LETTERHEAD OF SMART MODULAR TECHNOLOGIES, INC.]
Exhibit
10.16
[LETTERHEAD OF SMART MODULAR TECHNOLOGIES, INC.]
April 16, 2004
TPG GenPar III, L.P.
000 Xxxxxxxx Xx. Xxxxx 0000
Xxxx Xxxxx, XX 00000
000 Xxxxxxxx Xx. Xxxxx 0000
Xxxx Xxxxx, XX 00000
TPG GenPar IV, L.P.
000 Xxxxxxxx Xx. Xxxxx 0000
Xxxx Xxxxx, XX 00000
000 Xxxxxxxx Xx. Xxxxx 0000
Xxxx Xxxxx, XX 00000
T3 GenPar II L.P.
000 Xxxxxxxx Xx. Xxxxx 0000
Xxxx Xxxxx, XX 00000
000 Xxxxxxxx Xx. Xxxxx 0000
Xxxx Xxxxx, XX 00000
Ladies and Gentlemen:
Reference is made to the Transaction Agreement (as the same may be amended from time to time,
the “Transaction Agreement”) entered into as of February 11, 2004 by and among Modular, Inc., a
Delaware corporation, Modular (Cayman), Inc., an exempted company organized under the laws of the
Cayman Islands, Modular Merger Corporation, a California corporation, Solectron Corporation, a
Delaware corporation, Solectron Global Holdings, L.P., a limited partnership organized under the
laws of the Cayman Islands, Solectron Serviços e Manufactura Do Brasil Ltda., a limited liability
company (sociedade por quotas de responsabilidade limitada) organized under the laws of the
Federative Republic of Brazil and SMART Modular Technologies, Inc., a California corporation (the
“Company”).
Subject to the terms and conditions contained herein, this letter agreement (this “Letter
Agreement”) sets forth the agreement of the parties with respect to the performance of certain
advisory services for the Company by TPG GenPar III, L.P., TPG GenPar IV, L.P., and T3 GenPar II,
L.P. (collectively, the “Advisors”).
1. Term. This Letter Agreement shall be in effect for an initial term of ten (10)
years commencing on the date hereof (the “Term”), and shall be automatically extended thereafter on
a year to year basis unless the Company or any Advisor provides written notice of termination of
this Letter Agreement to the other parties at least 90 days prior to the expiration of the Term or
any extension thereof. This Letter Agreement shall be automatically terminated upon a Sale (as
such term is defined in the Amended and Restated Limited Liability Company Agreement (as the same
may be amended from time
to time, the “LLC Agreement”), dated as of the date hereof, of Modular, LLC, a Delaware
limited liability company).
2. Services. The Advisors shall perform or cause to be performed such services for the
Company and/or its affiliates as directed by the Company’s board of directors, which may include,
without limitation, the following: (i) executive and management services; (ii) identification,
support and analysis of acquisitions and dispositions by the Company or its affiliates; (iii)
support and analysis of financing alternatives, including, without limitation, in connection with
acquisitions, capital expenditures and refinancing of existing indebtedness; (iv) finance
functions, including assistance in the preparation of financial projections, and monitoring of
compliance with financing agreements; (v) human resource functions, including searching and hiring
of executives; and (vi) other services for the Company or its affiliates upon which the Company’s
board of directors and the Advisors agree. Notwithstanding any provision in this Letter Agreement
to the contrary, each of the parties hereto acknowledges and agrees that there are no minimum
levels of services required to be provided to the Company and/or its affiliates pursuant to this
Letter Agreement and the level of services required to be provided to the Company by the Advisor
shall not be unreasonably disproportionate relative to the amount of the Advisory Fee and the
services provided by any other Institutional Investor (as such term is defined in the LLC
Agreement) to the Company on substantially similar terms as set forth herein.
3. Advisory Fee. (a) Subject to the terms and conditions herein, the Company shall
pay the Advisors and/or their designees an annual advisory fee (the “Advisory Fee”) equal to
$1,000,000 per annum, allocated among the Advisors in accordance with the percentages set forth in
Schedule A, plus the reasonable out-of-pocket expenses of the Advisors and/or its affiliates
(including without limitation, costs of travel and fees and expenses of counsel, accountants and
consultants).
(b) The decision whether to collect any Advisory Fee in a given year shall be in the Advisors’
sole discretion. Any Advisor’s decision not to collect an Advisory Fee in any given year shall not
be construed to be a waiver of that Advisor’s right to collect an Advisory Fee in any future year.
(c) All fees and expenses described in this paragraph 3 shall be payable to the Advisors or
their designees on a quarterly basis in advance (based on the Company’s and the Advisors’ estimate
of the amount of fees and expenses which shall become due and payable for such quarter) commencing
as of the date hereof.
4. Transaction Fees. The Company hereby agrees to pay to the Advisors or their
designees on the Closing Date (as such term is defined in the Transaction Agreement) upon the
consummation of the transactions contemplated by the Transaction Agreement a fee for services
rendered in connection with the structuring of the financing for such transactions and certain
other management services in the amount of $2,400,000, allocated among the Advisors in accordance
with the percentages set forth in Schedule A, plus reasonable out-of-pocket expenses (including
without limitation, costs of travel and fees and expenses of counsel, accountants and consultants).
Such fees
2
shall be payable to the Advisors or their designees by wire transfer to an account or accounts
designated in writing by the Advisors.
5. Liability. Neither the Advisors nor any other Indemnitee (as defined in paragraph
6 below) shall be liable to the Company or any of its affiliates for any loss, liability, damage or
expense arising out of or in connection with the performance of services contemplated by this
Letter Agreement, unless such loss, liability, damage or expense shall be proven to result directly
from gross negligence, willful misconduct or bad faith on the part of an Indemnitee acting within
the scope of such person’s employment or authority. The Advisors make no representations or
warranties, express or implied, in respect of the services to be provided by the Advisors or any of
the other Indemnitees. Except as the Advisors may otherwise agree in writing after the date hereof
(i) the Advisors shall have the right to, and shall have no duty (contractual or otherwise) not to,
directly or indirectly (A) engage in the same or similar business activities or lines of business
as the Company or any of its affiliates, including those competing with the Company or any of its
affiliates and (B) do business with any client or customer of any of the Company or any of its
affiliates, (ii) neither the Advisors nor any officer, director, employee, partner, affiliate or
associated entity thereof shall be liable to any of the Company or any of its affiliates for breach
of any duty (contractual or otherwise) by reason of any such activities of or of such person’s
participation therein, and (iii) in the event that the Advisors acquire knowledge of a potential
transaction or matter that may be a corporate opportunity for the Company or any of its affiliates,
on the one hand, and the Advisors, on the other hand, or any other person, the Advisors shall have
no duty (contractual or otherwise) to communicate or present such corporate opportunity to the
Company or any of its affiliates and, notwithstanding any provision of this Letter Agreement to the
contrary, shall not be liable to the Company or any of its affiliates for breach of any duty
(contractual or otherwise) by reasons of the fact that any Advisor directly or indirectly pursues
or acquires such opportunity for itself, directs such opportunity to another person, or does not
present such opportunity to the Company or any of its affiliates. In no event will any of the
parties hereto be liable to any other party hereto for any indirect, special, incidental or
consequential damages, including lost profits or savings, whether or not such damages are
foreseeable, or in respect of any liabilities relating to any third party claims (whether based in
contract, tort or otherwise) other than the Claims (as defined in paragraph 6 below) relating to
the service to be provided by the Advisors hereunder.
6. Indemnity. The Company shall defend, indemnify and hold harmless the Advisors and
their affiliates, members, partners, employees and agents (collectively, the “Indemnitees”) from
and against any and all loss, liability, damage or expenses arising from any claim by any person
with respect to, or in any way related to, the performance of services contemplated by this Letter
Agreement (including attorneys’ fees) (collectively, “Claims”) resulting from any act or omission
of any of the Indemnitees, other than for Claims which shall be proven to be the direct result of
gross negligence, bad faith or willful misconduct by an Indemnitee. The Company shall defend at
its own cost and expense any and all suits or actions (just or unjust) which may be brought against
the Company, any of its affiliates or any of the Indemnitees or in which any of the Indemnitees may
be impleaded with others upon any Claims, or upon any
3
matter, directly or indirectly, related to or arising out of this Letter Agreement or the
performance hereof by any of the Indemnitees, except that if such damage shall be proven to be the
direct result of gross negligence, bad faith or willful misconduct by an Indemnitee, then the
Advisors shall reimburse the Company for the costs of defense and other costs incurred by the
Company.
7. Assignment. The Company may not assign any obligations hereunder to any other
party without the prior written consent of the Advisors (which consent shall not be unreasonably
withheld), and the Advisors may not assign their obligations hereunder to any other party without
the prior written consent of the Company (which consent shall not be unreasonably withheld);
provided that the Advisors may, without consent of the Company, assign their respective rights and
obligations under this Letter Agreement to any Affiliate (as such term is defined in the LLC
Agreement).
8. Successors. This Letter Agreement and all the obligations and benefits hereunder
shall inure to the successors and assigns of the parties.
9. Counterparts. This Letter Agreement may be executed and delivered by each party
hereto in separate counterparts, each of which when so executed and delivered shall be deemed an
original and all of which taken together shall constitute but one and the same agreement.
10. Entire Agreement; Modification; Governing Law. The terms and conditions hereof
constitute the entire agreement between the parties hereto with respect to the subject matter of
this Letter Agreement and supersede all previous communications, either oral or written,
representations or warranties of any kind whatsoever, except as expressly set forth herein. No
modifications of this Letter Agreement nor waiver of the terms or conditions thereof shall be
binding upon either party unless approved in writing by an authorized representative of such party.
This Letter Agreement may not be amended in a manner materially adverse to the Company and the
Company may not waive any material provision of this Letter Agreement that is for its benefit. All
issues concerning this Letter Agreement shall be governed by and construed in accordance with the
laws of the State of California, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of California or any other jurisdiction) that would cause
the application of the law of any jurisdiction other than the State of California.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
4
| Very truly yours, | ||||
| SMART MODULAR | ||||
| TECHNOLOGIES, INC. | ||||
| By: | /s/ Xxxx XxxXxxxxx | |||
| Name: Xxxx XxxXxxxxx | ||||
| Title: President | ||||
Agreed and Accepted:
TPG GENPAR III, L.P.
By: TPG Advisors III, Inc.,
its General Partner
By:
|
/s/ Xxxxxxx X. Xxxxxxxxx | |||
| Name: Xxxxxxx X. Xxxxxxxxx | ||||
| Title: Vice President | ||||
TPG GENPAR IV, L.P.
By: TPG Advisors IV, Inc.,
its General Partner
its General Partner
By:
|
/s/ Xxxxxxx X. Xxxxxxxxx | |||
| Name: Xxxxxxx X. Xxxxxxxxx | ||||
| Title: Vice President | ||||
T3 GENPAR II, L.P.
By: T3 Advisors II, Inc.,
its General Partner
its General Partner
By:
|
/s/ Xxxxxxx X. Xxxxxxxxx | |||
| Name: Xxxxxxx X. Xxxxxxxxx | ||||
| Title: Vice President | ||||
5
