthly basis
(d) Current Assets to Current VIII. Greater than 1.50:1.0 for the fiscal months January, February and
Liabilities March 2003, and 2.0:1.0 on a monthly basis Maximum Capital Expenditures
(e) IX. Less than or equal to $18,000,000 for the fiscal year ending March 31,
2003 and all fiscal quarters thereafter provided,
however, no Credit Party may make any Capital Expenditure
in excess of $1,000,000 without the prior written
consent of IBM Credit.
(f) Net Profit AfterTax (U.S. X. Net loss not greater than $2,700,000 for the month ending January
Credit Parties operations 31, 2003
only) XI. Net loss not greater than $3,800,000 for the two month period
ending February 28, 2003
XII. Net loss not greater than $4,300,000 for the three month period
ending March 31, 2003;
XIII. Equal to or Greater than 1.5% of Revenues for each fiscal quarter.
thereafter beginning at June 30, 2003
XIV.
(g) EBITDA (U.S. Credit Parties XV. Equal to or less than ($1,200,000) for the month ending January
operations only) 31, 2003
XVI. Equal to or less than ($700,000) for the two months ending
February 28, 2002;
XVII. Equal to or greater than a $300,000 for the three months ending
March 31, 2003, and
XVIII. Equal to or greater than $5,500,000 for all fiscal quarters
thereafter
(h) EBITDA XIX. Equal to or greater than $300,000 for the month ending January 31,
2003
XX. Equal to or Greater than $2,200,000 for the two month period
ending February 28, 2003
XXI. Equal to or Greater than $5,300,000 for the three month period
ending March 31, 2003;
XXII. Equal to or Greater than $6,000,000 for all fiscal quarters
thereafter"
Section 5. Conditions to Effectiveness of Waiver. The waiver set forth in
Section 3 hereof shall become effective only upon the fulfillment of all of the
following conditions precedent, to the satisfaction of IBM Credit in its sole
discretion: (i) this Amendment shall have been executed by each of the parties
hereto and IBM Credit shall have received a fully executed copy of this
Amendment by no later than January 29, 2003; (ii) the Credit Parties shall pay
to IBM Credit a waiver fee, in immediately available funds, equal to Sixty- five
thousand dollars ($65,000.00) on or prior to January 29, 2003. Such waiver fee
payable to IBM Credit hereunder shall be nonrefundable and shall be in addition
to any other fees IBM Credit may charge the Credit Parties; (iii) before and
after giving effect to this Amendment, (x) the representations and warranties in
Section 6 of the Agreement shall be true and correct as though made on the date
hereof and (y) the execution and delivery of this Amendment will not trigger an
event of default, default or Triggering Event (as defined in the Subordinated
Convertible Notes) under the terms of Subordinated Debt (2002) and that no
default or Triggering Event exists thereunder. The execution by the Credit
Parties of this Amendment shall be deemed a representation that the Credit
Parties have complied with the foregoing condition; and (iv) IBM Credit shall
have received evidence satisfactory to it in its sole discretion that U.S. Bank
shall have waived (in writing) all defaults under its financing facility with
the Credit Parties and amended its financial covenants by no later than January
29, 2003 and such waiver and amendment shall be in form and substance
satisfactory to IBM Credit or a certification from the Credit Parties that no
default or event of default exists under their financing facilities with U.S.
Bank and accordingly no such waiver and amendment is required.
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Section 6. Rights and Remedies. Except to the extent specifically waived
herein, IBM Credit reserves any and all rights and remedies that IBM Credit now
has or may have in the future with respect to each Credit Party, including any
and all rights or remedies which it may have in the future as a result of each
Credit Parties' failure to comply with its financial covenants or any other
covenants to IBM Credit. Except to the extent specifically waived herein neither
this Amendment, any of IBM Credit's actions or IBM Credit's failure to act shall
be deemed to be a waiver of any such rights or remedies. The Credit Parties and
IBM Credit agree that failure to comply with the terms and provisions of this
Amendment or the Agreement constitute a new default under the Agreement. If the
U.S. Bank waiver referred to in Section 5 (iv) hereof is terminated or not
effective, an immediate Event of Default shall exist under the Agreement.
Section 7. Representations and Warranties. Each Credit Party makes to IBM
Credit the following representations and warranties all of which are material
and are made to induce IBM Credit to enter into this Amendment.
Section 7.1 Accuracy and Completeness of Warranties and Representations. All
representations made by each Credit Party in the Agreement were true and
accurate and complete in every respect as of the date made, and, as amended by
this Amendment, all representations made by each Credit Party in the Agreement
are true, accurate and complete in every material respect as of the date hereof,
and do not fail to disclose any material fact necessary to make representations
not misleading.
Section 7.2 Violation of Other Agreements. The execution and delivery of this
Amendment and the performance and observance of the covenants to be performed
and observed hereunder do not violate or cause any Credit Party not to be in
compliance with the terms of any agreement to which any Credit Party is a party.
Section 7.3 Litigation. Except as has been disclosed by the Credit Parties to
IBM Credit in writing, there is no litigation, proceeding, investigation or
labor dispute pending or threatened against any Credit Party, which, if
adversely determined, would materially adversely affect any Credit Party's
ability to perform any Credit Party's obligations under the Agreement and the
other documents, instruments and agreements executed in connection therewith or
pursuant hereto.
Section 7.4 Enforceability of Amendment. This Amendment has been duly
authorized, executed and delivered by the Credit Parties and is enforceable
against each Credit Party in accordance with its terms.
Section 8. Ratification of Agreement. Except as specifically amended hereby,
all of the provisions of the Agreement shall remain unamended and in full force
and effect. Nothing herein shall be deemed a waiver of any default or consent.
Each Credit Party hereby ratifies, confirms and agrees that the Agreement, as
amended hereby, represents a valid and enforceable obligation of each Credit
Party, and is not subject to any claims, offsets or defenses. The amendment
contained herein shall be effective only with respect to the matters referred to
herein and shall not be deemed an amendment for any other purpose whatsoever.
Section 9. Governing Law. This Amendment shall be governed by and interpreted
in accordance with the laws which govern the Agreement.
Section 10. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement.
IN WITNESS WHEREOF, this Amendment has been executed by duly authorized
representatives of the undersigned as of the day and year first above written.
IBM Credit LLC Pemstar Inc.
By: /s/ Xxxxxxxxx Xxxxxx By: /s/ Xxxx X. Xxx
----------------------------------------- --------------------------------------
Print Name: Xxxxxxxxx Xxxxxx Print Name: Xxxx X. Xxx
--------------------------------- ------------------------------
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Title: Manager, Credit Title: CFO
-------------------- ---------------------------------------
Date: 1/29/03 Date: 1/28/03
--------------------- ---------------------------------------
Turtle Mountain Corporation Pemstar Pacific Consultants, Inc.
By: /s/ Xxxxx X. Xxxxx /s/ Xxxx X. Xxxxxx By: /s/ Xxxxx X. Xxxxx
---------------------------------------------- ------------------------------------------
Print Name: Xxxxx X. Xxxxx Xxxx X. Xxxxxx Print Name: Xxxxx X. Xxxxx
-------------------------------------- ----------------------------------
Title: Secretary President Title: Secretary
------------------------------------------- ---------------------------------------
Date: 1/28/03 Date: 1/28/03
--------------------------------------------- ----------------------------------------
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ATTACHMENT A, ("ATTACHMENT A") TO
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT ("AGREEMENT")
DATED JUNE 29, 2001
Customer Name: PEMSTAR INC., TURTLE MOUNTAIN CORPORATION, and PEMSTAR PACIFIC
Consultants, Inc. (together, the "Credit Parties")
Effective Date of this Attachment A: January 29, 2003
I. Fees, Rates and Repayment Terms:
(A) Credit Facility:
Revolving A: Sixty-five Million Dollars ($65,000000) Revolving
Credit Facility
(B) Borrowing Base:
(i) (a) 90% of the amount of each Credit Party's Eligible
Accounts from International Business Machines Corp. ("IBM") or
its domestic subsidiaries as account debtor pursuant to
agreements between such Credit Party and IBM in form and
substance satisfactory to IBM Credit as of the date of
determination as reflected in the Customer's most recent
Collateral Management Report;
(b) 90% of the amount of each Credit Party's accounts from
IBM's foreign subsidiaries as account debtor as of the date of
determination as reflected in the Customer's most recent
Collateral Management Report but in no event shall the aggregate
amount permitted under this Section I. (B) (i) (b) exceed One
Million Dollars ($1,000,000);
Notwithstanding Section 3.1 (A) of the Agreement, for purposes
of this Section (i), Accounts from IBM that allow for payment to
be made within 60 days shall be included for purposes of
calculating the Borrowing Base provided that such Accounts are
on standard terms and otherwise satisfy the criteria for
eligibility in IBM Credit's sole discretion.
(ii) 80% of the amount of each Credit Party's Eligible Accounts
from Honeywell Inc. ("Honeywell"), Minnesota Mining &
Manufacturing Company ("3M"), and Applied Materials, Inc.
("Applied Materials") as account debtor, provided such account
debtors remain investment grade, in IBM Credit's sole
discretion, and pursuant to agreements between such Credit Party
and such account debtor, in form and substance satisfactory to
IBM Credit as of the date of determination as reflected in the
Customer's most recent Collateral Management Report;
Notwithstanding Section 3.1 (A) of the Agreement, for purposes
of this Section (ii), Accounts from Honeywell that allow for
payment to be made within 60 days shall be included for purposes
of calculating the Borrowing Base provided that (x) such
Accounts from Honeywell are on standard terms and otherwise
satisfy the criteria for eligibility in IBM Credit's sole
discretion, (y) the aggregate amount permitted for Honeywell
under this Section (ii) shall not exceed Three Million Dollars
($3,000,000) and (z) Honeywell remains investment grade.
(iii) 80% of the amount of each Credit Party's other Eligible
Accounts, other than Concentration Accounts, as of the date of
determination as reflected in the Customer's most recent
Collateral Management Report provided, however, IBM Credit has a
first priority security interest in such Eligible Account; (iv)
a percentage, determined from time to time by IBM Credit in its
sole discretion, of the amount of Customer's Concentration
Accounts for a specific Concentration Account Debtor as of the
date of determination as reflected in the Customer's most recent
Collateral Management Report; unless otherwise notified by IBM
Credit, in writing, the percentage for Concentration Accounts
for a specific Concentration Account Debtor shall be the same as
the percentage set forth in paragraph (ii) of the Borrowing
Base;
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The following subsections (v), (vi), (vii) and (viii) specify
valuation rates for Eligible Finished Goods Inventory, Eligible
Parts Inventory and Eligible Inventory (as such terms are
defined below) for the following Credit Parties' at the
specified locations:
Pemstar Inc. = Rochester, MN
Pemstar Inc. = San Jose, CA
Pemstar Inc. = Taunton, MA
Turtle Mountain Corporation = Dunseith, ND
(v) Rochester, MN = 95%, Xxx Xxxx, XX x 0%, Xxxxxxx, XX = 0%,
Dunseith, ND = 95% of the lower of (x) book value or (y) fair
market value of each Credit Party's Eligible Finished Goods
Inventory destined for IBM less than 180 days old;
(vi) Rochester, MN = 84%, Xxx Xxxx, XX x 0%, Xxxxxxx, XX = 0%,
Dunseith, ND = 85% of the lower of (x) book value or (y) fair
market value of each Credit Party's Eligible Parts Inventory
destined for IBM less than 180 days old;
(vii) Rochester, MN = 64%, Xxx Xxxx, XX x 0%, Xxxxxxx, XX = 0%,
Dunseith, ND = 70% of the lower of (x) book value or (y) fair
market value of each Credit Party's Eligible Inventory destined
for Honeywell, 3M, and Applied Materials less than 180 days old;
(viii) Rochester, MN (other than Eligible Finished Goods
Inventory, Eligible Parts Inventory and Eligible Inventory
destined for Celestica) = 53%, Rochester, MN (for Eligible
Finished Goods Inventory, Eligible Parts Inventory and Eligible
Inventory destined for Celestica) = 0%, San Jose, CA = 33%,
Taunton, MA = 41%, Dunseith, ND = 55% of the lower of (x) book
value or (y) fair market value of each Credit Party's other
Eligible Inventory less than 180 days old provided, however, IBM
Credit has a first priority security interest in such Eligible
Inventory.
(ix) Less Two Million Dollars ($2,000,000.00).
Eligible Finished Goods Inventory shall mean finished goods
inventory in salable condition less than 180 days old, owned by
a Credit Party free and clear of any Liens (other than Liens
pursuant to this Agreement), and designated and identified as
product to be sold to IBM as evidenced by (i) non-cancellable
purchase orders from IBM or (ii) a non-cancellable written
agreement that IBM will purchase such inventory, in each case,
in form and substance satisfactory to IBM Credit.
Eligible Parts Inventory shall mean parts inventory and floor
stock raw materials in good condition less than 180 days old,
owned by a Credit Party free and clear of any Liens (other than
Liens pursuant to this Agreement), and designated and identified
as parts to be used to manufacture product (the Eligible
Finished Goods Inventory) to be sold to IBM as evidenced by (i)
non-cancellable purchase orders from IBM to such Credit Party or
(ii) a non-cancellable written agreement that IBM will purchase
such inventory, in each case, in form and substance satisfactory
to IBM Credit.
Eligible Inventory shall mean raw materials, floor stock raw
materials and finished goods inventory less than 180 days old
owned by a Credit Party free and clear of any Liens (other than
Liens pursuant to this Agreement) designated and identified by
the Customer in its periodic collateral report or borrowing
request to IBM Credit as inventory applicable to product sold,
or to be manufactured and sold, by a Credit Party to an end user
pursuant to non-cancellable purchase orders or other written
agreements binding such end user to purchase such product, in
each case, in form and substance satisfactory to IBM Credit.
Notwithstanding the foregoing, IBM Credit may consider Eligible
Finished Goods Inventory, Eligible Parts Inventory and/or
Eligible Inventory in the Borrowing Base greater than 180 days
old provided that (i) a purchase order is in place between the
end-user and the Credit Party, in form and substance
satisfactory to IBM Credit or (ii) Credit Party provides
evidence to IBM Credit, in form and substance satisfactory to
IBM Credit, that the end-user is paying all carrying costs
associated with such Eligible Finished Goods, Eligible Parts
Inventory and/or Eligible Inventory. Under no circumstances will
Eligible Finished Goods, Eligible parts Inventory or Eligible
Inventory be considered in the Borrowing Base if older than 365
days.
IBM Credit will consider Eligible Finished Goods Inventory,
Eligible Parts Inventory and/or Eligible Inventory to be
ineligible if the end-user customer with respect to such
Eligible Finished Goods Inventory, Eligible Parts Inventory
and/or Eligible Inventory becomes delinquent in its payments of
accounts receivable to the Credit Parties and such accounts
receivable owing from such account debtor are not eligible
pursuant to the terms of Section 3.1 (C) of the Agreement.
Notwithstanding the foregoing, assets of Pemstar Pacific
Consultants shall not be included for the purposes of
calculating the Borrowing Base. For purposes of calculating the
Borrowing Base, Pemstar Pacific Consultants shall not be deemed
a Credit Party.
In addition, to the extent IBM Credit does not have first
priority security interest in any Eligible Accounts, Eligible
Finished Goods Inventory, Eligible Parts Inventory and Eligible
Inventory such item will not be included for purposes of
calculating the Borrowing Base.
11
(C) Collateral Insurance Amount: Seventy Million Dollars ($70,000,000).
(D) Applicable Margin: Prime Rate plus 3.50%.
(E) Delinquency Fee Rate: Prime Rate plus 6.500%.
(F) Shortfall Transaction Fee: Shortfall Amount multiplied by 0.30%.
(G) Other Charges:
(i) Unused Line Fee: 0.375% per annum on the daily average
unused portion of the Credit Line for each day from the closing
date of the Agreement and shall be computed on the basis of a
360 day year and payable monthly in arrears and upon the
maturity or termination of the Agreement.
(ii) Prepayment Fee: A prepayment premium, payable to IBM
Credit in the event that the Customer terminates the Credit Line
prior to Termination Date, in an amount equal to the amount of
the Credit Line in effect as of the date of notice of
termination or date of default, multiplied by one half of one
percent (0.50%);
(iii) Waiver Fee of Sixty-five Thousand Dollars ($65,000.00).
II. Bank Account
Credit Parties' Lockbox(es) and Special Account(s) will be maintained at the
following Bank(s):
Name of Bank: U.S. Bank
Address: EP-MN-M5BC
000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxxx, XX 00000-0000
Bank Contact: Xx. Xxxxxxxxxxx X. Xxxxxx (000) 000-0000
Lockbox Address: PEMSTAR INC.
SDS-12-1905
X.X. Xxx 00
Xxxxxxxxxxx, XX 00000-0000
Special Account #: 1-047-5581-5495
Lockbox # SDS-12-1905
Name of Bank: Citizens Bank of Massachusetts Inc.
Address: 0000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
Bank Contact: Xxxxx X. Xxxxxxx (000) 000-0000
Lockbox Address: PEMSTAR INC.
X.X. Xxx 000000
Xxxxxx, XX 00000-0000
Special Account #: 1102182378
Lockbox # 5788
Name of Bank: U.S. Bank
Address: EP-MN-M5BC
000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxxx, XX 00000-0000
Bank Contact: Xxxxxxxxxxx X. Xxxxxx - (000) 000-0000
Lockbox Address: Turtle Xxxxxxxx Xxxxxxxxxxx
XXX-00-0000
Xxxxxxxxxxx, XX 00000-0000
Special Account #: 1047-5711-5977
Lockbox # SDS-12-2077
Name of Bank: U.S. Bank
Address: EP-MN-M5BC
000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxxx, XX 00000-0000
Bank Contact: Xx. Xxxxxxxxxxx X. Xxxxxx - (000) 000-0000
12
Lockbox Address: Pemstar Inc. (San Xxxx location)
SDS51930
X.X. Xxx 00000
Xxx Xxxxxxx, XX 00000-0000
Special Account: 1-047-5581-57950
Xxxxxxx # XXX00000
Name of Bank U.S. Bank
Bank Address EP-MN-M5BC
000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxxx, XX 00000-0000
Bank Contact Xxxxxxxxxxx X. Xxxxxx - (000) 000-0000
Lockbox Xxxxxxx Xxxxxxx Xxx. - Xxxxxx
XXX-00-0000
X.X. Xxx 00
Xxxxxxxxxxx, XX. 00000-0000
Special Account 1-047-5714-2476
Xxxxxxx # XXX-00-0000
Name of Bank: U.S. Bank
Address: EP-MN-M5BC
000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxxx, XX 00000-0000
Bank Contact: Xxxxxxxxxxx X. Xxxxxx - (000) 000-0000
Lockbox Address: Pemstar Pacific Consultants Inc
XX Xxx 00000 Xxxx X
Xxx Xxxxxxx, XX 00000-0000
Special Account # 1-539-1000-7704
Lockbox # 51911
III. Financial Covenants:
Definitions: The following terms shall have the following respective meanings in
this Attachment A. All amounts shall be determined in accordance with generally
accepted accounting principles (GAAP).
"Capital Expenditure" shall mean any amount debited to the fixed asset
account on the Customer's consolidated balance sheet in respect of: (a)
the acquisition (including, without limitation, acquisition by entry
into a capitalized lease), construction, improvement, replacement or
betterment of land, buildings, machinery, equipment or of any other
fixed assets or capitalized leaseholds; and (b) to the extent related
to and not included in (a) above, materials, contract labor and direct
labor (excluding expenditures charged to repairs or maintenance in
accordance with GAAP.
"Consolidated Net Income" shall mean, for any period, the net income
(or loss), after taxes, of Customer on a consolidated basis for such
period determined in accordance with GAAP.
"Current" shall mean within the ongoing twelve month period.
"Current Assets" shall mean assets that are cash or expected to become
cash within the ongoing twelve months.
"Current Liabilities" shall mean payment obligations resulting from
past or current transactions that require settlement within the ongoing
twelve month period (excluding the Indebtedness owed by any of the
Credit Parties to IBM Credit under the Agreement), as determined in
accordance with GAAP.
"EBITDA" shall mean, for any period (determined on a consolidated basis
in accordance with GAAP), (a) the Consolidated Net Income of Customer
for such period, plus (b) each of the following to the extent reflected
as an expense in the determination of such Consolidated Net
13
Income: (i) the Customer's provisions for taxes based on income for
such period; (ii) Interest Expense for such period; and (iii)
depreciation and amortization of tangible and intangible assets of
Customer for such period.
"Fixed Charges" shall mean, for any period, an amount equal to the sum,
without duplication, of the amounts for such as determined for the
Customer on a consolidated basis, of (i) scheduled repayments of
principal of all Indebtedness (as reduced by repayments thereon
previously made), (ii) Interest Expense, (iii) capital expenditures
(iv) dividends, (v) leasehold improvement expenditures and (vi) all
provisions for U.S. and non U.S. Federal, state and local taxes.
"Fixed Charge Coverage Ratio" shall mean the ratio as of the last day
of any fiscal period of (i) EBITDA as of the last day of such fiscal
period to (ii) Fixed Charges.
"Interest Expense" shall mean, for any period, the aggregate
consolidated interest expense of Customer during such period in respect
of Indebtedness determined on a consolidated basis in accordance with
GAAP, including, without limitation, amortization of original issue
discount on any Indebtedness and of all fees payable in connection with
the incurrence of such Indebtedness (to the extent included in interest
expense), the interest portion of any deferred payment obligation and
the interest component of any capital lease obligations.
"Long Term" shall mean beyond the ongoing twelve month period.
"Long Term Assets" shall mean assets that take longer than a year to be
converted to cash. They are divided into four categories: tangible
assets, investments, intangibles and other.
"Long Term Debt" shall mean payment obligations of indebtedness which
mature more than twelve months from the date of determination, or
mature within twelve months from such date but are renewable or
extendible at the option of the debtor to a date more than twelve
months from the date of determination.
"Net Profit after Tax" shall mean Revenue plus all other income, minus
all costs, including applicable taxes.
"Revenue" shall mean the monetary expression of the aggregate of
products or services transferred by an enterprise to its customers for
which said customers have paid or are obligated to pay, plus other
income as allowed.
"Subordinated Debt" shall mean Customer's unsecured indebtedness to
third parties as evidenced by an executed Notes Payable Subordination
Agreement in favor of IBM Credit including, without limitation, the
Subordinated Debt (2002).
"Tangible Net Worth" shall mean:
Total Net Worth minus;
(a) goodwill, organizational expenses, pre-paid expenses,
deferred charges, research and development expenses, software
development costs, leasehold expenses, trademarks, trade
names, copyrights, patents, patent applications, privileges,
franchises, licenses and rights in any thereof, and other
similar intangibles (but not including contract rights) and
other current and non-current intangible assets as identified
in Customer's financial statements;
(b) all accounts receivable from employees, officers,
directors, stockholders and affiliates; and
(c) all callable/redeemable preferred stock.
"Total Assets" shall mean the total of Current Assets and Long Term
Assets.
14
"Total Liabilities" shall mean the Current Liabilities and Long Term
Debt less Subordinated Debt, resulting from past or current
transactions, that require settlement in the future.
"Total Net Worth" (the amount of owner's or stockholder's ownership in
an enterprise) is equal to Total Assets minus Total Liabilities.
"Working Capital" shall mean Current Assets minus Current Liabilities.
Customer will be required to maintain the following financial ratios,
percentages and amounts as of the last day of the fiscal period under review by
IBM Credit:
On a consolidated basis:
Covenant Covenant Requirement
-------- --------------------
(a) Net Profit after Tax ($2,100,000) for the fiscal month ending
(on a monthly basis) January 31, 2003;
($2,600,000) for the two fiscal month
period ending February 28, 2003;
($2,000,000) for the fiscal month
ending March 31, 2003, and
Equal to or Greater than .75 percent of
the Revenues for the fiscal quarter ending
June 30, 2003 and for all fiscal quarters
thereafter
(b) Net Profit after Tax Equal to or Greater than 1.25 percent at
to Revenue (on an fiscal year ending March 31, 2004, and for
annual basis) all fiscal year ends thereafter
(c) Total Liabilities to Greater than Zero and Equal to or Less
Tangible Net Worth than 1.6:1.0 measured on a monthly basis
(d) Current Assets to Greater than 1.50:1.0 for the fiscal
Current Liabilities months January, and February and March
2003, and 2.0:1.0 on a monthly basis.
(e) Maximum Capital Less than or equal to $18,000,000 for the
Expenditures fiscal year ending March 31, 2003 and all
fiscal year ends thereafter provided,
however, no Credit Party may make any
Capital Expenditure in excess of
$1,000,000 without the prior written
consent of IBM Credit
(f) Net Profit After Net loss not greater than $2,700,000 for
Tax the month ending January 31, 2003
(U.S. Credit Parties Net loss not greater than $3,800,000 for
operations only) the two months period ending February 28,
2003
Net loss not greater than $4,300,000 for
the three months period ending March 31,
2003;
Equal to or Greater than 1.5% of Revenues
for each fiscal quarter. thereafter
beginning at June 30, 2003
(g) EBITDA Equal to or less than ($1,200,000) for the
(U.S. Credit Parties month ending January 31, 2003
operations only) Equal to or less than ($700,000) for the
two months ending February 28, 2002;
Equal to or greater than a $300,000 for
the three months ending March 31, 2003,
and
Equal to or greater than $5,500,000 for
all fiscal quarters thereafter
15
(h) EBITDA Equal to or greater than $300,000 for the month
ending January 31, 2003
Equal to or Greater than $2,200,000 for the two
months period ending February 28, 2003
Equal to or Greater than $5,300,000 for the three
months period ending March 31, 2003;
Equal to or Greater than $6,000,000 for all fiscal
quarters thereafter
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