-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, E+XFi7IsWuqcSRjGZFTYo5bvEjjSXqPId8M/6tWusk1fnm1k6mE/uiBh6UGDvLav 0Ixx0myIeX6EzQ1x+nPOPQ== 0000950123-98-004131.txt : 19980427 0000950123-98-004131.hdr.sgml : 19980427 ACCESSION NUMBER: 0000950123-98-004131 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 40 FILED AS OF DATE: 19980424 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCMS INC CENTRAL INDEX KEY: 0001060356 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-50981 FILM NUMBER: 98600875 BUSINESS ADDRESS: STREET 1: 16399 FRANKLIN RD CITY: NAMPA STATE: ID ZIP: 83687 BUSINESS PHONE: 2088982600 S-4 1 MCMS, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ MCMS, INC. (Exact name of registrant as specified in its charter) IDAHO 3679 82-0450118 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
16399 FRANKLIN ROAD NAMPA, ID 83687 TELEPHONE: (208) 898-2600 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------ ANGELO NINIVAGGI 16399 FRANKLIN ROAD NAMPA, ID 83687 TELEPHONE: (208) 898-2600 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPY TO: FREDERICK A. TANNE KIRKLAND & ELLIS 153 EAST 53RD STREET NEW YORK, NEW YORK 10022-4675 TELEPHONE: (212) 446-4800 ------------------------ Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] CALCULATION OF REGISTRATION FEE
================================================================================================================================= AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE - --------------------------------------------------------------------------------------------------------------------------------- Series B 9 3/4% Senior $1,000 principal Subordinated Notes due 2008.... $145,000,000 amount $145,000,000 $42,775 Series B Floating Interest Rate Subordinated Term Securities $1,000 principal due 2008....................... $30,000,000 amount $30,000,000 $8,850 Series B 12 1/2% Senior Exchangeable Preferred Stock... $47,500,000 $100 $25,000,000(2) $14,012.50 12 1/2% Subordinated Exchange Debentures due 2010............ $47,500,000 (3) (3) None Total.................. $222,500,000 $20,000,000 $65,637.50 =================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(f)(2) based upon the book value of the securities as of , 1998. (2) The amount of Series B 12 1/2% Senior Exchangeable Preferred Stock being registered is greater than the aggregate offering price because the Company has the option to issue additional shares of Preferred Stock as dividends on the outstanding Preferred Stock. (3) No further fee is payable pursuant to Rule 457(i). 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. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED , 1998 PROSPECTUS MCMS LOGO OFFER TO EXCHANGE ITS SERIES B 9 3/4% SENIOR SUBORDINATED NOTES DUE 2008 FOR ANY AND ALL OF ITS OUTSTANDING 9 3/4% SENIOR SUBORDINATED NOTES DUE 2008, ITS SERIES B FLOATING INTEREST RATE SUBORDINATED TERM SECURITIES DUE 2008 (FIRSTS(SM*)) FOR ANY AND ALL OF ITS OUTSTANDING FLOATING INTEREST RATE SUBORDINATED TERM SECURITIES DUE 2008 (FIRSTS(SM*)) AND ITS SERIES B 12 1/2% SENIOR EXCHANGEABLE PREFERRED STOCK FOR ANY AND ALL OF ITS OUTSTANDING 12 1/2% SENIOR EXCHANGEABLE PREFERRED STOCK ------------------------ THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED. MCMS, Inc., an Idaho corporation (the "Company"), hereby offers (the "Exchange Offer"), upon the terms and conditions set forth in this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange (i) $1,000 principal amount of its Series B 9 3/4% Senior Subordinated Notes due 2008 (the "Fixed Rate Exchange Notes") for each $1,000 principal amount of its outstanding 9 3/4% Senior Subordinated Notes due 2008 (the "Fixed Rate Notes"), of which $145,000,000 principal amount is outstanding, (ii) $1,000 principal amount of its Series B Floating Interest Rate Subordinated Term Securities due 2008 (the "Floating Rate Exchange Notes" and, together with the Fixed Rate Exchange Notes, the "Exchange Notes") for each $1,000 principal amount of its outstanding Floating Interest Rate Subordinated Term Securities due 2008 (the "Floating Rate Notes" and, together with the Fixed Rate Notes, the "Notes"), of which $30,000,000 principal amount is outstanding and (iii) $100 liquidation preference of its Series B 12 1/2% Senior Exchangeable Preferred Stock (the "Exchange Preferred Stock" and, together with the Exchange Notes, the "Exchange Securities") for each $100 liquidation preference of its outstanding 12 1/2% Senior Exchangeable Preferred Stock (the "Preferred Stock" and together with the Notes, the "Securities"), of which $25,000,000 aggregate liquidation preference is outstanding. The Exchange Securities will have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which this Prospectus is a part. The form and terms of the Exchange Securities are the same as the form and term of the Securities (which they replace) except that the Exchange Securities will bear a Series B designation and will have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer and will not contain certain provisions relating to an increase in the dividend rate and the interest rate which were included in the terms of the Preferred Stock and Notes, respectively, in certain circumstances relating to the timing of the Exchange Offer. The Exchange Notes will evidence the same debt as the Notes (which they replace) and will be issued under and be entitled to the benefits of the Indenture dated February 26, 1998 between the Company and the United States Trust Company of New York (the "Indenture") governing the Notes. See "The Exchange Offer" and "Description of Exchange Notes." The Exchange Preferred Stock will evidence the same equity as the Preferred Stock (which they replace) and will be issued under and be entitled to the benefits of the Certificate of Designation relating to the Preferred Stock and the Exchange Preferred Stock (the "Certificate of Designation"). See "The Exchange Offer" and "Description of Senior Preferred Stock and Exchange Debentures." Interest on the Exchange Notes will accrue, as interest on the Notes (which they replace) accrues, and will be payable semi-annually in arrears on March 1 and September 1 of each year, commencing September 1, 1998 at the rate of 9 3/4% per annum in the case of the Fixed Rate Exchange Notes, and at a rate per annum equal to LIBOR (as defined) plus 4 5/8% in the case of the Floating Rate Exchange Notes. Interest on the Floating Rate Exchange Notes will be reset semi-annually. The Fixed Rate Exchange Notes will be redeemable, in whole or in part, at the option of the Company on or after March 1, 2003, and the Floating Rate Exchange Notes will be redeemable, in whole or in part, at the option of the Company, at any time, in each case at the redemption prices set forth herein, plus accrued and unpaid interest to the date of redemption. In addition, at any time on or prior to March 1, 2001, the Company, at its option, may redeem, with the net cash proceeds of one or more Public Equity Offerings (as defined) by the Company, up to 35% of the aggregate principal amount of the Fixed Rate Exchange Notes originally issued, at the redemption price set forth herein, plus accrued and unpaid interest to the date of redemption, provided that at least 65% of the aggregate principal amount of the Fixed Rate Exchange Notes originally issued plus any additional Fixed Rate Exchange Notes issued pursuant to the Indenture remains outstanding immediately following any such redemption. Upon a Change of Control (as defined), each holder of Exchange Notes will have the right to require the Company to repurchase such holder's Exchange Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase. (continued on next page) ------------------------ SEE "RISK FACTORS" ON PAGE 19 FOR A DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR SECURITIES IN THE EXCHANGE OFFER. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------- * FIRSTS is a service mark of BTAlex.Brown Incorporated. BTALEX.BROWN ------------------------ The date of this Prospectus is , 1998 3 (continued from previous page) Dividends on the Exchange Preferred Stock will accumulate, as the dividends on Preferred Stock (which they replace) accumulated, at the rate of 12 1/2% per annum of the liquidation preference per share and will be payable quarterly, commencing on June 1, 1998. Dividends on the Exchange Preferred Stock accumulating on or prior to March 1, 2003, may, at the option of the Company, be paid in cash or by issuing additional shares of Exchange Preferred Stock having an aggregate liquidation preference equal to the amount of such dividends, or in any combination thereof. Dividends on the Exchange Preferred Stock accumulating after March 1, 2003 must be paid in cash. The Exchange Preferred Stock will have a liquidation preference of $100 per share. The Exchange Preferred Stock is subject to mandatory redemption on March 1, 2010, but will be redeemable at the option of the Company, in whole or in part, on or after March 1, 2003, at the redemption prices set forth herein, plus, without duplication, accumulated and unpaid dividends to the date of redemption. In addition, prior to March 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem, in whole or in part, the Exchange Preferred Stock at the redemption prices set forth herein, plus, without duplication, accumulated and unpaid dividends to the date of redemption. Upon a Change of Control, each holder of shares of Exchange Preferred Stock may require the Company to purchase the holder's shares of Exchange Preferred Stock at a price equal to 101% of the liquidation preference thereof, plus accumulated and unpaid dividends to the date of purchase. On any scheduled dividend payment date, the Company may, at its option, exchange all, but not less than all, of the shares of Exchange Preferred Stock then outstanding for the Company's 12 1/2% Subordinated Exchange Debentures due 2010 (including any securities issued from time to time in lieu of cash interest thereon, the "Exchange Debentures"). The Exchange Debentures will bear interest at a rate of 12 1/2% per annum, payable semiannually in arrears on March 1 and September 1 of each year, commencing with the first such date to occur after the date of the exchange. Interest on the Exchange Debentures accruing on or prior to March 1, 2003, may, at the option of the Company, be paid in cash or by issuing additional Exchange Debentures in an aggregate principal amount equal to the amount of such interest, or any combination thereof. Interest on the Exchange Debentures accruing after March 1, 2003 must be paid in cash. The Exchange Debentures will mature on March 1, 2010. The Exchange Debentures will be redeemable at the option of the Company, in whole or in part, at any time, at the redemption prices set forth herein, plus accrued and unpaid interest to the date of redemption. In addition, prior to March 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem, in whole or in part, the aggregate principal amount of the Exchange Debentures originally issued, at the redemption prices set forth herein, plus accrued interest to the date of redemption. Upon a Change of Control, each holder of Exchange Debentures may require the Company to repurchase the holder's Exchange Debentures at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase. The Exchange Notes will be general unsecured obligations of the Company, and will be subordinated in right of payment to existing and future Senior Debt (as defined) of the Company. The Exchange Notes will rank pari passu in right of payment with any future senior subordinated obligations of the Company and will rank senior in right of payment to all other subordinated obligations of the Company. The Exchange Debentures will be unsecured subordinated debt obligations of the Company, and will be subordinated in right of payment to existing and future Senior Debt (as defined) of the Company, including the Exchange Notes. The Exchange Debentures will rank pari passu in right of payment with all other unsecured and subordinated indebtedness of the Company. The Company will accept for exchange any and all Securities validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on , 1998, unless extended by the Company in its sole discretion (the "Expiration Date"). Notwithstanding the foregoing, the Company will not extend the Expiration Date beyond , 1998. Tenders of Securities may be withdrawn at any time prior to 5:00 p.m. on the Expiration Date. The Exchange Offer is subject to certain customary conditions. The Securities were sold by the Company on February 26, 1998 to the Initial Purchaser (as defined) in a transaction not registered under the Securities Act in reliance upon an exemption under the Securities Act. The Initial Purchaser subsequently placed the Securities with qualified institutional buyers in reliance upon Rule 144A under the Securities Act. Accordingly, the Securities may not be reoffered, resold or otherwise transferred in the United States unless registered under the Securities Act or unless an applicable exemption from the registration requirements of the Securities Act is available. The Exchange Securities are being offered hereunder in order to satisfy the obligations of the Company under the Registration Rights Agreement entered into by the Company in connection with the offering of the Securities. See "The Exchange Offer." (continued on next page) 4 (continued from previous page) Based on no-action letters issued by the staff of the Securities and Exchange Commission (the "Commission") to third parties, the Company believes the Exchange Securities issued pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Securities are acquired in the ordinary course of such holder's business and such holder has no arrangement or understanding with any person to participate in the distribution of such Exchange Securities. See "The Exchange Offer -- Purpose and Effect of the Exchange Offer" and "The Exchange Offer -- Resale of the Exchange Securities." Each broker-dealer (a "Participating Broker-Dealer") that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any participating Broker-Dealer for use in connection with any such resale. See "Plan of Distribution." Holders of Securities not tendered and accepted in the Exchange Offer will continue to hold such Securities and will be entitled to all the rights and benefits, and will be subject to the limitations applicable thereto, under the Indenture, and the Certificate of Designation, as the case may be, and under the Securities Act. The Company will pay all the expenses incurred by it incident to the Exchange Offer. See "The Exchange Offer." The Securities are currently eligible for trading in the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") market. However, there can be no assurance that an active market for the Exchange Securities will develop. See "Risk Factors -- Absence of Public Market for the Exchange Securities." Moreover, to the extent that the Securities are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Securities could be adversely affected. There has not previously been any public market for the Securities or the Exchange Securities. The Company does not intend to list the Exchange Securities on any securities exchange or to seek approval for quotation through any automated quotation system. There can be no assurance that an active market for the Exchange Securities will develop. See "Risk Factors -- Absence of Public Market for Securities." Moreover, to the extent that some but not all of Securities are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Securities could be adversely affected. The Exchange Securities will be available initially only in book-entry form. The Company expects that the Fixed Rate Exchange Notes, the Floating Rate Exchange Notes and the Exchange Preferred Stock issued pursuant to this Exchange Offer, respectively, will be issued in the form of a single permanent global certificate for the Fixed Rate Exchange Notes (the "Fixed Rate Exchange Note Global Security"), a single permanent global certificate for the Floating Rate Exchange Notes (the "Floating Rate Exchange Note Global Security" and, together with the Fixed Rate Exchange Note Global Security, the "Exchange Note Global Security") and a single permanent global certificate for the Exchange Preferred Stock (the "Exchange Preferred Stock Global Security"), each of which will be deposited with, or on behalf of, The Depository Trust Company ("DTC") and registered in its name or in the name of Cede & Co., its nominee. Beneficial interests in the Exchange Note Global Security representing the Exchange Notes and in the Exchange Preferred Global Security representing the Exchange Preferred Stock will be shown on, and transfers thereof will be effected through, records maintained by the DTC and its participants. After the initial issuance of the Exchange Note Global Security, Exchange Notes in certified form will be issued in exchange for the Exchange Note Global Security only on the terms set forth in the Indenture. 5 AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement on Form S-4 (the "Exchange Offer Registration Statement," which term shall encompass all amendments, exhibits, annexes and schedules thereto) pursuant to the Securities Act, and the rules and regulations promulgated thereunder, covering the Exchange Securities being offered hereby. This Prospectus does not contain all the information set forth in the Exchange Offer Registration Statement. For further information with respect to the Company and the Exchange Offer, reference is made to the Exchange Offer Registration Statement. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Exchange Offer Registration Statement, reference is made to the exhibit for a more complete description of the document or matter involved, and each such statement shall be deemed qualified in its entirety by such reference. The Exchange Offer Registration Statement, including the exhibits thereto, can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at the Regional Offices of the commission at 75 Park Place, New York, New York 10007 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Additionally, the Commission maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including the Company. As a result of the filing of the Exchange Offer Registration Statement with the Commission, the Company will become subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith will be required to file periodic reports and other information with the Commission. The obligation of the Company to file periodic reports and other information with the Commission will be suspended if the Exchange Securities are held of record by fewer than 300 holders as of the beginning of any fiscal year of the Company other than the fiscal year in which the Exchange Offer Registration Statement is declared effective. The Company will nevertheless be required to continue to file reports with the Commission if the Exchange Securities are listed on a national securities exchange. In the event the Company ceases to be subject to the informational requirements of the Exchange Act, the Company will be required under the Indenture and the Certificate of Designation to continue to file with the Commission the annual and quarterly reports, information, documents or other reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K, which would be required pursuant to the informational requirements of the Exchange Act. Under the Indenture and Certificate of Designation, the Company shall file with the Trustee annual, quarterly and other reports within fifteen days after it files such reports with the Commission. Further, to the extent that annual, quarterly or other financial reports are furnished by the Company to stockholders generally it will mail such reports to holders of Exchange Securities. The Company will furnish annual and quarterly financial reports to stockholders of the Company and will mail such reports to holders of Exchange Securities pursuant to the Indenture, thus holders of the Exchange Securities will receive financial reports every quarter. Annual reports delivered to the Trustee and the holders of Exchange Securities will contain financial information that has been examined and reported upon, with an opinion expressed by an independent public or certified public accountant. The Company will also furnish such other reports as may be required by law. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE U.S. SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER THE "PROSPECTUS SUMMARY," "RISK FACTORS," "THE COMPANY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" AND LOCATED ELSEWHERE HEREIN REGARDING THE COMPANY'S i 6 OPERATIONS, FINANCIAL POSITION AND BUSINESS STRATEGY, MAY CONSTITUTE FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-LOOKING STATEMENTS GENERALLY CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "INTEND," "ESTIMATE," "ANTICIPATE," "BELIEVE," OR "CONTINUE" OR THE NEGATIVE THEREOF OR VARIATIONS THEREON OR SIMILAR TERMINOLOGY. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE AT THIS TIME, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS. ------------------------ ii 7 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements appearing elsewhere in this Prospectus. Holders of the Securities should carefully consider the matters set forth under the caption "Risk Factors." References herein to "MCMS" or the "Company" include MCMS, Inc. and its subsidiaries, unless the context otherwise requires. The Company's fiscal year ends on the Thursday closest to August 31. Capitalized terms not defined in this "Prospectus Summary" and certain other technical terms have the meanings assigned to them in the Glossary on page G-1. All historic and projected data for the electronics industry are derived from Technology Forecasters, Inc., an independent research firm, unless otherwise indicated. THE COMPANY MCMS is a leading electronics manufacturing services ("EMS") provider serving original equipment manufacturers ("OEMs") in the networking, telecommunications, computer systems and other rapidly growing sectors of the electronics industry. The Company offers a full range of capabilities and manufacturing management services, including product design and prototype manufacturing; materials procurement and inventory management; the manufacture and testing of printed circuit board assemblies ("PCBAs"), memory modules and systems; quality assurance; and end-order fulfillment. By delivering this comprehensive range of manufacturing and customer service capabilities through its strategically located facilities in the United States, Asia and Europe, the Company enables its OEM customers to focus their capital and resources on their core competencies of research and product development, marketing and sales. The Company forges long-term strategic relationships as a manufacturing and customer service partner with leading OEMs such as Cisco Systems, Inc. ("Cisco"), FORE Systems, Inc. ("Fore"), Alcatel Bell N.V. ("Alcatel") and Micron Technology, Inc. ("MTI"). As evidence of its ability to partner successfully with its customers, the Company is the sole source program provider for many of its customers and has received numerous quality and service awards, including Cisco's Supplier of the Year Award for Contract Manufacturing and Distribution in 1997. For the latest twelve months ended February 26, 1998, the Company generated net sales and pro forma EBITDA (as defined herein) of $313.9 million and $31.7 million, respectively. From fiscal 1993 through fiscal 1997, the Company's net sales and EBITDA increased at a compound annual growth rate ("CAGR") of 50.3% and 58.8%, respectively. THE INDUSTRY The EMS industry is large and growing rapidly. The worldwide EMS industry grew at a CAGR of 32.1% from 1992 to 1996 to approximately $60.0 billion and is projected to grow at a CAGR of 24.6% from 1996 to 2001, to reach revenue of approximately $178.0 billion. The table below illustrates the EMS industry's projected growth by major geographic regions.
% OF TOTAL -------------- 1996 2001 CAGR 1996 2001 -------- --------- ---- ----- ----- (DOLLARS IN BILLIONS) US/Canada................................. $27.2 $104.2 30.8% 45.9% 58.5% Western Europe............................ 10.5 29.8 23.2 17.7 16.7 Japan..................................... 13.0 24.0 13.1 21.9 13.5 Asia, excluding Japan..................... 6.4 16.5 20.9 10.8 9.3 Emerging Regions.......................... 2.2 3.5 9.7 3.7 2.0 ----- ------ ---- ----- ----- Total................................ $59.3 $178.0 24.6% 100.0% 100.0%
The drivers of growth in the EMS market include: (i) the underlying growth of the electronics industry in general and of the networking and telecommunications sectors in particular; (ii) the increasing global acceptance of outsourcing as a manufacturing solution in the electronics industry; and (iii) the growing breadth of manufacturing and distribution functions which are being outsourced by OEMs in the electronics industry. 1 8 The worldwide EMS market is undergoing consolidation but remains highly fragmented. According to the Institute for Interconnecting and Packaging Electronic Circuits, of the over 1,000 EMS providers in the United States and Canada, only 15 to 20 had revenues in excess of $300 million in 1997. The Company believes that industry consolidation will continue as OEM customers direct their outsourcing to EMS providers who offer a broad range of services, sufficient capacity to provide sole source program production, advanced technological capabilities, and domestic and international production facilities. SERVICES AND CAPABILITIES The Company provides a comprehensive array of technologically advanced services which require the Company and its OEM customers to make a substantial investment of time and resources in their relationships. The Company becomes an integral partner with OEMs who are devising a new paradigm of "virtual" manufacturing in which the OEMs maintain no internal production capabilities and rely solely on EMS providers for a comprehensive array of manufacturing services. The Company's services, which are provided on both a turnkey and consignment basis, include: - PRE-PRODUCTION SERVICES. The Company's pre-production electronics manufacturing services include product development, materials procurement and inventory management. The Company's product development group actively assists customers with initial product design in order to reduce the time from design to prototype, improve product manufacturability and reliability, and reduce product costs through both manufacturing and purchasing efficiencies. The Company's materials procurement and inventory management capabilities allow it to deliver consistent, high-quality turnkey services at the lowest costs. Materials procurement and inventory management services include supplier qualification, planning, purchasing, quality inspection and warehousing. - PCBA MANUFACTURING AND TEST SERVICES. PCBA manufacturing involves the attachment to a printed circuit board ("PCB") of various electronic components such as resistors, capacitors, diodes, connectors, and logic and random access memory ("RAM") components. The Company purchases the PCBs and the components from third party vendors. The Company specializes in the manufacture of PCBAs for networking OEMs, including Cisco and Fore. These PCBAs are characterized by high-density component placements on both sides of the PCB. The Company then performs rigorous post- assembly tests utilizing internally developed and externally supplied software programs. Following testing, the Company either integrates PCBAs into systems or ships them to the OEM or the OEM's customer. - MEMORY MODULE ASSEMBLY. The Company is a leading provider of memory modules which it primarily supplies to MTI, the largest manufacturer of dynamic random access memory ("DRAM") in the United States. Memory modules are small PCBAs consisting of semiconductor memory devices (such as DRAM) and related circuitry, and are critical components of computer systems ranging from servers to workstations to personal computers. MCMS manufactures standard and custom memory modules for MTI on a consignment basis and standard and custom memory modules for other customers on a turnkey basis. In connection with the Recapitalization, the Company has entered into a two-year manufacturing supply agreement with MTI (the "Memory Module Agreement") for the provision of memory modules. See "Certain Transactions -- Memory Module Agreement." The Company's memory modules are used in products manufactured by market leaders such as Dell Computer Corporation ("Dell"), Compaq Computer Corporation ("Compaq"), Gateway 2000, Inc. ("Gateway"), Micron Electronics, Inc. ("MEI") and International Business Machines Corporation ("IBM"). - SYSTEM LEVEL ASSEMBLY/BOX BUILD. System level assembly, or box build, is the connection of two or more subassemblies (such as PCBAs) into a finished enclosure. System level assembly capability is becoming increasingly important as OEMs seek to outsource the entire manufacturing process. OEMs entrust box build activities to selected EMS providers with the requisite experience and technological capabilities. The Company assembles systems for such customers as Fore and Sequent Computer Systems, Inc. ("Sequent"). 2 9 - END-ORDER FULFILLMENT. The Company's relationship with several of its OEM customers extends beyond manufacturing to encompass the shipment from the Company's factory floor of finished products directly to the OEM's customer. Prior to shipment, the Company performs all quality and testing functions to ensure that the products conform to the customer's standards of functionality, performance and durability. In addition, the Company possesses the flexibility, manufacturing expertise and information systems necessary to custom configure assemblies to meet the customer's unique requirements. The Company currently provides end-order fulfillment services for customers such as Fore and Sequent. COMPETITIVE ADVANTAGES The Company attributes its leading position in the EMS industry and its strong profitability to the following competitive advantages: - STRONG RELATIONSHIPS WITH LEADING TECHNOLOGY OEMS. The Company has established strong relationships with leading OEMs, such as Cisco and Fore, in the high growth networking and telecommunications industries. Many OEMs in these sectors are increasingly outsourcing their manufacturing and distribution functions and require high value-added products and comprehensive services from their EMS providers. The Company has increased the percentage of its net sales generated by networking and telecommunications OEMs from approximately 10% in fiscal 1996 to approximately 59% in fiscal 1997. In addition, in connection with its acquisition of a European manufacturing facility, the Company recently entered into a three-year supply agreement with Alcatel, a leading supplier of telecommunications services. The Company's other customers include MTI, Comverse Technology, Inc. ("Comverse"), Tektronix, Inc. ("Tektronix"), Dell, Hewlett-Packard Co. ("HP"), IBM and Sequent. The Company has also established relationships with smaller companies whom it believes have superior and innovative products with high growth potential. See "Business -- Sales and Marketing -- Customer and Revenue Profile." - MEMORY MODULE EXPERTISE. The Company has been a leading provider of standard and custom memory modules since its inception in 1984. Semico Research Corp. estimates that the overall market for DRAM memory modules was $21.0 billion in 1997 and projects that the market will grow at a CAGR of 25.0% to $41.0 billion in 2000. The Company believes its memory module expertise is a competitive advantage since it is one of a limited number of EMS providers with significant memory module design, assembly and test capabilities. The Company uses its distinct memory module capabilities as a means of obtaining new OEM customers in the networking, telecommunications and computer systems segments. Once established as an OEM's memory module assembler, the Company strives to expand the services and programs it provides for that customer. In addition, the Company is the sole outside memory module supplier for MTI, the largest DRAM manufacturer in the United States. See "Certain Transactions -- Memory Module Agreement." - BREADTH OF VALUE-ADDED SERVICES. OEMs are increasingly requiring a broader range of manufacturing and value-added services from their EMS providers as they seek to reduce their time-to-market and capital asset and inventory costs. Building on its integrated engineering and manufacturing capabilities, the Company offers its customers a full range of pre-production and post-production services for the manufacture of complex PCBAs, memory modules and systems. The Company believes that its range of services: (i) provides greater control over quality and delivery; (ii) offers customers complete and cost-effective manufacturing solutions; (iii) increases the Company's integration into the manufacturing processes of its customers; (iv) positions the Company to be a leading provider of its customers' next generation products; and (v) increases customers' switching costs. - STATE-OF-THE-ART GLOBAL MANUFACTURING CAPABILITY. From September 1, 1994 through February 26, 1998, the Company made approximately $76.2 million of capital expenditures principally to build and/or outfit and equip its state-of-the-art facilities in Nampa, Idaho, Durham, North Carolina and Penang, Malaysia and to purchase a facility from Alcatel in Colfontaine, Belgium in November 1997 (the "Alcatel Acquisition"). The Company's facilities are strategically located to serve its customers' 3 10 global needs and to capitalize on the increasing acceptance of EMS worldwide. In addition, the Company has the ability to expand capacity by adding new surface mount technology ("SMT") lines in certain of its existing facilities and shifting production among its facilities. Each of its four facilities utilizes SMT manufacturing, which requires sophisticated capital equipment and expertise, and is the dominant PCBA manufacturing process technology worldwide. The Company maintains standard manufacturing equipment, processes and techniques across its facilities and integrates its operations through information systems and operational infrastructure allowing it to provide its OEM customers with seamless, flexible and responsive manufacturing services. - EMPHASIS ON CUSTOMER SERVICE AND QUALITY. The Company places a strong emphasis on customer service and quality, which it believes are key factors to OEMs in their selection of EMS providers. The Company has received numerous awards in the areas of manufacturing quality, technology, dependability and timely delivery, including Cisco's Supplier of the Year Award for Contract Manufacturing and Distribution in 1997 and Fore's highest award for supplier performance in 1997. As evidence of its high quality customer service, the Company has been selected as the sole EMS provider in selected programs for many of its customers, including MTI, Cisco, Fore and several other OEMs, and believes it will continue to be a preferred supplier to such customers. The Company's facilities in Nampa, Idaho, Durham, North Carolina and Penang, Malaysia are ISO 9001 certified, and the Company intends to seek ISO 9001 certification for its newly acquired Colfontaine, Belgium facility. - EXPERIENCED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY INCENTIVES. The Company's senior management team has an average of 11 years of experience in the electronics industry and has successfully managed the Company's revenue and EBITDA growth while constructing new facilities and diversifying into new markets. Following the Recapitalization, the senior management team will have a substantial financial interest in the Company's continued success through its participation in an incentive option program constituting up to 15.0% of the Company's equity ownership. - STRONG SPONSORSHIP. For over 13 years, the professionals of Cornerstone Equity Investors, L.L.C. ("CEI") have managed four funds with aggregate committed capital in excess of $1.2 billion. During that time, the professionals have invested in over 75 companies and taken over 20 of them public. The technology sector has been a core area of focus for the firm since its inception and the professionals of CEI have made investments in 20 technology companies, including Dell, Conner Peripherals, Inc. and Auspex Systems, Inc. In particular, CEI has focused on the EMS sector and has led several recapitalizations of companies involved in technology-related manufacturing. CEI's investment strategy is to select outstanding management teams managing well positioned companies in high growth sectors and to assist those teams with capital, experience and relationships to enable the companies to fully capture market opportunities. GROWTH STRATEGIES The Company's objective is to be a global supplier of a complete set of advanced manufacturing solutions to a diverse group of leading OEMs operating in the fastest growing segments of the electronics industry. In order to achieve this objective, the Company has employed the following key strategies: - TARGET LEADING OEMS IN HIGH GROWTH MARKETS. The Company seeks to develop strategic relationships with leading OEMs in the networking, telecommunications and other rapidly growing electronics industry sectors. Certain of these OEMs are reducing their base of EMS providers and are focusing each provider on specific programs and requiring each to provide a broader range of services. The Company seeks to develop strong ties with its customers through its design capabilities, engineering and manufacturing expertise, strong service record and breadth of capabilities. In addition to current market leaders, the Company targets OEMs with emerging technologies or products that have the potential to make these OEMs market leaders in the future. - LEVERAGE MEMORY MODULE CAPABILITIES. MCMS has extensive expertise in designing, assembling and testing memory modules. The Company has utilized this expertise to develop relationships with new 4 11 OEM customers. The Company will continue to aggressively pursue these opportunities. Once an OEM has selected the Company as a provider of these services, the Company seeks to leverage and expand the relationship to include a broader array of services. For example, the Company's relationship with Cisco began in 1995 and has evolved from producing a modest volume of custom memory modules to providing a range of services from memory modules to prototype and volume production of highly complex PCBAs. The Company anticipates that its ability to grow its memory module business will improve as a result of the elimination of control of the Company by MEI, which is a competitor of many of the Company's targeted personal computer memory module customers. - OFFER A BROAD RANGE OF ADVANCED MANUFACTURING SERVICES. MCMS offers a full spectrum of manufacturing services including product design and prototype manufacturing, materials procurement and inventory management, the manufacture and testing of PCBAs, memory modules and systems, quality assurance and end-order fulfillment. The Company's ability to manage the complete manufacturing process from design through end-order fulfillment reduces a product's time-to-market and enables OEMs to concentrate on their core competencies of research and product development, marketing and sales. - MAINTAIN POSITION AS A MANUFACTURING TECHNOLOGY LEADER. The Company believes that staying at the leading edge of production technology and delivering excellence in manufacturing are critical success factors in providing electronics manufacturing services to networking, telecommunications and computer systems OEMs. MCMS has invested a significant amount of capital in new facilities and equipment over the last three years and has developed the manufacturing infrastructure and expertise necessary to produce assemblies incorporating complex, high density chip packages including ball grid array ("BGA"), chip-on-board ("COB") and multi-chip modules ("MCM"). Additionally, the Company is developing new manufacturing technologies including PC100 testing for synchronous DRAM ("SDRAM") modules, expanded design-from-concept capabilities, no-clean wave soldering, micro-BGA, and flip chip assembly. - LEVERAGE INTEGRATED GLOBAL PRESENCE. The Alcatel Acquisition provides the Company with a European platform which complements its presence in North America and Asia and positions the Company to serve multinational and regional OEMs. By maintaining a standard manufacturing and integrated operations platform, the Company seeks to provide its OEM customers with seamless, flexible and responsive manufacturing services. MCMS intends to continue to broaden its engineering and manufacturing capabilities worldwide through the expansion of existing facilities, development of manufacturing sites in other strategic locations and through strategic acquisitions. COMPANY HISTORY The Company's principal operations were established in 1984 as the Memory Applications Group of MTI. The Company began providing electronics manufacturing services to external customers in 1989, was incorporated as a wholly owned subsidiary of MTI in 1992 and became a wholly owned subsidiary of MEI, which is a majority owned subsidiary of MTI, in 1995. Initially, the Company established itself as a leading EMS provider by developing an expertise in custom memory module design, assembly and testing for computer systems customers. In recent years, management has broadened the Company's market focus to include networking and telecommunications customers, and has expanded its services to offer design, materials procurement, inventory management, the manufacture and testing of complex PCBAs and systems, and end-order fulfillment. 5 12 RELATIONSHIP WITH MTI, MEI AND MEIC Following the consummation of the Recapitalization (as defined below) and through the date hereof, MEI's wholly owned subsidiary, MEI California, Inc. ("MEIC") owns 10.0% of the equity of the Company. MEI and MTI entered into agreements (collectively, the "Transition Services Agreement") to provide the Company with certain services, including payroll, accounting, human resources and management information systems for periods ranging from 6 to 12 months after the closing date of the Recapitalization. The Company may terminate the provision of such services at any time upon 30 days written notice. See "Certain Transactions -- Transition Services Agreement." In connection with the Recapitalization, MTI and the Company entered into the Memory Module Agreement whereby for a period of at least two years MTI has committed to outsource to MCMS at least one half of its industry standard memory module ("ISMM") requirements of up to 1,200,000 Equivalent Units (as defined therein) per week. Although the Memory Module Agreement relates only to MTI's initial 1,200,000 Equivalent Unit weekly requirements, the Company intends to pursue additional business with MTI in the event MTI's requirements exceed 1,200,000 Equivalent Units per week. Pursuant to the Memory Module Agreement, MTI will consign sufficient raw materials to the Company to support MTI's memory module requirements from the Company. This consignment relationship should help insulate the Company from fluctuations in the pricing of such raw materials, including DRAM during the term of the Memory Module Agreement. The Memory Module Agreement automatically renews for successive one-year periods after the initial two-year term unless either party provides 30 days written notice of its intention to terminate the contract. See "Certain Transactions -- Memory Module Agreement." THE RECAPITALIZATION On February 26, 1998, the Company consummated a recapitalization (the "Recapitalization") pursuant to an Amended and Restated Recapitalization Agreement dated as of February 1, 1998 (as amended, the "Recapitalization Agreement") by and among MEI, MEIC, Cornerstone and the Company. Pursuant to the Recapitalization, the Company redeemed from MEIC the Old Common Stock (as defined herein) for (i) $249.2 million and (ii) Common Stock (as defined herein) and Convertible Preferred Stock (as defined herein), which represents 10.0% of the Company's fully-diluted Common Stock immediately after giving effect to the Transactions but before issuance of options to management, and cash. In addition, Cornerstone and the Other Investors (as defined herein) purchased shares of Common Stock and Convertible Preferred Stock representing 90.0% of the Company's fully-diluted Common Stock immediately after giving effect to the Transactions but before issuance of options to management. Following the Recapitalization and through the date hereof, Cornerstone, the Other Investors and MEIC own securities representing 49.0%, 41.0% and 10.0%, respectively, of the voting power of the Company's outstanding capital stock. The Company used approximately $271.3 million (including cash on hand of approximately $3.3 million) to complete the Recapitalization, including the repayment of approximately $0.3 million of existing indebtedness and the payment of related estimated fees and expenses of approximately $15.0 million. In order to finance the Recapitalization, the Company: (i) issued $175.0 million in aggregate principal amount of Notes in the Offering; (ii) issued 250,000 shares of Preferred Stock ($25.0 million liquidation preference) in the Offering; and (iii) received an equity contribution of $68.0 million, consisting of $61.2 million in cash from Cornerstone and the Other Investors and a rollover of equity held by MEIC having an implied value of $6.8 million (the "Equity Contribution"). In connection with the Recapitalization, the Company entered into a $40.0 million revolving credit facility (the "New Revolving Credit Facility") with Bankers Trust Company, which was undrawn as of February 26, 1998. The foregoing transactions are collectively referred to herein as the "Transactions." 6 13 THE SECURITIES OFFERING NOTES...................... The Notes were sold by the Company on February 26, 1998 to BT Alex. Brown Incorporated (the "Initial Purchaser") pursuant to a Purchase Agreement dated February 19, 1998 (the "Purchase Agreement"). The Initial Purchaser subsequently resold the Notes to qualified institutional buyers pursuant to Rule 144A under the Securities Act. PREFERRED STOCK............ The Preferred Stock was sold by the Company on February 26, 1998 to the Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser subsequently resold the Preferred Stock to qualified institutional buyers pursuant to Rule 144A under the Securities Act. REGISTRATION RIGHTS AGREEMENT.................. Pursuant to the Purchase Agreement, the Company and the Initial Purchaser entered into a Registration Rights Agreement dated February 26, 1998 (the "Registration Rights Agreement"), which grants the holder of the Securities certain exchange and registration rights. The Exchange Offer is intended to satisfy such exchange rights which terminate upon the consummation of the Exchange Offer. THE EXCHANGE OFFER SECURITIES OFFERED......... $145,000,000 in aggregate principal amount of Series B 9 3/4% Senior Subordinated Notes due March 1, 2008, $30,000,000 in aggregate principal amount of Series B Floating Interest Rate Subordinated Term Securities due March 1, 2008 and 250,000 shares ($25.0 million liquidation preference) of Series B 12 1/2% Senior Exchangeable Preferred Stock. THE EXCHANGE OFFER......... $1,000 principal amount of the Exchange Notes in exchange for each $1,000 principal amount of Notes. As of the date hereof, $145,000,000 in aggregate principal amount of Fixed Rate Notes and $30,000,000 in aggregate principal amount of Floating Rate Notes are outstanding. The Company will issue the Exchange Notes to holders on or promptly after the Expiration Date. $100 liquidation preference per share of the Exchange Preferred Stock in exchange for each $100 liquidation preference per share of outstanding Preferred Stock. As of the date hereof, $25,000,000 in aggregate liquidation preference of Preferred Stock is outstanding. The Company will issue the Exchange Preferred Stock to holders on or promptly after the Expiration Date. Based on an interpretation by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that Exchange Securities issued pursuant to the Exchange Offer in exchange for the Securities may be offered for resale, resold and otherwise transferred by any holder thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Securities are acquired in the ordinary course of such holder's business and that such holder does not intend to participate and has no arrangement or understanding with any person to participate in the distribution of such Exchange Securities. 7 14 Each Participating Broker-Dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a Participating Broker- Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 180 days after the Expiration Date, it will make this Prospectus available to any Participating Broker-Dealer for use in connection with any such resale. See "Plan of Distribution." Any holder who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the Exchange Securities could not rely on the position of the staff of the Commission enunciated in no-action letters and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Failure to comply with such requirements in such instance may result in such holder incurring liability under the Securities Act for which the holder will not be indemnified by the Company. EXPIRATION DATE............ 5:00 p.m., New York City time, on , 1998 unless the Exchange Offer is extended, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. ACCRUED INTEREST ON THE EXCHANGE NOTES AND NOTES.................... Each Exchange Note will bear interest from its issuance date. Holders of Notes that are accepted for exchange will receive, in cash, accrued and unpaid interest thereon to, but not including, the issuance date of the Exchange Notes. Such interest will be paid with the first interest payment on the Exchange Notes. Interest on the Notes accepted for exchange will cease to accrue upon issuance of the Exchange Notes. ACCRUED DIVIDENDS ON THE EXCHANGE PREFERRED STOCK AND THE PREFERRED STOCK.................... Each share of Exchange Preferred Stock will accrue dividends from its issuance date. Holders of the Preferred Stock that are accepted for exchange will receive accrued and unpaid dividends thereon to, but not including, the issuance date of the Exchange Preferred Stock. Such dividends will be paid with the first dividend payment on the Exchange Preferred Stock. Dividends on the Preferred Stock accepted for exchange will cease to accrue upon issuance of the Exchange Preferred Stock. CONDITIONS TO THE EXCHANGE OFFER.................... The Exchange Offer is subject to certain customary conditions, any or all of which may be waived by the Company. See "Exchange Offer -- Conditions." 8 15 PROCEDURES FOR TENDERING SECURITIES............... Each holder of the Securities wishing to accept the Exchange Offer must complete, sign and date the accompanying Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with the Securities and any other required documentation to the Exchange Agent (as defined) at the address set forth herein and therein. By executing the Letter of Transmittal, each holder will represent to the Company that, among other things, the Exchange Securities acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Securities, whether or not such person is the holder, that neither the holder nor any such other person has any arrangement or understanding with any person to participate in the distribution of such Exchange Securities and that neither the holder nor any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company. See "Exchange Offer -- Purpose and Effect of the Exchange Offer" and "-- Procedures for Tendering." UNTENDERED SECURITIES...... Following the consummation of the Exchange Offer, holders of Securities eligible to participate but who do not tender their Securities will not have any further exchange rights and such Securities will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such securities could be adversely affected. CONSEQUENCES OF FAILURE TO EXCHANGE................. The Securities that are not exchanged pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Securities may be resold only (i) to the Company, (ii) pursuant to Rule 144A or Rule 144 under the Securities Act or pursuant to some other exemption under the Securities Act, (iii) outside the United States to a foreign person pursuant to the requirements of Rule 904 under the Securities Act, or (iv) pursuant to an effective registration statement under the Securities Act. See "Exchange Offer -- Consequences of Failure to Exchange." SHELF REGISTRATION STATEMENT.................. If any holder of the Securities (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) is not eligible under applicable securities laws to participate in the Exchange Offer, and such holder has provided information regarding such holder and the distribution of such holder's Securities to the Company for use therein, the Company has agreed to register the Securities on a shelf registration statement (the "Shelf Registration Statement") and use its best efforts to cause it to be declared effective by the Commission as promptly as practical on or after the consummation of the Exchange Offer. The Company has agreed to maintain the effectiveness of the Shelf Registration Statement for, under certain circumstances, a period of at least 2 years from the date the Securities were issued, to cover resales of the Securities held by any such holders. 9 16 SPECIAL PROCEDURES FOR BENEFICIAL OWNERS.......... Any beneficial owner whose Securities are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering its Securities, either make appropriate arrangements to register ownership of the Securities in such owner's name or obtain a properly completed securities power from the registered holder. The transfer of registered ownership may take considerable time. The Company will keep the Exchange Offer open for not less than twenty days in order to provide for the transfer of registered ownership. GUARANTEED DELIVERY PROCEDURES............... Holders of Securities who wish to tender their Securities and whose Securities are not immediately available or who cannot deliver their Securities, the Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent (or comply with the procedures for book-entry transfer) prior to the Expiration Date must tender their Securities according to the guaranteed delivery procedures set forth in "Exchange Offer -- Guaranteed Delivery Procedures." WITHDRAWAL RIGHTS.......... Tenders may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. ACCEPTANCE OF SECURITIES AND DELIVERY OF EXCHANGE SECURITIES............... The Company will accept for exchange any and all Securities which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Securities issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "Exchange Offer -- Terms of the Exchange Offer." USE OF PROCEEDS............ There will be no cash proceeds to the Company from the exchange pursuant to the Exchange Offer. EXCHANGE AGENT............. United States Trust Company of New York. THE EXCHANGE NOTES GENERAL.................... The form and terms of the Exchange Notes are the same as the form and terms of the Notes (which they replace) except that (i) the Exchange Notes bear a Series B designation, (ii) the Exchange Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof and (iii) the holders of the Exchange Notes will not be entitled to certain rights under the Registration Rights Agreement, including the provisions providing for an increase in the interest rate on the Notes in certain circumstances relating to the timing of the Exchange Offer, which rights will terminate when the Exchange Offer is consummated. See "The Exchange Offer -- Purpose and Effect of the Exchange Offer." The Exchange Notes will evidence the same debt as the Notes and will be entitled to the benefits of the Indenture. 10 17 See "Description of Senior Subordinated Notes." The Notes and the Exchange Notes are referred to herein collectively as the "Senior Subordinated Notes." SECURITIES OFFERED......... $145,000,000 aggregate principal amount of Series B 9 3/4% Senior Subordinated Notes due 2008. $30,000,000 aggregate principal amount of Series B Floating Interest Rate Subordinated Term Securities due 2008 (FIRSTS(SM)). ISSUER..................... MCMS, Inc. MATURITY DATE.............. March 1, 2008. INTEREST RATE AND PAYMENT DATES............ Interest on the Exchange Notes will accrue from the date of original issuance and is payable semi-annually on each March 1 and September 1, commencing September 1, 1998. The Fixed Rate Exchange Notes will bear interest at a rate of 9 3/4% per annum. The Floating Rate Exchange Notes will bear interest at a rate per annum equal to LIBOR plus 4 5/8%. Interest on the Floating Rate Exchange Notes will be reset semi-annually. RANKING.................... The Exchange Notes will be subordinated in right of payment to all existing and future Senior Debt of the Company. The Exchange Notes will rank pari passu in right of payment with any future senior subordinated obligations of the Company and will rank senior in right of payment to all other subordinated obligations of the Company. As of February 26, 1998, the Company had approximately $1.6 million of Senior Debt outstanding for purposes of the Exchange Notes (exclusive of unused commitments of $40.0 million under the New Revolving Credit Facility). OPTIONAL REDEMPTION........ The Fixed Rate Exchange Notes will be redeemable, in whole or in part, at the option of the Company on or after March 1, 2003, and the Floating Rate Exchange Notes will be redeemable, in whole or in part, at the option of the Company, at any time, in each case at the redemption prices set forth herein, plus accrued and unpaid interest to the date of redemption. In addition, at any time on or prior to March 1, 2001, the Company, at its option, may redeem up to 35% of the aggregate principal amount of the Fixed Rate Exchange Notes issued with the net cash proceeds of one or more Public Equity Offerings (as defined), at the redemption price set forth herein, plus accrued interest to the date of redemption; provided that at least 65% of the aggregate principal amount of Fixed Rate Exchange Notes originally issued plus any additional Fixed Rate Exchange Notes issued pursuant to the Indenture remains outstanding immediately following any such redemption. CHANGE OF CONTROL.......... Upon a Change of Control, each holder of the Exchange Notes will have the right to require the Company to repurchase such holder's Exchange Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase. There can be no assurance that the Company will have sufficient funds to purchase all of the Exchange Notes in the event of a Change of Control or that the Company would be able to obtain financing for such purpose on favorable terms, if at all. 11 18 CERTAIN COVENANTS.......... The Indenture governing the Exchange Notes (the "Indenture") contains certain covenants that, among other things, limit the ability of the Company and its subsidiaries to incur additional indebtedness, pay dividends or make investments and certain other restricted payments. consummate certain asset sales, enter into certain transactions with affiliates, incur liens, impose restrictions on the ability of a subsidiary to pay dividends or make certain payments to the Company and its subsidiaries, or merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company. For additional information regarding the Exchange Notes, see "Description of Senior Subordinated Notes." THE EXCHANGE PREFERRED STOCK GENERAL.................... The form and terms of the Exchange Preferred Stock are the same as the form and terms of the Preferred Stock (which they replace) except that (i) the Exchange Preferred Stock bears a Series B designation, (ii) the Exchange Preferred Stock has been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof and (iii) the holders of the Exchange Preferred Stock will not be entitled to certain rights under the Registration Rights Agreement, including the provisions providing for an increase in the dividend rate on the Preferred Stock in certain circumstances relating to the timing of the Exchange Offer, which rights will terminate when the Exchange Offer is consummated. See "Exchange Offer -- Purpose and Effect of the Exchange Offer." The Preferred Stock and the Exchange Preferred Stock are referred to herein collectively as the "Senior Preferred Stock." SECURITIES OFFERED......... 250,000 shares ($25.0 million liquidation preference) of Series B 12 1/2% Senior Exchangeable Preferred Stock, (including any additional shares of such stock issued from time to time in lieu of cash dividends). LIQUIDATION PREFERENCE..... $100 per share. OPTIONAL REDEMPTION........ The Exchange Preferred Stock is redeemable, at the option of the Company, in whole or in part, at any time on or after March 1, 2003, at the redemption prices set forth herein, plus, without duplication, accumulated and unpaid dividends to the date of redemption. In addition, prior to March 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem, in whole or in part, the Exchange Preferred Stock, at the redemption prices set forth herein, plus, without duplication, all accumulated and unpaid dividends to the date of redemption. MANDATORY REDEMPTION....... The Company is required, subject to certain conditions, to redeem all of the Exchange Preferred Stock outstanding on March 1, 2010 at a redemption price equal to 100% of the liquidation preference thereof, plus, without duplication, accumulated and unpaid dividends to the date of redemption. There can be no assurance that the Company will have sufficient funds to purchase all of the Exchange Preferred Stock in the event of a mandatory redemption or that the Company would be able to obtain financing for such purpose on favorable terms, if at all. DIVIDENDS.................. Dividends on the Exchange Preferred Stock will accumulate at a rate equal to 12 1/2% per annum of the liquidation preference per share, 12 19 accrued and, when declared, payable quarterly beginning June 1, 1998 and accruing from the date of issuance. Dividends accumulating on or before March 1, 2003 may be paid, at the option of the Company, in cash or by issuing additional shares of Exchange Preferred Stock having an aggregate liquidation preference equal to the amount of such dividends, or in any combination of the foregoing. Dividends accumulating after March 1, 2003 must be paid in cash. DIVIDEND PAYMENT DATES..... March 1, June 1, September 1 and December 1, commencing June 1, 1998. VOTING..................... The Exchange Preferred Stock will be non-voting, except as otherwise required by law and except in certain circumstances described herein, including (i) amending certain rights of the holders of the Exchange Preferred Stock and (ii) the issuance of any class of equity securities that ranks on a parity with or senior to the Exchange Preferred Stock, other than additional shares of Exchange Preferred Stock issued in lieu of cash dividends or parity securities issued to finance the redemption by the Company of the Exchange Preferred Stock. In addition, if (i) after March 1, 2003, cash dividends are in arrears for six quarterly periods (whether or not consecutive) or (ii) the Company fails to make a mandatory redemption or a Change of Control Offer (as defined) as required or fails to pay pursuant to such redemption or offer, holders of a majority of the outstanding shares of Exchange Preferred Stock, voting as a class, will be entitled to elect the lesser of (i) two directors or (ii) that number of directors constituting at least 25% of the Company's board of directors. EXCHANGE PROVISIONS........ The Exchange Preferred Stock is exchangeable into the Exchange Debentures, at the Company's option, subject to certain conditions, in whole, but not in part, on any scheduled dividend payment date. RANKING.................... The Exchange Preferred Stock will, with respect to dividend rights and rights on liquidation, winding-up and dissolution of the Company, rank senior to all other classes of equity securities of the Company outstanding upon consummation of the Offering. CHANGE OF CONTROL.......... In the event of a Change of Control, the Company will, subject to certain conditions, offer to purchase all outstanding shares of Exchange Preferred Stock at a purchase price equal to 101% of the then effective liquidation preference thereof, plus, without duplication, accumulated and unpaid dividends to the date of purchase. There can be no assurance that the Company will have sufficient funds to purchase all of the Exchange Preferred Stock in the event of a Change of Control or that the Company would be able to obtain financing for such purpose on favorable terms, if at all. CERTAIN COVENANTS.......... The Certificate of Designation relating to the Exchange Preferred Stock (the "Certificate of Designation") contains certain restrictive provisions that, among other things, limit the ability of the Company and its subsidiaries to incur additional indebtedness, pay dividends or make investments and certain other restricted payments, or merge or consolidate with or sell all or substantially all of the assets of the Company. 13 20 THE EXCHANGE DEBENTURES ISSUE...................... 12 1/2% Subordinated Exchange Debentures due 2010 issuable in exchange for all, but not less than all, of the Senior Preferred Stock in an aggregate principal amount equal to the then effective liquidation preference of the Senior Preferred Stock, plus, without duplication, accumulated and unpaid dividends to the date fixed for the exchange thereof (the "Exchange Date"), plus any additional Exchange Debentures issued in lieu of cash interest. MATURITY................... March 1, 2010. INTEREST................... The Exchange Debentures will bear interest at a rate of 12 1/2% per annum. Interest will accrue from the date of issuance or from the most recent interest payment date to which interest had been paid or provided for or, if no interest has been paid or provided for, from the Exchange Date. Interest will be payable semi-annually in cash (or, at the option of the Company, on or prior to March 1, 2003, in additional Exchange Debentures in aggregate principal amount equal to the amount of interest accrued and payable, or in any combination thereof) in arrears on each March 1 and September 1, commencing with the first such date after the Exchange Date. OPTIONAL REDEMPTION........ The Exchange Debentures are redeemable, at the option of the Company, in whole or in part, at any time on or after March 1, 2003, at the redemption prices set forth herein, plus accrued and unpaid interest to the date of redemption. In addition, prior to March 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem, in whole or in part, the Exchange Debentures at the redemption prices set forth herein, plus accrued and unpaid interest to the date of redemption. RANKING.................... The Exchange Debentures will be subordinated to all existing and future Senior Debt of the Company, including the Exchange Notes. The Exchange Debentures will rank pari passu in right of payment with any class or series of indebtedness that expressly provides that it ranks pari passu to the Exchange Debentures. As of February 26, 1998, the Company had approximately $176.6 million of Senior Debt outstanding for purposes of the Exchange Debentures (exclusive of unused commitments of $40.0 million under the New Revolving Credit Facility). CHANGE OF CONTROL.......... In the event of a Change of Control, the Company will, subject to certain conditions, be required to offer to purchase all outstanding Exchange Debentures at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. There can be no assurance that the Company will have sufficient funds to purchase all the Exchange Debentures in the event of a Change of Control or that the Company would be able to obtain financing for such purpose on favorable terms, if at all. CERTAIN COVENANTS.......... The Indenture governing the Exchange Debentures (the "Exchange Indenture") contains certain covenants that, among other things, limit the ability of the Company and its subsidiaries to incur additional indebtedness, pay dividends or make investments and certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, impose restrictions on the ability of a subsidi- 14 21 ary to pay dividends or make certain payments to the Company and its subsidiaries or merge or consolidate with or sell all or substantially all of the assets of the Company. For additional information regarding the Exchange Preferred Stock and Exchange Debentures, see "Description of Senior Preferred Stock and Exchange Debentures." RISK FACTORS Holders of the Securities should carefully consider the specific matters set forth under "Risk Factors" as well as the other information and data included in this Prospectus prior to tendering any Securities in exchange for the Exchange Securities. 15 22 SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA The summary unaudited pro forma consolidated financial data of the Company set forth below give effect, in the manner described under "Unaudited Pro Forma Consolidated Financial Data" and the notes thereto, to the Transactions and the other supplemental adjustments as if they had occurred on August 30, 1996 in the case of the pro forma consolidated statements of operations data. The unaudited pro forma consolidated statements of operations do not purport to represent what the Company's results of operations would have been if the Transactions and the other supplemental adjustments had occurred as of the date indicated or what such results will be for future periods. The information contained in this table should be read in conjunction with "Unaudited Pro Forma Consolidated Financial Data," "Summary Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements and the accompanying notes thereto included elsewhere in this Prospectus.
LATEST FISCAL TWELVE YEAR SIX MONTHS ENDED MONTHS ENDED ---------------------------- ENDED AUGUST 28, FEBRUARY 27, FEBRUARY 26, FEBRUARY 26, 1997 1997 1998 1998(1) ---------- ------------ ------------ ------------ (DOLLARS IN THOUSANDS) PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales................................. $292,379 $124,117 $145,681 $313,943 Cost of goods sold........................ 258,982 108,136 128,091 278,937 -------- -------- -------- -------- Gross profit.............................. 33,397 15,981 17,590 35,006 Selling, general and administrative expenses............................... 10,584 4,632 7,766 13,718 -------- -------- -------- -------- Operating income.......................... 22,813 11,349 9,824 21,288 Interest expense, net..................... 18,040 8,966 8,885 17,959 -------- -------- -------- -------- Income before taxes....................... 4,773 2,383 939 3,329 Income tax provision (benefit)............ 1,887 1,076 (1,013) (202) -------- -------- -------- -------- Net income................................ $ 2,886 $ 1,307 $ 1,952 $ 3,531 ======== ======== ======== ======== PRO FORMA CONSOLIDATED OTHER FINANCIAL DATA: EBITDA(2)................................. $ 31,632 $ 15,254 $ 15,282 $ 31,660 Depreciation and amortization............. 8,819 3,905 5,458 10,372 Cash interest expense(3).................. 17,178 8,531 8,462 17,109 Capital expenditures, manufacturing facilities(4).......................... 7,980 7,180 5,038 5,838 Total capital expenditures(4)............. 24,120 12,690 10,763 22,193 PRO FORMA CONSOLIDATED FINANCIAL RATIOS: Ratio of net debt to EBITDA(5)........................................................ 5.2x Ratio of net debt and redeemable Preferred Stock to EBITDA(6)......................... 5.9x Ratio of EBITDA to cash interest expense.............................................. 1.9x Ratio of earnings to fixed charges(7)................................................. --
- --------------- (1) Information for the pro forma twelve months ended February 26, 1998 represents the summation of the pro forma year ended August 28, 1997 and the pro forma six months ended February 26, 1998, less the pro forma six months ended February 27, 1997. (2) "EBITDA" is defined herein as income before income taxes, depreciation, amortization, transaction expenses and net interest expense, as adjusted for certain pro forma adjustments. EBITDA is presented 16 23 because the Company believes it is frequently used by investors in the evaluation of highly leveraged companies. However, EBITDA should not be used as an alternative to net income as a measure of results of operations or to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. (3) Cash interest expense includes interest on existing indebtedness net of repayment, interest on the $145,000,000 aggregate principal amount of Fixed Rate Notes at an interest rate of 9.75%, interest on the $30,000,000 aggregate principal amount of Floating Rate Notes at an assumed interest rate of 10.25% and a 0.5% commitment fee on the unused $40,000,000 under the New Revolving Credit Facility, net of interest income as adjusted for cash assumed to be used in the Recapitalization. (4) Capital expenditures for manufacturing facilities includes expenditures relating to the design, construction and improvement of facilities. Total capital expenditures includes capital expenditures for manufacturing facilities as well as capital expenditures for equipment and all other capital items not related to the introduction of a manufacturing facility. (5) The ratio of net debt to EBITDA represents total long-term debt, including current maturities, less cash and cash equivalents divided by EBITDA. (6) The ratio of net debt and redeemable Preferred Stock to EBITDA represents total long-term debt, including current maturities, plus the redeemable Preferred Stock, less cash and cash equivalents divided by EBITDA. (7) For purposes of computing this ratio, earnings consist of income before taxes plus fixed charges excluding dividends and amortization of deferred financing costs on the redeemable Preferred Stock. Fixed charges consist of interest on existing indebtedness, interest expense on the Notes, amortization of deferred financing costs associated with the Notes and the New Revolving Credit Facility, and dividends and amortization of deferred financing costs on the redeemable Preferred Stock. For the latest twelve months ended February 26, 1998, earnings were insufficient to cover fixed charges by $2,282,000. 17 24 SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA Set forth below are summary historical consolidated financial data of the Company at the dates and for the periods indicated. The summary historical consolidated statements of operations data of the Company for the fiscal years ended August 31, 1995, August 29, 1996 and August 28, 1997 and the summary historical consolidated balance sheet data as of August 29, 1996 and August 28, 1997 were derived from the historical consolidated financial statements of the Company that were audited by Coopers & Lybrand L.L.P., whose report appears elsewhere in this Prospectus. The summary historical statement of operations data of the Company for the fiscal year ended September 1, 1994 and the summary historical balance sheet data as of August 31, 1995 were derived from audited financial statements of the Company which are not included in this Prospectus. The summary historical consolidated financial data of the Company as of September 1, 1994, and as of and for the fiscal year ended September 2, 1993, and as of and for the six month periods ended February 27, 1997 and February 26, 1998 are derived from unaudited consolidated financial statements of the Company which, in the opinion of management, include all adjustments necessary for a fair presentation. The summary historical consolidated financial data should be read in conjunction with, and is qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements and accompanying notes thereto included elsewhere in this Prospectus.
FISCAL YEAR ENDED SIX MONTHS ENDED ------------------------------------------------------------------ --------------------------- SEPTEMBER 2, SEPTEMBER 1, AUGUST 31, AUGUST 29, AUGUST 28, FEBRUARY 27, FEBRUARY 26, 1993 1994 1995 1996 1997 1997 1998 ------------ ------------ ---------- ---------- ---------- ------------ ------------ (DOLLARS IN THOUSANDS) STATEMENTS OF OPERATIONS DATA: Net sales.................... $57,227 $117,313 $188,782 $374,116 $292,379 $124,117 $145,681 Cost of goods sold........... 50,588 104,857 169,758 341,110 258,982 108,136 128,091 ------- -------- -------- -------- -------- -------- -------- Gross profit................. 6,639 12,456 19,024 33,006 33,397 15,981 17,590 Selling, general and administrative expenses.... 3,537 5,129 6,464 9,303 12,560 5,941 6,927 ------- -------- -------- -------- -------- -------- -------- Operating income............. 3,102 7,327 12,560 23,703 20,837 10,040 10,663 Interest income (expense), net........................ (46) 163 613 482 380 260 329 Transaction expenses......... -- -- -- -- -- -- (8,312) ------- -------- -------- -------- -------- -------- -------- Income before taxes.......... 3,056 7,490 13,173 24,185 21,217 10,300 2,680 Income tax provision......... 1,099 2,869 5,142 9,190 8,465 4,243 2,067 ------- -------- -------- -------- -------- -------- -------- Net income................... $ 1,957 $ 4,621 $ 8,031 $ 14,995 $ 12,752 $ 6,057 $ 613 ======= ======== ======== ======== ======== ======== ======== OTHER FINANCIAL DATA: EBITDA(1).................... $ 4,669 $ 9,763 $ 16,029 $ 29,128 $ 29,656 $ 13,945 $ 16,121 Depreciation and amortization............... 1,567 2,436 3,469 5,425 8,819 3,905 5,458 Capital expenditures, manufacturing facilities(2).............. NM NM NM 16,193 7,980 7,180 5,038 Total capital expenditures(2)............ 2,970 5,180 10,116 31,229 24,120 12,690 10,763 BALANCE SHEET DATA (END OF PERIOD): Cash and cash equivalents.... $ 5,178 $ 693 $ 15,000 $ 16,290 $ 13,636 $ 8,214 $ 13,263 Working capital, excluding cash and cash equivalents................ 4,956 13,999 25,218 10,065 15,454 17,688 12,265 Total assets................. 32,423 43,515 93,823 113,245 124,862 119,735 150,728 Total debt................... 9,318 7,660 6,671 -- 1,049 26 176,590 Total debt plus redeemable preferred stock............ 9,318 7,660 6,671 -- 1,049 26 200,590 Shareholders' equity (deficit)(3)............... 10,050 18,843 50,493 65,881 78,191 71,956 (109,241)
- --------------- (1) "EBITDA" is defined herein as income before income taxes, depreciation, amortization, transaction expenses and net interest expense. EBITDA is presented because the Company believes it is frequently used by investors in the evaluation of companies. However, EBITDA should not be used as an alternative to net income as a measure of results of operations or to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. (2) Capital expenditures for manufacturing facilities includes expenditures relating to the design, construction and improvement of the facilities. Total capital expenditures includes capital expenditures for manufacturing facilities as well as capital expenditures for equipment and all other capital items not related to the introduction of a manufacturing facility. (3) As of September 2, 1993, September 1, 1994 and August 31, 1995, shareholder's equity amounts represent division equity. 18 25 RISK FACTORS Holders of the Securities should consider carefully the following factors as well as the other information included in this Prospectus prior to tendering their Securities in the Exchange Offer. RISK FACTORS ASSOCIATED WITH FINANCIAL LEVERAGE AND THE SECURITIES High Level of Indebtedness; Ability to Service Indebtedness and Satisfy Preferred Stock Dividend Requirements After giving effect to the Transactions, the Company is highly leveraged. At February 26, 1998, the Company had approximately $176.6 million of total indebtedness outstanding (exclusive of unused commitments of $40.0 million under the New Revolving Credit Facility), Preferred Stock outstanding with an aggregate liquidation preference of $25.0 million and Convertible Preferred Stock outstanding with an aggregate liquidation preference of approximately $56.7 million. Subject to certain restrictions in the Indenture, the Certificate of Designation, the Exchange Indenture and the New Revolving Credit Facility, the Company may incur additional indebtedness from time to time to provide for working capital or capital expenditures or for other purposes. The level of the Company's indebtedness could have important consequences to holders of the Exchange Securities, including, but not limited to, the following: (i) a substantial portion of the Company's cash flow from operations must be dedicated to debt service and will not be available for other purposes; (ii) the Company's ability to obtain additional financing in the future, as needed, may be limited; (iii) the Company's leveraged position and covenants contained in the Indenture, the Certificate of Designation, the Exchange Indenture and the New Revolving Credit Facility may limit its ability to grow and make capital improvements and acquisitions; (iv) the Company's level of indebtedness may make it more vulnerable to economic downturns; and (v) the Company may be at a competitive disadvantage because some of the Company's competitors are less leveraged, resulting in greater operational and financial flexibility for such competitors. The ability of the Company to pay cash dividends on, and to satisfy the redemption obligations in respect of, the Exchange Preferred Stock and to satisfy its debt obligations, including the Exchange Notes, will be primarily dependent upon the future financial and operating performance of the Company. Such performance is dependent upon financial, business and other general economic factors, many of which are beyond the control of the Company. If the Company is unable to generate sufficient cash flow to meet its debt service obligations or provide adequate long-term liquidity, it will have to pursue one or more alternatives, such as reducing or delaying capital expenditures, refinancing debt, selling assets or raising equity capital. There can be no assurance that such alternatives could be accomplished on satisfactory terms, if at all, or in a timely manner. Subordination of the Exchange Notes and Exchange Debentures; Ranking of the Exchange Preferred Stock The Exchange Notes will be senior subordinated unsecured obligations of the Company, subordinated in right of payment to all existing and future Senior Debt (as defined) of the Company. The Exchange Notes will be effectively subordinated in right of payment to all existing and future secured indebtedness of the Company, including indebtedness under the New Revolving Credit Facility, to the extent of the liquidation value of the assets securing such indebtedness. The Exchange Preferred Stock will rank junior in right of payment upon liquidation to all existing and future indebtedness of the Company, including, without limitation, indebtedness under the New Revolving Credit Facility and the Exchange Notes. The Exchange Preferred Stock will rank senior in right of payment upon liquidation to the Convertible Preferred Stock, the Common Stock and any other class or series of common stock issued by the Company. As of February 26, 1998, the Company had approximately $1.6 million of Senior Debt outstanding for purposes of the Exchange Notes (exclusive of unused commitments of $40.0 million under the New Revolving Credit Facility). The Indenture, the Certificate of Designation, the Exchange Indenture and the New Revolving Credit Facility limit, but do not prohibit, the incurrence of additional indebtedness by the Company. See "Description of Senior Subordinated Notes -- Subordination," "Description of the Senior Preferred Stock and Exchange 19 26 Debentures -- Exchange Preferred Stock -- Ranking" and "-- Exchange Debentures -- Subordination" and "Description of New Revolving Credit Facility." The Exchange Debentures, if issued, will be subordinated to the prior payment in full of all existing and future Senior Debt (as defined) of the Company, including indebtedness under the New Revolving Credit Facility and the Exchange Notes. As of February 26, 1998, approximately $176.6 million of Senior Debt was outstanding for purposes of the Exchange Debentures (exclusive of unused commitments of $40.0 million under the New Revolving Credit Facility). In the event of the bankruptcy, liquidation, dissolution, reorganization or other winding up of the Company, the assets of the Company will be available to pay obligations on the Exchange Notes and the Exchange Debentures only after all Senior Debt, as the case may be, has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the Exchange Notes or the Exchange Debentures, as the case may be. In addition, under certain circumstances, the Company may not pay principal of, premium, if any, or interest on, or any other amounts owing in respect of, the Exchange Notes or the Exchange Debentures, as the case may be, or purchase, redeem or otherwise retire the Exchange Notes or the Exchange Debentures, as the case may be, if a payment default or a non-payment default exists with respect to certain Senior Debt and, in the case of a non-payment default, if a payment blockage notice has been received by the applicable trustee. Possible Effects of Fraudulent Conveyance Laws The Company believes that the indebtedness represented by the Notes was and, if issued the Exchange Debentures will be, incurred for proper purposes and in good faith, and that, based on present forecasts and other financial information, the Company, as of the date hereof, is solvent, has sufficient capital for carrying on its business and will be able to pay its debts as they mature and become due. Notwithstanding management's belief, if a court of competent jurisdiction in a suit by an unpaid creditor or a representative of creditors (such as a trustee in bankruptcy or a debtor-in-possession) were to find that, at the time the Company consummated the Transactions, the Company (i) intended to hinder, delay or defraud any existing or future creditor or contemplated insolvency with a design to prefer one or more creditors to the exclusion in whole or in part of others or (ii) did not receive fair consideration or reasonably equivalent value for issuing the Notes or, if issued, the Exchange Debentures, and the Company (a) was insolvent, (b) was rendered insolvent by reason of the Transactions, (c) was engaged or about to engage in a business or transaction for which its remaining assets constituted unreasonably small capital to carry on its business or (d) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, such court could avoid such indebtedness. A possible consequence of such avoidance would be that a court could void the Company's obligations under the Notes (or the Exchange Notes upon consummation of the Exchange Offer) and, if issued, the Exchange Debentures or alternatively subordinate the indebtedness represented by the Notes (or the Exchange Notes upon consummation of the Exchange Offer) and, if issued, the Exchange Debentures to claims of other creditors to the Company. The measure of insolvency for purposes of the foregoing will vary depending upon the law of the relevant jurisdiction. Generally, however, a company would be considered insolvent for purposes of the foregoing if the present fair salable value of such company's assets is less than the amount that will be required to pay its probable liability on existing debts as they become absolute and mature. In rendering its opinion on the validity of the Notes and, if issued, the Exchange Debentures, counsel for the Company expressed, and in rendering its opinion on the validity of the Exchange Notes will express, no opinion as to federal or state laws relating to fraudulent transfers. Change of Control Upon the occurrence of a Change of Control, the Company will, subject to certain conditions, be required to offer to purchase all of the Exchange Notes and Exchange Debentures then outstanding at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the purchase date, and all of the shares of the Exchange Preferred Stock then outstanding at a purchase price equal to 101% of the liquidation preference thereof, plus, without duplication, accumulated and unpaid dividends to the purchase date. See "Description of Senior Subordinated Notes -- Change of Control" and "Description of Senior 20 27 Preferred Stock and Exchange Debentures -- Senior Preferred Stock -- Change of Control" and "-- Exchange Debentures -- Change of Control." If a Change of Control were to occur, there can be no assurance that the Company would have sufficient funds to pay the purchase price for all of the Exchange Notes, all of the shares of the Exchange Preferred Stock and, if issued, the Exchange Debentures that the Company might be required to purchase. The exercise by the respective holders of the Exchange Notes, the Exchange Preferred Stock and, if issued, the Exchange Debentures of their right to require the Company to repurchase the Exchange Notes and the Exchange Preferred Stock and, if issued, the Exchange Debentures upon the occurrence of a Change of Control could also cause a default under other indebtedness of the Company including any then outstanding indebtedness under the New Revolving Credit Facility, even if the Change of Control itself does not, because of the financial effect of such repurchase on the Company. Additionally, there can be no assurance that, in the event of a Change of Control, the Company will be contractually permitted under the terms of other outstanding indebtedness and obligations, including the New Revolving Credit Facility, to pay the required purchase price for all of the Exchange Notes, and Exchange Preferred Stock and, if issued, the Exchange Debentures tendered by holders thereof upon the occurrence of a Change of Control. In addition, the Indenture and the Exchange Indenture restricts the Company's ability to repurchase the shares of the Exchange Preferred Stock and, if issued, the Exchange Debentures, including pursuant to a Change of Control. Limitations on Ability to Pay Dividends The Indenture and the New Revolving Credit Facility restrict the Company from paying cash dividends on the Exchange Preferred Stock other than in certain circumstances. "See "Description of Exchange Notes -- Covenants -- Limitation on Restricted Payments," and "Description of the New Revolving Credit Facility." However, for all dividend payment dates through and including March 1, 2003, the Company may, at its option, pay dividends in additional shares of Exchange Preferred Stock in lieu of paying cash dividends. The Company's payment of dividends on the Exchange Preferred Stock may also be restricted by the Idaho Business Corporation Act. Under Idaho law, the Company cannot pay any distribution to its stockholders, including the payment of dividends on the Exchange Preferred Stock, if such payment would render the Company unable to pay its debts as they become due in the usual course of business or if, at the time of the distribution, the total assets of the Company would be less than the Company's total liabilities plus the amount necessary to satisfy preferential rights associated with securities ranking senior to the Exchange Preferred Stock, if any. In determining the Company's ability to pay dividends, Idaho law permits the Company's board of directors, as appropriate and if reasonable under the circumstances, to revalue the Company's assets and liabilities to their fair market value. The Company cannot predict what the value of its assets or the amount of its liabilities will be in the future and, accordingly, there can be no assurance that the Company will be able to pay cash dividends on the Exchange Preferred Stock. Restrictions Imposed by Terms of Indebtedness and Exchange Preferred Stock The Indenture, the Certificate of Designation, the Exchange Indenture and the New Revolving Credit Facility contain certain covenants that restrict, among other things, the ability of the Company and its subsidiaries to incur additional indebtedness, issue preferred stock, incur liens, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company and its subsidiaries. A breach of any of these covenants could result in a default under the New Revolving Credit Facility, the Indenture and the Exchange Indenture and would violate certain provisions of the Certificate of Designation. See "Description of Senior Subordinated Notes -- Certain Covenants," "Description of Senior Preferred Stock and Exchange Debentures -- Exchange Debentures -- Certain Covenants" and "Description of New Revolving Credit Facility." The New Revolving Credit Facility also requires the Company to maintain specified financial ratios and to satisfy certain financial condition tests. The ability of the Company to meet those financial ratios and financial condition tests can be 21 28 affected by events beyond its control, and there can be no assurance that the Company will meet those ratios and tests. In the event the Company does not meet such tests, the availability of capital from bank borrowings, including but not limited to the ability to access the New Revolving Credit Facility, could be adversely affected. The inability to borrow under the New Revolving Credit Facility could have a material adverse effect on the Company's business, financial condition and results of operations. Upon an event of default under the New Revolving Credit Facility, the Indenture or the Exchange Indenture, the lenders thereunder could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. In the case of the New Revolving Credit Facility, if the Company were unable to repay those amounts, the lenders thereunder could proceed against the collateral granted to them to secure that indebtedness. Absence of Public Market for the Exchange Securities Prior to the Exchange Offer, there has not been any public market for the Securities. The Securities have not been registered under the Securities Act and will be subject to restrictions on transferability to the extent that they are not exchanged for Exchange Securities by holders who are entitled to participate in this Exchange Offer. The holders of Securities (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who are not eligible to participate in the Exchange Offer are entitled to certain registration rights, and the Company is required to file a Shelf Registration Statement with respect to such Securities. The Exchange Securities will constitute new issues of securities with no established trading market. The Company does not intend to list the Exchange Securities on any national securities exchange or seek the admission thereof to trading in the National Association of Securities Dealers Automated Quotation System. The Company has been advised by the Initial Purchaser that following the completion of the Exchange Offer, the Initial Purchaser currently intends to make a market in the Exchange Securities. However, they are not obligated to do so and any market-making activities with respect to the Exchange Securities may be discontinued at any time without notice. In addition, such market-making activity will be subject to the limits imposed by the Securities Act and the Exchange Act, and may be limited during the Exchange Offer and the pendency of any Shelf Registration Statement (as defined herein). There can be no assurance that an active trading market for the Exchange Securities will develop or as to the liquidity of the trading market for the Exchange Securities. If a trading market does not develop or is not maintained, holders of the Exchange Securities may experience difficulty in reselling the Exchange Securities or may be unable to sell them at all. If a market were to exist, the Exchange Securities could trade at prices that may be lower than the initial offering price thereof depending on many factors, including prevailing interest rates and the markets for similar securities, general economic conditions and the financial condition and performance of, and prospects for, the Company. See "Exchange Offer." Issuance of the Exchange Securities in exchange for the Securities pursuant to the Exchange Offer will be made only after a timely receipt by the Company of such Securities, a properly completed and duly executed Letter of Transmittal and all other required documents. Therefore, holders of Securities desiring to tender such Securities in exchange for Exchange Securities should allow sufficient time to ensure timely delivery. The Company is under no duty to give notification of defects or irregularities with respect to the tenders of Securities for exchange. Securities that are not tendered or are tendered but not accepted will, following the consummation of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof and, upon consummation of the Exchange Offer, certain registration rights under the Registration Rights Agreement will terminate. In addition, any holder of Securities who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Securities may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transactions. Each Participating Broker-Dealer that receives Exchange Securities for its own account in exchange for Securities, where such Securities were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. See "Plan of Distribution." To the extent that some but not all of the Securities are 22 29 tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Securities could be adversely affected. See "Exchange Offer." RISK FACTORS ASSOCIATED WITH THE BUSINESS Absence of Independent Operating History; Dependence on MTI and MEI Prior to the consummation of the Recapitalization, the Company had not operated as an independent entity, and there can be no assurance that it will be able to operate effectively as an independent company following the Recapitalization. The principal operations of the Company were established in 1984 as the Memory Applications Group of MTI. In 1995, as part of a corporate reorganization, MCMS was formed as a wholly-owned subsidiary of MEI. Following the Recapitalization and through the date hereof, MEI's wholly owned subsidiary, MEIC, continues to hold 10.0% of the capital stock (other than the Senior Preferred Stock) of the Company, but does not have a representative on the Company's board of directors. Moreover, management of the Company is independent from the board of directors and management of MEI. The Company has historically been dependent on MEI and MTI for certain financial and administrative systems and services. As part of the Recapitalization, the Company, MEI and MTI entered into the Transition Services Agreement pursuant to which MEI and MTI will continue to provide the Company with certain of such systems and services for transitional periods ranging from 6 to 12 months after the closing of the Recapitalization. See "Certain Transactions -- Transition Services Agreement." In addition, the Company has benefited in the past from MEI's procurement leverage in the purchase of memory components from MTI. MTI has provided full-specification RAM components to MEI and MCMS on a purchase order basis at prices generally equal to the best prices offered by MTI to customers purchasing comparable volumes. Such purchases accounted for approximately 30% of the Company's purchased memory components in fiscal 1997. Exclusive of the supply of components under the Memory Module Agreement, no long-term agreement exists or is contemplated between MTI and the Company for the supply of such components subsequent to consummation of the Recapitalization. There can be no assurance that the Company will be able to procure adequate quantities of RAM components from MTI or other memory suppliers in the future or that, if obtained, such components will be obtained at favorable prices. Customer Concentration; Dependence on Certain Industries At any given time, certain customers may account for significant portions of the Company's net sales. In fiscal 1997, approximately 59% of net sales were derived from networking and telecommunications customers. For fiscal 1997, the Company's ten largest customers accounted for approximately 91.8% of net sales. The Company's top two customers accounted for approximately 32.4% and 20.1% of net sales, respectively, during fiscal 1997. In addition, another of the Company's customers, while accounting for less than 10% of net sales for fiscal 1997, is important to the Company because the products sold to such customer contribute significantly to the Company's margins. Decreases in sales to these or any other key customers could have a material adverse effect on the Company's business, financial condition and results of operations. The Company expects to continue to depend upon a relatively small number of customers for a significant percentage of its net sales. There can be no assurance that the Company's principal customers will continue to purchase services at current levels, if at all. The percentage of the Company's sales to such major customers may fluctuate from period to period. Significant reductions in sales to any of the Company's major customers as well as period-to-period fluctuations in sales and changes in product mix ordered by such customers could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, customer orders can be canceled and volume levels can be changed or delayed. From time to time, some of the Company's customers have terminated their manufacturing arrangements with the Company, and other customers have reduced or delayed the volume of design and manufacturing services performed by the 23 30 Company. Such terminations, reductions or delays expose the Company to the risk of being unable to terminate, reduce or delay purchase orders with its suppliers and to market risks for raw materials, work in progress and finished goods. The replacement of canceled, delayed or reduced contracts with new business cannot be assured, and termination of a manufacturing relationship or changes, reductions or delays in orders could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the Company is dependent upon the continued growth, viability and financial stability of its OEM customers, which are in turn substantially dependent on the growth of the networking, telecommunications, computer systems and other industries. These industries are subject to rapid technological change, product obsolescence and price competition. In addition, many of the Company's customers in these industries are affected by general economic conditions. Recent currency devaluations and economic slowdowns in various Asian economies may have an adverse effect on the results of operations of certain of the Company's OEM customers, and in turn, their orders from the Company. These and other competitive factors affecting the networking, telecommunications and computer system industries in general, and the Company's OEM customers in particular, could have a material adverse effect on the Company's business, financial condition and results of operations. Moreover, any further volatility in the market for DRAM components caused by, among other things, the turmoil in the Asian economies, could have a material adverse effect on MTI, which has historically been one of the Company's major customers, and consequently the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations" and "Business -- Sales and Marketing -- Customers and Revenue Profile." Variability of Results of Operations The Company's results of operations may be affected by a number of factors including economic conditions; price competition; the level of volume and the timing of customer orders; product mix; management of manufacturing processes; materials procurement and inventory management; fixed asset utilization; the level of experience in manufacturing a particular product; customer product delivery requirements; availability and pricing of components; availability of experienced labor; the integration of acquired businesses; start-up costs associated with adding new geographical locations; research and development costs; and failure to introduce, or lack of market acceptance, of new processes, services, technologies and products. In addition, the level of net sales and gross margin can greatly shift based on whether certain projects are contracted on a turnkey basis where the Company purchases materials, versus on a consignment basis, where materials are provided by the customer (turnkey manufacturing tends to result in higher net sales and lower gross margins than consignment manufacturing). There can be no assurance that such decreases will not continue in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Discussion of Certain Historical Financial Performance." An adverse change in one or more of these factors could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Management of Growth The Company opened a new manufacturing facility in Penang, Malaysia in October 1996 and completed the Alcatel Acquisition in November 1997. Expansion has caused, and is expected to cause, strain on the Company's infrastructure, including its managerial, technical, financial, information systems and other resources. To manage further growth, the Company must continue to enhance financial and operational controls, develop or hire additional executive officers and other qualified personnel. Continued growth will also require increased investments to add manufacturing capacity and to enhance management information systems. In October 1997, the Company began implementation of an enterprise resource planning software provided by Baan U.S.A., Inc. (the "Baan ERP System") to, among other things, accommodate the future growth and requirements of the Company and ensure that the Company's business management system is Year 2000 compliant. There can be no assurance that the Company will be able to implement the Baan ERP System successfully and on a timely basis and the failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations. 24 31 Since the end of fiscal 1997, the Company has incurred increased operating expenses as the Company has increased the number of prototype and new product introductions. The Company expects to continue to experience certain inefficiencies as it integrates new operations and manages geographically dispersed operations. There can be no assurance that the Company will be able to manage its expansion effectively, and a failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Recent Developments." New operations, whether foreign or domestic, can require significant start-up costs and capital expenditures. In the event that the Company continues to expand its domestic or international operations, there can be no assurance that the Company will be successful in generating revenue to recover start-up and operating costs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Growth Strategies." Competition The electronics manufacturing services industry is intensely competitive and subject to rapid change, and includes numerous regional, national and international companies, a number of which have achieved substantial market share. The Company believes that the primary competitive factors in its targeted markets are manufacturing technology, product quality, responsiveness and flexibility, consistency of performance, range of services provided, the location of facilities and price. To be competitive, the Company must provide technologically advanced manufacturing services, high quality products, flexible production schedules and reliable delivery of finished products on a timely and price competitive basis. Failure to satisfy any of the foregoing requirements could materially and adversely affect the Company's competitive position. The Company competes against numerous domestic and foreign manufacturers, including Jabil Circuits, Inc., Solectron Corporation, Flextronics International, Ltd., SCI Systems, Inc. and Celestica International Holdings, Inc. The Company also faces indirect competition from the captive manufacturing operations of its current and prospective customers, which continually evaluate the merits of manufacturing products internally rather than using the services of EMS providers. Many of the Company's competitors have more geographically diversified international procurement, research and development, and capital and marketing resources than the Company. In recent years, the EMS industry has attracted new entrants, including large OEMs with excess manufacturing capacity, and many existing participants have substantially expanded their manufacturing capacity by expanding their facilities through both internal expansion and acquisitions. In the event of a decrease in overall demand for EMS services, this increased capacity could result in substantial pricing pressures, which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Competition." Availability of Components and Material Cost Fluctuations A substantial portion of the Company's net sales is derived from turnkey manufacturing in which the Company provides both materials procurement and assembly and bears the risk of component price increases. Almost all of the Company's products require one or more components that are available from a limited number of sources. Some of these materials are allocated by such single or sole sources in response to supply shortages. Such shortages may cause the Company to curtail the production of assemblies using a particular component. In the past, there have been industry-wide supply shortages of electronic components such as DRAM and microprocessors. There can be no assurance that such shortages will not have a material adverse effect on the Company's business, financial condition and results of operations. In addition, historical fluctuations in materials costs, such as DRAM costs, have had adverse effects on the Company's results of operations in the past. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations." Moreover, there can be no assurance that the recent volatility in the Korean economy will not affect DRAM pricing or demand in world markets. Such volatility could adversely affect the Company's business, financial condition and results of operations. 25 32 Capital Requirements The Company believes that, in order to achieve its long-term expansion objectives and maintain and enhance its competitive position, it will need significant financial resources over the next several years for capital expenditures, including investments in manufacturing facilities, management information systems, working capital and debt service. The Company has added significant manufacturing capacity and increased capital expenditures since 1995. In April 1995, it opened its Durham, North Carolina facility. In October 1996, it opened its first international facility in Penang, Malaysia and moved from its former Boise, Idaho facility to a new facility in Nampa, Idaho. In November 1997, it purchased its first European facility in Colfontaine, Belgium from Alcatel. The Company anticipates that its capital expenditures will continue to increase as the Company expands its facilities in Asia and Europe, invests in necessary equipment to continue new product production, and continues to invest in new technologies and equipment to increase the performance and the cost efficiency of its manufacturing operations. The precise amount and timing of the Company's future funding needs cannot be determined at this time and will depend upon a number of factors, including the demand for the Company's services and the Company's management of its working capital. The Company may not be able to obtain additional financing on acceptable terms or at all. If the Company is unable to obtain sufficient capital, it could be required to reduce or delay its capital expenditures and facilities expansion, which could materially adversely affect the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." International Operations The Company currently offers EMS capabilities in North America, Asia and Europe. Management believes that the percentage of the Company's revenue derived from international sales will increase in the future as international OEMs increasingly adopt the outsourcing model as a manufacturing solution. The Company may be affected by economic and political conditions in each of the countries in which it operates and certain other risks of doing business abroad, including fluctuations in the value of currencies, import duties, changes to import and export regulations (including quotas), possible restrictions on the transfer of funds, employee turnover, labor or civil unrest, long payment cycles, greater difficulty in collecting accounts receivable, the burdens, cost and risk of compliance with a variety of foreign laws, and, in certain parts of the world, political and economic instability. In addition, the attractiveness of the Company's services to its United States customers is affected by United States trade policies, such as "most favored nation" status and trade preferences, which are reviewed periodically by the United States government. Changes in policies by the United States or foreign governments could result in, for example, increased duties, higher taxation, currency conversion limitations, hostility toward United States-owned operations, limitations on imports or exports, or the expropriation of private enterprises, any of which could have a material adverse effect on the Company's business, financial condition or results of operations. The Company's Belgian operations are subject to labor union agreements covering both white-collar and blue-collar employees, which set standards for, among other things, the maximum number of working hours and minimum compensation levels. The Company's Malaysian operations and assets are subject to significant political, economic, legal and other uncertainties customary for businesses located in Southeast Asia. Dependence on Key Personnel The Company's continued success depends to a large extent upon the efforts and abilities of key managerial and technical employees. The Company's business will also depend upon its ability to continue to attract and retain qualified employees. Although the Company has been successful in attracting and retaining key managerial and technical employees to date, the loss of services of certain key employees, in particular any of its four executive officers, or the Company's failure to continue to attract and retain other key managerial and technical employees could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management -- Employment Agreements." 26 33 Year 2000 Compliance The Company has conducted a comprehensive review of its information systems that could be affected by Year 2000 compliance issues and has determined that a substantial portion of such systems are not Year 2000 compliant. The Company is developing a plan to resolve the issue which includes, among other things, implementing the Baan ERP System. The implementation of the Baan ERP System is anticipated to be completed by the end of 1998 at an estimated cost of $8.4 million. The Company presently believes that by modifying existing software and converting to new software, the Year 2000 problem will not pose significant operational problems for the Company's information systems. However, if such modifications and conversions are not timely or not properly implemented, the Year 2000 problem could have a material adverse effect on the Company's business, financial condition and results of operations. Environmental Regulations The Company is subject to a variety of environmental laws and regulations governing, among other things, air emissions, waste water discharge, waste storage, treatment and disposal, and remediation of releases of hazardous materials. While the Company believes that it is currently in material compliance with all such environmental requirements, any failure to comply with present and future requirements could have a material adverse effect on the Company's business, financial conditions and results of operations. Such requirements could require the Company to acquire costly equipment or to incur other significant expenses to comply with environmental regulations. The imposition of additional or more stringent environmental requirements, the results of future testing at the Company's facilities, or a determination that the Company is potentially responsible for remediation at other sites where problems are not presently known, could result in expenditures in excess of amounts currently estimated to be required for such matters. See "Management's Discussion and Analysis of Financial Condition and Result of Operations -- Liquidity and Capital Resources" and "Business -- Environmental." Concentration of Ownership Upon consummation of the Recapitalization, Cornerstone and the Other Investors beneficially owned in the aggregate approximately 90.0% of the outstanding capital stock (other than the Senior Preferred Stock) of the Company. As a result, although no single investor has more than 49.0% of the voting power of the Company's outstanding securities or the ability to appoint a majority of the directors, the aggregate votes of these investors could determine the composition of a majority of the board of directors and, therefore, influence the management and policies of the Company. The interests of Cornerstone or the Other Investors may, in certain circumstances, differ from the interests of holders of the Exchange Securities. See "Management" and "Principal Stockholders." 27 34 THE RECAPITALIZATION On February 26, 1998, the Company effected the Recapitalization pursuant to the Recapitalization Agreement. Pursuant to the Recapitalization, the Company redeemed from MEIC the Company's existing shares of common stock, par value $.01 per share (the "Old Common Stock") for (i) $249.2 million and (ii) Common Stock (as defined below) and Convertible Preferred Stock (as defined below), representing 10.0% of the Company's fully-diluted Common Stock immediately after giving effect to the Transactions but before issuance of options to management, and cash. In addition Cornerstone and certain other investors (the "Other Investors") purchased shares of Class A Common Stock ("Class A Common"), Class B Common Stock ("Class B Common"), Class C Common Stock ("Class C Common," and together with the Class A Common and Class B Common, the "Common Stock"), Series A Convertible Preferred Stock ("Series A Preferred"), Series B Convertible Preferred Stock ("Series B Preferred"), and Series C Convertible Preferred Stock ("Series C Preferred," and together with the Series A Preferred and the Series B Preferred, the "Convertible Preferred Stock"), representing, in the aggregate, 90.0% of the Company's fully-diluted Common Stock immediately after giving effect to the Transactions but before issuance of options to management. Following the Recapitalization, Cornerstone, the Other Investors and MEIC owned securities representing 49.0%, 41.0% and 10.0%, respectively, of the voting power of the Company's outstanding capital stock. The Company used approximately $271.3 million (including cash on hand of approximately $3.3 million) to complete the Recapitalization, including the repayment of approximately $0.3 million of existing indebtedness and the payment of related estimated fees and expenses of approximately $15.0 million. In order to finance the Recapitalization, the Company (i) issued $175.0 million in aggregate principal amount of Notes in the Offering; (ii) issued 250,000 shares of Preferred Stock ($25.0 million liquidation preference) in the Offering; and (iii) received an equity contribution (the "Equity Contribution") of $68.0 million, consisting of $61.2 million in cash from Cornerstone and the Other Investors and a rollover of equity held by MEIC having an implied value of $6.8 million. In connection with the Recapitalization, the Company entered into the $40.0 million New Revolving Credit Facility with Bankers Trust Company, which was undrawn as of February 26, 1998. 28 35 USE OF PROCEEDS The Exchange Offer is intended to satisfy certain of the Company's obligations under the Registration Rights Agreement. The Company will not receive any cash proceeds from the issuance of the Exchange Securities in the Exchange Offer. In consideration for issuing the Exchange Securities contemplated in this Prospectus, the Company will receive the Securities, the forms and terms of which are the same as the form and terms of the Exchange Securities (which replace the Securities), except as described herein. The gross proceeds of $200.0 million from the issuance of the Notes and the Preferred Stock together with the Equity Contribution and cash on hand, were used to consummate the Recapitalization and pay the related estimated fees and expenses. See "The Recapitalization." 29 36 CAPITALIZATION The following table sets forth the capitalization of the Company on a historical basis as of February 26, 1998. This table should be read in conjunction with the "Selected Historical Consolidated Financial Data" and "Unaudited Pro Forma Consolidated Financial Data" included elsewhere in this Prospectus.
ACTUAL ---------------------- (DOLLARS IN THOUSANDS) (UNAUDITED) Cash and cash equivalents................................... $ 13,263 ========= Long-term debt (including current maturities): Existing debt............................................. $ 1,590 Notes..................................................... 175,000 --------- Total long-term debt.............................. 176,590 Preferred Stock............................................. 24,000(1) Shareholders' equity (deficiency): Common Stock, Convertible Preferred Stock and retained earnings (deficiency).................................. (109,241) --------- Total capitalization.............................. $ 91,349 =========
- --------------- (1) Reflects the gross proceeds of $25,000,000, net of $1,000,000 of financing costs, from the issuance of the Preferred Stock. 30 37 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA The following unaudited pro forma condensed consolidated financial data of the Company (the "Pro Forma Consolidated Financial Data") has been prepared to give effect to the Transactions and to reflect certain of the Company's corporate overhead charges on a separate company basis. The pro forma adjustments presented are based upon available information and certain assumptions that the Company believes are reasonable under the circumstances. The unaudited pro forma condensed consolidated statement of operations of the Company for the year ended August 28, 1997 and the unaudited pro forma condensed consolidated statements of operations for the six months ended February 27, 1997 and February 26, 1998 and for the latest twelve months ended February 26, 1998 (the "Pro Forma Statements of Operations") give effect to the Transactions as if they had occurred as of August 30, 1996. The Recapitalization has been accounted for as a leveraged recapitalization which will have no impact on the historical basis of the Company's assets and liabilities. The Pro Forma Consolidated Financial Data should be read in conjunction with "Use of Proceeds," "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements of the Company and notes thereto all included elsewhere in the Prospectus. The Pro Forma Consolidated Financial Data and related notes are provided for informational purposes only and do not purport to be indicative of the Company's financial condition or results of operations that would have actually been obtained had the Transactions been consummated as of the assumed dates and for the periods presented, nor are they indicative of the Company's financial condition or results of operations for any future period. 31 38 MCMS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FISCAL YEAR ENDED AUGUST 28, 1997
PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- (DOLLARS IN THOUSANDS) Net sales................................................. $292,379 $ -- $292,379 Cost of goods sold........................................ 258,982 -- 258,982 -------- -------- -------- Gross profit.............................................. 33,397 -- 33,397 Selling, general and administrative expenses.............. 12,560 (1,976)(a) 10,584 -------- -------- -------- Operating income.......................................... 20,837 1,976 22,813 Interest income (expense), net............................ 380 (18,420)(b) (18,040) -------- -------- -------- Income before taxes....................................... 21,217 (16,444) 4,773 Income tax provision...................................... 8,465 (6,578)(d) 1,887 -------- -------- -------- Net income................................................ $ 12,752 $ (9,866) $ 2,886 ======== ======== ======== OTHER DATA: EBITDA(e)................................................. $ 29,656 $ 31,632 Depreciation and amortization............................. 8,819 8,819
32 39 MCMS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 27, 1997
PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- (DOLLARS IN THOUSANDS) Net sales................................................. $124,117 $ -- $124,117 Cost of goods sold........................................ 108,136 -- 108,136 -------- -------- -------- Gross profit.............................................. 15,981 -- 15,981 Selling, general and administrative expenses.............. 5,941 (1,309)(a) 4,632 -------- -------- -------- Operating income.......................................... 10,040 1,309 11,349 Interest income (expense), net............................ 260 (9,226)(b) (8,966) -------- -------- -------- Income before taxes....................................... 10,300 (7,917) 2,383 Income tax provision...................................... 4,243 (3,167)(d) 1,076 -------- -------- -------- Net income................................................ $ 6,057 $ (4,750) $ 1,307 ======== ======== ======== OTHER DATA: EBITDA(e)................................................. $ 13,945 $ 15,254 Depreciation and amortization............................. 3,905 3,905
33 40 MCMS, INC. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 26, 1998
PRO FORMA HISTORICAL ADJUSTMENTS(A) PRO FORMA ---------- -------------- --------- (DOLLARS IN THOUSANDS) Net sales............................................... $145,681 $ -- $145,681 Cost of goods sold...................................... 128,091 -- 128,091 -------- ------- -------- Gross profit............................................ 17,590 -- 17,590 Selling, general and administrative expenses............ 6,927 839(a) 7,766 -------- ------- -------- Operating income........................................ 10,663 (839) 9,824 Interest income (expense), net.......................... 329 (9,214)(b) (8,885) Transactions expense.................................... (8,312) 8,312(c) -- -------- ------- -------- Income before taxes..................................... 2,680 (1,741) 939 Income tax provision (benefit).......................... 2,067 (3,080)(d) (1,013) -------- ------- -------- Net income.............................................. $ 613 $ 1,339 $ 1,952 ======== ======= ======== OTHER DATA: EBITDA(e)............................................... $ 16,121 $ 15,282 Depreciation and amortization........................... 5,458 5,458
34 41 MCMS, INC. UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS FOR THE LATEST TWELVE MONTHS ENDED FEBRUARY 26, 1998
PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- (DOLLARS IN THOUSANDS) Net sales................................................. $313,943 $ -- $313,943 Cost of goods sold........................................ 278,937 -- 278,937 -------- -------- -------- Gross profit.............................................. 35,006 -- 35,006 Selling, general and administrative expenses.............. 13,546 172(a) 13,718 -------- -------- -------- Operating income.......................................... 21,460 (172) 21,288 Interest income (expense), net............................ 449 (18,408)(b) (17,959) Transactions expense...................................... (8,312) 8,312(c) -- -------- -------- -------- Income before taxes....................................... 13,597 (10,268) 3,329 Income tax provision (benefit)............................ 6,289 (6,491)(d) (202) -------- -------- -------- Net income................................................ $ 7,308 $ (3,777) $ 3,531 ======== ======== ======== OTHER DATA: EBITDA(e)................................................. $ 31,832 $ 31,660 Depreciation and amortization............................. 10,372 10,372
35 42 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (a) Pro forma adjustments to selling, general and administrative expenses are as follows:
SIX MONTHS ENDED LATEST TWELVE YEAR ENDED ---------------------------- MONTHS ENDED AUGUST 28, FEBRUARY 27, FEBRUARY 26, FEBRUARY 26, 1997 1997 1998 1998 ---------- ------------ ------------ ------------- (DOLLARS IN THOUSANDS) Management fee................... $ 250 $ 125 $ 125 $ 250 Increase (decrease) in employee bonus and profit-sharing expense(1)..................... (1,820) (1,230) 1,093 503 Other, net(1).................... (406) (204) (379) (581) ------- ------- ------ ----- Net adjustments................ $(1,976) $(1,309) $ 839 $ 172 ======= ======= ====== =====
- --------------- (1) Reflects an adjustment to record the Company's employee bonus and profit-sharing expense on a separate company basis. Other, net includes adjustments to reflect certain corporate charges on a separate company basis: (i) management's estimates of increased insurance costs based on policies and coverages which will be in effect immediately after the Transactions; (ii) reduction of stock based compensation to executives based on revisions to the Company's stock option program which will be in effect immediately after the Transactions; (iii) management's estimates of the net increase in the Company's telecommunications costs which will be in effect immediately after the Transactions; (iv) management's estimate of the changes in the Company's third party payroll provider costs which will be in effect immediately after the Transactions; and (v) an adjustment to reflect the termination of corporate services relationships among MEI, MTI and the Company and to record the Company's anticipated costs of replacing these services on a separate company basis. (b) The increase to pro forma interest expense as a result of the Transactions is as follows:
SIX MONTHS ENDED LATEST TWELVE YEAR ENDED ---------------------------- MONTHS ENDED AUGUST 28, FEBRUARY 27, FEBRUARY 26, FEBRUARY 26, 1997 1997 1998 1998 ---------- ------------ ------------ ------------- (DOLLARS IN THOUSANDS) Interest on the Fixed Rate Notes (9.75% on $145.0 million).......... $14,138 $7,069 $7,069 $14,138 Interest on the Floating Rate Notes (assumed 10.25% on $30.0 million)........................... 3,075 1,538 1,538 3,075 Amortization of assumed financing costs on Notes..................... 629 315 315 629 Amortization of assumed financing costs on New Revolving Credit Facility........................... 240 120 120 240 Commitment fee on New Revolving Credit Facility (assumed 0.5% on unused portion).................... 200 100 100 200 Elimination of interest expense and financing cost amortization related to the assumed repayment of the Company's existing indebtedness.... (29) -- (12) (41) Elimination of interest income on cash used for the Transactions................... 167 84 84 167 ------- ------ ------ ------- Net adjustment..................... $18,420 $9,226 $9,214 $18,408 ======= ====== ====== =======
36 43 A 1/8% variance in interest rates for the Floating Rate Notes would change annual interest expense by approximately $38,000. (c) Reflects the elimination of non-recurring transaction fees and expenses and other considerations incurred in connection with the Transactions. (d) Reflects the income tax effect of the pro forma adjustments at an assumed statutory tax rate of 40.0%. (e) EBITDA, as presented, represents operating income plus depreciation and amortization. EBITDA is included because management understands that such information is considered by certain investors to be an additional basis on which to evaluate the Company's ability to pay interest expense, repay debt and make capital expenditures. Excluded from EBITDA are interest expense, interest income, income taxes, and depreciation and amortization, each of which can significantly affect the Company's results of operations and liquidity and should be considered in evaluating the Company's financial performance. EBITDA is not intended to represent and should not be considered more meaningful than, or an alternative to, measures of operating performance as determined in accordance with generally accepted accounting principles. 37 44 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA Set forth below are selected historical consolidated financial data of the Company at the dates and for the periods indicated. The selected historical consolidated statements of operations data of the Company for the fiscal years ended August 31, 1995, August 29, 1996 and August 28, 1997 and the selected historical consolidated balance sheet data as of August 29, 1996 and August 28, 1997 were derived from the historical consolidated financial statements of the Company that were audited by Coopers & Lybrand L.L.P., whose report appears elsewhere in this Prospectus. The summary historical statement of operations data of the Company for the fiscal year ended September 1, 1994 and the summary historical balance sheet data as of August 31, 1995 were derived from audited financial statements of the Company which are not included in this Prospectus. The selected historical consolidated financial data of the Company as of September 1, 1994, and as of and for the fiscal year ended September 2, 1993 and as of and for the six month periods ended February 27, 1997 and February 26, 1998 are derived from unaudited consolidated financial statements of the Company which, in the opinion of management, include all adjustments necessary for a fair presentation. The selected historical consolidated financial data set forth below should be read in conjunction with, and is qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements and accompanying notes thereto included elsewhere in this Prospectus.
FISCAL YEAR ENDED SIX MONTHS ENDED ------------------------------------------------------------------ --------------------------- SEPTEMBER 2, SEPTEMBER 1, AUGUST 31, AUGUST 29, AUGUST 28, FEBRUARY 27, FEBRUARY 26, 1993 1994 1995 1996 1997 1997 1998 ------------ ------------ ---------- ---------- ---------- ------------ ------------ (DOLLARS IN THOUSANDS) STATEMENTS OF OPERATIONS DATA: Net sales.................... $57,227 $117,313 $188,782 $374,116 $292,379 $124,117 $145,681 Cost of goods sold........... 50,588 104,857 169,758 341,110 258,982 108,136 128,091 ------- -------- -------- -------- -------- -------- -------- Gross profit................. 6,639 12,456 19,024 33,006 33,397 15,981 17,590 Selling, general and administrative expenses.... 3,537 5,129 6,464 9,303 12,560 5,941 6,927 ------- -------- -------- -------- -------- -------- -------- Operating income............. 3,102 7,327 12,560 23,703 20,837 10,040 10,663 Interest income (expense), net........................ (46) 163 613 482 380 260 329 Transaction expenses......... -- -- -- -- -- -- (8,312) ------- -------- -------- -------- -------- -------- -------- Income before taxes.......... 3,056 7,490 13,173 24,185 21,217 10,300 2,680 Income tax provision......... 1,099 2,869 5,142 9,190 8,465 4,243 2,067 ------- -------- -------- -------- -------- -------- -------- Net income................... $ 1,957 $ 4,621 $ 8,031 $ 14,995 $ 12,752 $ 6,057 $ 613 ======= ======== ======== ======== ======== ======== ======== OTHER FINANCIAL DATA: EBITDA(1).................... $ 4,669 $ 9,763 $ 16,029 $ 29,128 $ 29,656 $ 13,945 $ 16,121 Depreciation and amortization............... 1,567 2,436 3,469 5,425 8,819 3,905 5,458 Capital expenditures, manufacturing facilities(2).............. NM NM NM 16,193 7,980 7,180 5,038 Total capital expenditures(2)............ 2,970 5,180 10,116 31,229 24,120 12,690 10,763 BALANCE SHEET DATA (END OF PERIOD): Cash and cash equivalents.... $ 5,178 $ 693 $ 15,000 $ 16,290 $ 13,636 $ 8,214 $ 13,263 Working capital, excluding cash and cash equivalents................ 4,956 13,999 25,218 10,065 15,454 17,688 12,265 Total assets................. 32,423 43,515 93,823 113,245 124,862 119,735 150,728 Total debt................... 9,318 7,660 6,671 -- 1,049 26 176,590 Total debt plus redeemable preferred stock............ 9,318 7,660 6,671 -- 1,049 26 200,590 Shareholders' equity (deficit)(3)............... 10,050 18,843 50,493 65,881 78,191 71,956 (109,241)
- --------------- (1) "EBITDA" is defined herein as income before income taxes, depreciation, amortization, transaction expenses and net interest expense. EBITDA is presented because the Company believes it is frequently used by investors in the evaluation of highly leveraged companies. However, EBITDA should not be used as an alternative to net income as a measure of results of operations or to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. (2) Capital expenditures for manufacturing facilities includes expenditures relating to the design, construction and improvement of the facilities. Total capital expenditures includes capital expenditures for manufacturing facilities as well as capital expenditures for equipment and all other capital items not related to the introduction of a manufacturing facility. (3) As of September 2, 1993, September 1, 1994 and August 31, 1995, shareholder's equity amounts represent division equity. 38 45 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Many of the statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations are forward-looking in nature and, accordingly, whether they prove to be accurate is subject to many risks and uncertainties. The actual results that the Company achieves may differ materially from any forward-looking statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations. See "Risk Factors." MCMS is a leading EMS provider serving OEMs in the networking, telecommunications, computer systems and other rapidly growing sectors of the electronics industry. The Company offers a full range of capabilities and manufacturing management services, including product design and prototype manufacturing; materials procurement and inventory management; the manufacture and testing of PCBAs, memory modules and systems; quality assurance; and end-order fulfillment. MCMS provides services on both a turnkey and consignment basis. Under a consignment arrangement, the OEM procures the components and the Company assembles them in exchange for a process fee. Under a turnkey arrangement, the Company assumes responsibility for both the procurement of components and their assembly. Turnkey manufacturing generates higher net sales than consignment manufacturing due to the generation of revenue from materials as well as labor and manufacturing overhead, but also results in lower gross margins than consignment manufacturing because the Company generally realizes lower gross margins on materials-based revenue than on manufacturing-based revenue. The Company also provides services on a partial consignment basis, whereby the OEM procures certain materials and the Company procures the remaining materials. Consignment revenues (excluding partial consignment revenues) accounted for 5.2% of the Company's fiscal 1997 net sales. In fiscal 1997, approximately 7.0% of the Company's net sales were foreign, with less than 3.6% direct into the Southeast Asian market, which is currently experiencing unfavorable currency and economic conditions. Certain of the Company's major customers sell products into the Southeast Asian market although the Company estimates, based on conversations with its customers, that less than 5.0% of its sales in fiscal 1997 were directly or indirectly into the Southeast Asian market. These and other factors which affect the industries or the markets that the Company serves, and which affect any of the Company's major customers in particular, could have a material adverse effect on the Company's results of operations. RECENT DEVELOPMENTS Due to a decrease in demand for the products of two of the Company's major customers, in addition to a shift in mix from higher to lower margin products for another significant customer, the Company expects net sales for the three months ending May 28, 1998 to be lower than originally expected. Moreover, the Company expects operating and selling, general and administrative ("SG&A") expenses to increase as a percentage of sales for the same period, primarily due to increased staffing expenses incurred in anticipation of increased production requirements as well as to integration of new products and prototypes. As a result of the foregoing, the Company expects EBITDA for the nine months ending May 28, 1998 to be lower than originally anticipated, which could require the Company to borrow under the New Revolving Credit Facility. Furthermore, because of the cyclical nature of the technology sector, there can be no assurance that net sales results will improve for the remainder of fiscal 1998, nor that operating and SG&A expenses as a percentage of net sales can be reduced for the remainder of fiscal 1998. Consequently, EBITDA for the remainder of fiscal 1998 may fall below EBITDA for fiscal 1997. See "Risk Factors -- Risk Factors Associated with the Business." DISCUSSION OF CERTAIN HISTORICAL FINANCIAL PERFORMANCE From fiscal 1993 to fiscal 1996, the Company's net sales and EBITDA increased at CAGRs of 87.0% and 84.1%, respectively. In fiscal 1997, however, the Company's net sales declined by $81.7 million from fiscal 1996. The decline was primarily attributable to a $155.2 million decrease in turnkey memory module net sales caused by the substantial decline in the price of DRAM, the major cost component of a memory module, 39 46 despite an increase in memory modules shipped. In addition, net sales for fiscal 1997 from memory modules produced on a consignment basis declined by $16.5 million from fiscal 1996 primarily as a result of price decreases negotiated with MTI. These decreases were partially offset by an increase of $93.5 million in net sales primarily related to increased sales of complex PCBAs and system level manufacturing services. Fiscal 1997 EBITDA was $29.7 million, a slight increase compared to $29.1 million in fiscal 1996. EBITDA as a percentage of net sales increased to 10.1% in fiscal 1997 from 7.8% in fiscal 1996 as a result of the reduced net sales due to the DRAM price decline, an increase in consignment and partial consignment net sales, and improved capacity utilization. The Company believes that its efforts to expand its OEM customer base to include networking and telecommunications OEMs and to broaden its services to include PCBA and system level manufacturing have been successful. Sales to computer systems OEMs represented approximately 37% of net sales in fiscal 1997 compared to approximately 82% of net sales in fiscal 1996 while sales to networking and telecommunications OEMs represented approximately 59% of net sales in fiscal 1997 compared to approximately 10% of net sales in fiscal 1996. By diversifying its product and customer base, the Company believes it has been able to reduce its exposure to the volatility in DRAM pricing. RESULTS OF OPERATIONS
FISCAL YEAR ENDED SIX MONTHS ENDED -------------------------------------- ---------------------------- AUGUST 31, AUGUST 29, AUGUST 28, FEBRUARY 27, FEBRUARY 26, 1995 1996 1997 1997 1998 ---------- ---------- ---------- ------------ ------------ Net sales......................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales..................... 89.9 91.2 88.6 87.1 87.9 ----- ----- ----- ----- ----- Gross margin...................... 10.1 8.8 11.4 12.9 12.1 Selling, general and administrative expenses......... 3.4 2.5 4.3 4.8 4.8 ----- ----- ----- ----- ----- Operating income.................. 6.7 6.3 7.1 8.1 7.3 Interest income, net.............. 0.3 0.1 0.1 0.2 0.2 Transaction expenses.............. -- -- -- -- 5.7 ----- ----- ----- ----- ----- Income before taxes............... 7.0 6.4 7.2 8.3 1.8 Provision for taxes............... 2.7 2.4 2.8 3.4 1.4 ----- ----- ----- ----- ----- Net income........................ 4.3% 4.0% 4.4% 4.9% 0.4% ===== ===== ===== ===== ===== Depreciation and amortization..... 1.8% 1.5% 3.0% 3.1% 3.7%
SIX MONTHS ENDED FEBRUARY 26, 1998 COMPARED TO SIX MONTHS ENDED FEBRUARY 27, 1997 Net Sales. Net sales for the six months ended February 26, 1998 increased by $21.6 million, or 17.4%, to $145.7 million from $124.1 million for the six months ended February 27, 1997. The increase in net sales was primarily attributable to an increase in the number of PCBAs and system assemblies shipped to the Company's two largest customers and, to a lesser extent, an increase in sales of consigned memory modules. The Company's ability to meet demand for increased shipments was the result of an expansion of manufacturing capacity at its Nampa and Durham facilities as well as the continued ramp-up of the Malaysian facility which began operations in the second quarter of fiscal 1997. The increase in net sales was partially offset by a decline in net sales derived from turnkey memory modules as a result of lower DRAM prices and also as a result of a shift in the mix of revenue toward consignment or partial consignment sales compared to the six months ended February 27, 1997. Gross Profit. Gross profit for the six months ended February 26, 1998 increased by $1.6 million, or 10.1%, to $17.6 million from $16.0 million for the six months ended February 27, 1997 as a result of increased unit sales of PCBAs and consigned memory modules. Gross margin for the six months ended February 26, 1998 decreased to 12.1% of net sales from 12.9% for the comparable period ended February 27, 1997. The decrease in gross margin was principally attributable to increased staffing expenses incurred in anticipation of 40 47 increased production requirements and, to a lesser extent, start-up costs in the Company's Belgian operation. The gross margin decrease was partially offset by a shift in mix toward consignment or partial consignment sales as well as the increased utilization of manufacturing capacity in Malaysia. Selling, General and Administrative Expenses. Selling, general and administrative expenses ("SG&A") for the six months ended February 26, 1998 increased by $1.0 million, or 16.6%, to $6.9 million from $5.9 million for the six months ended February 27, 1997. This increase for the six months ended February 26, 1998 was the result of additional headcount in senior management, finance and administration, sales and marketing, and information technology, as well as additional SG&A in the Malaysian and Belgian operations. This increase in SG&A was partially offset by a favorable foreign currency adjustment of $0.3 million that resulted from the strengthening of the U.S. dollar relative to the Malaysian Ringgit. As a percentage of net sales, SG&A was 4.8% during both periods. EBITDA. For the reasons stated above, EBITDA for the six months ended February 26, 1998 increased by $2.2 million, or 15.6%, to $16.1 million from $13.9 million for the six months ended February 27, 1997. As a percentage of net sales, EBITDA for the six months ended February 26, 1998 decreased to 11.1% from 11.2% for the comparable period ended February 27, 1997. Provisions for Income Taxes. Income taxes for the six months ended February 26, 1998 decreased by $2.1 million, or 51.3%, to $2.1 million from $4.2 million for the six months ended February 27, 1997. The Company's effective income tax rate for the six months ended February 26, 1998 increased to 77.1% from 41.2% for the comparable period in 1997 principally as a result of certain transaction expenses for which no tax deduction is allowed, offset in part, by certain changes in estimates for accrued tax liabilities. The Company's effective income tax rate is a function of the mix of income in the various countries and states in which it operates and the applicable income tax rates in such countries and states. During the six months ended February 26, 1998, a portion of the Company's taxable income was attributable to its Malaysian subsidiary which was not profitable during the six months ended February 27, 1997. The Company provided for income taxes for its Malaysian subsidiary at rates lower than the statutory rates in the United States. Net Income. For the reasons stated above, net income for the six months ended February 26, 1998 decreased by $5.5 million, or 89.9%, to $0.6 million from $6.1 million for the six months ended February 27, 1997. As a percentage of net sales, net income for the six month period ended February 26, 1998 decreased to 0.4% from 4.9% for the six months ended February 27, 1997. FISCAL 1997 COMPARED TO FISCAL 1996 Net Sales. Net sales for fiscal 1997 decreased by $81.7 million, or 21.8%, to $292.4 million from $374.1 million for fiscal 1996. As previously discussed, this decline was primarily attributable to the substantial decline in the price of DRAM, which resulted in a $155.2 million decrease in turnkey memory module net sales, despite an increase in volume. In addition, $16.5 million of the net sales decline was attributable to a price decrease in consignment memory modules. These decreases were partially offset by an increase of $93.5 million in net sales primarily related to increased revenue from complex PCBA and system level manufacturing. Gross Profit. Gross profit for fiscal 1997 increased by $0.4 million, or 1.2% to $33.4 million from $33.0 million for fiscal 1996. Gross profit increased slightly despite a decline in net sales as a result of increased unit volumes of complex PCBAs, partially offset by declines related to turnkey memory modules. Gross margin for fiscal 1997 increased to 11.4% of net sales from 8.8% in fiscal 1996 primarily as a result of the reduced revenue base from the DRAM price decline and shift in revenues towards consignment and partial consignment sales. In addition, gross margins improved as a result of increased utilization at the Durham and Nampa facilities for fiscal 1997. Selling, General and Administrative Expenses. SG&A for fiscal 1997 increased by $3.3 million, or 35.0%, to $12.6 million from $9.3 million in fiscal 1996. This increase was principally attributable to increased head count in senior management, finance and administration, and sales and marketing, and information technology, as well as start-up costs associated with the Malaysian facility. As a percentage of net sales, 41 48 SG&A increased to 4.3% for fiscal 1997 from 2.5% for fiscal 1996. The increase in SG&A as a percentage of net sales was primarily attributable to factors noted above as well as the decreased absorption of fixed costs. EBITDA. For the reasons stated above, EBITDA for fiscal 1997 increased by $0.6 million, or 1.8%, to $29.7 million from $29.1 million for fiscal 1996. As a percentage of net sales, EBITDA for fiscal 1997 increased to 10.1% from 7.8% for fiscal 1996. Provision for Income Taxes. Income taxes for fiscal 1997 decreased by $0.7 million, or 7.9%, to $8.5 million from $9.2 million for fiscal 1996. The Company's effective income tax rate for fiscal 1997 increased to 39.9% from 38.0% for fiscal 1996. For fiscal 1997, the Company is included in the U.S. federal income tax return of MEI. Income tax expenses for all years were computed as if the Company were a separate taxpayer. The increase in effective tax rate is principally due to operating losses of the Malaysian facility for which related deferred tax assets were fully reserved. Net Income. For the reasons stated above, net income for fiscal 1997 decreased by $2.2 million, or 15.0%, to $12.8 million, compared to $15.0 million for fiscal 1996. As a percentage of net sales, net income for fiscal 1997 increased to 4.4% from 4.0% for fiscal 1996. FISCAL 1996 COMPARED TO FISCAL 1995 Net Sales. Net sales for fiscal 1996 increased by $185.3 million, or 98.2%, to $374.1 million from $188.8 million in fiscal 1995. The increase in net sales was due primarily to an increase in volume of turnkey memory modules, partially offset by substantial declines in DRAM pricing in the second half of fiscal 1996. Gross Profit. Gross profit for fiscal 1996 increased $14.0 million, or 73.5% to $33.0 million from $19.0 million in fiscal 1995 primarily due to an increase in the volume of memory modules shipped in fiscal 1996. Gross margin for fiscal 1996 decreased to 8.8% from 10.1% in fiscal 1995 primarily as a result of the Company's investment in additional labor and infrastructure to support its product mix transition from relatively simple memory intensive products to more complex PCBAs and system level manufacturing. Selling, General and Administrative Expenses. SG&A for fiscal 1996 increased $2.8 million, or 43.9%, to $9.3 million from $6.5 million in fiscal 1995. Such increase was attributable to increased expenses associated with the Company's shift to complex PCBA manufacturing. As a percentage of net sales for fiscal 1996, SG&A decreased to 2.5% from 3.4% for fiscal 1995 as a result of the increased leverage of the fixed component of these costs. EBITDA. For the reasons stated above, EBITDA for fiscal 1996 increased by $13.1 million, or 81.7%, to $29.1 million from $16.0 million for fiscal 1995. As a percentage of net sales, EBITDA for fiscal 1996 decreased to 7.8% from 8.5% for fiscal 1995. Provision for Income Taxes. Income taxes for fiscal 1996 increased $4.1 million, or 78.7%, to $9.2 million from $5.1 million in fiscal 1995. The Company's effective income tax rate for fiscal 1996 decreased to 38.0% from 39.0% for fiscal 1995. For fiscal 1996, the Company is included in the U.S. federal income tax return of its parent. Income tax expenses for all years were computed as if the Company were a separate taxpayer. Net Income. For the reasons stated above, net income for fiscal 1996 increased by $7.0 million, or 86.7%, to $15.0 million, compared to $8.0 million for fiscal 1995. As a percentage of net sales, net income for fiscal 1996 decreased to 4.0% from 4.3% for fiscal 1995. LIQUIDITY AND CAPITAL RESOURCES The Company has historically funded its operations through cash generated from operations, capital contributions from MEI and bank borrowings. During the fiscal year ended August 28, 1997, the Company's net decrease of cash and cash equivalents of $2.7 million was composed of cash flow generated from operating activities of $20.7 million, cash used in investing activities of $24.0 million and cash provided by financing activities of $0.6 million. Cash generated from operations primarily consisted of earnings before depreciation and amortization of $21.6 million offset principally by a net increase in working capital. Cash used in investing 42 49 activities during the fiscal year ended August 27, 1997 was primarily attributable to capital expenditures. Cash generated from financing activities principally resulted from net borrowings under the Company's existing credit facilities. For the six months ended February 26, 1998, the Company's net decrease of cash and cash equivalents of $0.2 million was composed of cash flow generated from operating activities of $5.9 million, cash used in investing activities of $10.5 million and cash provided by financing activities of $4.4 million. From September 1, 1994 through August 28, 1997, the Company has made approximately $65.4 million of capital expenditures principally to build and/or outfit and equip its facilities in Nampa, Idaho, Durham, North Carolina and Penang, Malaysia. The Company commenced operations in its Nampa, Durham and Malaysian facilities in September 1996, April 1995 and December 1996, respectively. Capital expenditures during the six months ended February 26, 1998 were $10.8 million of which $6.1 million related to the Alcatel Acquisition. The Company expects to make additional capital expenditures of approximately $15.8 million during the remainder of the fiscal year ending September 3, 1998. Approximately $7.8 million of the Company's total anticipated capital expenditures during the fiscal year ending September 3, 1998 are related to the implementation of the Baan ERP System with the remaining expenditures principally related to new equipment purchases. See "Risk Factors -- Risk Factors Associated with the Business -- Management Growth" and "-- Year 2000 Compliance." In conjunction with the Recapitalization, the Company entered into the New Revolving Credit Facility with Bankers Trust Company, which provides for borrowings of up to $40.0 million for working capital, capital expenditures and other general corporate purposes. The Company did not draw upon the New Revolving Credit Facility in connection with consummation of the Transactions. As of February 26, 1998, the Company's total debt was approximately $176.6 million and the Company had a shareholders' deficit of $109.2 million. The Company's principal sources of funds following the Transactions are anticipated to be cash flows from operating activities and borrowings under the New Revolving Credit Facility. The Company believes that these funds should provide the Company with sufficient liquidity and capital resources for the Company to meet its current and future obligations, including payment of principal and interest on the Notes, as well as to provide funds for the Company's working capital, capital expenditures and other needs. No assurance can be given, however, that this will be the case. Depending upon rate of growth and profitability, the Company may require additional equity or debt financing to meet its working capital requirements or capital equipment needs. There can be no assurance that additional financing will be available when required or, if available, will be on terms satisfactory to the Company. The Company's future operating performance and ability to service or refinance the Notes and to repay, extend or refinance the New Revolving Credit Facility will be subject to future economic conditions and to financial, business and other factors, many of which are beyond the Company's control. See "Risk Factors -- Risk Factors Associated with Financial Leverage and the Securities." 43 50 INDUSTRY The electronics manufacturing industry consists of two major sectors: the first is the manufacture of PCBs and the second primarily involves the attachment to PCBs of semiconductors, resistors, capacitors, diodes and other electronic components. The latter category is referred to as contract manufacturing or EMS and is the primary market served by MCMS. The EMS industry is large and growing rapidly. The worldwide EMS industry grew at a CAGR of 32.1% from 1992 to 1996 to approximately $60.0 billion and is projected to grow at a CAGR of 24.6% from 1996 to 2001, to reach revenue of approximately $178.0 billion. The table below illustrates the EMS industry's projected growth by major geographic regions:
% OF TOTAL -------------- 1996 2001 CAGR 1996 2001 -------- --------- ---- ----- ----- (DOLLARS IN BILLIONS) US/Canada................................. $27.2 $104.2 30.8% 45.9% 58.5% Western Europe............................ 10.5 29.8 23.2 17.7 16.7 Japan..................................... 13.0 24.0 13.1 21.9 13.5 Asia, excluding Japan..................... 6.4 16.5 20.9 10.8 9.3 Emerging Regions.......................... 2.2 3.5 9.7 3.7 2.0 ----- ------ ---- ----- ----- Total..................................... $59.3 $178.0 24.6% 100.0% 100.0%
Growth in the EMS market is being driven by three factors. The first factor is the underlying growth of the electronics industry in general and of the networking and telecommunications sectors in particular. The second factor is the increasing global acceptance of outsourcing as a manufacturing solution in the electronics industry. The third factor is the trend by OEMs to outsource a broader array of manufacturing and distribution functions. EMS revenues as a percentage of the electronics estimated cost of goods sold of OEMs in the electronics industry was 12.4% in 1996 and is projected to increase to 26.1% in 2001. INDUSTRY HISTORY Growth in the EMS industry was initially driven by the dependence of electronics OEMs with large, captive production facilities on EMS providers as a source of additional or overflow manufacturing capacity. Initially, OEMs contracted with outsourcing providers on a consignment basis, and primarily outsourced only the manufacture of simple PCBAs used in consumer electronic goods and personal computers. In the mid-1980s, the relationship between electronics OEMs and EMS providers underwent a fundamental, strategic shift with the evolution from pin-through-hole ("PTH") technology to SMT. PTH technology is heavily dependent upon manual labor and involves the insertion of pins, or leads, into pre-drilled holes in PCBs with the leads then connected to the circuitry through soldering. Using automated SMT equipment, components are attached directly to both sides of the PCB without leads. SMT facilitates the placement of more components on a single PCB, resulting in significant advancements in functionality and miniaturization of electronic products. Due to the high cost of SMT, economies of scale and asset utilization became critical to the manufacturing process causing OEMs to increase their level of outsourcing to EMS providers. This increased demand for outsourced manufacturing services made investment in SMT equipment and subsequent upgrades economical for EMS providers with sufficient volume. In the early 1990s, as the relationship between OEMs and EMS providers further evolved, OEMs began to rely on their EMS providers to procure and manage materials on a turnkey basis. In recent years, heightened competition, greater product complexity, rapid technological advancement and shorter product lifecycles have required electronics OEMs to outsource an even broader array of manufacturing and distribution functions in order to focus their capital and resources on their core competencies of research and product development, marketing and sales. An increasing number of OEMs are adopting a "virtual" manufacturing strategy in which they maintain no internal production capabilities and rely solely on EMS providers for a comprehensive array of manufacturing services. Many OEMS have divested their captive manufacturing facilities and others have outsourced their EMS requirements from inception. 44 51 SERVICES AND CAPABILITIES EMS providers offer the services and capabilities described below. Large, sophisticated EMS providers generally are differentiated from smaller EMS providers in that they are able to provide the full range of these services because of their technological expertise, greater capital resources and state-of-the-art equipment. - - PRODUCT DESIGN AND ENGINEERING. EMS providers have product development groups, consisting of design, product and test engineering personnel, which work with customers on initial product design in order to reduce the time from design to prototype, improve product manufacturability and reliability and reduce product costs through both manufacturing and purchasing efficiencies. - - MATERIALS PROCUREMENT AND INVENTORY MANAGEMENT. Turnkey EMS providers provide a full range of materials management services including procurement, planning, expediting, incoming quality inspection and warehousing to promote continuous supplier improvement and to reduce costs. - - PCBA MANUFACTURING SERVICES. The manufacture of PCBAs involves the attachment of various electronic components such as resistors, diodes, connectors, logic and RAM components and processors to a PCB through various interconnect technologies including SMT, PTH, and BGA. - - SYSTEM LEVEL ASSEMBLY/BOX BUILD SERVICES. System level assembly, or box build, is the connection of two or more subsystems (such as PCBAs) into a finished enclosure that is sold in its completed form. System level assembly requires engineering, materials sourcing, manufacturing capabilities and capacity beyond those needed for manufacturing PCBAs. OEMs entrust box build activities to selected EMS providers with the requisite expertise, technological capabilities and available capacity. - - TEST SERVICES. In-circuit testing is used to verify that the PCBA has been correctly assembled and that all electrical components are connected appropriately. Functional and environmental tests verify that the PCBA performs to customer specifications and maintains its integrity in varying conditions. Only those EMS providers with comprehensive test service capabilities can also provide end-order fulfillment. - - END-ORDER FULFILLMENT. End-order fulfillment encompasses the shipment of finished products directly to the OEM's end-user customers from the EMS provider's factory floor. End-order fulfillment requires a high level of trust and coordination between the OEM and its EMS provider. The EMS provider performs all quality and testing functions without the OEM's direct involvement, and is charged with ensuring that the products conform to the OEM's standards of functionality, performance and durability. In addition, in order to provide end-order fulfillment, the EMS provider must possess the flexibility and manufacturing expertise to reconfigure its production to manufacture custom orders. - - MEMORY MODULE ASSEMBLY. A limited number of EMS providers have significant memory module design, assembly and test capabilities. Memory modules are compact PCBAs consisting of semiconductor memory devices (such as DRAM) and related circuitry. EMS providers who assemble memory modules obtain memory components from semiconductor manufacturers and attach them to PCBs. Memory modules are most commonly used in desktop personal computers, laptop computers, workstations, printers and telecommunications devices. There has been significant growth in memory module production over the last several years due to the demand for enhanced electronic system performance, the overall growth in computer, workstation and server sales volumes as well as the increased memory requirements (measured in megabytes) per system. Similar to other types of PCBA manufacturing, memory module manufacturing is increasing in technological complexity and capital intensiveness. As a result, many OEMs are outsourcing their memory module requirements. 45 52 BENEFITS TO OEMS OF OUTSOURCING OEMs are increasingly outsourcing their manufacturing requirements in order to realize the following benefits: - - FOCUS ON CORE COMPETENCIES. As competition in the electronics industry has intensified, OEMs have sought to concentrate their limited resources on the activities which enable them to maximize value, including research and product development, marketing and sales. Large, sophisticated EMS providers offer comprehensive turnkey services which better enable OEMs to focus on their core competencies. - - ACCESS TO LEADING TECHNOLOGIES WITH LOWER INVESTMENT AND OVERALL COSTS. Outsourcing to EMS providers enables OEMs to access high volume manufacturing technologies with lowered costs and increased responsiveness without large capital investments. - - ENHANCED INVENTORY MANAGEMENT AND IMPROVED PURCHASING POWER. EMS providers' volume procurement and inventory management capabilities allow OEMs to control inventory levels and costs which both enhances OEMs' ability to respond to competitive pressures and increases their return on assets. - - SHORTER TIME-TO-MARKET. The electronics industry is increasingly characterized by rapid technological change, shorter product lifecycles and a critical need to reduce time-to-market. OEMs can shorten their product introduction and time-to-volume cycles by utilizing EMS providers' design, engineering and prototyping services, established infrastructure and advanced manufacturing capabilities. - - VOLUME FLEXIBILITY. EMS providers can efficiently manage short production runs for lower volume products and ramp up to higher volume production quickly because of their manufacturing expertise and the quality of their equipment. This flexibility enables OEMs to pursue opportunities in niche markets, to produce profitably products with shorter lifecycles and to exploit products at the end of their lifecycles. INDUSTRY CONSOLIDATION The worldwide EMS market is undergoing consolidation but remains highly fragmented. According to the Institute for Interconnecting and Packaging Electronic Circuits, of the over 1,000 EMS providers in the United States and Canada, only 15 to 20 had revenues in excess of $300 million in 1997. The Company believes that industry consolidation will continue as OEM customers direct their outsourcing to EMS providers who offer a broad range of services, sufficient capacity to provide sole source program production, advanced technological capabilities, and domestic and international production facilities. 46 53 BUSINESS MCMS is a leading EMS provider serving OEMs in the networking, telecommunications, computer systems and other rapidly growing sectors of the electronics industry. The Company offers a full range of capabilities and manufacturing management services, including product design and prototype manufacturing; materials procurement and inventory management; the manufacturing and testing of PCBAs, memory modules and systems; quality assurance; and end-order fulfillment. By delivering this comprehensive range of manufacturing and customer service capabilities through its strategically located facilities in the United States, Asia and Europe, the Company enables its OEM customers to focus their capital and resources on their core competencies of research and product development, marketing and sales. The Company forges long-term strategic relationships as a manufacturing and customer service partner for leading OEMs such as Cisco, Fore, Alcatel and MTI. As evidence of its ability to partner successfully with its customers, the Company served as the sole source program provider for many of its customers and has received numerous quality and service awards, including Cisco's Supplier of the Year Award for Contract Manufacturing and Distribution in 1997. From fiscal 1993 through fiscal 1997, the Company's net sales and EBITDA increased at a CAGR of 50.3% and 58.8%, respectively. For the latest twelve months ended February 26, 1998, the Company generated net sales and pro forma EBITDA of $313.9 million and $31.7 million, respectively. From fiscal 1993 through fiscal 1997, the Company's net sales and EBITDA increased at CAGR of 50.3% and 58.8%, respectively. The Company's principal operations were established in 1984 as the Memory Applications Group of MTI. The Company began providing electronic manufacturing services to external customers in 1989, was incorporated as a wholly owned subsidiary of MTI in 1992 and became a wholly owned subsidiary of MEI, which is a majority owned subsidiary of MTI, in 1995. Initially, the Company established itself as a leading EMS provider by developing an expertise in custom memory module design, assembly and testing for computer systems customers. In recent years, management has broadened the Company's market focus to include networking and telecommunications customers, and has expanded its services to offer design, materials procurement, inventory management, the manufacture and testing of complex PCBAs and systems, and end-order fulfillment. COMPETITIVE ADVANTAGES The Company attributes its leading position in the EMS industry and its strong profitability to the following competitive advantages: - STRONG RELATIONSHIPS WITH LEADING TECHNOLOGY OEMS. The Company has established strong relationships with leading OEMs, such as Cisco and Fore, in the high growth networking and telecommunications industries. Many OEMs in these sectors are increasingly outsourcing their manufacturing and distribution functions and require high value-added products and comprehensive services from their EMS providers. The Company has increased the percentage of its net sales generated by networking and telecommunications OEMs from approximately 10% in fiscal 1996 to approximately 59% in fiscal 1997. In addition, in connection with its acquisition of a European manufacturing facility, the Company recently entered into a three-year supply agreement with Alcatel, a leading supplier of telecommunications services. The Company's other customers include MTI, Comverse, Tektronix, Dell, HP, IBM and Sequent. The Company has also established relationships with smaller companies whom it believes have superior and innovative products with high growth potential. See "Business -- Sales and Marketing -- Customer and Revenue Profile." - MEMORY MODULE EXPERTISE. The Company has been a leading provider of standard and custom memory modules since its inception in 1984. Semico Research Corp. estimates that the overall market for DRAM memory modules was $21.0 billion in 1997 and projects that the market will grow at a CAGR of 25.0% to $41.0 billion in 2000. The Company believes its memory module expertise is a competitive advantage because it is one of a limited number of EMS providers with significant memory module design, assembly and test capabilities. The Company uses its distinct memory module capabilities as a means of obtaining new OEM customers in the networking, telecommunications and computer systems segments. Once established as an OEM's memory module assembler, the Company strives to expand the services and programs it provides for that customer. In addition, the Company is 47 54 the sole outside memory module supplier for MTI, the largest DRAM manufacturer in the United States. See "Certain Transactions -- Memory Module Agreement." - BREADTH OF VALUE-ADDED SERVICES. OEMs are increasingly requiring a broader range of manufacturing and value-added services from their EMS providers as they seek to reduce their time-to-market and capital asset and inventory costs. Building on its integrated engineering and manufacturing capabilities, the Company offers its customers a full range of pre-production and post-production services for the manufacture of complex PCBAs, memory modules and systems. The Company believes that its range of services: (i) provides greater control over quality and delivery; (ii) offers customers complete and cost-effective manufacturing solutions; (iii) increases the Company's integration into the manufacturing processes of its customers; (iv) positions the Company to be a leading provider of its customers' next generation products; and (v) increases customers' switching costs. - STATE-OF-THE-ART GLOBAL MANUFACTURING CAPABILITY. From September 1, 1994 through February 26, 1998, the Company made approximately $76.2 million of capital expenditures principally to build and/or outfit and equip its state-of-the-art facilities in Nampa, Idaho, Durham, North Carolina and Penang, Malaysia, and to purchase a facility from Alcatel in Colfontaine, Belgium. The Company's facilities are strategically located to serve its customers' global needs and to capitalize on the increasing acceptance of EMS worldwide. In addition, the Company has the ability to expand capacity by adding new SMT lines in certain of its existing facilities and shifting production among its facilities. Each of its four facilities utilizes SMT manufacturing, which requires sophisticated capital equipment and expertise, and is the dominant PCBA manufacturing process technology worldwide. The Company maintains standard manufacturing equipment, processes and techniques across its facilities and integrates its operations through information systems and operational infrastructure allowing it to provide its OEM customers with seamless, flexible and responsive manufacturing services. - EMPHASIS ON CUSTOMER SERVICE AND QUALITY. The Company places a strong emphasis on customer service and quality, which it believes are key factors to OEMs in their selection of EMS providers. The Company has received numerous awards in the areas of manufacturing quality, technology, dependability and timely delivery, including Cisco's Supplier of the Year Award for Contract Manufacturing and Distribution in 1997 and Fore's highest award for supplier performance in 1997. As evidence of its high quality customer service, the Company has been selected as the sole EMS provider in selected programs for many of its customers, including MTI, Cisco, Fore and several other OEMs, and believes it will continue to be a preferred supplier to such customers. The Company's facilities in Nampa, Idaho, Durham, North Carolina and Penang, Malaysia are ISO 9001 certified, and the Company intends to seek ISO 9001 certification for its newly acquired Colfontaine, Belgium facility. - EXPERIENCED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY INCENTIVES. The Company's senior management team has an average of 11 years of experience in the electronics industry and has successfully managed the Company's revenue and EBITDA growth while constructing new facilities and diversifying into new markets. Following the Recapitalization, the senior management team will have a substantial financial interest in the Company's continued success through its participation in an incentive option program constituting up to 15.0% of the Company's equity ownership. - STRONG SPONSORSHIP. For over 13 years, the professionals of CEI have managed four funds with aggregate committed capital in excess of $1.2 billion. During that time, the professionals have invested in over 75 companies and taken over 20 of them public. The technology sector has been a core area of focus for the firm since its inception and the professionals of CEI have made investments in 20 technology companies, including Dell, Conner Peripherals, Inc. and Auspex Systems, Inc. In particular, CEI has focused on the EMS sector and has led several recapitalizations of companies involved in technology-related manufacturing. CEI's investment strategy is to select outstanding management teams managing well-positioned companies in high growth sectors and to assist those teams with capital, experience and relationships to enable the companies to fully capture market opportunities. 48 55 GROWTH STRATEGIES The Company's objective is to be a global supplier of a complete set of advanced manufacturing solutions to a diverse group of leading OEMs operating in the fastest growing segments of the electronics industry. In order to achieve this objective, the Company has employed the following key strategies: - TARGET LEADING OEMS IN HIGH GROWTH MARKETS. The Company seeks to develop strategic relationships with leading OEMs in the networking, telecommunications and other rapidly growing electronics industry sectors. Certain of these OEMs are reducing their base of EMS providers and are focusing each provider on specific programs and requiring each to provide a broader range of services. The Company seeks to develop strong ties with its customers through its design capabilities, engineering and manufacturing expertise, strong service record and breadth of capabilities. In addition to current market leaders, the Company targets OEMs with emerging technologies or products that have the potential to make these OEMs market leaders in the future. - LEVERAGE MEMORY MODULE CAPABILITIES. MCMS has extensive expertise in designing, assembling and testing memory modules. The Company has utilized this expertise to develop relationships with new OEM customers. The Company will continue to aggressively pursue these opportunities. Once an OEM has selected the Company as a provider of these services, the Company seeks to leverage and expand the relationship to include a broader array of services. For example, the Company's relationship with Cisco began in 1995 and has evolved from producing a modest volume of custom memory modules to providing a range of services from memory modules to prototype and volume production of highly complex PCBAs. The Company anticipates that its ability to grow its memory module business will improve as a result of the elimination of control of the Company by MEI, which is a competitor of many of the Company's targeted personal computer memory module customers. - OFFER A BROAD RANGE OF ADVANCED MANUFACTURING SERVICES. MCMS offers a full spectrum of manufacturing services including product design and prototype manufacturing, materials procurement and inventory management, the manufacture and testing of PCBAs, memory modules and systems, quality assurance and end-order fulfillment. The Company's ability to manage the complete manufacturing process from design through end-order fulfillment reduces a product's time-to-market and enables OEMs to concentrate on their core competencies of research and product development, marketing and sales. - MAINTAIN POSITION AS A MANUFACTURING TECHNOLOGY LEADER. The Company believes that staying at the leading edge of production technology and delivering excellence in manufacturing are critical success factors in providing electronics manufacturing services to networking, telecommunications and computer systems OEMs. MCMS has invested a significant amount of capital in new facilities and equipment over the last three years and has developed the manufacturing infrastructure and expertise necessary to produce assemblies incorporating complex, high density chip packages including BGA, COB and MCM. Additionally, the Company is developing new manufacturing technologies including PC100 testing for SDRAM modules, expanded design-from-concept capabilities, no-clean wave soldering, micro-BGA, and flip chip assembly. - LEVERAGE INTEGRATED GLOBAL PRESENCE. The Alcatel Acquisition provides the Company with a European platform which complements its presence in North America and Asia and positions the Company to serve multinational and regional OEMs. By maintaining a standard manufacturing platform and integrated operations, the Company seeks to provide its OEM customers with seamless, flexible and responsive manufacturing services. MCMS intends to continue to broaden its engineering and manufacturing capabilities worldwide through the expansion of existing facilities, development of manufacturing sites in other strategic locations and through strategic acquisitions. SERVICES AND CAPABILITIES The Company provides a comprehensive array of technologically advanced services which require the Company and its OEM customers to make a substantial investment of time and resources in their 49 56 relationships. The Company becomes an integral partner with OEMs who are devising a new paradigm of "virtual" manufacturing in which the OEMs maintain no internal production capabilities and rely solely on EMS providers for a comprehensive array of manufacturing services. The Company's services, which are provided on both a turnkey and consignment basis, include: Pre-production Services The Company's pre-production electronics manufacturing services include product development and materials procurement and inventory management. - Product Development. The Company's product development group interacts frequently with OEM customers early in the design process to optimize product design and product manufacturability. For each project, MCMS creates a design strategy based on a particular customer's requirements, product attributes, design guidelines and previous experience with similar products. After design, the Company often provides quick-turn prototype assembly. By participating in product design and prototype development, the Company reduces an OEM's manufacturing costs, accelerates time-to-volume production and ensures that new designs can be properly tested at a reasonable cost. - Materials Procurement and Inventory Management. Because MCMS provides full turnkey services to the majority of its customers, procurement is one of the key factors contributing to the Company's competitive and financial success. The Company provides a full range of materials management services and works in partnership with key component manufacturers and distributors through the deployment of programs such as schedule sharing, electronic data interface and Internet links as well as a comprehensive supplier review and ratings program. In order to protect itself from fluctuations in materials costs, MCMS purchases material and components, including long lead time items, based either on purchase orders received and accepted from customers or through manufacturing services agreements with its customers. The Company manages its inventory through automated materials handling processes including bar coding and automated, vertical carousel storage systems that both reduce the amount of floor space required to store inventory and minimize errors in inventory handling. In addition, the Company has consignment and other just-in-time inventory programs in place with a number of its suppliers pursuant to which such suppliers consign or deliver materials and components to the Company for purchase by the Company as and if necessary to meet manufacturing requirements. PCBA Manufacturing and Test Services The majority of the products assembled by MCMS utilize SMT interconnection technology or a combination of SMT and PTH interconnection technologies. In addition, the Company has expertise in such advanced technologies as COB, MCM and BGA. The Company employs a standard manufacturing platform, which incorporates "pick and place" equipment manufactured by Fuji Corporation, at its Nampa, Durham, Penang and Colfontaine facilities. This standardization allows the Company to deliver uniform products on a worldwide basis to its OEM customers. The Company also offers a comprehensive range of test services, including automated in-circuit testing of PCBAs, as well as functional and environmental stress testing of both PCBAs and system level assemblies. MCMS, in conjunction with its customers, either fabricates or procures test hardware and develops application-specific test software. Memory Module Assembly The Company is a leading provider of memory modules which it primarily supplies to MTI, the largest manufacturer of DRAM in the United States. MCMS manufactures standard and custom memory modules for MTI on a consignment basis and for other customers on a turnkey basis. The Company has its roots in memory module production, and is one of a limited number of EMS providers with significant memory module design, assembly and test capabilities. The Company has used its expertise in memory modules to gain access to new customers. Once the Company has been selected as a provider of memory modules to an OEM, it seeks to leverage and expand the relationship to include a broader set of services. 50 57 System Level Assembly/Box Build System level assembly, or box build, is the connection of two or more sub-assemblies (such as PCBAs) into a finished enclosure. The Company specializes in the system level assembly of Internet Protocol switches, color Laserjet printers, network printers and Internet servers. The Company's system level assembly operations are staffed with dedicated personnel from various functional areas including engineering, manufacturing management, debug and training. The Company offers both prototype and production volume system level assembly capabilities. MCMS can produce small quantity production runs and prototypes within two weeks of receipt of materials and specification documentation and can transition to volume production as soon as one week later. End-Order Fulfillment The Company's relationship with several of its OEM customers extends beyond manufacturing to encompass the shipment from the Company's factory floor of finished products directly to the OEM's customers. Prior to shipment, the Company performs all quality and testing functions to ensure that the products conform to the customer's standards of functionality, performance and durability. In addition, the Company possesses the flexibility, manufacturing expertise and information systems necessary to custom configure assemblies to meet the customer's unique requirements. The Company currently provides end-order fulfillment services for customers such as Fore and Sequent. OPERATIONS AND FACILITIES The Company's strategy is to standardize its worldwide operations around common equipment, information systems, procedures and information technology. Such standardization reduces the complexity of the Company's operations, permits the Company to shift production from facility to facility to maximize capacity without significant equipment modification and enables the Company to accommodate its customers' choice of facilities. The Company currently operates 21 high-speed, fully-automated SMT assembly lines at its Nampa, Durham and Penang facilities. Each of these facilities is ISO 9001 certified and employs standard hardware platforms with Fuji front-end placement and Hewlett-Packard back-end test systems. The Company's newly acquired Colfontaine, Belgium facility contains four SMT assembly lines and utilizes Fuji front-end placement systems. The Company intends to conform the other equipment and processes in Colfontaine to those in place at the Company's other three facilities. 51 58 The following table sets forth certain information regarding the Company's facilities as of February 26, 1998:
APPROX. SMT OWNED/ COMMENCED SQ. FT. LINES LEASED(1) OPERATIONS SERVICES ------- ----- --------- ---------- -------- Nampa, Idaho............... 216,000 13(2) Owned Sept. 96 Complex PCBA, memory module and system level assembly, quick-turn prototyping and end-order fulfillment Durham, North Carolina..... 60,000 6 Leased Apr. 95 Complex PCBA, memory module and system level assembly and end-order fulfillment Penang, Malaysia........... 20,000 2 Leased Dec. 96 Memory module assembly Colfontaine, Belgium(3).... 85,000 5 Owned Dec. 97 Complex PCBA and memory module assembly ------- -- Total................. 381,000 26
- --------------- (1) The Durham lease expires in December 2005. The Penang lease expires in October 1998. The Company believes it will be able to renew the Penang lease or obtain an alternative facility on terms no less favorable to the Company. (2) Includes one line dedicated to quick-turn prototypes. (3) Acquired from Alcatel in November 1997. The Company maintains an integrated information technology system with enterprise resource planning and shop floor and defect tracking. In October 1997, the Company began implementation of the Baan ERP System to, among other things, accommodate the future growth and requirements of the Company and to ensure that the Company's business management system is Year 2000 compliant. SALES AND MARKETING Customer and Revenue Profile The Company targets customers who: (i) command a position of technology leadership; (ii) focus on the high-end of their respective markets; (iii) share MCMS' commitment to quality; (iv) possess significant volume growth opportunities; (v) offer the possibility of multiple project or product prospects for MCMS and (vi) are interested in a long-term, strategic partnership. During fiscal 1997 the Company made considerable advances toward its objective of increasing the percentage of its net sales attributable to telecommunications and networking OEMs. Such customers accounted for approximately 59% of fiscal 1997 net sales versus approximately 10% in fiscal 1996. In fiscal 1997, the Company provided manufacturing services for 22 active customers. As is typical for an EMS provider, a few of the Company's major customers represent a significant percentage of its net sales. During fiscal 1997, the Company had two customers which accounted for over 10% of the Company's net sales. Cisco represented 32.4% and Fore represented 20.1% of the Company's net sales, respectively, in fiscal 1997. No other customer accounted for more than 10% of the Company's net sales in 1997. International net sales were approximately $13.5 million, $54.2 million and $20.8 million, or approximately 7%, 15% and 7% of total net sales, in fiscal 1995, 1996 and 1997, respectively. International sales are denominated in United States dollars. 52 59 The following table illustrates several of the Company's OEM customers and the services performed by MCMS.
CUSTOMER'S SERVICES PROVIDED CUSTOMER NAME INDUSTRY SEGMENT BY MCMS CUSTOMER END USES - ------------- ------------------ --------------------- -------------------------------- Cisco Data Networking Complex PCBAs Network Routers, Port Adapters and Flash Modules Fore Data Networking Complex PCBAs, Box ATM Switches, LAN/WAN Products Build and End-Order Fulfillment Tektronix Graphics Systems Complex PCBAs Video Production Systems MTI Memory Components Memory Modules Personal Computer Systems Sequent Computer Systems Box Build and Front-end Control Systems End-Order Fulfillment Alcatel Telecommunications Complex PCBAs Telecommunications Devices
The Company's backlog as of February 26, 1998 was approximately $86.7 million. Backlog consists of purchase orders believed to be firm and that are expected to be filled within the next three months. Because of variations in the timing of orders, delivery intervals, customer and product mix and delivery schedules, the Company's backlog as of any particular date may not be representative of actual sales for any subsequent period. Commitment to Customer Quality MCMS is committed to delivering value-added solutions to its OEM customers' needs at a standard that meets or exceeds their requirements. The Company's quality philosophy stresses the achievement of excellence through a process of continuous improvement. MCMS makes each functional area responsible for its own quality control and for initiating corrective action if needed. The Company's comprehensive quality assurance procedures include emulating the customer's requirements with respect to electrical and mechanical specifications, workmanship and packaging. Sales and Marketing Organization The Company markets its contract manufacturing services through a direct sales force as well as independent manufacturers' sales representatives throughout the world. The Company believes that this combination provides a cost-effective means for the Company to market its services, as compensation to its representatives is commission-based. The Company's marketing and sales organization consists of five marketing employees, nine regional managers and 25 program managers. Regional managers have primary responsibility for identifying and developing new customer accounts. They manage the Company's independent sales representatives in their respective territories, working closely with representatives to define effective account development strategies. In addition, the Company sells its services through independent manufacturing representatives located in the United States, Europe and Asia. Once a new account is brought in, a program manager is assigned to each customer and is responsible for monitoring the progress of existing projects. Because the Company's execution to customers' expectations has been its most effective marketing tool, the program manager plays a critical role, using his or her daily interface with the customer to identify and pursue additional revenue opportunities within the existing customer base. ENGINEERING, RESEARCH AND DEVELOPMENT The Company concentrates its engineering, research and development efforts principally on developing manufacturing process technologies to meet specific customer needs. The Company also conducts research and development in response to general technology trends in the EMS market, realizing these developments will likely become specific customer requirements in the future. As of February 26, 1998, the Company had approximately 194 employees engaged in PCBA design, process, product and test engineering and product and equipment technical support. 53 60 The Company's leading-edge volume production technologies include COB, MCM, BGA, highly accelerated life testing ("HALT") and highly accelerated stress screening ("HASS"). COB technology utilizes an unpackaged semiconductor die that is attached directly onto a PCB and then sealed with epoxy. BGA technology is a manufacturing technique by which a component supplier attaches an array of "solder balls" in a matrix across the bottom of unpackaged die rather than attaching leads around the perimeter of the die. HALT stresses the PCBAs in regards to temperature and vibration in order to determine their field environment failure limits. HASS takes the HALT processes' determined limits and establishes a lower level of environmental stress for simulating the PCBAs' durability and performance in the field. Current technologies under development include no-clean wave soldering, micro-BGA, flip chip assembly and high speed testing and electrical design simulation of memory modules. INTELLECTUAL PROPERTY As of February 26, 1998, MEI held (on behalf of the Company) 11 patents and 43 patent applications on file with the U.S. Patent and Trademark Office. Pursuant to the Patent Agreement (as defined), MEI has agreed to assign these patents and patent applications to the Company prior to the closing date of the Recapitalization. See "Certain Transactions -- Patent and Invention Disclosure Assignment and License Agreement." Though the Company considers these patents and patent applications important to its business, no patent or patent application is material to the operation of the business. With the exception of software, the Company does not license intellectual property rights from any third party. MCMS and the Company's logo are trademarks of the Company. COMPETITION The EMS industry is intensely competitive and highly fragmented. Competition consists of numerous regional, national and international participants as well as, indirectly, the manufacturing operations of a large number of OEMs who elect to perform their manufacturing internally rather than through an outside EMS firm. Competition is based principally on customer service, quality, dependability and price. MCMS competes directly with a number of EMS firms, including Jabil Circuits, Inc., Solectron Corporation, Flextronics International, Ltd., SCI Systems, Inc. and Celestica International Holdings Inc. ENVIRONMENTAL The Company's operations are subject to regulatory requirements and potential liabilities arising under certain federal, state, local and foreign environmental laws and regulations governing, among other things, air emissions, waste water discharge, waste storage, treatment and disposal, and remediation of releases of hazardous materials. In the course of its operations, MCMS handles limited amounts of materials that are considered hazardous under applicable law. The Company believes that it is in substantial compliance with all applicable environmental requirements, including without limitation, those governing the handling, storage and disposal of such materials and is aware of no outstanding legal proceedings against it arising under such laws. Environmental capital expenditures during 1996 and 1997 have not been material and are not expected to increase significantly in 1998. LEGAL PROCEEDINGS From time to time, the Company is involved in various legal proceedings arising in the ordinary course of its business. The Company does not expect that these matters will have a material adverse effect on the Company's business, financial condition and results of operations. EMPLOYEES As of February 26, 1998, the Company had 1,547 full-time employees. Except for employees at its Colfontaine facility, none of the Company's employees are represented by a labor union or any collective bargaining agreement. The Company's Belgian operations are subject to labor union agreements covering both white-collar and blue-collar employees that set standards for, among other things, the maximum number of working hours and compensation levels. The Company believes that its employee relations are satisfactory. 54 61 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth the names and ages as of April 1, 1998 and a brief account of each person who is a director or executive officer of the Company:
NAME AGE POSITION ---- --- -------- Robert F. Subia................................. 35 President, Chief Executive Officer and Director Chris J. Anton.................................. 35 Vice President, Finance and Chief Financial Officer Jess Asla....................................... 35 Vice President, Operations John P. McCarvel................................ 41 Vice President, Strategic Business Development R. Stephen Cheheyl.............................. 52 Director Finis F. Conner................................. 54 Director John A. Downer.................................. 40 Director C. Nicholas Keating............................. 56 Director Michael E. Najjar............................... 31 Director Mark Rossi...................................... 41 Director
ROBERT F. SUBIA joined MTI in 1986 in the Production Control department. He served as a Regional Sales Manager for MTI from 1989 until February 1993. In February 1993, Mr. Subia joined MCMS as Director of Sales and held this position until August 1994, when he was appointed Vice President, Sales. In April 1995, Mr. Subia was appointed Chairman of the Board of Directors, President and Chief Executive Officer of MCMS. Mr. Subia was appointed a director of MEI in October 1995. Mr. Subia holds a Bachelor of Science in Business Administration with an emphasis in Marketing from Boise State University. CHRIS J. ANTON joined MCMS in July 1996 from Futura Corporation where he was Chief Financial Officer and now serves as Vice President, Finance and Chief Financial Officer of the Company. Prior to joining MCMS, Mr. Anton also held the positions of President and General Manager of Image National, Inc., and Vice President of Engineering and New Product Development at Morrison Knudsen Corporation. Mr. Anton's background also includes five years of industry experience in financial and technical positions with Hewlett Packard Company and MTI. Mr. Anton received a Bachelor of Science degree in Chemistry from the University of Idaho and an M.B.A. from the Columbia University School of Business. JESS ASLA joined MTI in June 1984 in the Quality Assurance Department. He worked as a Process Engineer for MTI in the clean room assembly area for two years. He later served as the Process Engineer Manager for MTI's Memory Applications Group from 1988 until July 1994 when he was named Director of Engineering for MCMS. In April 1995, Mr. Asla was appointed Vice President, Operations and a member of the Board of Directors of MCMS. Mr. Asla holds a Bachelor of Mechanical Engineering from the University of Notre Dame. JOHN P. MCCARVEL joined MCMS in March 1996 from Anthem Electronics Inc., where he was Central Region Manager for Value Added Programs. Prior to Anthem, he spent five years at Dovatron International, Inc. where he held various senior management positions, including President of Western Operations, Vice President of Sales, Vice President of Sales and Marketing for Europe, and Vice President of Far East Operations. Mr. McCarvel also spent six years at Adaptec Inc. holding various management positions, the last being Director of Singapore Operations. Mr. McCarvel holds a Bachelor of Science degree in Business from Carroll College in Helena, Montana. R. STEPHEN CHEHEYL became a Director of the Company in connection with the Recapitalization. Mr. Cheheyl served until December 1995 as an Executive Vice President of Bay Networks, Inc. ("Bay Networks"), when Bay Networks was formed through the merger of Wellfleet Communications, Inc. ("Wellfleet") and Synoptics Communications, Inc. From December 1990 to October 1994, Mr. Cheheyl served as Senior Vice President of Finance and Administration of Wellfleet. He also serves as a director of Auspex Systems, Inc., 55 62 ON Technology Corporation, Infinium Software, Inc., and Sapient Corporation. Mr. Cheheyl received an A.B. from Dartmouth College and an M.B.A. from Northwestern University. FINIS F. CONNER became a Director of the Company in connection with the Recapitalization. Until 1996, Mr. Conner was Chairman of the Board and Chief Executive Officer of Conner Peripherals, Inc. which he founded in 1986. A leading manufacturer of 3 1/2" Winchester disk drives used in personal computers, Conner Peripherals was merged with Seagate Technology, Inc. ("Seagate") in February 1996. Mr. Conner was a co-founder of Seagate, and served as its Vice-Chairman from 1979 to 1985. Mr. Conner has been Chairman of the Board of Golf Media, Inc., a company engaged in the design of Internet web sites for the promotion of golf products, and since February 1996, Mr. Conner has been a principal of the Conner Group, an independent consulting organization. Mr. Conner is also a director of BoxHill Systems Corporation. JOHN A. DOWNER became a Director of the Company in connection with the Recapitalization. Since December 1996, Mr. Downer has served as a Managing Director of Cornerstone. From 1989 to December 1996, Mr. Downer was a partner of various venture capital funds managed by Prudential Equity Investors, Inc. ("Prudential"). Mr. Downer is also a director of StorMedia Incorporated and International Manufacturing Services, Inc. Mr. Downer received an A.B., M.B.A. and J.D. from Harvard University. C. NICHOLAS KEATING became a Director of the Company in connection with the Recapitalization. Mr. Keating has been an independent business advisor since 1993 to a number of companies principally in the networking, software, semiconductor and imaging industries. From 1987 to 1993, Mr. Keating was Vice President of Network Equipment Technologies, a wide-area networking company. Mr. Keating currently serves on the Boards of Directors of E-Net Corporation, an enterprise software supplier to the financial services industry, and LIC Energy, a European simulation systems company serving the oil and gas transmission market. Mr. Keating holds a B.A. and an M.A. from American University and was a former Fulbright Scholar. MICHAEL E. NAJJAR became a Director of the Company in connection with the Recapitalization. Mr. Najjar has served as a Managing Director of Cornerstone since February 1997. From 1996 to 1997, Mr. Najjar was a partner at Advanta Partners LP, a private equity firm. Prior to 1996, Mr. Najjar worked in the Corporate Finance Department of Donaldson, Lufkin & Jenrette Securities Corporation. Mr. Najjar received a B.A. from Cornell University and an M.B.A. from The Wharton School at The University of Pennsylvania. MARK ROSSI became a director of the Company in connection with the Recapitalization. Mr. Rossi has served as a Senior Managing Director of Cornerstone since December 1996. From 1984 to 1996, Mr. Rossi was a partner of various venture capital funds managed by Prudential. Mr. Rossi is also a director of StorMedia Incorporated, Maxwell Technology, Inc. and International Manufacturing Services, Inc. Mr. Rossi holds a B.A. from Saint Vincent College and an M.B.A. from Northwestern University. 56 63 COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth information concerning the compensation for fiscal 1997 for the Chief Executive Officer and the other executive officers of the Company (collectively, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG-TERM ANNUAL COMPENSATION COMPENSATION ----------------------------------------- ------------------ SECURITIES OTHER ANNUAL UNDERLYING ALL OTHER SALARY($) BONUS($) COMPENSATION($)(1) OPTIONS/SARS(#)(2) COMPENSATION(3) --------- -------- ------------------ ------------------ --------------- Robert F. Subia............... 206,538 172,082 12,428 35,000 4,500 President and Chief Executive Officer Chris J. Anton................ 90,000 18,005 -- 22,500 2,262 Vice President, Finance and Chief Financial Officer Jess Asla..................... 153,269 132,697 7,752 20,000 4,154 Vice President, Operations John P. McCarvel.............. 125,288 47,339 -- 20,000 3,154 Vice President, Strategic Business Development
- --------------- (1) Represents amounts paid to Named Executive Officers for accrued vacation time. (2) Represents options issued pursuant to the MEI Plan (as defined below). (3) Represents amounts paid on behalf of each of the Named Executive Officers in respect of MEI's defined contribution plan. The following table sets forth certain information regarding the options granted to the Named Executive Officers during fiscal 1997 pursuant to MEI's 1995 Stock Option Plan (the "MEI Plan"). Although Messrs. Subia and Asla have been granted options pursuant to MTI's 1985 and 1994 Incentive Stock Option Plans (the "MTI Plans") in the past, no options were granted pursuant to the MTI Plans to any of the Named Executive Officers in fiscal 1997. OPTION/SAR GRANTS IN LAST FISCAL YEAR MEI PLAN(1)
INDIVIDUAL GRANTS POTENTIAL REALIZABLE --------------------------------------------------------- VALUE AT ASSUMED NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK SECURITIES OPTIONS/SARS PRICE APPRECIATION UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(3) OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------- NAME GRANTED(#) FISCAL YEAR(2) ($/SH) DATE 5%($) 10%($) ---- ------------ -------------- ----------- ---------- ----- ------ Robert F. Subia.............. 30,447 1.6 18.67 1/28/03 308,790 591,339 4,553 0.2 21.96 1/28/03 31,177 73,429 Chris J. Anton............... 7,500 0.4 19.88 10/28/02 -- 45,338 14,808 0.8 21.96 1/28/03 101,398 238,816 192 * 18.67 1/28/03 1,947 3,729 Jess Asla.................... 13,896 0.7 21.96 1/28/03 95,153 224,108 6,104 0.3 18.67 1/28/03 61,906 118,551 John P. McCarvel............. 13,980 0.7 21.96 1/28/03 95,728 225,462 6,020 0.3 18.67 1/28/03 61,054 116,920
- --------------- * Indicates grant of less than 0.1% of total options granted under the MEI Plan in fiscal 1997. (1) Options issued pursuant to the MEI Plan vest in an amount of 20% per year on each of the first five anniversaries of the date of grant of such options. (2) Represents percentage of options granted to employees of both MEI and the Company. (3) Potential Realizable Value is based on certain assumed rates of appreciation pursuant to rules prescribed by the Commission and are not intended to be a forecast of MEI's stock price. Actual gains, if any, on stock option exercises are dependent on the future performance of the MEI stock. There can be no assurance that the amounts reflected in this table will be achieved. In accordance with rules promulgated by the Commission, Potential Realizable Value is based upon the exercise price of the options. 57 64 The following table sets forth certain information regarding options exercised and the number and value of unexercised options issued pursuant to the MTI Plans and the MEI Plan which were held by the Named Executive Officers at August 28, 1997. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES MTI PLANS
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS SHARES ACQUIRED VALUE OPTIONS AT AUGUST 28, 1997 AT AUGUST 28, 1997 NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ---- --------------- -------- -------------------------- ------------------------- Robert F. Subia........ 2,176 $29,964 3,000/7,356 $123,007/$269,945 Jess Asla.............. -- -- 12,890/6,496 $499,284/$235,284
MEI PLAN
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS SHARES ACQUIRED VALUE OPTIONS AT AUGUST 28, 1997 AT AUGUST 28, 1997 NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE ---- --------------- -------- -------------------------- ------------------------- Robert F. Subia........ -- -- 13,000/77,000 $51,926/$184,025 Chris J. Anton......... -- -- 500/24,500 $3,019/$12,075 Jess Asla.............. -- -- 3,000/32,000 $12,825/$51,300 John P. McCarvel....... -- -- 4,000/36,000 $21,700/$86,800
In connection with the Recapitalization, Messrs. Subia and Asla were entitled to exercise vested options to purchase MTI common stock (the "MTI Options") issued pursuant to the MTI Plans within 30 days of the closing of the Recapitalization. Messrs. Subia and Asla exercised 8,174 and 17,204 MTI Options, respectively (with a value of $210,502 and $456,231, respectively) within such 30-day period, representing the vested MTI Options held by Messrs. Subia and Asla. All unvested MTI Options held by Messrs. Subia and Asla were purchased by MEI on or about the 31st day after the closing of the Recapitalization (the "Purchase Date") at an aggregate purchase price of $28,410 for each of Messrs. Subia and Asla, representing the difference between (a) $25.00 multiplied by the number of unvested MTI Options held by each and (b) the aggregate exercise price for all such unvested MTI Options. The Named Executive Officers also held as of the closing of the Recapitalization, certain options to purchase MEI common stock (the "MEI Options") issued pursuant to the MEI Plan. In connection with the Recapitalization, the Named Executive Officers were entitled to exercise vested MEI Options within 30 days of the closing of the Recapitalization. Messrs. Subia, Anton and McCarvel exercised 7,203, 500 and 2,000 MEI Options, respectively, within such 30-day period. Unvested MEI Options were purchased from Messrs. Subia and Asla by MEI following the Recapitalization for $200,000 and $70,000, respectively. Vested MEI options not exercised within such 30-day period were cancelled in their entirety. EMPLOYMENT AGREEMENTS In connection with the Recapitalization, the Company entered into employment agreements with each of its Named Executive Officers (the "Employment Agreements"). The terms of the Employment Agreements provide that (i) Robert F. Subia will serve as the President and Chief Executive Officer; (ii) Chris J. Anton will serve as Vice President, Finance and Chief Financial Officer; (iii) Jess Asla will serve as Vice President, Operations; and (iv) John P. McCarvel will serve as Vice President, Strategic Business Development, all for a period that will end on the third anniversary of the closing of the Recapitalization (the "Employment Period"); provided that the Employment Period will automatically terminate upon the Named Executive Officer's resignation (including if the Company Constructively Terminates Executive (as defined therein)), death or permanent disability or incapacity, or upon termination by the Company, with or without Cause (as defined therein). Under the Employment Agreements, the Named Executive Officers will: (i) receive an annual base salary (as set by the Board or compensation committee thereof but subject to a minimum amount); (ii) be eligible to participate in all of the Company's employee benefit programs for which senior 58 65 executive employees of the Company and its subsidiaries are generally eligible, including the Company's 1998 Stock Option Plan, with any awards under such plans to be set by the Board or compensation committee; and (iii) will receive certain other employee benefits. If the Employment Period is terminated by the Company without Cause or the Company Constructively Terminates Executive, the Named Executive Officer is entitled to receive his base salary plus all employee benefits which the Named Executive Officer is receiving on the termination date for 18 months following such termination in the case of Robert F. Subia, and 12 months following such termination for the other Named Executive Officers. If the Employment Period terminates upon the Named Executive Officer's death or permanent disability, the Named Executive Officer (or his spouse or other beneficiary) will be entitled to receive his base salary for 12 months following such termination. If the Employment Period terminates upon the Named Executive Officer's resignation or incapacity, or is terminated by the Company for Cause, the Executive Officer will be entitled to receive his base salary through the date of termination. Under the Employment Agreements, the Named Executive Officers will agree not to (i) compete with the Company during the period in which he is employed by the Company and for 18 months thereafter in the case of Robert F. Subia, and 12 months thereafter for the other Named Executive Officers (the "Noncompete Period"); (ii) disclose any confidential information unless and to the extent such information becomes generally known to and available for use by the public other than as a result of the Named Executive Officer's acts or omissions; (iii) solicit or hire any employee of the Company or its subsidiary during the Noncompete Period; and (iv) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any subsidiary to cease doing business with the Company or its subsidiaries during the Noncompete Period. In addition, the Named Executive Officers will agree to disclose to the Company any and all Work Product (as defined in the Employment Agreements) and to acknowledge that such Work Product will be the property of the Company and its subsidiaries. In connection with the Recapitalization, each of Robert F. Subia and Jess Asla entered into an agreement with MEI (together, the "Termination Agreements"), effective as of the closing date of the Recapitalization, terminating his employment relationship with MEI. Pursuant to the Termination Agreements, Messrs. Subia and Asla received lump-sum payments of $1,026,223 and $373,320, respectively. In consideration for such payments, Messrs. Subia and Asla (i) forfeited all of their unvested options to purchase MEI stock which were granted under the MEI Plan, (ii) released MEI from any future claims relating to their employment with MEI, (iii) agreed to comply with certain non-disclosure obligations, (iv) agreed to comply with the noncompetition and nonsolicitation provisions of the Recapitalization Agreement and (v) agreed that in the event his employment with the Company is terminated, he will comply until December 21, 1999 with the noncompetition and nonsolicitation obligations set forth in the Termination Agreements. STOCK OPTION PLAN In order to provide financial incentives for certain of the Company's or its subsidiaries' senior executives and other employees, the Company will adopt a stock option plan pursuant to which it will be able to grant options to purchase Class A Common to senior executives and other employees of the Company and its subsidiaries. Under the stock option plan, the Company will also be able to grant options to purchase Class A Common to the Company's Consultants. Such options are expected to be granted periodically and to vest and become exercisable (i) upon certain threshold dates and/or (ii) once certain financial performance thresholds of the Company have been reached. Upon an employee's termination with the Company, all of the employee's unvested options will expire, the exercise period of all the employee's vested options will be reduced to a period ending no later than 30 days after such employee's termination, and if such termination occurs prior to an initial public offering of the Company's Class A Common, the Company shall have the right to repurchase the Class A Common of the Company held by the employee. 59 66 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information, as of February 26, 1998 regarding the beneficial ownership of (i) capital stock (other than Senior Preferred Stock) held by each person (other than directors and executive officers of the Company) known to the Company to own more than 5% of the outstanding capital stock (other than the Senior Preferred Stock) of the Company, (ii) capital stock held by each director and executive officer of the Company and (iii) capital stock held by all directors and executive officers as a group. To the knowledge of the Company, each of such stockholders has sole voting and investment power as to the shares shown unless otherwise noted.
SHARES OF COMMON STOCK BENEFICIALLY OWNED(1) -------------------------------------------------------------------- CLASS A PERCENT OF CLASS B PERCENT OF CLASS C PERCENT OF NAME COMMON CLASS A COMMON CLASS B COMMON CLASS C ---- --------- ---------- ------- ---------- ------- ---------- Cornerstone Equity Investors IV, L.P............................ 2,450,000 75.1% 123,529 14.3% -- -- c/o Cornerstone Equity Investors, L.L.C. 717 Fifth Avenue (Suite 1100) New York, New York 10022 August Capital.................. -- -- -- -- 424,632 48.5% 2480 Sand Hill Road, Suite 101 Menlo Park, California 94025 BT Investment Partners.......... 245,000 7.5 740,294 85.7 -- -- 130 Liberty Street New York, New York 10006 MEI California, Inc.(2)......... 500,000 15.3 -- -- -- -- c/o Micron Electronics, Inc. 900 East Karcher Road Nampa, Idaho 83687 Oak Investment Funds(3)......... -- -- -- -- 424,632 48.5 c/o Oak Investment Partners 525 University Avenue, Suite 1300 Palo Alto, California 94301 EXECUTIVE OFFICERS AND DIRECTORS Robert F. Subia................. 14,706 * -- -- -- -- Chris J. Anton.................. 7,353 * -- -- -- -- Jess Asla....................... 11,030 * -- -- -- -- John P. McCarvel................ 3,676 * -- -- -- -- R. Stephen Cheheyl.............. -- -- -- -- 7,353 * Finis F. Conner................. -- -- -- -- 14,706 1.7 John A. Downer(4)............... 2,450,000 75.1 123,529 14.3 -- -- C. Nicholas Keating............. -- -- -- -- 3,676 * Michael E. Najjar(4)............ 2,450,000 75.1 123,529 14.3 -- -- Mark Rossi(4)................... 2,450,000 75.1 123,529 14.3 -- -- Directors and executive officers as a group(4).................. 2,486,765 76.2 123,529 14.3 25,735 2.9 SHARES OF PREFERRED STOCK BENEFICIALLY OWNED(1) ------------------------------------------------------------------------ SERIES A PERCENT OF SERIES B PERCENT OF SERIES C PERCENT OF NAME PREFERRED SERIES A PREFERRED SERIES B PREFERRED SERIES C ---- --------- ---------- --------- ---------- --------- ---------- Cornerstone Equity Investors IV, L.P............................ 2,450,000 75.1% 123,529 14.3% -- -- c/o Cornerstone Equity Investors, L.L.C. 717 Fifth Avenue (Suite 1100) New York, New York 10022 August Capital.................. -- -- -- -- 424,632 48.5% 2480 Sand Hill Road, Suite 101 Menlo Park, California 94025 BT Investment Partners.......... 245,000 7.5 740,294 85.7 -- -- 130 Liberty Street New York, New York 10006 MEI California, Inc.(2)......... 500,000 15.3 -- -- -- -- c/o Micron Electronics, Inc. 900 East Karcher Road Nampa, Idaho 83687 Oak Investment Funds(3)......... -- -- -- -- 424,632 48.5 c/o Oak Investment Partners 525 University Avenue, Suite 1300 Palo Alto, California 94301 EXECUTIVE OFFICERS AND DIRECTORS Robert F. Subia................. 14,706 * -- -- -- -- Chris J. Anton.................. 7,353 * -- -- -- -- Jess Asla....................... 11,030 * -- -- -- -- John P. McCarvel................ 3,676 * -- -- -- -- R. Stephen Cheheyl.............. -- -- -- -- 7,353 * Finis F. Conner................. -- -- -- -- 14,706 1.7 John A. Downer(4)............... 2,450,000 75.1 123,529 14.3 -- -- C. Nicholas Keating............. -- -- -- -- 3,676 * Michael E. Najjar(4)............ 2,450,000 75.1 123,529 14.3 -- -- Mark Rossi(4)................... 2,450,000 75.1 123,529 14.3 -- -- Directors and executive officers as a group(4).................. 2,486,765 76.2 123,529 14.3 25,735 2.9
- --------------- * Indicates ownership of less than one percent. (1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. The Class A Common entitles the holder to one vote per share and the Class C Common entitles the holder to two votes per share. The Class B Common is nonvoting. The Series A Preferred and the Series C Preferred entitle the holder to the number of votes per share they would be entitled if they had been converted into Common Stock. The Series B Preferred is nonvoting. See "Description of Capital Stock." (2) MEIC is a wholly owned subsidiary of MEI, and MEI is a majority owned subsidiary of MTI. Accordingly, MEI and MTI may be deemed to beneficially own shares owned by MEIC. (3) Amounts shown reflect the aggregate number of shares of capital stock of the Company held by Oak Investment Partners VII, Limited Partnership, Oak VII Affiliate Fund, Limited Partnership and Norman Nie. (4) Messrs. Downer and Najjar are each Managing Directors and Mr. Rossi is a Senior Managing Director of CEI, the sole general partner of Cornerstone. Accordingly, Messrs. Downer, Najjar and Rossi may be deemed to beneficially own shares owned by Cornerstone. Each such person disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. 60 67 CERTAIN TRANSACTIONS RECAPITALIZATION AGREEMENT The Recapitalization Agreement contains customary provisions for such agreements, including representations and warranties with respect to the condition and operations of the business, covenants with respect to the conduct of the business prior to the closing date of the Recapitalization and various closing conditions, including the execution of a transitional services agreement, registration rights agreement and stockholders agreement, the obtaining of financing, the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the continued accuracy of the representations and warranties. Pursuant to the Recapitalization Agreement, MEI and MEIC agreed to indemnify Cornerstone against any and all damages resulting from any misrepresentation or breach of warranty of MEI, MEIC or the Company contained in the Recapitalization Agreement, a claim for which is made (in most cases) no later than one year after the closing date of the Recapitalization. The indemnification obligations of MEI and MEIC under the Recapitalization Agreement are generally subject to a $1.0 million minimum aggregate threshold amount and limited to an aggregate payment of no more than $13.6 million. In addition, MEI and MEIC have agreed for a period of two years after the closing date of the Recapitalization not to compete with the Company in the business of design, assembly and testing of (i) complex PCBAs for third-party electronics OEMs, or (ii) system level assembly when acting solely and strictly in the capacity of a subcontractor of an OEM. Notwithstanding the foregoing, MEI's advanced engineering group is not prohibited from conducting activities consistent with the activities that it conducted on or prior to December 21, 1997. MEI and MEIC have also agreed for a period of two years after the closing date of the Recapitalization not to solicit the employment of employees of the Company. Similarly, except as to certain agreed upon individuals, the Company has agreed not to solicit the employment of employees of MEI for the same two-year period. MEMORY MODULE AGREEMENT MTI has entered into an agreement with the Company, effective as of the closing of the Recapitalization, to purchase from the Company for a period of two years after the closing date of the Recapitalization at least 50% of its ISMM requirements of up to 1,200,000 Equivalent Units per week. In addition, MTI has agreed for a period of one year from the closing date of the Recapitalization not to engage in a business the primary purpose of which is to provide contract manufacturing services for the assembly of custom printed circuit assemblies for OEMs or third parties without the written consent of the Company. In exchange, the Company has agreed to charge MTI the lesser of (i) the lowest price it charges to its other customers for equivalent products under similar circumstances, or (ii) the average price quoted by other manufacturers for equivalent products under similar circumstances. It is contemplated that MTI will provide nonbinding forecasts of the upcoming requirements for a 13 week rolling period. Under the terms of the Memory Module Agreement, MTI will consign sufficient raw materials to the Company to support MTI's memory module requirements. This consignment relationship should insulate the Company from fluctuations in the pricing of such raw materials, including DRAM. The Memory Module Agreement automatically renews for successive one-year periods after the initial two-year term unless either party provides written notice of its intention to terminate the contract. PATENT AND INVENTION DISCLOSURE ASSIGNMENT AND LICENSE AGREEMENT In connection with the Recapitalization Agreement, MCMS and MEI entered into a Patent and Invention Disclosure Assignment and License Agreement (the "Patent Agreement"). Pursuant to the Patent Agreement, MEI assigned certain patents, patent applications and invention disclosures to MCMS, and MCMS has granted MEI and its affiliates a non-exclusive, paid-up, worldwide license to practice the inventions covered by the patents, patent applications and invention disclosures, including the right to make, have made, use, offer for sale, sell and lease products that would otherwise infringe the patents. The Patent 61 68 Agreement is perpetual but may be terminated by either party on 90 days written notice in the event the other party is in material breach and does not cure the breach within such 90 day period. KNOW-HOW LICENSE AGREEMENT In connection with the Recapitalization Agreement, MCMS and MEI entered into an agreement (the "Know-How Agreement") pursuant to which MEI granted to MCMS a non-exclusive, paid-up, worldwide license to use in its business any trade secrets and know-how conceived by MCMS prior to the closing or utilized by MCMS as of the closing which relate to its business. The Know-How Agreement will be perpetual but may be terminated by either party on 90 days written notice in the event the other party is in material breach and does not cure the breach within such 90 day period. FORBEARANCE AGREEMENT In connection with the Recapitalization Agreement, MCMS and MTI entered into an agreement (the "Forbearance Agreement") pursuant to which MTI agreed to forbear from taking any action or instituting any claim or other legal proceeding against MCMS or its subsidiaries with respect to their use of any MTI trade secrets, know-how or technology that was developed in conjunction with, with the input of or at the request of MCMS and which is used by MCMS as of the closing in the conduct of its business. The Forebearance Agreement does not apply to (i) semiconductor manufacturing, processing and packaging technology (including BGA or KGD technology), (ii) the testing or assembly of semiconductor components for sale by MCMS of such components other than as part of a memory module and (iii) technology developed by MCMS at MTI's request and expense for use in association with the design, assembly and testing of products manufactured by MCMS for MTI. The Forebearance Agreement shall remain in effect until terminated by both MTI and MCMS. MANAGEMENT SERVICES AGREEMENT In connection with the Recapitalization, the Company entered into a Management Services Agreement with CEI pursuant to which CEI agreed to provide: (i) general management services; (ii) assistance with the identification, negotiation and analysis of acquisitions and dispositions; (iii) assistance with the negotiation and analysis of financial alternatives; and (iv) other services agreed upon by the Company and CEI. In exchange for such services, CEI will receive: (i) an annual management fee of $250,000, plus reasonable out- of-pocket expenses (payable quarterly); (ii) a transaction fee in an amount equal to 1.0% of the aggregate transaction value in connection with the consummation of any material acquisition, divestiture, financing or refinancing by the Company or any of its subsidiaries; and (iii) a one-time transaction fee of $2,710,000 upon the consummation of the Recapitalization. The Management Services Agreement has an initial term of five years, subject to automatic one-year extensions unless the Company or CEI provides written notice of termination. TRANSITION SERVICES AGREEMENT In connection with the Recapitalization, the Company entered into the Transition Services Agreement with MTI and MEI. Pursuant to the Transition Services Agreement, MTI and MEI agreed to provide a variety of services (including payroll, financial accounting and benefits, among others) at prices set forth in the Transition Services Agreement for a period of six months after the Closing Date, except that MTI agreed to provide the Company with services in connection with certain proprietary MTI software for a period of 12 months. Pursuant to the Transition Services Agreement, the Company has agreed to provide certain accounting and software support services to MEI at prices set forth in the Transition Services Agreement for a period of six months after the Closing Date. In connection with the Transition Services Agreement, MTI and MEI have each granted MCMS a perpetual, royalty-free license to use certain of their proprietary software and customized software applications in the operation of the Company's business. 62 69 STOCKHOLDERS AGREEMENT Upon the consummation of the Recapitalization, the Company and all of its stockholders (other than holders of the Preferred Stock), including Cornerstone and MEIC (collectively, the "Stockholders") entered into a stockholders agreement (the "Stockholders Agreement"). The Stockholders Agreement: (i) requires that each of the parties thereto vote all of its voting securities of the Company and take all other necessary or desirable actions to cause the size of the Board of Directors of the Company to be established at seven members and to cause three designees of Cornerstone to be elected to the Board of Directors of the Company; (ii) grants the Company and Cornerstone a right of first refusal on any proposed transfer of shares of capital stock of the Company held by MEIC and any of the other Stockholders; (iii) grants tag-along rights on certain transfers of shares of capital stock of the Company; (iv) requires the Stockholders to consent to a sale of the Company to an independent third party if such sale is approved by certain holders of the then outstanding shares of voting common stock of the Company; and (v) except in certain instances, prohibits MEIC from transferring any shares of capital stock of the Company until the second anniversary of the date of the consummation of the Recapitalization. Certain of the foregoing provisions of the Stockholders Agreement will terminate upon the consummation of an initial Public Offering, a Qualified Public Offering or an Approved Sale (as each is defined in the Stockholders Agreement). INVESTOR REGISTRATION RIGHTS AGREEMENT Upon the consummation of the Recapitalization, the Company and all of its stockholders (other than holders of the Preferred Stock), including Cornerstone and MEIC, entered into a registration rights agreement (the "Investor Registration Rights Agreement"). Under the Investor Registration Rights Agreement, the holders of a majority of the Cornerstone Investor Registrable Securities (as defined in the Investor Registration Rights Agreement) or BT (as defined in the Investor Registration Rights Agreement) and/or its affiliates have the right, subject to certain conditions, to require the Company to register any or all of their shares of Common Stock of the Company under the Securities Act at the Company's expense. In addition, all holders of Registrable Securities are entitled to request the inclusion of any shares of Common Stock of the Company subject to the Investor Registration Rights Agreement in any registration statement at the Company's expense whenever the Company proposes to register any of its common stock under the Securities Act. In connection with all such registrations, the Company agreed to indemnify all holders of Registrable Securities against certain liabilities, including liabilities under the Securities Act. OFFICE LEASE In connection with the Recapitalization Agreement, MEI and the Company amended the lease, dated as of November 1, 1996 (the "Office Lease"), to provide MEI the right to occupy approximately 32,000 square feet of the Premises (as defined in the Office Lease) at the Nampa, Idaho facility until December 31, 1998, unless MEI terminates the lease prior to such time by providing 30 days written notice to the Company. During the term of the lease, MEI shall pay rent to the Company for the Premises in an amount of $40,000 per month. Following the closing of the Recapitalization, MEI vacated approximately 3,625 square feet of the Premises, and, on April 17, 1998, the Company received written notice from MEI of MEI's intention to vacate approximately 26,000 square feet of the Premises, effective May 18, 1998. In addition, upon 60 days written notice to MEI, the Company shall be entitled to occupy approximately 24,000 square feet of space currently leased by MEI at the Shilo Property (as defined in the Office Lease) at a cost to the Company which is no greater than that currently paid by MEI. POWER SUBSTATION AGREEMENT Pursuant to the Recapitalization Agreement, MEI has granted the Company the ability to draw power from the power substation located on MEI's real property in Nampa, Idaho. In furtherance thereof, MEI, the Company and Idaho Power Company ("Idaho Power") have executed an agreement (the "Power Substation Agreement"), whereby Idaho Power will install the necessary Interconnecting Facilities (as defined in the Power Substation Agreement) to allow the Company, for its own account, to be connected to the existing power substation located on MEI's property. The Company's cost for installing the Interconnecting Facilities 63 70 will be in accordance with Rule H (Idaho Power's tariff governing line installations). In addition, it is anticipated that the Power Substation Agreement will require the Company to pay a one time fee of up to $300,000 to Idaho Power for acquiring 6,000 kW of capacity in the power substation, and Idaho Power, in turn, will pay such amount to MEI. Except for such one time fee, the Company anticipates that its costs for electrical power will be approximately the same as they were prior to the Recapitalization. PURCHASE AGREEMENT AND REGISTRATION RIGHTS AGREEMENT In connection with the Recapitalization, the Company entered into a Purchase Agreement with the Initial Purchaser, whereby the Initial Purchaser agreed to purchase the Notes at 97% of their principal amount and the Preferred Stock at 96% of their liquidation preference from the Company. Under the terms of the Registration Rights Agreement between the Company and the Initial Purchaser, the Company agreed to file a registration statement (the "Exchange Offer Registration Statement") by April 27, 1998 in connection with an offer to exchange the Notes for Exchange Notes and Preferred Stock for Exchange Preferred Stock of the Company. The Company also agreed to use its best efforts to cause the Exchange Offer Registration Statement to become effective under the Securities Act by June 26, 1998. Once the Exchange Offer Registration Statement is declared effective, the Exchange Securities will be offered by the Company in exchange for the Securities. In the event that applicable law or interpretations of the staff of the Commission do not permit the Company to effect the Exchange Offer, or if for any other reason the Exchange Offer is not consummated, or if certain holders of the Securities are not permitted to participate in, or do not receive the benefit of, the Exchange Offer, the Company will use its best efforts to cause to become effective a shelf registration statement with respect to the resale of the Securities and to keep such shelf registration statement effective until February 26, 2000 or such shorter period ending when all the Securities have been sold thereunder. The interest rate on the Notes and the dividend rate on the Preferred Stock are subject to increase under certain circumstances if the Company is not in compliance with its obligations under the Registration Rights Agreement. 64 71 DESCRIPTION OF NEW REVOLVING CREDIT FACILITY On February 26, 1998, the Company entered into the New Revolving Credit Facility with various lending institutions and Bankers Trust Company, as agent (the "Agent"). The New Revolving Credit Facility provides for a revolving credit facility of $40.0 million, which was undrawn on the closing date of the Recapitalization (the "Closing Date"). The Company may borrow amounts under the New Revolving Credit Facility after the Closing Date to finance its working capital requirements and other general corporate purposes. All commitments will terminate, and all revolving loans incurred under the New Revolving Credit Facility will mature, on the fifth anniversary of the Closing Date. Indebtedness of the Company under the New Revolving Credit Facility is unconditionally and irrevocably guaranteed by each of the Company's domestic subsidiaries and is secured by a first priority perfected security interest in: (i) all capital stock of each direct and indirect subsidiary of the Company (provided that no more than 65% of the stock of, or other equity interests in, foreign subsidiaries of the Company shall have to be pledged) and (ii) all other tangible and intangible assets of the Company and each of its domestic subsidiaries. The Company's borrowings under the New Revolving Credit Facility bears interest, at the Company's option, at: (a) the Base Rate (as defined in the New Revolving Credit Facility) plus 1.75% or (b) beginning 45 days after the Closing Date (or earlier upon syndication) at the applicable Eurodollar Rate (as defined in the New Revolving Credit Facility) plus 2.75%. Amounts borrowed under the New Revolving Credit Facility may be repaid and reborrowed prior to the final maturity date. The Company is required to pay to the lenders under the New Revolving Credit Facility a commitment fee equal to 1/2 of 1% per annum, payable in arrears on a quarterly basis, on the daily average unused portion of the New Revolving Credit Facility. The Company also is required to pay to such lenders a letter of credit fee with respect to each letter of credit outstanding equal to 2.75% per annum of the daily stated amount of such letter of credit, and to each lender issuing a letter of credit, a facing fee of 1/4 of 1% on the daily stated amount of such letter of credit (subject to certain minimum amounts) as well as its customary charges in connection with the issuance of, payment under, or amendment of, such letter of credit. The Agent and the lenders will receive and continue to receive such other fees as have been separately agreed upon with the Agent. The New Revolving Credit Facility requires the Company to meet certain financial tests, including, without limitation, minimum levels of EBITDA (as defined in the New Revolving Credit Facility), minimum interest coverage and maximum leverage ratios. The New Revolving Credit Facility also contains certain covenants which, among other things, limit the incurrence of additional indebtedness, investments, dividends, transactions with affiliates, asset sales, acquisitions, mergers and consolidations, capital expenditures, prepayments of other indebtedness (including the Notes and the Exchange Debentures), liens and encumbrances and other matters customarily restricted in such agreements. The New Revolving Credit Facility contains customary events of default, including without limitation, payment defaults, material breaches of representations and warranties, covenant defaults, cross-defaults, certain events of bankruptcy and insolvency, judgment defaults, failure of any guaranty or security document supporting the New Revolving Credit Facility to be in full force and effect and a change of control of the Company. 65 72 DESCRIPTION OF SENIOR SUBORDINATED NOTES The Notes are, and the Exchange Notes will be, issued under the indenture (the "Indenture"), dated as of February 26, 1998 by and between the Company and United States Trust Company of New York, as Trustee (the "Trustee"). The following summary of certain provisions of the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of the Indenture, including the definitions of certain terms therein and those terms made a part of the Indenture by reference to the TIA as in effect on the date of the Indenture. A copy of the Indenture may be obtained from the Company. The definitions of certain capitalized terms used in the following summary are set forth below under "-- Certain Definitions." For purposes of this section, references to the "Company" include only MCMS, Inc. and not its Subsidiaries and references to the "Senior Subordinated Notes" include the Notes and the Exchange Notes. The Notes are, and the Exchange Notes will be, unsecured obligations of the Company, ranking subordinate in right of payment to all Senior Debt of the Company. The Exchange Notes will be issued in fully registered form only, without coupons, in denominations of $1,000 and integral multiples thereof. Initially, the Trustee will act as Paying Agent and Registrar for the Exchange Notes. The Exchange Notes may be presented for registration or transfer and exchange at the offices of the Registrar, which initially will be the Trustee's corporate trust office. The Company may change any Paying Agent and Registrar without notice to holders of the Exchange Notes (the "Holders"). The Company will pay principal (and premium, if any) on the Exchange Notes at the Trustee's corporate office in New York, New York. At the Company's option, interest may be paid at the Trustee's corporate trust office or by check mailed to the registered address of Holders. Any Notes that remain outstanding after the completion of the Exchange Offer, together with the Exchange Notes issued in connection with the Exchange Offer, will be treated as a single class of securities under the Indenture. The form and terms of the Exchange Notes are the same as the form and terms of the Notes (which they replace) except that (i) the Exchange Notes bear a Series B designation, (ii) the Exchange Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof and (iii) the holders of the Exchange Notes will not be entitled to certain rights under the Registration Rights Agreement, including the provision providing for an increase in interest rate on the Notes in certain circumstances relating to the timing of the Exchange Offer, which rights will terminate when the Exchange Offer is consummated. PRINCIPAL, MATURITY AND INTEREST The Senior Subordinated Notes are limited in aggregate principal amount to $275 million, $145 million of which will be issued as Fixed Rate Notes or Fixed Rate Exchange Notes, as the case may be, and $30 million of which will be issued as Floating Rate Notes or Floating Rate Exchange Notes, as the case may be, and all of which will mature on March 1, 2008. Additional amounts of Senior Subordinated Notes may be issued in one or more series from time to time, subject to the limitations set forth under "Certain Covenants -- Limitation on Incurrence of Additional Indebtedness." Interest on the Senior Subordinated Notes will be payable semiannually in cash on each March 1 and September 1, commencing on September 1, 1998, for the period commencing on and including the immediately preceding Interest Payment Date and ending on and including the day next preceding the Interest Payment Date (an "Interest Period"), with the exception that the first Interest Period on the Notes shall commence on and include February 26, 1998 and end on and include the date the Notes are exchanged for Exchange Notes (the "Exchange Date") or August 31, 1998 if the Notes have not been exchanged, and with the exception that the first Interest Period on the Exchange Notes shall commence on the Exchange Date and end on and include August 31, 1998. Interest is payable to the persons who are registered Holders at the close of business on the February 15 and August 15 immediately preceding the applicable Interest Payment Date. 66 73 Fixed Rate Notes and Fixed Rate Exchange Notes Interest on the Fixed Rate Notes accrues, and interest on the Fixed Rate Exchange Notes will accrue, at the rate of 9 3/4% per annum. Floating Rate Notes and Floating Rate Exchange Notes The Floating Rate Notes bear, and the Floating Rate Exchange Notes will bear, interest at a rate per annum, reset semi-annually, equal to LIBOR (as defined) plus 4 5/8%, as determined by the Calculation Agent (the "Calculation Agent"), which shall initially be the Trustee. "LIBOR," with respect to an Interest Period, shall be the rate (expressed as a percentage per annum) for deposits in United States dollars for a six-month period beginning on the second London Banking Day (as defined) after the Determination Date (as defined) that appears on Telerate Page 3750 (as defined) as of 11:00 a.m., London time, on the Determination Date. If Telerate Page 3750 does not include such a rate or is unavailable on a Determination Date, LIBOR for the Interest Period shall be the arithmetic mean of the rates (expressed as a percentage per annum) for deposits in a Representative Amount (as defined) in United States dollars for a six-month period beginning on the second London Banking Day after the Determination Date that appears on Reuters Screen LIBO Page (as defined) as of 11:00 a.m., London time, on the Determination Date. If Reuters Screen LIBO Page does not include two or more rates or is unavailable on a Determination Date, the Calculation Agent will request the principal London office of each of four major banks in the London interbank market, as selected by the Calculation Agent, to provide such bank's offered quotation (expressed as a percentage per annum), as of approximately 11:00 a.m., London time, on such Determination Date, to prime banks in the London interbank market for deposits in a Representative Amount in United States dollars for a six-month period beginning on the second London Banking Day after the Determination Date. If at least two such offered quotations are so provided, LIBOR for the Interest Period will be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, the Calculation Agent will request each of three major banks in New York City, as selected by the Calculation Agent, to provide such bank's rate (expressed as a percentage per annum), as of approximately 11:00 a.m., New York City time, on such Determination Date, for loans in a Representative Amount in United States dollars to leading European banks for a six-month period beginning on the second London Banking Day after the Determination Date. If at least two such rates are so provided, LIBOR for the Interest Period will be the arithmetic mean of such rates. If fewer than two such rates are so provided, then LIBOR for the Interest Period will be LIBOR in effect with respect to the immediately preceding Interest Period. "Determination Date," with respect to an Interest Period, will be the second London Banking Day preceding the first day of the Interest Period. "London Banking Day" is any day in which dealings in United States dollars are transacted or, with respect to any future date, are expected to be transacted in the London interbank market. "Representative Amount" means a principal amount of not less than U.S. $1,000,000 for a single transaction in the relevant market at the relevant time. "Telerate Page 3750" means the display designated as "Page 3750" on the Dow Jones Telerate Service (or such other page as may replace Page 3750 on that service). "Reuters Screen LIBO Page" means the display designated as page "LIBO" on The Reuters Monitor Money Rates Service (or such other page as may replace the LIBO page on that service). The amount of interest for each day that the Floating Rate Notes and Floating Rate Exchange Notes are outstanding (the "Daily Interest Amount") will be calculated by dividing the interest rate in effect for such day by 360 and multiplying the result by the principal amount of the Floating Rate Notes and Floating Rate Exchange Notes. The amount of interest to be paid on the Floating Rate Notes and Floating Rate Exchange Notes for each Interest Period will be calculated by adding the Daily Interest Amounts for each day in the Interest Paid. 67 74 All percentages resulting from any of the above calculations will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upwards (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)) and all dollar amounts used in or resulting from such calculations will be rounded to the nearest cent (with one-half cent being rounded upwards). The interest rate on the Floating Rate Notes and Floating Rate Exchange Notes will in no event be higher than the maximum rate permitted by New York law as the same may be modified by United States law of general application. Under current New York law, the maximum rate of interest is 25% per annum on a simple interest basis. This limit may not apply to Floating Rate Notes and Floating Rate Exchange Notes in which $2,500,000 or more has been invested. The Calculation Agent will, upon the request of the holder of any Floating Rate Note or Floating Rate Exchange Note, provide the interest rate then in effect with respect to the Floating Rate Notes and Floating Rate Exchange Notes. All calculations made by the Calculation Agent in the absence of manifest error shall be conclusive for all purposes and binding on the Company and the Holders of the Floating Rate Notes and Floating Rate Exchange Notes. REDEMPTION Optional Redemption. The Fixed Rate Notes are, and the Fixed Rate Exchange Notes will be, redeemable, at the Company's option, in whole at any time or in part from time to time, on and after March 1, 2003, upon not less than 30 nor more than 60 days notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on March 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
YEAR PERCENTAGE ---- ---------- 2003.............................................. 104.875% 2004.............................................. 103.250% 2005.............................................. 101.625% 2006 and thereafter............................... 100.000%
The Floating Rate Notes are, and the Floating Rate Exchange Notes will be, redeemable, at the Company's option, in whole at any time or in part from time to time, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on March 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
YEAR PERCENTAGE ---- ---------- 1998.............................................. 105.000% 1999.............................................. 104.000% 2000.............................................. 103.000% 2001.............................................. 102.000% 2002.............................................. 101.000% 2003 and thereafter............................... 100.000%
Optional Redemption of Fixed Rate Notes and the Fixed Rate Exchange Notes upon Public Equity Offerings. At any time, or from time to time, on or prior to March 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings (as defined below) to redeem the Fixed Rate Notes and the Fixed Rate Exchange Notes at a redemption price equal to 109.750% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption; provided that at least 65% of (x) the principal amount of Fixed Rate Notes and the Fixed Rate Exchange Notes either originally issued in the Offering or the Exchange Offer plus (y) any additional Fixed Rate Notes and the Fixed Rate Exchange Notes issued after the date the Exchange Offer is consummated pursuant to the Indenture remains 68 75 outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Company shall make such redemption not more than 120 days after the consummation of any such Public Equity Offering. As used in the preceding paragraph, "Public Equity Offering" means an underwritten public offering of Qualified Capital Stock of the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act. The Senior Subordinated Notes will not be entitled to the benefit of any mandatory sinking fund. SELECTION AND NOTICE OF REDEMPTION In the event that less than all of the Senior Subordinated Notes are to be redeemed at any time, selection of such Senior Subordinated Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which such Senior Subordinated Notes are listed or, if such Senior Subordinated Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that no Senior Subordinated Notes of a principal amount of $1,000 or less shall be redeemed in part; provided, further, that if a partial redemption is made with the proceeds of a Public Equity Offering, selection of the Fixed Rate Notes or Fixed Rate Exchange Notes or portions thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as is practicable (subject to DTC procedures), unless such method is otherwise prohibited. Notice of redemption shall be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each Holder of Senior Subordinated Notes to be redeemed at its registered address. If any Senior Subordinated Note is to be redeemed in part only, the notice of redemption that relates to such Senior Subordinated Note shall state the portion of the principal amount thereof to be redeemed. A new Senior Subordinated Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Senior Subordinated Note. On and after the redemption date, interest will cease to accrue on Senior Subordinated Notes or portions thereof called for redemption as long as the Company has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to the Indenture. SUBORDINATION The payment of all Obligations on the Senior Subordinated Notes is subordinated in right of payment to the prior payment in full in cash or Cash Equivalents of all Obligations on Senior Debt. Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to the Company or its property, whether voluntary or involuntary, all Obligations due or to become due upon all Senior Debt shall first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Senior Debt, before any payment or distribution of any kind or character is made on account of any Obligations on the Senior Subordinated Notes, or for the acquisition of any of the Senior Subordinated Notes for cash or property or otherwise. If any default occurs and is continuing in the payment when due, whether at maturity, upon any redemption, by declaration or otherwise, of any principal of, interest on, unpaid drawings for letters of credit issued in respect of, or regularly accruing fees with respect to, any Senior Debt, no payment of any kind or character shall be made by or on behalf of the Company or any other Person on its or their behalf with respect to any Obligations on the Senior Subordinated Notes or to acquire any of the Senior Subordinated Notes for cash or property or otherwise. In addition, if any other event of default occurs and is continuing with respect to any Designated Senior Debt, as such event of default is defined in the instrument creating or evidencing such Designated Senior Debt, permitting the holders of such Designated Senior Debt then outstanding to accelerate the maturity thereof and if the Representative for the respective issue of Designated Senior Debt gives written notice of the event of default to the Trustee (a "Default Notice"), then, unless and until all events of default have been cured or waived or have ceased to exist or the Trustee receives notice from the Representative for the 69 76 respective issue of Designated Senior Debt terminating the Blockage Period (as defined below), during the 180 days after the delivery of such Default Notice (the "Blockage Period"), neither the Company nor any other Person on its behalf shall (x) make any payment of any kind or character with respect to any Obligations on the Senior Subordinated Notes or (y) acquire any of the Senior Subordinated Notes for cash or property or otherwise. Notwithstanding anything herein to the contrary, in no event will a Blockage Period extend beyond 180 days from the date the payment on the Senior Subordinated Notes was due and only one such Blockage Period may be commenced within any 360 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Blockage Period with respect to the Designated Senior Debt shall be, or be made, the basis for commencement of a second Blockage Period by the Representative of such Designated Senior Debt whether or not within a period of 360 consecutive days, unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period that, in either case, would give rise to an event of default pursuant to any provisions under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). By reason of such subordination, in the event of the insolvency of the Company, creditors of the Company who are not holders of Senior Debt, including the Holders of the Senior Subordinated Notes, may recover less, ratably, than holders of Senior Debt. As of February 26, 1998, the Company had approximately $1.6 million of Senior Debt outstanding with respect to the Senior Subordinated Notes (exclusive of unused commitments of $40.0 million under the New Revolving Credit Facility). CHANGE OF CONTROL The Indenture provides that upon the occurrence of a Change of Control, each Holder will have the right to require that the Company purchase all or a portion of such Holder's Senior Subordinated Notes pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus accrued interest to the date of purchase. The Indenture provides that, prior to the mailing of the notice referred to below, but in any event within 30 days following any Change of Control, the Company covenants to either (i) repay in full and terminate all commitments under all Indebtedness under the New Revolving Credit Facility and all other Senior Debt the terms of which require repayment upon a Change of Control or offer to repay in full and terminate all commitments under all Indebtedness under the New Revolving Credit Facility and all other such Senior Debt and to repay the Indebtedness owed to each lender which has accepted such offer or (ii) obtain the requisite consents under the New Revolving Credit Facility and all other Senior Debt to permit the repurchase of the Senior Subordinated Notes as provided below. The Company shall first comply with the covenant in the immediately preceding sentence before it shall be required to repurchase Senior Subordinated Notes pursuant to the provisions described below. The Company's failure to comply with the immediately preceding sentence shall constitute an Event of Default described in clause (iii) and not in clause (ii) under "-- Events of Default." Within 30 days following the date upon which the Change of Control occurred, the Company must send, by first class mail, a notice to each Holder, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. Such notice shall state, among other things, the purchase date, which must be no earlier than 30 days nor later than 45 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have a Senior Subordinated Note purchased pursuant to a Change of Control Offer will be required to surrender the Senior Subordinated Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Senior Subordinated Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third business day prior to the Change of Control Payment Date. If a Change of Control Offer is made, there can be no assurance that the Company will have available funds sufficient to pay the Change of Control purchase price for all the Senior Subordinated Notes that might 70 77 be delivered by Holders seeking to accept the Change of Control Offer. In the event the Company is required to purchase outstanding Senior Subordinated Notes pursuant to a Change of Control Offer, the Company expects that it would seek third party financing to the extent it does not have available funds to meet its purchase obligations. However, there can be no assurance that the Company would be able to obtain such financing. Neither the Board of Directors of the Company nor the Trustee may waive the covenant relating to a Holder's right to redemption upon a Change of Control. Restrictions in the Indenture described herein on the ability of the Company and its Restricted Subsidiaries to incur additional Indebtedness, to grant liens on their property, to make Restricted Payments and to make Asset Sales may also make more difficult or discourage a takeover of the Company, whether favored or opposed by the management of the Company. Consummation of any such transaction in certain circumstances may require redemption or repurchase of the Senior Subordinated Notes, and there can be no assurance that the Company or the acquiring party will have sufficient financial resources to effect such redemption or repurchase. Such restrictions and the restrictions on transactions with Affiliates may, in certain circumstances, make more difficult or discourage any leveraged buyout of the Company or any of its Subsidiaries by the management of the Company. While such restrictions cover a wide variety of arrangements which have traditionally been used to effect highly leveraged transactions, the Indenture may not afford the Holders of Senior Subordinated Notes protection in all circumstances from the adverse aspects of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Senior Subordinated Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Change of Control" provisions of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Change of Control" provisions of the Indenture by virtue thereof. CERTAIN COVENANTS The Indenture contains, among others, the following covenants: Limitation on Incurrence of Additional Indebtedness. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness); provided, however, that if no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, the Company may incur Indebtedness (including, without limitation, Acquired Indebtedness) and Restricted Subsidiaries of the Company may incur Acquired Indebtedness, in each case if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1.0. Limitation on Restricted Payments. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Capital Stock of the Company) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock, (c) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, any Indebtedness of the Company that is subordinate or junior in right of payment to the Senior Subordinated Notes or (d) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (a), (b), (c) and (d) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Default or an Event of Default shall have occurred and be continuing or 71 78 (ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined reasonably and in good faith by the Board of Directors of the Company) shall exceed the sum of: (w) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to February 26, 1998 and on or prior to the date the Restricted Payment occurs (the "Reference Date") (treating such period as a single accounting period); plus (x) 100% of the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock of the Company; plus (y) without duplication of any amounts included in clause (iii)(x) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock (excluding, in the case of clauses (iii)(x) and (y), any net cash proceeds from a Public Equity Offering to the extent used to redeem the Fixed Rate Notes or Fixed Rate Exchange Notes in accordance with the provisions under the caption entitled "Redemption -- Optional Redemption upon Public Equity Offerings"); plus (z) without duplication, the sum of (1) the aggregate amount returned in cash on or with respect to Investments (other than Permitted Investments) made subsequent to the Issue Date whether through interest payments, principal payments, dividends or other distributions or payments, (2) the net cash proceeds received by the Company or any of its Restricted Subsidiaries from the disposition of all or any portion of such Investments (other than to a Subsidiary of the Company) and (3) upon redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary; provided, however, that the sum of clauses (1), (2) and (3) above shall not exceed the aggregate amount of all such Investments made subsequent to the Issue Date. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (1) the payment of any dividend or the consummation of any irrevocable redemption within 60 days after the date of declaration of such dividend or notice of such redemption if the dividend or the payment of the redemption price, as the case may be, would have been permitted on the date of declaration or notice; (2) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any shares of Capital Stock of the Company, either (i) solely in exchange for shares of Qualified Capital Stock of the Company or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the Company; (3) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any Indebtedness of the Company that is subordinate or junior in right of payment to the Senior Subordinated Notes either (i) solely in exchange for shares of Qualified Capital Stock of the Company, or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of (A) shares of Qualified Capital Stock of the Company or (B) Refinancing Indebtedness; (4) payments for the purpose of and in an amount equal to the amount required to permit the Company to redeem or repurchase its equity or options in respect thereof, in each case in connection with the terms of any employee stock option or stock purchase agreements or other agreements to compensate management or other employees; provided that such redemptions or repurchases pursuant to this clause (4) shall not exceed $3.0 million (which amount shall be increased by the amount of any net cash proceeds to the Company from (x) sales of Capital Stock of the Company to management or other employees subsequent to the Issue Date to the extent such amounts have not been included in clause (iii) in the foregoing paragraph and (y) any "key-man" life insurance policies which are used to make such redemptions or repurchases) in the aggregate; provided, further, that the cancellation of Indebtedness owing to the Company from management or other employees of the Company or any of its Restricted Subsidiaries in connection with a repurchase of Capital Stock of the Company will not be deemed to constitute a Restricted Payment under the Indenture; (5) repurchases of Capital Stock deemed to occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price thereof; (6) so long as no Default or Event of Default shall have occurred and be continuing, payments not to exceed $500,000 in the aggregate to enable the Company to make payments to holders of its Capital Stock in lieu of issuance of fractional shares of its Capital Stock; (7) payments or other distributions made in 72 79 connection with the Recapitalization; (8) if no Default or Event of Default shall have occurred and be continuing, the declaration and payment of cash dividends to holders of the Senior Preferred Stock commencing with the first scheduled dividend payment due subsequent to March 1, 2003; (9) prior to March 1, 2003, the Company's withholding and payment to any taxing authority of any cash amounts required to be withheld with respect to dividends paid to foreign holders of the Preferred Stock to the extent required by law; (10) the exchange of the Senior Preferred Stock for the Exchange Debentures, provided that such exchange is permitted by the "Limitation on Incurrence of Additional Indebtedness" covenant; and (11) if no Default or Event of Default shall have occurred and be continuing, other Restricted Payments in an aggregate amount not to exceed $10.0 million. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in accordance with clause (iii) of the immediately preceding paragraph, (a) amounts expended (to the extent such expenditure is in the form of cash) pursuant to clauses (1), (2)(ii), (4), (8), (9) and (11) shall be included in such calculation; provided that such expenditures pursuant to clause (4) shall not be included to the extent of cash proceeds received by the Company from any "key-man" life insurance policies and (b) amounts expended pursuant to clauses (2)(i), (3), (5), (6), (7) and (10) shall be excluded from such calculation. Limitation on Asset Sales. The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Company's Board of Directors), (ii) at least 75% of the consideration received by the Company or the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents and is received at the time of such disposition; and (iii) upon the consummation of an Asset Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof either (A) to prepay any Senior Debt (and, in the case of any Senior Debt under any revolving credit facility, including the New Revolving Credit Facility, effect a permanent reduction in the availability under such revolving credit facility), (B) to make an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets of a kind used or usable in the business of the Company and its Restricted Subsidiaries as conducted in accordance with the "Conduct of Business" covenant ("Replacement Assets"), or (C) a combination of prepayment and investment permitted by the foregoing clauses (iii)(A) and (iii)(B). On the 366th day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company or such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 60 days following the applicable Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis, that amount of Senior Subordinated Notes equal to the Net Proceeds Offer Amount at a price equal to 100% of the principal amount of the Senior Subordinated Notes to be purchased, plus accrued and unpaid interest thereon, if any, to the date of purchase; provided, however, that if at any time any non-cash consideration received by the Company or any Restricted Subsidiary of the Company, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other than interest received with respect to any such non-cash consideration), then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this covenant. The Company may defer the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $7.5 million resulting from one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not just the amount in excess of $7.5 million, shall be applied as required pursuant to this paragraph). In the event of the transfer of substantially all (but not all) of the property and assets of the Company and its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under "-- Merger, Consolidation and Sale of Assets," the successor corporation shall be deemed to have sold the properties and 73 80 assets of the Company and its Restricted Subsidiaries not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value of such properties and assets of the Company or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this covenant. Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 25 days following the Net Proceeds Offer Trigger Date (or if the Net Proceeds Offer has been deferred as described in the first paragraph of this covenant, the date that the aggregate unutilized Net Proceeds Offer Amount equals or exceeds $7.5 million), with a copy to the Trustee, and shall comply with the procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Senior Subordinated Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender Senior Subordinated Notes in an amount exceeding the Net Proceeds Offer Amount, Senior Subordinated Notes of tendering Holders will be purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open for a period of at least 20 and not more than 30 business days or such longer period as may be required by law. To the extent that the aggregate amount of Senior Subordinated Notes tendered pursuant to a Net Proceeds Offer is less than the Net Proceeds Offer Amount, the Company may use any remaining Net Proceeds Offer Amount for general corporate purposes. Upon completion of any such Net Proceeds Offer, the Net Proceeds Offer Amount shall be reset at zero. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Senior Subordinated Notes pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Asset Sale" provisions of the Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Asset Sale" provisions of the Indenture by virtue thereof. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (a) pay dividends or make any other distributions on or in respect of its Capital Stock; (b) make loans or advances or to pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary of the Company; or (c) transfer any of its property or assets to the Company or any other Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of: (1) applicable law; (2) the Indenture and the New Revolving Credit Facility; (3) non-assignment provisions of any contract or any lease; (4) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired; (5) agreements existing on the Issue Date to the extent and in the manner such agreements are in effect on the Issue Date; (6) restrictions on the transfer of assets subject to any Lien permitted under the Indenture imposed by the holder of such Lien; (7) restrictions imposed by any agreement to sell assets or Capital Stock permitted under the Indenture to any Person pending the closing of such sale; (8) any agreement or instrument governing Capital Stock of any Person that is acquired; (9) any agreement or instrument governing Indebtedness (whether or not outstanding) of foreign Restricted Subsidiaries of the Company permitted to be incurred pursuant to the Indenture; (10) other Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to the provisions of the covenant described under "Limitation on Incurrence of Additional Indebtedness"; provided that any such restrictions are ordinary and customary with respect to the type of Indebtedness being incurred (under the relevant circumstances); (11) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; and (12) any encumbrances or restrictions imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (2) through (11) above; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Company's Board of Directors, no more restrictive with respect to such dividend and other payment 74 81 restrictions than those contained in the dividend or other payment restrictions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing. Limitation on Preferred Stock of Restricted Subsidiaries. The Company will not permit any of its Restricted Subsidiaries to issue any preferred stock (other than to the Company or to a Wholly Owned Restricted Subsidiary of the Company) or permit any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company) to own any preferred stock of any Restricted Subsidiary of the Company. Limitation on Liens. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist any Liens of any kind against or upon any property or assets of the Company or any of its Restricted Subsidiaries whether owned on the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom unless (i) in the case of Liens securing Indebtedness that is expressly subordinate or junior in right of payment to the Senior Subordinated Notes, the Senior Subordinated Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens and (ii) in all other cases, the Senior Subordinated Notes are equally and ratably secured, except for (A) Liens existing as of the Issue Date and any extensions, renewals or replacements thereof; (B) Liens securing Senior Debt and Liens on assets of Restricted Subsidiaries of the Company securing guarantees of Senior Debt; (C) Liens of the Company or a Wholly Owned Restricted Subsidiary of the Company on assets of any Restricted Subsidiary of the Company; (D) Liens securing the Senior Subordinated Notes; (E) Liens securing Refinancing Indebtedness which is incurred to Refinance any Indebtedness which has been secured by a Lien permitted under the Indenture and which has been incurred in accordance with the provisions of the Indenture; provided, however, that such Liens (i) are no less favorable to the Holders and are not more favorable to the lienholders with respect to such Liens than the Liens in respect of the Indebtedness being Refinanced and (ii) do not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries not securing the Indebtedness so Refinanced; and (F) Permitted Liens. Prohibition on Incurrence of Senior Subordinated Debt. The Company will not incur or suffer to exist Indebtedness that is senior in right of payment to the Senior Subordinated Notes and subordinate in right of payment to any other Indebtedness of the Company. Merger, Consolidation and Sale of Assets. The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless: (i) either (1) the Company shall be the surviving or continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and of the Company's Restricted Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (y) shall expressly assume, by supplemental indenture (in form and substance satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Senior Subordinated Notes and the performance of every covenant of the Senior Subordinated Notes, the Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the "-- Limitation on Incurrence of Additional Indebtedness" covenant; (iii) immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred and any Lien granted in connection with or in 75 82 respect of the transaction), no Default or Event of Default shall have occurred or be continuing; and (iv) the Company or the Surviving Entity shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of the Indenture and that all conditions precedent in the Indenture relating to such transaction have been satisfied. Notwithstanding clause (ii) of the preceding sentence, (a) any Restricted Subsidiary of the Company may consolidate with, merge into or transfer all or part of its properties and assets to the Company and (b) the Company may merge with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. The Indenture will provide that upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture and the Senior Subordinated Notes with the same effect as if such surviving entity had been named as such. Limitations on Transactions with Affiliates. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under paragraph (b) below and (y) Affiliate Transactions on terms that are not materially less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $1.0 million shall be approved by the Board of Directors of the Company or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than $10.0 million, the Company or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and file the same with the Trustee. (b) The restrictions set forth in clause (a) shall not apply to (i) reasonable fees and compensation paid to and indemnity provided on behalf of officers, directors, employees or consultants of the Company or any Restricted Subsidiary of the Company as determined in good faith by the Company's Board of Directors or senior management (including, without limitation, fees and compensation under the Management Services Agreement with the Principal as in effect on the Issue Date); (ii) transactions exclusively between or among the Company and any of its Restricted Subsidiaries or exclusively between or among such Restricted Subsidiaries, provided such transactions are not otherwise prohibited by the Indenture; (iii) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date; (iv) Restricted Payments permitted by the Indenture; (v) the existence of, or the performance by the Company or any of its Restricted Subsidiaries of its obligations under the terms of, any stockholders agreement (including any registration rights agreement or purchase agreement 76 83 related thereto) to which it is a party as of the Issue Date and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by the Company or any of its Restricted Subsidiaries of obligations under, any future amendment to any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (v) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the Holders of the Senior Subordinated Notes in any material respect; (vi) transactions permitted by, and complying with, the provisions of the covenant described under "-- Merger, Consolidation and Sale of Assets"; (vii) the Recapitalization and the transactions contemplated by the Recapitalization Agreement; and (viii) transactions with customers, clients, suppliers, joint venture partners or purchasers or sellers of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of the Indenture, which are fair to the Company or its Restricted Subsidiaries, in the reasonable determination of the Board of Directors of the Company or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. Limitation of Guarantees by Restricted Subsidiaries. The Company will not permit any of its domestic Restricted Subsidiaries, directly or indirectly, by way of the pledge of any intercompany note or otherwise, to guarantee any Indebtedness of the Company or any other Restricted Subsidiary of the Company (other than (A) Indebtedness under Currency Agreements in reliance on clause (v) of the definition of Permitted Indebtedness, or (B) Interest Swap Obligations incurred in reliance on clause (iv) of the definition of Permitted Indebtedness), unless, in any such case, (a) such Restricted Subsidiary executes and delivers a supplemental indenture to the Indenture providing a guarantee of payment of the Senior Subordinated Notes by such Restricted Subsidiary (the "Guarantee") and (b) (x) if any such guarantee of such Restricted Subsidiary is provided in respect of Senior Debt, the guarantee or other instrument provided by such Restricted Subsidiary in respect of such Senior Debt may be superior to the Guarantee pursuant to subordination provisions no less favorable to the Holders of the Senior Subordinated Notes than those contained in the Indenture and (y) if any such guarantee of such Restricted Subsidiary is provided in respect of Indebtedness that is expressly subordinated to the Senior Subordinated Notes, the guarantee or other instrument provided by such Restricted Subsidiary in respect of such subordinated Indebtedness shall be subordinated to the Guarantee pursuant to subordination provisions no less favorable to the Holders of the Senior Subordinated Notes than those contained in the Indenture. Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary of the Senior Subordinated Notes shall provide by its terms that it shall be automatically and unconditionally released and discharged, without any further action required on the part of the Trustee or any Holder, upon: (i) the unconditional release of such Restricted Subsidiary from its liability in respect of the Indebtedness in connection with which such Guarantee was executed and delivered pursuant to the preceding paragraph; or (ii) any sale or other disposition (by merger or otherwise) to any Person which is not a Restricted Subsidiary of the Company of all of the Company's Capital Stock in, or all or substantially all of the assets of, such Restricted Subsidiary; provided that (a) such sale or disposition of such Capital Stock or assets is otherwise in compliance with the terms of the Indenture and (b) such assumption, guarantee or other liability of such Restricted Subsidiary has been released by the holders of the other Indebtedness so guaranteed. Conduct of Business. The Company and its Restricted Subsidiaries will not engage in any businesses which are not the same, similar, reasonably related, ancillary or complementary to the businesses in which the Company and its Restricted Subsidiaries are engaged on the Issue Date. Reports to Holders. The Indenture provides that the Company will deliver to the Trustee within 15 days after the filing of the same with the Commission, copies of the quarterly and annual reports and of the information, documents and other reports, if any, which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further provides that, notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, following the effectiveness of the Exchange Offer Registration Statement, the Company will file with the Commission, to the extent permitted, and provide the Trustee and Holders with such annual reports and such 77 84 information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act. The Company will also comply with the other provisions of TIA sec. 314(a). EVENTS OF DEFAULT The following events are defined in the Indenture as "Events of Default": (i) the failure to pay interest on any Senior Subordinated Notes when the same becomes due and payable and the default continues for a period of 30 days (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); (ii) the failure to pay the principal on any Senior Subordinated Notes, when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Senior Subordinated Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether or not such payment shall be prohibited by the subordination provisions of the Indenture); (iii) a default in the observance or performance of any other covenant or agreement contained in the Indenture which default continues for a period of 30 days after the Company receives written notice specifying the default (and demanding that such default be remedied) from the Trustee or the Holders of at least 25% of the outstanding principal amount of the Senior Subordinated Notes (except in the case of a default with respect to the "Merger, Consolidation and Sale of Assets" covenant, which will constitute an Event of Default with such notice requirement but without such passage of time requirement); (iv) the failure to pay at final stated maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness for borrowed money of the Company or any Restricted Subsidiary of the Company and such failure continues for a period of 20 days or more, or the acceleration of the final stated maturity of any such Indebtedness (which acceleration is not rescinded, annulled or otherwise cured within 20 days of receipt by the Company or such Restricted Subsidiary of notice of any such acceleration) if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at final stated maturity or which has been accelerated, in each case with respect to which the 20-day period described above has passed, aggregates $10.0 million or more at any time; (v) one or more judgments for the payment of money in an aggregate amount in excess of $10.0 million shall have been rendered against the Company or any of its Restricted Subsidiaries and such judgments remain undischarged, unpaid or unstayed for a period of 60 days after such judgment or judgments become final and non-appealable; or (vi) certain events of bankruptcy affecting the Company or any of its Significant Subsidiaries. If an Event of Default (other than an Event of Default specified in clause (vi) above with respect to the Company) shall occur and be continuing, the Trustee or the Holders of at least 25% in principal amount of outstanding Senior Subordinated Notes may declare the principal of and accrued interest on all the Senior Subordinated Notes to be due and payable by notice in writing to the Company and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the New Revolving Credit Facility, shall become due and payable upon the first to occur of an acceleration under the New Revolving Credit Facility or 5 business days after receipt by the Company and the Representative under the New Revolving Credit Facility of such Acceleration Notice but only if such Event of Default is then continuing. If an Event of Default specified in clause (vi) above occurs with respect to the Company and is continuing, then all unpaid principal of, and premium, if any, and accrued and unpaid interest on all of the outstanding Senior Subordinated Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Indenture provides that, at any time after a declaration of acceleration with respect to the Senior Subordinated Notes as described in the preceding paragraph, the Holders of a majority in principal amount of 78 85 the outstanding Senior Subordinated Notes may, on behalf of the Holders of all of the Senior Subordinated Notes, rescind and cancel such declaration and its consequences (i) if the rescission would not conflict with any judgment or decree, (ii) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration, (iii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid, (iv) if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances and (v) in the event of the cure or waiver of an Event of Default of the type described in clause (vi) of the description above of Events of Default, the Trustee shall have received an officers' certificate and an opinion of counsel that such Event of Default has been cured or waived. No such rescission shall affect any subsequent Default or impair any right consequent thereto. The Holders of a majority in principal amount of the Senior Subordinated Notes may waive any existing Default or Event of Default under the Indenture, and its consequences, except a default in the payment of the principal of or interest on any Senior Subordinated Notes. Holders of the Senior Subordinated Notes may not enforce the Indenture or the Senior Subordinated Notes except as provided in the Indenture and under the TIA. Subject to the provisions of the Indenture relating to the duties of the Trustee, the Trustee is under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable indemnity. Subject to all provisions of the Indenture and applicable law, the Holders of a majority in aggregate principal amount of the then outstanding Senior Subordinated Notes have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. Under the Indenture, the Company is required to provide an officers' certificate to the Trustee promptly upon any such officer obtaining knowledge of any Default or Event of Default (provided that such officers shall provide such certification at least annually whether or not they know of any Default or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have its obligations discharged with respect to the outstanding Senior Subordinated Notes ("Legal Defeasance"). Such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Senior Subordinated Notes, except for (i) the rights of Holders to receive payments in respect of the principal of, premium, if any, and interest on the Senior Subordinated Notes when such payments are due, (ii) the Company's obligations with respect to the Senior Subordinated Notes concerning issuing temporary Senior Subordinated Notes, registration of Senior Subordinated Notes, mutilated, destroyed, lost or stolen Senior Subordinated Notes and the maintenance of an office or agency for payments, (iii) the rights, powers, trust, duties and immunities of the Trustee and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Senior Subordinated Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, reorganization and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Senior Subordinated Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders cash in U.S. dollars, non-callable U.S. government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the Senior Subordinated Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be; (ii) in the case of Legal Defeasance, the Company shall have delivered 79 86 to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default under the Indenture resulting from the incurrence of Indebtedness, all or a portion of which will be used to defease the Senior Subordinated Notes concurrently with such incurrence); (v) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under the Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; (vii) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; (viii) the Company shall have delivered to the Trustee an opinion of counsel to the effect that (A) the trust funds will not be subject to any rights of holders of Senior Debt, including, without limitation, those arising under the Indenture and (B) assuming no intervening bankruptcy or insolvency of the Company between the date of deposit and the 91st day following the date of deposit and that no Holder is an insider of the Company, after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (ix) certain other customary conditions precedent are satisfied. Notwithstanding the foregoing, the Opinion of Counsel required by clause (ii) above with respect to a Legal Defeasance need not be delivered if all Senior Subordinated Notes not theretofore delivered to the Trustee for cancellation (x) have become due and payable, (y) will become due and payable on the maturity date within one year or (z) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company. SATISFACTION AND DISCHARGE The Indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the Senior Subordinated Notes, as expressly provided for in the Indenture) as to all outstanding Senior Subordinated Notes when (i) either (a) all the Senior Subordinated Notes theretofore authenticated and delivered (except lost, stolen or destroyed Senior Subordinated Notes which have been replaced or paid and Senior Subordinated Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation or (b) all Senior Subordinated Notes not theretofore delivered to the Trustee for cancellation have become due and payable and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Senior Subordinated Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Senior Subordinated Notes to the date of deposit together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (ii) the Company has paid all other sums payable under the Indenture by the Company; and (iii) the Company has delivered to the Trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with. 80 87 MODIFICATION OF THE INDENTURE From time to time, the Company and the Trustee, without the consent of the Holders, may amend the Indenture for certain specified purposes, including curing ambiguities, defects or inconsistencies, so long as such change does not, in the opinion of the Trustee, adversely affect the rights of any of the Holders in any material respect. In formulating its opinion on such matters, the Trustee will be entitled to rely on such evidence as it deems appropriate, including, without limitation, solely on an opinion of counsel. Other modifications and amendments of the Indenture may be made with the consent of the Holders of a majority in principal amount of the then outstanding Senior Subordinated Notes issued under the Indenture, except that, without the consent of each Holder affected thereby, no amendment may: (i) reduce the amount of Senior Subordinated Notes whose Holders must consent to an amendment; (ii) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any Senior Subordinated Notes; (iii) reduce the principal of or change or have the effect of changing the fixed maturity of any Senior Subordinated Notes, or change the date on which any Senior Subordinated Notes may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (iv) make any Senior Subordinated Notes payable in money other than that stated in the Senior Subordinated Notes; (v) make any change in provisions of the Indenture protecting the right of each Holder to receive payment of principal of and interest on such Senior Subordinated Note on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of Senior Subordinated Notes to waive Defaults or Events of Default; (vi) amend, change or modify in any material respect the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or make and consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated or modify any of the provisions or definitions with respect thereto after a Change of Control has occurred or the subject Asset Sale has been consummated; or (vii) modify or change any provision of the Indenture or the related definitions affecting the subordination or ranking of the Senior Subordinated Notes in a manner which adversely affects the Holders in any material respect. GOVERNING LAW The Indenture provides that it and the Senior Subordinated Notes will be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it by the Indenture, and use the same degree of care and skill in its exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. The Indenture and the provisions of the TIA contain certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payments of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the Trustee will be permitted to engage in other transactions; provided that if the Trustee acquires any conflicting interest as described in the TIA, it must eliminate such conflict or resign. CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the Indenture, the Certificate of Designation and the Exchange Indenture. Reference is made to the applicable document for the full definition of all such terms, as well as any other terms used herein for which no definition is provided. "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Subsidiaries or assumed in connection with the acquisition of assets from such Person 81 88 and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition, merger or consolidation. "Affiliate" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. 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, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. For purposes of the Indenture, the Certificate of Designation and the Exchange Indenture, BT Alex. Brown Incorporated, Bankers Trust Company and their Affiliates shall not be deemed to be Affiliates of the Company or its Restricted Subsidiaries. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company, or (b) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any Person (other than a Restricted Subsidiary of the Company) which constitute all or substantially all of the assets of such Person or comprise any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Company or any of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company of (a) any Capital Stock of any Restricted Subsidiary of the Company; or (b) any other property or assets of the Company or any Restricted Subsidiary of the Company other than in the ordinary course of business; provided, however, that Asset Sales shall not include (i) a transaction or series of related transactions for which the Company or its Restricted Subsidiaries receive aggregate consideration of less than $500,000, (ii) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of the Company as permitted under "Merger, Consolidation and Sale of Assets" or any disposition that constitutes a Change of Control, (iii) the sale or discount, in each case without recourse, of accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof, (iv) the factoring of accounts receivable arising in the ordinary course of business pursuant to arrangements customary in the region, (v) the licensing of intellectual property, (vi) disposals or replacements of obsolete equipment in the ordinary course of business, and (vii) the sale, lease, conveyance, disposition or other transfer by the Company or any Restricted Subsidiary of the Company of assets or property in connection with Restricted Payments permitted under the "Limitation on Restricted Payments" covenant. "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and preferred stock of such Person and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the 82 89 United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; and (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of the Indenture, the Certificate of Designation or the Exchange Indenture, as the case may be) other than to the Permitted Holders; (ii) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of the Indenture, the Certificate of Designation or the Exchange Indenture, as the case may be); (iii) any Person or Group (other than the Permitted Holders) shall become the owner, directly or indirectly, beneficially, of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company; or (iv) the first day on which a majority of the members of the Board of Directors of the Company during the two year period immediately preceding such date are not Continuing Directors. Notwithstanding anything to the contrary contained in the foregoing, a "Change of Control" shall not be deemed to occur upon consummation of (A) the Recapitalization, (B) the merger of the Company with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction or (C) any transaction described in clauses (i) or (iii) of the immediately preceding sentence if, after giving effect to such transaction, (1) the Permitted Holders shall beneficially own, directly or indirectly, shares of Capital Stock representing at least 35% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company and (2) no Person or Group shall beneficially own, directly or indirectly, a greater percentage of such voting power than the Permitted Holders. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Consolidated EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent Consolidated Net Income has been reduced thereby, (A) all income taxes and foreign withholding taxes of such Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary, unusual or nonrecurring gains or losses or taxes attributable to sales or dispositions outside the ordinary course of business), (B) Consolidated Interest Expense and (C) Consolidated Non-cash Charges less, to the extent Consolidated Net Income has been increased thereby, any non-cash items increasing Consolidated Net Income for such period, all as determined on a consolidated basis for such Person and its Restricted Subsidiaries in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of Consolidated EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge 83 90 Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to (i) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA (including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under the Securities Act) attributable to the assets which are the subject of the Asset Acquisition or Asset Sale during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and (2) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) Consolidated Interest Expense, plus (ii) the amount of all dividend payments on any series of preferred stock of such Person (other than dividends paid in Qualified Capital Stock or the amortization of deferred financing costs relating to the issuance of the Senior Preferred Stock) paid, accrued or scheduled to be paid or accrued during such period. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum of, without duplication: (i) the aggregate of the interest expense of such Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including, without limitation, (a) any amortization of debt discount and (b) the net costs under Interest Swap Obligations, but excluding any amortization or write-off of deferred financing costs; and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom (a) after-tax gains and losses from Asset Sales (without giving effect to the proviso therein) or abandonments or reserves relating thereto, (b) after-tax items classified as extraordinary or nonrecurring gains and losses, (c) the net income or loss of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Restricted Subsidiary of the referent Person or is merged or consolidated with the referent Person or any Restricted Subsidiary of the referent Person, (d) the net income (but not loss) of any Restricted Subsidiary of the 84 91 referent Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise, (e) the net loss of any Person other than a Restricted Subsidiary of the Company, (f) the net income of any Person, other than a Restricted Subsidiary of the referent Person, except to the extent of cash dividends or distributions paid to the referent Person or to a Wholly Owned Restricted Subsidiary of the referent Person by such Person, (g) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued), (h) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets, (i) non-cash, non-recurring charges reducing Consolidated Net Income (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of prepaid cash expense that was paid in a prior period not included in the calculation), (j) non-cash compensation charges, including any arising from stock options, (k) gains and losses due solely to fluctuations in currency values and the related tax effects according to GAAP, (l) start-up costs and duplicative costs incurred in connection with the transition services agreements in effect on the Issue Date (as the same may be amended from time to time), not to exceed $200,000, (m) costs relating to the implementation of the Baan information technology system which have not been capitalized and (n) expenses related to the Recapitalization. "Consolidated Non-cash Charges" means, with respect to any Person, for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss or any such charge which requires an accrual of or a reserve for cash charges for any future period). "Consolidated Tangible Assets" means, with respect to any Person, as of any date of determination, the total assets, less goodwill, deferred financing costs and other intangibles and less accumulated amortization, shown on the most recent balance sheet of such Person, determined on a consolidated basis in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the first day of the two-year period immediately preceding such date of determination or (ii) was nominated for election or elected to such Board of Directors with, or whose election to such Board of Directors was approved by, the affirmative vote of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election or (iii) is any designee of the Principal or its Affiliates or was nominated by the Principal or its Affiliates or any designees of the Principal or its Affiliates on the Board of Directors. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary of the Company against fluctuations in currency values. "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "Designated Senior Debt" means (i) Indebtedness under or in respect of the New Revolving Credit Facility and (ii) any other Indebtedness constituting Senior Debt which, at the time of determination, has an aggregate principal amount of at least $25.0 million and is specifically designated in the instrument evidencing such Senior Debt as "Designated Senior Debt" by the Company. "Disqualified Capital Stock" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking (other than upon the occurrence of a Change of Control) fund obligation or otherwise, or is redeemable at the sole option of the holder thereof on or prior to the final maturity date of the Senior Subordinated Notes or the Exchange Debentures, as the case may be, or the date of the mandatory redemption of the Senior Preferred Stock, as the case may be. 85 92 "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. "fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a Board Resolution of the Board of Directors of the Company delivered to the Trustee. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. Except as otherwise set forth herein, all ratios and computations based on GAAP contained in the Indenture, the Certificate of Designation or the Exchange Indenture, as the case may be, shall be computed in conformity with GAAP applied on a consistent basis. "Indebtedness" means with respect to any Person, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all obligations under any title retention agreement (but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business), (v) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (vi) guarantees and other contingent obligations of such Person in respect of Indebtedness referred to in clauses (i) through (v) above and clause (viii) below, (vii) all obligations of any other Person of the type referred to in clauses (i) through (vi) which are secured by any lien on any property or asset of such Person, the amount of such obligation being deemed to be the lesser of the fair market value of such property or asset or the amount of the obligation so secured, (viii) all obligations under currency agreements and interest swap agreements of such Person and (ix) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the Indenture or the Exchange Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. "Independent Financial Advisor" means a firm (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. "Interest Swap Obligations" means the obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any Person. "Investment" shall exclude extensions of trade credit by the 86 93 Company and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. For the purposes of the "Limitation on Restricted Payments" covenant, (i) "Investment" shall include and be valued at the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude the fair market value of the net assets of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any Investment shall be the original cost of such Investment plus the cost of all additional Investments by the Company or any of its Restricted Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by the payment of dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment; provided that no such payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such payment of dividends or distributions or receipt of any such amounts would be included in Consolidated Net Income. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, 100% of the outstanding Common Stock of such Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of. "Issue Date" means February 26, 1998, the date of original issuance of the Notes. "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such deferred payment constituting interest) received by the Company or any of its Restricted Subsidiaries from such Asset Sale net of (a) out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions), (b) taxes paid or payable after taking into account any reduction in consolidated tax liability due to available tax credits or deductions and any tax sharing arrangements, (c) repayment of Indebtedness that is required to be repaid in connection with such Asset Sale and (d) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, post-closing adjustments, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale. "New Revolving Credit Facility" means the Credit Agreement dated as of the Issue Date, among the Company, the lenders party thereto in their capacities as lenders thereunder and Bankers Trust Company, as agent, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including, without limitation, increasing the amount of available borrowings thereunder or adding Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Permitted Holders" means the Principal and its Affiliates. 87 94 "Permitted Indebtedness" means, without duplication, each of the following: (i) Indebtedness under the Notes issued in the Offering and the Exchange Notes issued in exchange therefor; (ii) Indebtedness incurred pursuant to the New Revolving Credit Facility in an aggregate principal amount at any time outstanding not to exceed the greater of (a) $40.0 million and (b) the excess of (1) the sum of 50% of the book value of the inventory of the Company and its Restricted Subsidiaries and 65% of the book value of the accounts receivable of the Company and its Restricted Subsidiaries over (2) the amount of Indebtedness of foreign Restricted Subsidiaries of the Company outstanding pursuant to clause (xiv) below; (iii) other Indebtedness of the Company and its Restricted Subsidiaries outstanding on the Issue Date reduced by the amount of any scheduled amortization payments or mandatory prepayments when actually paid or permanent reductions thereon; (iv) Interest Swap Obligations of the Company or any of its Restricted Subsidiaries covering Indebtedness of the Company or any of its Restricted Subsidiaries; provided, however, that such Interest Swap Obligations are entered into to protect the Company and its Restricted Subsidiaries from fluctuations in interest rates on Indebtedness incurred in accordance with the Indenture, the Certificate of Designation or the Exchange Indenture, as the case may be, to the extent the notional principal amount of such Interest Swap Obligation does not exceed the principal amount of the Indebtedness to which such Interest Swap Obligation relates; (v) Indebtedness under Currency Agreements; provided that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the Company to the Company or to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by the Company or a Wholly Owned Restricted Subsidiary of the Company, in each case subject to no Lien (other than Liens permitted under the Indenture) held by a Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company; provided that if as of any date any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or holds a Lien (other than Liens permitted under the Indenture) in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness; (vii) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by a Wholly Owned Restricted Subsidiary of the Company; provided that (a) any Indebtedness of the Company to any Wholly Owned Restricted Subsidiary of the Company is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Indenture and the Senior Subordinated Notes and (b) if as of any date any Person other than a Wholly Owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or any Person holds a Lien (other than Liens permitted under the Indenture) in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the Company; (viii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five business days of incurrence; (ix) Indebtedness of the Company or any of its Restricted Subsidiaries represented by letters of credit for the account of the Company or such Restricted Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business; 88 95 (x) Indebtedness represented by Capitalized Lease Obligations and Purchase Money Indebtedness of the Company and its Restricted Subsidiaries incurred in the ordinary course of business not to exceed the greater of $7.5 million and 5% of Consolidated Tangible Assets of the Company at any one time outstanding; (xi) Indebtedness arising from agreements of the Company or a Restricted Subsidiary of the Company providing for indemnification, adjustment of purchase price, earn out or other similar obligations, in each case incurred or assumed in connection with the disposition of any business, assets or a Restricted Subsidiary of the Company in a principal amount not to exceed the gross proceeds actually received by the Company or any of its Restricted Subsidiaries in connection with such disposition; (xii) obligations in respect of performance and surety bonds and completion guarantees provided by the Company or any Restricted Subsidiary of the Company in the ordinary course of business; (xiii) guarantees by the Company and its Wholly Owned Restricted Subsidiaries of each other's Indebtedness; provided that such Indebtedness is permitted to be incurred under the Indenture, the Certificate of Designation or the Exchange Indenture, as the case may be, including with respect to Wholly Owned Restricted Subsidiaries of the Company, the "Limitation of Guarantees by Restricted Subsidiaries" covenant; (xiv) Indebtedness of foreign Restricted Subsidiaries of the Company incurred to finance working capital of such foreign Restricted Subsidiaries in an aggregate principal amount at any time outstanding not to exceed the sum of 50% of the book value of the inventory of such foreign Restricted Subsidiaries and 65% of the book value of the accounts receivable of such foreign Restricted Subsidiaries; (xv) Refinancing Indebtedness; and (xvi) additional Indebtedness of the Company and its Restricted Subsidiaries in an aggregate principal amount not to exceed $20.0 million at any one time outstanding (which amount may, but need not, be incurred in whole or in part under the New Revolving Credit Facility). "Permitted Investments" means (i) Investments by the Company or any Restricted Subsidiary of the Company in any Person that is or will become immediately after such Investment a Wholly Owned Restricted Subsidiary of the Company or that will merge or consolidate into the Company or a Wholly Owned Restricted Subsidiary of the Company, (ii) Investments in the Company by any Restricted Subsidiary of the Company; provided that any Indebtedness evidencing such Investment is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Senior Subordinated Notes and the Indenture; (iii) investments in cash and Cash Equivalents; (iv) loans and advances to employees and officers of the Company and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $500,000 at any one time outstanding; (v) Currency Agreements and Interest Swap Obligations entered into in the ordinary course of the Company's or its Restricted Subsidiaries' businesses and otherwise in compliance with the Indenture, the Certificate of Designation or the Exchange Indenture, as the case may be; (vi) Investments not to exceed the greater of $7.5 million and 5% of Consolidated Tangible Assets of the Company at the time of such Investment at any one time outstanding; (vii) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (viii) Investments made by the Company or its Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with the "Limitation on Asset Sales" covenant; (ix) accounts receivable created or acquired in the ordinary course of business; (x) guarantees (a) by the Company of Indebtedness otherwise permitted to be incurred by Restricted Subsidiaries of the Company under the Indenture, the Certificate of Designation or the Exchange Indenture, as the case may be, or (b) permitted by the "Limitation of Guarantees by Restricted Subsidiaries" covenant; and (xi) Investments the payment for which consists exclusively of Qualified Capital Stock of the Company. 89 96 "Permitted Liens" means the following types of Liens: (i) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) judgment Liens not giving rise to an Event of Default; (v) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of the real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (vi) any interest or title of a lessor under any Capitalized Lease Obligation; provided that such Liens do not extend to any property or assets which is not leased property subject to such Capitalized Lease Obligation; (vii) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (viii) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (ix) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set-off; (x) Liens securing Interest Swap Obligations which Interest Swap Obligations relate to Indebtedness that is otherwise permitted under the Indenture; (xi) Liens securing Capitalized Lease Obligations and Purchase Money Indebtedness permitted pursuant to clause (x) of the definition of "Permitted Indebtedness"; provided, however, that in the case of Purchase Money Indebtedness (A) the Indebtedness shall not exceed the cost of such property or assets and shall not be secured by any property or assets of the Company or any Restricted Subsidiary of the Company other than the property and assets so acquired or constructed and (B) the Lien securing such Indebtedness shall be created within 180 days of such acquisition or construction or, in the case of a refinancing of any Purchase Money Indebtedness, within 180 days of such refinancing; (xii) Liens securing Indebtedness under Currency Agreements; (xiii) Liens securing Acquired Indebtedness incurred in accordance with the "Limitation on Incurrence of Additional Indebtedness" covenant; provided that (A) such Liens secured such Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company and were not granted in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company and (B) such Liens do not extend to or cover any property or assets of the Company or of any of its Restricted Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or a Restricted 90 97 Subsidiary of the Company and are no more favorable to the lienholders than those securing the Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company; (xiv) Liens securing Indebtedness of foreign Restricted Subsidiaries of the Company which Indebtedness is permitted to be incurred pursuant to the Indenture; (xv) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not in the aggregate exceed $2.0 million at any one time outstanding; (xvi) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries; (xvii) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (xviii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of custom duties in connection with the importation of goods; and (xix) Liens existing on the Issue Date, together with any Liens securing Refinancing Indebtedness incurred in order to refinance the Indebtedness secured by Liens existing on the Issue Date; provided that the Liens securing the Refinancing Indebtedness shall not extend to property other than that pledged under the Liens securing the Indebtedness being refinanced. "Person" means an individual, partnership, corporation, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "preferred stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "Principal" means Cornerstone Equity Investors, L.L.C. "Purchase Money Indebtedness" means Indebtedness of the Company and its Restricted Subsidiaries incurred in the normal course of business for the purpose of financing all or any part of the purchase price, or the cost of installation, construction or improvement, of property or equipment. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means any Refinancing by the Company or any Restricted Subsidiary of the Company of (A) for purposes of clause (xv) of the definition of Permitted Indebtedness, Indebtedness incurred in accordance with the "Limitation on Incurrence of Additional Indebtedness" covenant (other than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi), (xii), (xiii), (xiv) or (xvi) of the definition of Permitted Indebtedness) or (B) for any other purpose, Indebtedness issued in accordance with the "Limitation on Incurrence of Additional Indebtedness" covenant, in each case that does not (1) result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed Refinancing (plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable expenses incurred by the Company in connection with such Refinancing) except to the extent such increase is otherwise permitted to be incurred under the Indenture, the Certificate of Designation or the Exchange Indenture, as the case may be, or (2) create Indebtedness with a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced; provided that (x) if such Indebtedness being Refinanced is Indebtedness solely of the Company, then such Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if such Indebtedness being Refinanced is subordinate or junior to the Senior Subordinated Notes, then such Refinancing Indebtedness shall be subordinate or junior to the Senior Subordinated Notes at least to the same extent and in the same manner as the Indebtedness being Refinanced. "Representative" means the indenture trustee or other trustee, agent or representative in respect of any Designated Senior Debt; provided that if, and for so long as, any Designated Senior Debt lacks such a representative, then the Representative for such Designated Senior Debt shall at all times constitute the 91 98 holders of a majority in outstanding principal amount of such Designated Senior Debt in respect of any Designated Senior Debt. "Restricted Subsidiary" of any Person means any Subsidiary of such Person which at the time of determination is not an Unrestricted Subsidiary. "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Restricted Subsidiary of any property, whether owned by the Company or any Restricted Subsidiary at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property. "Senior Debt" means the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Senior Subordinated Notes or the Exchange Debentures, as the case may be. Without limiting the generality of the foregoing, "Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, (x) all monetary obligations (including guarantees thereof) of every nature of the Company under the New Revolving Credit Facility, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities, and, in the case of the Exchange Indenture, all obligations under the Indenture, (y) all Interest Swap Obligations (including guarantees thereof) and (z) all obligations (including guarantees thereof) under Currency Agreements, in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, "Senior Debt" shall not include (i) any Indebtedness of the Company to a Subsidiary of the Company or any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of the Company or any Subsidiary of the Company (including, without limitation, amounts owed for compensation), (iii) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services, (iv) Indebtedness represented by Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed or owing by the Company, (vi) that portion of any Indebtedness incurred in violation of the Indenture or Exchange Indenture provisions, as the case may be, set forth under "Limitation on Incurrence of Additional Indebtedness" (but, as to any such obligation, no such violation shall be deemed to exist for purposes of this clause (vi) if the holder(s) of such obligation or their representative and the Trustee shall have received an officers' certificate of the Company to the effect that the incurrence of such Indebtedness does not (or, in the case of revolving credit indebtedness, that the incurrence of the entire committed amount thereof at the date on which the initial borrowing thereunder is made would not) violate such provisions of the Indenture), (vii) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company and (viii) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of the Company, including, in the case of the Indenture, the Exchange Debentures. "Significant Subsidiary", with respect to any Person, means any Restricted Subsidiary of such Person that satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities Act. "Subsidiary", with respect to any Person, means (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. 92 99 "Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided that (x) the Company certifies to the Trustee that such designation complies with the "Limitation on Restricted Payments" covenant and (y) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if (x) immediately after giving effect to such designation, the Company is able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant and (y) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an officers' certificate certifying that such designation complied with the foregoing provisions. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "Wholly Owned Restricted Subsidiary" of any Person means any Restricted Subsidiary of such Person of which all the outstanding voting securities (other than in the case of a foreign Restricted Subsidiary, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law) are owned by such Person or any Wholly Owned Restricted Subsidiary of such Person. 93 100 DESCRIPTION OF THE SENIOR PREFERRED STOCK AND EXCHANGE DEBENTURES SENIOR PREFERRED STOCK The summary contained herein of certain provisions of the Senior Preferred Stock does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all of the provisions of the certificate of designation creating the Senior Preferred Stock (the "Certificate of Designation"), copies of which may be obtained from the Company upon request. The definitions of certain capitalized terms used in the following summary are set forth under "Description of Senior Subordinated Notes -- Certain Definitions" below. Other capitalized terms used herein and not otherwise defined under "Description of Senior Subordinated Notes -- Certain Definitions" below have the meanings assigned to them in the Certificate of Designation and such definitions are incorporated herein by reference. For purposes of this section, reference to the "Senior Preferred Stock" includes the Preferred Stock and the Exchange Preferred Stock. The form and terms of the Exchange Preferred Stock are the same as the form and terms of the Preferred Stock (which they replace) except that (i) the Exchange Preferred Stock bear a Series B designation, (ii) the Exchange Preferred Stock have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof and (iii) the holders of the Exchange Preferred Stock will not be entitled to certain rights under the Registration Rights Agreement, including the provisions providing for an increase in the dividend rate on the Preferred Stock in certain circumstances relating to the timing of the Exchange Offer, which rights will terminate when the Exchange Offer is consummated. See "Exchange Offer -- Purpose and Effect of the Exchange Offer." GENERAL The Board of Directors of the Company adopted resolutions creating a maximum of 750,000 shares of Senior Preferred Stock outstanding at any one time, which consists of 250,000 shares of Preferred Stock issued in the Offering plus 500,000 additional shares of Senior Preferred Stock which, among other things, may be used to pay certain dividends on outstanding shares of Senior Preferred Stock. The liquidation preference of the Senior Preferred Stock is $100.00 per share. Subject to certain conditions, the Senior Preferred Stock will be exchangeable for the Exchange Debentures at the option of the Company on any dividend payment date on or after the Issue Date. The Senior Preferred Stock will be fully paid and nonassessable and the holders thereof will not have any subscription or preemptive rights in connection therewith. RANKING The Senior Preferred Stock, with respect to dividend rights and rights upon the liquidation, winding-up and dissolution of the Company, ranks (i) senior to all classes of Common Stock and to each other class or series of Capital Stock established after the Issue Date by the Board of Directors of the Company the terms of which do not expressly provide that it ranks senior or on a parity with the Senior Preferred Stock as to dividend rights and rights upon the liquidation, winding-up and dissolution of the Company (collectively referred to, together with all classes of Common Stock of the Company, as "Junior Stock"); (ii) subject to certain conditions, on a parity with each other class or series of Capital Stock established after the Issue Date by the Board of Directors of the Company the terms of which expressly provide that such class or series will rank on a parity with the Senior Preferred Stock as to dividend rights and rights upon liquidation, winding-up and dissolution (collectively referred to as "Parity Stock"); and (iii) subject to certain conditions, junior to each class or series of Capital Stock established after the Issue Date by the Board of Directors of the Company the terms of which expressly provide that such class will rank senior to the Senior Preferred Stock as to dividend rights and rights upon liquidation, winding-up and dissolution of the Company (collectively referred to as the "Senior Stock"). The Company may not authorize any new class of Parity Stock or Senior Stock without the approval of the holders of at least a majority of the shares of Senior Preferred Stock then outstanding, voting or consenting, as the case may be, as one class; provided, however, that prior to March 1, 2003, the Company can issue additional shares of Senior Preferred Stock to satisfy dividend payments on outstanding shares of Senior Preferred Stock. 94 101 DIVIDENDS Holders of the outstanding shares of Senior Preferred Stock will be entitled to receive, when, as and if declared by the Board of Directors of the Company, out of funds legally available therefor, cash dividends on the Senior Preferred Stock at a rate per annum equal to 12 1/2% of the liquidation preference per share of Senior Preferred Stock, payable quarterly. In the event that, after March 1, 2003, dividends on the Senior Preferred Stock are in arrears and unpaid for six or more quarterly dividend periods (whether or not consecutive), holders of Senior Preferred Stock will be entitled to certain voting rights. See " -- Voting Rights" below. All dividends will be cumulative, whether or not declared, from the Issue Date and will be payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year (each a "Dividend Payment Date"), commencing on June 1, 1998, to holders of record on the February 15, May 15, August 15 and November 15 immediately preceding the relevant Dividend Payment Date. Dividends may be paid, at the Company's option, on any Dividend Payment Date occurring on or prior to March 1, 2003 either in cash or by the issuance of additional shares of Senior Preferred Stock (including fractional shares) having an aggregate liquidation preference equal to the amount of such dividends. In the event that on or prior to March 1, 2003 dividends are declared and paid through the issuance of additional shares of Senior Preferred Stock, as provided in the previous sentence, such dividends shall be deemed paid in full and will not accumulate. After March 1, 2003, dividends must be paid in cash. The Indenture and the New Revolving Credit Facility restrict the Company's ability to pay cash dividends on its Capital Stock, including the Senior Preferred Stock. Other future agreements may provide the same. See "Description of New Revolving Credit Facility" and "Description of Senior Subordinated Notes." Notwithstanding the foregoing, the Company has the right to reduce the amount of any dividends, whether paid in cash or in additional shares of Senior Preferred Stock, by the amount of any taxes it is required to withhold and pay to any taxing authorities under applicable law and the amounts so withheld shall be deemed to have been paid to the applicable holder of shares of Senior Preferred Stock. No full dividends may be declared or paid or funds set apart for the payment of dividends on any Parity Stock for any period unless full cumulative dividends shall have been or contemporaneously are declared and paid (or are deemed declared and paid) in full or declared and, if payable in cash, a sum in cash sufficient for such payment is set apart for such payment on the Senior Preferred Stock. If full dividends are not so paid, the Senior Preferred Stock will share dividends pro rata with the Parity Stock. No dividends may be paid or set apart for such payment on Junior Stock (except dividends on Junior Stock payable in additional shares of Junior Stock) and no Junior Stock or Parity Stock may be repurchased, redeemed or otherwise retired nor may funds be set apart for payment with respect thereto, if full cumulative dividends have not been paid in full (or deemed paid) on the Senior Preferred Stock. Dividends on account of arrears for any past Dividend Payment Date and dividends in connection with any optional redemption may be declared and paid at any time, without reference to any regular Dividend Payment Date, to holders of record on such date, not more than 45 days prior to the payment thereof, as may be fixed by the Board of Directors of the Company. So long as any shares of the Senior Preferred Stock are outstanding, the Company shall not make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any of the Parity Stock or Junior Stock or any warrants, rights, calls or options exercisable for or convertible into any of the Parity Stock or Junior Stock, and shall not permit any corporation or other entity directly or indirectly controlled by the Company to purchase or redeem any of the Parity Stock or Junior Stock or any such warrants, rights, calls or options unless full cumulative dividends determined in accordance herewith on the Senior Preferred Stock have been paid (or are deemed paid) in full. OPTIONAL REDEMPTION The Senior Preferred Stock may be redeemed (subject to contractual and other restrictions with respect thereto and to the legal availability of funds therefor) at any time on or after March 1, 2003, in whole or in part, at the option of the Company, at the redemption prices (expressed in percentages of the liquidation preference thereof) set forth below, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends to the redemption date (including an amount in cash equal to a prorated dividend for the 95 102 period from the Dividend Payment Date immediately prior to the redemption date to the redemption date), if redeemed during the twelve-month period commencing on March 1 of each of the years set forth below:
YEAR PERCENTAGE ---- ---------- 2003............................................ 106.250% 2004............................................ 104.167% 2005............................................ 102.083% 2006 and thereafter............................. 100.000%
In addition, prior to March 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings (as defined below) to redeem, in whole or in part, the Senior Preferred Stock, at a redemption price of 112.5% of the then effective liquidation preference thereof plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends to the redemption date including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the redemption date to the redemption date. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Company shall make such redemption not more than 120 days after the consummation of any such Public Equity Offering. As used in the preceding paragraph, "Public Equity Offering" means an underwritten public offering of Qualified Capital Stock of the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act. The Indenture and the New Revolving Credit Facility restrict the ability of the Company to redeem the Senior Preferred Stock. See "Description of the New Revolving Credit Facility" and "Description of Senior Subordinated Notes." MANDATORY REDEMPTION The Senior Preferred Stock will also be subject to mandatory redemption (subject to the legal availability of funds therefor) in whole on March 1, 2010 at a price equal to 100% of the liquidation preference thereof, plus, without duplication, all accumulated and unpaid dividends to the date of redemption. Future agreements or certificates of designation of the Company may restrict or prohibit the Company from redeeming the Senior Preferred Stock. PROCEDURE FOR REDEMPTION On and after the redemption date, unless the Company defaults in the payment of the applicable redemption price, dividends will cease to accumulate on shares of Senior Preferred Stock called for redemption and all rights of holders of such shares will terminate except for the right to receive the redemption price, without interest; provided, however, that if a notice of redemption shall have been given as provided in the succeeding sentence and the funds necessary for redemption (including an amount in respect of all dividends that will accumulate to the redemption date) shall have been segregated and irrevocably set apart by the Company, in trust for the benefit of the holders of the shares called for redemption, then dividends shall cease to accumulate on the redemption date on the shares to be redeemed and, at the close of business on the day when such funds are segregated and set apart, the holders of the shares to be redeemed shall cease to be stockholders of the Company and shall be entitled only to receive the redemption price for such shares. The Company will send a written notice of redemption by first class mail to each holder of record of shares of Senior Preferred Stock not fewer than 30 days nor more than 60 days prior to the date fixed for such redemption at its registered address. Shares of Senior Preferred Stock issued and reacquired will, upon compliance with the applicable requirements of Idaho law, have the status of authorized but unissued shares of Senior Preferred Stock of the Company undesignated as to series and may, with any and all other authorized but unissued shares of preferred stock of the Company, be designated or redesignated and issued or reissued, as the case may be, as part of any series of preferred stock of the Company, except that any issuance or reissuance of shares of Senior Preferred Stock must be in compliance with the Certificate of Designation. 96 103 EXCHANGE The Company may, at its option, subject to certain conditions, on any scheduled Dividend Payment Date occurring on or after the Issue Date, exchange the Senior Preferred Stock, in whole but not in part, for the Exchange Debentures (the date of original issuance of the Exchange Debentures is hereinafter referred to as the "Exchange Date"); provided that (i) on the Exchange Date there are no accumulated and unpaid dividends on the Senior Preferred Stock (including the dividend payable on such date) or other contractual impediments to such exchange; (ii) there shall be funds legally available sufficient therefor; (iii) immediately after giving effect to such exchange, no Default or Event of Default (each as defined in the Exchange Indenture) would exist under the Exchange Indenture, no Default or Event of Default (each as defined in the Indenture) would exist under the Indenture, no default or event of default would exist under the New Revolving Credit Facility and no default or event of default under any other material instrument governing Indebtedness outstanding at the time would be caused thereby; and (iv) the Exchange Indenture has been qualified under the TIA, if such qualification is required at the time of exchange. As of the date hereof, the exchange of the Senior Preferred Stock into Exchange Debentures is restricted by covenants contained in the Indenture and the New Revolving Credit Facility, in each case, relating, among other things, to the incurrence of Indebtedness. Upon any exchange pursuant to the preceding paragraph, holders of outstanding shares of Senior Preferred Stock will be entitled to receive, subject to the second succeeding sentence, $1.00 principal amount of Exchange Debentures for each $1.00 liquidation preference of Senior Preferred Stock held by them. The Exchange Debentures will be issued in registered form, without coupons. Exchange Debentures issued in exchange for Senior Preferred Stock will be issued in principal amounts of $1,000 and integral multiples thereof to the extent possible and also will be issued in principal amounts less than $1,000 so that each holder of Senior Preferred Stock will receive certificates representing the entire amount of Exchange Debentures to which such holder's shares of Senior Preferred Stock entitle such holder; provided that the Company may pay cash in lieu of issuing an Exchange Debenture in a principal amount less than $1,000. The Company will send a written notice of exchange by mail to each holder of record of shares of Senior Preferred Stock not fewer than 30 days nor more than 60 days before the date fixed for such exchange. On and after the date of exchange, dividends will cease to accumulate on the outstanding shares of Senior Preferred Stock, and all rights of the holder of Senior Preferred Stock (except the right to receive the Exchange Debentures, an amount in cash, to the extent applicable, equal to the accumulated and unpaid dividends to the exchange date and, if the Company so elects, cash in lieu of any Exchange Debenture that is in a principal amount that is not an integral multiple of $1,000) will terminate. The person entitled to receive the Exchange Debentures issuable upon such exchange will be treated for all purposes as the registered holder of such Exchange Debentures. See "-- Exchange Debentures." The Company will comply with the provisions of Rule 13e-4 promulgated pursuant to the Exchange Act in connection with any exchange, to the extent applicable. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of Senior Preferred Stock will be entitled to be paid, out of the assets of the Company available for distribution to stockholders, the liquidation preference per share of Senior Preferred Stock, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends thereon to the date fixed for liquidation, dissolution or winding-up (including an amount equal to a prorated dividend for the period from the last Dividend Payment Date to the date fixed for liquidation, dissolution or winding-up), before any distribution is made on any Junior Stock, including, without limitation, Common Stock of the Company. If, upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the amounts payable with respect to the Senior Preferred Stock and all other Parity Stock are not paid in full, the holders of the Senior Preferred Stock and the Parity Stock will share equally and ratably in any distribution of assets of the Company in proportion to the full liquidation preference to which each is entitled until such preferences are paid in full, and then in proportion to their respective amounts of accumulated but unpaid dividends. After payment of the full amount of the liquidation preference and accumulated and unpaid dividends to which they 97 104 are entitled, the holders of shares of Senior Preferred Stock will not be entitled to any further participation in any distribution of assets of the Company. However, neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company nor the consolidation or merger of the Company with one or more entities shall be deemed to be a liquidation, dissolution or winding-up of the Company. The Certificate of Designation does not contain any provision requiring funds to be set aside to protect the liquidation preference of the Senior Preferred Stock, although such liquidation preference will be substantially in excess of the par value of such shares of Senior Preferred Stock. In addition, the Company is not aware of any provision of Idaho law or any controlling decision of the courts of the State of Idaho (the state of incorporation of the Company) that requires a restriction upon the surplus of the Company solely because the liquidation preference of the Senior Preferred Stock will exceed its par value. Consequently, there is no restriction upon the surplus of the Company solely because the liquidation preference of the Senior Preferred Stock will exceed its par value and there are no remedies available to holders of the Senior Preferred Stock before or after the payment of any dividend on any Capital Stock, other than in connection with the liquidation of the Company, solely by reason of the fact that such dividend would reduce the surplus of the Company to an amount less than the difference between the liquidation preference of the Senior Preferred Stock and its par value. VOTING RIGHTS The holders of Senior Preferred Stock, except as otherwise required under Idaho law or as set forth in the Certificate of Incorporation, shall not be entitled or permitted to vote on any matter required or permitted to be voted upon by the stockholders of the Company. The Certificate of Designation provides that if (i) after March 1, 2003, cash dividends on the Senior Preferred Stock are in arrears and unpaid for six or more quarterly dividend periods (whether or not consecutive); (ii) the Company fails to redeem the Senior Preferred Stock on March 1, 2010; (iii) the Company fails to make a Change of Control Offer if such offer is required by the provisions set forth under "-- Change of Control" below or fails to purchase shares of Senior Preferred Stock from holders who elect to have such shares purchased pursuant to the Change of Control Offer; (iv) a breach or violation of any of the provisions described under the caption "-- Certain Covenants" occurs and the breach or violation continues for a period of 30 days or more after the Company receives notice thereof specifying the default from the holders of at least 25% of the shares of Senior Preferred Stock then outstanding; or (v) the Company fails to pay at the final stated maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness for borrowed money of the Company or any Restricted Subsidiary of the Company, or the final stated maturity of any such Indebtedness is accelerated, if the aggregate principal amount of such Indebtedness, together with the aggregate principal amount of any other such Indebtedness in default for failure to pay principal at the final stated maturity (giving effect to any applicable grace periods and any extensions thereof) or which has been accelerated, aggregates $10.0 million or more at any time, in each case, after a 20-day period during which such default shall not have been cured or such acceleration rescinded, then the number of directors constituting the Board of Directors will be adjusted to permit the holders of a majority of the then outstanding shares of Senior Preferred Stock, voting separately and as a class (together with the holders of any Parity Stock having similar voting rights), to elect the lesser of two directors and that number of directors constituting at least 25% of the members of the Board of Directors of the Company. Such voting rights will continue until such time as, in the case of a dividend default, all dividends in arrears on the Senior Preferred Stock are paid in full in cash and, in all other cases, any failure, breach or default giving rise to such voting rights is remedied or waived by the holders of at least a majority of the shares of Senior Preferred Stock then outstanding, at which time the term of any directors elected pursuant to the provisions of this paragraph shall terminate. Each such event described in clauses (i) through (v) above is referred to herein as a "Voting Rights Triggering Event." The voting rights provided herein shall be the holder's exclusive remedy at law or in equity. The Certificate of Designation provides that the Company will not authorize any class of Senior Stock or Parity Stock (other than the Senior Preferred Stock, plus dividends thereon payable in additional shares of 98 105 Senior Preferred Stock in lieu of cash dividends) without the affirmative vote or consent of holders of at least a majority of the shares of Senior Preferred Stock then outstanding, voting or consenting, as the case may be, as one class. The Certificate of Designation also provides that, except as set forth above, the Company may not amend the Certificate of Designation so as to affect materially and adversely the specified rights, preferences, privileges or voting rights of the then outstanding shares of Senior Preferred Stock, without the affirmative vote or consent of the holders of at least a majority of the then outstanding shares of Senior Preferred Stock, voting or consenting, as the case may be, as one class. Under Idaho law, holders of preferred stock are entitled to vote as a class upon a proposed amendment to the certificate of incorporation, whether or not entitled to vote thereon by the certificate of incorporation if the amendment would alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely. CHANGE OF CONTROL The Certificate of Designation provides that upon the occurrence of a Change of Control, each holder will have the right to require that the Company purchase all or a portion of such holder's Senior Preferred Stock in cash pursuant to the offer described below (the "Change of Control Offer"), at a purchase price equal to 101% of the liquidation preference thereof, plus, without duplication, all accumulated and unpaid dividends per share to the Change of Control Payment Date (as defined herein) (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Change of Control Payment Date to the Change of Control Payment Date). The Certificate of Designation provides that, prior to the mailing of the notice referred to below, but in any event within 60 days following the date on which the Company becomes aware that a Change of Control has occurred, the Company covenants that if the purchase of the Senior Preferred Stock would violate or constitute a default under the Indenture, the New Revolving Credit Facility or any other Indebtedness of the Company, then the Company shall, to the extent needed to permit such purchase of the Senior Preferred Stock, either (i) repay all such Indebtedness and terminate all commitments outstanding thereunder or (ii) obtain the requisite consents, if any, under such Indebtedness required to permit the purchase of the Senior Preferred Stock as provided below. The Company will first comply with the covenant in the preceding sentence before it will be required to make the Change of Control Offer or purchase the Senior Preferred Stock pursuant to the provisions described below. Within 60 days following the date upon which a Change of Control occurred, the Company must send, by first-class mail, a notice to each holder of Senior Preferred Stock, which notice shall govern the terms of the Change of Control Offer. Such notice shall state, among other things, the purchase date, which must be no earlier than 60 days nor later than 90 days from the date such notice is mailed, other than as may be required by law (the "Change of Control Payment Date"). Holders electing to have any shares of Senior Preferred Stock purchased pursuant to a Change of Control Offer will be required to surrender such shares of Senior Preferred Stock to the Paying Agent and Registrar for the Senior Preferred Stock at the address specified in the notice prior to the close of business on the third business day prior to the Change of Control Payment Date. If a Change of Control Offer is made, there can be no assurance that the Company would have available funds sufficient to pay the Change of Control purchase price for all shares of Senior Preferred Stock that the Company might be required to purchase. In the event the Company is required to purchase outstanding shares of Senior Preferred Stock pursuant to a Change of Control Offer, the Company expects that it would need to seek third-party financing to the extent it does not have available funds to meet its purchase obligations. However, there can be no assurance that the Company would be able to obtain such financing on favorable terms, if at all. In addition, the Indenture and the New Revolving Credit Facility restrict the Company's ability to purchase the Senior Preferred Stock, including pursuant to a Change of Control Offer. See "Description of New Revolving Credit Facility" and "Description of Senior Subordinated Notes." Restrictions in the Certificate of Designation described herein on the ability of the Company and its Restricted Subsidiaries to incur additional Indebtedness and to make Restricted Payments may also make 99 106 more difficult or discourage a takeover of the Company, whether favored or opposed by the management of the Company. Consummation of any such transaction in certain circumstances may require redemption or repurchase of the Senior Preferred Stock, and there can be no assurance that the Company or the acquiring party will have sufficient financial resources to effect such redemption or repurchase. Such restrictions and the restrictions on transactions with Affiliates may, in certain circumstances, make more difficult or discourage any leveraged buyout of the Company or any of its Subsidiaries by the management of the Company. While such restrictions cover a wide variety of arrangements which have traditionally been used to effect highly leveraged transactions, the Certificate of Designation may not afford the holders of Senior Preferred Stock protection in all circumstances from the adverse aspects of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction. None of the provisions in the Certificate of Designation relating to a purchase of Senior Preferred Stock upon a Change of Control is waivable by the Board of Directors of the Company. Without the consent of each holder of Senior Preferred Stock affected thereby, after the mailing of the notice of a Change of Control Offer, no amendment to the Certificate of Designation may, directly or indirectly, affect the Company's obligation to purchase the outstanding Senior Preferred Stock or amend, modify or change the obligation of the Company to consummate a Change of Control Offer or waive any default in the performance thereof or modify any of the provisions of the definitions with respect to any such offer. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations-thereunder to the extent such laws and regulations are applicable in connection with the purchase of the shares of Senior Preferred Stock pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Change of Control" provisions of the Certificate of Designation, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Change of Control" provisions of the Certificate of Designation by virtue thereof. CERTAIN COVENANTS The Certificate of Designation contains the following covenants: Limitation on Incurrence of Additional Indebtedness. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness); provided, however, that if no Voting Rights Triggering Event shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, the Company may incur Indebtedness (including, without limitation, Acquired Indebtedness) and Restricted Subsidiaries of the Company may incur Acquired Indebtedness, in each case if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1.0. Limitation on Restricted Payments. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Capital Stock of the Company) on or in respect of shares of the Company's Junior Stock to holders of such Junior Stock, (b) purchase, redeem or otherwise acquire or retire for value any Junior Stock of the Company or any warrants, rights or options to purchase or acquire shares of any class of such Junior Stock, or (c) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (a), (b) and (c) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Voting Rights Triggering Event shall have occurred and be continuing or (ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined reasonably and in good faith by the Board of Directors of the Company) shall exceed the sum of: (w) 50% of 100 107 the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to February 26, 1998 and on or prior to the date the Restricted Payment occurs (the "Reference Date") (treating such period as a single accounting period); plus (x) 100% of the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock of the Company; plus (y) without duplication of any amounts included in clause (iii)(x) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock; plus (z) without duplication, the sum of (1) the aggregate amount returned in cash on or with respect to Investments (other than Permitted Investments) made subsequent to the Issue Date whether through interest payments, principal payments, dividends or other distributions or payments, (2) the net cash proceeds received by the Company or any of its Restricted Subsidiaries from the disposition of all or any portion of such Investments (other than to a Subsidiary of the Company) and (3) upon redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary; provided, however, that the sum of clauses (1), (2) and (3) above shall not exceed the aggregate amount of all such Investments made subsequent to the Issue Date. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (1) the payment of any dividend or the consummation of any irrevocable redemption within 60 days after the date of declaration of such dividend or notice of such redemption if the dividend or the payment of the redemption price, as the case may be, would have been permitted on the date of declaration or notice; (2) if no Voting Rights Triggering Event shall have occurred and be continuing, the acquisition of any shares of Capital Stock of the Company, either (i) solely in exchange for shares of Qualified Capital Stock of the Company or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the Company; (3) payments for the purpose of and in an amount equal to the amount required to permit the Company to redeem or repurchase its equity or options in respect thereof, in each case in connection with the terms of any employee stock option or stock purchase agreements or other agreements to compensate management or other employees; provided that such redemptions or repurchases pursuant to this clause (3) shall not exceed $3.0 million (which amount shall be increased by the amount of any net cash proceeds to the Company from (x) sales of Capital Stock of the Company to management or other employees subsequent to the Issue Date to the extent such amounts have not been included in clause (iii) in the foregoing paragraph and (y) any "key-man" life insurance policies which are used to make such redemptions or repurchases) in the aggregate; provided, further, that the cancellation of Indebtedness owing to the Company from management or other employees of the Company or any of its Restricted Subsidiaries in connection with a repurchase of Capital Stock of the Company will not be deemed to constitute a Restricted Payment under the Certificate of Designation; (4) repurchases of Capital Stock deemed to occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price thereof; (5) so long as no Voting Rights Triggering Event shall have occurred and be continuing, payments not to exceed $500,000 in the aggregate to enable the Company to make payments to holders of its Capital Stock in lieu of issuance of fractional shares of its Capital Stock; (6) payments or other distributions made in connection with the Recapitalization; and (7) if no Voting Rights Triggering Event shall have occurred and be continuing, other Restricted Payments in an aggregate amount not to exceed $10.0 million. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in accordance with clause (iii) of the immediately preceding paragraph, (a) amounts expended (to the extent such expenditure is in the form of cash) pursuant to clauses (1), (2)(ii), (3) and (7) shall be included in such calculation; provided that such expenditures pursuant to clause (3) shall not be included to the extent of cash proceeds received by the Company from any "key-man" life insurance policies and (b) amounts expended pursuant to clauses (2)(i), (4), (5) and (6) shall be excluded from such calculation. Limitation on Preferred Stock of Restricted Subsidiaries. The Company will not permit any of its Restricted Subsidiaries to issue any preferred stock (other than to the Company or to a Wholly Owned Restricted Subsidiary of the Company) or permit any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company) to own any preferred stock of any Restricted Subsidiary of the Company. 101 108 Merger, Consolidation and Sale of Assets. Without the affirmative vote of the holders of a majority of the issued and outstanding shares of Senior Preferred Stock, voting or consenting, as the case may be, the Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person or adopt a plan of liquidation unless (i) either (1) the Company is the surviving or continuing person or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and of the Company's Restricted Subsidiaries substantially as an entirety or, in the case of a plan of liquidation, the Person to which assets of the Company have been transferred, shall be a corporation existing under the laws of the United States or any State thereof or the District of Columbia; (ii) if the Company is not the surviving or continuing Person, the Senior Preferred Stock shall be converted into or exchanged for and shall become shares of such successor, transferee or resulting person, having in respect of such successor, transferee or resulting person the same powers, preferences and relative participating, optional or other special rights and the qualifications, limitations or restrictions thereon that the Senior Preferred Stock had immediately prior to such transaction; (iii) immediately after giving effect to such transaction and the use of the proceeds therefrom (on a pro forma basis, including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with such transaction), the Company (in the case of clause (1) of the foregoing clause (i)) or such Person (in the case of clause (2) of the foregoing clause (i)) shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant; and (iv) immediately after giving effect to such transactions, no Voting Rights Triggering Event shall have occurred or be continuing. Notwithstanding clause (iii) of the preceding sentence, (a) any Restricted Subsidiary of the Company may consolidate with, merge into or transfer all or part of its properties and assets to the Company and (b) the Company may merge with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. Reports. The Certificate of Designation provides that the Company will file with the Commission, copies of the quarterly and annual reports and of the information, documents and other reports, if any, which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The Certificate of Designation further provides that, notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, following the effectiveness of the Exchange Offer Registration Statement, the Company will file with the Commission, to the extent permitted, and provide the holders of the Senior Preferred Stock with such annual reports and such information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act. Prior to the effectiveness of the Exchange Offer Registration Statement, the Company will provide, upon request from holders of the Senior Preferred Stock or prospective holders the information required by Rule 144A(d)(4) under the Securities Act. TRANSFER AGENT AND REGISTRAR United States Trust Company of New York will be the transfer agent and registrar for the Senior Preferred Stock. EXCHANGE DEBENTURES The Exchange Debentures, if issued, will be issued under the indenture (the "Exchange Indenture"), dated as of February 26, 1998, by and between the Company and United States Trust Company of New York, 102 109 as trustee (the "Debenture Trustee"). A copy of the Exchange Indenture is available from the Company upon request. The following summary of certain provisions of the Exchange Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the TIA and to all of the provisions of the Exchange Indenture, including the definitions of certain terms therein and those terms made a part of the Exchange Indenture by reference to the TIA as in effect on the date of the Exchange Indenture. The definitions of certain terms used in the following summary are set forth below under "Description of Senior Subordinated Notes -- Certain Definitions." The New Revolving Credit Facility and the Indenture limit the Company's ability to issue the Exchange Debentures. See "Description of New Revolving Credit Facility" and "Description of Senior Subordinated Notes." The Exchange Debentures will be general unsecured obligations of the Company and will be limited in aggregate principal amount to the liquidation preference of the Senior Preferred Stock, plus, without duplication, accumulated and unpaid dividends, on the Exchange Date of the Senior Preferred Stock into Exchange Debentures (plus any additional Exchange Debentures issued in lieu of cash interest as described herein). The Exchange Debentures will be issued in fully registered form only in denominations of $1,000 and integral multiples thereof (other than as described in "-- Senior Preferred Stock -- Exchange" or with respect to additional Exchange Debentures issued in lieu of cash interest as described herein). The Exchange Debentures will be subordinated to all existing and future Senior Debt of the Company, including the Senior Subordinated Notes. PRINCIPAL, MATURITY AND INTEREST Principal of, premium, if any, and interest on the Exchange Debentures will be payable, and the Exchange Debentures may be presented for registration of transfer or exchange, at the office of the Paying Agent and Registrar in New York, New York. At the Company's option, interest, to the extent paid in cash, may be paid at the Debenture Trustee's corporate office or by check mailed to the registered address of holders of the Exchange Debentures as shown on the register for the Exchange Debentures. The Debenture Trustee will initially act as Paying Agent and Registrar. The Company may change any Paying Agent and Registrar without prior notice to holders of the Exchange Debentures. Holders of the Exchange Debentures must surrender Exchange Debentures to the Paying Agent to collect principal payments. The Exchange Debentures will mature on March 1, 2010. Each Exchange Debenture will bear interest at the rate of 12 1/2% per annum from the Exchange Date or from the most recent interest payment date to which interest has been paid or provided. Interest will be payable semi-annually in cash (or, on or prior to March 1, 2003, in additional Exchange Debentures, at the option of the Company) in arrears on each March 1 and September 1, commencing with the first such date after the Exchange Date to the persons who are registered holders thereof at the close of business on the February 15 and August 15 immediately preceding such date. Interest on the Exchange Debentures will be computed on the basis of a 360-day year comprised of twelve 30-day months. The Exchange Debentures will not be entitled to the benefit of any mandatory sinking fund. OPTIONAL REDEMPTION The Exchange Debentures will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after March 1, 2003, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on March 1 of each of the years set forth below, plus, without duplication, in each case, accrued and unpaid interest thereon to the date of redemption:
YEAR PERCENTAGE ---- ---------- 2003.............................................. 106.250% 2004.............................................. 104.167% 2005.............................................. 102.083% 2006 and thereafter............................... 100.000%
In addition, prior to March 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings (as defined below) to redeem, in whole or in part, the Exchange Debentures, at 103 110 a redemption price of 112.5% of the principal amount thereof, plus accrued and unpaid interest, if any, thereon to the date of redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Company shall make such redemption not more than 120 days after the consummation of any such Public Equity Offering. As used in the preceding paragraph, "Public Equity Offering" means an underwritten public offering of Qualified Capital Stock of the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act. The Indenture and the New Revolving Credit Facility restrict the ability of the Company to optionally redeem the Exchange Debentures. See "Description of the New Revolving Credit Facility" and "Description of Senior Subordinated Notes." CHANGE OF CONTROL The Exchange Indenture provides that upon the occurrence of a Change of Control, each holder will have the right to require that the Company repurchase all or a portion of such holder's Exchange Debentures pursuant to the offer described below (the "Debenture Change of Control Offer"), at a purchase price equal to 101% of the principal amount thereof plus, accrued interest, if any, to the date of repurchase. The Exchange Indenture provides that, prior to the mailing of the notice referred to below, but in any event within 60 days following any Change of Control, the Company covenants to either (i) repay in full and terminate all commitments under all Indebtedness under the Indenture, the New Revolving Credit Facility and all other Senior Debt the terms of which require repayment upon a Change of Control or offer to repay in full and terminate all commitments under all Indebtedness under the Indenture, the New Revolving Credit Facility and all such other Senior Debt and repay the Indebtedness owed to each lender which has accepted such offer or (ii) obtain the requisite consents under the Indenture, the New Revolving Credit Facility and all such other Senior Debt to permit the repurchase of the Exchange Debentures as provided below. The Company will first comply with the covenant in the preceding sentence before it will be required to repurchase Exchange Debentures pursuant to the provisions described below. The Company's failure to comply with the immediately preceding sentence shall constitute an Event of Default described in clause (iii) and not in clause (ii) under "-- Events of Default" below. Within 60 days following the date upon which a Change of Control has occurred, the Company must send, by first class mail, a notice to each holder of Exchange Debentures, with a copy to the Debenture Trustee, which notice shall govern the terms of the Debenture Change of Control Offer. Such notice will state, among other things, the purchase date, which must be no earlier than 60 days nor later than 90 days from the date such notice is mailed, other than as may be required by law (the "Debenture Change of Control Payment Date"). Holders electing to have an Exchange Debenture purchased pursuant to a Debenture Change of Control Offer will be required to surrender the Exchange Debenture, properly endorsed for transfer together with such other customary documents as the Company may reasonably request, to the Paying Agent at the address specified in the notice prior to the close of business on the business day prior to the Debenture Change of Control Payment Date. If a Debenture Change of Control Offer is made, there can be no assurance that the Company would have available funds sufficient to pay the purchase price for all Exchange Debentures that the Company might be required to purchase. In the event the Company is required to purchase Exchange Debentures pursuant to a Debenture Change of Control Offer, the Company expects that it would need to seek third-party financing to the extent it does not have available funds to meet its purchase obligations. There can be no assurance, however, that the Company would be able to obtain such financing on favorable terms, if at all. In addition, the Indenture and the New Revolving Credit Facility restrict the Company's ability to purchase the Exchange Debentures, including pursuant to a Debenture Change of Control Offer. See "Description of the New Revolving Credit Facility" and "Description of Senior Subordinated Notes." Neither the Board of Directors of the Company nor the Debenture Trustee may waive the covenant relating to a Holder's right to redemption upon a Change of Control. Restrictions in the Exchange Indenture described herein on the ability of the Company and its Restricted Subsidiaries to incur additional Indebtedness, to grant liens on their property, to make Restricted Payments and to make Asset Sales may also make 104 111 more difficult or discourage a takeover of the Company, whether favored or opposed by the management of the Company. Consummation of any such transaction in certain circumstances may require redemption or repurchase of the Exchange Debentures, and there can be no assurance that the Company or the acquiring party will have sufficient financial resources to effect such redemption or repurchase. Such restrictions and the restrictions on transactions with Affiliates may, in certain circumstances, make more difficult or discourage any leveraged buyout of the Company or any of its Subsidiaries by the management of the Company. While such restrictions cover a wide variety of arrangements which have traditionally been used to effect highly leveraged transactions, the Exchange Indenture may not afford the holders of Exchange Debentures protection in all circumstances from the adverse aspects of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Exchange Debentures pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Change of Control" provisions of the Exchange Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Change of Control" provisions of the Exchange Indenture by virtue thereof. SUBORDINATION The payment of all Obligations on the Exchange Debentures is subordinated in right of payment to the prior payment in full in cash or Cash Equivalents of all Obligations on Senior Debt. Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to the Company or its property, whether voluntary or involuntary, all Obligations due or to become due upon all Senior Debt will first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Senior Debt, before any payment or distribution of any kind or character is made on account of any Obligations on the Exchange Debentures, or for the acquisition of any of the Exchange Debentures for cash or property or otherwise. If any default occurs and is continuing in the payment when due, whether at maturity, upon any redemption, by declaration or otherwise, of any principal of, or interest on, unpaid drawings for letters of credit issued in respect of, or regularly accruing fees with respect to, any Senior Debt, no payment of any kind or character (except in securities substantially identical to the Exchange Debentures issued by the Company in payment of interest accrued thereon) shall be made by or on behalf of the Company or any other Person on its or their behalf with respect to any Obligations on the Exchange Debentures or to acquire any of the Exchange Debentures for cash or property or otherwise. In addition, if any other event of default occurs and is continuing with respect to any Designated Senior Debt, as such event of default is defined in the instrument creating or evidencing such Designated Senior Debt permitting the holders of such Designated Senior Debt then outstanding to accelerate the maturity thereof and if the Representative for the respective issue of Designated Senior Debt gives written notice of the event of default to the Debenture Trustee (a "Default Notice"), then, unless and until all such events of default have been cured or waived or have ceased to exist or the Debenture Trustee receives notice from the Representative for the respective issue of Designated Senior Debt terminating the Blockage Period (as defined below), during the 180 days after the delivery of such Default Notice (the "Blockage Period"), neither the Company nor any other Person on behalf of the Company shall (x) make any payment of any kind or character (except in securities substantially identical to the Exchange Debentures issued by the Company in payment of interest accrued thereon) with respect to any Obligations on the Exchange Debentures or (y) acquire any of the Exchange Debentures for cash or property or otherwise. Notwithstanding anything herein to the contrary, in no event will a Blockage Period extend beyond 180 days from the date the payment on the Exchange Debentures was due and only one such Blockage Period may be commenced within any 360 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Blockage Period with respect to the Designated Senior Debt shall be, or be made, the basis for commencement of a second 105 112 Blockage Period by the Representative of such Designated Senior Debt, whether or not within a period of 360 consecutive days, unless such event of default has been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period that, in either case, would give rise to an event of default pursuant to any provision under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). By reason of such subordination, in the event of the insolvency of the Company, creditors of the Company who are not holders of Senior Debt, including the holders of the Exchange Debentures, may recover less, ratably, than holders of Senior Debt. As of February 26, 1998, the Company had approximately $176.6 million of Senior Debt outstanding with respect to the Exchange Debentures (exclusive of unused commitments of $40.0 million under the New Revolving Credit Facility). CERTAIN COVENANTS The Exchange Indenture contains, among others, the following covenants: Limitation on Incurrence of Additional Indebtedness. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness); provided, however, that if no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, the Company may incur Indebtedness (including, without limitation, Acquired Indebtedness) and Restricted Subsidiaries of the Company may incur Acquired Indebtedness, in each case if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1.0. Limitation on Restricted Payments. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Capital Stock of the Company) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock, (c) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, any Indebtedness of the Company that is subordinate or junior in right of payment to the Exchange Debentures or (d) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (a), (b), (c) and (d) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Default or an Event of Default shall have occurred and be continuing or (ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of Additional Indebtedness" covenant or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined reasonably and in good faith by the Board of Directors of the Company) shall exceed the sum of: (w) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to the February 26, 1998 and on or prior to the date the Restricted Payment occurs (the "Reference Date") (treating such period as a single accounting period); plus (x) 100% of the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock of the Company; plus (y) without duplication of any amounts included in clause (iii)(x) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock; plus (z) without duplication, the sum of (1) the aggregate amount returned in cash on or with respect to Investments (other than Permitted Investments) made subsequent to the Issue Date whether through interest payments, principal 106 113 payments, dividends or other distributions or payments, (2) the net cash proceeds received by the Company or any of its Restricted Subsidiaries from the disposition of all or any portion of such Investments (other than to a Subsidiary of the Company) and (3) upon redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary; provided, however, that the sum of clauses (1), (2) and (3) above shall not exceed the aggregate amount of all such Investments made subsequent to the Issue Date. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (1) the payment of any dividend or the consummation of any irrevocable redemption within 60 days after the date of declaration of such dividend or notice of such redemption if the dividend or the payment of the redemption price, as the case may be, would have been permitted on the date of declaration or notice; (2) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any shares of Capital Stock of the Company, either (i) solely in exchange for shares of Qualified Capital Stock of the Company or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the Company; (3) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any Indebtedness of the Company that is subordinate or junior in right of payment to the Exchange Debentures either (i) solely in exchange for shares of Qualified Capital Stock of the Company, or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of (A) shares of Qualified Capital Stock of the Company or (B) Refinancing Indebtedness; (4) payments for the purpose of and in an amount equal to the amount required to permit the Company to redeem or repurchase its equity or options in respect thereof, in each case in connection with the terms of any employee stock option or stock purchase agreements or other agreements to compensate management or other employees; provided that such redemptions or repurchases pursuant to this clause (4) shall not exceed $3.0 million (which amount shall be increased by the amount of any net cash proceeds to the Company from (x) sales of Capital Stock of the Company to management or other employees subsequent to the Issue Date to the extent such amounts have not been included in clause (iii) in the foregoing paragraph and (y) any "key-man" life insurance policies which are used to make such redemptions or repurchases) in the aggregate; provided, further, that the cancellation of Indebtedness owing to the Company from management or other employees of the Company or any of its Restricted Subsidiaries in connection with a repurchase of Capital Stock of the Company will not be deemed to constitute a Restricted Payment under the Exchange Indenture; (5) repurchases of Capital Stock deemed to occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price thereof; (6) so long as no Default or Event of Default shall have occurred and be continuing, payments not to exceed $500,000 in the aggregate to enable the Company to make payments to holders of its Capital Stock in lieu of issuance of fractional shares of its Capital Stock; (7) payments or other distributions made in connection with the Recapitalization; and (8) if no Default or Event of Default shall have occurred and be continuing, other Restricted Payments in an aggregate amount not to exceed $10.0 million. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in accordance with clause (iii) of the immediately preceding paragraph, (a) amounts expended (to the extent such expenditure is in the form of cash) pursuant to clauses (1), (2)(ii), (4) and (8) shall be included in such calculation; provided that such expenditures pursuant to clause (4) shall not be included to the extent of cash proceeds received by the Company from any "key-man" life insurance policies and (b) amounts expended pursuant to clauses (2)(i), (3), (5), (6) and (7) shall be excluded from such calculation. Limitation on Asset Sales. The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Company's Board of Directors), (ii) at least 75% of the consideration received by the Company or the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents and is received at the time of such disposition; and (iii) upon the consummation of an Asset Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof either (A) to prepay any Senior Debt (and, in the case of any Senior Debt under any revolving credit facility, including the New Revolving Credit Facility, effect a permanent reduction in the availability under such revolving credit facility), (B) to make an investment in properties and assets that replace the properties 107 114 and assets that were the subject of such Asset Sale or in properties and assets of a kind used or usable in the business of the Company and its Restricted Subsidiaries ("Replacement Assets"), or (C) a combination of prepayment and investment permitted by the foregoing clauses (iii)(A) and (iii)(B). On the 366th day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company or such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 60 days following the applicable Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis, that amount of Exchange Debentures equal to the Net Proceeds Offer Amount at a price equal to 100% of the principal amount of the Exchange Debentures to be purchased, plus accrued and unpaid interest thereon, if any, to the date of purchase; provided, however, that if at any time any non-cash consideration received by the Company or any Restricted Subsidiary of the Company, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other than interest received with respect to any such non-cash consideration), then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this covenant. The Company may defer the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $7.5 million resulting from one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not just the amount in excess of $7.5 million, shall be applied as required pursuant to this paragraph). In the event of the transfer of substantially all (but not all) of the property and assets of the Company and its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under "-- Merger, Consolidation and Sale of Assets," the successor corporation shall be deemed to have sold the properties and assets of the Company and its Restricted Subsidiaries not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value of such properties and assets of the Company or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this covenant. Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 25 days following the Net Proceeds Offer Trigger Date (or if the Net Proceeds Offer has been deferred as described in the first paragraph of this covenant, the date that the aggregate unutilized Net Proceeds Offer Amount equals or exceeds $7.5 million), with a copy to the Debenture Trustee, and shall comply with the procedures set forth in the Exchange Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Exchange Debentures in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender Exchange Debentures in an amount exceeding the Net Proceeds Offer Amount, Exchange Debentures of tendering Holders will be purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open for a period of at least 20 and not more than 30 business days or such longer period as may be required by law. To the extent that the aggregate amount of Exchange Debentures tendered pursuant to a Net Proceeds Offer is less than the Net Proceeds Offer Amount, the Company may use any remaining Net Proceeds Offer Amount for general corporate purposes. Upon completion of any such Net Proceeds Offer, the Net Proceeds Offer Amount shall be reset at zero. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Exchange Debentures pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with the "Asset Sale" provisions of the Exchange Indenture, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under the "Asset Sale" provisions of the Exchange Indenture by virtue thereof. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise 108 115 cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (a) pay dividends or make any other distributions on or in respect of its Capital Stock; (b) make loans or advances or to pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary of the Company; or (c) transfer any of its property or assets to the Company or any other Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of: (1) applicable law; (2) the Exchange Indenture, the Indenture and the New Revolving Credit Facility; (3) non-assignment provisions of any contract or any lease; (4) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired; (5) agreements existing on the Issue Date to the extent and in the manner such agreements are in effect on the Issue Date; (6) restrictions on the transfer of assets subject to any Lien imposed by the holder of such Lien; (7) restrictions imposed by any agreement to sell assets or Capital Stock permitted under the Exchange Indenture to any Person pending the closing of such sale; (8) any agreement or instrument governing Capital Stock of any Person that is acquired; (9) any agreement or instrument governing Indebtedness (whether or not outstanding) of foreign Restricted Subsidiaries of the Company permitted to be incurred pursuant to the Exchange Indenture; (10) other Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to the provisions of the covenant described under "Limitation on Incurrence of Additional Indebtedness"; provided that any such restrictions are ordinary and customary with respect to the type of Indebtedness being incurred (under the relevant circumstances); (11) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; and (12) any encumbrances or restrictions imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (2) through (11) above; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Company's Board of Directors, no more restrictive with respect to such dividend and other payment restrictions than those contained in the dividend or other payment restrictions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing. Limitation on Preferred Stock of Restricted Subsidiaries. The Company will not permit any of its Restricted Subsidiaries to issue any preferred stock (other than to the Company or to a Wholly Owned Restricted Subsidiary of the Company) or permit any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company) to own any preferred stock of any Restricted Subsidiary of the Company. Merger, Consolidation and Sale of Assets. The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless: (i) either (1) the Company shall be the surviving or continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and of the Company's Restricted Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (y) shall expressly assume, by supplemental indenture (in form and substance satisfactory to the Debenture Trustee) executed and delivered to the Debenture Trustee, the due and punctual payment of the principal of, and premium, if any, and interest on all of the Exchange Debentures and the performance of every covenant of the Exchange Debentures, the Exchange Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the "-- Limitation on Incurrence of Additional Indebtedness" covenant; (iii) immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including, without limitation, giving 109 116 effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of the transaction), no Default or Event of Default shall have occurred or be continuing; and (iv) the Company or the Surviving Entity shall have delivered to the Debenture Trustee an officers' certificate and an opinion of counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of the Exchange Indenture and that all conditions precedent in the Exchange Indenture relating to such transaction have been satisfied. Notwithstanding clause (ii) of the preceding sentence, (a) any Restricted Subsidiary of the Company may consolidate with, merge into or transfer all or part of its properties and assets to the Company and (b) the Company may merge with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. The Exchange Indenture will provide that upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under the Exchange Indenture and the Exchange Debentures with the same effect as if such surviving entity had been named as such. Limitations on Transactions with Affiliates. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under paragraph (b) below and (y) Affiliate Transactions on terms that are not materially less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $1.0 million shall be approved by the Board of Directors of the Company or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than $10.0 million, the Company or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and file the same with the Debenture Trustee. (b) The restrictions set forth in clause (a) shall not apply to (i) reasonable fees and compensation paid to and indemnity provided on behalf of officers, directors, employees or consultants of the Company or any Restricted Subsidiary of the Company as determined in good faith by the Company's Board of Directors or senior management (including, without limitation, fees and compensation under the Management Services Agreement with the Principal as in effect on the Issue Date); (ii) transactions exclusively between or among the Company and any of its Restricted Subsidiaries or exclusively between or among such Restricted Subsidiaries, provided such transactions are not otherwise prohibited by the Exchange Indenture; (iii) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date; (iv) Restricted Payments permitted by the Exchange Indenture; (v) the existence of, or the performance by the Company or any of its Restricted Subsidiaries of its obligations under the terms of, any stockholders agreement (including any registration 110 117 rights agreement or purchase agreement related thereto) to which it is a party as of the Issue Date and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by the Company or any of its Restricted Subsidiaries of obligations under, any future amendment to any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (v) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the Holders of the Exchange Debentures in any material respect; (vi) transactions permitted by, and complying with, the provisions of the covenant described under "--Merger, Consolidation and Sale of Assets"; (vii) the Recapitalization and the transactions contemplated by the Recapitalization Agreement; and (viii) transactions with customers, clients, suppliers, joint venture partners or purchasers or sellers of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of the Exchange Indenture, which are fair to the Company or its Restricted Subsidiaries, in the reasonable determination of the Board of Directors of the Company or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. Reports. The Exchange Indenture provides that the Company will deliver to the Debenture Trustee within 15 days after the filing of the same with the Commission, copies of the quarterly and annual reports and of the information, documents and other reports, if any, which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The Exchange Indenture further provides that, notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, following the effectiveness of the Exchange Offer Registration Statement, the Company will file with the Commission, to the extent permitted, and provide the Debenture Trustee and holders of Exchange Debentures with such annual reports and such information, documents and other reports specified in Sections 13 and 15(d) of the Exchange Act. Prior to the effectiveness of the Exchange Offer Registration Statement, the Company will provide, upon request from the Holders of the Exchange Debentures or prospective Holders, the information required by Rule 144A(d)(4) under the Securities Act. The Company will also comply with the other provisions of TIA sec. 314(a). EVENTS OF DEFAULT The following events are defined in the Exchange Indenture as "Events of Default": (i) the failure to pay interest on any Exchange Debentures when the same becomes due and payable and the Default continues for a period of 30 days (whether or not such payment shall be prohibited by the subordination provisions of the Exchange Indenture); (ii) the failure to pay the principal on any Exchange Debentures when such principal, if any, becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Exchange Debentures tendered pursuant to a Debenture Change of Control Offer or a Net Proceeds Offer) (whether or not such payment shall be prohibited by the subordination provisions of the Exchange Indenture); (iii) a default in the observance or performance of any other covenant or agreement contained in the Exchange Indenture, which default continues for a period of 30 days after the Company receives written notice specifying the default (and demanding that such default be remedied) from the Debenture Trustee or holders of at least 25% of the outstanding principal amount of the Exchange Debentures (except in the case of a default with respect to the "Merger, Consolidation and Sale of Assets" covenant, which will constitute an Event of Default with such notice requirement but without such passage of time requirement); (iv) the failure to pay at final stated maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness for borrowed money of the Company or any Restricted Subsidiary of the Company and such failure continues for a period of 20 days or more, or the acceleration of the final stated maturity of any such Indebtedness (which acceleration is not rescinded, annulled or otherwise cured within 20 days of receipt by the Company or such Restricted Subsidiary of notice of any such acceleration) if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at final stated maturity or which has been accelerated, in each case with respect to which the 20-day period described above has passed, aggregates $10.0 million or more at any time; 111 118 (v) one or more judgments for the payment of money in an aggregate amount in excess of $10.0 million shall have been rendered against the Company or any of its Restricted Subsidiaries and such judgments remain undischarged, unpaid or unstayed for a period of 60 days after such judgment or judgments become final and non-appealable; or (vi) certain events of bankruptcy affecting the Company or any of its Significant Subsidiaries. If an Event of Default (other than an Event of Default specified in clause (vi) above with respect to the Company) shall occur and be continuing, the Debenture Trustee or the holders of at least 25% in principal amount of outstanding Exchange Debentures may declare the principal of and accrued interest on all the Exchange Debentures to be due and payable by notice in writing to the Company and the Debenture Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the New Revolving Credit Facility, shall become due and payable upon the first to occur of an acceleration under the New Revolving Credit Facility or 5 business days after receipt by the Company and the Representative under the New Revolving Credit Facility of such Acceleration Notice but only if such Event of Default is then continuing. If an Event of Default specified in clause (vi) above occurs with respect to the Company and is continuing, then all unpaid principal of, and premium, if any, and accrued and unpaid interest on all of the outstanding Exchange Debentures shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Debenture Trustee or any Holder. The Exchange Indenture provides that, at any time after a declaration of acceleration with respect to the Exchange Debentures as described in the preceding paragraph, the holders of a majority in principal amount of the Exchange Debentures may, on behalf of the Holders of all of the Exchange Debentures, rescind and cancel such declaration and its consequences (i) if the rescission would not conflict with any judgment or decree, (ii) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration, (iii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid, (iv) if the Company has paid the Debenture Trustee its reasonable compensation and reimbursed the Debenture Trustee for its expenses, disbursements and advances and (v) in the event of the cure or waiver of an Event of Default of the type described in clause (vi) of the description above of Events of Default, the Debenture Trustee shall have received an officers' certificate and an opinion of counsel that such Event of Default has been cured or waived. No such rescission shall affect any subsequent Default or impair any right consequent thereto. The holders of a majority in principal amount of the Exchange Debentures may waive any existing Default or Event of Default under the Exchange Indenture, and its consequences, except a default in the payment of the principal of or interest on any Exchange Debentures. Holders of the Exchange Debentures may not enforce the Exchange Indenture or the Exchange Debentures except as provided in the Exchange Indenture and under the TIA. Subject to the provisions of the Exchange Indenture relating to the duties of the Debenture Trustee, the Debenture Trustee is under no obligation to exercise any of its rights or powers under the Exchange Indenture at the request, order or direction of any of the holders, unless such holders have offered to the Debenture Trustee reasonable indemnity. Subject to all provisions of the Exchange Indenture and applicable law, the holders of a majority in aggregate principal amount of the then outstanding Exchange Debentures have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee or exercising any trust or power conferred on the Debenture Trustee. Under the Exchange Indenture, the Company is required to provide an officers' certificate to the Debenture Trustee promptly upon any such officer obtaining knowledge of any Default or Event of Default (provided that such officers shall provide such certification at least annually whether or not they know of any Default or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof. LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Company may, at its option and at any time, elect to have its obligations discharged with respect to the outstanding Exchange Debentures ("Legal Defeasance"). Such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding 112 119 Exchange Debentures, except for (i) the rights of holders to receive payments in respect of the principal of, premium, if any, and interest on the Exchange Debentures when such payments are due, (ii) the Company's obligations with respect to the Exchange Debentures concerning issuing temporary Exchange Debentures, registration of Exchange Debentures, mutilated, destroyed, lost or stolen Exchange Debentures and the maintenance of an office or agency for payments, (iii) the rights, powers, trust, duties and immunities of the Debenture Trustee and the Company's obligations in connection therewith and (iv) the Legal Defeasance provisions of the Exchange Indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company released with respect to certain covenants that are described in the Exchange Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Exchange Debentures. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, reorganization and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Exchange Debentures. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Company must irrevocably deposit with the Debenture Trustee, in trust, for the benefit of the holders cash in U.S. dollars, non-callable U.S. government obligations, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Exchange Debentures on the stated date for payment thereof or on the applicable redemption date, as the case may be; (ii) in the case of Legal Defeasance, the Company shall have delivered to the Debenture Trustee an opinion of counsel in the United States reasonably acceptable to the Debenture Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Exchange Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the holders will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Company shall have delivered to the Debenture Trustee an opinion of counsel in the United States reasonably acceptable to the Debenture Trustee confirming that the holders will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default under the Exchange Indenture resulting from the incurrence of Indebtedness, all or a portion of which will be used to defease the Exchange Debentures concurrently with such incurrence); (v) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under the Exchange Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (vi) the Company shall have delivered to the Debenture Trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; (vii) the Company shall have delivered to the Debenture Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; (viii) the Company shall have delivered to the Debenture Trustee an opinion of counsel to the effect that (A) the trust funds will not be subject to any rights of holders of Senior Debt, including, without limitation, those arising under the Exchange Indenture and (B) assuming no intervening bankruptcy or insolvency of the Company between the date of deposit and the 91st day following the deposit and that no holder of an Exchange Debenture is an insider of the Company, after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; and (ix) certain other customary conditions precedent are satisfied. Notwithstanding the foregoing, the Opinion of Counsel required by clause (ii) above with respect to a Legal Defeasance need not be delivered if all Exchange Debentures not theretofore delivered to the Debenture Trustee for cancellation (x) have become due and payable, (y) will become due and payable on the maturity date within one year or (z) are to be called for redemption within one year under arrangements satisfactory to 113 120 the Debenture Trustee for the giving of notice of redemption by the Debenture Trustee in the name, and at the expense, of the Company. SATISFACTION AND DISCHARGE The Exchange Indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the Exchange Debentures, as expressly provided for in the Exchange Indenture) as to all outstanding Exchange Debentures when (i) either (a) all the Exchange Debentures theretofore authenticated and delivered (except lost, stolen or destroyed Exchange Debentures which have been replaced or paid and Exchange Debentures for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Debenture Trustee for cancellation or (b) all Exchange Debentures not theretofore delivered to the Debenture Trustee for cancellation have become due and payable and the Company has irrevocably deposited or caused to be deposited with the Debenture Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Exchange Debentures not theretofore delivered to the Debenture Trustee for cancellation, for principal of, premium, if any, and interest on the Exchange Debentures to the date of deposit together with irrevocable instructions from the Company directing the Debenture Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (ii) the Company has paid all other sums payable under the Exchange Indenture by the Company; and (iii) the Company has delivered to the Debenture Trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under the Exchange Indenture relating to the satisfaction and discharge of the Exchange Indenture have been complied with. MODIFICATION OF THE EXCHANGE INDENTURE From time to time, the Company and the Debenture Trustee, without the consent of the holders, may amend the Exchange Indenture for certain specified purposes, including curing ambiguities, defects or inconsistencies, so long as such change does not, in the opinion of the Debenture Trustee, adversely affect the rights of any of the holders in any material respect. In formulating its opinion on such matters, the Debenture Trustee will be entitled to rely on such evidence as it deems appropriate, including, without limitation, solely on an opinion of counsel. Other modifications and amendments of the Exchange Indenture may be made with the consent of the holders of a majority in principal amount of the then outstanding Exchange Debentures issued under the Exchange Indenture, except that, without the consent of each holder affected thereby, no amendment may: (i) reduce the amount of Exchange Debentures whose holders must consent to an amendment; (ii) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any Exchange Debentures; (iii) reduce the principal of or change or have the effect of changing the fixed maturity of any Exchange Debentures, or change the date on which any Exchange Debentures may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (iv) make any Exchange Debentures payable in money other than that stated in the Exchange Debentures; (v) make any change in provisions of the Exchange Indenture protecting the right of each holder of an Exchange Debenture to receive payment of principal of and interest on such Exchange Debenture on or after the due date thereof or to bring suit to enforce such payment, or permitting holders of a majority in principal amount of Exchange Debentures to waive Defaults or Events of Default; (vi) amend, change or modify in any material respect the obligation of the Company to make and consummate a Debenture Change of Control Offer in the event of a Change of Control or make and consummate a Net Proceeds Offer with respect to any Asset Sale that has been consummated or modify any of the provisions or definitions with respect thereto after a Change of Control has occurred or the subject Asset Sale has been consummated; or (vii) modify or change any provision of the Exchange Indenture or the related definitions affecting the subordination or ranking of the Exchange Debentures in a manner which adversely affects the Holders in any material respect. GOVERNING LAW The Exchange Indenture provides that it and the Exchange Debentures will be governed by, and construed in accordance with, the laws of the State of New York but without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. 114 121 THE DEBENTURE TRUSTEE The Exchange Indenture provides that, except during the continuance of an Event of Default, the Debenture Trustee will perform only such duties as are specifically set forth in the Exchange Indenture. During the existence of an Event of Default, the Debenture Trustee will exercise such rights and powers vested in it by the Exchange Indenture, and use the same degree of care and skill in its exercise as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. The Exchange Indenture and the provisions of the TIA contain certain limitations on the rights of the Debenture Trustee, should it become a creditor of the Company, to obtain payments of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. Subject to the TIA, the Debenture Trustee will be permitted to engage in other transactions; provided that if the Debenture Trustee acquires any conflicting interest as described in the TIA, it must eliminate such conflict or resign. 115 122 DESCRIPTION OF CAPITAL STOCK The issued and outstanding capital stock of the Company (other than the Senior Preferred Stock) consists of Class A Common, Class B Common, Class C Common, Series A Preferred, Series B Preferred and Series C Preferred. The Company has outstanding 3,261,176 shares of Class A Common, 863,824 shares of Class B Common and 875,000 shares of Class C Common. The Company also has outstanding 3,261,176 shares of Series A Preferred, 863,824 shares of Series B Preferred and 875,000 shares of Series C Preferred. See "Security Ownership of Certain Beneficial Owners and Management." Each share of Series A Preferred, Series B Preferred and Series C Preferred is convertible, at any time, into one share of Class A Common, Class B Common and Class C Common, respectively. Each share of Class B Common and Series B Preferred is convertible, at any time, into one share of Class A Common and Series A Preferred, respectively; provided, however, that no holder of Class B Common or Series B Preferred is entitled to convert such holder's shares of Class B Common or Series B Preferred into shares of Class A Common or Series A Preferred, as the case may be, if as a result of such conversion such holder or a group of persons (within the meaning of the Exchange Act) which includes such holder would own shares of capital stock of the Company representing more than 49.0% of the voting power of the then outstanding capital stock of the Company; and provided further, that no holder of Class B Common or Series B Preferred that is subject to the Bank Holding Company Act of 1956 (a "Regulated Shareholder") or any such Regulated Shareholder's transferees are entitled to convert such holder's shares of Class B Common or Series B Preferred into shares of Class A Common or Series A Preferred, as the case may be, to the extent that immediately prior to, or as a result of, such conversion such Regulated Shareholder reasonably determines that the issuance of shares of Class A Common or Series A Preferred, as the case may be, would result in a Regulatory Problem (as defined in the Company's Articles of Incorporation) for such Regulated Shareholder. The conversion ratios are subject to anti-dilution protection. Holders of Class B Common and Series B Preferred have no voting rights, except as required by law. The holders of Class A Common are entitled to one vote per share on all matters to be voted upon by the stockholders of the Company, including the election of directors. The holders of Class C Common are entitled to two votes per share on all matters to be voted upon by the stockholders of the Company, including the election of directors. The holders of Series A Preferred and Series C Preferred are entitled to the number of votes per share they would have been entitled to vote if they had converted into Common Stock on all matters to be voted upon by the stockholders of the Company, including the election of directors. The holders of all classes of Common Stock and all series of Convertible Preferred Stock entitled to vote on a particular matter will vote as a single class on such matter except as required by law. As, if and when declared by the Company's Board of Directors, the Company shall pay dividends to holders of Convertible Preferred Stock on each share of Convertible Preferred Stock at a rate of 10% per annum on the liquidation value per share plus all declared and unpaid dividends thereon. The shares of Convertible Preferred Stock also will participate together with the shares of Common Stock as if such shares of Convertible Preferred Stock had been converted into shares of Common Stock in all dividends paid with respect to the Common Stock (other than dividends payable solely in shares of Common Stock) as, if and when such dividends are declared by the Company's Board of Directors. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of Convertible Preferred Stock will be entitled to be paid, out of the assets of the Company available for distribution to shareholders after payment of amounts owed with respect to any stock senior to the Convertible Preferred Stock (including the Senior Preferred Stock), the liquidation preference per share of Convertible Preferred Stock, plus, without duplication, an amount in cash equal to all declared and unpaid dividends thereon to the date fixed for liquidation, dissolution or winding up before any distribution is made on any stock junior to the Convertible Preferred Stock, including, without limitation, the Common Stock. The aggregate liquidation preference of the Convertible Preferred Stock is approximately $56.7 million. 116 123 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The following is a discussion of certain material United States Federal income tax considerations of the acquisition, ownership and disposition of the Exchange Securities. Unless otherwise stated, this discussion is limited to the United States Federal income tax consequences to those persons who are original purchasers of the Securities and who hold such Securities and Exchange Securities as capital assets within the meaning of Section 1221 of the Code (each a "Holder"). The discussion does not purport to address specific tax consequences that may be relevant to particular persons (including, for example, financial institutions, broker-dealers, insurance companies, tax-exempt organizations, and persons in special situations, such as those who hold the Securities or Exchange Securities as part of a straddle, hedge, conversion transaction, or other integrated investment). In addition, this discussion does not address U.S. Federal alternative minimum tax consequences or any aspect of state, local or foreign taxation. This discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury Department regulations promulgated thereunder, and administrative and judicial interpretations thereof, all of which are subject to change, possibly on a retroactive basis. There can be no assurance that the Internal Revenue Service (the "IRS") will not take a contrary view and no ruling from the Service has been or will be sought. HOLDERS OF THE SECURITIES OR THE EXCHANGE SECURITIES ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM TO ACQUIRING, OWNING AND DISPOSING OF THE SECURITIES OR THE EXCHANGE SECURITIES, AS WELL AS THE APPLICATION OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS. THE EXCHANGE The Company believes that the exchange of the Securities for Exchange Securities pursuant to the Exchange Offer will not be treated as an "exchange" for Federal income tax purposes because the Exchange Securities will not be considered to differ materially in kind or extent from the Securities. Rather, the Exchange Securities received by a Holder will be treated as a continuation of the Securities in the hands of such Holder. As a result, there will be no Federal income tax consequences to a Holder from the exchange of Securities for Exchange Securities pursuant to the Exchange Offer. TAX CONSEQUENCES TO U.S. HOLDERS For purposes of this discussion, a "U.S. Holder" is a Holder who is (i) an individual who is a citizen or resident of the United States; (ii) a corporation, limited liability company, partnership or other business entity created in, or organized under, the laws of the United States or any state or political subdivision thereof; (iii) an estate the income of which is subject to United States Federal income taxation regardless of its source; or (iv) a trust if a court within the United States is able to exercise primary jurisdiction over its administration and one or more United States persons have the authority to control all of its substantial decisions. SENIOR PREFERRED STOCK Stock Characterization. Although the characterization of an instrument as debt or equity is a facts and circumstances determination that cannot be predicted with certainty, the Company intends to treat the Senior Preferred Stock as stock for Federal income tax purposes, and the remainder of the discussion assumes that such treatment will be respected. Distributions on Senior Preferred Stock. Distributions on Senior Preferred Stock, whether paid in cash or in additional shares of Senior Preferred Stock ("Dividend Shares"), will be taxable as ordinary dividend income to the extent that the amount of cash or the fair market value of any Senior Preferred Stock distributed on the Senior Preferred Stock does not exceed the Company's current and accumulated earnings and profits (as determined for Federal income tax purposes). To the extent that the amount of any distribution paid on the Senior Preferred Stock exceeds the Company's current and accumulated earnings and profits, the distribution will be treated as a return of capital, thereby reducing the U.S. Holder's basis in the Senior Preferred Stock. The amount of any excess distribution that is greater than the U.S. Holder's basis in the Senior Preferred Stock will be taxed as a capital gain, long-term or short-term depending upon whether the U.S. Holder has held the stock for more than one year. In addition, a U.S. Holder who is an individual will 117 124 qualify for a lower tax rate on any capital gain recognized with respect to Senior Preferred Stock held more than 18 months. There can be no assurance that the Company will have sufficient earnings and profits (as determined for Federal income tax purposes) to cause distributions on the Senior Preferred Stock to be treated as dividends. The Holder's initial basis in any Dividend Shares distributed by the Company will be equal to the fair market value of such additional shares on their date of distribution. The Holder's holding period for such additional shares will commence with the distribution of the additional shares, and will not include the Holder's holding period for the shares of Senior Preferred Stock with respect to which the additional shares were distributed. Dividends received by a corporate U.S. Holder who owns less than 20 percent of the Company (by vote or value) will be eligible for the 70% dividends-received deduction, subject to the limitations generally applicable to the dividends-received deduction, including those contained in Sections 246 and 246A of the Code. Under Section 246(c) of the Code, a corporate U.S. Holder will not be entitled to claim the 70% dividends-received deduction with respect to a dividend on Senior Preferred Stock which such Holder holds for 45 days or less during the 90-day period beginning 45 days before the Senior Preferred Stock becomes ex-dividend with respect to such dividend. In addition, if the dividend is attributable to a period aggregating more than 366 days, then the corporate U.S. Holder will not be entitled to the 70% dividends-received deduction if it has held the Senior Preferred Stock for 90 days or less during the 180-day period beginning 90 days before the Senior Preferred Stock becomes ex-dividend with respect to such dividend. The length of time that a corporate U.S. Holder is deemed to have held stock for these purposes is reduced for periods during which that Holder's risk of loss with respect to the stock is diminished by reason of certain options, contracts to sell, short sales, or other similar transactions. Section 246(c) also denies the dividends-received deduction to the extent that the corporate U.S. Holder is under an obligation to make payments with respect to substantially similar or related property corresponding to the dividend received. Section 246A of the Code provides that the 70% dividends-received deduction may be reduced if the corporate U.S. Holder's shares of Senior Preferred Stock are debt financed. Under Section 1059 of the Code, if a corporate U.S. Holder receives an "extraordinary dividend" with respect to the Senior Preferred Stock that the U.S. Holder has held for two years or less (ending on the date on which the Company declares, announces or agrees to, the amount of payment of such dividend, whichever is the earliest), the tax basis of the Senior Preferred Stock must be reduced (but not below zero) by the non-taxed portion of the dividend. To the extent that the U.S. Holder's tax basis would have been reduced below zero but for the above limitation, such excess will be treated as gain from the sale or exchange of stock taxable in the year in which the extraordinary dividend was received. Generally, an "extraordinary dividend" is a dividend that (i) equals or exceeds 5% of the U.S. Holder's basis in the Senior Preferred Stock (treating all dividends having ex-dividend dates within an 85-day period as a single dividend), or (ii) exceeds 20% of the U.S. Holder's adjusted basis in the Senior Preferred Stock, where all dividends having ex-dividend dates within a 365-day period are treated as a single dividend. Furthermore, certain redemptions (i.e., non-pro rata redemptions and redemptions in partial liquidation of the Company) of Senior Preferred Stock will be treated as extraordinary dividends. Special rules apply to "qualified preferred dividends," which are any fixed dividends payable with respect to any share of stock that (i) provides for fixed preferred dividends payable not less frequently than annually and (ii) is not in arrears as to dividends at the time the holder acquires such stock. The term qualified preferred dividend does not include any dividend payable with respect to any share if the actual rate of return for the period the stock has been held by the holder receiving the dividend exceeds 15%. Redemption Premium on Senior Preferred Stock. The Senior Preferred Stock is subject to a mandatory redemption on March 1, 2010. If the redemption price of the Senior Preferred Stock exceeds its issue price by more than a de minimis amount, such excess ("Preferred OID") may be treated as a constructive distribution of additional stock on the Senior Preferred Stock. An amount generally will be considered de minimis as long as the amount is less than the redemption price of the preferred stock multiplied by 1/4 of 1% multiplied by the number of years until the issuer must redeem the preferred stock. The Senior Preferred Stock issued pursuant to this offering will not have any Preferred OID. However, because the issue price of a Dividend Share will be 118 125 equal to its fair market value at the time of distribution, a Dividend Share may be issued with Preferred OID. In this case, the U.S. Holder of a Dividend Share will be required to include such Preferred OID in income as a distribution in advance of receiving the cash attributable to such income. If the Dividend Shares bear Preferred OID, such shares generally will have different tax characteristics from other Senior Preferred Stock (including other Dividend Shares) and might trade separately, which might adversely affect the liquidity of such shares. In addition to the mandatory redemption feature, as described in more detail under the heading "Description of the Senior Preferred Stock and Exchange Debentures," the Senior Preferred Stock is redeemable, either in whole or in part, at the option of the Company (i) before March 1, 2001, at a fixed premium upon the occurrence of certain events, and (ii) from March 1, 2003 through February 28, 2006, at premiums declining to par on March 1, 2006. Furthermore, each Holder of the Senior Preferred Stock has the right to require the Company to repurchase the Holder's Senior Preferred Stock in cash upon the occurrence of a Change of Control. Although the optional redemption and the U.S. Holder's put may result in constructive distributions to the U.S. Holder under certain circumstances, the Company believes that neither the optional redemption nor the U.S. Holder's put of the Senior Preferred Stock would trigger those rules. Redemption, Sale or Exchange of Senior Preferred Stock. A redemption of shares of Senior Preferred Stock for Exchange Debentures or for cash, or a sale of Senior Preferred Stock, will be taxable events. A redemption of shares of Senior Preferred Stock for cash will generally be treated as a sale or exchange if the U.S. Holder does not own, actually or constructively within the meaning of Section 318 of the Code, any stock of the Company other than the stock redeemed. If the U.S. Holder does own, actually or constructively, such other stock (including Senior Preferred Stock not redeemed), a redemption of Senior Preferred Stock may be treated as a dividend to the extent of the Company's current and accumulated earnings and profits. Such dividend treatment, however, would not apply if the redemption is "substantially disproportionate" with respect to the Holder under Section 302(b)(2) of the Code or is "not essentially equivalent to a dividend" with respect to the Holder under Section 302(b)(1) of the Code. A distribution to a holder will be "not essentially equivalent to a dividend" if it results in a "meaningful reduction" of the U.S. Holder's stock in the Company. For these purposes, a redemption of Senior Preferred Stock for cash that results in a reduction in the proportionate interest in the Company (taking into account any constructive ownership) of a U.S. Holder whose relative stock interest in the Company is minimal and who exercises no control over corporate affairs should be regarded as a meaningful reduction in the U.S. Holder's stock interest in the Company. If the redemption of Senior Preferred Stock were not treated as a distribution taxable as a dividend or if the Senior Preferred Stock were sold, the redemption or sale would result in capital gain or loss equal to the difference between the (i) amount of cash and the fair market value of other property received in the redemption or sale and (ii) the U.S. Holder's adjusted tax basis in the Senior Preferred Stock redeemed or sold. A redemption of Senior Preferred Stock for Exchange Debentures will be subject to the same rules as a redemption for cash, except that the U.S. Holder would recognize capital gain or loss equal to the difference between the issue price of the Exchange Debentures received and the U.S. Holder's adjusted tax basis in the Senior Preferred Stock redeemed. In either of these cases, the gain or loss will be long-term capital gain or loss if the U.S. Holder has held the Senior Preferred Stock for more than one year; preferential rates of tax may apply to gains recognized upon the disposition of shares of Senior Preferred Stock held for more than 18 months. The deductibility of capital losses by U.S. Holders is subject to limitations. If the redemption of Senior Preferred Stock were treated as a distribution that is taxable as a dividend, the distribution would be measured by the amount of cash or issue price of the Exchange Debentures received by the U.S. Holder in the redemption. As described above, the distribution will be taxable as a dividend to the extent of the Company's earnings and profits. The amount of the distribution in excess of the Company's earnings and profits will reduce the U.S. Holder's basis in the redeemed shares, and, to the extent the amount of the distribution exceeds such basis, will result in capital gain. The U.S. Holder's adjusted tax basis in the Senior Preferred Stock would be transferred to any remaining stock of the U.S. Holder in the Company. If the U.S. Holder does not retain any stock ownership in the Company, the U.S. Holder may lose such basis. 119 126 EXCHANGE DEBENTURES Original Issue Discount on Exchange Debentures. If the Senior Preferred Stock is exchanged for Exchange Debentures at a time when the stated redemption price at maturity of the Exchange Debentures exceeds their issue price by more than a de minimis amount, the Exchange Debentures will be treated as having original issue discount ("OID") equal to the entire amount of such excess. OID will generally be considered de minimis as long as it is less than the stated redemption price at maturity of the Exchange Debentures multiplied by 1/4 of 1% multiplied by the number of years to maturity. If the Exchange Debentures are deemed to be traded on an established securities market at any time during the 60-day period ending 30 days after their issue date, the issue price of the Exchange Debentures will be their fair market value as determined as of the issue date. Subject to certain limitations described in the regulations, the Exchange Debentures will be deemed to be traded on an established securities market if, among other things, price quotations are readily available from dealers, brokers or traders. Similarly, if the Senior Preferred Stock, but not the Exchange Debentures issued and exchanged therefor, is deemed to be traded on an established securities market at the time of the exchange, then the issue price of each Exchange Debenture should be the fair market value of the Senior Preferred Stock exchanged therefor at the time of the exchange. The Senior Preferred Stock will generally be deemed to be traded on an established securities market if it appears on a system of general circulation that provides a reasonable basis to determine fair market value based either on recent price quotations or recent sales transactions. In the event that neither the Senior Preferred Stock nor the Exchange Debentures are deemed to be traded on an established securities market, the issue price of the Exchange Debentures will be their stated principal amount or, in the event the Exchange Debentures do not bear "adequate stated interest" within the meaning of Section 1274 of the Code, their "imputed principal amount," which is generally the sum of the present values of all payments due under the Exchange Debentures, discounted from the date of payment to their issue date at the "applicable federal rate." The stated redemption price at maturity of the Exchange Debentures will equal the total of all payments required to be made thereon, other than payments of qualified stated interest. Qualified stated interest generally is stated interest that is unconditionally payable in cash or other property (other than debt instruments of the issuer) at least annually at a single fixed rate. Therefore, Exchange Debentures that are issued when the Company has the option to pay interest thereon for certain periods in additional Exchange Debentures should be treated as having been issued without any qualified stated interest. Accordingly, the sum of all interest payable pursuant to the stated interest rate on such Exchange Debentures over the entire term should be treated as OID and accrued into income under a constant yield method by the U.S. Holder, and the U.S. Holder should not treat the receipt of stated interest on the Debentures as interest for Federal income tax purposes. In general, the amount of OID that a Holder of a debt instrument with OID must include in gross income will be the sum of the "daily portions" of OID with respect to such debt instrument for each day during the taxable year or portion of a taxable year on which such Holder holds the debt instrument. The daily portion is determined under a constant yield method by allocating to each day of an accrual period (generally, a six-month period) a pro rata portion of an amount equal to the "adjusted issue price" of the debt instrument at the beginning of the accrual period multiplied by the yield to maturity of the debt instrument. The yield to maturity of a debt instrument is the discount rate that, when applied to all payments due under the debt instrument, produces a present value equal to the issue price of the debt instrument. The "adjusted issue price" is the issue price of the debt instrument increased by the accrued OID for all prior accrual periods (and decreased by the amount of cash payments made in all prior accrual periods, other than qualified stated interest payments). An additional Exchange Debenture (a "Secondary Debenture") issued in payment of interest with respect to an initially issued Exchange Debenture (an "Initial Debenture") will not be considered as payment made on the Initial Debenture and will be aggregated with the Initial Debenture for purposes of computing and accruing OID on the Initial Debenture. The Company will allocate the adjusted issue price of the Initial Debenture between the Initial Debenture and the Secondary Debenture in proportion to their respective principal amounts. That is, upon its issuance of a Secondary Debenture with respect to an Initial Debenture, the Company intends to treat the Initial Debenture and the Secondary Debenture derived from the Initial 120 127 Debenture as initially having the same adjusted issue price and inherent amount of OID per dollar of principal amount. The Initial Debenture and the Secondary Debenture derived therefrom will be treated as having the same yield to maturity. Similar treatment will be applied when additional Exchange Debentures are issued on Secondary Debentures. In the event the Exchange Debentures are not issued with OID, because they are issued at a time when the Company does not have the option to pay interest thereon in additional Exchange Debentures and the redemption price of the Exchange Debentures does not exceed their issue price by more than a de minimis amount, stated interest should be included in income by a U.S. Holder in accordance with such Holder's method of accounting. Tax Basis of Exchange Debentures. A Holder's initial tax basis in the Exchange Debentures will be equal to the Holder's tax basis in the Senior Preferred Stock exchanged therefor plus the amount of gain, if any, recognized upon such exchange. The tax basis of the Exchange Debentures in the hands of each Holder will be increased by the amount of OID, if any, on such Exchange Debentures that is included in the Holder's gross income and will be decreased by the amount of any cash payments received with respect to the debt instrument (other than payments of qualified stated interest), whether such payments are denominated as principal or interest. Election. A Holder of Exchange Debentures, subject to certain limitations, may elect to include all interest and discount on the Exchange Debentures in gross income under the constant yield method. For this purpose, interest includes stated and unstated interest, acquisition discount and OID, as adjusted by any amortizable bond premium. Bond Premium on Exchange Debentures. If the Senior Preferred Stock is exchanged for Exchange Debentures when the Company no longer has the option to pay interest thereon in additional Exchange Debentures and the issue price of the Exchange Debentures exceeds the amount payable at the maturity date (or earlier call date, if appropriate) of the Exchange Debentures, such excess will be deductible by the holder of the Exchange Debentures as amortizable bond premium over the term of the Exchange Debentures (taking into account earlier call dates, as appropriate) under a yield-to-maturity formula if an election by the U.S. Holder under Section 171 of the Code is made or is already in effect. However, under recently promulgated final regulations, the amount of amortized bond premium that a U.S. Holder may deduct in any accrual period is limited to the excess of (a) the interest includible in such U.S. Holder's taxable income in such accrual period and prior periods over (b) the total amount treated by the U.S. Holder as a bond premium deduction on the Exchange Debenture in prior accrual periods. If any of the excess bond premium is not deductible under Section 171, that amount is carried forward to the next accrual period and is treated as bond premium allocable to that period. The final regulations relating to bond premium are effective for Exchange Debentures acquired on or after March 2, 1998; however, if a U.S. Holder makes the election to amortize bond premium for the taxable year containing March 2, 1998, or any subsequent taxable year, this regulation applies to Exchange Debentures held on or after the first day of the taxable year in which the election is made. An election under Section 171 is available only if the Exchange Debentures are held as capital assets. This election is revocable only with the consent of the Internal Revenue Service ("IRS") and applies to all obligations owned or subsequently acquired by the U.S. Holder. To the extent the excess is deducted as amortizable bond premium, the U.S. Holder's tax basis in the Exchange Debentures will be reduced. Redemption or Sale of Exchange Debentures. Generally, any redemption or sale of Exchange Debentures by a U.S. Holder would result in taxable gain or loss equal to the difference between the amount of cash received (except to the extent that cash received is attributable to accrued, but previously untaxed, interest) and the Holder's tax basis in the Exchange Debentures. The tax basis of a U.S. Holder who receives an Exchange Debenture in exchange for Senior Preferred Stock will generally be equal to the issue price of the Exchange Debenture on the date the Exchange Debenture is issued plus any OID on the Exchange Debenture included in the U.S. Holder's income prior to sale or redemption of the Exchange Debenture, reduced by any amortizable bond premium applied against the U.S. Holder's income prior to sale or redemption of the Exchange Debenture and payments other than payments of "qualified stated interest." Subject to the market discount rules, such gain or loss would be long-term capital gain or loss if the Exchange Debentures have been held by the U.S. Holder for more than one year; preferential rates of tax may apply to gains recognized upon 121 128 the disposition of Exchange Debentures held for more than 18 months. The deductibility of capital losses by U.S. Holders is subject to limitations. Applied High Yield Discount Obligations. Pursuant to Section 163 of the Code, the "disqualified portion" of the OID accruing on certain debt instruments may be treated as a dividend eligible for the dividends-received deduction. The corporation issuing such debt instrument is not entitled to deduct this "disqualified portion" of the OID accruing on such debt instrument and is allowed to deduct the remainder of the OID only when paid. This treatment would apply to "applicable high yield discount obligations" ("AHYDO"), which generally are debt instruments that have a term of more than five years, have a yield to maturity that equals or exceeds five percentage points over the "applicable federal rate" and have "significant" OID. A debt instrument is treated as having "significant" OID if the aggregate amount that would be includible in gross income with respect to such debt instrument for periods before the close of any accrual period ending five years or more after the date of issue exceeds the sum of (i) the aggregate amount of interest to be paid in cash under the debt instrument before the close of such accrual period and (ii) the product of the initial issue price of such debt instrument and its yield to maturity. For purposes of determining whether an Exchange Debenture is an AHYDO, holders are bound by the issuer's determination of the appropriate accrual period. It is impossible to determine at the present time whether an Exchange Debenture will be treated as an AHYDO. If an Exchange Debenture is treated as an AHYDO, a corporate holder would be treated as receiving dividend income (to the extent of the Company's current and accumulated earnings and profits), solely for purposes of the dividends-received deduction, in an amount equal to the "dividend equivalent portion" of the "disqualified portion" of the OID of such AHYDO. The "disqualified portion" of the OID is equal to the lesser of (i) the amount of the OID or (ii) the portion of the "total return" (the excess of all payments to be made with respect to such obligation over its issue price) on such obligation that bears the same ratio to the obligation's total return as the "disqualified yield" (the extent to which the yield exceeds the applicable federal rate plus 6%) bears to the obligation's yield to maturity. The dividend equivalent portion of the disqualified portion is the amount that would have been treated as a dividend if it had been distributed by the issuer with respect to its stock. The Company's deduction for OID will be substantially deferred with respect to an Exchange Debenture that is treated as an AHYDO. In addition, such deduction will be disallowed if and to the extent that the yield on such AHYDO exceeds the applicable federal rate by more than 6%. FIXED RATE EXCHANGE NOTES AND FLOATING RATE EXCHANGE NOTES Debt Characterization. The Company and each Holder will agree to treat the Senior Subordinated Notes as indebtedness for Federal income tax purposes, and the following discussion assumes that such treatment is correct. If the Senior Subordinated Notes were not respected as debt, they likely would be treated as equity ownership interests in the Company. In such event, the Company would not be entitled to claim a deduction for interest payable on the Senior Subordinated Notes. As a result, the Company's after-tax cash flow and, consequently, its ability to make payments with respect to the Senior Subordinated Notes could be reduced. Taxation of Interest. Interest paid on the Senior Subordinated Notes will be includible in the income of a U.S. Holder as ordinary interest income at the time the interest is received or when it accrues in accordance with the U.S. Holder's regular method of tax accounting. A U.S. Holder may be entitled to treat interest income on the Senior Subordinated Notes as "investment income" for purposes of computing certain limitations concerning the deductibility of investment interest expense. The Senior Subordinated Notes are not expected to be issued with OID. A U.S. person who purchases a Senior Subordinated Note after the initial distribution thereof at a discount that exceeds a statutorily defined de minimis amount will be subject to the "market discount" rules of the Code, and a U.S. person who purchases a Senior Subordinated Note at a premium will be subject to the bond premium amortization rules of the Code. Change of Control. In the event of a Change of Control, the Holders of the Senior Subordinated Notes will have the right to require the Company to repurchase the Holder's Senior Subordinated Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase. The 122 129 Treasury Department regulations provide that the right of a Holder to require redemption of the Senior Subordinated Notes upon the occurrence of a Change of Control will not affect the yield or maturity date of the Senior Subordinated Notes if either the probability of such a redemption is remote or the effect of such a redemption is incidental. The Company intends to treat the redemption of the Senior Subordinated Notes following a Change of Control as a remote or incidental contingency. Redemption of Senior Subordinated Notes. The Company may redeem the Senior Subordinated Notes prior to March 1, 2008 under circumstances described under the heading "Description of Senior Subordinated Notes." Under the Treasury Department regulations, the Company is deemed to exercise any option to redeem if the exercise of such option would lower the yield of the debt instrument. The Company believes that it will not be treated as having exercised an option to redeem under these rules. Sale, Exchange or Retirement of the Senior Subordinated Notes. Except as noted above in connection with the Exchange Offer, a U.S. Holder will recognize taxable gain or loss on the sale, exchange, redemption, retirement or other disposition of a Senior Subordinated Note in an amount equal to the difference between the amount realized from such disposition and the Holder's adjusted tax basis in the Senior Subordinated Note. A Holder's adjusted tax basis in a Senior Subordinated Note will be equal to the Holder's cost of the Senior Subordinated Note, (i) increased by any interest that has accrued on the Senior Subordinated Note since the last interest payment date, as well as any OID, market discount and gain previously included by such Holder in income with respect to the Senior Subordinated Note, and (ii) decreased by any bond premium previously amortized and any principal payments previously received by such Holder with respect to such Senior Subordinated Note. Subject to the market discount rules, such gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder has held the Senior Subordinated Note for more than one year at the time of disposition; preferential rates of tax may apply to gains recognized by a Holder that is an individual upon the disposition of Senior Subordinated Notes held for more than 18 months. The deductibility of capital losses by U.S. Holders is subject to limitations. A cash basis Holder that sells a Senior Subordinated Note between interest payment dates will be required to treat an amount equal to accrued but unpaid interest through the date of sale as ordinary interest income, and, as noted above, to add such amount to its basis in the Senior Subordinated Note. A U.S. Holder will not recognize any taxable gain or loss upon the exchange of a Note for an Exchange Note pursuant to the Exchange Offer. TAX CONSEQUENCES TO FOREIGN HOLDERS For purposes of this discussion, a "Foreign Holder" is any person other than a U.S. Holder. SENIOR SUBORDINATED NOTES Interest. Payments of interest on the Senior Subordinated Notes to a Foreign Holder will generally not be subject to U.S. Federal income tax or withholding, provided that (1) the Foreign Holder is not (i) a direct or indirect owner of 10 percent or more of the total voting power of all voting stock of the Company or (ii) a controlled foreign corporation related to the Company within the meaning of Section 864(d)(4) of the Code, (2) such interest is not effectively connected with the conduct by the Foreign Holder of a trade or business within the United States, and (3) the Company or its paying agent receives (i) from the Foreign Holder, a properly completed Form W-8 (or substitute Form W-8) or successor thereto (including any required renewals thereof), signed under penalties of perjury, which provides the Foreign Holder's name, address and taxpayer identification number, if any, and certifies that the Holder of the Senior Subordinated Note is a Foreign Holder or (ii) from a securities clearing organization, bank or other financial institution that holds the Senior Subordinated Notes in the ordinary course of its trade or business (a "financial institution") on behalf of the Foreign Holder, a statement certifying under penalties of perjury that it has received such a Form W-8 (or substitute Form W-8) from the Foreign Holder, or that it has received from another financial institution a statement that it has received a Form W-8 (or substitute Form W-8) from the Foreign Holder, and a copy of such Form W-8 of the Foreign Holder is furnished to the payor. The statement described in clause (3) of this paragraph generally must be provided in the year a payment occurs or in either of the two preceding calendar years. If the information provided in such statement changes, the Foreign Holder must so inform the Company, in writing, within 30 days of such change. If the foregoing conditions are not satisfied, then interest 123 130 paid on the Senior Subordinated Notes will be subject to United States withholding at a rate of 30 percent, unless such rate is reduced or eliminated pursuant to an applicable tax treaty. Disposition. A Foreign Holder will not be subject to U.S. Federal income tax or withholding with respect to gain recognized on a disposition of the Senior Subordinated Notes unless (i) the gain is effectively connected with the conduct by the Foreign Holder of a trade or business in the United States or (ii) in the case of a Foreign Holder that is an individual, such Holder is present in the United States for 183 or more days in the taxable year of the disposition and such Holder (a) has a "tax home" (within the meaning of Section 911(d)(3) of the Code) in the United States or (b) maintains an office or fixed place of business in the United States to which such gain is attributable. If the interest, gain or other income a Foreign Holder recognizes on a Senior Subordinated Note is effectively connected with the Foreign Holder's conduct of a trade or business in the United States, such interest, gain or other income (although exempt from withholding as previously discussed if an appropriate statement is furnished) generally will be subject to United States Federal income tax on a net basis at the rates applicable to U.S. Holders. In addition, if the Foreign Holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% of its "effectively connected earnings and profits," as adjusted for certain items, unless it qualifies for a lower rate under an applicable tax treaty. On October 7, 1997, the Treasury Department issued new regulations governing the certification procedures applicable to certain amounts paid to non-U.S. persons, effective for payments made after December 31, 1999. In general, these new regulations do not alter the treatment described herein of Foreign Holders who satisfy the current reporting requirements applicable to them. The new regulations alter the procedures for claiming benefits of an income tax treaty and may change certain procedures relating to intermediaries receiving payments on behalf of a beneficial owner of a Senior Subordinated Note. Foreign Holders should consult their tax advisors concerning the effect, if any, of these new regulations on an investment in the Senior Subordinated Notes. INFORMATION REPORTING AND BACKUP WITHHOLDING For each calendar year in which the Senior Preferred Stock, Senior Subordinated Notes or Exchange Debentures are outstanding, the Company will be required to provide the Internal Revenue Service ("IRS") with certain information with respect to the Holders of the Senior Preferred Stock, Senior Subordinated Notes and Exchange Debentures, including each Holder's name, address and taxpayer identification number, the aggregate amount of principal, interest and dividends paid to that Holder during the calendar year and the amount of tax withheld, if any. This reporting obligation does not apply with respect to payments to certain Holders, including corporations, tax-exempt organizations, qualified pension and profit sharing trusts, individual retirement accounts and nonresident aliens who provide certification as to their status. A Holder may, under certain circumstances, be subject to "backup withholding" unless such Holder (i) is not subject to the reporting requirements described above and, when required, demonstrates this fact, or (ii) provides to the Company a correct taxpayer identification number, certifies that the Holder is not subject to backup withholding due to "notified payee under-reporting" and otherwise complies with applicable requirements of the backup withholding rules. In addition, a Holder will be subject to backup withholding if the Company has been notified by the IRS that backup withholding is required for such Holder due to payee under-reporting. The backup withholding rate is 31% of "reportable payments," which include dividends, interest and, under certain circumstances, principal payments. If a Holder is subject to backup withholding due to such Holder's failure to furnish a correct taxpayer identification number, the backup withholding will continue until the Holder furnishes the Company with a correct taxpayer identification number. In addition to backup withholding, a Holder who does not provide the Company with the correct taxpayer identification number may be subject to penalties imposed by the IRS. Backup withholding is not an additional tax. The amount of any backup withholding will be allowed as a credit against the Holder's federal income tax liability and may entitle such Holder to a refund, provided that the required information has been furnished to the IRS. Information reporting and backup withholding will not apply to payments to Foreign Holders outside the United States of principal or interest on a Senior Subordinated Note. In order to avoid backup withholding on 124 131 payments of interest made in the United States, a Foreign Holder of the Senior Subordinated Notes must generally complete and provide the payor with a Form W-8 or other documentary evidence certifying that such Foreign Holder is an exempt foreign person. Payments of the proceeds from the sale by a Foreign Holder of a Senior Subordinated Note made to or through a foreign office of a broker will not be subject to information reporting or backup withholding, except that if the broker is a U.S. person, a controlled foreign corporation, or a foreign person 50% or more of whose gross income is effectively connected with a U.S. trade or business for a specified three-year period, information reporting requirements may apply to such payments. Payments of the proceeds from the sale by a Foreign Holder of a Senior Subordinated Note made to or through the United States office of a broker will be subject to information reporting and backup withholding unless the Foreign Holder or beneficial owner certifies its status as such or otherwise establishes an exemption from information reporting and backup withholding and the broker has documentary evidence in its records as to such status or exemption. The Treasury Department recently promulgated final regulations regarding the withholding and information reporting rules relating to Foreign Holders discussed above. In general, the final regulations do not significantly alter the substantive withholding and information reporting requirements, but rather unify current certification procedures and forms and clarify reliance standards. The final regulations are generally effective for payments made after December 31, 1999 subject to certain transition rules. FOREIGN HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE IMPACT, IF ANY, OF THE NEW FINAL REGULATIONS. PLAN OF DISTRIBUTION Each Participating Broker-Dealer that receives Exchange Securities for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Securities received in exchange for Securities where such Securities were acquired as a result of market-making activities or other trading activities. The Company has agreed that for a period of 180 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any Participating Broker-Dealer for use in connection with any such resale. In addition, until 1998, all dealers effecting transactions in the Exchange Securities may be required to deliver a prospectus. The Company will not receive any proceeds from any sales of the Exchange Securities by Participating Broker-Dealers. Exchange Securities received by Participating Broker-Dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Securities or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to a purchaser or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such Participating Broker-Dealer and/or the purchasers of any such Exchange Securities. Any Participating Broker-Dealer that resells the Exchange Securities that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Securities may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Securities and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For the period of 180 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any Participating Broker-Dealer that requests such documents in the Letter of Transmittal. 125 132 EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The Securities were originally sold by the Company on February 26, 1998 to the Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser subsequently resold the Securities to qualified institutional buyers in reliance on Rule 144A under the Securities Act. As a condition to the Purchase Agreement, the Company entered into the Registration Rights Agreement with the Initial Purchaser pursuant to which the Company has agreed that it will, at its cost, for the benefit of the Holders, (i) within 60 days after the Issue Date (the "Filing Date"), file the Exchange Offer Registration Statement with respect to a registered offer (the "Exchange Offer") to exchange the Notes for the Exchange Notes and the Preferred Stock for the Exchange Preferred Stock of the Company, which Exchange Securities will have terms substantially identical in all material respects to the Notes and Preferred Stock, respectively, (except that the Exchange Securities will not contain terms with respect to transfer restrictions) and (ii) use its best efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act within 120 days after the Issue Date. Upon the Exchange Offer Registration Statement being declared effective, the Company will offer the Exchange Securities in exchange for surrender of the Securities. The Company will keep the Exchange Offer open for not less than 20 business days (or longer if required by applicable law) after the date notice of the Exchange Offer is mailed to the Holders. For each of the Securities surrendered to the Company pursuant to the Exchange Offer, the Holder who surrendered such Securities will receive the applicable Exchange Securities having a principal amount, or liquidation preference, as the case may be, equal to that of the surrendered Securities. Interest on each Exchange Note will accrue (A) from the later of (i) the last interest payment date on which interest was paid on the Note surrendered in exchange therefor, or (ii) if the Note is surrendered for exchange on a date in a period which includes the record date for an interest payment date to occur on or after the date of such exchange and as to which interest will be paid, the date of such interest payment date or (B) if no interest has been paid on the Notes, from the Issue Date. Dividends on the Preferred Stock will accumulate (A) from the later of (i) the last dividend payment date on which dividends were paid on the Preferred Stock surrendered in exchange therefor, or (ii) if the Preferred Stock is surrendered for exchange on a date in a period which includes the record date for a dividend payment to occur on or after the date of such exchange and as to which a dividend will be paid, the date of such dividend payment date or (B) if no dividend has been paid on the Preferred Stock, from the Issue Date. Under existing interpretations of the Commission contained in several no-action letters to third parties, the Exchange Securities will, in general, be freely transferable by holders thereof after the Exchange Offer without further registration under the Securities Act. However, any purchaser of Notes who is an "affiliate" of the Company or who intends to participate in the Exchange Offer for the purpose of distributing the Exchange Securities (i) will not be able to rely on the interpretation of the staff of the Commission, (ii) will not be able to tender its Securities in the Exchange Offer and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the Securities, unless such sale or transfer is made pursuant to an exemption from such requirements. As contemplated by these no-action letters and the Registration Rights Agreement, each holder accepting the Exchange Offer is required to represent to the Company in the Letter of Transmittal that (i) the Exchange Securities are to be acquired by the holder or the person receiving such Exchange Securities, whether or not such person is the holder, in the ordinary course of business, (ii) the holder or any such other person (other than a broker-dealer referred to in the next sentence) is not engaging and does not intend to engage, in the distribution of the Exchange Securities, (iii) the holder or any such other person has no arrangement or understanding with any person to participate in the distribution of the Exchange Securities, (iv) neither the holder nor any such other person is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act, and (v) the holder or any such other person acknowledges that if such holder or other person participates in the Exchange Offer for the purpose of distributing the Exchange Securities it must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the Exchange Securities and cannot rely on those no-action letters. As indicated above, each Participating Broker-Dealer that receives Exchange Securities for its own account in exchange for 126 133 Securities must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. For a description of the procedures for such resales by Participating Broker-Dealers, see "Plan of Distribution." If, (i) because of any change in law or in currently prevailing interpretations of the staff of the Commission, the Company is not permitted to effect an Exchange Offer, (ii) the Exchange Offer is not consummated within 180 days of the Issue Date, (iii) in certain circumstances, certain holders of unregistered Exchange Securities so request, or (iv) in the case of any Holder that participates in the Exchange Offer, such Holder does not receive Exchange Securities on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such Holder as an affiliate of the Company within the meaning of the Securities Act), then in each case, the Company will (x) promptly deliver to the Holders and the Trustee written notice thereof and (y) at its sole expense, (a) as promptly as practicable, file a shelf registration statement covering resales of the Securities (the "Shelf Registration Statement"), (b) use its best efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act and (c) use its best efforts to keep effective the Shelf Registration Statement until the earlier of two years after the Issue Date or such time as all of the applicable Securities have been sold thereunder. The Company will, in the event that a Shelf Registration Statement is filed, provide to each Holder copies of the prospectus that is a part of the Shelf Registration Statement, notify each such Holder when the Shelf Registration Statement for the Securities has become effective and take certain other actions as are required to permit unrestricted resales of the Securities. A Holder that sells Securities pursuant to the Shelf Registration Statement will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement that are applicable to such a Holder (including certain indemnification rights and obligations). In addition, each Holder that sells Securities pursuant to the Shelf Registration Statement will be required to deliver information to be used in connection with the Shelf Registration Statement and to provide comments on the Shelf Registration Statement within the time periods set forth in the Registration Rights Agreement in order to have their Securities included in the Shelf Registration Statement and to benefit from the provisions set forth in the following paragraph. If the Company fails to comply with the above provisions or if the Exchange Offer Registration Statement or the Shelf Registration Statement fails to become effective, then, as liquidated damages, additional interest (the "Additional Interest") pursuant to provisions of the Notes or additional dividends (the "Additional Dividends") pursuant to provisions of the Preferred Stock, as applicable, shall become payable in respect of the Securities as follows: (i) if (A) neither the Exchange Offer Registration Statement nor Shelf Registration Statement is filed with the Commission on or prior to 60 days after the Issue Date or (B) notwithstanding that the Company has consummated or will consummate an Exchange Offer, the Company is required to file a Shelf Registration Statement and such Shelf Registration Statement is not filed on or prior to the date required by the Registration Rights Agreement, then commencing on the day after either such required filing date, Additional Interest or Additional Dividends, as applicable, shall accrue on the principal amount of the Notes or accumulate on the then effective liquidation preference of the Preferred Stock, as applicable, at a rate of .25% per annum for the first 90 days immediately following each such filing date, such Additional Interest or Additional Dividends, as applicable, increasing by an additional .25% per annum at the beginning of each subsequent 90-day period; or (ii) if (A) neither the Exchange Offer Registration Statement nor a Shelf Registration Statement is declared effective by the Commission on or prior to 120 days after the Issue Date or (B) notwithstanding that the Company has consummated or will consummate an Exchange Offer, the Company is required to file a Shelf Registration Statement and such Shelf Registration Statement is not declared effective by the Commission on or prior to the 60th day following the date such Shelf Registration Statement was filed, then, commencing on the day after the 120th day in the case of (A) above, or the day after the 60th day in the case of (B) above, Additional Interest or Additional Dividends, as applicable, shall accrue on the principal amount of the Notes or accumulate on the then effective liquidation preference of the Preferred 127 134 Stock, as applicable, at a rate of .25% per annum for the first 90 days immediately following such date, such Additional Interest or Additional Dividends, as applicable, increasing by an additional .25% per annum at the beginning of each subsequent 90-day period; or (iii) if (A) the Company has not exchanged Exchange Securities for all Securities validly tendered in accordance with the terms of the Exchange Offer on or prior to the 45th day after the date on which the Exchange Offer Registration Statement was declared effective or (B) if applicable, the Shelf Registration Statement has been declared effective and such Shelf Registration Statement ceases to be effective at any time prior to the second anniversary of the Issue Date (other than after such time as all Securities have been disposed of thereunder), then Additional Interest or Additional Dividends, as applicable, shall accrue on the principal amount of the Notes or accumulate on the then effective liquidation preference of the Preferred Stock, as applicable, at a rate of .25% per annum for the first 90 days commencing on (x) the 46th day after such effective date, in the case of (A) above, or (y) the day such Shelf Registration Statement ceases to be effective in the case of (B) above, such Additional Interest or Additional Dividends, as applicable, increasing by an additional .25% per annum at the beginning of each subsequent 90-day period; provided, however, that the rate of Additional Interest that shall accrue on the Notes or Additional Dividends that shall accumulate on the then effective liquidation preference of the Preferred Stock, as applicable, may not exceed in the aggregate 1.0% per annum; provided, further, however, that (1) upon the filing of the Exchange Offer Registration Statement or a Shelf Registration Statement (in the case of clause (i) above), (2) upon the effectiveness of the Exchange Offer Registration Statement or a Shelf Registration Statement (in the case of clause (ii) above), or (3) upon the exchange of Exchange Securities for all Securities tendered (in the case of clause (iii)(A) above), or upon the effectiveness of the Shelf Registration Statement which had ceased to remain effective (in the case of clause (iii)(B) above), Additional Interest or Additional Dividends, as applicable, on the Securities as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue or accumulate, as the case may be. Any amounts of Additional Interest or Additional Dividends, as applicable, due pursuant to clauses (i), (ii) or (iii) above will be payable in cash, on the same original interest payment dates as the Notes or dividend payment dates as the Preferred Stock, as applicable. The amount of Additional Interest or Additional Dividends, as applicable, will be determined by multiplying the applicable rate of Additional Interest or Additional Dividends, as applicable, by the principal amount of the Notes or liquidation preference of the Preferred Stock, as applicable, multiplied by a fraction, the numerator of which is the number of days such rate of Additional Interest or Additional Dividends was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months), and the denominator of which is 360. The summary herein of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by, all the provisions of the Registration Rights Agreement, a copy of which is filed as an exhibit to the Exchange Offer Registration Statement of which this Prospectus is a part. Following the consummation of the Exchange Offer, holders of the Preferred Stock who were eligible to participate in the Exchange Offer but who did not tender their Preferred Stock will not have any further registration rights and such Preferred Stock will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such Preferred Stock could be adversely affected. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Securities validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue $1,000 principal amount of Fixed Rate Exchange Notes in exchange for each $1,000 principal amount of outstanding Fixed Rate Notes and $1,000 principal amount of Floating Rate Exchange Notes in exchange for each $1,000 principal amount of outstanding Floating Rate Notes accepted in the Exchange Offer. Holders may tender some or all of their Notes pursuant to the Exchange Offer. However, Notes may be tendered only in integral multiples of $1,000. 128 135 In addition, the Company will issue $100 liquidation preference of Exchange Preferred Stock in exchange for each $100 liquidation preference of outstanding Preferred Stock accepted in the Exchange Offer. Holders may tender some or all of their Preferred Stock pursuant to the Exchange Offer. However, Preferred Stock may be tendered only in integral multiples of $100, unless Holders tender all of their Preferred Stock. The form and terms of the Exchange Securities are the same as the form and terms of the Securities except that (i) the Exchange Securities bear a Series B designation and a different CUSIP Number from the Securities, (ii) the Exchange Securities have been registered under the Securities Act and hence will not bear legends restricting the transfer thereof and (iii) the holders of the Exchange Securities will not be entitled to certain rights under the Registration Rights Agreement, including the provisions providing for liquidated damages in the form of additional interest in the case of Notes and in the form of additional dividends in the case of the Preferred Stock, in certain circumstances relating to the timing of the Exchange Offer, all of which rights will terminate when the Exchange Offer is consummated. The Exchange Notes will evidence the same debt as the Notes and will be entitled to the benefits of the Indenture and the Exchange Preferred Stock will evidence the same equity as the Preferred Stock and will be entitled to the benefits of the Certificate of Designation. As of the date of this Prospectus, $145,000,000 aggregate principal amount of Fixed Rate Notes, $30,000,000 aggregate principal amount of Floating Rate Notes and $25,000,000 aggregate liquidation preference of Preferred Stock were outstanding. The Company has fixed the close of business on , 1998 as the record date for the Exchange Offer for purposes of determining the persons to whom this Prospectus and the Letter of Transmittal will be mailed initially. Holders of Securities do not have any appraisal or dissenters' rights under the Idaho Business Corporations Act, or the Certificate of Designation in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the Commission thereunder. The Company shall be deemed to have accepted validly tendered Securities when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders for the purpose of receiving the Exchange Securities from the Company. If any tendered Securities are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, the certificates for any such unaccepted Securities will be returned, without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders who tender Securities in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Securities pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the Exchange Offer. See "-- Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 1998, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. Notwithstanding the foregoing, the Company will not extend the Expiration Date beyond , 1998. In order to extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice and will mail to the registered holders an announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. The Company reserves the right, in its sole discretion, (i) to delay accepting any Securities, to extend the Exchange Offer or to terminate the Exchange Offer if any of the conditions set forth below under "-- Conditions" shall not have been satisfied, by giving oral or written notice of such delay, extension or termination to the Exchange Agent or (ii) to amend the terms of the Exchange Offer in any manner. Any 129 136 such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders. INTEREST ON THE EXCHANGE NOTES The Exchange Notes will bear interest from their date of issuance. Holders of Notes that are accepted for exchange will receive, in cash, accrued interest thereon to, but not including, the date of issuance of the Exchange Notes. Such interest will be paid with the first interest payment on the Exchange Notes on September 1, 1998. Interest on the Notes accepted for exchange will cease to accrue upon issuance of the Exchange Notes. Interest on the Exchange Notes is payable semi-annually on each March 1 and September 1, commencing on September 1, 1998. DIVIDENDS ON THE EXCHANGE PREFERRED STOCK The Exchange Preferred Stock will accrue dividends from their date of issuance. Holders of Preferred Stock that are accepted for exchange will accrue dividends thereon to, but not including, the date of issuance of the Exchange Preferred Stock. Such dividends will be paid with the first dividend payment on the Exchange Preferred Stock on June 1, 1998. Accruals of dividends on the Preferred Stock accepted for exchange will cease to accrue upon issuance of the Exchange Preferred Stock. Dividends on the Exchange Preferred Stock are payable quarterly on each March 1, June 1, September 1 and December 1, commencing on June 1, 1998. PROCEDURES FOR TENDERING Only a holder of Securities may tender such Securities in the Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with the Securities and any other required documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date. To be tendered effectively, the Securities, Letter of Transmittal and other required documents must be completed and received by the Exchange Agent at the address set forth below under "Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. Delivery of the Securities may be made by book-entry transfer in accordance with the procedures described below. Confirmation of such book-entry transfer must be received by the Exchange Agent prior to the Expiration Date. By executing the Letter of Transmittal, each holder will make to the Company the representations set forth above in the third paragraph under the heading "-- Purpose and Effect of the Exchange Offer." The tender by a holder and the acceptance thereof by the Company will constitute agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE METHOD OF DELIVERY OF SECURITIES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR SECURITIES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner whose Securities are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. See "Instructions to Registered Holder" included with the Letter of Transmittal. 130 137 Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Securities tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a member firm of the Medallion System (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any Securities listed therein, such Securities must be endorsed or accompanied by a properly completed securities power, signed by such registered holder as such registered holder's name appears on such Securities with the signature thereon guaranteed by an Eligible Institution. If the Letter of Transmittal or any Securities or securities powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. The Company understands that the Exchange Agent will make a request promptly after the date of this Prospectus to establish accounts with respect to the Securities at the book-entry transfer facility, the DTC (the "Book-Entry Transfer Facility"), for the purpose of facilitating the Exchange Offer, and subject to the establishment thereof, any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of Securities by causing such Book-Entry Transfer Facility to transfer such Securities into the Exchange Agent's account with respect to the Securities in accordance with the Book-Entry Transfer Facility's procedures for such transfer. Although delivery of the Securities may be effected through book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility, an appropriate Letter of Transmittal properly completed and duly executed with any required signature guarantee and all other required documents must in each case be transmitted to and received or confirmed by the Exchange Agent at its address set forth below on or prior to the Expiration Date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. The Exchange Agent and DTC have confirmed that the Exchange Offer is eligible for the DTC Automated Tender Offer Program ("ATOP"). Accordingly, DTC participants may electronically transmit their acceptance of the Exchange Offer by causing DTC to transfer Securities to the Exchange Agent in accordance with DTC's ATOP procedures for transfer. DTC will then send an Agent's Message to the Exchange Agent. The term "Agent's Message" means a message transmitted by DTC, received by the Exchange Agent and forming part of the confirmation of a book-entry transfer, which states that DTC has received an express acknowledgment from the participant in DTC tendering Securities which are the subject of such book-entry confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that the Company may enforce such agreement against such participant. In the case of an Agent's Message relating to guaranteed delivery, the term means a message transmitted by DTC and received by the Exchange Agent, which states that DTC has received an express acknowledgment from the participant in DTC tendering Securities that such participant has received and agrees to be bound by the Notice of Guaranteed Delivery. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Securities and withdrawal of tendered Securities will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Securities not properly tendered or any Securities the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right in its sole discretion to waive any defects, irregularities or conditions of tender as to particular Securities. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be 131 138 final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Securities must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Securities, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Securities will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Securities received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Securities and (i) whose Securities are not immediately available, (ii) who cannot deliver their Securities, the Letter of Transmittal or any other required documents to the Exchange Agent or (iii) who cannot complete the procedures for book-entry transfer, prior to the Expiration Date, may effect a tender if: (a) the tender is made through an Eligible Institution; (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder, the certificate number(s) of such Securities and the principal amount and/or liquidation preference of Securities tendered, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing the Securities (or a confirmation of book-entry transfer of such Securities into the Exchange Agent's account at the Book-Entry Transfer Facility), and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) such properly completed and executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Securities in proper form for transfer (or a confirmation of book-entry transfer of such Securities into the Exchange Agent's account at the Book-Entry Transfer Facility), and all other documents required by the Letter of Transmittal are received by the Exchange Agent upon five New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Securities according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Securities may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Securities in the Exchange Offer, a telegram, telex, letter or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Securities to be withdrawn (the "Depositor"); (ii) identify the Securities to be withdrawn (including the certificate number(s) and principal amount and/or liquidation preference of such Securities, or, in the case of Securities transferred by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited); (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Securities were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee with respect to the Securities register the transfer of such Securities into the name of the person withdrawing the tender and (iv) specify the name in which any such Securities are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. 132 139 Any Securities so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Securities will be issued with respect thereto unless the Securities so withdrawn are validly retendered. Any Securities which have been tendered but which are not accepted for exchange will be returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Securities may be retendered by following one of the procedures described above under "-- Procedures for Tendering" at any time prior to the Expiration Date. CONDITIONS Notwithstanding any other term of the Exchange Offer, the Company shall not be required to accept for exchange, or exchange Exchange Securities for, any Securities, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Securities, if: (a) any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer which, in the sole judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer or any material adverse development has occurred in any existing action or proceeding with respect to the Company or any of its subsidiaries; or (b) any law, statute, rule, regulation or interpretation by the staff of the Commission is proposed, adopted or enacted, which, in the sole judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer or materially impair the contemplated benefits of the Exchange Offer to the Company; or (c) any governmental approval has not been obtained, which approval the Company shall, in its sole discretion, deem necessary for the consummation of the Exchange Offer as contemplated hereby. If the Company determines in its sole discretion that any of the conditions are not satisfied, the Company may (i) refuse to accept any Securities and return all tendered Securities to the tendering holders, (ii) extend the Exchange Offer and retain all Securities tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of holders to withdraw such Securities (see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Securities which have not been withdrawn. 133 140 EXCHANGE AGENT United States Trust Company of New York has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: By Mail: By Overnight Courier and By Hand after 4:30 p.m. on the Expiration Date only: United States Trust Company of New York United States Trust Company of New York P.O. Box 843 Cooper Station 770 Broadway Avenue-13th Floor New York, New York 10276 New York, New York 10003 Attention: Corporate Trust Operations Attention: Corporate Trust Services (registered or certified mail recommended) By Hand before 4:30 p.m.: United States Trust Company of New York Facsimile Transmission: (212) 780-0592 111 Broadway New York, New York 10006 Attention: Lower Level Corporate Trust Confirm by Telephone: (800) 548-6565 Window
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telecopy, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers, or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company. Such expenses include fees and expenses of the Exchange Agent, Registrar and Trustee, accounting and legal fees and printing costs, among others. ACCOUNTING TREATMENT The Exchange Securities will be recorded at the same carrying value as the Securities, which is face value, as reflected in the Company's accounting records on the date of exchange. Accordingly, no gain or loss for accounting purposes will be recognized by the Company. The expenses of the Exchange Offer will be expensed over the term of the Exchange Securities. CONSEQUENCES OF FAILURE TO EXCHANGE The Securities that are not exchanged for Exchange Securities pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Securities may be resold only (i) to the Company (upon redemption thereof or otherwise), (ii) so long as the Securities are eligible for resale pursuant to Rule 144A, to a person inside the United States whom the seller reasonably believes is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act in a transaction meeting the requirements of Rule 144A, in accordance with Rule 144 under the Securities Act, or pursuant to another exemption from the 134 141 registration requirements of the Securities Act (and based upon an opinion of counsel reasonably acceptable to the Company), (iii) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act, or (iv) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. RESALE OF THE EXCHANGE SECURITIES With respect to resales of Exchange Securities, based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that a holder or other person who receives Exchange Securities, whether or not such person is the holder (other than a person that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act), who receives Exchange Securities in exchange for Securities in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Securities, will be allowed to resell the Exchange Securities to the public without further registration under the Securities Act and without delivering to the purchasers of the Exchange Securities a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires Exchange Securities in the Exchange Offer for the purpose of distributing or participating in a distribution of the Exchange Securities, such holder cannot rely on the position of the staff of the Commission enunciated in such no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Further, each Participating Broker-Dealer that receives Exchange Securities for its own account in exchange for Securities, where such Securities were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. As contemplated by these no-action letters and the Registration Rights Agreement, each holder accepting the Exchange Offer is required to represent to the Company in the Letter of Transmittal that (i) the Exchange Securities are to be acquired by the holder or the person receiving such Exchange Securities, whether or not such person is the holder, in the ordinary course of business, (ii) the holder or any such other person (other than a broker-dealer referred to in the next sentence) is not engaging and does not intend to engage, in the distribution of the Exchange Securities, (iii) the holder or any such other person has no arrangement or understanding with any person to participate in the distribution of the Exchange Securities, (iv) neither the holder nor any such other person is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act, and (v) the holder or any such other person acknowledges that if such holder or other person participates in the Exchange Offer for the purpose of distributing the Exchange Securities it must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the Exchange Securities and cannot rely on those no-action letters. As indicated above, each Participating Broker-Dealer that receives Exchange Securities for its own account in exchange for Securities must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Securities. For a description of the procedures for such resales by Participating Broker-Dealers, see "Plan of Distribution." 135 142 EXPERTS The consolidated balance sheets of MCMS, Inc., formerly Micron Custom Manufacturing Services, Inc., as of August 29, 1996 and August 28, 1997 and the related consolidated statements of operations, shareholder's and division equity and cash flows for each of the three years in the period ended August 28, 1997, included in this Prospectus, have been included herein in reliance on the report of Coopers & Lybrand, L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. CHANGE OF ACCOUNTANTS In connection with the Recapitalization, the Company replaced Coopers & Lybrand L.L.P. ("Coopers & Lybrand") with KPMG Peat Marwick LLP as its independent public accountants. Coopers & Lybrand's report on the Company's consolidated financial statements for the fiscal years ended August 29, 1996 and August 28, 1997 did not contain an adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles. During the fiscal years ended August 29, 1996 and August 28, 1997 and the subsequent interim period immediately preceding the date of this Prospectus, the Company had no disagreements with Coopers & Lybrand on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Coopers & Lybrand, would have caused Coopers & Lybrand to make reference to the subject matter of the disagreements in its report. LEGAL MATTERS Certain legal matters relating to the issuance of the Exchange Securities will be passed upon for the Company by Kirkland & Ellis, New York, New York. Certain partners of Kirkland & Ellis are partners in Randolph Street Partners II, which purchased $400,000 of Class A Common and Series A Preferred in connection with the Recapitalization. In addition, certain legal matters under the Idaho Business Corporation Act relating to the issuance of the Preferred Stock will be passed upon for the Company by Evans, Keane LLP, Boise, Idaho. 136 143 GLOSSARY Ball grid array (BGA)...... A semiconductor device packaging technology which utilizes an array of solder bumps across the underside of the package to connect the chip to the PCBA circuitry. BGA allows the effective use of existing SMT equipment (with modifications) while providing improved electrical performance, higher input/output capabilities, better assembly yields and lower cost. Chip-on-board (COB)........ A manufacturing technology that utilizes unpackaged or "bare" semiconductor die which are wire bonded onto the surface of the printed circuit board and sealed with epoxy. Consignment................ Under a consignment arrangement, the OEM procures the components and supplies them to the EMS provider. The EMS provider does not record revenues or cost of goods sold related to procured materials and instead records revenues and costs relating only to assembly services. Diode...................... A two-terminal semiconductor device that exhibits a non-linear current voltage characteristic and allows current to flow in one direction, but blocks it in the opposite direction. Dynamic random access memory (DRAM).............. A type of memory used in most personal computers. DRAMs are the most commonly used memory devices for storage and retrieval of data during a system's operation. The development of more powerful personal computers and workstations and the increasing emphasis on high-throughput networking and telecommunications products have resulted in the need for higher volumes and greater varieties of DRAM memory in electronic systems. A variety of architectures and features, including SDRAM, Synchronous Graphics RAM ("SGRAM"), RAMBUS, and others, have been introduced to address different applications and performance requirements. Equivalent Unit............ Term used in the Memory Module Agreement between the Company and MTI as a unit of measure for a memory module where each such unit is equivalent to the time required to place all components on one 8D132 memory module or as otherwise agreed to by MTI and the Company. Highly accelerated life testing (HALT)............. An environmental test that places stress on the PCBAs in regards to temperature and vibration in order to determine their field environment failure limits. Highly accelerated stress screening (HASS)......... An environmental test that takes the HALT process' determined limits and establishes a lower level of environmental stress for simulating the PCBA's durability and performance in the field. Integrated circuit......... A monolithic semiconductor device that contains many active components (e.g., diodes and transistors) and passive components (e.g., resistors and capacitors) which function as a complete circuit. Multi-chip modules (MCM)... Semiconductor components containing more than one silicon chip. MCMs are used for high performance applications or those that demand small size and weight, simpler system design and lower overall system cost. An MCM is a set of bare die mounted on a substrate and packaged G-1 144 to resemble a single component that is assembled onto a printed circuit board. Choosing the most cost-effective type of MCM for an application depends on the system's clock rate, interconnect density, and power consumption. Printed circuit board (PCB)...................... The basic platform used to interconnect microprocessors, integrated circuits, and other components essential to the functioning of virtually all electronic products. Printed circuit board assembly (PCBA)............ The attachment of various electronic components such as resistors, capacitors, diodes and logic and RAM components by way of SMT or PTH interconnection technologies to a PCB. PCBA also refers to a fully assembled PCB. Pin-through-hole (PTH)..... A method of assembling PCBs whereby components connected to the circuitry by pins, or leads, which are inserted into holes in the PCB. Ramdom access memory (RAM).................... A volatile memory product that is used in electronic systems to store data and program instructions. Synchronous DRAM (SDRAM).................. A relatively new and different kind of RAM, Synchronous DRAM differs from earlier types in that it does not run asynchronously to the system clock the way other types of memory do. SDRAM is tied to the system clock and is designed to be able to read or write from memory in burst mode (after the initial read or write latency). Its synchronized design permits support for much higher bus speeds. Semiconductor.............. A material such as silicon with electrical conducting properties in between those of metals and insulators. Essentially, semiconductors transmit electricity only under certain circumstances, such as when given a positive or negative electric charge. Therefore, a semiconductor's ability to conduct can be turned on or off by manipulating those charges, allowing the semiconductor to act as a switch. Surface mount technology (SMT).................... A method of assembling PCBs whereby components are soldered directly onto the surface of the board. SMT facilitates the placement of more components on a single PCB than does PTH technology, and thus permits a reduction in the size of the PCB. Transistor................. An individual circuit that can amplify or switch electric currents. This is the building block of all integrated circuits and semiconductors. Turnkey.................... Under a turnkey arrangement, full component procurement responsibilities are delegated to the EMS provider. Revenues from turnkey arrangements include the cost plus markup of procured materials, and cost of goods sold includes the cost of the materials. G-2 145 MCMS, INC. INDEX TO FINANCIAL STATEMENTS Report of independent accountants........................... F-2 Consolidated balance sheets as of August 29, 1996, August 28, 1997 and February 26, 1998 (unaudited)................ F-3 Consolidated statements of operations for the fiscal years ended August 31, 1995, August 29, 1996 and August 28, 1997 and for the six months ended February 27, 1997 (unaudited) and February 26, 1998 (unaudited)......................... F-4 Consolidated statements of shareholders' and division equity for the fiscal years ended August 31, 1995, August 29, 1996 and August 28, 1997 and for the six months ended February 26, 1998 (unaudited)............................. F-5 Consolidated statements of cash flows for the fiscal years ended August 31, 1995, August 29, 1996 and August 28, 1997 and for the six months ended February 27, 1997 (unaudited) and February 26, 1998 (unaudited)......................... F-6 Notes to consolidated financial statements.................. F-7
F-1 146 REPORT OF INDEPENDENT ACCOUNTANTS The Shareholder and Board of Directors Micron Custom Manufacturing Services, Inc. We have audited the accompanying consolidated balance sheets of Micron Custom Manufacturing Services, Inc. as of August 29, 1996 and August 28, 1997, and the related consolidated statements of operations, shareholder's and division equity and cash flows for each of the three years in the period ended August 28, 1997. 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 Micron Custom Manufacturing Services, Inc. as of August 29, 1996 and August 28, 1997, and their consolidated results of operations and cash flows for each of the three years in the period ended August 28, 1997 in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Boise, Idaho October 29, 1997 F-2 147 MCMS, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PAR VALUE AMOUNT)
AUGUST 29, AUGUST 28, FEBRUARY 26, 1996 1997 1998 ---------- ---------- ------------ (UNAUDITED) ASSETS Cash and cash equivalents................................... $ 16,290 $ 13,636 $ 13,263 Receivables................................................. 32,464 37,962 43,079 Inventories................................................. 21,668 17,786 23,384 Deferred income taxes....................................... 1,600 1,600 1,906 Other current assets........................................ 42 63 295 -------- -------- -------- Total current assets.............................. 72,064 71,047 81,927 Property, plant and equipment, net.......................... 40,771 53,484 61,257 Other assets................................................ 410 331 7,544 -------- -------- -------- Total assets...................................... $113,245 $124,862 $150,728 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current portion of long-term debt........................... $ -- $ 1,049 $ 1,278 Accounts payable and accrued expenses....................... 45,709 40,908 55,121 -------- -------- -------- Total current liabilities......................... 45,709 41,957 56,399 Long-term debt.............................................. -- -- 175,312 Deferred income taxes....................................... 1,323 4,208 3,597 Other liabilities........................................... 332 506 661 -------- -------- -------- Total liabilities................................. 47,364 46,671 235,969 -------- -------- -------- Redeemable preferred stock, no par value, 750,000 shares authorized; 250,000 shares issued and outstanding as of February 26, 1998; mandatory redemption value of $25.0 million................................................... -- -- 24,000 -------- -------- -------- Commitments and contingencies Common stock, par value $0.10 per share, 100,000 shares authorized; 1,000 shares issued and outstanding as of August 28, 1997 and August 29, 1996....................... -- -- -- Series A convertible preferred stock, par value $0.001 per share, 6,000,000 shares authorized; 3,261,177 shares issued and outstanding as of February 26, 1998, aggregate liquidation preference of $36,949,135..................... -- -- 3 Series B convertible preferred stock, par value $0.001 per share, 6,000,000 shares authorized; 863,823 shares issued and outstanding as of February 26, 1998, aggregate liquidation preference of $9,787,115...................... -- -- 1 Series C convertible preferred stock, par value $0.001 per share, 1,000,000 shares authorized; 874,999 shares issued and outstanding as of February 26, 1998, aggregate liquidation preference of $9,913,739...................... -- -- 1 Class A common stock, par value $0.001 per share, 30,000,000 shares authorized; 3,261,177 shares issued and outstanding as of February 26, 1998................................... -- -- 3 Class B common stock, par value $0.001 per share, 12,000,000 shares authorized; 863,823 shares issued and outstanding as of February 26, 1998................................... -- -- 1 Class C common stock, par value $0.001 per share, 2,000,000 shares authorized; 874,999 shares issued and outstanding as of February 26, 1998................................... -- -- 1 Additional paid-in capital.................................. 35,625 35,813 64,950 Foreign currency translation adjustment..................... -- (630) (2,514) Retained earnings (deficit)................................. 30,256 43,008 (171,687) -------- -------- -------- Total shareholders' equity (deficit).............. 65,881 78,191 (109,241) -------- -------- -------- Total liabilities and shareholders' equity (deficit)....................................... $113,245 $124,862 $150,728 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-3 148 MCMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED SIX MONTHS ENDED -------------------------------------- ---------------------------- AUGUST 31, AUGUST 29, AUGUST 28, FEBRUARY 27, FEBRUARY 26, 1995 1996 1997 1997 1998 ---------- ---------- ---------- ------------ ------------ (UNAUDITED) (UNAUDITED) Net sales......................... $188,782 $374,116 $292,379 $124,117 $145,681 Cost of goods sold................ 169,758 341,110 258,982 108,136 128,091 -------- -------- -------- -------- -------- Gross profit...................... 19,024 33,006 33,397 15,981 17,590 Selling, general and administrative.................. 6,464 9,303 12,560 5,941 6,927 -------- -------- -------- -------- -------- Operating income.................. 12,560 23,703 20,837 10,040 10,663 Interest income, net.............. 613 482 380 260 329 Transaction expenses.............. -- -- -- -- 8,312 -------- -------- -------- -------- -------- Income before taxes............... 13,173 24,185 21,217 10,300 2,680 Income tax provision.............. 5,142 9,190 8,465 4,243 2,067 -------- -------- -------- -------- -------- Net income........................ $ 8,031 $ 14,995 $ 12,752 $ 6,057 $ 613 ======== ======== ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-4 149 MCMS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' AND DIVISION EQUITY (DEFICIT) (DOLLARS IN THOUSANDS)
SHAREHOLDERS' EQUITY (DEFICIT) DIVISION EQUITY PREFERRED STOCK - --------------------------------------------- -------------------- ----------------------------------------------------- SERIES A SERIES B SERIES C ($0.001 PAR) ($0.001 PAR) ($0.001 PAR) ----------------- --------------- --------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ------- ---------- --------- ------ ------- ------ ------- ------ Balance as of September 1, 1994.............. -- $ 18,843 -- -- -- -- -- -- Issuance of Shares........................... -- -- -- -- -- -- -- -- Capital contribution......................... -- 23,102 -- -- -- -- -- -- Tax effect of stock plans.................... -- 517 -- -- -- -- -- -- Net income................................... -- 8,031 -- -- -- -- -- -- Transfer from division equity................ -- (50,493) -- -- -- -- -- -- ------- ---------- --------- -- ------- -- ------- -- Balance as of August 31, 1995................ -- -- -- -- -- -- -- -- Tax effect of stock plans.................... -- -- -- -- -- -- -- -- Net income................................... -- -- -- -- -- -- -- -- ------- ---------- --------- -- ------- -- ------- -- Balance at August 28, 1996................... -- -- -- -- -- -- -- -- Capital contribution......................... -- -- -- -- -- -- -- -- Net income................................... -- -- -- -- -- -- -- -- Translation loss............................. -- -- -- -- -- -- -- -- ------- ---------- --------- -- ------- -- ------- -- Balance as of August 29, 1997................ -- -- -- -- -- -- -- -- Capital contribution......................... -- -- -- -- -- -- -- -- Redemption of common stock and recapitalization............................ -- -- 500,000 $1 -- -- -- -- Issuance of Series A and B and C preferred stock....................................... -- -- 2,761,177 2 863,823 $1 874,999 $1 Issuance of Class A and B and C common stock....................................... -- -- -- -- -- -- -- -- Net income................................... -- -- -- -- -- -- -- -- Translation loss............................. -- -- -- -- -- -- -- -- ------- ---------- --------- -- ------- -- ------- -- Balance as of February 26, 1998 (unaudited)................................. -- -- 3,261,177 $3 863,823 $1 874,999 $1 ======= ========== ========= == ======= == ======= == SHAREHOLDERS' EQUITY (DEFICIT) COMMON STOCK - --------------------------------------------- ---------------------------------------------------------------------- CLASS A CLASS B CLASS C ($0.001 PAR) ($0.001 PAR) ($0.001 PAR) ($0.001 PAR) --------------- ----------------- --------------- -------------- PAID-IN SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL ------ ------ --------- ------ ------- ------ ------ ------ -------- Balance as of September 1, 1994.............. -- -- -- -- -- -- -- -- -- Issuance of Shares........................... 1,000 -- -- -- -- -- -- -- -- Capital contribution......................... -- -- -- -- -- -- -- -- -- Tax effect of stock plans.................... -- -- -- -- -- -- -- -- -- Net income................................... -- -- -- -- -- -- -- -- -- Transfer from division equity................ -- -- -- -- -- -- -- -- $ 35,232 ------ -- --------- -- ------- -- ------ -- -------- Balance as of August 31, 1995................ 1,000 -- -- -- -- -- -- -- 35,232 Tax effect of stock plans.................... -- -- -- -- -- -- -- -- 393 Net income................................... -- -- -- -- -- -- -- -- -- ------ -- --------- -- ------- -- ------ -- -------- Balance at August 28, 1996................... 1,000 -- -- -- -- -- -- -- 35,625 Capital contribution......................... -- -- -- -- -- -- -- -- 188 Net income................................... -- -- -- -- -- -- -- -- -- Translation loss............................. -- -- -- -- -- -- -- -- -- ------ -- --------- -- ------- -- ------ -- -------- Balance as of August 29, 1997................ 1,000 -- -- -- -- -- -- -- 35,813 Capital contribution......................... -- -- -- -- -- -- -- -- 1,786 Redemption of common stock and recapitalization............................ (1,000) -- 500,000 $1 -- -- -- -- (33,841) Issuance of Series A and B and C preferred stock....................................... -- -- -- -- -- -- -- -- 50,996 Issuance of Class A and B and C common stock....................................... -- -- 2,761,177 2 863,823 $1 874,999 $1 10,196 Net income................................... -- -- -- -- -- -- -- -- -- Translation loss............................. -- -- -- -- -- -- -- -- -- ------ -- --------- -- ------- -- ------ -- -------- Balance as of February 26, 1998 (unaudited)................................. -- -- 3,261,177 $3 863,823 $1 874,999 $1 $ 64,950 ====== == ========= == ======= == ====== == ======== SHAREHOLDERS' EQUITY (DEFICIT) - --------------------------------------------- TOTAL FOREIGN RETAINED SHAREHOLDERS' CURRENCY EARNINGS EQUITY TRANSLATION (DEFICIT) (DEFICIT) ----------- ------------- ------------- Balance as of September 1, 1994.............. -- -- $ 18,843 Issuance of Shares........................... -- -- -- Capital contribution......................... -- -- 23,102 Tax effect of stock plans.................... -- -- 517 Net income................................... -- -- 8,031 Transfer from division equity................ -- $ 15,261 -- ------- --------- --------- Balance as of August 31, 1995................ -- 15,261 50,493 Tax effect of stock plans.................... -- -- 393 Net income................................... -- 14,995 14,995 ------- --------- --------- Balance at August 28, 1996................... -- 30,256 65,881 Capital contribution......................... -- -- 188 Net income................................... -- 12,752 12,752 Translation loss............................. (630) -- (630) ------- --------- --------- Balance as of August 29, 1997................ (630) 43,008 78,191 Capital contribution......................... -- -- 1,786 Redemption of common stock and recapitalization............................ -- (215,308) (249,147) Issuance of Series A and B and C preferred stock....................................... -- -- 51,000 Issuance of Class A and B and C common stock....................................... -- -- 10,200 Net income................................... -- 613 613 Translation loss............................. (1,884) -- (1,884) ------- --------- --------- Balance as of February 26, 1998 (unaudited)................................. $(2,514) $(171,687) $(109,241) ======= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. F-5 150 MCMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FISCAL YEAR ENDED SIX MONTHS ENDED ------------------------------------ --------------------------- AUGUST 31, AUGUST 29, AUGUST 28, FEBRUARY 27, FEBRUARY 26, 1995 1996 1997 1997 1998 ---------- ---------- ---------- ------------ ------------ (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................. $ 8,031 $14,995 $ 12,752 $ 6,057 $ 613 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization........................... 3,469 5,425 8,819 3,905 5,458 Loss (gain) on sale of property, plant and equipment.... 15 98 (72) (83) (2) Write-off of deferred loan costs........................ -- -- -- -- 206 Changes in assets and liabilities: Receivables........................................... (17,846) 6,003 (5,498) (244) (5,933) Inventories........................................... (12,589) 279 3,881 (6,751) (5,879) Other current assets.................................. 141 22 -- (13) (217) Accounts payable and accrued expenses................. 20,282 7,356 (2,173) 736 12,453 Deferred income taxes................................. 617 (536) 2,886 771 (917) Other................................................. 4 (22) 128 149 156 -------- ------- -------- -------- -------- Net cash provided by operating activities................... 2,124 33,620 20,723 4,527 5,938 -------- ------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Expenditures for property, plant and equipment.............. (10,116) (31,229) (24,120) (12,690) (10,763) Proceeds from sales of property, plant and equipment........ 215 5,597 151 97 219 Other....................................................... (30) (11) -- -- -- -------- ------- -------- -------- -------- Net cash used for investing activities...................... (9,931) (25,643) (23,969) (12,593) (10,544) -------- ------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Capital contributions....................................... 23,102 -- -- -- 1,786 Repurchase of common stock and recapitalization............. -- -- -- -- (249,147) Proceeds from issuance of common stock...................... -- -- -- -- 10,200 Proceeds from issuance of convertible preferred stock....... -- -- -- -- 51,000 Proceeds from issuance of redeemable preferred stock........ -- -- -- -- 24,000 Proceeds from borrowings.................................... -- -- 12,300 -- 175,000 Repayments of debt.......................................... (988) (6,687) (11,487) (10) (916) Payment of deferred debt issuance costs..................... -- -- -- -- (7,489) Other....................................................... -- -- (221) -- -- -------- ------- -------- -------- -------- Net cash provided by (used for) financing activities........ 22,114 (6,687) 592 (10) 4,434 -------- ------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents........ 14,307 1,290 (2,654) (8,076) (172) Effect of exchange rate changes on cash and equivalents..... -- -- -- -- (201) Cash and cash equivalents at beginning of year.............. 693 15,000 16,290 16,290 13,636 -------- ------- -------- -------- -------- Cash and cash equivalents at end of period.................. $ 15,000 $16,290 $ 13,636 $ 8,214 $ 13,263 ======== ======= ======== ======== ======== SUPPLEMENTAL DISCLOSURES Income taxes paid........................................... $ 4,479 $ 9,293 $ 9,962 $ 5,615 $ 18 Interest paid, net of amounts capitalized................... 510 360 21 2 4 Noncash investing activities: Foreign currency translation adjustment..................... -- -- 630 -- 1,884 Contracts payable and notes payable incurred for capitalized software.................................................. -- -- -- -- 1,659
The accompanying notes are an integral part of the consolidated financial statements. F-6 151 MCMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (TABULAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SIGNIFICANT ACCOUNTING POLICIES BUSINESS: MCMS, Inc. (the "Company"), is an electronics manufacturing services provider serving OEMs. The Company provides product design and prototype manufacturing; materials procurement and inventory management; the manufacture and testing of PCBAs, memory modules and systems; quality assurance; and end-order fulfillment. The Company markets and sells products and services primarily to original equipment manufacturers in diverse electronic industries including computers, peripherals, networking and telecommunications. The Company operates two sites in the United States and one site in Asia and acquired a site in Colfontaine, Belgium in November 1997. On February 26, 1998 the Company completed a Recapitalization. Prior to the closing of the Recapitalization, the Company was a wholly owned subsidiary of MEI California, Inc. ("MEIC"), a wholly owned subsidiary of Micron Electronics, Inc. ("MEI"). Under the terms of the amended and restated Recapitalization Agreement, certain unrelated investors (the "Investors") acquired an equity interest in the Company. In order to complete the Recapitalization, the Company arranged for additional financing in the form of notes and redeemable preferred stock totaling $200.0 million. The Company used the proceeds from the Investors' equity investment and the issuance of notes and redeemable preferred stock to redeem a portion of MEIC's outstanding equity interest for approximately $249.2 million. Subsequent to the Recapitalization, MEIC will continue to hold a 10% equity interest in the Company. In connection with the Recapitalization, the Company's name was changed from Micron Custom Manufacturing Services, Inc. to MCMS, Inc. BASIS OF PRESENTATION: The financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company's fiscal year is the 52 or 53 week period ending on the Thursday closest to August 31. As of February 26, 1998 the Company was 10% owned by MEIC which is indirectly majority owned by Micron Technology, Inc. ("MTI"). The consolidated financial statements as of and for the six months ended February 27, 1997 and February 26, 1998, including disclosures in the notes to the financial statements, are unaudited. In the opinion of management, such unaudited consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position of the Company and its results of operations and cash flows. 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. Although, actual results could differ from those estimates, management believes its estimates are reasonable. REVENUE RECOGNITION: Revenue from product sales to customers is generally recognized upon shipment. A provision for estimated sales returns is recorded in the period in which the sales are recognized. FINANCIAL INSTRUMENTS: Prior to the Recapitalization, the Company invested its excess cash in an investment pool administered by MEI. The investment pool included highly liquid short-term investments with original maturities of three months or less. The investment pool was readily convertible to known amounts of cash and generally consisted of commercial paper, state and local government agency securities, bankers' acceptances, and U.S. Government agency securities. The interest earned on the Company's investment was based on a pro rata share of MEI's total investments. Prior to the Recapitalization, the Company's cash held in the MEI investment pool was transferred into the Company's interest bearing cash management account. Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents and trade accounts receivable. Prior to the recapitalization, the investment pool included credit instruments of highly rated financial institutions. MEI performed periodic evaluations of the credit standing of these financial institutions. MEI, by policy, limited the concentration of F-7 152 MCMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (TABULAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) credit exposure by restricting investments with any single obligor, instrument, or geographic area. A concentration of credit risk may exist with respect to trade receivables, as many of the Company's customers are affiliated with the computer, peripheral, networking and telecommunications industries. The Company performs ongoing credit evaluations on its customers and generally does not require collateral. Historically, the Company has not experienced significant losses related to receivables from individual customers or groups of customers in any particular industry or geographic area. The amounts reported as cash equivalents, receivables, other assets and accounts payable and accrued expenses and debt are considered by the Company to be reasonable approximations of their fair values, based on market information available to management as of August 28, 1997. The use of different market assumptions and estimation methodologies could have a material effect on the estimated fair value amounts. The reported fair values do not take into consideration potential taxes or other expenses that would be incurred in an actual settlement. INVENTORIES: Inventories are stated at the lower of average cost or market. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of 5 to 30 years for buildings and 2 to 5 years for software and equipment. PRODUCT AND PROCESS TECHNOLOGY: Costs related to the conceptual formulation and design of products and processes are expensed as research and development. Research and development expense was approximately $138,000, $88,000, and $138,000 in the fiscal years ended August 31, 1995, August 29, 1996 and August 28, 1997, and $60,000 and $83,000 in the six months periods ended February 27, 1997 and February 26, 1998, respectively. FOREIGN CURRENCY TRANSLATION: The functional currency of the Company's international subsidiaries are the Malaysian Ringgit and the Belgian Franc. Financial statements of the international subsidiaries are translated into U.S. dollars for consolidated financial reporting using the exchange rate in effect at each balance sheet date for assets and liabilities. The resulting translation adjustments are recorded as a separate component of shareholders' equity and, accordingly, have no effect on income. Revenues, expenses, gains and losses are translated using a weighted average exchange rate for each period. Transaction gains and losses are included in the determination of net income. For the fiscal year ended August 28, 1997 and the six months ended February 27, 1997 and February 26, 1998 the Company incurred net transaction gains of $159,000, $0 and $442,000, respectively. There were no transaction gains or losses in 1996 or 1995. CARVE OUT METHODOLOGY The financial statements for 1995 present the results of operations and cash flows of the carved out contract manufacturing operation, exclusive of a component recovery operation which the Company operated prior to September 1, 1995. Receivables, inventories, property, plant and equipment, income tax assets and liabilities, accounts payable, net sales, cost of goods sold and research and development were specifically identified for each operation. Liabilities related to employee compensation were allocated to each operation based upon employee headcount or other appropriate methods. Long term and current debt and the related interest expense were allocated to the contract manufacturing operation. Equity balances were established based upon originally contributed amounts and historical earnings. Selling, general and administrative expenses were allocated to each operation primarily based on net sales or headcount. Income taxes were computed as if the Company were a separate tax paying entity. Management believes the allocations are reasonable. F-8 153 MCMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (TABULAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) RECEIVABLES
AUGUST 29, AUGUST 28, FEBRUARY 26, 1996 1997 1998 ---------- ---------- ------------ (UNAUDITED) Trade receivables........................... $31,106 $35,290 $37,756 Receivables from affiliates, net............ 2,579 3,493 6,776 Income taxes recoverable from MEI........... -- 754 -- Other....................................... 209 160 382 Allowance for doubtful accounts............. (974) (881) (457) Allowance for returns and discounts......... (456) (854) (1,378) ------- ------- ------- $32,464 $37,962 $43,079 ======= ======= =======
INVENTORIES
AUGUST 29, AUGUST 28, FEBRUARY 26, 1996 1997 1998 ---------- ---------- ------------ (UNAUDITED) Raw materials and supplies.................. $16,505 $11,885 $15,365 Work in progress............................ 4,843 4,043 6,676 Finished goods.............................. 320 1,858 1,343 ------- ------- ------- $21,668 $17,786 $23,384 ======= ======= =======
In the second quarter of fiscal 1998, the Company recorded a change in estimate in its inventory reserves resulting in an increase to pre-tax income of $585,000. PROPERTY, PLANT AND EQUIPMENT
AUGUST 29, AUGUST 28, FEBRUARY 26, 1996 1997 1998 ---------- ---------- ------------ (UNAUDITED) Land...................................... $ 751 $ 751 1,304 Buildings................................. 1,430 24,577 28,378 Equipment and software.................... 33,817 48,609 51,212 Construction in progress.................. 17,665 62 5,990 -------- -------- -------- 53,663 73,999 86,884 Less accumulated depreciation and amortization............................ (12,892) (20,515) (25,627) -------- -------- -------- $ 40,771 $ 53,484 $ 61,257 ======== ======== ========
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
AUGUST 29, AUGUST 28, FEBRUARY 26, 1996 1997 1998 ---------- ---------- ------------ (UNAUDITED) Trade accounts payable.................... $ 23,697 $ 29,248 $ 42,922 Payable to affiliates..................... 18,636 5,978 4,250 Short-term equipment contracts............ -- 1,307 2,809 Salaries, wages and benefits.............. 2,727 3,521 4,063 Other..................................... 649 854 1,077 -------- -------- -------- $ 45,709 $ 40,908 $ 55,121 ======== ======== ========
F-9 154 MCMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (TABULAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) DEBT
AUGUST 28, FEBRUARY 26, 1997 1998 ---------- ------------ Revolving loan, monthly installments through May 3, 1998, interest rate 7.70% at August 28, 1997.................... $ 833 $ -- Note payable, matures on August 15, 1998, interest due at maturity, weighted average interest rate equal to interest earned on the Company's cash investments (5.84% and 5.68% at August 28, 1997 and February 26, 1998, respectively)... 216 210 Senior subordinated notes (the "Fixed Rate Notes"), unsecured, interest due semiannually, matures on March 1, 2008, interest rate of 9.75%.............................. -- 145,000 Floating interest rate subordinated term securities, (the "Floating Rate Notes") unsecured, interest due semiannually, matures on March 1, 2008, variable interest rate equal to LIBOR plus 4.63%............................ -- 30,000 Note payable, semi-annual installments through September 23, 1998, interest rate of 8.00%.............................. -- 797 Note payable, quarterly installments through October 1, 2000, interest rate of 2.71%.............................. -- 583 ------- -------- Debt........................................................ 1,049 176,590 Less current portion........................................ (1,049) (1,278) ------- -------- $ -- $175,312 ======= ========
Maturities of debt as of February 26, 1998 are as follows:
FISCAL YEAR NOTES PAYABLE ----------- ------------- 1998 (remainder of fiscal year)............................. $ 1,146 1999........................................................ 211 2000........................................................ 185 2001........................................................ 48 2002........................................................ -- 2003 and thereafter......................................... 175,000 -------- $176,590 ========
The Fixed Rate Notes are redeemable at the Company's option, in whole any time or in part from time to time, on and after March 1, 2003, upon not less than 30 nor more than 60 days notice. The redemption rate, if redeemed during the twelve month period commencing on March 1, decreases from 104.875% in 2003 to 100.000% in 2006 and thereafter (expressed as percentages of the principal amount thereof). At any time, or from time to time, on or prior to March 1, 2001, the Company may use the net cash proceeds of one or more Public Equity Offerings to redeem the Fixed Rate Notes at a redemption price equal to 109.750% of the principal amount thereof if certain restrictions regarding principal amount and additional fixed rate notes are met. The Floating Rate Notes are redeemable, at the Company's option, in whole at any time or in part from time to time, upon not less than 30 nor more than 60 days notice. The redemption price, if redeemed during the twelve month period commencing on March 1, decreases from 105% in 1998 to 100% in 2003 and thereafter (expressed as percentages of the principal amount thereof). F-10 155 MCMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (TABULAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Among other restrictions, the Notes described above contain covenants relating to limitation on incurrence of additional indebtedness, limitation on restricted payments, limitation on asset sales and limitation on dividends. On February 26, 1998, the Company entered into a $40,000,000 New Revolving Credit Facility (the "Revolving Facility") with various lending institutions. The line of credit carries interest at the lesser of the applicable Eurodollar Rate plus 2.75% or the Base Rate plus 1.75%, as defined in the Revolving Facility. The Company is required to pay a commitment fee of 0.5% per annum based upon the average unused portion. Within the Revolving Facility, reduction discount clauses are offered if certain leverage ratio tests are met. There were no outstanding borrowings against this line of credit as of February 26, 1998. The Revolving Facility matures on February 26, 2003 and contains various covenants including minimum levels of EBITDA, minimum interest coverage, maximum leverage ratios, restrictions on capital expenditures and additional indebtedness as well as restrictions on payment of dividends. The Revolving Facility contains customary events of default. In the event any default or breach of covenant under the Revolving Facility occurs, the default could result in events of default for the Notes and Redeemable Preferred Stock. On April 15, 1997, the Company entered into a Revolving Loan Agreement (the "Agreement") with a financial institution that provides for borrowings up to $15,000,000. Under the terms of the Agreement, the amount available to borrow decreases by $1,000,000 annually. The interest rate on the borrowed funds is based on the 30 day commercial paper rate plus 2.15% (7.70% as of August 28, 1997). The Agreement expires in May 2007 and borrowings are collaterized by the Company's real property located in Nampa, Idaho. Under the Agreement, the Company is subject to certain financial ratios and covenants including limitations on the amount of dividends. As of August 28, 1997, $833,000 was outstanding under the Agreement. In conjunction with the Recapitalization Agreement the balance of $333,000 was paid off and the Agreement was cancelled on February 26, 1998. On March 17, 1997, the Company entered into an unsecured Revolving Credit Facility with MEI that provides for borrowings up to $20,000,000, based upon the Company's net worth. As of August 28, 1997 the Company was eligible to borrow up to $17,000,000 pursuant to the agreement but had no borrowings outstanding. The interest rate on borrowed funds is based upon the 90 day LIBOR rate plus 1.00%. In conjunction with the Recapitalization Agreement the above agreement was cancelled on February 26, 1998. Interest income is net of $524,000, $233,000 and $65,000 of interest expense in fiscal years ended August 31, 1995, August 29, 1996 and August 28, 1997, respectively and $2,000 and $0 for the six month periods ended February 27, 1997 and February 26, 1998, respectively. Construction period interest of $5,000, $18,000, and $228,000 was capitalized in fiscal years ended August 31, 1995, August 29, 1996 and August 28, 1997, respectively and $35,000 and $34,000 for the six month periods ended February 27, 1997 and February 26, 1998, respectively. REDEEMABLE PREFERRED STOCK The Redeemable Preferred Stock is redeemable at the Company's option, in whole or in part, at any time on or after March 1, 2003. The redemption rate, if redeemed during the twelve month period commencing on March 1, decreases from 106.25% in 2003 to 100.00% in 2006 and thereafter (expressed in percentages of the liquidation preference thereof). At any time, or from time to time, prior to March 1, 2001, the Company may use the net cash proceeds of one or more Public Equity Offerings to redeem the preferred stock at a redemption price of 112.50% of the then effective liquidation preference thereof plus, without duplication, an amount equal to all accumulated and unpaid dividends to the redemption date including an amount equal to the prorated dividend for the period from the dividend payment date immediately prior to the redemption date to the redemption date. F-11 156 MCMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (TABULAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The Preferred Stock will be subject to mandatory redemption in whole on March 1, 2010 at a price equal to 100% of the liquidation preference thereof plus all accumulated and unpaid dividends to the date of redemption. The Redeemable Preferred Stock, subject to certain restrictions, is exchangeable for the Exchange Debentures at the option of the Company on any dividend payment date on or after the issue date. The Redeemable Preferred Stock has liquidation preferences over Common Stock and has a liquidation value of $100 per share plus cumulative unpaid dividends thereon. Redeemable Preferred Stockholders are entitled to a cumulative 12 1/2% annual dividend based upon the liquidation preference per share of Redeemable Preferred Stock, payable quarterly. Accrued dividends on the Redeemable Preferred Stock are payable upon certain defined events which include: any voluntary or involuntary liquidation, dissolution or winding up of the Company. At the Company's option, dividends through March 1, 2003 may be paid by issuing additional shares of Redeemable Preferred Stock. The holders of Redeemable Preferred Stock are not entitled to vote on any matter required or permitted to be voted upon by the shareholders of the Company. SHAREHOLDERS' EQUITY Each share of Series A, Series B, and Series C preferred stock (hereinafter called the "Convertible Preferred Stock") is convertible into one share of Class A, Class B and Class C common stock (hereinafter called the "Common Stock"), respectively. Holders of Series A preferred stock and Class A common stock are entitled to one vote per share. Holders of Series B preferred stock and Class B common stock do not have any voting rights. Holders of Series C preferred stock and Class C common stock are entitled to two votes per share. The holders of all voting series of Convertible Preferred Stock and classes of Common Stock will vote as a single class on all matters. Holders of Convertible Preferred Stock will be paid dividends, when and if declared by the Company, on each share of Convertible Preferred Stock at an annual rate of 10% on the liquidation value per share plus all declared and unpaid dividends. Holders of Convertible Preferred Stock will participate together with the shares of Common Stock as if such shares of Convertible Preferred Stock had been converted into shares of Common Stock in all dividends paid with respect to the Common Stock. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of Convertible Preferred Stock will be entitled to be paid, out of the assets of the Company available for distribution to shareholders after payment of amounts owed with respect to any stock senior to the Convertible Preferred Stock (including the Redeemable Preferred Stock), the liquidation preference per share of Convertible Preferred Stock, plus, without duplication, an amount in cash equal to all declared and unpaid dividends thereon before any distribution is made on the Common Stock. The aggregate liquidation preference of the Convertible Preferred Stock is approximately $56.7 million. F-12 157 MCMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (TABULAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) TRANSACTION EXPENSES Transaction expenses associated with the Recapitalization Agreement are comprised of the following items: Transaction agreement....................................... $2,710 Commitment fees............................................. 2,150 Termination agreements...................................... 1,400 MEI/MTI option buyback...................................... 662 Other....................................................... 1,390 ------ $8,312 ======
STOCK PURCHASE AND INCENTIVE PLANS MEI's 1995 Stock Option Plan provides for the granting of incentive and nonstatutory stock options to eligible employees of both MEI and the Company. As of August 28, 1997, there were 5,000,000 shares of MEI's common stock reserved for issuance under the plan. MEI's Board of Directors has approved reserving an additional 5,000,000 shares of common stock for the plan, subject to shareholder approval. Exercise prices of the incentive and nonstatutory stock options have generally been 100% and 85%, respectively, of the fair market value of MEI's stock on the date of grant. Options are granted subject to terms and conditions determined by MEI's Board of Directors, and generally are exercisable in increments of 20% for each year of employment beginning one year from date of grant and generally expire six years from date of grant. MEI's 1995 Employee Stock Purchase Plan allows eligible employees of both MEI and the Company to purchase shares of MEI common stock through payroll deductions. The shares can be purchased for 85% of the lower of the beginning or ending fair market value of each six month offering period and are restricted from resale for a period of one year from the date of purchase. Purchases are limited to 20% of an employee's eligible compensation. A total of 2,500,000 shares of MEI common stock are reserved for issuance under the plan, of which approximately 271,000 shares had been issued to employees of both MEI and the Company as of August 28, 1997. Option activity for the Company's portion of MEI's option plan is summarized as follows:
WEIGHTED WEIGHTED WEIGHTED AUGUST 31, AVERAGE AUGUST 29, AVERAGE AUGUST 28, AVERAGE FISCAL YEAR ENDED 1995 PRICE 1996 PRICE 1997 PRICE ----------------- ---------- -------- ---------- -------- ---------- -------- Outstanding at beginning of year.... -- $ -- 126 $18.71 379 $14.14 Granted............................. 126 18.71 259 11.97 316 20.60 Exercised........................... -- -- -- -- (8) 14.36 Terminated or canceled.............. -- -- (6) 16.21 (20) 18.18 ----- ----- ----- Outstanding at end of year.......... 126 18.71 379 14.14 667 17.08 ===== ====== ===== ====== ===== ====== Exercisable at the end of year...... -- $ -- 25 $18.71 90 $15.22 ===== ====== ===== ====== ===== ====== Options available for future grants to employees of both MEI and the Company........................... 4,253 3,141 1,416 ===== ===== =====
F-13 158 MCMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (TABULAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The following table summarizes information about the Company's portion of MEI's stock options outstanding as of August 28, 1997.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------------------------------------------------------- ---------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE NUMBER REMAINING EXERCISE NUMBER EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE ---------------------------------- ----------- ---------- -------- ----------- -------- $10.01-$15.00..................... 245 4.63 years 11.85 45 11.74 $15.01-$20.00..................... 271 4.89 years 19.07 44 18.71 above $20.00...................... 151 5.40 years 21.97 1 23.83
The Company has adopted the disclosure-only provisions of SFAS 123, "Accounting for Stock-Based Compensation." The Company continues to measure compensation expense for its stock-based employee compensation plans using the intrinsic value method prescribed by APB No. 25, "Accounting for Stock Issued to Employees." The fair value of options at date of grant was estimated using the Black-Scholes options pricing model. The assumptions and resulting fair values at date of grant for options granted during the fiscal years ended August 29, 1996 and August 28, 1997 follow:
EMPLOYEE STOCK STOCK OPTION PLAN SHARES PURCHASE PLAN SHARES --------------------------------- --------------------------------- FISCAL YEAR ENDED AUGUST 29, 1996 AUGUST 28, 1997 AUGUST 29, 1996 AUGUST 28, 1997 ----------------- --------------- --------------- --------------- --------------- Assumptions: Expected life................. 3.5 years 3.5 years 0.5 years 0.5 years Risk-free interest rate....... 5.9% 6.2% 5.1% 5.0% Expected volatility........... 70.0% 70.0% 70.0% 70.0% Dividend yield................ 0.0% 0.0% 0.0% 0.0% Weighted average fair values: Exercise price equal to market price...................... $6.33 $11.00 -- -- Exercise price less than market price............... 6.50 11.78 $3.67 $5.37
Stock based compensation costs would have reduced pretax income by $326,000 and $1,399,000 in the fiscal years ended August 29, 1996 and August 28, 1997, respectively ($202,000 and $841,000, respectively, net of taxes), if the fair values of all options granted to the Company's employees had been recognized as a compensation expense on a straight-line basis over the vesting period of the grants. The pro forma effect on net income for the fiscal years ended August 29, 1996 and August 28, 1997 is not representative of the pro forma effect on net income in future years because it does not take into consideration pro forma compensation expense related to grants prior to the fiscal year ended August 29, 1996. As a result of the Recapitalization Agreement, employees of the Company no longer participate in the MEI stock option plan. In accordance with the MEI option plan, employees have 30 days from the date of Recapitalization to exercise any vested options. The Company has elected to pay employees who maintain continuous employment with the Company for six months after the Recapitalization date $2.00 per option for any options not exercised 30 days subsequent to the Recapitalization in return for cancellation of those options. F-14 159 MCMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (TABULAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) EMPLOYEE SAVINGS PLAN MEI has a 401(k) profit-sharing plan (the "RAM Plan") in which eligible employees of the Company may participate. Under the RAM Plan, which is administered by MTI, employees may contribute from 2% to 16% of eligible pay to various savings alternatives. The RAM Plan provides for an annual match by the Company of the first $1,500 of eligible employee contributions, and for additional contributions by the Company based upon MEI's financial performance. The Company's expense pursuant to the plan was approximately $477,000, $744,000, and $621,000 in the fiscal years ended August 31, 1995, August 29, 1996 and August 28, 1997, respectively. In connection with the Recapitalization Agreement the RAM plan has been modified to become a multi-employer plan. Employees of the Company will continue to participate in the RAM plan during the periods covered by the Transition Service Agreement with MEI and MTI. TRANSACTIONS WITH AFFILIATES
FISCAL YEAR ENDED SIX MONTHS ENDED -------------------------------------- ---------------------------- AUGUST 31, AUGUST 29, AUGUST 28, FEBRUARY 27, FEBRUARY 26, 1995 1996 1997 1997 1998 ---------- ---------- ---------- ------------ ------------ (UNAUDITED) Net sales......................... $28,787 $42,003 $25,864 $13,676 $16,582 Inventory purchases............... 63,258 66,568 28,076 11,505 5,524 Administrative service expenses... 991 1,181 1,938 1,031 1,081 Property, plant and equipment purchases....................... 1,111 543 1,493 355 489 Property, plant and equipment sales........................... 153 69 886 870 180 Construction management services........................ -- 437 118 60 -- Rental income..................... -- -- 400 160 240
Net sales to affiliates include approximately $3,797,000, $10,928,000, and $9,682,000, in the fiscal years ended August 31, 1995, August 29, 1996 and August 28, 1997, and $6,484,000 and $3,679,000 the six month periods ended February 27, 1997 and February 26, 1998, respectively, to an affiliate acting as a distributor to an end customer of the Company. Administrative service expenses include items such as corporate administration, investor relations, benefit administration, finance, treasury, tax, information technology and legal expenses. As part of the Recapitalization Agreement, the Company entered into a Transition Service Agreement with both MEI and MTI to provide support services similar to those historically provided. The services will be provided for a period of up to six months after the closing of the Recapitalization. Expenses associated with these services are anticipated to decline during the period of service as a result of the Company's effort to bring these functions in house. A tax payable to affiliates of $2,557,000 at August 29, 1996 is included in accounts payable and accrued expenses. COMMITMENTS As of August 28, 1997, the Company had commitments of $7,497,000 for equipment purchases and $182,000 for construction of a building. As of February 26, 1998, the Company had commitments of $9,225,000 for equipment and software. The Company's facilities in North Carolina and Malaysia, and certain other property and equipment, are leased under operating lease agreements with non-cancellable terms expiring through 2001, with renewals F-15 160 MCMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (TABULAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) thereafter at the option of the Company. Future minimum lease payments total approximately $2,178,000 and are as follows: $747,000 in fiscal 1998, $610,000 in fiscal 1999, $614,000 in fiscal 2000, $207,000 in fiscal 2001. Rental expense was approximately $301,000, $661,000, and $667,000 in the fiscal years ended August 31, 1995, August 29, 1996 and August 28, 1997, and $352,000 and $411,000 in the six month periods ended February 27, 1997 and February 26, 1998, respectively. INCOME TAXES Prior to the Recapitalization, the Company was included in the consolidated U.S. federal income tax return of its parent. The provision for income taxes is computed as if the Company were a separate taxpayer, and consists of the following:
FISCAL YEAR ENDED ------------------------------------ AUGUST 31, AUGUST 29, AUGUST 28, 1995 1996 1997 ---------- ---------- ---------- Current: U.S. federal.................................. $3,901 $8,236 $4,357 State......................................... 624 1,490 1,222 ------ ------ ------ 4,525 9,726 5,579 ------ ------ ------ Deferred: U.S. federal.................................. 512 (312) 2,703 State......................................... 105 (224) 183 ------ ------ ------ 617 (536) 2,886 ------ ------ ------ Income tax provision............................ $5,142 $9,190 $8,465 ====== ====== ======
The tax benefit associated with nonstatutory stock options and disqualifying dispositions by employees of shares issued under MTI's Plans reduced taxes payable by $517,000, $393,000, and $0 in fiscal years ended August 31, 1995, August 29, 1996 and August 28, 1997, respectively. Such benefits were credited to capital. Income taxes paid to the Parent during the fiscal years ended August 31, 1995, August 29, 1996 and August 28, 1997 were $4,479,000, $9,293,000 and $9,530,000, respectively. A reconciliation between the income tax provision and income tax computed using the federal statutory rate follows:
FISCAL YEAR ENDED ------------------------------------ AUGUST 31, AUGUST 29, AUGUST 28, 1995 1996 1997 ---------- ---------- ---------- U.S. federal income tax at statutory rate....... $4,611 $8,465 $7,426 State taxes, net of federal benefit............. 482 934 733 Other........................................... 49 (209) 306 ------ ------ ------ $5,142 $9,190 $8,465 ====== ====== ======
The effective income tax rate for the six months ended February 27, 1997 and February 26, 1998 was 41.2% and 77.1%, respectively. These effective income tax rates principally reflect the federal statutory rate and the net effect of state and foreign income taxes, as well as certain transaction expenses for the six months ended February 26, 1998 which are not deductible for tax purposes, offset in part, by certain changes in accrued tax liabilities. F-16 161 MCMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (TABULAR DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes at enacted tax rates. Deferred income tax assets totaled $2,286,000 and $2,653,000, and liabilities totaled $2,009,000 and $5,261,000, at August 29, 1996 and August 28, 1997, respectively. The tax effects of temporary differences are as follows:
AS OF ----------------------- AUGUST 29, AUGUST 28, 1996 1997 ---------- ---------- Current deferred tax asset: Receivables............................................ $ 381 $ 404 Inventories............................................ 780 800 State taxes............................................ 96 80 Accrued compensation................................... 283 324 Other.................................................. 60 (8) ------- ------- 1,600 1,600 ------- ------- Noncurrent deferred tax asset (liability): Property, plant and equipment.......................... (1,290) (2,920) Accrued compensation................................... 124 194 Investment tax credits................................. 120 243 Other.................................................. (277) (1,725) ------- ------- (1,323) (4,208) ------- ------- Total net deferred tax asset (liability)....... $ 277 $(2,608) ======= =======
In the second quarter of 1998, the Company revised its estimate in the accrual for prior years' tax matters and recorded a decrease in such estimated accrued taxes of $1,130,000. EXPORT SALES AND SIGNIFICANT CUSTOMERS Export sales were approximately $13,470,000, $54,187,000, and $20,785,000 in the fiscal years ended August 31, 1995, August 29, 1996 and August 28, 1997 and $10,248,000 and $20,727,000 in the six months period ended February 27, 1997 and February 26, 1998, respectively. The Company had the following customers which comprised more than 10% of net sales:
FISCAL YEAR ENDED SIX MONTHS ENDED -------------------------------------- ---------------------------- AUGUST 31, AUGUST 29, AUGUST 28, FEBRUARY 27, FEBRUARY 26, SIGNIFICANT CUSTOMERS 1995 1996 1997 1997 1998 --------------------- ---------- ---------- ---------- ------------ ------------ (UNAUDITED) Largest customer.................. 19.5% 29.5% 32.4% 30.7% 30.8% Second largest customer........... 14.9% 13.4% 20.1% 17.8% 27.3% Third largest customer............ 13.9% 12.9% -- 11.0% --
F-17 162 ============================================================ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary......................... 1 Risk Factors............................... 19 The Recapitalization....................... 28 Use of Proceeds............................ 29 Capitalization............................. 30 Unaudited Pro Forma Consolidated Financial Data..................................... 31 Selected Historical Consolidated Financial Data..................................... 38 Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 39 Industry................................... 44 Business................................... 47 Management................................. 55 Security Ownership of Certain Beneficial Owners and Management.................... 60 Certain Transactions....................... 61 Description of New Revolving Credit Facility................................. 65 Description of Senior Subordinated Notes... 66 Description of the Senior Preferred Stock and Exchange Debentures.................. 94 Description of Capital Stock............... 116 Certain Federal Income Tax Considerations........................... 117 Plan of Distribution....................... 125 Exchange Offer............................. 126 Experts.................................... 136 Change in Accountants...................... 136 Legal Matters.............................. 136 Glossary................................... G-1 Index to Consolidated Financial Statements............................... F-1
============================================================ ============================================================ MCMS LOGO OFFER TO EXCHANGE ITS SERIES B 9 3/4% SENIOR SUBORDINATED NOTES DUE 2008 FOR ANY AND ALL OF ITS OUTSTANDING 9 3/4% SENIOR SUBORDINATED NOTES DUE 2008, ITS SERIES B FLOATING INTEREST RATE TERM SECURITIES DUE 2008 (FIRSTS(SM)) FOR ANY AND ALL OF ITS OUTSTANDING FLOATING INTEREST RATE SUBORDINATED TERM SECURITIES DUE 2008 (FIRSTS(SM)) AND ITS SERIES B 12 1/2% SENIOR EXCHANGEABLE PREFERRED STOCK FOR ANY AND ALL OF ITS OUTSTANDING 12 1/2% SENIOR EXCHANGEABLE PREFERRED STOCK. , 1998 ============================================================ 163 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company is incorporated under the laws of the State of Idaho. Sections 30-1-851 and 30-1-856 of the Idaho Business Corporation Act ("Sections 851 and 856") provide, inter alia, that an Idaho corporation may indemnify any person who was or is a party to a proceeding, by reason of the fact he is or was a director or officer of the corporation, if (i) he conducted himself in good faith and reasonably believed that his conduct was in the best interests of the corporation, (ii) his conduct was not opposed to the best interests of the corporation and (iii) with respect to any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. Notwithstanding the foregoing, Sections 851 and 856 prevent a corporation from indemnifying a director in a proceeding brought by or in the right of a corporation that results in a settlement or judgment against the director (other than reasonable expenses incurred in connection with the proceeding), or a proceeding in which the director received an improper financial benefit as a result of his conduct. Furthermore, Section 856 prevents a corporation from indemnifying an officer for conduct that constitutes either an intentional infliction of harm on the corporation or shareholders, or an intentional violation of criminal law. Where a director or officer is successful on the merits or otherwise in the defense of any proceeding referred to above, the corporation must indemnify him against reasonable expenses incurred by him in connection with the proceeding. A director or officer who is a party to a proceeding may also apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. The court may order indemnification if it determines that indemnification is (i) required by the Idaho Business Corporation Act or (ii) fair and reasonable under the relevant circumstances. Furthermore, Section 851 authorizes a corporation to provide a broader indemnification to its directors under its articles of incorporation. The Company's Articles of Incorporation provides that the Company must indemnify to the fullest extent authorized by the Idaho Business Corporation Act any person who was or is a party, or is threatened to be made a party, to any proceeding, whether civil, criminal, administrative or investigative, by reason of the fact he is or was a director or officer of the Company, or while a director or officer, is or was serving at the request of the Company as a director, officer or agent of another corporation, or a partnership, joint venture, trust, or other enterprise, including service with respect to an employee benefit plan. The indemnity includes all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators. In addition, the Company has entered into indemnification agreements with its officers and other key personnel ("Indemnitee") that requires the Company to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact the Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, be reason of any action or inaction on the part of the Indemnitee while a director, officer, employee or agent or by reason of the fact that the Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, or a partnership, joint venture, trust, or other enterprise, against judgments, penalties, fines (including, without limitation, excise taxes assessed against Indemnitee with respect to an employee benefit plan), settlements and reasonable expenses incurred by Indemnitee in connection with such action, suit or proceeding; provided, however, the Company may not indemnify Indemnitee: (1) if Indemnitee has been indemnified by another organization or employee benefit plan for the same judgments, penalties, fines (including, without limitation, excise taxes assessed against the person with respect to an employee benefit plan), settlements, and reasonable expenses, including attorneys' fees and disbursements, incurred by the person in connection with the proceeding with respect to the same acts or omissions; (2) for any breach of the Indemnitee's duty of loyalty to the Company or its stockholders; (3) for acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law; (4) for the liability of Indemnitee provided II-1 164 for under Section 30-1-833 of the Idaho Business Corporation Act; and (5) for any transaction from which the Indemnitee derived an improper personal benefit. Section 30-1-857 authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director, officer, partner, trustee, employee or agent of another domestic or foreign corporation, partnership, joint venture, trust, employee benefit plan or other entity, against any liability asserted against or incurred by him in that capacity or arising from his status as a director or officer, whether or not the corporation would have the power to indemnify him under the Idaho Business Corporation Act. The Articles of Incorporation provides that the Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or any other corporation, partnership, joint venture, trust, or other enterprise against any expense, liability or loss. The Company maintains and has in effect insurance policies covering all of the Company's directors and officers against certain liabilities for actions taken in such capacities, including liabilities under the Securities Act of 1933. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS. 2.1 Recapitalization Agreement, dated as of December 21, 1997, by and among MCMS, Inc., Micron Electronics, Inc. and Cornerstone Equity Investors IV, L.P. 2.2 Amended and Restated Recapitalization Agreement, dated as of February 1, 1998, by and among MCMS, Inc., Micron Electronics, Inc., MEI California, Inc. and Cornerstone Equity Investors IV, L.P. 2.3 First Amendment to the Amended and Restated Recapitalization Agreement, dated as of February 26, 1998, by and among MCMS, Inc., Micron Electronics, Inc., MEI California, Inc. and Cornerstone Equity Investors IV, L.P. 3.1 Amended and Restated Articles of Incorporation of MCMS, Inc. 3.2 Amended and Restated By-laws of MCMS, Inc. 4.1 Indenture, dated as of February 26, 1998, by and between MCMS, Inc. and United States Trust Company of New York, as trustee, paying agent and registrar, with respect to 9 3/4% Senior Subordinated Notes due 2008 and the Floating Interest Rate Subordinated Term Securities due 2008. 4.2 Exchange Indenture, dated as of February 26, 1998, by and between MCMS, Inc. and United States Trust Company of New York, as paying agent and registrar, with respect to the 12 1/2% Subordinated Exchange Debentures due 2010. 4.3 Certificate of Designation, dated as of February 26, 1998, with respect to the 12 1/2% Senior Exchangeable Preferred Stock and 12 1/2% Series B Senior Exchangeable Preferred Stock. 5.1 Opinion and consent of Kirkland & Ellis.* 5.2 Opinion and consent of Evans, Keane LLP.* 8.1 Opinion of Kirkland & Ellis regarding tax consequences.* 10.1 Management Services Agreement, dated as of February 26, 1998, by and between MCMS, Inc. and Cornerstone Equity Investors, LLC. 10.2 Purchase Agreement, dated February 19, 1998, by and between MCMS, Inc. and BT Alex. Brown Incorporated. 10.3 Registration Rights Agreement, dated as of February 26, 1998, by and between MCMS, Inc. and BT Alex. Brown Incorporated. 10.4 Credit Agreement, dated as of February 26, 1998, among MCMS, Inc., Bankers Trust Company, as agent, and the other institutions named therein. 10.5 Pledge Agreement, dated as of February 26, 1998, by and between MCMS, Inc., and Bankers Trust Company, as collateral agent. 10.6 Security Agreement, dated as of February 26, 1998, among MCMS, Inc., certain subsidiaries of MCMS, Inc. and Bankers Trust Company, as collateral agent. 10.7 Employment Agreement, dated as of February 26, 1998, by and between MCMS, Inc. and Robert F. Subia. 10.8 Employment Agreement, dated as of February 26, 1998, by and between MCMS, Inc. and Chris Anton.
II-2 165 10.9 Employment Agreement, dated as of February 26, 1998, by and between MCMS, Inc. and Jess Asla. 10.10 Employment Agreement, dated as of February 26, 1998, by and between MCMS, Inc. and John P. McCarvel. 10.11 Shareholders Agreement, dated as of February 26, 1998, by and among MCMS, Inc., Cornerstone Equity Investors IV, L.P., MEI California, Inc., Randolph Street Partners II, BT Investment Partners, Inc. and the other investors named therein. 10.12 Registration Rights Agreement, dated as of February 26, 1998, by and among MCMS, Inc., Cornerstone Equity Investors IV, L.P., MEI California, Inc., Randolph Street Partners II, BT Investment Partners, Inc. and the other investors named therein. 10.13 MCMS Agreement, dated as of December 21, 1997, by and between MCMS, Inc. and Micron Technology, Inc. 10.14 Transition Services Agreement, dated as of February 26, 1998, by and among MCMS, Inc., Micron Electronics, Inc. and Micron Technology, Inc. 10.15 Interim Agreement to Provide Electric Service Agreement, dated as of February 26, 1998, by and among MCMS, Inc., Micron Electronics, Inc. and Idaho Power. 10.16 Office Lease, dated as of November 1, 1996, by and between MCMS, Inc. and Micron Electronics, Inc., as amended. 10.17 Tenancy Agreement, dated as of October 1, 1996, by and between MCMS, Sdn. Bhd. and R.S. Roadstar Electronics, Sdn. Bhd., as amended. 10.18 Lease, dated as of December 1994, by and between MCMS, Inc. and Tri-Center South Limited Partnership, as amended. 10.19 Frame Manufacturing Agreement, dated as of November 18, 1997, by and between Alcatel Bell N.V. and MCMS Belgium S.A. 10.20 Stock Option Plan.(*) 10.21 Form of Indemnification Agreement. 21.1 Subsidiaries of MCMS, Inc. 23.1 Consent of Coopers & Lybrand L.L.P. 23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1). 23.3 Consent of Evans, Keane LLP (included in Exhibit 5.2). 24.1 Powers of Attorney (included on page II-5). 25.1 Statement of Eligibility of Trustee. 27.1 Financial Data Schedule. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Tender Instructions.
- --------------- * To be filed by amendment. (b) FINANCIAL STATEMENT SCHEDULES. Financial statement schedules of the Company for which provision is made in the applicable accounting regulations of the Commission are not required, are inapplicable or have been disclosed in the notes to the financial statements and therefore have been omitted. ITEM 22. UNDERTAKINGS. The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstand- II-3 166 ing the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof; (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and (4) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (5) That every prospectus: (i) that is filed pursuant to paragraph (4) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment 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. (6) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (7) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 20 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 Securities 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 Securities Act and will be governed by the final adjudication of such issue. II-4 167 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Nampa, State of Idaho, on April 24, 1998. MCMS, Inc. By: /s/ ROBERT F. SUBIA ------------------------------------ Name: Robert F. Subia Title: President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints any of Robert F. Subia or Chris Anton, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities (including his capacity as a director and/or officer of MCMS, Inc.), to sign any or all amendments (including post-effective amendments) to this registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement and power of attorney have been signed by the following persons in the capacities and on the dates indicated:
NAME TITLE DATE ---- ----- ---- /s/ ROBERT F. SUBIA President, Chief Executive Officer - --------------------------------------------------- and President (Principal Robert F. Subia Executive Officer) /s/ CHRIS J. ANTON Vice President, Finance and Chief - --------------------------------------------------- Financial Officer (Principal Chris J. Anton Financial Officer and Accounting Officer) /s/ JESS ASLA Vice President, Operations - --------------------------------------------------- Jess Asla /s/ JOHN P. MCCARVEL Vice President, Strategic Business - --------------------------------------------------- Development John P. McCarvel /s/ R. STEPHEN CHEHEYL Director - --------------------------------------------------- R. Stephen Cheheyl
II-5 168
NAME TITLE DATE ---- ----- ---- /s/ FINIS F. CONNER Director - --------------------------------------------------- Finis F. Conner /s/ JOHN A. DOWNER Director - --------------------------------------------------- John A. Downer /s/ C. NICHOLAS KEATING Director - --------------------------------------------------- C. Nicholas Keating /s/ MICHAEL E. NAJJAR Director - --------------------------------------------------- Michael E. Najjar /s/ MARK ROSSI Director - --------------------------------------------------- Mark Rossi
II-6 169 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------- ----------- ------------ 2.1 Recapitalization Agreement, dated as of December 21, 1997, by and among MCMS, Inc., Micron Electronics, Inc. and Cornerstone Equity Investors IV, L.P. 2.2 Amended and Restated Recapitalization Agreement, dated as of February 1, 1998, by and among MCMS, Inc., Micron Electronics, Inc., MEI California, Inc. and Cornerstone Equity Investors IV, L.P. 2.3 First Amendment to the Amended and Restated Recapitalization Agreement, dated as of February 26, 1998, by and among MCMS, Inc., Micron Electronics, Inc., MEI California, Inc. and Cornerstone Equity Investors IV, L.P. 3.1 Amended and Restated Articles of Incorporation of MCMS, Inc. 3.2 Amended and Restated By-laws of MCMS, Inc. 4.1 Indenture, dated as of February 26, 1998, by and between MCMS, Inc. and United States Trust Company of New York, as trustee, paying agent and registrar, with respect to 9 3/4% Senior Subordinated Notes due 2008 and the Floating Interest Rate Subordinated Term Securities due 2008. 4.2 Exchange Indenture, dated as of February 26, 1998, by and between MCMS, Inc. and United States Trust Company of New York, as paying agent and registrar, with respect to the 12 1/2% Subordinated Exchange Debentures due 2010. 4.3 Certificate of Designation, dated as of February 26, 1998, with respect to the 12 1/2% Senior Exchangeable Preferred Stock and 12 1/2% Series B Senior Exchangeable Preferred Stock. 5.1 Opinion and consent of Kirkland & Ellis.* 5.2 Opinion and consent of Evans, Keane LLP.* 8.1 Opinion of Kirkland & Ellis regarding tax consequences.* 10.1 Management Services Agreement, dated as of February 26, 1998, by and between MCMS, Inc. and Cornerstone Equity Investors, LLC. 10.2 Purchase Agreement, dated February 19, 1998, by and between MCMS, Inc. and BT Alex. Brown Incorporated. 10.3 Registration Rights Agreement, dated as of February 26, 1998, by and between MCMS, Inc. and BT Alex. Brown Incorporated. 10.4 Credit Agreement, dated as of February 26, 1998, among MCMS, Inc., Bankers Trust Company, as agent, and the other institutions named therein. 10.5 Pledge Agreement, dated as of February 26, 1998, by and between MCMS, Inc., and Bankers Trust Company, as collateral agent. 10.6 Security Agreement, dated as of February 26, 1998, among MCMS, Inc., certain subsidiaries of MCMS, Inc. and Bankers Trust Company, as collateral agent. 10.7 Employment Agreement, dated as of February 26, 1998, by and between MCMS, Inc. and Robert F. Subia. 10.8 Employment Agreement, dated as of February 26, 1998, by and between MCMS, Inc. and Chris Anton. 10.9 Employment Agreement, dated as of February 26, 1998, by and between MCMS, Inc. and Jess Asla. 10.10 Employment Agreement, dated as of February 26, 1998, by and between MCMS, Inc. and John P. McCarvel. 10.11 Shareholders Agreement, dated as of February 26, 1998, by and among MCMS, Inc., Cornerstone Equity Investors IV, L.P., MEI California, Inc., Randolph Street Partners II, BT Investment Partners, Inc. and the other investors named therein. 10.12 Registration Rights Agreement, dated as of February 26, 1998, by and among MCMS, Inc., Cornerstone Equity Investors IV, L.P., MEI California, Inc., Randolph Street Partners II, BT Investment Partners, Inc. and the other investors named therein.
170
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE - ------- ----------- ------------ 10.13 MCMS Agreement, dated as of December 21, 1997, by and between MCMS, Inc. and Micron Technology, Inc. 10.14 Transition Services Agreement, dated as of February 26, 1998, by and among MCMS, Inc., Micron Electronics, Inc. and Micron Technology, Inc. 10.15 Interim Agreement to Provide Electric Service Agreement, dated as of February 26, 1998, by and among MCMS, Inc., Micron Electronics, Inc. and Idaho Power. 10.16 Office Lease, dated as of November 1, 1996, by and between MCMS, Inc. and Micron Electronics, Inc., as amended. 10.17 Tenancy Agreement, dated as of October 1, 1996, by and between MCMS, Sdn. Bhd. and R.S. Roadstar Electronics, Sdn. Bhd., as amended. 10.18 Lease, dated as of December 1994, by and between MCMS, Inc. and Tri-Center South Limited Partnership, as amended. 10.19 Frame Manufacturing Agreement, dated as of November 18, 1997, by and between Alcatel Bell N.V. and MCMS Belgium S.A. 10.20 Stock Option Plan.* 10.21 Form of Indemnification Agreement. 21.1 Subsidiaries of MCMS, Inc. 23.1 Consent of Coopers & Lybrand L.L.P. 23.2 Consent of Kirkland & Ellis (included in Exhibit 5.1). 23.3 Consent of Evans, Keane LLP (included in Exhibit 5.2). 24.1 Powers of Attorney (included on page II-5). 25.1 Statement of Eligibility of Trustee. 27.1 Financial Data Schedule. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Tender Instructions.
- --------------- * To be filed by amendment. EX-2.1 2 RECAPITALIZATION AGREEMENT 1 Exhibit 2.1 ============================================================ RECAPITALIZATION AGREEMENT by and among MICRON ELECTRONICS, INC., MICRON CUSTOM MANUFACTURING SERVICES, INC., and CORNERSTONE EQUITY INVESTORS IV, L.P. dated as of December 21, 1997 ============================================================ 2 RECAPITALIZATION AGREEMENT INDEX Page ---- ARTICLE I Certain Definitions....................................................2 ARTICLE II Representations and Warranties of MEI and the Company..................5 Section 2.1. Authorization; No Conflicts; etc.........................5 Section 2.2. Incorporation; Capitalization; Structure.................6 Section 2.3. Financial Statements.....................................7 Section 2.4. Undisclosed Liabilities..................................8 Section 2.5. Properties...............................................8 Section 2.6. Environmental Matters....................................9 Section 2.7. Absence of Certain Changes...............................9 Section 2.8. Litigation; Orders......................................11 Section 2.9. Intellectual Property...................................11 Section 2.10. Licenses, Approvals, Other Authorizations, Consents, Reports, etc..........................................12 Section 2.11. Labor Matters..........................................13 Section 2.12. Compliance with Laws...................................13 Section 2.13. Employee Benefit Plans.................................13 Section 2.14. Tax Returns............................................14 Section 2.15. Brokers, Finders, etc..................................15 Section 2.16. Customers and Suppliers................................15 Section 2.17. Real Property..........................................15 Section 2.18. Material Agreements....................................16 Section 2.19. Transactions with Affiliates...........................18 Section 2.20. Insurance..............................................18 Section 2.21. Computer Systems.......................................18 Section 2.22. Products and Services Liability........................18 Section 2.23. Predecessor Businesses; Former Facilities..............19 Section 2.24. Disclosure.............................................19 Section 2.25. No Representations Regarding Projections...............20 Section 2.26. Construction of Certain Provisions.....................20 ARTICLE III Representations and Warranties of Investor............................20 Section 3.1. Incorporation; Authorization; No Conflicts; etc.........20 Section 3.2. Licenses, Approvals, Other Authorizations, Consents, Reports, etc............................................21 Section 3.3. Brokers, Finders, etc...................................21 Section 3.4. Financing...............................................21 3 Section 3.5. Investment..............................................22 ARTICLE IV Covenants.............................................................22 Section 4.1. Investigation of Business; Access to Properties and Records; Records Retention..............................22 Section 4.2. Efforts; Obtaining Consents.............................24 Section 4.3. Further Assurances......................................24 Section 4.4. Conduct of Business.....................................24 Section 4.5. Preservation of Business................................25 Section 4.6. Public Announcements....................................25 Section 4.7. Intercompany Accounts...................................26 Section 4.8. Notice of Breach........................................26 Section 4.9. Acquisition Proposals...................................26 Section 4.10. Noncompetition; Nonsolicitation........................27 Section 4.11. Confidentiality........................................28 Section 4.12. Nonsolicitation by the Company.........................28 Section 4.13. Alternative Financing..................................28 Section 4.14. License Agreements.....................................29 Section 4.15. Use of Micron Name.....................................29 Section 4.16. Schedule Supplements...................................29 Section 4.17. Capital Expenditures...................................29 ARTICLE V Employee Benefits.....................................................30 Section 5.1. Provision of Benefits...................................30 Section 5.2. Savings Plan............................................30 Section 5.3. Welfare Benefits........................................31 Section 5.4. Intercompany Charges....................................31 ARTICLE VI Conditions of Investor's Obligation to Close..........................32 Section 6.1. Representations, Warranties and Covenants of MEI and the Company............................................32 Section 6.2. Filings; Consents; Waiting Periods......................32 Section 6.3. No Injunction...........................................32 Section 6.4. Transitional Services Agreement.........................32 Section 6.5. Stockholders Agreement and Registration Rights Agreement..............................................32 Section 6.6. Financing...............................................33 Section 6.7. Indebtedness............................................33 -ii- 4 Section 6.8. Material Adverse Effect................................33 Section 6.9. Opinion of Counsel.....................................33 Section 6.10. Resignation of Directors...............................33 Section 6.11. Other Closing Documents................................33 Section 6.12. Articles of Incorporation..............................34 Section 6.13. Bylaws.................................................34 Section 6.14. Booster Pump and Power Substation......................34 Section 6.15. Patent Agreement.......................................34 Section 6.16. Know-How Agreement.....................................34 Section 6.17. MTI License Agreement..................................34 ARTICLE VII Conditions to MEI's and the Company's Obligation to Close.............34 Section 7.1. Representations, Warranties and Covenants of Investor...34 Section 7.2. Filings; Consents; Waiting Periods......................35 Section 7.3. No Injunction...........................................35 Section 7.4. Transitional Services Agreements........................35 Section 7.5. Stockholders Agreement and Registration Rights Agreement..............................................35 Section 7.6. Patent Agreement........................................35 Section 7.7. Know-How Agreement......................................35 Section 7.8. MTI Agreement...........................................35 ARTICLE VIII The Recapitalization; Closing.........................................35 Section 8.1. Authorization...........................................35 Section 8.2. Stock Purchase..........................................36 Section 8.3. Stock Redemption........................................36 Section 8.4. Closing.................................................36 ARTICLE IX Tax Matters...........................................................37 Section 9.1. Tax Indemnification by MEI..............................37 Section 9.2. Tax Indemnification by the Company......................37 Section 9.3. Filing Responsibility...................................37 Section 9.4. Refunds.................................................38 Section 9.5. Cooperation and Exchange of Information.................38 Section 9.6. Allocation of Certain Taxes.............................40 Section 9.7. Certain Taxes...........................................40 -iii- 5 ARTICLE X Termination...........................................................40 Section 10.1. Termination............................................40 Section 10.2. Procedure and Effect of Termination....................41 ARTICLE XI Miscellaneous.........................................................41 Section 11.1. Entire Agreement; Beneficiaries........................41 Section 11.2. Survival of Representations and Warranties and Covenants of Investor.................................41 Section 11.3. Counterparts...........................................42 Section 11.4. Governing Law..........................................42 Section 11.5. Expenses...............................................42 Section 11.6. Notices................................................42 Section 11.7. Successors and Assigns.................................44 Section 11.8. Headings; Definitions..................................45 Section 11.9. Consent to Jurisdiction................................45 Section 11.10. Waivers and Amendments................................45 Section 11.11. Severability..........................................45 ARTICLE XII INDEMNIFICATION.......................................................45 Section 12.1. General Indemnification Obligations....................45 Section 12.2. General Indemnification Procedures.....................46 Section 12.3. Indemnification Basket.................................47 Section 12.4. Indemnification Cap....................................47 Section 12.5. Indemnity Exclusive Remedy.............................47 -iv- 6 EXHIBITS Exhibit A Term Sheet for Transitional Services Agreement Exhibit B Company Financial Statements Exhibit C Term Sheet for the Stockholders Agreement and the Registration Rights Agreement Exhibit D Form of Patent and Invention Disclosure Assignment and License Agreement Exhibit E Form of Know-How License Agreement Exhibit F Form of MTI Agreement LISTS OF SCHEDULES 2.1(c) No Conflicts 2.2(a) Incorporation; Capitalization; Structure 2.2(c) List of Transferred Subsidiaries 2.4 Undisclosed Liabilities 2.5 Permitted Encumbrances 2.6 Environmental Matters 2.7 Absence of Certain Changes 2.8 Litigation; Orders 2.9 Intellectual Property 2.10(a) Licenses, Approvals, Other Authorizations, Consents, Reports, etc. 2.10(c) Lists all consents, approvals, registrations, filings, applications, etc. 2.11 Labor Matters 2.12 Compliance with laws 2.13(a) Employee Benefits Plans 2.13(c) Compliance with ERISA 2.14 Tax Matters 2.16 Customers and Suppliers 2.17 Real Property 2.18 Material Agreements 2.19 Transactions with Affiliates 2.20 Insurance 2.21 Computer Systems 2.22 Products and Services Liability 2.23 Predecessor Businesses; Former Facilities 3.2 Licenses, Approvals, Other Authorizations, Consents, Reports, etc. 4.4 Conduct of Business 4.12 Nonsolicitation by the Company 4.14 License Agreements 6.2 Filings; Consents; Waiting Periods -v- 7 RECAPITALIZATION AGREEMENT THIS RECAPITALIZATION AGREEMENT (this "Agreement"), dated as of December 21, 1997, is by and among Micron Electronics, Inc., a Minnesota corporation ("MEI"), Micron Custom Manufacturing Services, Inc., an Idaho corporation and a wholly-owned subsidiary of MEI (the "Company") and Cornerstone Equity Investors IV L.P., a Delaware limited partnership ("Investor"). WHEREAS, MEI owns 1,000 shares (the "Shares") of the Company's common stock, par value $.01 per share (the "Company Common Stock"), which Shares comprise all of the issued and outstanding shares of the Company's capital stock; WHEREAS, Investor will contribute $61.2 million (the "Purchase Price") to the Company in exchange for 900 shares (such number to be appropriately adjusted for any stock split or stock dividend of the Company Common Stock after the date hereof and prior to the Closing Date) of the Company Common Stock and such other securities of the Company (collectively, the "Purchase Shares") as Investor shall request (such purchase, the "Stock Purchase"); WHEREAS, Investor has proposed, and the Company and MEI have agreed, that the Company arrange through BT Alex. Brown Incorporated for the issuance by the Company of notes, debt securities and/or preferred stock in exchange for approximately $215 million and the entering into by the Company of a $40 million revolving credit facility with Bankers Trust Company (the "Credit Facility") to provide for the working capital needs of the Company (such issuance, and revolving credit facility collectively, the "BTAB Financing"); WHEREAS, the parties hereto desire that, immediately after the Stock Purchase and the BTAB Financing, the Company shall redeem from MEI 900 shares (such number to be appropriately adjusted for any stock split or stock dividend of the Company Common Stock after the date hereof and prior to the Closing Date) (the "Redemption Shares") of Company Common Stock in exchange for the Redemption Price (as herein defined) (such redemption, the "Stock Redemption") and MEI shall retain 100 shares (such number to be appropriately adjusted for any stock split or stock dividend of the Company Common Stock after the date hereof and prior to the Closing Date) (the "MEI Retained Shares") of Company Common Stock such that immediately after Closing MEI shall own 10% of the outstanding Company Common Stock and Company Common Stock equivalents; WHEREAS, the Stock Purchase, the BTAB Financing and the Stock Redemption are referred to herein as the "Recapitalization"; and WHEREAS, it is intended that the Recapitalization be recorded as a recapitalization for financial reporting purposes. -1- 8 NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: ARTICLE I Certain Definitions As used in this Agreement the following terms shall have the following respective meanings: "Action" shall mean any action, suit, arbitration, inquiry, proceeding, order, claim or investigation by or before any Governmental Authority. "Affiliate" shall mean any person, and any corporation, partnership or other entity, that directly or indirectly through one or more intermediaries, controls or is controlled by or under common control with the party specified. "Business" shall mean the business of design, assembly and testing of custom complex printed circuit boards, memory intensive products and system level assemblies for third party electronics original equipment manufacturers primarily in the networking, telecommunications and computer systems industries conducted by the Company and the Transferred Subsidiaries as of the date hereof; provided, that in no event shall Business mean any of the services, properties or assets to be provided or licensed to the Company or any Transferred Subsidiary pursuant to any Transitional Services Agreement. For purposes of this definition, in all circumstances, MTI shall be deemed to be a "third party". "Business Condition" shall mean the results of operations or financial condition of the Company and the Transferred Subsidiaries, taken as a whole. "Closing" shall mean the consummation of the Recapitalization and other transactions contemplated hereby. "Closing Date" shall mean five business days after the date on which the conditions set forth in Articles VI and VII shall be satisfied or duly waived, or if MEI and Investor mutually agree on a different date, the date upon which they have mutually agreed. "Code" shall mean the Internal Revenue Code of 1986, as amended, and any successor thereto. "Company Employee" shall mean an individual who is, as of the Closing Date, em ployed by the Company or any Transferred Subsidiary, whether such individual is then actively at -2- 9 work, on approved leave of absence or on short-term disability leave, or who is entitled to be rehired by the Company or any Transferred Subsidiary pursuant to any applicable law or regulation or pursuant to the terms of any contract or collective bargaining or similar agreement. "Company Expenses" means (a) all fees and expenses (including, without limitation, all legal, accounting and investment banking fees and expenses) paid or payable by, or incurred by the Company or any of the Transferred Subsidiaries in each case prior to the Closing in connection with the auction of the Company, the negotiation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby other than any expenses related solely to the comfort letter referred to in Section 4.1(e) provided that expenses related to transition services incurred, paid or payable between the date hereof and the Closing Date are addressed in the Transitional Services Agreement and (b) all fees and expenses (including, without limitation, all legal, accounting and investment banking fees and expenses) paid or payable by, or incurred by the Company or any of the Transferred Subsidiaries on behalf of MEI in connection with the auction of the Company, the negotiation, execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. "Continuing Affiliate" shall mean MEI and any direct or indirect Subsidiary of MEI other than the Company and the Transferred Subsidiaries. "Controlled Group Liability" shall mean any and all Damages under (a) Title IV of ERISA, (b) section 302 of ERISA, (c) sections 412 and 4971 of the Code, or (d) the continuation coverage requirements of section 601, et seq., of ERISA and section 4980B of the Code, other than such Damages that arise solely out of, or relate solely to, the Company Plans. "Damages" shall mean any and all losses, liabilities, claims, damages (including punitive, consequential or treble damages), obligations, liens, assessments, judgments, awards and fines (including, without limitation, those arising out of any pending or threatened Action, including any settlement or compromise thereof) and any related reasonable out-of-pocket costs and expenses (including, without limitation, reasonable attorneys' fees and expenses incurred in connection with any pending or threatened Action). "Employee Benefit Plan" means (a) an employee benefit plan as defined in Section 3(3) of ERISA and (b) any bonus, incentive, profit sharing, stock option or stock purchase, severance, fringe benefit or other compensation plan or arrangement. "Encumbrance" shall mean any lien, claim, charge, security interest, option, mortgage, pledge or other legal or equitable encumbrance or restriction of any kind "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and any successor thereto. -3- 10 "Former Company Employee" shall mean an individual who was an employee of the Company or a Transferred Subsidiary before the Closing Date, is not a Company Employee, and whose last employment with MEI and any of its Affiliates was with the Company or a Transferred Subsidiary. "Governmental Authority" shall mean any government or governmental or regulatory body thereof, or political subdivision thereof, or any agency or instrumentality thereof, or any court or arbitrator, in each case, whether federal, state, local, foreign or otherwise. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Income Taxes" shall mean all Taxes based upon or measured by income, gain or similar items. "IRS" shall mean the Internal Revenue Service. "MCMS Malaysia" shall mean M.C.M.S. Sdn. Bhd. (f/n/a Courageous Expedition Sdn. Bhd.), a company organized under the laws of Malaysia, and an indirect, wholly-owned subsidiary of the Company. "MTI" shall mean Micron Technology, Inc., a Delaware corporation. "Person" shall mean an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a governmental entity or any department, agency or political subdivision thereof or any other entity or organization. "Returns" shall mean returns, reports and forms required to be filed with any domestic or foreign Taxing Authority. "Subsidiary" shall mean with respect to any Person, any corporation, partnership, joint venture, business trust or other entity, of which such Person, directly or indirectly, owns or controls at least 50% of the securities or other interests entitled to vote in the election of directors or others performing similar functions with respect to such corporation or other organization, or to otherwise control such corporation, partnership, joint venture, business trust or other entity. "Tax Laws" shall mean the Code, federal, state, county, local, or foreign laws relating to Taxes and any regulations or official administrative pronouncements released thereunder. "Taxes" shall mean (a) all taxes (whether federal, state, local or foreign) based upon or measured by income and any other tax whatsoever, including gross receipts, profits, sales, use, occupation, value added, ad valorem, transfer, franchise, withholding, payroll, employment, excise, -4- 11 or property taxes, together with any interest or penalties imposed with respect thereto and (b) any obligations under any agreements or arrangements with respect to any Taxes described in clause (a) above. "Taxing Authority" shall mean any Governmental Authority having jurisdiction over the assessment, determination, collection, or other imposition of Tax. "Transferred Subsidiaries" shall mean the direct and indirect Subsidiaries of the Company. "Transitional Services Agreement" shall mean the Transitional Services Agreement containing the terms set forth in Exhibit A hereto. ARTICLE II Representations and Warranties of MEI and the Company MEI and the Company hereby represent and warrant to Investor as follows: Section 2.1. Authorization; No Conflicts; etc. (a) MEI is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota. MEI has full corporate power to execute and deliver this Agreement and to perform its obligations hereunder, and MEI has full corporate power to consummate the transactions contemplated hereby. All corporate acts and other proceedings required to be taken by MEI to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and properly taken. This Agreement has been duly executed and delivered by MEI and, assuming the due execution and delivery hereof by the other parties hereto, this Agreement constitutes the legal, valid and binding obligation of MEI, enforceable against MEI in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity. (b) The Company has full corporate power to execute and deliver this Agreement and to perform its obligations hereunder, and the Company has full corporate power to consummate the transactions contemplated hereby. All corporate acts and other proceedings required to be taken by the Company to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and properly taken. This Agreement has been duly executed and delivered by the Company and, assuming the due execution and delivery hereof by the other parties hereto, this Agreement constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity. -5- 12 (c) The execution, delivery and performance of this Agreement by MEI and the Company and the consummation by MEI and the Company of the transactions contemplated hereby will not (1) violate any provision of the charter or by-laws of MEI, the Company or any Transferred Subsidiary, (2) except as disclosed in Schedule 2.1(c), violate any provision of, or constitute a default (with or without notice or lapse of time) under, or give rise to a right of termination, cancel lation or acceleration of (or entitle any party to accelerate whether after the giving of notice or lapse of time or both) any obligation under, or result in the imposition of any lien upon or the creation of any Encumbrance on any of the Shares or any of the Company's or any Transferred Subsidiary's assets or properties pursuant to, any note, bond, debt instrument, mortgage, indenture, lien, lease, agreement or other instrument, or any judgment, injunction, order or decree to which any of MEI, the Company or any Transferred Subsidiary is a party or by which any of them is bound or (3) except as disclosed in Schedule 2.1(c), violate or conflict with any federal, state, local or foreign law, statute, ordinance, rule or regulation (collectively, "Laws") applicable to MEI, the Company or any Transferred Subsidiary or by which any of their properties or assets is bound. Section 2.2. Incorporation; Capitalization; Structure. (a) Except as set forth in Schedule 2.2(a) hereto, the Company and each Transferred Subsidiary (1) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (2) has all requisite corporate power and authority to own or lease and operate its properties and to carry on its business as it is now being con ducted and (3) is in good standing and is duly qualified to transact business in each jurisdiction in which the nature of property owned or leased by it or the conduct of its business requires it to be so qualified. (b) As of the date hereof, the authorized capital stock of the Company consists of 10,000 shares of the Company Common Stock, 1,000 shares of which are issued and outstanding. All of the outstanding Company Common Stock is duly authorized, validly issued, fully paid and non-assessable. No shares of capital stock of the Company are held in the Company's treasury. As of the date hereof, the Shares constitute all of the issued and outstanding shares of Company Com mon Stock. As of immediately after the Closing, (i) the Purchase Shares which are Company Common Stock and the MEI Retained Shares shall constitute all of the issued and outstanding shares of the Company Common Stock and (ii) the Purchase Shares, the MEI Retained Shares and any shares of the Company's preferred stock (the "Preferred Shares") issued pursuant to the BTAB Financing shall constitute all of the issued and outstanding shares of the Company's capital stock. MEI is the record and beneficial owner of, and has valid title to, the Shares, free and clear of any Encumbrance. Upon delivery to the Company at the Closing of certificates representing the Redemption Shares, duly endorsed by MEI for transfer to the Company, and upon MEI's receipt of payment therefor, valid title to the Redemption Shares will pass to the Company, free and clear of any Encumbrance. Immediately after the Closing, the Purchase Shares and the Preferred Shares, if any, will be duly authorized, validly issued and non-assessable and free and clear of any Encumbrances (except to the extent contemplated hereby) and will have been issued free and clear of any preemptive or other similar rights. -6- 13 (c) Schedule 2.2(c) lists each of the Transferred Subsidiaries and its jurisdiction of incorporation; the authorized, issued and outstanding capital stock of each Transferred Subsidiary; and the record and beneficial owners of all such capital stock. Other than the Transferred Subsidiaries, the Company does not, directly or indirectly, own any capital stock of, or equity ownership interest in, any corporation, partnership, joint venture, unincorporated association, limited liability company or other business entity. Except as disclosed on Schedule 2.2(c), all of the outstanding shares of capital stock or other equity interests of each of the Transferred Subsidiaries have been validly issued and are fully paid and non-assessable and, except for directors' qualifying shares and other nominal share interests issued to third parties to comply with requirements of law, are owned by the Company and/or one or more of the Transferred Subsidiaries free and clear of any Encumbrance. (d) Except as specifically provided in this Agreement, there are no authorized or outstanding options, warrants, convertible securities, preemptive rights, calls, commitments or other rights or obligations of any kind to acquire, or to issue, deliver or sell any shares of capital stock of any class of, or other equity interests in, or securities convertible into or exchangeable for any capital stock of or other ownership interests in the Company or any Transferred Subsidiary, and there are no agreements, instruments or understandings to grant or enter into any such option, warrant, convertible security, preemptive right, call, commitment, right or obligation. There are no shareholders agreements or similar agreements, and there are no rights of first offer, rights of first refusal, stock appreciation rights, phantom stock rights, profit participation rights or similar rights, in each case, relating to the capital stock of or other ownership interests in the Company or any Transferred Subsidiary. Section 2.3. Financial Statements. (a) Attached hereto as Exhibit B is a true and complete copy of the following financial statements (the following financial statements, together with the notes to such financial statements, collectively, the "Company Financial Statements"): (1) the audited consolidated financial statements of the Company for the fiscal years ended August 31, 1995, August 29, 1996 and August 28, 1997; (2) the audited financial statements of MCMS Malaysia for the fiscal year ended August 28, 1997; and (3) the unaudited consolidated balance sheet of the Company as of November 27, 1997, together with the related consolidated statements of income, and cash flows for the three-month period ended on such date (the "Interim Financial Statements"). (b) The Company Financial Statements: (i) are true, correct and complete in all material respects, (ii) are in accordance with the books and records of the Company and the Transferred Subsidiaries (which books and records are accurate and complete in all material -7- 14 respects), (iii) fairly present the consolidated financial condition, assets and liabilities of the Company as of their respective dates and the results of operation and changes in cash flows of the Company, on a consolidated basis, for the periods covered thereby, and (iv) have been prepared in accordance with United States generally accepted accounting principles ("GAAP"), consistently applied, subject, in the case of the Interim Financial Statements, to normal year-end adjustments. Section 2.4. Undisclosed Liabilities. Except as disclosed in Schedule 2.4 hereto, and except as reflected, reserved against or otherwise disclosed in the Company Financial Statements (including the notes thereto), the Company does not have any liabilities or obligations of any kind whatsoever (whether accrued or contingent) except (1) liabilities and obligations which were incurred after August 28, 1997 in the ordinary course of business consistent with past practice, (2) obligations under this Agreement or (3) obligations under contracts which do not create liabilities for purposes of GAAP. Schedule 2.4 hereto sets forth all liabilities and obligations of the Company and the Transferred Subsidiaries as of the date hereof for borrowed money other than (i) receivables, payables and loans relating to ongoing business between the Continuing Affiliates and MTI on the one hand, and the Company and the Transferred Subsidiaries on the other hand and (ii) trade payables and trade receivables incurred in the ordinary course of business ("Borrowed Money"). As of the Closing, neither the Company nor any Transferred Subsidiary will have any liability or obligation for Borrowed Money except for liabilities or obligations for Borrowed Money arranged by the Company in order to finance or otherwise in connection with the transactions contemplated by this Agreement. Section 2.5. Properties. The Company and/or one or more of the Transferred Subsid iaries has good title to, or holds by valid and existing lease or license, free and clear of all Encum brances other than Permitted Encumbrances, each piece of tangible personal property currently used by them in, and reasonably necessary to enable them to carry on, the Business as presently con ducted. "Permitted Encumbrances" shall mean those Encumbrances which (1) are set forth in Schedule 2.5 or in the case of real property Schedule 2.17, (2) are reflected or reserved against in the Company Financial Statements, (3) arise by statute out of mechanics', carriers', workmen's, repairmen's or other like statutory liens arising or incurred in the ordinary course of business for sums not yet due or which are otherwise reflected in the Company Financial Statements, (4) consist of liens for Taxes and other charges of Governmental Authorities which are not due and payable or which may be paid without penalty or interest or the validity of which is being contested in good faith by appropriate proceedings, (5) in the case of real property, consist of zoning, land use and other similar legal restrictions existing generally with respect to properties of a similar character and which are not violated in any respect by the current use and operation of any such real property, or (6) in the case of real property, consist of easements, covenants, licenses, rights of way, conditions, restrictions, defects and other Encumbrances which are of record, would be shown by a survey or are typical of similar properties and which do not impair the current occupancy or use of such real property in the Business. Such personal property, taken as a whole, are free from any material defects, have been maintained in accordance with normal industry practice and any regulatory standard or procedure to which such properties are subject, and are in an operating condition and -8- 15 repair (subject to normal wear and tear) adequate and suitable for the purposes for which such properties are presently used. Section 2.6. Environmental Matters. Except as set forth on Schedule 2.6: (i) no real property currently or formerly owned or operated by the Company or any Transferred Subsidiary is contaminated with any Hazardous Substances to an extent or in a manner or condition which would give rise to any liability of the Company or any Transferred Subsidiary (contingent or otherwise) or investigatory, corrective or remedial obligation of the Company or any Transferred Subsidiary under Environmental Law, (ii) no judicial or administrative proceeding is pending or, to the knowledge of MEI or the Company, threatened relating to liability of the Company or any Transferred Subsidiary for any on-site or off-site disposal or contamination or any noncompliance with Environmental Laws by or with respect to the Company, any Transferred Subsidiary, or any property or facility associated therewith, (iii) neither MEI, the Company, nor any Transferred Subsidiary has received written notice of any claims or written notices alleging any violation by the Company or any Transferred Subsidiary of, or any liability of the Company or any Transferred Subsidiary (contingent or otherwise) under, any Environmental Law, and neither MEI nor the Company is aware of any facts, events, or circumstances that exist or have occurred (including any disposal or arrangement for disposal on or prior to the Closing Date) that would give rise to any such claim or notice or give rise to any such violation or liability, and (iv) the Company and each Transferred Subsidiary have complied and are in compliance with all Environmental Laws. "En vironmental Law" means any applicable federal, state or local law, regulation, order, decree or judi cial opinion or other agency requirement having the force and effect of law, and any common law, relating to noise, odor, Hazardous Substances or the protection of public health or safety, workplace health or safety or pollution or protection of the environment. "Hazardous Substance" means any toxic or hazardous substance that is regulated by or under authority of, or as to which liability or standards of conduct are imposed pursuant to, any Environmental Law, including any petroleum products, asbestos or polychlorinated biphenyls. Section 2.7. Absence of Certain Changes. Except as disclosed in Schedule 2.7, since August 28, 1997: (a) there has been no material adverse change in the Business Condition except for any change resulting from (1) any change or any development in worldwide, foreign or national economic, financial or market conditions, (2) war, insurrection or other political change or instability or (3) the announcement of the transactions contemplated hereby; (b) there has been no physical damage, destruction or loss to any assets or proper ties of the Company or any of the Transferred Subsidiaries, after taking into account any insurance recoveries in respect thereof, which in the aggregate exceeds $100,000; and (c) neither the Company nor any of the Transferred Subsidiaries has: -9- 16 (1) sold, leased, assigned or otherwise transferred any of its tangible assets, except in the ordinary course of business consistent with past practice. (2) incurred any liabilities or obligations other than current liabilities incurred, or obligations (including contingent obligations) under contracts entered into, in the ordinary course of business consistent with past practice; (3) canceled, waived, or released in writing any material debt owed to the Company or any Transferred Subsidiary or, claim or right of the Company or any Transferred Subsidiary; (4) delayed or postponed the payment of the accounts payable or any other liabilities of the Business other than in the ordinary course of business consistent with past practice; (5) issued any capital stock or other equity securities or any securities convertible, exchangeable, or exercisable into any capital stock or other equity securities, other than to the Company by Transferred Subsidiaries in connection with the formation of Transferred Subsidiaries and other than as contemplated hereby; (6) declared, set aside, or paid any dividend or distribution with respect to its capital stock or, except for the Stock Purchase and the Stock Redemption, redeemed, purchased or otherwise acquired any of its capital stock; (7) sold, leased, assigned, licensed, or otherwise transferred any of its Intellectual Property or other intangible assets, except for any license granted by the Company to any Transferred Subsidiary or by any Transferred Subsidiary to the Company; (8) permitted any of its material assets, tangible or intangible, to become subject to any material Encumbrance (other than Permitted Encumbrances); (9) made any capital expenditures or commitments, or series thereof, involving in excess of $17,200,000 in the aggregate for the Company and the Transferred Subsidiaries during the fiscal quarter ended November 27, 1997; (10) invested or committed to invest in any business entity not organized under the laws of a jurisdiction within the United States of America other than investments in Transferred Subsidiaries; (11) written off as uncollectible any accounts receivable other than in ordinary course of business consistent with past practice and other than reserve adjustments relating to accounts receivable on a basis consistent with past practice; -10- 17 (12) terminated or amended other than in the ordinary course of business consistent with past practice, suffered the termination or amendment of, failed to perform in any material respect all of its obligations under or suffered or permitted any material default to exist under, any material agreement, contract, license, or permit; (13) made any loans or advances to, guarantees for the benefit of, or any investments (including any intercompany advance but excluding loans or advances to, guaranties for the benefit of or investments in Transferred Subsidiaries) in any Person, other than advances to employees in the ordinary course of business consistent with past practice that do not exceed $10,000 individually or $50,000 in the aggregate; (14) paid any amount to or entered into any agreement, arrangement or transaction with any employee or officer or any Affiliate or director (in each case, other than in the ordinary course of business consistent with past practice); (15) granted any increase in the compensation of any officer or employee or made any other change in the employment terms of any officer or employee other than in the ordinary course of business consistent with past practice; (16) made any material change in any method of accounting or accounting practice; or (17) agreed, in writing or otherwise, to any of the foregoing. Section 2.8. Litigation; Orders. Except as disclosed in Schedule 2.8, there are no Actions pending or, to MEI's or the Company's knowledge, threatened against the Company or any Transferred Subsidiary by or before any Governmental Authority. Except as disclosed in Schedule 2.8, there are no judgments or outstanding orders, injunctions, decrees, stipulations or awards rendered by any Governmental Authority (collectively, "Orders") (a) against the Company or any Transferred Subsidiary or any of their respective properties or the Business or (b) which affects the ability of MEI to perform its obligations hereunder. Section 2.9. Intellectual Property. (a) Except as set forth on Schedule 2.9, the Company or a Transferred Subsidiary owns, or has a valid and enforceable license to use, or as of the Closing will own or have a valid and enforceable license to use, free and clear of all Encumbrances, all of the patents, trademarks, trade names, service marks, copyrights, registrations for or applications to register any of the foregoing, trade secrets, confidential information, know-how, computer software and all other intellectual property rights ("Intellectual Property") currently used by them which are material and necessary to enable them to carry on their business as it is presently being conducted ("Company Intellectual Property"); provided, however, that the foregoing sentence shall not be deemed to be a representation as to non infringement of third party Intellectual Property or an assignment or other -11- 18 transfer of Intellectual Property. Except as set forth on Schedule 2.9, to the knowledge of MEI, the operation of the business of the Company and the Transferred Subsidiaries does not infringe the Intellectual Property of any third party. (b) Schedule 2.9 contains a complete list of all domestic and foreign patents, patent applications, invention disclosures, trade names, registered and material unregistered trademarks and service marks ("Trademarks"), Trademark registrations and applications, copyright registrations and applications, and licenses or similar agreements or arrangements with respect to Intellectual Property, in each case which are owned (in whole or in part) by (or as of the Closing will be owned by), filed by or on behalf of, or to which the Company or any of the Transferred Subsidiaries is a party. (c) Except as disclosed in Schedule 2.9, no claims have been asserted in writing by any Person (1) challenging the ownership, validity, enforceability or effectiveness of any Intel lectual Property owned, used, filed by or licensed to the Company or a Transferred Subsidiary, (2) to the effect that the Company or the sale of any product or the provision of any service as now sold or provided by the Company or a Transferred Subsidiary infringes on or misappropriates any Intellectual Property of a third party or (3) against the use by the Company or a Transferred Subsid iary of any Intellectual Property necessary to enable the Company and the Transferred Subsidiaries to carry on their business as it is presently being conducted. The Company and the Transferred Subsidiaries have taken all necessary and reasonable action to maintain and protect all of the Company Intellectual Property, and until the Closing Date, will continue to maintain and protect the Company Intellectual Property, in each case, so as not to adversely affect the validity or enforceability thereof. MEI has taken all necessary and reasonable action to maintain and protect those patents and patent applications listed on Schedule 2.9 and indicated as those to be assigned to the Company prior to the Closing. Except as set forth on Schedule 2.9, to MEI's and the Company's knowledge, no third party has infringed or misappropriated any of the material Company Intellectual Property. Section 2.10. Licenses, Approvals, Other Authorizations, Consents, Reports, etc. (a) Except as set forth on Schedule 2.10(a), the Company and the Transferred Subsidiaries (other than MCMS Belgium, S.A.) have all governmental licenses, permits, franchises, approvals and other authorizations of any Governmental Authority (the "Licenses") necessary to own, lease and operate its properties and enable them to carry on the Business as presently conducted. All such Licenses are in full force and effect. No proceeding is pending or, to MEI's or the Company's knowledge, threatened seeking the revocation or limitation of any such License. (b) As of the Closing, MCMS Belgium, S.A. will have all Licenses necessary to own, lease and operate its present properties and enable it to carry on the Business as presently conducted. As of the Closing, all such Licenses will be in full force and effect. No proceeding is pending or, to MEI's or the Company's knowledge, threatened seeking the revocation or limitation of any such License. -12- 19 (c) Schedule 2.10(c) lists all consents, approvals, registrations, filings, applications, notices, orders, authorizations, qualifications and waivers required to be made, filed, given or obtained by any of MEI, the Company or any of the Transferred Subsidiaries with, to or from any Persons or Governmental Authorities in connection with the consummation of the Recapitalization and the other transactions contemplated by this Agreement, except for those that become applicable solely as a result of the specific regulatory status of Investor or its Affiliates. Section 2.11. Labor Matters. Except as set forth on Schedule 2.11, neither the Company nor any of the Transferred Subsidiaries is a party to any labor union agreement or involved in or, to MEI's or the Company's knowledge, threatened with any labor action, arbitration, lawsuit or administrative proceeding relating to labor matters involving the employees of the Company or the Transferred Subsidiaries (excluding routine workers' compensation claims). Section 2.12. Compliance with Laws. Except as set forth on Schedule 2.12, the conduct of the Business substantially complies with all applicable Laws and all Orders applicable thereto. Section 2.13. Employee Benefit Plans. (a) Schedule 2.13(a) lists all material employee benefit plans and programs providing benefits to any Company Employee or Former Company Employee or beneficiary or dependent thereof, sponsored or maintained by MEI or any of its Affiliates, or to which MEI or any of its Affiliates currently contributes or is obligated to contribute ("Plans"). Without limiting the generality of the foregoing, the term "Plans" includes all employee welfare benefit plans within the meaning of Section 3(1) of ERISA and all employee pension benefit plans within the meaning of Section 3(2) of ERISA. Schedule 2.13(a) also specifically identifies those Plans that are sponsored, maintained or contributed to exclusively by the Company and the Transferred Subsidiaries ("Company Plans"). (b) MEI has delivered or made available to Investor a true, correct and complete copy of all plan documents and the current summary plan descriptions (if any) for each Plan. In addition, with respect to each Company Plan, MEI has delivered or made available to Investor a true, correct and complete copy of: (i) the three most recent filed Annual Reports (Form 5500 Series) and accompanying schedules, if any, or any similar filing made with any foreign authority; (ii) the most recent annual financial report, if any; (iii) the most recent actuarial report, if any; and (iv) the most recent determination letter from the IRS, if any. (c) No Company Plan is intended to be a "qualified plan" within the meaning of Section 401(a) of the Code. The IRS has issued a favorable determination letter with respect to the Micron Electronics, Inc. Retirement at Micron Plan ("MEI's 401(k) Plan") which letter has not been revoked, and except as disclosed in Schedule 2.13(c), to MEI's knowledge there are no existing circumstances nor any events that have occurred that could reasonably be expected to adversely affect the qualified status of MEI's 401(k) Plan or the related trust. Except as disclosed in Schedule -13- 20 2.13(c), MEI and its Affiliates have substantially complied with all provisions of ERISA, the Code and all other laws and regulations applicable to the Plans. (d) No Plan is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code. Without limiting the generality of the foregoing, no Plan that is subject to ERISA is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA. Neither MEI nor the Company maintains or has any obligation to contribute to (or any other liability with respect to) any plan or arrangement whether or not terminated, which provides medical, health, life insurance or other welfare-type benefits for current or future retired or terminated Company Employees (except for limited continued medical benefit coverage required to be provided under Section 4980B of the IRC or as required under applicable state law or any applicable termination or severance agreements). There does not now exist, nor do any circumstances now exist that could reasonably be expected to result in, any Controlled Group Liability that would be a Liability of the Company or any Transferred Subsidiary following the Closing. (e) All contributions required to be made to any Plan by applicable law or regulation or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any Plan, before the date hereof have been timely made or paid in full. Section 2.14. Tax Returns. (a) Except as disclosed in Schedule 2.14, all material Returns required to be filed prior to Closing for taxable periods ending on or prior to the Closing Date by, or with respect to any activities of, the Company and the Transferred Subsidiaries have been or will be filed in accordance with all applicable laws, and all Taxes shown to be due on such Returns have been or will be paid prior to Closing. All such Returns have been or will be correct in all material respects. Except as set forth on Schedule 2.14 attached hereto, there is no action, suit, taxing authority proceeding or audit with respect to Taxes that is or could likely be material in amount now in progress, pending or threatened in writing against or with respect to the Company and the Transferred Subsidiaries. Each of the Company and the Transferred Subsidiaries has withheld and paid over to the applicable Taxing Authority all Taxes that are or would likely be material in amount and that are due and owing with respect to any amount paid to any independent contractor, employee, shareholder, creditor or other party. (b) Except as set forth on Schedule 2.14, none of the Company or any Transferred Subsidiary has currently in effect any waiver of any statute of limitations or granted any extension of time in which any material Tax may be assessed. Except as set forth on Schedule 2.14, none of the Company or any Transferred Subsidiary is currently the beneficiary of any extension for filing a Return. -14- 21 (c) Except as set forth on Schedule 2.14, none of the Company or any Transferred Subsidiary is a party to any agreement which could obligate the Company or any Transferred Subsidiary to pay any amount that would not be deductible under Code ss.280G. (d) No claim has been made in the last five years by any Taxing Authority in any jurisdiction where any of the Company or any Transferred Subsidiaries do not file Returns that such entity is or may be subject to taxation by that jurisdiction. (e) The Company is not, and has not been within the previous five years, a "United States real property holding company" within the meaning of Code ss.897(c). (f) The reserve for Taxes accrued on the balance sheet of the Company as of August 28, 1997 has been established in accordance with GAAP and the unpaid Taxes of the Company and the Transferred Subsidiaries will not, as of the Closing Date, exceed such reserve, adjusted for results of operations, changes in the rate of Tax and the passage of time in accordance with the Company's past practice. Section 2.15. Brokers, Finders, etc. Neither the Company nor MEI has employed any broker, finder, consultant or other intermediary in connection with the transactions contemplated hereby who would have a valid claim for a fee or commission in connection with such transactions, except for Deutsche Morgan Grenfell Inc. ("DMG"). MEI is solely responsible for any payment, fee or commission that may be due to DMG in connection with the transactions contemplated hereby. Section 2.16. Customers and Suppliers. Schedule 2.16 lists, as of November 27, 1997, each of the ten largest suppliers and the ten largest customers of the Company and the Transferred Subsidiaries taken as a whole based on prior twelve month purchases and sales, respectively. Except as listed on Schedule 2.16 to the knowledge of MEI or the Company, no supplier or third-party contractor has taken any action that is reasonably likely to have a material adverse effect on the quality of the goods that it supplies to the Company or the Transferred Subsidiaries. Section 2.17. Real Property. (a) Schedule 2.17 identifies by street address all real estate leased, subleased or otherwise occupied pursuant to an agreement (the "Leases") by the Company or any of the Transferred Subsidiaries (the "Leased Premises") or owned by the Company or any of the Transferred Subsidiaries ("Owned Property", and collectively with the Leased Premises, the "Real Property"). The Leased Premises are leased to the Company or a Transferred Subsidiary pursuant to written leases, copies of which have been made available to Investor prior to the date hereof. With respect to each Lease: (i) the Company or the applicable Transferred Subsidiary has a good and valid leasehold interest in and to all of the Leased Premises, subject to no Encumbrances, except for Permitted Encumbrances or as disclosed on Schedule 2.17; (ii) each Lease is in full force and effect -15- 22 and is enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity, and, except for Permitted Encumbrances or as disclosed on Schedule 2.17, none of the Company or any Transferred Subsidiary has assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in such Lease; and (iii) there exists no declared default or to the knowledge of the Company or MEI any condition which, with the giving of notice, the passage of time or both, could become a default under any Lease. There are no outstanding options or rights of first refusal to purchase the Owned Property or any portion thereof or interest therein except for Permitted Encumbrances. The Company or a Transferred Subsidiary has good and insurable title in and to the Owned Property, free and clear of any Encumbrances other than Permitted Encumbrances. (b) The Real Property constitutes all of the real property owned, leased, or otherwise utilized in connection with the Business. Other than the Company and the Transferred Subsidiaries, there are no parties in possession or parties having any current or future right to occupy any of the Real Property, except (x) tenants under any leases disclosed on Schedule 2.17 who are in possession of space to which they lease or (y) under or pursuant to Permitted Encumbrances. There exists no violation of any material covenant, condition, restriction, easement, agreement or order affecting any portion of the Real Property. All improvements located on the Real Property have direct access to a public road adjoining such Real Property, either directly or through a valid easement or other valid rights. Except as set forth on Schedule 2.17, no such improvements or access ways encroach on land not included in the Real Property except pursuant to a valid easement or other valid right and no such improvement is dependent for its access, current operation or utility in the Business on any land, building or other improvement not included in the Real Property except pursuant to valid easement or other valid right. All facilities located on the Real Property are supplied with adequate utilities and other services necessary for the operation of such facilities as currently operated. There is no pending or, to the knowledge of MEI and the Company, any threatened condemnation proceeding, or material lawsuit or administrative action affecting any portion of the Real Property. Section 2.18. Material Agreements. Set forth on Schedule 2.18 is a list of each agreement, arrangement, or understanding to which the Company or any of the Transferred Subsidiaries is a party or by which the Company or any of the Transferred Subsidiaries is bound (collectively, the "Material Agreements"): (1) for the lease of personal property from or to third parties providing for annual lease payments to any single lessor or from any single lessee in excess of $500,000; (2) for the purchase, distribution or sale of supplies, products or other personal property or for the furnishing or receipt of information or services, in each case, calling for performance over a period of more than six months or involving more than $1,000,000; -16- 23 (3) relating to the acquisition by the Company or any of the Transferred Subsidiaries of any legal entity or all or substantially all of the assets of any Person; (4) under which it has created, incurred or assumed indebtedness involving more than $500,000 or pursuant to which an Encumbrance is imposed on any of its tangible or intangible assets; (5) for the license of Intellectual Property material to the Business or the payment of royalties (whether as licensee or licensor or payor or payee) or any other agreement material to the Business providing in whole or in part for the use of, or limiting the use of, any Intellectual Property; (6) purporting to limit the right of the Company or any of the Transferred Subsidiaries to compete in any line of business, with any Person or in any geographic area or containing any covenant providing for an exclusive relationship between the Company or any Transferred Subsidiary and any Person; (7) with any director, officer or employee of the Company or any Transferred Subsidiary (including any involving employment or severance); (8) the consequences of a default or termination of which is reasonably likely to have a material adverse effect on the Business Condition; (9) containing any guarantee or power of attorney granted by the Company or any Transferred Subsidiary; (10) relating to any partnership or joint venture; (11) otherwise involving the receipt or expenditure of more than $250,000 or not entered into in the ordinary course of business consistent with past practice; and (12) otherwise material to the Business. Each of the Material Agreements are in full force and effect and are enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity. Except as set forth on Schedule 2.18, the Company or the applicable Transferred Subsidiary, as the case may be, has complied with the material provisions of each of the Material Agreements, is not in default under any of the terms thereof, and no event has occurred that with the passage of time or the giving of notice or both would constitute a default by the Company or the applicable Transferred Subsidiary, as the case may be, under any provision thereof. Except as set forth on Schedule 2.18, to MEI's and the Company's knowledge, all parties other than the Company or any of the Transferred Subsidiaries have complied with the material provisions of the Material -17- 24 Agreements; are not in default under any of the terms thereof; and no event has occurred that with the passage of time or the giving of notice or both would constitute a default by any such party under any provision thereof. Neither the Company nor any of the Transferred Subsidiaries have received any written notice of termination with respect to any of the Material Agreements. Neither the Company nor any of the Transferred Subsidiaries has assigned any of its rights or obligations under any of the Material Agreements other than to each other. Neither the Company nor any of the Transferred Subsidiaries have waived any of its rights in writing under any of the Material Agreements. True and complete copies of all written Material Agreements and summaries of any oral Material Agreements have been made available to Investor prior to the date hereof. Section 2.19. Transactions with Affiliates. Except as set forth on Schedule 2.19, (a) neither the Company nor any Transferred Subsidiary is a party to any executory contract with any of its Affiliates, and (b) no Affiliate of the Company or any Transferred Subsidiary (other than the Company and the Transferred Subsidiaries) owns any asset, property, or right, tangible or intangible, that is used in the Business. Section 2.20. Insurance. Set forth on Schedule 2.20 is a list and summary description of all policies (including scope, duration and amount of coverage) of fire, liability, product liability, worker's compensation and other forms of liability and casualty insurance currently in effect with respect to the Company, each of the Transferred Subsidiaries, and their respective businesses and assets. Neither the Company nor any of the Transferred Subsidiaries is in default with respect to its material obligations under any insurance policy maintained by it, and neither the Company nor any of the Transferred Subsidiaries has been denied insurance coverage. The insurance coverage of the Company and the Transferred Subsidiaries covers risks of such types and in such amounts as are customary for corporations of similar size engaged in similar lines of business. Except as set forth on Schedule 2.20, the Company and the Transferred Subsidiaries do not have any self-insurance or co-insurance programs, and the reserves set forth on the Financial Statements are adequate to cover all reasonably anticipated liabilities with respect to any such self-insurance or co-insurance programs. Section 2.21. Computer Systems. Except as set forth on Schedule 2.21, neither the Company nor any Transferred Subsidiary plan or anticipate any material expenditure in relation to the hardware or software or communications systems used or planned to be used in connection with the Business. Except as set forth on Schedule 2.21, all computer systems used by the Company and the Transferred Subsidiaries recognize the advent of the year 2000 and can correctly recognize and manipulate date information relating to dates on or after January 1, 2000 and the operation and functionality of such computer systems will not be adversely affected by the advent of the year 2000 or any manipulation of data featuring date information relating to dates before, on or after January 1, 2000. Section 2.22. Products and Services Liability. Except as disclosed on Schedule 2.22 hereto, to MEI's and the Company's knowledge, there are not any: -18- 25 (a) outstanding liabilities of the Company or any Transferred Subsidiary, fixed or contingent, asserted or unasserted, in the aggregate in excess of $50,000 with respect to any products liability or any similar claim that relates to any product manufactured or sold by the Company or any Transferred Subsidiary to any Person, (b) outstanding liabilities of the Company or any Transferred Subsidiary, fixed or contingent, asserted or unasserted, in the aggregate in excess of $50,000 with respect to any claim for the breach of any express or implied product warranty or any other similar claim with respect to any product manufactured or sold by the Company or any Transferred Subsidiary to any Person other than standard warranty obligations (to replace or repair) made by either the Company or any Transferred Subsidiaries in the ordinary course of business to purchasers of its product provided that any liability for returned materials authorizations (in amounts consistent with past practice) shall not be considered a liability for purposes of this Section 2.22, and (c) outstanding liabilities of the Company or any Transferred Subsidiary, fixed or contingent, asserted or unasserted, in the aggregate in excess of $50,000 with respect to any claim for the breach of any express or implied warranty or any other similar claim with respect to any service rendered by the Company or any Transferred Subsidiary to any Person other than standard warranty obligations made by either the Company or any Transferred Subsidiaries in the ordinary course of business to users of its services. A copy of each type of warranty given to customers of the Company or any Transferred Subsidiary are attached hereto as Schedule 2.22. Set forth on Schedule 2.22 hereto is a description of each claim in excess of $25,000 that has been asserted against the Company or any Transferred Subsidiary since December 31, 1995 based upon any product or service liability or similar claim, or on the breach or alleged breach of any express or implied product or service warranty or any other similar claim with respect to any product manufactured or sold by or any service rendered by the Company or any Transferred Subsidiary to any Person, including information regarding (i) the amount of the claim, (ii) the basis of the claim, (iii) whether the claim was covered by insurance, (iv) how the claim was resolved, and (v) the amount paid by the Company or any Transferred Subsidiary in relation to the claim. Section 2.23. Predecessor Businesses; Former Facilities. Neither the Company nor any Transferred Subsidiary has ever conducted any business other than the Business and the component recovery business. Except as disclosed on Schedule 2.23 hereto, other than the Real Property, neither the Company nor any Transferred Subsidiary has ever owned, leased or occupied any real property. Section 2.24. Disclosure. No representation or warranty by MEI or the Company in this Agreement, and no exhibit, document, statement, certificate or schedule furnished or to be furnished to Investor pursuant hereto, or in connection with the transactions contemplated hereby, in any event taken together, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained herein or -19- 26 therein not misleading in light of the circumstances in which they are made in any material respect with respect to the Business Condition. Section 2.25. No Representations Regarding Projections. It is understood that any cost estimates, projections or other predictions contained or referred to in the Schedules hereto and any cost estimates, projections or other predictions contained or referred to in other materials that have been or may hereafter be provided to Investor or any of its Affiliates, agents or representatives are not and shall not be deemed to be representations or warranties of MEI or the Company. Section 2.26. Construction of Certain Provisions. It is understood and agreed that neither the specification of any dollar amount in the representations, warranties or covenants con tained in this Agreement nor the inclusion of any specific item in the Schedules or Exhibits is intended to imply that such amounts or higher or lower amounts, or the items so included or other items, are or are not material, and neither party shall use the fact of the setting of such amounts or the fact of the inclusion of any such item in the Schedules or Exhibits in any dispute or controversy between the parties as to whether any obligation, item or matter is or is not material for purposes of this Agreement. ARTICLE III Representations and Warranties of Investor Investor hereby represents and warrants to MEI as follows: Section 3.1. Incorporation; Authorization; No Conflicts; etc. (a) Investor is a legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Investor has full corporate, partnership or limited liability company, as the case may be, power to execute and deliver this Agreement and to perform its obligations hereunder, and Investor has full corporate, partnership or limited liability company, as the case may be, power to consummate the transactions contemplated hereby. All corporate, partnership or limited liability company, as the case may be, acts and other proceedings required to be taken by Investor to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and prop erly taken. This Agreement has been duly executed and delivered by Investor and, assuming the due execution and delivery hereof by the other parties hereto, this Agreement constitutes the legal, valid and binding obligation of Investor, enforceable against Investor in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity. (b) The execution, delivery and performance of this Agreement by Investor and the consummation by Investor of the transactions contemplated hereby will not (1) violate any -20- 27 provision of the organizational documents or limited partnership agreement of Investor, (2) violate any provision of, or constitute a default (with or without notice or lapse of time) under, or give rise to a right of termination, cancellation or acceleration of (or entitle any party to accelerate whether after the giving of notice or lapse of time or both) any obligation under, or result in the imposition of any lien upon or the creation of a security interest in any of Investor's assets or properties pursuant to, any note, bond, debt instrument, mortgage, indenture, lien, lease, agreement or other instrument, or any judgment, injunction, order or decree to which Investor is a party or by which any of them is bound, or (3) violate or conflict with any Law applicable to Investor or by which any of its proper ties or assets is bound, except, in the case of clauses (2) and (3), for any such violations, defaults, rights or restrictions that would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on (A) the business, financial condition, assets or liabilities of Investor or (B) the ability of Investor to consummate the Stock Purchase or the other transactions contemplated by this Agreement. Section 3.2. Licenses, Approvals, Other Authorizations, Consents, Reports, etc. Schedule 3.2 lists all consents, approvals, registrations, filings, applications, notices, orders, authorizations, qualifications or waivers required to be made, filed, given or obtained by Investor with, to or from any persons or Governmental Authorities in connection with the consummation of the Recapitalization and the other transactions contemplated by this Agreement, except for those (a) that become applicable solely as a result of the specific regulatory status of MEI, the Company or the Transferred Subsidiaries or (b) the failure to make, file, give or obtain which would not reasonably be expected, individually or in the aggregate, either to have a material adverse effect on the Business Condition of Investor or to prevent the consummation of the Stock Purchase or the other transactions contemplated by this Agreement. Section 3.3. Brokers, Finders, etc. Investor has not employed any broker, finder, consultant or other intermediary in connection with the transactions contemplated by this Agreement who would have a valid claim for a fee or commission in connection with such transactions. Section 3.4. Financing. Investor has received, and has furnished to MEI a copy of a commitment letter from BT Alex. Brown Incorporated ("BTAB"), dated December 18, 1997 (the "BTAB Commitment Letter"), pursuant to which BTAB has committed to provide up to $215 million in financing for the transactions contemplated hereby. Investor has the financial ability, subject only to the conditions set forth in Article VI hereof, to provide up to $61.2 million toward the Stock Purchase. Each of the BTAB Commitment Letter and a letter from Bankers Trust Company ("BT") relating to the Credit Facility (the "BT Letter") have been duly accepted by Investor. All fees required to be paid by Investor or any of its Affiliates on or prior to the date hereof in respect of the BTAB Commitment Letter and the BT Letter have been paid by Investor or its Affiliates, as applicable. As of the date hereof neither BTAB nor BT have advised Investor of any reason why the BTAB Commitment Letter or the BT Letter will not be fulfilled in accordance with their terms. -21- 28 Section 3.5. Investment. Investor (a) has been informed by the Company that the Purchase Shares have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), or under any state securities laws and are being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering, (b) is an experienced and sophisticated investor and has such knowledge and experience in financial and business matters as are necessary to evaluate the merits and risks of an investment in the Purchase Shares, (c) confirms that it has been given the opportunity to ask questions of the officers and management employees of MEI, the Company and the Transferred Subsidiaries and to acquire additional information about the Business and the Business Condition and (d) is an "Accredited Investor" as defined in Regulation D under the Securities Act. ARTICLE IV Covenants Section 4.1. Investigation of Business; Access to Properties and Records; Records Retention. (a) Subject to existing confidentiality arrangements, after the date hereof and prior to Closing, MEI shall cause the Company and each of the Transferred Subsidiaries to afford to representatives of Investor reasonable access to its offices, properties, books and records, officers, counsel, accountants, contracts and Other Persons (as defined below) during normal business hours, in order that Investor may have an opportunity to make such investigations as it desires of the affairs of the Company, the Transferred Subsidiaries and the Business; provided, however, that such investigation shall be upon reasonable prior notice and shall not unreasonably disrupt the personnel and operations of MEI, the Company or any Transferred Subsidiary. All requests for access to the Company or any Transferred Subsidiary and the offices, properties, books, records and contracts re lating thereto shall be made to such representatives of MEI as MEI shall designate in writing, who shall be solely responsible for coordinating all such requests and all access permitted hereunder. It is further understood and agreed that neither Investor nor its representatives shall contact any of the employees, customers, suppliers, joint venture partners, or other associates or Affiliates of MEI or the Company (collectively, "Other Persons"), in connection with the transactions contemplated by this Agreement, whether in person or by telephone, mail or other means of communication, without the specific prior notification of such representatives of MEI as MEI shall designate in writing. If, as of the date hereof or at any time hereafter Investor is aware of or discovers any breach of any representation or warranty contained in this Agreement or any circumstance or condition that upon Closing would constitute such a breach, Investor shall use reasonable best efforts to promptly so inform MEI in writing; provided, that Investor's awareness or discovery of any such breach, circumstance or condition shall in no way affect any of Investor's rights or remedies under this Agreement including any rights pursuant to Article XII. (b) Prior to Closing, any information provided to Investor or its representatives pursuant to this Agreement shall be held by Investor and its representatives in accordance with, and -22- 29 shall be subject to the terms of, the Confidentiality Agreement dated September 23, 1997 by and between MEI and Cornerstone Equity Investors, L.L.C. (the "Confidentiality Agreement"). (c) Subject to Section 9.5(c), the Company agrees (i) to hold all of the books and records of the Company and Transferred Subsidiaries existing on the Closing Date and not to destroy or dispose of any thereof for a period of 5 years from the Closing Date or such longer time as may be required by Law or by any Order, and thereafter, if it proposes to destroy or dispose of any of such books and records, to offer first in writing, at least 60 days prior to such proposed destruction or disposition to surrender them to MEI, and (ii) for a period of 5 years from the Closing Date to afford MEI (or MEI's successors or assigns), their accountants, counsel and other representatives, during normal business hours, upon reasonable request, at any time, full access to such books, records and other data and to the employees of the Company and any of its Subsidiaries to the extent that such access may be requested for any legitimate purpose at no cost to MEI (other than for reasonable out-of-pocket expenses); provided, however, that nothing herein shall limit any of MEI's rights of discovery. (d) MEI agrees and shall use its reasonable best efforts to cause each Continuing Affiliate and MTI (i) to hold all of the books, records, documents, files and other data held by any such Person as of immediately after the Closing which relates in any way to the Business of the Company (including all books, record documents, files and other data relating to any Intellectual Property held by any such Person as of immediately after the Closing which relates to or is used in the Business of the Company) and not to destroy or dispose of any thereof for a period of 5 years from the Closing Date or such longer time as may be required by Law or by any Order, and thereaf ter, if any of them proposes to destroy or dispose of any of such books, records, documents, files or other data to offer first in writing, at least 60 days prior to such proposed destruction or disposition to surrender them to the Company, and (ii) for a period of 5 years from the Closing Date to afford the Company (or the Company's successors or assigns), their accountants, counsel and other representatives, during normal business hours, upon reasonable request, at any time, full access to such books, records, documents, files and other data and to the employees of MEI, each Continuing Affiliate and MTI to the extent that such access may be requested for any legitimate purpose at no cost to the Company (other than for reasonable out-of-pocket expenses); provided, however, that nothing herein shall limit any of the Company's rights of discovery. (e) Notwithstanding anything contained herein to the contrary, MEI and the Company acknowledges that Investor may cause a Rule 144A placement memorandum (the "Placement Memorandum") to be prepared and used in connection with the consummation of the Company's financing of the transactions contemplated hereby and agrees to use reasonable efforts to furnish Investor with access to, and to cause the cooperation of, all records and personnel necessary for Investor to cause the consummation such financing; provided that no director or officer of MEI, in such capacity, shall be required to execute a registration statement or purchase agreement in connection with such financing. In addition, the Company shall request its accountants to consent to the inclusion of their report or reports in, and to issue a comfort letter in connection with, any offering memoranda or filings required by such financing. The Company agrees to -23- 30 indemnify MEI against all damages caused by any untrue statement of material fact contained in the Placement Memorandum or any omission or alleged omission of material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as MEI has provided information containing such material misstatement or material omission to the Investor or the Company in writing including in any representation and warranty contained in this Agreement. Section 4.2. Efforts; Obtaining Consents. Subject to the terms and conditions herein provided, MEI and Investor each agrees to use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated hereby and to cooperate with the other in connection with the foregoing, including using all reasonable efforts (1) to obtain all necessary waivers, consents and approvals from other parties to material loan agreements, leases and other contracts, (2) to obtain the consents, approvals and authorizations that are required to be obtained from any Governmental Authority, (3) to prevent the entry of, or to lift or rescind, any Order adversely affecting the ability of the parties hereto to consummate the transactions contemplated hereby, (4) to effect all necessary registrations and filings including, but not limited to, filings under the HSR Act and submissions of information requested by Governmental Authori ties and (5) to fulfill all conditions to this Agreement. Section 4.3. Further Assurances. MEI and Investor agree that, from time to time, whether before, at or after the Closing Date, each of them will, and will use their reasonable best efforts to cause their respective Affiliates to, execute and deliver such further instruments of conveyance and transfer and take such other action as may be necessary to carry out the purposes and intents of this Agreement. Section 4.4. Conduct of Business. From the date hereof to the Closing, except as disclosed on Schedule 4.4 or otherwise provided for in, or contemplated by, this Agreement, and, except as consented to or approved by Investor, MEI and the Company covenant and agree that: (a) the Company and the Transferred Subsidiaries shall operate their respective businesses in the ordinary course in all material respects; (b) none of the Company or any of the Transferred Subsidiaries shall amend its certificate of incorporation or by-laws; (c) except for the Stock Purchase, the Stock Redemption and in connection with the BTAB Financing, none of the Company or any of the Transferred Subsidiaries shall issue, sell, agree to issue or sell or redeem or otherwise acquire (1) any shares of its capital stock or (2) any securities convertible into, or options with respect to, or warrants to purchase or rights to subscribe for, any shares of its capital stock or evidences of indebtedness or other securities; (d) except in the ordinary course of business, none of the Company or any of the Transferred Subsidiaries shall (1) create, incur or assume any indebtedness for Borrowed Money; -24- 31 (2) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any Person, if such assumption, guarantee, endorse ment or other liability is in any such case material to the Company; or (3) make any material loans, advances or capital contributions to or investments in, any Person (except for customary loans or advances to employees); (e) except in the ordinary course of business or as required by any Law or contractual obligations or other understandings or arrangements existing on the date hereof which are disclosed in Schedule 4.4, none of the Company or any of the Transferred Subsidiaries shall (1) increase in any manner the base compensation of, or enter into or amend any employment, bonus, incentive, severance, consulting, or other compensation agreement with, any existing director or officer; or (2) commit itself to any additional pension, profit-sharing, deferred compensation, group insurance, severance pay, retirement or other employee benefit plan, fund or similar arrangement or amend or commit itself to amend any of such plans, funds or similar arrangements in existence on the date hereof so as to increase benefits thereunder; (f) except in the ordinary course of business or as required by any Law or contractual obligations existing on the date hereof which are disclosed in Schedule 4.4 or as provided for in or expressly contemplated by this Agreement or Schedule 4.4, none of the Company or any of the Transferred Subsidiaries shall (1) sell, transfer or otherwise dispose of any of its material assets, (2) create any new material Encumbrance, other than a Permitted Encumbrance, on its properties or assets, (3) enter into any material joint venture or partnership or (4) purchase any material amount of assets or securities of any Person; (g) none of the Company or any of the Transferred Subsidiaries shall enter into any transaction or other arrangement which would have to be listed on Schedule 2.7; and (h) none of the Company or any of the Transferred Subsidiaries shall agree to take any action prohibited by this Section 4.4. Section 4.5. Preservation of Business. Subject to the terms and conditions of this Agreement, MEI shall, and shall cause the Company and the Transferred Subsidiaries to, use reasonable efforts to preserve the Business intact, to keep available to the Company and the Transferred Subsidiaries the services of persons employed by the Company and the Transferred Subsidiaries and to preserve the goodwill of customers and others having business relations with the Company and the Transferred Subsidiaries but shall not be required to incur material expense to do so. Section 4.6. Public Announcements. From and after the date hereof until the Closing, MEI and Investor will, before issuing, or permitting any agent or Affiliate to issue, any press releases or otherwise making or permitting any agent or Affiliate to make, any public state ments with respect to this Agreement and the transactions contemplated hereby, mutually agree in good faith upon the content of such press release or statement, except in the event, and only to the -25- 32 extent, that disclosure is required by law; provided, that in such instances the disclosing party will consult with the other party prior to making such disclosure. Section 4.7. Intercompany Accounts. (a) Notwithstanding the provisions of Section 4.4 hereof, nothing in this Agreement shall be construed or interpreted to prevent the Company from engaging in any transaction incident to the cash management procedures of Continuing Affiliates, the Company and the Transferred Subsidiaries in a manner consistent with past practice, including, without limitation, short-term investments in bank deposits, money market instruments, time deposits, certificates of deposit and bankers' acceptances, incurrence or payment of bank overdrafts and borrowings for working capital purposes and for purposes of providing additional funds to the Company and the Transferred Subsidiaries in the ordinary course of business consistent with past practice; provided, however, that notwithstanding the foregoing, between the date hereof and the Closing, the Company shall not declare, set aside, or pay any dividend or distribution with respect to its capital stock and, except for the Stock Purchase and the Stock Redemption, shall not redeem, purchase or otherwise acquire any of its capital stock. (b) Immediately prior to the Closing, MEI shall settle on an arms-length basis all intercompany receivables, payables and loans then existing between MTI and the Continuing Affiliates, on the one hand, and the Company and the Transferred Subsidiaries, on the other hand other than (i) receivables, payables and loans relating to ongoing business between MTI and the Continuing Affiliates, on the one hand and the Company and the Transferred Subsidiaries, on the other hand and (ii) trade payables and receivables. Section 4.8. Notice of Breach. If, as of the date hereof or at any time hereafter MEI or the Company is aware of or discovers any breach of any representation or warranty contained in this Agreement or any circumstance or condition that upon Closing would constitute such a breach, MEI or the Company, as the case may be, shall promptly so inform Investor in writing. Section 4.9. Acquisition Proposals. MEI and the Company shall not, and the Company shall cause the Transferred Subsidiaries not to, directly or indirectly, (i) solicit, initiate or encourage the submission of any inquiries, discussions or proposals or offers from any Person relating to a possible disposition of any capital stock or any material portion of the assets of the Company or any Transferred Subsidiary, (ii) continue, propose, solicit, initiate, encourage or enter into negotiations or discussions relating to a possible disposition of any capital stock or any material portion of the assets of the Company or any Transferred Subsidiary, (iii) enter into or consummate any agreement or understanding providing for the disposition of any capital stock or any material portion of the assets of the Company or any Transferred Subsidiary, or (iv) assist, participate in or encourage any effort or attempt by any other Person to do or seek any of the foregoing. MEI or the Company shall promptly notify Investor of, and communicate to Investor the terms of, any such inquiry, proposal or request for information received by, or negotiations or discussions sought with, MEI, the Company or any Transferred Subsidiary. -26- 33 Section 4.10. Noncompetition; Nonsolicitation. (a) For a period of two (2) years from and after the Closing (the "Two Year Term"), no Continuing Affiliate shall and each Continuing Affiliate shall use its reasonable best efforts to cause its officers and directors to not directly or indirectly, (i) own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, director, employee, stockholder, partner or any other similar capacity with any business which is in competition with the business of design, assembly and testing of custom complex printed circuit boards for third party electronics original equipment manufacturers ("OEM's") and the business of design, assembly and testing of system level assemblies when acting solely and strictly in the capacity of a subcontractor of an OEM (a "Competitive Business"), or (ii) solicit, interfere with or attempt to entice away (other than through advertisements or general solicitations) from the Company, any of the Transferred Subsidiaries or any successor to any of the foregoing, any individual who is, has agreed to be or within six months of such solicitation, interference or enticement has been, employed or retained by the Company, any of the Transferred Subsidiaries or any successor to any of the foregoing. Ownership of not more than 5% of the outstanding stock of any publicly traded company shall not, in and of itself, be a violation of this Section 4.10. The restrictive covenant contained in this Section 4.10 is a covenant independent of any other provision of this Agreement, and the existence of any claim which MEI may allege against Investor, the Company, or any of their Affiliates, whether based on this Agreement or otherwise, shall not prevent the enforcement of this covenant. MEI agrees that a breach of this Section 4.10 shall cause irreparable harm to Investor, the Company and their respective Affiliates, that Investor's and the Company's remedies at law for any breach or threat of breach of the provisions of this Section 4.10 shall be inadequate, and that Investor and/or the Company shall be entitled to an injunction or injunctions to prevent breaches of this Section 4.10 and to enforce specifically the terms and provisions hereof, in addition to any other remedy to which Investor and/or the Company may be entitled at law or in equity. The Two Year Period shall be tolled during any period of violation of this Section 4.10 after which MEI is provided notice and during any other period required for litigation during which Investor and/or the Company seeks to enforce this covenant. In the event that this Section 4.10 shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too long a period of time or over too large a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the longest period of time for which it may be enforceable, and/or over the largest geographical area as to which it may be enforceable and/or to the maximum extent in all other aspects as to which it may be enforceable, all as determined by such court in such action. (b) Notwithstanding the foregoing, MEI may acquire any business or entity which has a component which is a Competitive Business (an "Acquired Business") during the Two Year Term, provided that (i) not more than 10% of the revenues of the Acquired Business during the 12 calendar months immediately preceding such acquisition are derived from the business which is competitive with the Business and (ii) MEI uses its best efforts to dispose of the portion of the Acquired Business which is a Competitive Business as soon as commercially practicable. -27- 34 (c) Nothing contained in this Section 4.10 shall prohibit or in any way infringe upon the activities (including conducting the business) of MEI's advanced engineering group consistent with the activities conducted as of the date hereof. Section 4.11. Confidentiality. (a) From and after the Closing, MEI shall, and shall use its reasonable best efforts to cause its Affiliates and representatives to, keep confidential and not disclose to any other Person or use for its own benefit or the benefit of any other Person any trade secrets or other confidential proprietary information in its or their possession or control regarding the Company, any of the Transferred Subsidiaries or the Business. The obligation of MEI under this Section 4.11(a) shall not apply to information which (i) is or becomes generally available to the public without breach of the commitment provided for in this Section 4.11(a); or (ii) is required to be disclosed by law, order or regulation of a court or tribunal or governmental authority; provided, however, that, in any such case, the Person subject to such requirement shall notify Investor and the Company as early as reasonably practicable prior to disclosure to allow Investor and the Company to take appropriate measures to preserve the confidentiality of such information. (b) From and after the Closing, the Company shall, and shall cause its Affiliates and representatives to, keep confidential and not disclose to any other Person or use for its own benefit or the benefit of any other Person any trade secrets or other confidential proprietary information in its or their possession or control regarding the Continuing Affiliates or their respective businesses. The obligation of the Company under this Section 4.11(b) shall not apply to information which (i) is or becomes generally available to the public without breach of the commitment provided for in this Section 4.11(b); or (ii) is required to be disclosed by law, order or regulation of a court or tribunal or governmental authority; provided, however, that, in any such case, the Person subject to such requirement shall notify MEI as early as reasonably practicable prior to disclosure to allow MEI to take appropriate measures to preserve the confidentiality of such information. Section 4.12. Nonsolicitation by the Company. For a period of two (2) years from and after the Closing, neither the Company nor any of its Affiliates shall, directly or indirectly, solicit, interfere with or attempt to entice away (other than through advertisements or general solicitations) from any Continuing Affiliate or any successor to any of the foregoing, any individual who is, has agreed to be or within six (6) months of such solicitation, interference or enticement has been, employed or retained by any of the Continuing Affiliates or any successor other than the individuals listed on Schedule 4.12 hereto. Section 4.13. Alternative Financing. In the event the financing described in the BTAB Commitment Letter will not be available at Closing, Investor shall use commercially reasonable efforts to pursue financing, reasonably acceptable to Investor, on terms in the aggregate not materially worse to Investor or the Company than the terms contained in the BTAB Commitment Letter; provided, that if Investor is unable to obtain any such alternative financing, Investor shall -28- 35 have no obligation to consummate the Stock Purchase, the Recapitalization or any other transaction contemplated hereby. Section 4.14. License Agreements. The parties hereto acknowledge that the Company currently enjoys certain rights under various agreements listed on Schedule 4.14 hereto to which either MTI or MEI is a party (the "Master Agreements"). MEI and the Company shall use their commercially reasonable efforts to obtain for the Company a replacement license or other agreement (which the Company shall be a party to), on terms reasonably satisfactory to the Company and Investor, with each of the third parties listed on Schedule 4.14 as a replacement for each of the Master Agreements. Section 4.15. Use of Micron Name. It is understood and agreed between the parties hereto that after the Closing, neither the Company nor any of the Transferred Subsidiaries shall have an interest in or right to use, either alone or in combination with other words or phrases, the name "Micron" or the stylized "M" currently used by the Company and the Transferred Subsidiaries. No later than the Closing, MEI shall cause the name of the Company to be changed to "MCMS, Inc." and within three (3) months after Closing will change the font currently used by the Company in the name "MCMS." The Company shall have a transition period of 3 months after the Closing to take all steps within its control to change the name of each Transferred Subsidiary, as necessary, so as to remove the name "Micron" therefrom. MEI acknowledges and agrees that the Company and the Transferred Subsidiaries will have in inventory after the Closing a quantity of work-in-process, preprinted stationery, invoices, receipts, forms, advertising and promotional materials, training and source literature, packaging material and other supplies which bear the "Micron" name and the stylized "M" (collectively, "Supplies"). Notwithstanding anything in this Section 4.15 to the contrary, MEI hereby grants to the Company and the Transferred Subsidiaries a paid-up, royalty-free right and license, to remain in effect until exhaustion of the Supplies (but in no event more than 3 months after Closing) in the ordinary course of business, to use any trademarks, trade names, trade dress, copyright or other proprietary rights of MEI associated with such Supplies, including but not limited to the "Micron" name and the Stylized "M." MEI agrees that the Company shall be permitted to continue to use its current logo and MEI expressly disclaims any rights thereto. Section 4.16. Schedule Supplements. Investor and MEI agree that during the period between the date hereof and the Closing Date, the schedules to this Agreement relating to Article II may be supplemented in order for MEI and the Company to bring down the representations and warranties contained in Article II to the Closing Date (but not to change any representations and warranties made by MEI and the Company as of the date hereof). Notwithstanding the foregoing, no such schedule shall be so amended without the review and approval of Investor, which review and approval shall not be arbitrarily withheld. Section 4.17. Capital Expenditures. Neither the Company nor any Transferred Subsidiary shall make any capital expenditures or commitments, or series thereof, involving more than $6,500,000 in the aggregate for the Company and the Transferred Subsidiaries during the fiscal -29- 36 quarter ending February 28, 1998 or more than $6,000,000 in the aggregate for the Company and the Transferred Subsidiaries during the fiscal quarter ending May 31, 1998; ARTICLE V Employee Benefits Section 5.1. Provision of Benefits. Any Company Plan other than plans maintained for the benefit of Company Employees located in Belgium and Malaysia shall terminate no later than as of the Closing Date. Except as specifically provided in this Article V, MEI shall be responsible for (x) all liabilities and obligations under the Company Plans terminated pursuant to the preceding sentence, (other than Liabilities that are accrued on the Company Financial Statements), (y) the $1,009,672.60 amount with respect to potential bonuses that is listed at Schedule 2.4, and (z) all liabilities and obligations under any Plan that is not a Company Plan. As of the Closing Date or as soon as practicable thereafter, the Company shall establish for the benefit of its employees and employees of the Transferred Subsidiaries on and after the Closing Date such Employee Benefit Plans as are reasonably deemed appropriate by the president of the Company and the Investor. The Company agrees, for all purposes under all Employee Benefit Plans applicable to employees of the Company and the Transferred Subsidiaries to treat all service by Company Employees with MEI or any of its Affiliates before the Closing as service with the Company and the Transferred Subsidiaries, except to the extent such treatment would result in duplication of benefits. Section 5.2. Savings Plan. As soon as reasonably practicable after the Closing Date, the Company shall establish one or more defined contribution plans (the "Successor 401(k) Plan") qualified under Section 401 of the Code, and one or more related trusts (the "Successor 401(k) Trust") exempt from taxation under Section 501 of the Code, in which Company Employees will be eligible to participate. The account balances in MEI's 401(k) Plan of all Company Employees shall be transferred to the Successor 401(k) Trust in cash or in kind, as agreed by MEI and the Company. Such transfer shall take place as soon as practicable after the Closing Date, but no earlier than the date on which the Company delivers to MEI either (x) a copy of a favorable determination letter or letters from the IRS that the Successor 401(k) Plan is qualified under Section 401 of the Code and the Successor 401(k) Trust is exempt from taxation under Section 501 of the Code, or (y) an opinion of counsel to the Company, reasonably satisfactory to MEI, that the Successor 401(k) Plan is qualified under Section 401 of the Code and the Successor 401(k) Trust is exempt from taxation under Section 501 of the Code. Following the Closing Date, Company Employees shall continue to vest in the unvested portion of their account balances in MEI's 401(k) Plan as transferred to the Successor 401(k) Plan, based upon continued employment with the Company and the Affiliates of the Company, and otherwise on the same terms and conditions as applied under MEI's 401(k) Plan. The Company and MEI agree to cooperate in making all appropriate filings and taking all appropriate actions required to implement the provisions of this Section 5.2. -30- 37 Section 5.3. Welfare Benefits. (a) MEI shall be responsible for (i) continuing to provide Company Employees and Former Company Employees and their respective beneficiaries and dependents with welfare benefits, including without limitation life insurance, accidental death and dismemberment insurance, medical, dental, vision, short-term and long-term disability benefits (such benefits, collectively, "Welfare Benefits"), for claims incurred before the Closing Date; and (ii) providing Company Employees, Former Company Employees and their respective current and former dependents and beneficiaries with all required continuation coverage under Section 601 et seq. of ERISA and Section 4980B of the Code for "qualifying events" (as defined in Section 603 of ERISA and the regulations pertaining thereto) occurring on or prior to the Closing Date.. The Company and the Transferred Subsidiaries shall be solely responsible for providing Company Employees and their beneficiaries and dependents with the Welfare Benefits that are provided under plans to be established by the Company for claims incurred after the Closing Date; provided, that if as a result of the level of benefits provided by the Company after the Closing Date any employee experiences a "qualifying event" (as defined above) merely as a result of ceasing to participate in the Plans and starting to participate in such plans established by the Company, the Buyer shall compensate MEI for its costs and expenses in providing continuation coverage to such employees. For purposes of this Section 5.3(a), a claim for a medical, dental or other similar benefit shall be considered to be incurred when the services that are the subject of the claim are performed; a claim for life insurance or other death-related benefits shall be considered to be incurred when the death of the covered individual occurs; and a claim for disability benefits or other income-replacement benefits shall be considered incurred as and when such benefits are payable. (b) The Welfare Benefits provided by the Company to Company Employees and their beneficiaries and dependents after the Closing shall be provided without evidence of insur ability and without the application of any pre-existing physical or mental condition restrictions, except to the extent such restrictions applied to any particular individual immediately before the Closing Date. To the extent any such individual has, before the Closing Date, satisfied in whole or in part any annual deductible or paid any out-of-pocket or co-payment expenses under the applicable plan of MEI and its Affiliates, such individual shall be credited therefor under the corresponding provisions of the corresponding plan of the Company and the Transferred Subsidiaries in which such individual participates after the Closing Date. Section 5.4. Intercompany Charges. Nothing contained herein shall be deemed to prevent the Company from paying monthly charges accrued for pre-Closing periods for employee benefits, in a manner consistent with past practice (including such charges for any period of less than a month ending immediately on the Closing Date). -31- 38 ARTICLE VI Conditions of Investor's Obligation to Close Investor's obligation to consummate the Recapitalization shall be subject to the satisfaction on or prior to the Closing Date, or waiver by Investor, of all of the following conditions: Section 6.1. Representations, Warranties and Covenants of MEI and the Company. The covenants and agreements of MEI and the Company to be performed on or before the Closing Date in accordance with this Agreement shall have been duly performed in all respects (except for such failures to be performed which could not reasonably be expected in the aggregate to have a material adverse effect on the Company's Business Condition) and the representations and warranties of MEI and the Company contained in this Agreement shall be true and correct in all respects (except for such failure to be true and correct which could not reasonably be expected in the aggregate to have a material adverse effect on the Company's Business Condition) as of the date hereof and on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date, except for such representations and warranties that speak as of a specific date or time other than the Closing Date (which need only be true and correct in all respects as of such other date or time (except for such failures to be true and correct which could not reasonably be expected in the aggregate to have a material adverse effect on the Company's Business Condition), and Investor shall have received a certificate to such effect signed by an executive officer of MEI and the Company. Section 6.2. Filings; Consents; Waiting Periods. The material registrations, filings, applications, notices, consents, approvals, orders, qualifications and waivers which are set forth on Schedule 6.2 (the "Material Consents") shall have been filed, made or obtained, in each case in a form reasonably acceptable to Investor, and all waiting periods applicable under the HSR Act shall have expired or been terminated. Section 6.3. No Injunction. At the Closing Date, there shall be no Order of any nature of any Governmental Authority of competent jurisdiction that is in effect that restrains, enjoins or prohibits the consummation of the Recapitalization or the other transactions contemplated hereby. Section 6.4. Transitional Services Agreement. MEI and MTI shall have duly delivered authorized and executed counterparts of each of the Transitional Services Agreements containing the terms set forth in the term sheet annexed hereto as Exhibit A. Section 6.5. Stockholders Agreement and Registration Rights Agreement. MEI and the Company shall have delivered duly authorized and executed counterparts to a stockholders agreement (the "Stockholders Agreement") and a registration rights agreement (the "Registration Rights Agreement"), in each case, containing the terms set forth in the term sheet annexed hereto as Exhibit C. -32- 39 Section 6.6. Financing. The Company shall have received the financing described in the BTAB Commitment Letter consistent with the terms therein or otherwise obtained financing sufficient to consummate the transactions contemplated hereby on terms reasonably satisfactory to Investor. Section 6.7. Indebtedness. All outstanding indebtedness for Borrowed Money of the Company and the Transferred Subsidiaries ("Indebtedness") shall be paid in full; any outstanding letters of credit shall be terminated; and the Company shall have obtained (x) the release of all Encumbrances on the capital stock of the Company and each of the Transferred Subsidiaries and all assets securing such Indebtedness and (y) the release of all guarantees with respect to such Indebtedness. At the Closing, the Company shall provide or arrange to be provided to Investor evidence demonstrating the payment in full of such Indebtedness, the termination of such letters of credit and the release of such Encumbrances and guarantees. Section 6.8. Material Adverse Effect. Since August 28, 1997, no event shall have occurred which has or which could reasonably be expected to have a material adverse effect on the Business or the financial condition of the Company and the Transferred Subsidiaries taken as a whole except for any change resulting from (i) any change or any development in worldwide, foreign or national economic, financial or market conditions, (ii) war, insurrection or other political changes or instability or (iii) the announcement of the transactions contemplated hereby. Section 6.9. Opinion of Counsel. MEI and the Company shall have delivered to Investor an opinion of counsel to MEI and the Company (which counsel shall be reasonably acceptable to Investor) with respect to items and in a form, in each case, reasonably acceptable to Investor. Section 6.10. Resignation of Directors. MEI and the Company shall have delivered to Investor the written resignations or evidence of removal of each of the directors of the Company or any of the Transferred Subsidiaries as Investor shall have requested at least two business days prior to the Closing. Section 6.11. Other Closing Documents. The Company shall have obtained title insurance and surveys for each parcel of Owned Real Property located within the United States and Leased Real Property in the United States (to the extent required by the providers of the BTAB Financing), in each case, which is in customary form and does not disclose matters other than (i) Permitted Encumbrances or (ii) matters which do not have a material adverse effect on the current use of such parcel of Real Property. With respect to each leased parcel of Real Property, the Company shall have delivered to Investor (to the extent required by the providers of the BTAB Financing) a consent and waiver and an estoppel letter executed by the landlord, lessor, landlord and/or licensor of such leased Real Property, in each case, in form and substance reasonably acceptable to Investor and the providers of the BTAB Financing. The Company shall have delivered to Investor all other customary closing documents, each in form and substance reasonably acceptable to Investor. -33- 40 Section 6.12. Articles of Incorporation. The Company's Articles of Incorporation shall have been amended and restated to be in a form as provided by Investor to MEI and the Company at least five (5) business days prior to the Closing (the "Amended Charter"). The Amended Charter shall have been filed with the Secretary of State of Idaho, shall be in full force and effect under the laws of the State of Idaho as of the Closing, and no further amendments or modifications shall have been made to the Company's Articles of Incorporation. Section 6.13. Bylaws. The Company's Bylaws shall have been amended and restated to be in a form as provided by Investor to MEI and the Company prior to the Closing (the "Amended Bylaws"). The Amended Bylaws shall be in full force and effect as of the Closing and shall not have been further amended or modified. Section 6.14. Booster Pump and Power Substation. MEI and the Company shall have entered into an arrangement, reasonably satisfactory to Investor and MEI, pursuant to which the Company shall be granted (i) access to the booster pump located on MEI's real property in Nampa, Idaho and (ii) the ability to draw power from the power substation located on MEI's real property in Nampa, Idaho. Section 6.15. Patent Agreement. MEI shall have duly delivered an authorized and executed counterpart of a patent and invention disclosure assignment and license agreement substantially in the form attached hereto as Exhibit D (the "Patent Agreement"). Section 6.16. Know-How Agreement. MEI shall have duly delivered an authorized counterpart of a know-how license agreement substantially in the form attached hereto as Exhibit E (the "Know-How Agreement"). Section 6.17. MTI License Agreement. MTI shall have duly delivered an authorized and executed counterpart of a covenant not to sue agreement substantially in the form attached hereto as Exhibit F (the "MTI Agreement"). ARTICLE VII Conditions to MEI's and the Company's Obligation to Close MEI's and the Company's obligation to consummate the Recapitalization is subject to the satisfaction on or prior to the Closing Date, or waiver by MEI and the Company, of all of the following conditions: Section 7.1. Representations, Warranties and Covenants of Investor. (a) The covenants and agreements of Investor to be performed on or before the Closing Date in accordance with the Recapitalization Agreement have been duly performed in all material respects and (b) the representations and warranties of Investor contained in this Recapitalization Agreement are true and correct in all material respects -34- 41 as of the date hereof and on and as of the Closing Date with the same effect as though such rep resentations and warranties had been made on and as of such date, except for representations and warranties that speak as of a specific date or time other than the Closing Date. Section 7.2. Filings; Consents; Waiting Periods. The Material Consents shall have been filed, made or obtained, and all applicable waiting periods under the HSR Act shall have expired or been terminated. Section 7.3. No Injunction. At the Closing Date, there shall be no Order of any nature of any Governmental Authority of competent jurisdiction that is in effect that restrains, enjoins or prohibits the consummation of the Recapitalization or the other transactions contemplated hereby. Section 7.4. Transitional Services Agreements. The Company shall have delivered duly authorized and executed counterparts of each of the Transitional Services Agreements. Section 7.5. Stockholders Agreement and Registration Rights Agreement. Investor and the Company shall have delivered duly authorized and executed counterparts to the Stockholders Agreement and the Registration Rights Agreement. Section 7.6. Patent Agreement. The Company shall have duly delivered an authorized and executed counterpart of the Patent Agreement. Section 7.7. Know-How Agreement. The Company shall have duly delivered an authorized and executed counterpart of the Know-How Agreement. Section 7.8. MTI Agreement. The Company shall have duly delivered an authorized and executed counterpart of the MTI Agreement. ARTICLE VIII The Recapitalization; Closing Section 8.1. Authorization. Prior to the Closing Date, the Company shall have authorized (i) the issuance and sale of the Purchase Shares to the Investor and (ii) the other transactions comprising the Recapitalization, including the Stock Redemption and the BTAB Financing. -35- 42 Section 8.2. Stock Purchase. Subject to the terms and conditions of this Agreement, at the Closing, the Company shall issue to the Investor the Purchase Shares in exchange for the Purchase Price. Section 8.3. Stock Redemption. Pursuant to the authorization contemplated by Section 8.1 hereof and subject to the terms and conditions set forth in this Agreement, the parties hereto agree that MEI shall offer for redemption, and the Company shall redeem the Redemption Shares. In consideration for the Redemption Shares, at the Closing, MEI will receive $264,200,000 (the "Redemption Price") from the Company. Section 8.4. Closing. (a) Time and Place of Closing. The Closing shall take place on the Closing Date at 10:00 A.M., New York City time, at the offices of Kirkland & Ellis, 153 East 53rd Street, New York, New York 10022 or such other place at the parties shall mutually agree. (b) Deliveries and Proceedings at the Closing. At the Closing, (1) Deliveries by the Company to Investor. The Company shall deliver to Investor certificate(s) representing the Purchase Shares. (2) Deliveries by Investor to the Company. Investor shall pay to the Company the Purchase Price by wire transfer of immediately available funds to one or more accounts as designated by the Company. (3) Deliveries by MEI to the Company. MEI shall surrender to the Company certificate(s) representing the Redemption Shares, free and clear of all Encumbrances, duly endorsed in blank or accompanied by stock powers or any other proper instrument of assignment duly endorsed in blank in proper form for transfer, with appropriate transfer stamps, if any, affixed, whereupon the Company shall cancel such Redemption Shares, which shall thereafter cease to be issued and outstanding. (4) Deliveries by the Company to MEI. The Company shall pay to MEI the Redemption Price by wire transfer of immediately available funds to one or more accounts as designated by MEI. (5) Other Deliveries. The closing certificates, opinion of counsel and other documents and agreements required to be delivered pursuant to this Agreement with respect to the Closing will be exchanged. -36- 43 ARTICLE IX Tax Matters Section 9.1. Tax Indemnification by MEI. MEI shall be liable for, and shall hold the Company and any successor corporations thereto or affiliates thereof harmless from and against the following Taxes with respect to the Company or any Transferred Subsidiary: (a) any and all Taxes for any taxable period or portion thereof ending on or before the Closing Date due or payable by the Company or any Transferred Subsidiary (whether or not accrued or reserved for on the books and records of the Company and/or any of the Transferred Subsidiaries), except to the extent provided in Sections 9.2(b) and 9.2(c); and (b) any several liability of the Company under Treasury Regulations Section 1.1502-6 or under any comparable or similar provision under state, local or foreign laws for tax periods or portions thereof ending on or prior to the Closing Date and for tax periods of MEI and any other member of MEI's consolidated tax group (other than the Company and the Transferred Subsidiaries with respect to periods after the Closing) ending after the Closing Date and including the Closing Date. Section 9.2. Tax Indemnification by the Company. The Company shall be liable for, and shall hold MEI harmless from and against, the following Taxes with respect to the Company or any Transferred Subsidiary: (a) any and all Taxes for any taxable period or portion thereof be ginning after the Closing Date, due or payable by the Company or any Transferred Subsidiary; (b) any and all Taxes resulting from transactions, acts or omissions not in the ordinary course of business after the Closing on the Closing Date; and (c) Taxes payable with respect to the business or operations of the Company or the Transferred Subsidiaries during the period from the date hereof through the Closing. For purposes of clause (c) of this Section 9.2, the Company shall compute, or cause to be computed, the Taxes payable (which computation shall be reduced by the amount of any estimated Taxes paid by the Company during such period) within 90 days of the Closing Date and shall pay to MEI such amount. Section 9.3. Filing Responsibility. (a) MEI shall prepare and file or shall cause the Company to prepare and file the following Returns with respect to the Company: (1) all Income Tax Returns required to be filed for any taxable period ending on or before the Closing Date; (2) all other Returns with respect to Taxes other than Income Taxes required to be filed (taking into account extensions) prior to the Closing Date; and -37- 44 (b) The Company shall, subject to the provisions of Section 9.3(c), file or cause to be filed all Returns for which MEI does not have filing responsibility pursuant to Section 9.3(a) with respect to the Company. (c) With respect to any Tax Return of the Company and/or the Transferred Subsidiaries for taxable periods beginning before the Closing Date and ending after the Closing Date, the Company shall consult with MEI concerning such Return and report all items with respect to the portion of the period ending on the Closing Date in accordance with the instructions of MEI, unless otherwise agreed by MEI and Investor and unless, in the written opinion of nationally recognized tax counsel to the Investor, complying with MEI's instructions could subject Investor or the Company to any criminal or civil penalties under Sections 6662 through 6664 of the Code or similar provisions of applicable state, local or foreign laws. (d) The Company and MEI shall report all transactions not in the ordinary course of business occurring on the Closing Date after the Closing on the Company's federal income tax return to the extent permitted by Reg. ss.1.1502-76(b)(1)(B). Section 9.4. Refunds. (a) Except to the extent that an asset representing a Tax refund is recorded on the audited balance sheet of the Company as of August 28, 1997, MEI shall be entitled to any refunds or credits of Taxes attributable to or arising in taxable periods or portions thereof ending on or before the Closing Date (plus any interest received with respect thereto). (b) The Company shall be entitled to any refunds or credits of Taxes paid in and attributable to taxable periods beginning on or after the Closing Date (plus any interest received with respect thereto). (c) The Company shall promptly forward to MEI or reimburse MEI for any refunds or credits due MEI (pursuant to the terms of this Article IX) after receipt thereof, and MEI shall promptly forward to the Company (pursuant to the terms of this Article IX) or reimburse the Company for any refunds or credits due the Company after receipt thereof. (d) MEI, Investor and the Company agree that the Company shall not elect to carry back any item of loss, deduction or credit which arises in any taxable period ending after the Closing Date into any taxable period ending on or before the Closing Date. (e) Except as contemplated by this Agreement, all Tax sharing agreements and arrangements of whatever kind with respect to the Company shall be terminated as of the Closing Date without obligation to the Company, and the Company will not have any current or potential contractual obligation to indemnify any other person with respect to Taxes as of or after the Closing Date. Section 9.5. Cooperation and Exchange of Information. (a) Investor and MEI and their respective affiliates shall cooperate in the preparation of all Returns relating in whole or in part -38- 45 to taxable periods ending on or before or including the Closing Date that are required to be filed after such date. Such cooperation shall include, but not be limited to, furnishing prior years' Returns or return preparation packages illustrating previous reporting practices or containing historical information relevant to the preparation of such Returns, furnishing such other information within such party's possession requested by the party filing such Returns as is relevant to their preparation and making available such knowledgeable employees of the Company or MEI, as the case may be, as may be reasonably requested. In the case of any state, local or foreign joint, consolidated, combined, unitary or group relief system Returns, such cooperation shall also relate to any other taxable periods in which one party could reasonably require the assistance of the other party in obtaining any necessary information. (b) MEI shall have the right, at its own expense, to control any audit or examination by any Taxing Authority ("Tax Audit"), initiate any claim for refund, contest, resolve and defend against any assessment, notice of deficiency, or other adjustment or proposed adjustment relating to any and all Taxes for any taxable period ending on or before the Closing Date with respect to the Company provided that, with respect to any state and local Income Taxes for any taxable period beginning before the Closing Date and ending after the Closing Date, MEI shall consult with Investor and the Company with respect to the resolution of any issue that would have a material effect on Investor and/or the Company, and not settle any such issue, or file any amended return relating to any such issue, without the consent of Investor, which consent shall not unreason ably be withheld. In the event Investor withholds its consent to any proposed settlement, MEI's liability for Taxes with respect to such proposed settlement shall be limited to the amount of Taxes that the Company would have paid (including as the result of any adjustments to the basis or a changed method of accounting) under the terms of such proposed settlement. Investor shall have the right, at its own expense, to control any proceeding which MEI has declined to control, and any other Tax Audit, initiate any other claim for refund, and contest, resolve and defend against any other assessment, notice of deficiency, or other adjustment or proposed adjustment relating to any and all Taxes for any taxable period beginning on or after the Closing Date with respect to the Company provided that, with respect to any state and local Income Taxes for any taxable period beginning before the Closing Date and ending after the Closing Date, Investor shall consult with MEI with respect to the resolution of any issue that would affect MEI, and not settle any such issue, or file any amended return relating to any such issue, without the consent of MEI, which consent shall not unreasonably be withheld. Where consent to a settlement is withheld by the other party pursuant to this Section, such other party may continue or initiate any further proceedings at its own expense, provided that the liability of the first party, after giving effect to this Agreement, shall not exceed the liability that would have resulted from the settlement or amended return. (c) For a period of seven (7) years after the Closing Date, the Company shall retain all Returns, books and records (including computer files) of, or with respect to the activities of, the Company and the Transferred Subsidiaries for all taxable periods ending on or prior to the Closing Date. -39- 46 (d) If any party hereto or an Affiliate thereof fails to provide any information required to be provided hereunder and requested by the other party hereto in the time specified herein, or if no time is specified pursuant to this Section 9.5, within a reasonable period, or otherwise fails to do any act required of it under this Section 9.5, then the first party shall be obligated, notwithstanding any other provision of this Agreement, to indemnify the other party and shall so indemnify the other party and hold the other party harmless from and against any and all costs, claims or damages, including, without limitation, all Taxes or deficiencies thereof, to the extent payable solely as a result of such failure. Section 9.6. Allocation of Certain Taxes. Any Income Taxes for a taxable period beginning before the Closing Date and ending after the Closing Date (a "Straddle Period") shall be apportioned between the portion of such Straddle Period ending on the Closing Date and the portion of such Straddle Period beginning on the day following the Closing Date based on the actual operations of the Company during each such portion of the Straddle Period and for purposes of the provisions of Sections 9.1, 9.2 and 9.5, each portion of such period shall be deemed to be a taxable period (whether or not it is in fact a taxable period). All Taxes other than Income Taxes relating to a Straddle Period shall be apportioned between the portion of such Straddle Period ending on the Closing Date and the portion of such Straddle Period beginning on the day following the Closing Date based on the number of days of the assessment period occurring on and before the Closing Date and the number of days during such period occurring after the Closing Date, and for purposes of Sections 9.1, 9.2, and 9.5 each portion of such period shall be deemed to be a taxable period (whether or not it is in fact a taxable period). To the extent estimated Taxes have been paid prior to the Closing Date with respect to a Straddle Period, MEI's liability with respect thereto shall be reduced by that amount. Section 9.7. Certain Taxes. All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement, shall be paid by MEI when due, and MEI will, at its own expense, file all necessary Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other Taxes and fees, and, if required by applicable law, the Company will, and will cause its affiliates to, join in the execution of any such Return and other documentation. ARTICLE X Termination Section 10.1. Termination. This Agreement may be terminated at any time prior to the Closing by: (a) The mutual consent of each of the parties hereto; (b) Either MEI, the Company or Investor by written notice to all other parties hereto if the Closing has not occurred by the close of business on April 30, 1998 and if the failure -40- 47 to consummate the Recapitalization on or before such date did not result from the failure by the party seeking termination of this Agreement to fulfill any undertaking or commitment provided for herein that is required to be fulfilled prior to Closing and such party is not otherwise in breach of this Agreement; (c) By Investor, at any time prior to the Closing, following written notice by Investor to MEI and the Company of a material breach of any material representation, warranty or covenant of MEI or the Company contained in this Agreement, if such breach is not cured within thirty (30) days after receiving notice thereof; or (d) By MEI, at any time prior to the Closing, following written notice by MEI to Investor of a material breach of any material representation, warranty or covenant of Investor contained in this Agreement, if such breach is not cured within thirty (30) days after receiving notice thereof. Section 10.2. Procedure and Effect of Termination. In the event of termination of this Agreement by any party or parties hereto pursuant to Section 10.1, this Agreement shall thereupon terminate and become void and have no effect, and the transactions contemplated hereby shall be abandoned without further action by the parties hereto, except that the provisions of Sections 4.1(b) and 11.5 shall survive the termination of this Agreement; provided, however, that such termination shall not relieve any party hereto of any liability for any breach of this Agreement. If this Agreement is terminated as provided herein all filings, applications and other submissions made to any Governmental Authority pursuant to this Agreement shall, to the extent practicable, be withdrawn from the agency or other persons to which they were made. ARTICLE XI Miscellaneous Section 11.1. Entire Agreement; Beneficiaries. This Agreement (including the Schedules and Exhibits attached hereto) and the Confidentiality Agreement contain the entire agreement between the parties with respect to the subject matter hereof and there are no agreements, understandings, representations or warranties between the parties relating to the matters set forth herein other than those set forth or referred to herein or therein. This Agreement is not intended to confer upon any person not a party hereto (and their successors and assigns permitted by Section 11.7) any rights or remedies hereunder. Section 11.2. Survival of Representations and Warranties and Covenants of Investor. All representations and warranties and covenants of Investor set forth in this Agreement or in any certificate, document or other instrument delivered in connection herewith shall terminate at the ear lier of (a) one year after the Closing Date and (b) termination of this Agreement in accordance with Article X hereof. -41- 48 Section 11.3. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes of this Section 11.3, provided receipt of copies of such counterparts is confirmed. Section 11.4. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to the choice of law principles thereof. Section 11.5. Expenses. MEI shall pay and hold the Company, the Transferred Subsidiaries and Investor harmless against liability for the payment of all Company Expenses. In the event any Company Expenses have been paid by the Company or any Transferred Subsidiaries prior to the Closing without being reimbursed by a Continuing Affiliate, such amount paid (and not reimbursed) shall be a valid and enforceable receivable of the Company owed from MEI to the Company as of the Closing. Except as provided in this Section 11.5 or as otherwise set forth in this Agreement, all legal and other costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. Notwithstanding the foregoing, if the transactions contemplated hereby are consummated, then the Company shall pay all Investor's and Investor's Affiliates (other than the Company and the Transferred Subsidiaries) fees and expenses in connection with the transactions contemplated hereby, including, any and all commitment fees and reasonable legal, accounting and consulting fees. Section 11.6. Notices. All notices and other communications hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below. Notices to MEI shall be addressed to: Micron Electronics, Inc. 900 East Karcher Road Nampa, Idaho 83687 Attention: General Counsel Telecopy No: (208) 898-7411 with a copy to: -42- 49 Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Barry A. Bryer Telecopy No: (212) 403-2000 or at such other address and to the attention of such other person as MEI may designate by written notice to the other parties hereto. Notices to Investor shall be addressed to: Cornerstone Equity Investors IV, L.P. c/o Cornerstone Equity Investors, L.L.C. 717 Fifth Avenue Suite 1100 New York, New York 10022 Attention: Tony Downer Michael E. Najjar Telecopy No: (212) 826-6798 with a copy to: Kirkland & Ellis 153 East 53rd Street New York, New York 10022 Attention: Frederick Tanne Telecopy No: (212) 446-4900 or at such other address and to the attention of such other person as Investor may designate by written notice to the other parties hereto. Notices to the Company prior to the Closing shall be addressed to: Micron Electronics, Inc. 900 East Karcher Road Nampa, Idaho 83687 Attention: General Counsel Telecopy No: (208) 898-7411 with a copy to: -43- 50 Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Barry A. Bryer Telecopy No: (212) 403-2000 and notices to the Company after the Closing shall be addressed to: MCMS, Inc. 16399 Franklin Road Nampa, Idaho 83687 Attention: General Counsel Telecopy No: (208) 893-8711 with a copy to: Cornerstone Equity Investors, L.L.C. 717 Fifth Avenue Suite 1100 New York, New York 10022 Attention: Tony Downer Michael E. Najjar Telecopy No: (212) 826-6798 and Kirkland & Ellis 153 East 53rd Street New York, New York 10022 Attention: Frederick Tanne Telecopy No: (212) 446-4900 or at such other address and to the attention of such other person as the Company may designate by written notice to the other parties hereto. Section 11.7. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that no party hereto will assign its rights or delegate its obligations under this Agreement without the express prior written consent of each other party hereto; provided, further, that, notwithstanding the foregoing, Investor may assign its rights and obligations hereunder in whole or in part to any Affiliate of Investor; Investor may assign its rights and obligations to purchase up to 49.9% of the Purchase Shares to any Person provided that any such assignment shall not release Investor of its purchase obligations hereunder and provided further that the representations and -44- 51 warranties contained in Article III hereof (other than Section 3.4) shall be true and correct with respect to any such assigns; and the Company may assign its rights and obligations hereunder as collateral security to any bona fide financial institution or underwriter providing financing to the Company in connection herewith, in each case, without the consent of any party hereto. Section 11.8. Headings; Definitions. The Section and Article headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. All references to Sections or Articles contained herein mean Sections or Articles of this Agreement unless otherwise stated. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. Section 11.9. Consent to Jurisdiction. Each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any federal court located in the State of New York or any New York state court in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (c) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than a federal court sitting in the State of New York or a New York state court. Section 11.10. Waivers and Amendments. No modification of or amendment to this Agreement shall be valid unless in a writing signed by the parties hereto referring specifically to this Agreement and stating the parties' intention to modify or amend the same. Any waiver of any term or condition of this Agreement must be in a writing signed by the party hereto sought to be charged with such waiver referring specifically to the term or condition to be waived, and no such waiver shall be deemed to constitute the waiver of any other breach of the same or of any other term or condition of this Agreement. Section 11.11. Severability. Any provision of this Agreement which is invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability, without affecting in any way the remaining provisions hereof. ARTICLE XII INDEMNIFICATION The parties hereto agree as follows: Section 12.1. General Indemnification Obligations. MEI hereby agrees to indemnify, defend and hold Investor and its respective officers, directors and Affiliates (including, after the Closing, the Company and the Transferred Subsidiaries) (the "Investor Indemnitees") harmless from and against and to reimburse the Investor Indemnitees with respect to any one or more of the -45- 52 following: (i) any and all Damages arising out of or resulting from a misrepresentation or breach of warranty of MEI or the Company contained in this Agreement or in any exhibit or schedule hereto, (ii) any and all Damages arising out of or resulting from any breach of any covenant or obligation of MEI contained in this Agreement, whether requiring performance before or after the Closing Date, (iii) any and all Damages arising out of or resulting from any breach of any covenant or obligation of the Company contained in this Agreement requiring performance before the Closing Date, and (iv) any and all Damages arising out of or resulting from the matter described on Schedule 2.13(c). Notwithstanding any provision to the contrary contained herein, MEI agrees that it will not make any claim for indemnification or contribution against the Company and it will cause its Continuing Affiliates and each of their respective directors, officers and employees not to make any claim for indemnification or contribution against the Company, by reason of the fact that MEI or any such Affiliate, director, officer or employee was a stockholder, director, officer, employee, or agent of the Company, with respect to or in connection with (a) any action, suit, proceeding, complaint, claim, or demand brought by the Company or the Investor against MEI or such Affiliate, director, officer or employee (whether such action, suit, proceeding, complaint, claim, or demand is pursuant to this Agreement, applicable law, or otherwise) or (b) any action, suit, proceeding, complaint, claim or demand arising out of or in connection with the Stock Redemption, the Recapitalization or the other transactions contemplated by this Agreement. Section 12.2. General Indemnification Procedures. (a) All of the parties hereto shall cooperate in the defense or prosecution of any claim, action, suit or proceeding by a Person other than a party hereto or an Affiliate of any party hereto in respect of which indemnity may be sought hereunder (a "Third Party Claim") and shall furnish such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials and appeals, as may be reasonably requested in connection therewith. (b) No action or claim for Damages under Section 12.1(i) arising out of or resulting from a breach of representations and warranties contained herein shall be brought or made after the date which is one year after the Closing Date; provided, however, that the foregoing time limitations shall not apply to: (1) any of the representations and warranties contained in Sections 2.1 (other than subsection 2.1(c)(2)), 2.2 (other than subsection 2.2(a)(3)) and 2.6, each of which shall survive until the date which is three years after the Closing Date; (2) any of the representations and warranties contained in Section 2.14 which shall survive until the expiration of the applicable statute of limitations or (3) any such actions or claims which have been the subject of a good faith written notice from any Investor Indemnitee to MEI prior to either such applicable period, which notice specifies in reasonable detail the nature and basis for such action or claim (which shall survive until the final resolution of such actions or claims). (c) Notwithstanding anything to the contrary in this Article 12, no limitation or condition of liability provided in this Article 12 shall apply to the breach of any representations and warranties if such breach was made wilfully or with the intent to deceive. -46- 53 Section 12.3. Indemnification Basket. MEI shall not be obligated to indemnify the Investor Indemnitees pursuant to this Article 12 for any Damages resulting from any breaches of representations and warranties in this Agreement (which breaches and resulting Damages shall be determined, solely for the purposes of this Section 12.3 as though any materiality limitations in such representations and warranties did not exist), unless (i) the Damages arising from any such breach or series of related breaches and incurred by the Investor Indemnitees exceeds $35,000 only in which such case shall such Damages be counted towards the Threshold, and (ii) the aggregate of all such Damages counted towards the Threshold and incurred by the Investor Indemnitees exceeds $1,000,000 (the "Threshold"), in which event MEI shall be liable for all Damages in excess of the Threshold claimed by the Investor Indemnitees; provided, however, that Damages recoverable by the Investor Indemnitees for breaches of the representations and warranties contained in Sections 2.1 (other than subsection 2.1(c)(2)), 2.2 (other than subsection 2.2(a)(3)), 2.6 and 2.14 shall not be subject to the Threshold and shall be paid by MEI in their entirety. Notwithstanding the foregoing, the Threshold shall not be available for any wilful breach of any representation or warranty. Section 12.4. Indemnification Cap. In no event shall MEI be required to indemnify the Investor Indemnitees for Damages pursuant to Section 12.1(i) in excess of $13,550,000 (the "Cap"); provided, however, that Damages recoverable by the Investor Indemnitees for breaches of the representations and warranties contained in Sections 2.1(other than subsection 2.1(c)(2)), 2.2 (other than subsection 2.2(a)(3)), 2.6 and 2.14 shall not be subject to the provisions of this Section 12.4 and shall be paid by MEI in their entirety. Notwithstanding the foregoing, the Cap shall not be available for any wilful breach of any representation or warranty. Section 12.5. Indemnity Exclusive Remedy. In the absence of fraud, the indemnification pursuant to this Article XII shall be the exclusive remedy for any breach or misrepresentation of warranty of MEI or the Company contained in this Agreement or in any exhibit or schedule hereto, any breach of any covenant or obligation of MEI contained in this Agreement, whether requiring performance before or after the Closing Date, and any breach of any covenant or obligation of the Company contained in this Agreement requiring performance prior to the Closing Date. -47- 54 IN WITNESS WHEREOF, this Recapitalization Agreement has been signed by or on behalf of each of the parties as of the day first above written. MICRON CUSTOM MANUFACTURING SERVICES, INC. By: /s/ Robert F. Subia ------------------------------- Name: Robert F. Subia Title: President, Chairman & CEO MICRON ELECTRONICS, INC. By: ------------------------------- Name: Title: CORNERSTONE EQUITY INVESTORS IV, L.P. By: Cornerstone IV, L.L.C., as General Partner By: ------------------------------- Name: Title: -48- 55 IN WITNESS WHEREOF, this Recapitalization Agreement has been signed by or on behalf of each of the parties as of the day first above written. MICRON CUSTOM MANUFACTURING SERVICES, INC. By: ------------------------------- Name: Title: MICRON ELECTRONICS, INC. By: ------------------------------- Name: Title: CORNERSTONE EQUITY INVESTORS IV, L.P. By: Cornerstone IV, L.L.C., as General Partner By: /s/ John A. Downer ------------------------------- Name: John A. Downer Title: Managing Director 56 IN WITNESS WHEREOF, this Recapitalization Agreement has been signed by or on behalf of each of the parties as of the day first above written. MICRON CUSTOM MANUFACTURING SERVICES, INC. By: ------------------------------- Name: Title: MICRON ELECTRONICS, INC. REVIEWED MEI LEGAL By: /s/ [ILLEGIBLE] REM ------------------------------- ------- Name: Title: CORNERSTONE EQUITY INVESTORS IV, L.P. By: Cornerstone IV, L.L.C., as General Partner By: ------------------------------- Name: Title: 57 SCHEDULES 58 Schedule 2.1(c) 1. The Merrill Lynch Term WCMA Loan Agreement, dated April 15, 1997, requires the prior written consent of Merrill Lynch before Micron Custom Manufacturing Services, Inc. ("Company") is a party to any merger and before, among other things, there is a material change in the controlling ownership of Company. 2. The Revolving Credit Facility, dated as of March 17, 1997, between Company and Micron Electronics, Inc. ("Seller"), requires Company to obtain Seller's written consent prior to selling Company common stock the result of which would be Seller owning less than 51% of the common stock of Company. 3. Lease regarding 2500 South Tri-Center Boulevard, Durham, NC 27713. 59 Schedule 2.2(a) None 60 Schedule 2.2(c)
Place of Subsidiary Incorporation Authorized Capital Issued Capital Owner - ---------- ------------- ------------------ -------------- ----- Micron Custom British Virgin 50,000 shares, par value 1 share The Company Manufacturing Services Islands US$1.00 per share International, Inc. ("MCMSI") M.C.M.S. Sdn. Bhd. Malaysia 100,000 shares, par value 2 shares MCMSI RM1.00 per share M.C.M.S. Asia Pacific Singapore 100,000 shares, par value 2 shares MCMSI Pte Ltd S$1.00 per share M.C.M.S. Belgium S.A. Belgium 2,500 shares, no par value 2,499 shares The Company (the Company) 1 share (Rob Subia)
61 Schedule 2.4 1. See attached schedule of executive bonus obligations under the Micron Electronics, Inc. Executive Bonus Plan for certain Company executives
2. Creditor Balance as of 11/27/97 -------- ---------------------- Baan U.S.A., Inc. $796,928.00 Oracle Corporation $656,290.00 Northern Telecom $9,598.00
3. Liabilities and obligations of the Company and Transferred Subsidiaries for borrowed money:
Creditor Balance as of 11/27/97 -------- ---------------------- Merrill Lynch $583,333.35
4. Freegate prepaid $203,425 for future product and in respect thereof the Company has given Freegate a promissory note in such amount. 5. MEI takes the position that the allocable portion of the Idaho Power Substation improvement to MCMS is as much as $712,725 (it being understood that MCMS considers unresolved the appropriate allocation, if any). This amount represents MCMS' portion of the total cost provided that MCMS continues to use power from this substation. 62 MICRON ELECTRONICS, INC. SUMMARY OF EXECUTIVE BONUS PROGRAMS AWARDS
CMS MEI ------------------------ ---------------------------------------------------- GRAND EXECUTIVE 1994 1995 1995 1996 1997 1998 TOTAL ================================================== ==================================================== ============ AMOUNT AWARDED SUBIA, ROB 45,933.25 52,817.70 123,615.34 213,994.57 402,163.46 838,524.32 ASLA, JESS 45,933.25 52,817.70 77,259.59 178,328.81 287,259.61 641,598.96 MCCARVEL, JOHN 172,355.77 172,355.77 ------------------------ ---------------------------------------------------- ------------ 91,866.50 105,635.40 200,874.93 392,323.38 861,778.84 -- 1,652,479.05 ======================== ==================================================== ============ AMOUNT REMAINING 20% 40% 40% 60% 80% AMOUNT UNEARNED AND UNPAID SUBIA, ROB 9,186.65 21,127.08 49,446.14 128,396.74 321,730.77 529,887.38 ASLA, JESS 9,186.65 21,127.08 30,903.84 106,997.29 299,807.69 398,022.54 MCCARVEL, JOHN -- -- -- -- 137,884.62 137,884.62 ------------------------ ---------------------------------------------------- ------------ 18,373.30 42,254.16 80,349.97 235,394.03 689,423.07 1,065,794.53 ======================== ==================================================== ============ AMOUNT ACCRUED 3,119.99 3,587.62 6,822.17 13,324.19 29,267.96 56,121.93 ======================== ==================================================== ============ UNEARNED BALANCE NOT ACCRUED 1,009,672.60 ============
Notes: Data for 1998 is not available at this time Chris Anton became an executive in fiscall 1998 63 Schedule 2.5
Lien Holder Encumbered Property - ----------- ------------------- NTFC Capital Telecommunications equipment in Durham, North Carolina Merrill Lynch The Company's Nampa, Idaho real property located at 16399 Franklin Road and the fixtures thereon COECO - Business Credit Leasing Office Equipment
64 Schedule 2.6 1. In September and October, 1997, the Company's environmental safety personnel and consultants requested that Technicians wear personal air samplers while performing preventative maintenance on a Wave Solder Machine at the Company's Nampa, Idaho facility and the Company's Durham, NC facility in December, 1997. The monitoring results for certain of the employees indicated a time weighted average exposure level above the OSHA-designated permissible exposure limits ("PEL") concerning airborne lead. With respect to the September 1997 testing, Technicians were not notified of the results within 5 days. Prior to November 1997, the Company did not have a formal lead control or air respirator program in place. 2. See attached. 3. See Schedule 2.10(a). 4. The Company's Durham, NC facility may be required to obtain a general stormwater discharge permit from the North Carolina environmental regulatory agency. The Company is in the process of applying for the permit. 65 SCHEDULE NO. 8 (Page 9 of 13) [Letterhead of MCMS] June 11, 1996 Mr. Doug Conde Deputy Attorney General Idaho Division of Environmental Quality 1410 North Hilton Boise, Idaho 83706 Mr. Rob Howarth Environmental Hydro Geologist Idaho Division of Environmental Quality 1445 North Orchard Boise, Idaho 83706 Re: Micron Custom Manufacturing Services, Inc. Request Under Policy PM95-4 Dear Mr. Conde and Mr. Howarth: Micron Custom Manufacturing Services, (MCMS), a wholly owned subsidiary of Micron Electronics, Inc., (MEI) recently acquired 29 acres of undeveloped agricultural property and 2.5 acres of residential property in Nampa, Idaho (the Property) to accommodate the relocation and expansion of the MCMS operation. The Property is located adjacent to and east of MEI's property in Nampa. MEI's property is the subject of the attached letter dated January 22, 1996 from Doug Conde to Krista McIntyre. In connection with the acquisition of the Property, MEI and MCMS retained the consulting firm of Brown & Caldwell to perform a Phase I Site Assessment. (A copy of the report is enclosed for your review.) The Phase I Site Assessment identified evidence that the groundwater beneath the Property may be contaminated by a local plume.(1) Based upon the Phase I Site Assessment and environmental reports generated for MEI with respect to the purchase of surrounding property, MCMS believes that the plume from the nearby industrial complex may have migrated beneath the Property. Because the Property is adjacent to and east of the existing MEI property covered in the attached January 22, 1996 letter, it is conceivably within the migration path of the local plume. - ---------- (1) This assessment is supported by the information generated in connection with the acquisition of 40 acres by MEI in 1995. Phase I and II Site Assessment reports prepared at that time revealed the existence of a groundwater plume allegedly originating from a nearby industrial complex occupied by the Great Western Chemical Company, Van Waters & Rogers, Inc., and others. Contamination was detected beneath the MEI property (attached letter dated January 22, 1996) and can reasonably be expected to exist below the Property discussed in this letter. 66 SCHEDULE NO. 8 (Page 10 of 13) Mr. Doug Conde Mr. Rob Howarth Idaho Division of Environmental Quality June 11, 1996 Page 2 This letter is presented to the Idaho Division of Environmental Quality (IDEQ) for the following reasons: (1) to provide a copy of the Phase I Site Assessment; (2) to establish that neither MCMS nor MEI have caused, contributed to, or exacerbated the groundwater contamination in the area; (3) to summarize MCMS' future plans for the Property and associated groundwater; and (4) to request a site specific covenant not to sue, consistent with IDEQ's Policy Memoranda PM95-4, Policy Toward Owners of Property Containing Contamination. Phase I Site Assessment The enclosed Phase I Site Assessment confirms that there are no past or present adverse environmental conditions on the Property. Specifically, the report states that the Property has been used primarily for agricultural and residential purposes and that, based upon a thorough investigation, including conversations with prior owners, there is no evidence that contaminants of the nature known to be impacting the groundwater (i.e. PCE) were ever used on or near the Property. In addition, the Phase I Site Assessment did not reveal any areas of contamination on-site or irregular pathways that could present a threat to the quality of groundwater in the area. MEI and MCMS are currently taking steps to prevent the use and presence of PCE containing materials during construction and operation of the new MCMS facility. Anticipated Groundwater Use MCMS requires clean water for irrigation and process related activities. MCMS is concerned about the quality of groundwater available in the area at this time. In addition, MCMS is committed to ensuring that none of its activities contribute to or exacerbate the contamination or extent of the plume. Therefore, upon commencement of operation on the Property this fall, MCMS plans to purchase municipal water. Nonetheless, MCMS anticipates the availability of and reserves its right to access uncontaminated groundwater in the future, should MCMS chose to exercise the groundwater rights acquired upon purchase of the Property. MCMS encourages IDEQ's efforts to develop a comprehensive corrective action plan with the responsible parties to address the plume. 67 SCHEDULE NO. 8 (Page 11 of 13) Mr. Doug Conde Mr. Rob Howarth Idaho Division of Environmental Quality June 11, 1996 Page 3 Conclusion The information presented in this letter, the attached Phase I Site Assessment, and the Phase I and II reports submitted to IDEQ last fall to support the attached January 22, 1996 letter from Doug Conde suggest that the groundwater beneath the Property may be contaminated by a local plume. Moreover, this information confirms that both MEI and MCMS are eligible for protection under policy PM95-4. Specifically, (1) neither MEI, nor MCMS, has caused, contributed to, or exacerbated the contamination; (2) both MEI and MCMS have and will continue to cooperate with IDEQ; (3) there is no alternative basis for liability against MEI or MCMS, and (4) an independent source for the pollution does not exist on the Property. Therefore, MEI and MCMS comply with the prerequisites and under policy PM95-4 are innocent landowners of additional property beneath which may flow groundwater contamination. MEI and MCMS request a written covenant not to sue from IDEQ, based upon the information presented, in connection with the Property. At your request, representatives of MEI and MCMS will be available to meet with you to provide any additional information you require. If you have any questions, please call Danette Kuecks, Environmental Manager for MEI at 368-2725 or Krista McIntyre, an attorney with Stoel Rives at 387-4239. Sincerely, /s/ Robert Subia Robert Subia President RS/jkf cc: Danette Kuecks Rick Malmgren (w/o encs.) 68 SCHEDULE NO. 8 (Page 12 of 13) [LETTERHEAD OF STATE OF IDAHO OFFICE OF THE ATTORNEY GENERAL] August 21, 1996 Robert Subia President Micron Custom Manufacturing Services, Inc. 8455 Westpark Street Boise, ID 83704-8366 RE: Nampa PCE Contamination Dear Mr. Subia: I am writing to you on behalf of the Idaho Department of Health and Welfare, Division of Environmental Quality (DEQ) in response to your letter dated June 11, 1996. In the June 11, 1996 letter, Micron Custom Manufacturing Services, Inc. (MCMS) and Micron Electronics, Inc. (MEI) request a determination from DEQ with respect to the liability of these companies in connection with property located in Nampa, Idaho recently acquired to accommodate the relocation and expansion of the MCMS operation. The property is generally downgradient from PCE contamination in the ground water in the area. The results of a Phase I site assessment was sent with the June 11, 1996 letter. DEQ has adopted policy PM95-4 that provides, if four conditions listed in the policy are met, DEQ will not pursue enforcement under laws administered by DEQ against those landowners who, through no fault of their own, come to have a pollutant on their property which has migrated from outside their property. Based upon the information you have presented, it is DEQ's position that the policy is applicable to MCMS and MEI with respect to the recently acquired property described in the June 11, 1996 letter and the PCE contamination. The application of the policy is contingent upon the reasonable cooperation of the property owner. DEQ, therefore, will expect MEI's and MCMS's continued cooperation in DEQ's efforts to investigate and remediate the contamination. DEQ may request access to the property for itself and any responsible party. 69 SCHEDULE NO. 8 (Page 13 of 13) Robert Subia Page 2 August 21, 1996 If you have any further questions or comments, please give me a call. Yours very truly, /s/ Douglas M. Conde Douglas M. Conde Deputy Attorney General DMC/lvh cc: Rob Howarth, DEQ-SWIRO Mark Jeffers, DEQ Krista McIntyre 70 [Letterhead of Micron Technology, Inc.] November 18, 1991 Mr. Douglas M. Conde Deputy Attorney General Division of Environmental Quality 1410 North Hilton Boise, Idaho 83706 Dear Mr. Conde: This letter is in response to your written request dated October 28, 1991 concerning the property owned and operated by Micron Technology located at 8455 Westpark Lane, Boise, Idaho. Based on your letter and a subsequent conversation between yourself and John Day, it is our understanding that your inquiry is primarily concerned with solvents. Although other chemicals may be used in limited quantities, they are of secondary importance and may be addressed later, if deemed appropriate. The following list represents our answer to your questions in the order asked: 1. Micron Technology Inc., is engaged in two (2) types of business at the above referenced location; (1) the assembly of printed circuit boards, and (2) tool & die operations to support Micron's other operations. These two operations have been at this location since May of 1990. 2. We are still operating at the same location as stated above. 3. The solvent chemicals that are, or were, used at our site are documented on exhibit 1. The term "solvent" has broad application. For the sake of this response, we have included all chemicals used at this site that are light, organic based products with properties similar to those found in Tetrachloroethylene and Ethylbenzene. 4. All solvent materials at the site were/are used in cleaning and preparing circuit boards for assembly. Additionally, some solvents were used in the Tool & Die operation as part of the cleaning and maintenance of equipment used in that operation. All materials not listed as in inventory have been fully consumed in the production processes. Any chemicals not consumed in production, production preparation, or clean up from production are shown as in inventory, or they have been returned to the main Micron facility. There have been no chemicals disposed of at this site. 5. All solvents at the above stated site are stored in chemical cabinets which are fireproof and meet or exceed the OSHA regulations. Only minimal operating quantities are stored. All major supplies or quantities are stored at Micron's main facility, at 2805 East Columbia Road. 71 Mr. Douglas M. Conde November 18, 1991 Page 2 6. There are no underground storage tanks. 7. There were no spills, leaks, or other improper releases of chemicals or solvents during the period of time that we have occupied the premises. 8. Micron Technology, Inc. purchased the property located at 8455 Westpark Lane from: M & J Investment Company 1305 N. W. Davis Portland, Oregon 97202 This purchase was effective December 29, 1989. Prior to purchase, and as a condition of the sale, Micron conducted an extensive environmental assessment on the existing ground water. This test comprised three exploratory boring's and completion as monitoring wells and analysis of soil samples. The results of the test concluded that Tetrachloroethane was not present and that there was no indication of any hazardous waste or petroleum compounds on site. These tests were conducted under the direction of Chen-Northern, Inc of Boise, Idaho. Occupancy for the facility, after necessary leasehold improvements were made, was granted April 26, 1990. Actual operations began in May, 1990. 9. Attached as Exhibit 2 are copies of the Material Safety Data Sheets supplied to Micron by the vendors of the products used and listed on exhibit 1. There were no spills, leaks, or improper releases of chemicals at the site. 10. Managers who have knowledge of operations are; Joe Daltoso, Manager of MAG and Partial Operations Don Lopez, Manufacturing Manager 11. Micron has no specific knowledge of chemicals used by other companies in the vicinity of the Boise Town Square Mall. Sincerely, /s/ Nick Edwards Nick Edwards Manager of Plant Operations mkc Attachments cc: Larry Grant Laura Arment Joe Daltoso 72 Chemicals Used, Purchased from May 1990 to September 1991.
- -------------------------------------------------------------------------------- Chemical Quantity Quantity Quantity Purchase On Hand Used - -------------------------------------------------------------------------------- ACETONE 11.7 GAL 4 GAL 7.7 GAL - -------------------------------------------------------------------------------- ALPHA 611F FLUX 110 GAL 40 GAL 70 GAL - -------------------------------------------------------------------------------- ALPHA K75-1 OMEGA SOL. 121 GAL 10 GAL 111 GAL - -------------------------------------------------------------------------------- ELECTRO WASH 1920 OZ 336 OZ 1584 OZ - -------------------------------------------------------------------------------- ELECTROCLEAN SOLUTION 1 OZ. 1 OZ. 0 - -------------------------------------------------------------------------------- FREON SMT 1045 GAL 0 1045 GAL - -------------------------------------------------------------------------------- FREON TMS 110 GAL 55 GAL 55 GAL - -------------------------------------------------------------------------------- ISOPROPYL IPA 28 GAL 5 GAL 23 GAL - -------------------------------------------------------------------------------- KESTER 2224 FLUX 6 GAL 3 GAL 3 GAL - -------------------------------------------------------------------------------- KESTER 4662 THINNER 5 GAL 5 GAL 0 - -------------------------------------------------------------------------------- LACQUER THINNER 12 GAL 1.5 GAL 10.5 GAL - -------------------------------------------------------------------------------- MINERAL SPIRITS 55 GAL 50 GAL 5 GAL - -------------------------------------------------------------------------------- TAK PAK X-NMS SOLVENT .81 OZ .54 OZ .27 OZ - -------------------------------------------------------------------------------- TAP MATIC #1 5 GAL 2 GAL 3 GAL - -------------------------------------------------------------------------------- TAP MATIC #2 5 GAL 2 GAL 3 GAL - --------------------------------------------------------------------------------
Exhibit 1 73 [SEAL OF STATE OF IDAHO] [Letterhead of Attorney General Larry Echohawk] October 28, 1991 Micron Technology, Inc. 8455 Westpark Lane Boise, Idaho 83704 Re: West Boise Contamination Dear Sir or Madam: I am one of the Deputy Attorneys General representing the Idaho Department of Health and Welfare, Division of Environmental Quality (Department). The Department is currently investigating groundwater contamination in west Boise. Based upon information the Department presently has, tetrachloroethylene (PERC) and ethylbenzene contamination has been found in groundwater in the vicinity of the Boise Towne Square Mall and to the north and west of the Boise Towne Square Mall. The contamination has impacted drinking water supplies. The Department is collecting information regarding businesses presently located, or that were located, in the vicinity of the Boise Towne Square Mall property. Micron Technology, Inc. apparently operates a business located at 8455 Westpark Lane, Boise, Idaho. The Department, through the Attorney General's Office, requests that you supply the following information: 1. The nature of the business conducted by your company in the vicinity of the Boise Towne Square Mall; 2. If you no longer operate in the vicinity of the Boise Towne Square Mall, indicate the dates in which you so operated; 3. What chemicals, including solvents of any kind, were stored, used, disposed of or transported to or from the site of your business; 4. If solvents were used at the site in question, please explain how they were used, the company that supplied the solvents, the 74 Micron Technology, Inc. Page 2 October 28, 1991 quantity of solvents used, and during what time period they were used; 5. If solvents were stored on site, explain how and where they were stored, the quantity that was stored, and during what time period; 6. Indicate whether underground storage tanks of any sort were in place in connection with the site in question and whether the underground storage tanks were used. If the underground storage tanks were removed, please explain when and why they were removed; 7. Were there any spills, leaks or other releases of chemicals, including solvents, at the site, and if so, indicate the amount released, the nature of the release, what response was made to the release, when they were released and what chemicals were released; 8. Describe the ownership history, past and present, of the property at which the business was conducted; 9. Provide any written documents of any kind regarding the chemicals used, stored, transported or dosposed of and any spills, leaks or releases of chemicals at the site in question; 10. Provide the names of any employees or managers who may have information regarding the business conducted at the site. 11. Provide the names and addresses of any other companies that, to your knowledge, used, stored or disposed of solvents in the vicinity of the Boise Towne Square Mall. In addition, indicate whether you are aware of any spills, leaks or disposal of chemicals in the vicinity of the Boise Towne Square Mall by unknown parties, and if so, indicate when the release or disposal occurred, and what chemicals were released or disposed of. 75 Micron Technology, Inc. Page 3 October 28, 1991 Please provide this information by November 15, 1991. In the meantime, if you have any questions or comments, please call me, (208) 334-0494, or Sally Goodell, (208) 334-5860, at the Department. Yours very truly, /s/ Douglas M. Conde Douglas M. Conde Deputy Attorney General DMC/lvh cc: Sally Goodell Paul Jehn 76 Schedule 2.7 1. The Company has incurred liabilities and obligations in connection with its licensing of software from Baan USA, Inc., Oracle Corporation, and Industrial Computer Corporation. 2. In November, 1997, the Company promoted Christopher J. Anton to Chief Financial Officer of the Company. Employment and Non-Compete Agreement, dated October 27, 1997, with Christopher J. Anton. 3. On November 18, 1997, the Company consummated the acquisition of assets relating to Alcatel Bell's Colfontaine, Belgium operation for US$4.5 million and executed and delivered various documents in connection therewith. 4. Since August 28, 1997, the Company and the Transferred Subsidiaries have engaged in a number of transactions and arrangements with each other including, without limitation, in connection with the formation of M.C.M.S. Belgium S.A. and M.C.M.S. Netherlands B.V., the sharing of certain intellectual property, and the investment of monies and incurrence of debt. 5. See Schedules 2.4, 2.6, 2.8 and 4.4. 77 Schedule 2.8 See Schedule 2.9 See attached 78 - -------------------------------------------------------------------------------- CHARGE OF DISCRIMINATION AGENCY CHARGE NUMBER This Form is affected by the Privacy Act of |x| FGPA 1974; See Privacy Act Statement before |_| EEOC completing this form. 141980127 - -------------------------------------------------------------------------------- _____________________________________________________ and EEOC State or local Agency, if any - -------------------------------------------------------------------------------- NAME (Indicate Mr., Ms., Mrs.) HOME TELEPHONE (Include Area Code) Mr. Rajesh H. Lavani (919) 544-9610 - -------------------------------------------------------------------------------- STREET ADDRESS CITY, STATE, ZIP CODE DATE OF BIRTH 1707-D East Cornwallis Road, Durnham, N.C. 27713 06/08 68 - -------------------------------------------------------------------------------- NAMED IS THE EMPLOYER, LABOR ORGANIZATION, EMPLOYMENT AGENCY APPRENTICESHIP COMMITTEE, STATE OR LOCAL GOVERNMENT AGENCY WHO DISCRIMINATED AGAINST ME (If more than one list below.) - -------------------------------------------------------------------------------- NAME NUMBER OF EMPLOYEES, MEMBERS TELEPHONE (Include Area Code) X Micron CMS 300+ (919) 405-1200 (HR) - -------------------------------------------------------------------------------- STREET ADDRESS CITY, STATE AND ZIP CODE COUNTY 2500 S. Triangle Center, Durnham, N.C. 27713 Durnham - -------------------------------------------------------------------------------- NAME TELEPHONE (Include Area Code) - -------------------------------------------------------------------------------- STREET ADDRESS CITY, STATE AND ZIP CODE COUNTY - -------------------------------------------------------------------------------- CAUSE OF DISCRIMINATION BASED ON DATE DISCRIMINATION TOOK PLACE (Check appropriate box(es) EARLIEST LATEST |_| RACE |_| COLOR |_|SEX |_|RELIGION 9/10/96 Present / / |X| NATIONAL ORIGIN |_| RETALIATION |_| AGE |xx| CONTINUING ACTION |_| DISABILITY |_| OTHER (Specify) - -------------------------------------------------------------------------------- THE PARTICULARS ARE (If additional space is needed, attach with sheet(s)), SEE ATTACHED HERETO. [SEAL OMITTED] - -------------------------------------------------------------------------------- |_| I want this charge filed with NOTARY (then necessary for [ILLEGIBLE]) both the EEOC and the State or local Agency, if any. I will advise the agencies if I change my address /s/ Janet C. Fuquay or telephone number and cooperate --------------------------------------- fully with them in the processing I swear or affirm that I have read the of my charge in accordance with above charge and that it is true to their procedures. the best of my knowledge, information and belief. - -------------------------------------------------------------------------------- I declare under penalty of perjury SIGNATURE OF COMPLAINANT that the foregoing is true and correct. SUBSCRIBED AND SWORN TO BEFORE ME /s/ Rajesh H. Lavani THIS DATE. (Day, month, year) Date 11/11/97 Charging Party (Signature) Nov. 11, 1997 - -------------------------------------------------------------------------------- EEOC FORMS (Rev. 06182) My Comm. Exp: FEPA COPY [ILLEGIBLE] 79 - -------------------------------------------------------------------------------- EQUAL EMPLOYMENT OPPORTUNITY COMMISSION PERSON FILING CHARGE Lavani, Rajesh H ------------------------------------ THIS PERSON (check one) Ms. Jennifer Mann Director of Human Resources |x| CLAIMS TO BE AGGREIVED Micron CMS |_| IS FILING ON BEHALF OF ANOTHER 2500 S. Triangle Center ------------------------------------ Durham, NC 27713 DATE OF ALLEGED VIOLATION Earliest Most Recent 09/10/96 11/11/97 ------------------------------------ PLACE OF ALLEGED VIOLATION Durham, N.C. ------------------------------------ CHARGE NUMBER 141980127 - -------------------------------------------------------------------------------- NOTICE OF CHARGE OF DISCRIMINATION (See EEOC "Rules and Regulations" before completing this part) You are hereby notified that a charge of employment discrimination has been filed against your organization under: |X| TITLE VII OF THE CIVIL RIGHTS ACT OF 1964 |_| THE AGE DISCRIMINATION IN EMPLOYMENT ACT 1987 |_| THE AMERICANS WITH DISABILITIES ACT |_| THE EQUAL PAY ACT (29 U.S.C. SECT. 206(d)) investigation will be conducted concurrently with our investigation of this charge. The boxes checked below apply to your organization: 1.|_| No action is required on your part at this time. 2.|X| Please submit by 12/18/97 a statement of your position with respect to the allegation(s) contained in this charge, with copies of any supporting documentation. This material will be made a part of the file and will be considered at the time that we investigate this charge. Your prompt response to this request will make it easier to conduct and conclude our investigation of this charge. 3.|X| Please respond fully by 12/08/97 to the attached request for information which pertains to the allegations contained in this charge. Such information will be made a part of the file and will be considered by the Commission during the course of its investigation of the charge. For further inquiry on this matter, please use the charge number shown above. Your position statement, your response to our request for information, or any inquiry you may have should be directed to: Raleigh Area Office 1309 Annapolis Drive Raleigh, NC 27608-2129 Alvan L. Robinson, Senior Investigator -------------------------------------- (Commission Representative) (919) 856-4076 -------------------------------------- (Telephone Number) |X| Enclosure: Copy of charge - -------------------------------------------------------------------------------- BASIS OF DISCRIMINATION |X| RACE |_| COLOR |_| SEX |_| RELIGION |X| NAT. ORIGIN |_|AGE |_| DISABILITY |_| RETALIATION |_| OTHER - -------------------------------------------------------------------------------- CIRCUMSTANCES OF ALLEGED VIOLATION See enclosed Form 5, Charge of Discrimination. - -------------------------------------------------------------------------------- Date TYPED NAME/TITLE OF AUTHORIZED EEOC OFFICIAL SIGNATURE 11/24/97 Richard E. Walz /s/ Richard E. Walz - -------------------------------------------------------------------------------- EEOC Form 151 (Rev. 06/82) RESPONDENTS'S COPY 80 - -------------------------------------------------------------------------------- Equal Employment Opportunity Commission REQUEST FOR INFORMATION - -------------------------------------------------------------------------------- Chg. Party: Lavani, Rajesh H Respondent: Micron CMS Charge No.: 141980127 1. Give the correct name and address of the facility named in the charge. 2. State the total number of persons who were employed by your organization during the relevant period. Include both full and part-time employees. How many employees are employed by your organization at the present time? 3. Supply an organizational chart, statement, or documents which describe your structure, indicating, if any, the relationship between it and superior and subordinate establishments within the organization. 4. Supply a statement or documents which identify the principal product or service of the named facility. 5. State the legal statue of your organization, i.e, corporation, partnership, tax-exempt non-profit, etc. If incorporated, identify the state of incorporation. 6. State whether your organization has a contract with any agency of the federal government or is a subcontractor on a project which receives federal funding. Is your organization covered by the provisions of Executive Order 11246? If your answer is yes, has your organization been the subject of a compliance review by the OFCCP at any time during the past two years? 7. Submit a written position statement on each of the allegations of the charge, accompanied by documentary evidence and/or written statements, where appropriate. Also include any additional information and explanation you deem relevant to the charge. 8. Submit copies of all written rules, policies and procedures relating to the issue(s) raised in the charge. If such does not exist in written form, explain the rules, policies and procedures. 81 ATTACHMENT TO CHARGE OF DISCRIMINATION OF RAJESH H. LAVANI I began working for Micron, CMS on September 10, 1996. Micron CMS is an electronic assembly plant. I am a test technician. Since I began employment, they have discriminated against me based on my national origin, Indian. My supervisor has discriminated against me in the following ways: 1. I was denied training provided to other employees. In my annual review, they told me that I was doing good work. However, I needed additional training. Target dates were set for the training. When they held the training courses, other employees were allowed to attend and I was not notified of the training programs. 2. My job performance was rated as "exceeds expectations". However, Caucasian employees who hold the same position and have been in that position for a shorter time received higher bonuses than I. 3. The company exceeded performance goals and treated the employees in my department to dinner. They did not include me. I questioned my supervisor, Mr. Chris Landi. I wanted to know if my exclusion was a "major oversight". He told me that it was not an oversight. 82 INFORMATION SHEET ON CHARGES OF DISCRIMINATION EEOC RULES AND REGULATIONS Section 1601.15 of EEOC's Procedural Regulations provides that persons charged with employment discrimination, such as yourself, may submit a statement of position or evidence with respect to the allegations contained in this charge. EEOC's Recordkeeping and Reporting Requirements are set forth at Title 29, Code of Federal Regulations (CFR), Part 1602 (see particularly Section 1602.14 below) for Title VII and the ADA; 29 CFR Part 1620 for the EPA; and 29 CFR Part 1627, for the ADEA. These regulations generally require respondents to preserve payroll and personnel records relevant to a charge of discrimination until disposition of the charge or litigation relating to the charge (for ADEA charges, this notice constitutes the written request set out in Part 1627 for respondents to preserve records relevant to the charge -- the records to be retained are as described in Section 1602.14, as cited below; and should be kept for the periods described in that section). Parts 1602, 1620 and 1627 also prescribe record retention periods -- generally, three years for basic payroll records and one year for personnel records. Questions regarding retention periods and the types of records to be retained should be resolved by reference to the regulations. Section 1602.14 Preservation of records made or kept. ...Where a charge of discrimination has been filed, or an action brought by the Commission or the Attorney General, against an employer under Title VII or the ADA, the employer shall preserve all personnel records relevant to the charge or the action. The term "personnel records relevant to the charge," for example, would include personnel or employment records relating to the aggrieved person and to all other aggrieved employees holding positions similar to that held or sought by the aggrieved person and application forms or test papers completed by an unsuccessful applicant and by all other candidates for the same position as that for which the aggrieved person applied and was rejected. The date of "final disposition of the charge or the action" means the date of expiration of the statutory period within which the aggrieved person may bring an action in a U.S. District Court or, where an action is brought against an employer either by the aggrieved person, the Commission, or by the Attorney General, the date on which such litigation is terminated. NOTICE OF NON-RETALIATION REQUIREMENTS Section 704(a) of Title VII, Section 4(d) of the ADEA, and Section 503(a) of the ADA provide that it shall be an unlawful employment practice for an employer to discriminate against any of his/her employees or applicants for employment, for an employment agency to discriminate against any individual, or for a labor organization to discriminate against any member thereof or applicant for membership, because s/he has opposed any act or practice made unlawful by these statutes; or because s/he has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under these statutes. The Equal Pay Act of 1963 contains similar provisions. Additionally, Section 503(b) of the ADA prohibits coercion, intimidation, threats, or interference with any person because s/he has exercised or enjoyed, or aided or encouraged others in their exercise or enjoyment, of rights under the Act. Persons filing charges of discrimination are advised of these Non-Retaliation Requirements and are instructed to notify EEOC if any attempt at retaliation is made. Note that the Civil Rights Act of 1991 provides substantial additional monetary provisions to remedy instances of retaliation or other discrimination, including, for example, to remedy the emotional harm caused by on-the-job harassment. NOTICE REGARDING REPRESENTATION BY ATTORNEYS Although it is not necessary that you be represented by an attorney while we handle this charge, you have a right, and may wish to retain an attorney to represent you. If you are represented by an attorney we request that you provide the Commission with your attorney's name, address, and telephone number, and that you ask your attorney to write to the Commission confirming such representation. (reverse side of EEOC Form 131/131 A) 83 Schedule 2.9 1. Except as set forth in Section 4.15 of the Recapitalization Agreement, no rights are granted in the name "Micron" or the stylized "M" of the Company's logo. 2. The Company's patents and patent applications are nonexclusively licensed to various companies pursuant to cross-license agreements between MTI and/or MEI and such companies. 3. MEI cannot represent and warrant that the Company owns or has a license to or as of the Closing will own or have a license to use third party software that is not proprietary to either MEI or MTI, including any software licenses listed in Schedule 2.18 and the following: a) Oracle b) Payroll Data Systems c) Ross Systems d) Sun e) Digital f) Microsoft g) Corbis h) PBX i) Cincom 4. Hakan Lans has asserted Patent # 4,303,986 against Sequent Computer Systems, Inc. ("Sequent"), a customer of the Company, with respect to which Sequent sought indemnification from the Company. The Company agreed to indemnify and hold harmless Sequent from any loss arising out of any such alleged infringement. 5. Patent numbers 4,884,674 and 4,306,292 (the Head patents) were asserted by Texas Instruments against Seller in 1996 as applied to the Fuji pick and place equipment used by the Company. Seller and TI entered into a patent cross license agreement in August 1996. However, the license agreement is specific to the manufacture and sale of personal computers and peripheral products. 6. See Exhibits A, B, and C to the "Patent and Invention Disclosure Assignment and License Agreement" regarding information called for in Section 2.9(b). 7. Any rights associated with the circuit design used in association with the MCMS logo are granted to the Company. 84 Schedule 2.10(a) M.C.M.S. Sdn. Bhd. hs applied for, but has not yet received, a Malaysian environmental permit. See Schedule 2.6 85 Schedule 2.10(c) 1. The Merrill Lynch Term WCMA Loan Agreement, dated April 15, 1997, requires the prior written consent of Merrill Lynch before Micron Custom Manufacturing Services, Inc. ("Company") is a party to any merger and before, among other things, there is a material change in the controlling ownership of Company. 2. The Revolving Credit Facility, dated as of March 17, 1997, between Company and Micron Electronics, Inc. ("Seller"), requires Company to obtain Seller's written consent prior to selling Company common stock the result of which would be Seller owning less than 51% of the common stock of Company. 3. Lease regarding 2500 South Tri-Center Boulevard, Durham, NC 27713. 86 Schedule 2.11 1. In November, 1997, in connection with the establishment of the Company's Belgium operation, M.C.M.S. Belgium S.A. entered into two union agreements. 2. See Schedule 2.8 87 Schedule 2.12 See Schedules 2.6, 2.8, 2.9, 2.10(a) and 2.11 M.C.M.S. Belgium S.A. does not have all necessary Licenses. 88 Schedule 2.13(a) 1. Plans. Micron Electronics, Inc. Retirement at Micron Plan (401(k) plan) Micron Electronics, Inc. 1995 Employee Stock Purchase Plan Zeos International, Ltd. 1991 Stock Incentive Plan Micron Technology, Inc. Nonstatutory Stock Option Plan Micron Electronics, Inc. 1995 Stock Option Plan Restricted Stock Purchase Agreements Micron Electronics, Inc. Profit Distribution Plan Micron Electronics, Inc. Pay for Performance Plan Micron Electronics, Inc. Executive Bonus Plan Micron Electronics, Inc. Dependent Care Flexible Spending Account Plan Micron Electronics, Inc. Health Care Flexible Spending Account Plan Micron Electronics, Inc. Flexible Benefits Plan Micron Technology, Inc. Medical Plan Micron Technology, Inc. Dental Plan Micron Technology, Inc. Vision Plan Micron Technology, Inc. Long Term Disability Plan Micron Technology, Inc. Short Term Disability Plan Micron Technology, Inc. Basic Group Life and Accidental Death and Dismemberment Insurance Plan Micron Technology, Inc. Supplemental Life and Accidental Death and Dismemberment Insurance Plan Micron Technology, Inc. Dependent Life Insurance Plan Micron Technology, Inc. Health Services Personal Medical Care Plan Time Off Plan Education Assistance PC Purchase Severance Agreement between Seller and Robert Subia Severance Agreement between Seller and Jess Asla See "Company Plans" below See also agreements listed on Schedule 2.18 under heading "Personnel" 2. "Company Plans": a. Micron CMS Publication Program 89 b. M.C.M.S. Sdn. Bhd. Profit Sharing and Year End Bonus Plan - Malaysia c. M.C.M.S. Sdn. Bhd. Personal Accident Plan d. M.C.M.S. Sdn. Bhd. Group Life Plan e. M.C.M.S. Sdn. Bhd. Hospitalization Plan f. Benefit and Process for Belgium g. Workers Compensation and Supplemental Life and Medical Insurance for Belgium 90 Schedule 2.13(c) MEI's 401(k) plan provides that part-time employees are not eligible for employer contributions. In an IRS audit of the 401(k) plan of Micron Technology, Inc., which contains a similar provision, the IRS has questioned whether this exclusion is permissible. If the IRS should determine that it is not, MEI will amend MEI's 401(k) plan as appropriate and take all appropriate actions to make the affected participants (including those who are employed by the Company) whole 91 Schedule 2.14 1. The Company owes MEI for federal and state income tax liabilities relating to taxable income generated during the fiscal year 1998 prior to closing. The liability for these taxes will be accrued by the Company prior to closing. In addition, the Company owes income tax in the country of Malaysia for income earned prior to closing. The liability has been accrued by the Company. 2. Audits pending. 3. Waiver of any statute of limitations or granting of any extension of time in which any material tax may be assessed: a. The Company has executed an "Extension of Limitation on Assessment and Collection of sales, Use, Withholding and/or Miscellaneous Taxes" in favor of the Idaho State Tax Commission for the audit period of September 1, 1993 through August 31, 1996. 4. The Company is currently the beneficiary of the following extension for filing income tax returns: a. 1997 Federal Income tax returns: b. 1997 State Income tax returns: Idaho; California; Utah; Oregon; New Hampshire; Minnesota; North Carolina Federal Income Tax The Company is being audited as part of the Micron Technology, Inc. consolidated income tax returns for the years ending Aug-93 and Aug-94. Sales and Use Tax The Company is being audited by the Idaho State Tax Commission for periods beginning 9-1-94 and ending 8-31-96. In addition, the Company is being audited by the California State Board of Equalization for periods beginning 10-93 and ending 12-96. 92 Schedule 2.16 1. Ten largest Customers and Suppliers. Ten Largest Customers as of 11/27/97 - ------------------------------------ Cisco Systems Fore Systems Tandem Apple Computers Boston Technology Tektronix Electronics for Imaging Micron Technology Sequent Computer Systems Schlaumberger Ten Largest Suppliers as of 11/27/97 - ------------------------------------ Micron Semiconductor Products, Inc. Cisco Systems Samsung Semiconductor Intel Corporation Fore Systems Arrow Electronics Sterling Electronics Hamilton Hallmark Toppan West, Inc. Apple Computers 93 Schedule 2.17 1. Real Property.
Real Property Owned or Leased? - ------------- ---------------- 16399 Franklin Road Owned Nampa, Idaho 83687 Avenue Dr. A. Schweitzer Owned B-7340 Colfontaine Belgium 2500 South Tri-Center Leased Boulevard Durham, NC 27713 Plots 12 and 13 Leased Free Trade Zone Phase 4 Bayan Lepas Penang, Malaysia Spieker Properties, L.P. Leased (lease of warehouse space) 60 North Cole Road Boise, Idaho 4051 Burton Drive Leased (premises is owned by Micron Santa Clara, CA 85054 Technology, Inc. and the Company has an employee on the premises) 501G-16-2 Emerald Tower Leased (lease of residential property) Diamond Villa Jalan Tanjung Bunga 11200 Penang, Malaysia
2. Seller currently occupies a portion of the premises located at 16399 Franklin Road, Nampa, Idaho 83687 pursuant to the Office Lease, dated as of November 1, 1996, between Seller and Company. 3. See the matters set forth in the attached Exhibit 2.17A. 94 Exhibit 2.17A Property: --------- 16399 Franklin Road Nampa, Idaho COMMITMENT FOR TITLE INSURANCE SCHEDULE B - SECTION 2 ORDER NUMBER: 97014481 Schedule B of the policy or policies to be issued will contain exceptions to the following matters unless the same are disposed of to the satisfaction of the Company. A. Defects, liens, encumbrances, adverse claims or other matters, if any, created, first appearing in the public records, or attaching subsequent to the effective date hereof but prior to the date the proposed Insured acquires of record for value the estate or interest or mortgage thereon covered by this Commitment. B. Exceptions: 1. Rights or claims of parties in possession not shown by the public records. 2. Encroachments, overlaps, boundary line disputes, and any other matters which would be disclosed by an accurate survey or inspection of the premises including, but not limited to, insufficient or impaired access or matters contradictory to any survey plat shown by the public records. 3. Easements, or claims of easements, not shown by the public records. 4. Any lien, or right to a lien, for services, labor, or material heretofore or hereafter furnished, imposed by law and not shown by the public records. 5. (a) Unpatented mining claims; (b) reservations or exceptions in patents or in Acts authorizing the issuance thereof; (c) water rights, claims or title to water, whether or not the matters excepted under (a), (b), or (c) are shown by the public records. 6. Taxes or special assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records. Proceedings by a public agency which may result in taxes or assessments, or notices of such proceedings, whether or not shown by the records of such agency or by the public records. 7. General Taxes for the year 1997, a Lien but not yet due and payable. 8. General Taxes for the year 1996, a Lien, the first half is paid and the second half is now due and payable. -1- 95 Order No.: AT- 97014481 Parcel No.: R 31016 In the original amount of $255.56. (AS TO PARCEL I) 9. General Taxes for the year 1996, a Lien, are now due and payable. Parcel No.: L 31016 In the original amount of (to be determined). (AS TO PARCEL I) 10. General Taxes for the year 1996, a Lien, the first half is paid and the second half is now due and payable. Parcel No.: R 31017 In the original amount of $740.00. (AS TO PARCEL II) 11. The Land described herein is located within the boundaries of the CITY of NAMPA and is subject to any Assessments levied thereby. 12. The Land described herein is located within the boundaries of the NAMPA MUNICIPAL Irrigation District (465-2207) and is subject to any Assessments levied thereby. 13. Ditch, Road and Public Utility Easements as the same may exist over said premises. 14. Right-of-way for Mason Creek Drain and the Rights of Access thereto for Maintenance of said Drain. 15. Right of Way for Franklin Road and Birch Lane. 16. Easement, and the Terms and Conditions thereof: In Favor of City of Nampa Purpose sewer easement Recorded November 9, 1994 Instrument No. 9433864 17. Covenants, Condition and Restrictions and the Obligations thereof as set forth in an Ordinance and Development Agreement between City of Nampa and Micron Custom Manufacturing Services, Inc., recorded April 8, 1996 as Instrument No. 9612928, Official Records. 18. A Deed of Trust, and the terms and conditions thereof: Stated Amount $20,000.00 Grantor Winfield S. Kircher, Jr. and Virginia J. -2- Commitment Schedule B - Section 2 - Continued 96 Order No.: AT- 97014481 Kircher Trustee Pioneer Title Company of Canyon County Beneficiary Idaho First National Bank Dated December 16, 1987 Recorded December 24, 1987 Instrument No. 8726545 (AS TO PARCEL II) 19. Matters which may be disclosed by an inspection or by a survey of said land that is satisfactory to this Company, or by inquiry of the parties in possession thereof. END OF SCHEDULE B-SECTION 2 -3- 97 EXCEPTIONS FROM COVERAGE File No: PN 38553 SCHEDULE B This policy does not insure against loss or damage (and the Company will not pay costs, attorney's fees or expenses) which arise by reason of: GENERAL EXCEPTIONS 1. Rights or claims of parties in possession not shown by the public records. 2. Encroachments, overlaps, boundary line disputes, and any other matters which would be disclosed by an accurate survey and inspection of the premises including, but not limited to, insufficient or impaired access and matters contradictory to any survey plat shown by the public records. 3. Easements, or claims of easements, not shown by the public records. 4. Any lien, or right to a lien, for services, labor, or material heretofore or hereafter furnished, imposed by law and not shown by the public records. 5. (a) Unpatented mining claims; (b) reservations or exceptions in patents or in Acts authorizing the issuance thereof; (c) water rights, claims or title to water, whether or not the matters excepted under (a), (b), or (c) are shown by the public records. 6. Taxes or special assessments which are not shown as existing liens by the records of any taxing authority that levies taxes or assessments on real property or by the public records. Proceedings by a public agency which may result in taxes or assessments, or notices of such proceedings, whether or not shown by the records of such agency or by the public records. SPECIAL EXCEPTIONS: 1. General taxes for the year 1996, which are a lien, payable on or before December 20 of said year and not delinquent until after said date. 2. General taxes which may be assessed and extended on any subsequent roll for the tax year 1996 with respect to new improvements and the first occupancy thereof during 1996, which may not be included on the regular assessment roll and which are a lien not yet due or payable. 3. Liens and assessments of Pioneer Irrigation District, and the rights and powers of said district as by law provided. Paid Current. 4. Right of Way for Franklin Road along the East 33 feet. "NOTHING FURTHER" 98 STANDARD EXCEPTIONS FOR OWNER'S POLICY The owner's policy will be subject to the mortgage, if any, noted under item one of Section 1 of Schedule B hereof and to the following exceptions: (1) rights or claims of parties in possession not shown by the public records; (2) encroachments, overlaps, boundary line disputes, and any matters which would be disclosed by an accurate survey and inspection of the premises; (3) easements, or claims of easements, not shown by the public records; (4) any lien, or right to a lien, for services, labor, or material heretofore or hereafter furnished, imposed by law and not shown by the public records; (5) taxes or special assessments which are not shown as existing liens by the public records. CONDITIONS AND STIPULATIONS 1. The term "mortgage," when used herein, shall include deed of trust, trust deed, or other security instrument. 2. If the proposed Insured has or acquires actual knowledge of any defect, lien, encumbrance, adverse claim or other matter affecting the estate or interest or mortgage thereon covered by this Commitment other than those shown in Schedule B hereof, and shall fail to disclose such knowledge to the Company in writing, the Company shall be relieved from liability for any loss or damage resulting from any act of reliance hereon to the extent the Company is prejudiced by failure to so disclose such knowledge. If the proposed Insured shall disclose such knowledge to the Company, or if the Company otherwise acquires actual knowledge of any such defect, lien, encumbrance, adverse claim or other matter, the Company at its option may amend Schedule B of this Commitment accordingly, but such amendment shall not relieve the Company from liability previously incurred pursuant to paragraph 3 of these Conditions and Stipulations. 3. Liability of the Company under this Commitment shall be only to the named proposed Insured and such parties included under the definition of Insured in the form of policy or policies committed for and only for actual loss incurred in reliance hereon in undertaking in good faith (a) to comply with the requirements hereof, or (b) to eliminate exceptions shown in Schedule B, or (c) to acquire or create the estate or interest or mortgage thereon covered by this Commitment. In no event shall such liability exceed the amount stated in Schedule A for the policy or policies committed for and such liability is subject to the insuring provisions, the Exclusions from Coverage and the Conditions and Stipulations of the form of policy or policies committed for in favor of the proposed Insured which are hereby incorporated by reference and are made a part of this Commitment except as expressly modified herein. 4. Any action or actions or rights of action that the proposed Insured may have or may bring against the Company arising out of the status of the title to the estate or interest or the status of the mortgage thereon covered by this Commitment must be based on and are subject to the provisions of this Commitment. 99 - -------------------------------------------------------------------------------- WARRANTY DEED (CORPORATE FORM) AIR STORAGE INC., a corporation organized and existing under the laws of the State of Idaho, with its principal office at BOISE of County of ADA grantor, hereby CONVEYS or GRANTS and WARRANTS TO MICRON CUSTOM MANUFACTURING SERVICES, INC., an Idaho corporation grantee of 8455 Westpark; Boise, ID 83704 for the sum of TEN AND OTHER GOOD AND VALUABLE CONSIDERATION DOLLARS, the following described tract(s) of land in CANYON County, State of Idaho: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF BY THIS REFERENCE. Location of above described property The officers who sign this deed hereby certify that this deed and the transfer represented thereby was duly authorized under a resolution duly adopted by the board of directors of the grantor at a lawful meeting duly held and attended by a quorum. In witness whereof, the grantor has caused its corporate name and seal to be hereunto affixed by its duly authorized officers this April 10, 1996. AIR STORAGE INC. BY /s/ Allen T. Noble ----------------------------------- ITS PRESIDENT STATE OF IDAHO COUNTY OF CANYON On this 11th day of April, 1996, before me, a notary public appeared ALLEN T. NOBLE who being by me duly sworn did say, each for him/herself, that he/she, the said ALLEN T. NOBLE is the president of AIR STORAGE INC., a corporation, and that the within and foregoing instrument was signed on behalf of said corporation by authority of a resolution of its board of directors and said ALLEN T. NOBLE did duly acknowledge to me that said corporation executed the same and that the seal affixed is the seal of said corporation. /s/ [ILLEGIBLE] - ----------------------------------------------- Notary Public Residing at Boise, Idaho My commission expires: 11/14/97 [SEAL] PIONEER TITLE COMPANY OF CANYON COUNTY 100 10th AVE SOUTH 423 SOUTH KIMBALL NAMPA, IDAHO 83851 CALDWELL, ID 83605 - -------------------------------------------------------------------------------- 100 EXHIBIT "A" A parcel of land being a portion of the Northeast Quarter of the Southeast Quarter of Section 10, Township 3 North, Range 2 West of the Boise Meridian, Canyon County, Idaho, and more particularly described as follows: Beginning at a Brass Cap marking the Southeast corner of the Southeast Quarter of Section 10, Township 3 North, Range 2 West of the Boise Meridian, Canyon County, Idaho; thence along the Easterly boundary of the said Southeast Quarter of Section 10, which is also the centerline of Franklin Road, North 00(degrees) 09' 45" West [ILLEGIBLE] feet to a P.K. Nail and Washer, said P.K. Nail and Washer also being the REAL POINT OF BEGINNING; thence continuing along said Easterly boundary and centerline North 00(degrees) 09' 45" West 684.62 feet to a P.K. Nail and Washer; leaving said Easterly boundary and centerline, South 89(degrees) 59' 48" West 331.50 feet to an iron pin; thence North 00(degrees) 09' 45" West 193.00 feet to an iron pin; thence North 89(degrees) 59' 48" East 331.50 feet to a P.K. Nail and Washer on the said Easterly boundary of the Southeast Quarter of Section 10, said Easterly boundary also being the centerline of Franklin Road; thence along said Easterly boundary and centerline North 00(degrees) 09' 45" West 137.00 feet to a 3/4" iron pipe marking the Northeast corner of the said Southeast Quarter of Section 10; thence leaving said Easterly boundary and centerline and along the Northerly boundary of said Southeast Quarter, South 89(degrees) 59' 48" West 1324.00 feet to an iron pin marking the Northwest Quarter of the said Northeast Quarter of the Southeast Quarter of Section 10; thence leaving said Northerly boundary and along the Westerly boundary of the said Northeast Quarter of the Southeast Quarter of Section 10; South 00(degrees) 08' 50" East 994.03 feet to and iron pin; thence leaving said Westerly boundary South 89(degrees) 58' 41" East 1324.27 feet to the POINT OF BEGINNING. COMMITMENT Schedule A - Ticor Title 101 - -------------------------------------------------------------------------------- WARRANTY DEED FOR VALUE RECEIVED JERRY M. HESS AND JOAN E. HESS, husband and wife the Grantors, do hereby grant, bargain, sell and convey unto MICRON CUSTOM MANUFACTURING SERVICES, INC. the Grantee, whose address is 8455 Westpark; Boise, ID; 83704 the following described premises, to-wit: SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF BY THIS REFERENCE. TO HAVE AND TO HOLD the said premises, with their appurtenances unto the said Grantee, its heirs and assigns forever. And the said Grantors to hereby covenant to and with the said Grantee, that they are the owners in fee simple of said premises; that said premises are free from all encumbrances; except for general taxes and assessments for the year 1996 and subsequent years, covenants, conditions, restrictions and easements of record; and that they will warrant and defend the same from all lawful claims whatsoever. DATED: April 10, 1996 /s/ Jerry M. Hess /s/ Joan E. Hess - -------------------------------------------------------------------------------- JERRY M. HESS JOAN E. HESS - -------------------------------------------------------------------------------- STATE OF IDAHO COUNTY OF CANYON On this 10th day of April, 1996, before me a notary public, personally appeared JERRY M. HESS AND JOAN E. HESS, known or identified to me to be the person(s) who(se) name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they have executed the same. /s/ [ILLEGIBLE] - ----------------------------------------------- Notary Public Residing at NAMPA, Idaho My commission expires: 3-9-2000 [SEAL] PIONEER TITLE COMPANY OF CANYON COUNTY 100 10th AVE SOUTH 423 SOUTH KIMBALL NAMPA, IDAHO 83851 CALDWELL, ID 83605 - -------------------------------------------------------------------------------- 102 EXHIBIT "A" A parcel of land being a portion of the Northeast Quarter of the Southeast Quarter of Section 10, Township 3 North, Range 2 West of the Boise Meridian, Canyon County, Idaho, and more particularly described as follows: Beginning at a Brass Cap marking the Southeast corner of the Southeast Quarter of Section 10, Township 3 North, Range 2 West of the Boise Meridian, Canyon County, Idaho; thence along the Easterly boundary of the said Southeast Quarter of Section 10, which is also the centerline of Franklin Road, North 00(degrees) 09' 45" West [ILLEGIBLE] feet to a P.K. Nail and Washer, said P.K. Nail and Washer also being the REAL POINT OF BEGINNING; thence continuing along said Easterly boundary and centerline North 00(degrees) 09' 45" West 684.62 feet to a P.K. Nail and Washer; thence leaving said Easterly boundary and centerline, South 89(degrees) 59' 48" West 331.50 feet to an iron pin; thence North 00(degrees) 09' 45" West 193.00 feet to an iron pin; thence North 89(degrees) 59' 48" East 331.50 feet to a P.K. Nail and Washer on the said Easterly boundary of the Southeast Quarter of Section 10, said Easterly boundary also being the centerline of Franklin Road; thence along said Easterly boundary and centerline North 00(degrees) 09' 45" West 137.00 feet to a 3/4" iron pipe marking the Northeast corner of the said Southeast Quarter of Section 10; thence leaving said Easterly boundary and centerline and along the Northerly boundary of said Southeast Quarter, South 89(degrees) 59' 48" West 1324.00 feet to an iron pin marking the Northwest corner of the said Northeast Quarter of the Southeast Quarter of Section 10; thence leaving said Northerly boundary and along the Westerly boundary of the said Northeast Quarter of the Southeast Quarter of Section 10; South 00(degrees) 08' 50" East 994.03 feet to and iron pin; thence leaving said Westerly boundary South 89(degrees) 58' 41" East 1324.27 feet to the POINT OF BEGINNING. 103 Schedule 2.18
COMPANY OTHER PARTY AGREEMENT DATED MCMS FreeGate Corporation Promissory Note 8/15/97 MCMS Merrill Lynch Line of Credit 2/7/97 MCMS NTFC Capital Corp Capital Lease 5/22/96 MCMS Sterling Commerce Software License 5/30/97 MCMS PolyDyne Development Corporation Software License 11/8/96 MCMS Cincom Systems, Inc. Client Services 4/29/96 MCMS Cincom Systems, Inc. Software License 2/23/90 MCMS Baan U.S.A., Inc. Software License & Service 7/23/97 MCMS Oracle Corporation Software License & Service 4/21/94 MCMS Tri-Center South Limited Partnership Lease (N.C.) 12/1/94 MCMS Sequent Computer Systems, Inc. Equipment Loan 1/1/97 MCMS Applied Innovation, Inc. Manufacturing Services 11/26/97 MCMS Sdn Bhd Samsung Asia Pte Ltd. Module Manufacturing 11/27/97 MCMS FreeGate Corporation Manufacturing Services 7/18/97 MCMS Natural Micro-Systems Manufacturing Services 5/22/97 MCMS Sequent Computer Systems, Inc. Purchase 12/13/96 MCMS Boston Technology, Inc. Purchase and License 3/25/96 MCMS Apple Computer Limited Memory Hub 1/31/97 MCMS Anthem Electronic, Inc. Consignment 10/2/96 MCMS Arrow/Schweber Electronic/Capstone Consignment 10/2/96 MCMS Hamilton Hallmark Master In-Plant Store 1/1/97 MCMS Richey Electronics Binstock 4/9/97 MCMS Sager Electronics Consignment Inventory 9/12/97 MCMS All-West Components & Fasteners Consignment Inventory 3/19/97 MCMS Wyle Electronics Consignment 2/25/97 MCMS The Bureau Electronics Group Consignment 11/19/96 MCMS Milgray/Utah, Inc. Consignment 9/18/96 MCMS All American Semiconductor of Utah Consignment 3/11/97 MCMS Kent Electronics Corporation Consignment 6/17/97 MCMS Jaco Electronics, Inc. Automated Inventory 2/26/97 Replenishment MCMS Sterling Electronics Corporation Consignment 10/11/96 MCMS Belgium Alcatel Bell N.V. Transition 11/18/97 MCMS Belgium Alcatel Bell N.V. Frame Manufacturing 11/18/97 MCMS Belgium Alcatel Bell N.V. Asset Purchase and Sale 11/4/97 MCMS Spieker Properties, L.P. Lease MCMS Industrial Computer Corp. License 9/15/97 MCMS Preco Purchase/sale of real 3/21/96 property MCMS sdn Bhd Lease 1/28/97 Intercompany MCMS Micron Semiconductor, Inc. Services 9/4/93 MCMS Micron Electronics, Inc. Office Lease 11/1/96 MCMS Micron Europe Limited Services 6/4/93 MCMS Sdn Bhd MCMS International Revolving Credit Facility 10/30/96 MCMS Micron Electronics Inc. Revolving Credit Facility 3/17/97 MCMS Micron Semiconductor Asia Pacific Representative 9/1/95 MCMS Micron Electronics Inc/Boston Tech Development 3/25/96
104
Personnel MCMS Subia, Robert F. Indemnification 11/25/96 MCMS Asla, Jess Indemnification 11/25/96 MCMS McCarvel, John P. indemnification 10/22/96 MCMS Anton, Chris Indemnification 4/28/97 MCMS Banducci, Dena L. Indemnification 4/28/97 MCMS Daltoso, Joseph M. Indemnification 4/28/97 MCMS Oaas, T. Erik Indemnification 4/28/97 MCMS Davies, B. Drew Indemnification 4/28/97 MCMS Dery, Dan Indemnification 4/28/97 MCMS Subia, Robert F. Termination 5/22/95 MCMS Asla, Jess Termination 5/22/95 MCMS McCarvel, John P. Termination 10/22/96 MCMS Banducci, Dena L. Termination 5/22/95 MEI Subia, Robert F. Severance 1/30/96 MEI Asla, Jess Employment 2/22/96 MCMS Anton, Chris Employment and Non- 10/27/97 Compete
See Schedule 2.9 With respect to certain licenses and other agreements relating to Intellectual Property, there may be disputes among the parties thereto relating to compliance with the terms thereof and defaults thereunder. 105 Schedule 2.19 1. Reference is made to the contracts listed under the heading "Intercompany" and "Personnel" in Schedule 2.18. 2. Assets, property, or rights, tangible or intangible, owned by Affiliates and used in Company's business: a. Reference is made to Schedule 2.9. Certain Seller or MTI proprietary software or other intellectual property rights. b. Company leases space at 4051 Burton Drive, Santa Clara, CA 85054 from Micron Technology, Inc. c. Company has access to a booster pump located on Seller's property which would be used in the event of a fire on Company's premises. d. Company draws power from a power substation located on Seller's property with respect to which Seller has contracted with Idaho Power. e. Company is entitled to rights under various agreements to which either Micron Technology, Inc. or Seller is a party, the material agreements of which are the following: 1. Oracle (license agreement) 2. Microsoft (support agreement) 3. Ross Systems (license agreement) 4. Payroll Data Systems (license agreement) 5. Corbis (license agreement) 6. Digital Equipment (maintenance agreement) 7. Sun (maintenance agreement) 8. MCI/AT&T/US West (telecommunications agreements) 9. Federal Express/United Parcel Service (transportation agreements) f. Penang, Malaysia and Durham, North Carolina wide area network located at Seller. g. Insurance policies with respect to the insurance set forth in Schedule 2.20. h. Benefit Plans with respect to the benefits set forth in Schedule 2.13(a). i. MEI's internet and intranet servers. j. PBX network located at MEI. k. The VAX system located at MTI l. All assets, properties or rights, tangible or intangible, owned by Affiliates and used in the Company's business in connection with intercompany services. 106 Schedule 2.20 See attached. 107 1998 Corporate Insurance Summary
- ------------------------------------------------------------------------------------------------------------------------------------ Coverage Description Deductible Limit Allocated Premium - ------------------------------------------------------------------------------------------------------------------------------------ PROPERTY Property Damage and Business All Risk (excluding flood and STBD Interruption: $100,000 earthquake): $1,500,000,000 Service Interruption: 8 hours Earthquake: TBD Allocation Basis and $100,000. Flood: TBD ---------------- Actual Cost - ------------------------------------------------------------------------------------------------------------------------------------ FOREIGN PROPERTY/SMALL DOMESTIC LOCATIONS Property Damage and Business Foreign Property: $10,000,000 STBD Interruption: $1,000 Domestic Property: $3,000,000 Earthquake: $25,000 Allocation Basis Flood: $25,000 ---------------- Computer Breakdown: $10,000 Actual Cost - ------------------------------------------------------------------------------------------------------------------------------------ TRANSIT Capital Equipment: $10,000 Any one vessel, Aircraft, or Other: $5,000 Connecting Conveyances: STBD $20,000,000 Land Conveyance: $15,000 000 Allocation Basis Scheduled Location: $6,000,000 ---------------- Unnamed Location: $2,000,000 Underwriter Assigned - ------------------------------------------------------------------------------------------------------------------------------------ CRIME/EMPLOYEE DISHONESTY Each Loss: $200,000 Primary Crime: $35,000,000 Excess Crime: $15,000,000 STBD Allocation Basis ---------------- Underwriter Assigned - ------------------------------------------------------------------------------------------------------------------------------------ WORLDWIDE PACKAGE See Applicable Deductible See Applicable Limit Section Included in General Section Liability and Foreign Property premiums Allocation Basis ---------------- Underwriter Assigned - ------------------------------------------------------------------------------------------------------------------------------------
Policies are in effect 9/1/97 - 9/1/98 unless otherwise indicated. Policies and limits are shared with all Micron companies unless otherwise indicated. Revision Date: 11/04/97 Page 1 108 1998 Corporate Insurance Summary
- ------------------------------------------------------------------------------------------------------------------------------------ Coverage Description Deductible Limit Allocated Premium - ------------------------------------------------------------------------------------------------------------------------------------ GENERAL LIABILITY Each Event: $500,000 Each Occurrence: $1,000,000 STBD Aggregate: $1,500,000 (applies General Aggregate: $2,000,000 to General Liability, Product Aggregate: $2,000,000 Allocation Basis Technology E&O and Damage Pers. & Adv. Injury: $1,000,000 ---------------- To Your Electronic Products Medical Expense: $5,000 Underwriter Assigned Liability) Fire legal Liability: $1,000,000 - ------------------------------------------------------------------------------------------------------------------------------------ TECHNOLOGY ERRORS & OMISSIONS Each Event: $500,000 Aggregate: $2,000,000 Included in General Aggregate: $1,500,000 (applies Each Claim: $1,000,000 Liability premium above to General Liability, Technology E&O and Damage Allocation Basis To Your Electronic Products ---------------- Liability) Underwriter Assigned - ------------------------------------------------------------------------------------------------------------------------------------ DAMAGE TO YOUR ELECTRONIC PRODUCTS LIABILITY Each Event: $500,000 Aggregate: $2,000,000 Included in General Aggregate: $1,500,000 (applies Each Claim: $1,000,000 Liability premium above to General Liability, Technology E&O and Damage Allocation Basis To Your Electronic Products ---------------- Liability) Underwriter Assigned - ------------------------------------------------------------------------------------------------------------------------------------ AUTOMOBILE Physical Damage: Physical Damage(1) STBD Collision: $500 Collision: ACV Comprehensive: $250 Comprehensive: ACV Allocation Basis Rental Vehicles: $500 Rental Vehicles: ACV ---------------- Liability: None Liability: Actual Cost / Each Accident: $1,000,000 Vehicle Ownership combined single limit - ------------------------------------------------------------------------------------------------------------------------------------
- ---------- (1) Autos are insured on an Actual Cash Value (ACV) method or the "Blue Book" value. Policies are in effect 9/1/97 - 9/1/98 unless otherwise indicated. Policies and limits are shared with all Micron companies unless otherwise indicated. Revision Date: 11/04/97 Page 2 109 1998 Corporate Insurance Summary
- ------------------------------------------------------------------------------------------------------------------------------------ Coverage Description Deductible Limit Allocated Premium - ------------------------------------------------------------------------------------------------------------------------------------ FOREIGN AUTOMOBILE LIABILITY DIC Physical Damage: Not Covered Included in General None Liability: Liability premium above Each Accident: $1,000,000 combined single limit Allocation Basis ---------------- Actual Cost / Vehicle Ownership - ------------------------------------------------------------------------------------------------------------------------------------ UMBRELLA / EXCESS LIABILITY Applies excess of the underlying Each Occurrence: $75,000,000 policy. No additional retention Annual Aggregate: $75,000,000 STBD or deductible. Allocation Basis ---------------- Actual Cost - ------------------------------------------------------------------------------------------------------------------------------------ DIRECTORS AND OFFICERS LIABILITY Coverage A: none Coverage A: $45,000,000 STBD Coverage B: $500,000 Coverage B: $45,000,000 Coverage C: $5,000,000 Coverage C: $50,000,000 Allocation Basis ---------------- Actual Cost - ------------------------------------------------------------------------------------------------------------------------------------ WORKERS' COMPENSATION Workers' Compensation: None Statutory - State of Hire Based Payrolls Employers Liability: Allocation Basis Bodily Injury by Accident: ---------------- $100,000 Actual Cost Bodily Injury by Disease: $500,000 Each Employee Bodily Injury by Disease: $100,000 - ------------------------------------------------------------------------------------------------------------------------------------
Policies are in effect 9/1/97 - 9/1/98 unless otherwise indicated. Policies and limits are shared with all Micron companies unless otherwise indicated. Revision Date: 11/04/97 Page 3 110 1998 Corporate Insurance Summary
- ------------------------------------------------------------------------------------------------------------------------------------ Coverage Description Deductible Limit Allocated Premium - ------------------------------------------------------------------------------------------------------------------------------------ FOREIGN VOLUNTARY WORKERS' COMPENSATION Workers' Compensation: Included in General None Statutory - State of Hire Liability premium above Employers Liability: Bodily Injury by Accident: Allocation Basis $1,000,000 ---------------- Bodily Injury by Disease: Underwriter Assigned $1,000,000 Each Employee Bodily Injury by Disease: $1,000,000 Transportation Expenses per Employee: $25,000 - ------------------------------------------------------------------------------------------------------------------------------------ EMPLOYEE BENEFITS LIBILITY Each Claim: $1,000 Each Claim: $1,000,000 Included in General Annual Aggregate: $3,000,000 Liability premium above Allocation Basis ---------------- Underwriter Assigned - ------------------------------------------------------------------------------------------------------------------------------------ FIDUCIARY LIABILITY None Each Occurrence: $2,000,000 STBD Annual Aggregate: $2,000,000 Allocation Basis ---------------- 9/1/96 Net Sales - ------------------------------------------------------------------------------------------------------------------------------------ NONOWNED AVIATION LIABILITY None Each Occurrence: $5,000,000 STBD combined single limit (BI & PD) Allocation Basis ---------------- Actual - ------------------------------------------------------------------------------------------------------------------------------------ MEDICAL PROFESSIONAL LIABILITY None Individual: Each Person: $5,000,000 STBD Total Limit: $5,000,000 Facility: Allocation Basis Each Person: $10,000,000 ---------------- Total Limit: $10,000,000 Actual - ------------------------------------------------------------------------------------------------------------------------------------
Policies are in effect 9/1/97 - 9/1/98 unless otherwise indicated. Policies and limits are shared with all Micron companies unless otherwise indicated. Revision Date: 11/04/97 Page 4 111 1998 Corporate Insurance Summary
- ------------------------------------------------------------------------------------------------------------------------------------ Coverage Description Deductible Limit Allocated Premium - ------------------------------------------------------------------------------------------------------------------------------------ POLLUTION LEGAL LIABILITY $1,000,000 Coverage Parts E, F, H, I, J: STBD Each Incident: $20,000,000 Aggregate: $20,000,000 Allocation Basis ---------------- Coverage Part B: Actual Cost Each Incident: $5,000,000 Aggregate: $5,000,000 Total Policy: Aggregate: $20,000,000 - ------------------------------------------------------------------------------------------------------------------------------------ NOTARY BOND (Errors and Omissions) None Each Incident: $10,000 STBD Allocation Basis ---------------- Actual - ------------------------------------------------------------------------------------------------------------------------------------ BROKERAGE FEES N/A N/A STBD Allocation Basis ---------------- Pro Rata (Premiums) - ------------------------------------------------------------------------------------------------------------------------------------ FINANCE CHARGE N/A N/A STBD Allocation Basis ---------------- Pro Rata (Premiums) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL: STBD
Policies are in effect 9/1/97 - 9/1/98 unless otherwise indicated. Policies and limits are shared with all Micron companies unless otherwise indicated. Revision Date: 11/04/97 Page 5 112 Schedule 2.21 The Company currently believes, but in no way represents or warrants, that the following approximate material expenditures* which it currently plans to make or anticipates making with respect to hardware, software or communications systems will enable (i) the computer systems used by the Company and the Transferred Subsidiaries to recognize the advent of the year 2000 and correctly manipulate date information relating to dates on or after January 1, 2000 and (ii) the operation and functionality of such computer systems to not be adversely affected by the advent of the year 2000 or any manipulation of data featuring date information relating to dates on or after January 1, 2000:
Item Expenditure - ---- ----------- Personal computers and work stations approx. $200,000 Baan Software System Implementation $7,804,975 Telephone (PBX) $150,000 Wide Area Network $75,000 Internet Server $75,000 Payroll Data Systems software replacement $1,000,000 Ross Systems software license $80,000
* The foregoing amounts, with the exception of Baan, reflect incremental material expenditures anticipated to be necessary in the event of a change of control of Company. 113 Schedule 2.22 1. The Company's standard warranty for its manufacturing services is one year. 2. Boston Technology and Sequent Computer Systems have two and three year warranties, respectively. 114 14. Payment Terms: Customer shall pay all Micron CMS invoices within thirty (30) days of the date thereof. Invoice date will be the date of shipment of product. Product shall not be shipped any earlier than 10 days prior to the requested date on the purchase order. Payment shall be made when Customer's check is mailed or electronic fund transfer (EFT) is initiated. 15. F.O.B. Point: All Product(s) shall be shipped to Customer F.O.B. Micron CMS' dock. 16. Warranty: Micron CMS warrants for a period of fifteen (15) months (except for disc drives which will be warranted for a period not to exceed the manufacturers warranty) from the date of the shipment of the Product(s) that (i) the Product(s) will conform to the Specifications in Exhibit B applicable to such Product(s) at the time of its manufacture, which are furnished in writing by Customer; and (ii) such Product(s) will be of good material and workmanship. In the event that any Product(s) manufactured is not in conformity with the foregoing warranties, Micron CMS shall, at Micron CMS's option, either (i) credit Customer against an existing invoice or provide a cash refund for any such non-conformity the purchase price paid by Customer for such Product(s), or (ii) at Micron CMS's expense, replace, repair or correct such non-conforming Product(s): provided that, if such Product(s) is not repaired, replaced or corrected within twenty (20) days after Micron CMS is notified of any nonconformity, Micron CMS shall credit Customer the purchase price paid by Customer for such non-conforming Product(s). THE FOREGOING CONSTITUTES CUSTOMER'S SOLE REMEDIES AGAINST MICRON CMS FOR BREACH OF WARRANTY CLAIMS. EXCEPT AS PROVIDED IN THIS AGREEMENT, MICRON CMS MAKES NO WARRANTIES WITH RESPECT TO THE PRODUCT(S), EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES RESPECTING NONINFRIGNEMENT, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING FROM A COURSE OF PERFORMANCE, A COURSE OF DEALING, OR TRADE USAGE. 17. Indemnification: a. Each party agrees to indemnify, defend and hold harmless the other party, including its directors, officers and employees, from and against any and all claims, losses, demands, costs or liabilities, including attorneys' fees, resulting from or in connection with such party's breach of this Agreement, negligence or misconduct. b. Customer represents and warrants that the manufacture, use, delivery and sale of any Product(s) manufactured by Micron CMS for Customer hereunder will not infringe any patent, trademark or other intellectual property rights of any third party. Customer agrees to defend at its expense, hold harmless and indemnify Micron CMS, including its officers, directors, and employees, from and against any judgments, liabilities, expenses, or costs (including attorneys' fees) arising from any claim or action brought against Micron CMS asserting that Micron CMS' manufacture, use or sale of any Product(s) or part thereof infringes, directly or indirectly, any intellectual property right, including, without limitation, patent, trademark, copyright, trade secret, or other proprietary right of any third party, foreign or domestic. c. An indemnified party pursuant to this Section 17 shall notify the indemnifying party promptly upon receiving or learning of any claim or action pursuant to which indemnity will be sought and shall provide reasonable assistance to the indemnifying party in the defense of any such action. This Section 17 shall survive the termination of this Agreement. 18. Proprietary Rights: The design, development or manufacture by Micron CMS of Product(s) for Customer shall not be deemed to produce a work made for hire and shall not give to Customer any copyright interest in the Product(s). All intellectual property produced or developed by Micron CMS in connection with the manufacture of the Products for Customer shall be owned exclusively by Micron. No license, express or implied, with regard to any trademark of Micron CMS or its affiliated companies is granted to Customer under this Agreement. The manufacture of the Products for 115 Schedule 2.23 1. The Company formerly owned and occupied real property located at 8455 West Westpark Drive, Boise, Idaho 83704. 116 Schedule 3.2 None 117 Schedule 4.4 1. The Company intends to form M.C.M.S. Netherlands B.V. 2. The Company anticipates selling all of the capital stock owned by it of M.C.M.S. Belgium S.A. to M.C.M.S. Netherlands B.V., once formed. 3. The Company and the Transferred Subsidiaries may engage in a number of transactions with each other including, without limitation, in connection with the sharing of certain intellectual property, the investment of monies, and incurrence of debt. 4. The Company anticipates incurring liabilities and obligations in connection with the expenditures set forth in Schedule 2.21 and in connection with entering into contracts, among other things, with respect to the items set forth in Schedule 2.19. 5. The Company will use cash to pay Indebtedness pursuant to Section 6.7 of the Recapitalization Agreement. 118 Schedule 4.12 1. Cathy Brokaw 2. Stuart Conde 3. Kelly Fuller 4. Kishore Goud 5. Michael Mick 6. Jennifer Murray 7. Angelo Ninivaggi 8. Rob Warwick 119 Schedule 4.14 1. Oracle 2. Sun Contract 3. Digital Contract 4. Microsoft Select 5. Corbis 6. PBX 7. Affirmative Action Reporting 8. PDS 9. Ross 120 Schedule 6.2 1. Lease regarding 2500 South Tri-Center Boulevard, Durham, NC 27713. EX-2.2 3 AMENDED AND RESTATED RECAPITALIZATION AGREEMENT 1 Exhibit 2.2 EXECUTION COPY ================================================================================ AMENDED AND RESTATED RECAPITALIZATION AGREEMENT by and among MICRON ELECTRONICS, INC., MICRON CUSTOM MANUFACTURING SERVICES, INC., MEI CALIFORNIA, INC., and CORNERSTONE EQUITY INVESTORS IV, L.P. dated as of February 1, 1998 ================================================================================ 2 RECAPITALIZATION AGREEMENT INDEX Page ---- ARTICLE I Certain Definitions............................................................2 ARTICLE II Representations and Warranties of MEI, Sub and the Company.....................5 Section 2.1. Authorization; No Conflicts; etc.............................5 Section 2.2. Incorporation; Capitalization; Structure.....................6 Section 2.3. Financial Statements.........................................7 Section 2.4. Undisclosed Liabilities......................................8 Section 2.5. Properties...................................................8 Section 2.6. Environmental Matters........................................9 Section 2.7. Absence of Certain Changes...................................9 Section 2.8. Litigation; Orders..........................................11 Section 2.9. Intellectual Property.......................................12 Section 2.10. Licenses, Approvals, Other Authorizations, Consents, Reports, etc.....................................13 Section 2.11. Labor Matters...............................................13 Section 2.12. Compliance with Laws........................................13 Section 2.13. Employee Benefit Plans......................................14 Section 2.14. Tax Returns.................................................15 Section 2.15. Brokers, Finders, Lawyers, Accountants, etc.................16 Section 2.16. Customers and Suppliers.....................................17 Section 2.17. Real Property...............................................17 Section 2.18. Material Agreements.........................................18 Section 2.19. Transactions with Affiliates................................19 Section 2.20. Insurance...................................................20 Section 2.21. Computer Systems............................................20 Section 2.22. Products and Services Liability.............................20 Section 2.23. Predecessor Businesses; Former Facilities...................21 Section 2.24. Disclosure..................................................21 Section 2.25. No Representations Regarding Projections....................21 Section 2.26. Construction of Certain Provisions..........................21 ARTICLE III Representations and Warranties of Investor....................................22 Section 3.1. Incorporation; Authorization; No Conflicts; etc.............22 Section 3.2. Licenses, Approvals, Other Authorizations, Consents, Reports, etc...............................................23 Section 3.3. Brokers, Finders, etc.......................................23 3 Section 3.4. Financing...................................................23 Section 3.5. Investment..................................................23 ARTICLE IV Covenants.....................................................................24 Section 4.1. Investigation of Business; Access to Properties and Records; Records Retention.............................24 Section 4.2. Efforts; Obtaining Consents.................................26 Section 4.3. Further Assurances..........................................26 Section 4.4. Conduct of Business.........................................26 Section 4.5. Preservation of Business....................................27 Section 4.6. Public Announcements........................................28 Section 4.7. Intercompany Accounts.......................................28 Section 4.8. Notice of Breach............................................28 Section 4.9. Acquisition Proposals.......................................28 Section 4.10. Noncompetition; Nonsolicitation.............................29 Section 4.11. Confidentiality.............................................30 Section 4.12. Nonsolicitation by the Company..............................31 Section 4.13. Alternative Financing.......................................31 Section 4.14. License Agreements..........................................31 Section 4.15. Use of Micron Name..........................................31 Section 4.16. Schedule Supplements........................................32 Section 4.17. Capital Expenditures........................................32 Section 4.18. Leased Property.............................................32 ARTICLE V Employee Benefits.............................................................33 Section 5.1. Provision of Benefits.......................................33 Section 5.2. Savings Plan................................................33 Section 5.3. Welfare Benefits............................................34 Section 5.4. Intercompany Charges........................................34 ARTICLE VI Conditions of Investor's Obligation to Close..................................35 Section 6.1. Representations, Warranties and Covenants of MEI, Sub and the Company.............................................35 Section 6.2. Filings; Consents; Waiting Periods..........................35 Section 6.3. No Injunction...............................................35 -ii- 4 Section 6.4. Transitional Services Agreement.............................35 Section 6.5. Stockholders Agreement and Registration Rights Agreement....35 Section 6.6. Financing...................................................36 Section 6.7. Indebtedness................................................36 Section 6.8. Material Adverse Effect.....................................36 Section 6.9. Opinion of Counsel..........................................36 Section 6.10. Resignation of Directors....................................36 Section 6.11. Other Closing Documents.....................................36 Section 6.12. Articles of Incorporation...................................37 Section 6.13. Bylaws......................................................37 Section 6.14. Booster Pump and Power Substation...........................37 Section 6.15. Patent Agreement............................................37 Section 6.16. Know-How Agreement..........................................37 Section 6.17. MTI License Agreement.......................................37 ARTICLE VII Conditions to MEI's, Sub's and the Company's Obligation to Close..............38 Section 7.1. Representations, Warranties and Covenants of Investor.......38 Section 7.2. Filings; Consents; Waiting Periods..........................38 Section 7.3. No Injunction...............................................38 Section 7.4. Transitional Services Agreements............................38 Section 7.5. Stockholders Agreement and Registration Rights Agreement....38 Section 7.6. Patent Agreement............................................38 Section 7.7. Know-How Agreement..........................................38 Section 7.8. MTI Agreement...............................................39 ARTICLE VIII The Recapitalization; Closing.................................................39 Section 8.1. Authorization...............................................39 Section 8.2. Stock Purchase..............................................39 Section 8.3. Stock Redemption............................................39 Section 8.4. Closing.....................................................39 ARTICLE IX Tax Matters...................................................................40 Section 9.1. Tax Indemnification by MEI and Sub..........................40 Section 9.2. Tax Indemnification by the Company..........................40 Section 9.3. Filing Responsibility.......................................41 -iii- 5 Section 9.4. Refunds.....................................................41 Section 9.5. Cooperation and Exchange of Information.....................42 Section 9.6. Allocation of Certain Taxes.................................43 Section 9.7. Certain Taxes...............................................44 ARTICLE X Termination...................................................................44 Section 10.1. Termination.................................................44 Section 10.2. Procedure and Effect of Termination.........................44 ARTICLE XI Miscellaneous.................................................................45 Section 11.1. Entire Agreement; Beneficiaries.............................45 Section 11.2. Survival of Representations and Warranties and Covenants of Investor.......................................45 Section 11.3. Counterparts................................................45 Section 11.4. Governing Law...............................................45 Section 11.5. Expenses....................................................45 Section 11.6. Notices.....................................................46 Section 11.7. Successors and Assigns......................................48 Section 11.8. Headings; Definitions.......................................49 Section 11.9. Consent to Jurisdiction.....................................49 Section 11.10. Waivers and Amendments......................................49 Section 11.11. Severability................................................49 Section 11.12. Interpretation; Schedules and Exhibits......................49 ARTICLE XII INDEMNIFICATION...............................................................49 Section 12.1. General Indemnification Obligations.........................50 Section 12.2. General Indemnification Procedures..........................50 Section 12.3. Indemnification Basket......................................51 Section 12.4. Indemnification Cap.........................................51 Section 12.5. Indemnity Exclusive Remedy..................................51 -iv- 6 EXHIBITS Exhibit A Term Sheet for Transitional Services Agreement Exhibit B Company Financial Statements Exhibit C Term Sheet for the Stockholders Agreement and the Registration Rights Agreement Exhibit D Form of Patent and Invention Disclosure Assignment and License Agreement Exhibit E Form of Know-How License Agreement Exhibit F Form of MTI Agreement LISTS OF SCHEDULES 2.1(c) No Conflicts 2.2(a) Incorporation; Capitalization; Structure 2.2(c) List of Transferred Subsidiaries 2.4 Undisclosed Liabilities 2.5 Permitted Encumbrances 2.6 Environmental Matters 2.7 Absence of Certain Changes 2.8 Litigation; Orders 2.9 Intellectual Property 2.10(a) Licenses, Approvals, Other Authorizations, Consents, Reports, etc. 2.10(c) Lists all consents, approvals, registrations, filings, applications, etc. 2.11 Labor Matters 2.12 Compliance with laws 2.13(a) Employee Benefits Plans 2.13(c) Compliance with ERISA 2.14 Tax Matters 2.16 Customers and Suppliers 2.17 Real Property 2.18 Material Agreements 2.19 Transactions with Affiliates 2.20 Insurance 2.21 Computer Systems 2.22 Products and Services Liability 2.23 Predecessor Businesses; Former Facilities 3.2 Licenses, Approvals, Other Authorizations, Consents, Reports, etc. 4.4 Conduct of Business 4.12 Nonsolicitation by the Company 4.14 License Agreements 6.2 Filings; Consents; Waiting Periods -v- 7 AMENDED AND RESTATED RECAPITALIZATION AGREEMENT THIS AMENDED AND RESTATED RECAPITALIZATION AGREEMENT (this "Agreement"), dated as of February 1, 1998, is by and among Micron Electronics, Inc., a Minnesota corporation ("MEI"), MEI California, Inc., a California corporation and a wholly owned subsidiary of MEI ("Sub"), Micron Custom Manufacturing Services, Inc., an Idaho corporation and a wholly-owned subsidiary of Sub (the "Company") and Cornerstone Equity Investors IV L.P., a Delaware limited partnership ("Investor"). WHEREAS, certain parties hereto have entered into that certain Recapitalization Agreement, dated as of December 21, 1997 (the "Original Agreement"); WHEREAS, the parties hereto desire to amend and restate the Original Agreement in its entirety as set forth below; WHEREAS, Sub owns 1,000 shares (the "Shares") of the Company's common stock, par value $.01 per share (the "Company Common Stock"), which Shares comprise all of the issued and outstanding shares of the Company's capital stock; WHEREAS, Investor will contribute $61.2 million (the "Purchase Price") to the Company in exchange for 900 shares (such number to be appropriately adjusted for any stock split or stock dividend of the Company Common Stock after the date hereof and prior to the Closing Date) of the Company Common Stock and such other securities of the Company (collectively, the "Purchase Shares") as Investor shall request (such purchase, the "Stock Purchase"); WHEREAS, Investor has proposed, and the Company, MEI and Sub have agreed, that the Company arrange through BT Alex. Brown Incorporated for the issuance by the Company of notes, debt securities and/or preferred stock in exchange for approximately $200 million and the entering into by the Company of a $40 million revolving credit facility with Bankers Trust Company (the "Credit Facility") to provide for the working capital needs of the Company (such issuance, and revolving credit facility collectively, the "BTAB Financing"); WHEREAS, the parties hereto desire that, immediately after the Stock Purchase and the BTAB Financing, the Company shall redeem from Sub 900 shares (such number to be appropriately adjusted for any stock split or stock dividend of the Company Common Stock after the date hereof and prior to the Closing Date) (the "Redemption Shares") of Company Common Stock in exchange for the Redemption Price (as herein defined) (such redemption, the "Stock Redemption") and Sub shall retain 100 shares (such number to be appropriately adjusted for any stock split or stock dividend of the Company Common Stock after the date hereof and prior to the Closing Date) (the "Sub Retained Shares") of Company Common Stock such that immediately after -1- 8 Closing Sub shall own 10% of the outstanding Company Common Stock and Company Common Stock equivalents; WHEREAS, the Stock Purchase, the BTAB Financing and the Stock Redemption are referred to herein as the "Recapitalization"; and WHEREAS, it is intended that the Recapitalization be recorded as a recapitalization for financial reporting purposes. NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: ARTICLE I Certain Definitions As used in this Agreement the following terms shall have the following respective meanings: "Action" shall mean any action, suit, arbitration, inquiry, proceeding, order, claim or investigation by or before any Governmental Authority. "Affiliate" shall mean any person, and any corporation, partnership or other entity, that directly or indirectly through one or more intermediaries, controls or is controlled by or under common control with the party specified. "Business" shall mean the business of design, assembly and testing of custom complex printed circuit boards, memory intensive products and system level assemblies for third party electronics original equipment manufacturers primarily in the networking, telecommunications and computer systems industries conducted by the Company and the Transferred Subsidiaries as of December 21, 1997; provided, that in no event shall Business mean any of the services, properties or assets to be provided or licensed to the Company or any Transferred Subsidiary pursuant to any Transitional Services Agreement. For purposes of this definition, in all circumstances, MTI shall be deemed to be a "third party". "Business Condition" shall mean the results of operations or financial condition of the Company and the Transferred Subsidiaries, taken as a whole. "Closing" shall mean the consummation of the Recapitalization and other transactions contemplated hereby. -2- 9 "Closing Date" shall mean five business days after the date on which the conditions set forth in Articles VI and VII shall be satisfied or duly waived, or if MEI and Investor mutually agree on a different date, the date upon which they have mutually agreed. "Code" shall mean the Internal Revenue Code of 1986, as amended, and any successor thereto. "Company Employee" shall mean an individual who is, as of the Closing Date, employed by the Company or any Transferred Subsidiary, whether such individual is then actively at work, on approved leave of absence or on short-term disability leave, or who is entitled to be rehired by the Company or any Transferred Subsidiary pursuant to any applicable law or regulation or pursuant to the terms of any contract or collective bargaining or similar agreement. "Continuing Affiliate" shall mean MEI, Sub and any other direct or indirect Subsidiary of MEI other than the Company and the Transferred Subsidiaries. "Controlled Group Liability" shall mean any and all Damages under (a) Title IV of ERISA, (b) section 302 of ERISA, (c) sections 412 and 4971 of the Code, or (d) the continuation coverage requirements of section 601, et seq., of ERISA and section 4980B of the Code, other than such Damages that arise solely out of, or relate solely to, the Company Plans. "Damages" shall mean any and all losses, liabilities, claims, damages (including punitive, consequential or treble damages), obligations, liens, assessments, judgments, awards and fines (including, without limitation, those arising out of any pending or threatened Action, including any settlement or compromise thereof) and any related reasonable out-of-pocket costs and expenses (including, without limitation, reasonable attorneys' fees and expenses incurred in connection with any pending or threatened Action). "Employee Benefit Plan" means (a) an employee benefit plan as defined in Section 3(3) of ERISA and (b) any bonus, incentive, profit sharing, stock option or stock purchase, severance, fringe benefit or other compensation plan or arrangement. "Encumbrance" shall mean any lien, claim, charge, security interest, option, mortgage, pledge or other legal or equitable encumbrance or restriction of any kind "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and any successor thereto. "Former Company Employee" shall mean an individual who was an employee of the Company or a Transferred Subsidiary before the Closing Date, is not a Company Employee, and -3- 10 whose last employment with MEI and any of its Affiliates was with the Company or a Transferred Subsidiary. "Governmental Authority" shall mean any government or governmental or regulatory body thereof, or political subdivision thereof, or any agency or instrumentality thereof, or any court or arbitrator, in each case, whether federal, state, local, foreign or otherwise. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Income Taxes" shall mean all Taxes based upon or measured by income, gain or similar items. "IRS" shall mean the Internal Revenue Service. "MCMS Malaysia" shall mean M.C.M.S. Sdn. Bhd. (f/n/a Courageous Expedition Sdn. Bhd.), a company organized under the laws of Malaysia, and an indirect, wholly-owned subsidiary of the Company. "MTI" shall mean Micron Technology, Inc., a Delaware corporation. "Person" shall mean an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a governmental entity or any department, agency or political subdivision thereof or any other entity or organization. "Returns" shall mean returns, reports and forms required to be filed with any domestic or foreign Taxing Authority. "Subsidiary" shall mean with respect to any Person, any corporation, partnership, joint venture, business trust or other entity, of which such Person, directly or indirectly, owns or controls at least 50% of the securities or other interests entitled to vote in the election of directors or others performing similar functions with respect to such corporation or other organization, or to otherwise control such corporation, partnership, joint venture, business trust or other entity. "Tax Laws" shall mean the Code, federal, state, county, local, or foreign laws relating to Taxes and any regulations or official administrative pronouncements released thereunder. "Taxes" shall mean (a) all taxes (whether federal, state, local or foreign) based upon or measured by income and any other tax whatsoever, including gross receipts, profits, sales, use, occupation, value added, ad valorem, transfer, franchise, withholding, payroll, employment, excise, -4- 11 or property taxes, together with any interest or penalties imposed with respect thereto and (b) any obligations under any agreements or arrangements with respect to any Taxes described in clause (a) above. "Taxing Authority" shall mean any Governmental Authority having jurisdiction over the assessment, determination, collection, or other imposition of Tax. "Transferred Subsidiaries" shall mean the direct and indirect Subsidiaries of the Company. "Transitional Services Agreement" shall mean the Transitional Services Agreement containing the terms set forth in Exhibit A hereto. ARTICLE II Representations and Warranties of MEI, Sub and the Company MEI, Sub and the Company hereby represent and warrant to Investor as follows: Section 2.1. Authorization; No Conflicts; etc. (a) MEI is a corporation duly organized, validly existing and in good standing under the laws of the State of Minnesota. Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of California. MEI and Sub each has full corporate power to execute and deliver this Agreement and to perform its respective obligations hereunder, and MEI and Sub each has full corporate power to consummate the transactions contemplated hereby. All corporate acts and other proceedings required to be taken by MEI and Sub to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and properly taken. This Agreement has been duly executed and delivered by MEI and Sub and, assuming the due execution and delivery hereof by the other parties hereto, this Agreement constitutes the legal, valid and binding obligation of MEI and Sub, enforceable against MEI and Sub, as applicable, in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity. (b) The Company has full corporate power to execute and deliver this Agreement and to perform its obligations hereunder, and the Company has full corporate power to consummate the transactions contemplated hereby. All corporate acts and other proceedings required to be taken by the Company to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and properly taken. This Agreement has been duly executed and delivered by the Company and, assuming the due execution -5- 12 and delivery hereof by the other parties hereto, this Agreement constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity. (c) The execution, delivery and performance of this Agreement by MEI, Sub and the Company and the consummation by MEI, Sub and the Company of the transactions contemplated hereby will not (1) violate any provision of the charter or by-laws of MEI, Sub, the Company or any Transferred Subsidiary, (2) except as disclosed in Schedule 2.1(c), violate any provision of, or constitute a default (with or without notice or lapse of time) under, or give rise to a right of termination, cancellation or acceleration of (or entitle any party to accelerate whether after the giving of notice or lapse of time or both) any obligation under, or result in the imposition of any lien upon or the creation of any Encumbrance on any of the Shares or any of the Company's or any Transferred Subsidiary's assets or properties pursuant to, any note, bond, debt instrument, mortgage, indenture, lien, lease, agreement or other instrument, or any judgment, injunction, order or decree to which any of MEI, Sub, the Company or any Transferred Subsidiary is a party or by which any of them is bound or (3) except as disclosed in Schedule 2.1(c), violate or conflict with any federal, state, local or foreign law, statute, ordinance, rule or regulation (collectively, "Laws") applicable to MEI, Sub, the Company or any Transferred Subsidiary or by which any of their properties or assets is bound. Section 2.2. Incorporation; Capitalization; Structure. (a) Except as set forth in Schedule 2.2(a) hereto, the Company and each Transferred Subsidiary (1) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (2) has all requisite corporate power and authority to own or lease and operate its properties and to carry on its business as it is now being conducted and (3) is in good standing and is duly qualified to transact business in each jurisdiction in which the nature of property owned or leased by it or the conduct of its business requires it to be so qualified. (b) As of the date hereof, the authorized capital stock of the Company consists of 10,000 shares of the Company Common Stock, 1,000 shares of which are issued and outstanding. All of the outstanding Company Common Stock is duly authorized, validly issued, fully paid and non-assessable. No shares of capital stock of the Company are held in the Company's treasury. As of the date hereof, the Shares constitute all of the issued and outstanding shares of Company Common Stock. As of immediately after the Closing, (i) the Purchase Shares which are Company Common Stock and the Sub Retained Shares shall constitute all of the issued and outstanding shares of the Company Common Stock and (ii) the Purchase Shares, the Sub Retained Shares and any shares of the Company's preferred stock (the "Preferred Shares") issued pursuant to the BTAB Financing shall constitute all of the issued and outstanding shares of the Company's capital stock. -6- 13 Sub is the record and beneficial owner of, and has valid title to, the Shares, free and clear of any Encumbrance. Upon delivery to the Company at the Closing of certificates representing the Redemption Shares, duly endorsed by Sub for transfer to the Company, and upon Sub's receipt of payment therefor, valid title to the Redemption Shares will pass to the Company, free and clear of any Encumbrance. Immediately after the Closing, the Purchase Shares and the Preferred Shares, if any, will be duly authorized, validly issued and non-assessable and free and clear of any Encumbrances (except to the extent contemplated hereby) and will have been issued free and clear of any preemptive or other similar rights. (c) Schedule 2.2(c) lists each of the Transferred Subsidiaries and its jurisdiction of incorporation; the authorized, issued and outstanding capital stock of each Transferred Subsidiary; and the record and beneficial owners of all such capital stock. Other than the Transferred Subsidiaries, the Company does not, directly or indirectly, own any capital stock of, or equity ownership interest in, any corporation, partnership, joint venture, unincorporated association, limited liability company or other business entity. Except as disclosed on Schedule 2.2(c), all of the outstanding shares of capital stock or other equity interests of each of the Transferred Subsidiaries have been validly issued and are fully paid and non-assessable and, except for directors' qualifying shares and other nominal share interests issued to third parties to comply with requirements of law, are owned by the Company and/or one or more of the Transferred Subsidiaries free and clear of any Encumbrance. (d) Except as specifically provided in this Agreement, there are no authorized or outstanding options, warrants, convertible securities, preemptive rights, calls, commitments or other rights or obligations of any kind to acquire, or to issue, deliver or sell any shares of capital stock of any class of, or other equity interests in, or securities convertible into or exchangeable for any capital stock of or other ownership interests in the Company or any Transferred Subsidiary, and there are no agreements, instruments or understandings to grant or enter into any such option, warrant, convertible security, preemptive right, call, commitment, right or obligation. There are no shareholders agreements or similar agreements, and there are no rights of first offer, rights of first refusal, stock appreciation rights, phantom stock rights, profit participation rights or similar rights, in each case, relating to the capital stock of or other ownership interests in the Company or any Transferred Subsidiary. Section 2.3. Financial Statements. (a) Attached hereto as Exhibit B is a true and complete copy of the following financial statements (the following financial statements, together with the notes to such financial statements, collectively, the "Company Financial Statements"): (1) the audited consolidated financial statements of the Company for the fiscal years ended August 31, 1995, August 29, 1996 and August 28, 1997; -7- 14 (2) the audited financial statements of MCMS Malaysia for the fiscal year ended August 28, 1997; and (3) the unaudited consolidated balance sheet of the Company as of November 27, 1997, together with the related consolidated statements of income, and cash flows for the three-month period ended on such date (the "Interim Financial Statements"). (b) The Company Financial Statements: (i) are true, correct and complete in all material respects, (ii) are in accordance with the books and records of the Company and the Transferred Subsidiaries (which books and records are accurate and complete in all material respects), (iii) fairly present the consolidated financial condition, assets and liabilities of the Company as of their respective dates and the results of operation and changes in cash flows of the Company, on a consolidated basis, for the periods covered thereby, and (iv) have been prepared in accordance with United States generally accepted accounting principles ("GAAP"), consistently applied, subject, in the case of the Interim Financial Statements, to normal year-end adjustments. Section 2.4. Undisclosed Liabilities. Except as disclosed in Schedule 2.4 hereto, and except as reflected, reserved against or otherwise disclosed in the Company Financial Statements (including the notes thereto), the Company does not have any liabilities or obligations of any kind whatsoever (whether accrued or contingent) except (1) liabilities and obligations which were incurred after August 28, 1997 in the ordinary course of business consistent with past practice, (2) obligations under this Agreement or (3) obligations under contracts which do not create liabilities for purposes of GAAP. Schedule 2.4 hereto sets forth all liabilities and obligations of the Company and the Transferred Subsidiaries as of the date hereof for borrowed money other than (i) receivables, payables and loans relating to ongoing business between the Continuing Affiliates and MTI on the one hand, and the Company and the Transferred Subsidiaries on the other hand and (ii) trade payables and trade receivables incurred in the ordinary course of business ("Borrowed Money"). As of the Closing, neither the Company nor any Transferred Subsidiary will have any liability or obligation for Borrowed Money except for liabilities or obligations for Borrowed Money arranged by the Company in order to finance or otherwise in connection with the transactions contemplated by this Agreement. Section 2.5. Properties. The Company and/or one or more of the Transferred Subsidiaries has good title to, or holds by valid and existing lease or license, free and clear of all Encumbrances other than Permitted Encumbrances, each piece of tangible personal property currently used by them in, and reasonably necessary to enable them to carry on, the Business as presently conducted. "Permitted Encumbrances" shall mean those Encumbrances which (1) are set forth in Schedule 2.5 or in the case of real property Schedule 2.17, (2) are reflected or reserved against in the Company Financial Statements, (3) arise by statute out of mechanics', carriers', workmen's, repairmen's or other like statutory liens arising or incurred in the ordinary course of business for sums not yet due or which are otherwise reflected in the Company Financial Statements, (4) consist of liens -8- 15 for Taxes and other charges of Governmental Authorities which are not due and payable or which may be paid without penalty or interest or the validity of which is being contested in good faith by appropriate proceedings, (5) in the case of real property, consist of zoning, land use and other similar legal restrictions existing generally with respect to properties of a similar character and which are not violated in any respect by the current use and operation of any such real property, or (6) in the case of real property, consist of easements, covenants, licenses, rights of way, conditions, restrictions, defects and other Encumbrances which are of record, would be shown by a survey or are typical of similar properties and which do not impair the current occupancy or use of such real property in the Business. Such personal property, taken as a whole, are free from any material defects, have been maintained in accordance with normal industry practice and any regulatory standard or procedure to which such properties are subject, and are in an operating condition and repair (subject to normal wear and tear) adequate and suitable for the purposes for which such properties are presently used. Section 2.6. Environmental Matters. Except as set forth on Schedule 2.6: (i) no real property currently or formerly owned or operated by the Company or any Transferred Subsidiary is contaminated with any Hazardous Substances to an extent or in a manner or condition which would give rise to any liability of the Company or any Transferred Subsidiary (contingent or otherwise) or investigatory, corrective or remedial obligation of the Company or any Transferred Subsidiary under Environmental Law, (ii) no judicial or administrative proceeding is pending or, to the knowledge of MEI, Sub or the Company, threatened relating to liability of the Company or any Transferred Subsidiary for any on-site or off-site disposal or contamination or any noncompliance with Environmental Laws by or with respect to the Company, any Transferred Subsidiary, or any property or facility associated therewith, (iii) neither MEI, Sub, the Company, nor any Transferred Subsidiary has received written notice of any claims or written notices alleging any violation by the Company or any Transferred Subsidiary of, or any liability of the Company or any Transferred Subsidiary (contingent or otherwise) under, any Environmental Law, and neither MEI, Sub nor the Company is aware of any facts, events, or circumstances that exist or have occurred (including any disposal or arrangement for disposal on or prior to the Closing Date) that would give rise to any such claim or notice or give rise to any such violation or liability, and (iv) the Company and each Transferred Subsidiary have complied and are in compliance with all Environmental Laws. "Environmental Law" means any applicable federal, state or local law, regulation, order, decree or judicial opinion or other agency requirement having the force and effect of law, and any common law, relating to noise, odor, Hazardous Substances or the protection of public health or safety, workplace health or safety or pollution or protection of the environment. "Hazardous Substance" means any toxic or hazardous substance that is regulated by or under authority of, or as to which liability or standards of conduct are imposed pursuant to, any Environmental Law, including any petroleum products, asbestos or polychlorinated biphenyls. -9- 16 Section 2.7. Absence of Certain Changes. (a) Except as disclosed in Schedule 2.7, since February 1, 1998, there has been no material adverse change in the Business Condition except for any change resulting from (1) any change or any development in worldwide, foreign or national economic, financial or market conditions, (2) war, insurrection or other political change or instability or (3) the announcement of the transactions contemplated hereby; (b) Except as disclosed in Schedule 2.7, since August 28, 1997, there has been no physical damage, destruction or loss to any assets or properties of the Company or any of the Transferred Subsidiaries, after taking into account any insurance recoveries in respect thereof, which in the aggregate exceeds $100,000; and (c) Except as disclosed in Schedule 2.7, since August 28, 1997, neither the Company nor any of the Transferred Subsidiaries has: (1) sold, leased, assigned or otherwise transferred any of its tangible assets, except in the ordinary course of business consistent with past practice. (2) incurred any liabilities or obligations other than current liabilities incurred, or obligations (including contingent obligations) under contracts entered into, in the ordinary course of business consistent with past practice; (3) canceled, waived, or released in writing any material debt owed to the Company or any Transferred Subsidiary or, claim or right of the Company or any Transferred Subsidiary; (4) delayed or postponed the payment of the accounts payable or any other liabilities of the Business other than in the ordinary course of business consistent with past practice; (5) issued any capital stock or other equity securities or any securities convertible, exchangeable, or exercisable into any capital stock or other equity securities, other than to the Company by Transferred Subsidiaries in connection with the formation of Transferred Subsidiaries and other than as contemplated hereby; (6) declared, set aside, or paid any dividend or distribution with respect to its capital stock or, except for the Stock Purchase and the Stock Redemption, redeemed, purchased or otherwise acquired any of its capital stock; -10- 17 (7) sold, leased, assigned, licensed, or otherwise transferred any of its Intellectual Property or other intangible assets, except for any license granted by the Company to any Transferred Subsidiary or by any Transferred Subsidiary to the Company; (8) permitted any of its material assets, tangible or intangible, to become subject to any material Encumbrance (other than Permitted Encumbrances); (9) made any capital expenditures or commitments, or series thereof, involving in excess of $17,200,000 in the aggregate for the Company and the Transferred Subsidiaries during the fiscal quarter ended November 27, 1997; (10) invested or committed to invest in any business entity not organized under the laws of a jurisdiction within the United States of America other than investments in Transferred Subsidiaries; (11) written off as uncollectible any accounts receivable other than in ordinary course of business consistent with past practice and other than reserve adjustments relating to accounts receivable on a basis consistent with past practice; (12) terminated or amended other than in the ordinary course of business consistent with past practice, suffered the termination or amendment of, failed to perform in any material respect all of its obligations under or suffered or permitted any material default to exist under, any material agreement, contract, license, or permit; (13) made any loans or advances to, guarantees for the benefit of, or any investments (including any intercompany advance but excluding loans or advances to, guaranties for the benefit of or investments in Transferred Subsidiaries) in any Person, other than advances to employees in the ordinary course of business consistent with past practice that do not exceed $10,000 individually or $50,000 in the aggregate; (14) paid any amount to or entered into any agreement, arrangement or transaction with any employee or officer or any Affiliate or director (in each case, other than in the ordinary course of business consistent with past practice); (15) granted any increase in the compensation of any officer or employee or made any other change in the employment terms of any officer or employee other than in the ordinary course of business consistent with past practice; (16) made any material change in any method of accounting or accounting practice; or -11- 18 (17) agreed, in writing or otherwise, to any of the foregoing. Section 2.8. Litigation; Orders. Except as disclosed in Schedule 2.8, there are no Actions pending or, to MEI's, Sub's or the Company's knowledge, threatened against the Company or any Transferred Subsidiary by or before any Governmental Authority. Except as disclosed in Schedule 2.8, there are no judgments or outstanding orders, injunctions, decrees, stipulations or awards rendered by any Governmental Authority (collectively, "Orders") (a) against the Company or any Transferred Subsidiary or any of their respective properties or the Business or (b) which affects the ability of MEI or Sub to perform their respective obligations hereunder. Section 2.9. Intellectual Property. (a) Except as set forth on Schedule 2.9, the Company or a Transferred Subsidiary owns, or has a valid and enforceable license to use, or as of the Closing will own or have a valid and enforceable license to use, free and clear of all Encumbrances, all of the patents, trademarks, trade names, service marks, copyrights, registrations for or applications to register any of the foregoing, trade secrets, confidential information, know-how, computer software and all other intellectual property rights ("Intellectual Property") currently used by them which are material and necessary to enable them to carry on their business as it is presently being conducted ("Company Intellectual Property"); provided, however, that the foregoing sentence shall not be deemed to be a representation as to non infringement of third party Intellectual Property or an assignment or other transfer of Intellectual Property. Except as set forth on Schedule 2.9, to the knowledge of MEI, Sub or the Company, the operation of the business of the Company and the Transferred Subsidiaries does not infringe the Intellectual Property of any third party. (b) Schedule 2.9 contains a complete list of all domestic and foreign patents, patent applications, invention disclosures, trade names, registered and material unregistered trademarks and service marks ("Trademarks"), Trademark registrations and applications, copyright registrations and applications, and licenses or similar agreements or arrangements with respect to Intellectual Property, in each case which are owned (in whole or in part) by (or as of the Closing will be owned by), filed by or on behalf of, or to which the Company or any of the Transferred Subsidiaries is a party. (c) Except as disclosed in Schedule 2.9, no claims have been asserted in writing by any Person (1) challenging the ownership, validity, enforceability or effectiveness of any Intellectual Property owned, used, filed by or licensed to the Company or a Transferred Subsidiary, (2) to the effect that the Company or the sale of any product or the provision of any service as now sold or provided by the Company or a Transferred Subsidiary infringes on or misappropriates any Intellectual Property of a third party or (3) against the use by the Company or a Transferred Subsidiary of any Intellectual Property necessary to enable the Company and the Transferred Subsidiaries to carry on their business as it is presently being conducted. The Company and the Transferred -12- 19 Subsidiaries have taken all necessary and reasonable action to maintain and protect all of the Company Intellectual Property, and until the Closing Date, will continue to maintain and protect the Company Intellectual Property, in each case, so as not to adversely affect the validity or enforceability thereof. MEI has taken all necessary and reasonable action to maintain and protect those patents and patent applications listed on Schedule 2.9 and indicated as those to be assigned to the Company prior to the Closing. Except as set forth on Schedule 2.9, to MEI's, Sub's and the Company's knowledge, no third party has infringed or misappropriated any of the material Company Intellectual Property. Section 2.10. Licenses, Approvals, Other Authorizations, Consents, Reports, etc. (a) Except as set forth on Schedule 2.10(a), the Company and the Transferred Subsidiaries (other than MCMS Belgium, S.A.) have all governmental licenses, permits, franchises, approvals and other authorizations of any Governmental Authority (the "Licenses") necessary to own, lease and operate its properties and enable them to carry on the Business as presently conducted. All such Licenses are in full force and effect. No proceeding is pending or, to MEI's, Sub's or the Company's knowledge, threatened seeking the revocation or limitation of any such License. (b) As of the Closing, MCMS Belgium, S.A. will have all Licenses necessary to own, lease and operate its present properties and enable it to carry on the Business as presently conducted. As of the Closing, all such Licenses will be in full force and effect. No proceeding is pending or, to MEI's, Sub's or the Company's knowledge, threatened seeking the revocation or limitation of any such License. (c) Schedule 2.10(c) lists all consents, approvals, registrations, filings, applications, notices, orders, authorizations, qualifications and waivers required to be made, filed, given or obtained by any of MEI, Sub, the Company or any of the Transferred Subsidiaries with, to or from any Persons or Governmental Authorities in connection with the consummation of the Recapitalization and the other transactions contemplated by this Agreement, except for those that become applicable solely as a result of the specific regulatory status of Investor or its Affiliates. Section 2.11. Labor Matters. Except as set forth on Schedule 2.11, neither the Company nor any of the Transferred Subsidiaries is a party to any labor union agreement or involved in or, to MEI's, Sub's or the Company's knowledge, threatened with any labor action, arbitration, lawsuit or administrative proceeding relating to labor matters involving the employees of the Company or the Transferred Subsidiaries (excluding routine workers' compensation claims). Section 2.12. Compliance with Laws. Except as set forth on Schedule 2.12, the conduct of the Business substantially complies with all applicable Laws and all Orders applicable thereto. -13- 20 Section 2.13. Employee Benefit Plans. (a) Schedule 2.13(a) lists all material employee benefit plans and programs providing benefits to any Company Employee or Former Company Employee or beneficiary or dependent thereof, sponsored or maintained by MEI or any of its Affiliates, or to which MEI or any of its Affiliates currently contributes or is obligated to contribute ("Plans"). Without limiting the generality of the foregoing, the term "Plans" includes all employee welfare benefit plans within the meaning of Section 3(1) of ERISA and all employee pension benefit plans within the meaning of Section 3(2) of ERISA. Schedule 2.13(a) also specifically identifies those Plans that are sponsored, maintained or contributed to exclusively by the Company and the Transferred Subsidiaries ("Company Plans"). (b) MEI has delivered or made available to Investor a true, correct and complete copy of all plan documents and the current summary plan descriptions (if any) for each Plan. In addition, with respect to each Company Plan, MEI has delivered or made available to Investor a true, correct and complete copy of: (i) the three most recent filed Annual Reports (Form 5500 Series) and accompanying schedules, if any, or any similar filing made with any foreign authority; (ii) the most recent annual financial report, if any; (iii) the most recent actuarial report, if any; and (iv) the most recent determination letter from the IRS, if any. (c) No Company Plan is intended to be a "qualified plan" within the meaning of Section 401(a) of the Code. The IRS has issued a favorable determination letter with respect to the Micron Electronics, Inc. Retirement at Micron Plan ("MEI's 401(k) Plan") which letter has not been revoked, and except as disclosed in Schedule 2.13(c), to MEI's knowledge there are no existing circumstances nor any events that have occurred that could reasonably be expected to adversely affect the qualified status of MEI's 401(k) Plan or the related trust. Except as disclosed in Schedule 2.13(c), MEI and its Affiliates have substantially complied with all provisions of ERISA, the Code and all other laws and regulations applicable to the Plans. (d) No Plan is subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code. Without limiting the generality of the foregoing, no Plan that is subject to ERISA is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA. Neither MEI, Sub nor the Company maintains or has any obligation to contribute to (or any other liability with respect to) any plan or arrangement whether or not terminated, which provides medical, health, life insurance or other welfare-type benefits for current or future retired or terminated Company Employees (except for limited continued medical benefit coverage required to be provided under Section 4980B of the IRC or as required under applicable state law or any applicable termination or severance agreements). There does not now exist, nor do any circumstances now exist that could reasonably be expected to result in, any Controlled Group Liability that would be a Liability of the Company or any Transferred Subsidiary following the Closing. -14- 21 (e) All contributions required to be made to any Plan by applicable law or regulation or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any Plan, before the date hereof have been timely made or paid in full. Section 2.14. Tax Returns. (a) Except as disclosed in Schedule 2.14, all material Returns required to be filed prior to Closing for taxable periods ending on or prior to the Closing Date by, or with respect to any activities of, the Company and the Transferred Subsidiaries have been or will be filed in accordance with all applicable laws, and all Taxes shown to be due on such Returns have been or will be paid prior to Closing. All such Returns have been or will be correct in all material respects. Except as set forth on Schedule 2.14 attached hereto, there is no action, suit, taxing authority proceeding or audit with respect to Taxes that is or could likely be material in amount now in progress, pending or threatened in writing against or with respect to the Company and the Transferred Subsidiaries. Each of the Company and the Transferred Subsidiaries has withheld and paid over to the applicable Taxing Authority all Taxes that are or would likely be material in amount and that are due and owing with respect to any amount paid to any independent contractor, employee, shareholder, creditor or other party. (b) Except as set forth on Schedule 2.14, none of the Company or any Transferred Subsidiary has currently in effect any waiver of any statute of limitations or granted any extension of time in which any material Tax may be assessed. Except as set forth on Schedule 2.14, none of the Company or any Transferred Subsidiary is currently the beneficiary of any extension for filing a Return. (c) Except as set forth on Schedule 2.14, none of the Company or any Transferred Subsidiary is a party to any agreement which could obligate the Company or any Transferred Subsidiary to pay any amount that would not be deductible under Code ss.280G. (d) No claim has been made in the last five years by any Taxing Authority in any jurisdiction where any of the Company or any Transferred Subsidiaries do not file Returns that such entity is or may be subject to taxation by that jurisdiction. (e) The Company is not, and has not been within the previous five years, a "United States real property holding company" within the meaning of Code ss.897(c). (f) The reserve for Taxes accrued on the balance sheet of the Company as of August 28, 1997 has been established in accordance with GAAP and the unpaid Taxes of the Company and the Transferred Subsidiaries will not, as of the Closing Date, exceed such reserve, -15- 22 adjusted for results of operations, changes in the rate of Tax and the passage of time in accordance with the Company's past practice. Section 2.15. Brokers, Finders, Lawyers, Accountants, etc. (a) None of the Company, MEI, Sub or any Transferred Subsidiary has employed any broker, finder, consultant or other intermediary in connection with the transactions contemplated hereby who has or would have a valid claim for a fee or commission in connection with such transactions, except for Deutsche Morgan Grenfell Inc. ("DMG"). (b) None of the Company, MEI, Sub or any Transferred Subsidiary has employed any broker, finder, consultant, other intermediary, attorney, appraiser, accountant or any other Person who has been paid by the Company or any of the Transferred Subsidiaries or who has or will have a valid claim for a fee or commission or other payment in connection with the auction of the Company (but not in connection with the negotiation, execution or delivery of the Original Agreement or this Agreement or in connection with the consummation of the transactions contemplated thereby or hereby, including, without limitation, the BTAB Financing or any other financing proposed by Investor and arranged by the Company in lieu of the BTAB Financing), except for DMG; Wachtell, Lipton, Rosen & Katz ("Wachtell"); Fenwick & West ("Fenwick"); and Coopers & Lybrand L.L.P. ("Coopers"). Such fees, commissions or other payments in connection with the auction of the Company (but not in connection with the negotiation, execution or delivery of the Original Agreement or this Agreement or in connection with the consummation of the transactions contemplated thereby or hereby, including, without limitation, the BTAB Financing or any other financing proposed by Investor and arranged by the Company in lieu of the BTAB Financing) which have been made or are payable to Coopers shall hereinafter be referred to as the "Coopers Auction Fees". (c) None of the Company, MEI, Sub or any Transferred Subsidiary has employed any outside attorney who has been paid by the Company or any of the Transferred Subsidiaries or who has or will have a valid claim for a fee or other payment in connection with the negotiation, execution and delivery of the Original Agreement or this Agreement or the consummation of the transactions contemplated hereby, except for Wachtell and Fenwick. (d) Neither the Company nor any Transferred Subsidiary (i) has made any payments to DMG, Wachtell or Fenwick, or (ii) has any liability or other obligation to make any payment to DMG, Wachtell or Fenwick, in each case, in connection with the auction of the Company, the negotiation, execution and delivery of the Original Agreement or this Agreement and/or the consummation of the transactions contemplated hereby. (e) MEI is solely responsible for (i) the Coopers Auction Fees and (ii) any payment, fee or commission that may be due to DMG (the "DMG Fees"), Wachtell (the "Wachtell -16- 23 Fees") or Fenwick (the "Fenwick Fees") in connection with the auction of the Company, the negotiation, execution and delivery of the Original Agreement or this Agreement and/or the consummation of the transactions contemplated hereby. Section 2.16. Customers and Suppliers. Schedule 2.16 lists, as of November 27, 1997, each of the ten largest suppliers and the ten largest customers of the Company and the Transferred Subsidiaries taken as a whole based on prior twelve month purchases and sales, respectively. Except as listed on Schedule 2.16 to the knowledge of MEI, Sub or the Company, no supplier or third-party contractor has taken any action that is reasonably likely to have a material adverse effect on the quality of the goods that it supplies to the Company or the Transferred Subsidiaries. Section 2.17. Real Property. (a) Schedule 2.17 identifies by street address all real estate leased, subleased or otherwise occupied pursuant to an agreement (the "Leases") by the Company or any of the Transferred Subsidiaries (the "Leased Premises") or owned by the Company or any of the Transferred Subsidiaries ("Owned Property", and collectively with the Leased Premises, the "Real Property"). The Leased Premises are leased to the Company or a Transferred Subsidiary pursuant to written leases, copies of which have been made available to Investor prior to the date hereof. With respect to each Lease: (i) the Company or the applicable Transferred Subsidiary has a good and valid leasehold interest in and to all of the Leased Premises, subject to no Encumbrances, except for Permitted Encumbrances or as disclosed on Schedule 2.17; (ii) each Lease is in full force and effect and is enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity, and, except for Permitted Encumbrances or as disclosed on Schedule 2.17, none of the Company or any Transferred Subsidiary has assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in such Lease; and (iii) there exists no declared default or to the knowledge of the Company, Sub or MEI any condition which, with the giving of notice, the passage of time or both, could become a default under any Lease. There are no outstanding options or rights of first refusal to purchase the Owned Property or any portion thereof or interest therein except for Permitted Encumbrances. The Company or a Transferred Subsidiary has good and insurable title in and to the Owned Property, free and clear of any Encumbrances other than Permitted Encumbrances. (b) The Real Property constitutes all of the real property owned, leased, or otherwise utilized in connection with the Business. Other than the Company and the Transferred Subsidiaries, there are no parties in possession or parties having any current or future right to occupy any of the Real Property, except (x) tenants under any leases disclosed on Schedule 2.17 who are in possession of space to which they lease or (y) under or pursuant to Permitted Encumbrances. There exists no violation of any material covenant, condition, restriction, easement, agreement or order -17- 24 affecting any portion of the Real Property. All improvements located on the Real Property have direct access to a public road adjoining such Real Property, either directly or through a valid easement or other valid rights. Except as set forth on Schedule 2.17, no such improvements or access ways encroach on land not included in the Real Property except pursuant to a valid easement or other valid right and no such improvement is dependent for its access, current operation or utility in the Business on any land, building or other improvement not included in the Real Property except pursuant to valid easement or other valid right. All facilities located on the Real Property are supplied with adequate utilities and other services necessary for the operation of such facilities as currently operated. There is no pending or, to the knowledge of MEI, Sub and the Company, any threatened condemnation proceeding, or material lawsuit or administrative action affecting any portion of the Real Property. Section 2.18. Material Agreements. Set forth on Schedule 2.18 is a list of each agreement, arrangement, or understanding to which the Company or any of the Transferred Subsidiaries is a party or by which the Company or any of the Transferred Subsidiaries is bound (collectively, the "Material Agreements"): (1) for the lease of personal property from or to third parties providing for annual lease payments to any single lessor or from any single lessee in excess of $500,000; (2) for the purchase, distribution or sale of supplies, products or other personal property or for the furnishing or receipt of information or services, in each case, calling for performance over a period of more than six months or involving more than $1,000,000; (3) relating to the acquisition by the Company or any of the Transferred Subsidiaries of any legal entity or all or substantially all of the assets of any Person; (4) under which it has created, incurred or assumed indebtedness involving more than $500,000 or pursuant to which an Encumbrance is imposed on any of its tangible or intangible assets; (5) for the license of Intellectual Property material to the Business or the payment of royalties (whether as licensee or licensor or payor or payee) or any other agreement material to the Business providing in whole or in part for the use of, or limiting the use of, any Intellectual Property; (6) purporting to limit the right of the Company or any of the Transferred Subsidiaries to compete in any line of business, with any Person or in any geographic area or containing any covenant providing for an exclusive relationship between the Company or any Transferred Subsidiary and any Person; -18- 25 (7) with any director, officer or employee of the Company or any Transferred Subsidiary (including any involving employment or severance); (8) the consequences of a default or termination of which is reasonably likely to have a material adverse effect on the Business Condition; (9) containing any guarantee or power of attorney granted by the Company or any Transferred Subsidiary; (10) relating to any partnership or joint venture; (11) otherwise involving the receipt or expenditure of more than $250,000 or not entered into in the ordinary course of business consistent with past practice; and (12) otherwise material to the Business. Each of the Material Agreements are in full force and effect and are enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity. Except as set forth on Schedule 2.18, the Company or the applicable Transferred Subsidiary, as the case may be, has complied with the material provisions of each of the Material Agreements, is not in default under any of the terms thereof, and no event has occurred that with the passage of time or the giving of notice or both would constitute a default by the Company or the applicable Transferred Subsidiary, as the case may be, under any provision thereof. Except as set forth on Schedule 2.18, to MEI's, Sub's and the Company's knowledge, all parties other than the Company or any of the Transferred Subsidiaries have complied with the material provisions of the Material Agreements; are not in default under any of the terms thereof; and no event has occurred that with the passage of time or the giving of notice or both would constitute a default by any such party under any provision thereof. Neither the Company nor any of the Transferred Subsidiaries have received any written notice of termination with respect to any of the Material Agreements. Neither the Company nor any of the Transferred Subsidiaries has assigned any of its rights or obligations under any of the Material Agreements other than to each other. Neither the Company nor any of the Transferred Subsidiaries have waived any of its rights in writing under any of the Material Agreements. True and complete copies of all written Material Agreements and summaries of any oral Material Agreements have been made available to Investor prior to the date hereof. Section 2.19. Transactions with Affiliates. Except as set forth on Schedule 2.19, (a) neither the Company nor any Transferred Subsidiary is a party to any executory contract with any of its Affiliates, and (b) no Affiliate of the Company or any Transferred Subsidiary (other than the Company and the Transferred Subsidiaries) owns any asset, property, or right, tangible or intangible, that is used in the Business. -19- 26 Section 2.20. Insurance. Set forth on Schedule 2.20 is a list and summary description of all policies (including scope, duration and amount of coverage) of fire, liability, product liability, worker's compensation and other forms of liability and casualty insurance currently in effect with respect to the Company, each of the Transferred Subsidiaries, and their respective businesses and assets. Neither the Company nor any of the Transferred Subsidiaries is in default with respect to its material obligations under any insurance policy maintained by it, and neither the Company nor any of the Transferred Subsidiaries has been denied insurance coverage. The insurance coverage of the Company and the Transferred Subsidiaries covers risks of such types and in such amounts as are customary for corporations of similar size engaged in similar lines of business. Except as set forth on Schedule 2.20, the Company and the Transferred Subsidiaries do not have any self-insurance or co-insurance programs, and the reserves set forth on the Financial Statements are adequate to cover all reasonably anticipated liabilities with respect to any such self-insurance or co-insurance programs. Section 2.21. Computer Systems. Except as set forth on Schedule 2.21, neither the Company nor any Transferred Subsidiary plan or anticipate any material expenditure in relation to the hardware or software or communications systems used or planned to be used in connection with the Business. Except as set forth on Schedule 2.21, all computer systems used by the Company and the Transferred Subsidiaries recognize the advent of the year 2000 and can correctly recognize and manipulate date information relating to dates on or after January 1, 2000 and the operation and functionality of such computer systems will not be adversely affected by the advent of the year 2000 or any manipulation of data featuring date information relating to dates before, on or after January 1, 2000. Section 2.22. Products and Services Liability. Except as disclosed on Schedule 2.22 hereto, to MEI's, Sub's and the Company's knowledge, there are not any: (a) outstanding liabilities of the Company or any Transferred Subsidiary, fixed or contingent, asserted or unasserted, in the aggregate in excess of $50,000 with respect to any products liability or any similar claim that relates to any product manufactured or sold by the Company or any Transferred Subsidiary to any Person, (b) outstanding liabilities of the Company or any Transferred Subsidiary, fixed or contingent, asserted or unasserted, in the aggregate in excess of $50,000 with respect to any claim for the breach of any express or implied product warranty or any other similar claim with respect to any product manufactured or sold by the Company or any Transferred Subsidiary to any Person other than standard warranty obligations (to replace or repair) made by either the Company or any Transferred Subsidiaries in the ordinary course of business to purchasers of its product provided that any liability for returned materials authorizations (in amounts consistent with past practice) shall not be considered a liability for purposes of this Section 2.22, and -20- 27 (c) outstanding liabilities of the Company or any Transferred Subsidiary, fixed or contingent, asserted or unasserted, in the aggregate in excess of $50,000 with respect to any claim for the breach of any express or implied warranty or any other similar claim with respect to any service rendered by the Company or any Transferred Subsidiary to any Person other than standard warranty obligations made by either the Company or any Transferred Subsidiaries in the ordinary course of business to users of its services. A copy of each type of warranty given to customers of the Company or any Transferred Subsidiary are attached hereto as Schedule 2.22. Set forth on Schedule 2.22 hereto is a description of each claim in excess of $25,000 that has been asserted against the Company or any Transferred Subsidiary since December 31, 1995 based upon any product or service liability or similar claim, or on the breach or alleged breach of any express or implied product or service warranty or any other similar claim with respect to any product manufactured or sold by or any service rendered by the Company or any Transferred Subsidiary to any Person, including information regarding (i) the amount of the claim, (ii) the basis of the claim, (iii) whether the claim was covered by insurance, (iv) how the claim was resolved, and (v) the amount paid by the Company or any Transferred Subsidiary in relation to the claim. Section 2.23. Predecessor Businesses; Former Facilities. Neither the Company nor any Transferred Subsidiary has ever conducted any business other than the Business and the component recovery business. Except as disclosed on Schedule 2.23 hereto, other than the Real Property, neither the Company nor any Transferred Subsidiary has ever owned, leased or occupied any real property. Section 2.24. Disclosure. No representation or warranty by MEI, Sub or the Company in this Agreement, and no exhibit, document, statement, certificate or schedule furnished or to be furnished to Investor pursuant hereto, or in connection with the transactions contemplated hereby, in any event taken together, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements or facts contained herein or therein not misleading in light of the circumstances in which they are made in any material respect with respect to the Business Condition. Section 2.25. No Representations Regarding Projections. It is understood that any cost estimates, projections or other predictions contained or referred to in the Schedules hereto and any cost estimates, projections or other predictions contained or referred to in other materials that have been or may hereafter be provided to Investor or any of its Affiliates, agents or representatives are not and shall not be deemed to be representations or warranties of MEI, Sub or the Company. Section 2.26. Construction of Certain Provisions. It is understood and agreed that neither the specification of any dollar amount in the representations, warranties or covenants con tained in this Agreement nor the inclusion of any specific item in the Schedules or Exhibits is -21- 28 intended to imply that such amounts or higher or lower amounts, or the items so included or other items, are or are not material, and neither party shall use the fact of the setting of such amounts or the fact of the inclusion of any such item in the Schedules or Exhibits in any dispute or controversy between the parties as to whether any obligation, item or matter is or is not material for purposes of this Agreement. ARTICLE III Representations and Warranties of Investor Investor hereby represents and warrants to MEI and Sub as follows: Section 3.1. Incorporation; Authorization; No Conflicts; etc. (a) Investor is a legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. Investor has full corporate, partnership or limited liability company, as the case may be, power to execute and deliver this Agreement and to perform its obligations hereunder, and Investor has full corporate, partnership or limited liability company, as the case may be, power to consummate the transactions contemplated hereby. All corporate, partnership or limited liability company, as the case may be, acts and other proceedings required to be taken by Investor to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and prop erly taken. This Agreement has been duly executed and delivered by Investor and, assuming the due execution and delivery hereof by the other parties hereto, this Agreement constitutes the legal, valid and binding obligation of Investor, enforceable against Investor in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity. (b) The execution, delivery and performance of this Agreement by Investor and the consummation by Investor of the transactions contemplated hereby will not (1) violate any provision of the organizational documents or limited partnership agreement of Investor, (2) violate any provision of, or constitute a default (with or without notice or lapse of time) under, or give rise to a right of termination, cancellation or acceleration of (or entitle any party to accelerate whether after the giving of notice or lapse of time or both) any obligation under, or result in the imposition of any lien upon or the creation of a security interest in any of Investor's assets or properties pursuant to, any note, bond, debt instrument, mortgage, indenture, lien, lease, agreement or other instrument, or any judgment, injunction, order or decree to which Investor is a party or by which any of them is bound, or (3) violate or conflict with any Law applicable to Investor or by which any of its proper ties or assets is bound, except, in the case of clauses (2) and (3), for any such violations, defaults, rights or restrictions that would not reasonably be expected to have, individually or in the aggregate, -22- 29 a material adverse effect on (A) the business, financial condition, assets or liabilities of Investor or (B) the ability of Investor to consummate the Stock Purchase or the other transactions contemplated by this Agreement. Section 3.2. Licenses, Approvals, Other Authorizations, Consents, Reports, etc. Schedule 3.2 lists all consents, approvals, registrations, filings, applications, notices, orders, authorizations, qualifications or waivers required to be made, filed, given or obtained by Investor with, to or from any persons or Governmental Authorities in connection with the consummation of the Recapitalization and the other transactions contemplated by this Agreement, except for those (a) that become applicable solely as a result of the specific regulatory status of MEI, Sub, the Company or the Transferred Subsidiaries or (b) the failure to make, file, give or obtain which would not reasonably be expected, individually or in the aggregate, either to have a material adverse effect on the Business Condition of Investor or to prevent the consummation of the Stock Purchase or the other transactions contemplated by this Agreement. Section 3.3. Brokers, Finders, etc. Investor has not employed any broker, finder, consultant or other intermediary in connection with the transactions contemplated by this Agreement who would have a valid claim for a fee or commission in connection with such transactions. Section 3.4. Financing. Investor has received, and has furnished to MEI a copy of a commitment letter from BT Alex. Brown Incorporated ("BTAB"), dated December 18, 1997 (the "BTAB Commitment Letter"), pursuant to which BTAB has committed to provide up to $215 million in financing for the transactions contemplated hereby. Investor has the financial ability, subject only to the conditions set forth in Article VI hereof, to provide up to $61.2 million toward the Stock Purchase. Each of the BTAB Commitment Letter and a letter from Bankers Trust Company ("BT") relating to the Credit Facility (the "BT Letter") have been duly accepted by Investor. All fees required to be paid by Investor or any of its Affiliates on or prior to the date hereof in respect of the BTAB Commitment Letter and the BT Letter have been paid by Investor or its Affiliates, as applicable. As of the date hereof, neither BTAB nor BT have advised Investor of any reason why the BTAB Commitment Letter or the BT Letter will not be fulfilled in a manner sufficient to consummate the Recapitalization. Section 3.5. Investment. Investor (a) has been informed by the Company that the Purchase Shares have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), or under any state securities laws and are being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering, (b) is an experienced and sophisticated investor and has such knowledge and experience in financial and business matters as are necessary to evaluate the merits and risks of an investment in the Purchase Shares, (c) confirms that it has been given the opportunity to ask questions of the officers and management employees of MEI, the Company and the Transferred Subsidiaries and to acquire -23- 30 additional information about the Business and the Business Condition and (d) is an "Accredited Investor" as defined in Regulation D under the Securities Act. ARTICLE IV Covenants Section 4.1. Investigation of Business; Access to Properties and Records; Records Retention. (a) Subject to existing confidentiality arrangements, after the date hereof and prior to Closing, MEI and Sub shall cause the Company and each of the Transferred Subsidiaries to afford to representatives of Investor reasonable access to its offices, properties, books and records, officers, counsel, accountants, contracts and Other Persons (as defined below) during normal business hours, in order that Investor may have an opportunity to make such investigations as it desires of the affairs of the Company, the Transferred Subsidiaries and the Business; provided, however, that such inves tigation shall be upon reasonable prior notice and shall not unreasonably disrupt the personnel and operations of MEI, Sub, the Company or any Transferred Subsidiary. All requests for access to the Company or any Transferred Subsidiary and the offices, properties, books, records and contracts re lating thereto shall be made to such representatives of MEI as MEI shall designate in writing, who shall be solely responsible for coordinating all such requests and all access permitted hereunder. It is further understood and agreed that neither Investor nor its representatives shall contact any of the employees, customers, suppliers, joint venture partners, or other associates or Affiliates of MEI, Sub or the Company (collectively, "Other Persons"), in connection with the transactions contemplated by this Agreement, whether in person or by telephone, mail or other means of communication, without the specific prior notification of such representatives of MEI as MEI shall designate in writing. If, as of the date hereof or at any time hereafter Investor is aware of or discovers any breach of any representation or warranty contained in this Agreement or any circumstance or condition that upon Closing would constitute such a breach, Investor shall use reasonable best efforts to promptly so inform MEI in writing; provided, that Investor's awareness or discovery of any such breach, circumstance or condition shall in no way affect any of Investor's rights or remedies under this Agreement including any rights pursuant to Article XII. (b) Prior to Closing, any information provided to Investor or its representatives pursuant to this Agreement shall be held by Investor and its representatives in accordance with, and shall be subject to the terms of, the Confidentiality Agreement dated September 23, 1997 by and between MEI and Cornerstone Equity Investors, L.L.C. (the "Confidentiality Agreement"). (c) Subject to Section 9.5(c), the Company agrees (i) to hold all of the books and records of the Company and Transferred Subsidiaries existing on the Closing Date and not to destroy or dispose of any thereof for a period of 5 years from the Closing Date or such longer time as may -24- 31 be required by Law or by any Order, and thereafter, if it proposes to destroy or dispose of any of such books and records, to offer first in writing, at least 60 days prior to such proposed destruction or disposition to surrender them to MEI, and (ii) for a period of 5 years from the Closing Date to afford MEI or Sub (or MEI's or Sub's successors or assigns), their accountants, counsel and other representatives, during normal business hours, upon reasonable request, at any time, full access to such books, records and other data and to the employees of the Company and any of its Subsidiaries to the extent that such access may be requested for any legitimate purpose at no cost to MEI or Sub (other than for reasonable out-of-pocket expenses); provided, however, that nothing herein shall limit any of MEI's or Sub's rights of discovery. (d) MEI and Sub agree and shall use their respective reasonable best efforts to cause each Continuing Affiliate and MTI (i) to hold all of the books, records, documents, files and other data held by any such Person as of immediately after the Closing which relates in any way to the Business of the Company (including all books, record documents, files and other data relating to any Intellectual Property held by any such Person as of immediately after the Closing which relates to or is used in the Business of the Company) and not to destroy or dispose of any thereof for a period of 5 years from the Closing Date or such longer time as may be required by Law or by any Order, and thereafter, if any of them proposes to destroy or dispose of any of such books, records, documents, files or other data to offer first in writing, at least 60 days prior to such proposed destruction or disposition to surrender them to the Company, and (ii) for a period of 5 years from the Closing Date to afford the Company (or the Company's successors or assigns), their accountants, counsel and other representatives, during normal business hours, upon reasonable request, at any time, full access to such books, records, documents, files and other data and to the employees of MEI, each Continuing Affiliate and MTI to the extent that such access may be requested for any le gitimate purpose at no cost to the Company (other than for reasonable out-of-pocket expenses); provided, however, that nothing herein shall limit any of the Company's rights of discovery. (e) Notwithstanding anything contained herein to the contrary, MEI, Sub and the Company acknowledges that Investor may cause a Rule 144A placement memorandum (the "Placement Memorandum") to be prepared and used in connection with the consummation of the Company's financing of the transactions contemplated hereby and agrees to use reasonable efforts to furnish Investor with access to, and to cause the cooperation of, all records and personnel necessary for Investor to cause the consummation such financing; provided that no director or officer of MEI or Sub, in such capacity, shall be required to execute a registration statement or purchase agreement in connection with such financing. In addition, the Company shall request its accountants to consent to the inclusion of their report or reports in, and to issue a comfort letter in connection with, any offering memoranda or filings required by such financing. The Company agrees to indemnify MEI and Sub against all damages caused by any untrue statement of material fact contained in the Placement Memorandum or any omission or alleged omission of material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as MEI or Sub, as applicable, has provided information containing such material -25- 32 misstatement or material omission to the Investor or the Company in writing including in any representation and warranty contained in this Agreement. Section 4.2. Efforts; Obtaining Consents. Subject to the terms and conditions herein provided, MEI, Sub and Investor each agrees to use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated hereby and to cooperate with the other in connection with the foregoing, including using all reasonable efforts (1) to obtain all necessary waivers, consents and approvals from other parties to material loan agreements, leases and other contracts, (2) to obtain the consents, approvals and authorizations that are required to be obtained from any Governmental Authority, (3) to prevent the entry of, or to lift or rescind, any Order adversely affecting the ability of the parties hereto to consummate the transactions contemplated hereby, (4) to effect all necessary registrations and filings including, but not limited to, filings under the HSR Act and submissions of information requested by Governmental Authorities and (5) to fulfill all conditions to this Agreement. Section 4.3. Further Assurances. MEI, Sub and Investor agree that, from time to time, whether before, at or after the Closing Date, each of them will, and will use their reasonable best efforts to cause their respective Affiliates to, execute and deliver such further instruments of conveyance and transfer and take such other action as may be necessary to carry out the purposes and intents of this Agreement. Section 4.4. Conduct of Business. From December 21, 1997 to the Closing, except as disclosed on Schedule 4.4 or otherwise provided for in, or contemplated by, this Agreement, and, except as consented to or approved by Investor, MEI, Sub and the Company covenant and agree that: (a) the Company and the Transferred Subsidiaries shall operate their respective businesses in the ordinary course in all material respects; (b) none of the Company or any of the Transferred Subsidiaries shall amend its certificate of incorporation or by-laws; (c) except for the transfer of the Shares from MEI to Sub (which has been completed prior to the execution of this Agreement), the Stock Purchase, the Stock Redemption and in connection with the BTAB Financing, none of the Company or any of the Transferred Subsidiaries shall issue, sell, agree to issue or sell or redeem or otherwise acquire (1) any shares of its capital stock or (2) any securities convertible into, or options with respect to, or warrants to purchase or rights to subscribe for, any shares of its capital stock or evidences of indebtedness or other securities; -26- 33 (d) except in the ordinary course of business, none of the Company or any of the Transferred Subsidiaries shall (1) create, incur or assume any indebtedness for Borrowed Money; (2) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any Person, if such assumption, guarantee, endorse ment or other liability is in any such case material to the Company; or (3) make any material loans, advances or capital contributions to or investments in, any Person (except for customary loans or ad vances to employees); (e) except in the ordinary course of business or as required by any Law or contractual obligations or other understandings or arrangements existing on the date hereof which are disclosed in Schedule 4.4, none of the Company or any of the Transferred Subsidiaries shall (1) increase in any manner the base compensation of, or enter into or amend any employment, bonus, incentive, severance, consulting, or other compensation agreement with, any existing director or of ficer; or (2) commit itself to any additional pension, profit-sharing, deferred compensation, group insurance, severance pay, retirement or other employee benefit plan, fund or similar arrangement or amend or commit itself to amend any of such plans, funds or similar arrangements in existence on the date hereof so as to increase benefits thereunder; (f) except in the ordinary course of business or as required by any Law or contractual obligations existing on the date hereof which are disclosed in Schedule 4.4 or as provided for in or expressly contemplated by this Agreement or Schedule 4.4, none of the Company or any of the Transferred Subsidiaries shall (1) sell, transfer or otherwise dispose of any of its material assets, (2) create any new material Encumbrance, other than a Permitted Encumbrance, on its properties or assets, (3) enter into any material joint venture or partnership or (4) purchase any mate rial amount of assets or securities of any Person; (g) none of the Company or any of the Transferred Subsidiaries shall enter into any transaction or other arrangement which would have to be listed on Schedule 2.7 (provided that, notwithstanding anything contained herein, no material adverse change in the Business Condition which occurred prior to February 1, 1998 would have to be listed on Schedule 2.7); and (h) none of the Company or any of the Transferred Subsidiaries shall agree to take any action prohibited by this Section 4.4. Section 4.5. Preservation of Business. Subject to the terms and conditions of this Agreement, MEI and Sub shall, and shall cause the Company and the Transferred Subsidiaries to, use reasonable efforts to preserve the Business intact, to keep available to the Company and the Transferred Subsidiaries the services of persons employed by the Company and the Transferred Subsidiaries and to preserve the goodwill of customers and others having business relations with the Company and the Transferred Subsidiaries but shall not be required to incur material expense to do so. -27- 34 Section 4.6. Public Announcements. From and after the date hereof until the Closing, MEI, Sub and Investor will, before issuing, or permitting any agent or Affiliate to issue, any press releases or otherwise making or permitting any agent or Affiliate to make, any public statements with respect to this Agreement and the transactions contemplated hereby, mutually agree in good faith upon the content of such press release or statement, except in the event, and only to the extent, that disclosure is required by law; provided, that in such instances the disclosing party will consult with the other party prior to making such disclosure. Section 4.7. Intercompany Accounts. (a) Notwithstanding the provisions of Section 4.4 hereof, nothing in this Agreement shall be construed or interpreted to prevent the Company from engaging in any trans action incident to the cash management procedures of Continuing Affiliates, the Company and the Transferred Subsidiaries in a manner consistent with past practice, including, without limitation, short-term investments in bank deposits, money market instruments, time deposits, certificates of deposit and bankers' acceptances, incurrence or payment of bank overdrafts and borrowings for working capital purposes and for purposes of providing additional funds to the Company and the Transferred Subsidiaries in the ordinary course of business consistent with past practice; provided, however, that notwithstanding the foregoing, between December 21, 1997 and the Closing, the Company shall not declare, set aside, or pay any dividend or distribution with respect to its capital stock and, except for the Stock Purchase and the Stock Redemption, shall not redeem, purchase or otherwise acquire any of its capital stock. (b) Immediately prior to the Closing, MEI shall settle on an arms-length basis all intercompany receivables, payables and loans then existing between MTI and the Continuing Affiliates, on the one hand, and the Company and the Transferred Subsidiaries, on the other hand other than (i) receivables, payables and loans relating to ongoing business between MTI and the Continuing Affiliates, on the one hand and the Company and the Transferred Subsidiaries, on the other hand and (ii) trade payables and receivables. Section 4.8. Notice of Breach. If, as of the date hereof or at any time hereafter MEI, Sub or the Company is aware of or discovers any breach of any representation or warranty contained in this Agreement or any circumstance or condition that upon Closing would constitute such a breach, MEI, Sub or the Company, as the case may be, shall promptly so inform Investor in writing. Section 4.9. Acquisition Proposals. MEI, Sub and the Company shall not, and the Company shall cause the Transferred Subsidiariffes not to, directly or indirectly, (i) solicit, initiate or encourage the submission of any inquiries, discussions or proposals or offers from any Person relating to a possible disposition of any capital stock or any material portion of the assets of the Company or any Transferred Subsidiary, (ii) continue, propose, solicit, initiate, encourage or enter into negotiations or discussions relating to a possible disposition of any capital stock or any material -28- 35 portion of the assets of the Company or any Transferred Subsidiary, (iii) enter into or consummate any agreement or understanding providing for the disposition of any capital stock or any material portion of the assets of the Company or any Transferred Subsidiary, or (iv) assist, participate in or encourage any effort or attempt by any other Person to do or seek any of the foregoing. MEI, Sub or the Company shall promptly notify Investor of, and communicate to Investor the terms of, any such inquiry, proposal or request for information received by, or negotiations or discussions sought with, MEI, Sub, the Company or any Transferred Subsidiary. Section 4.10. Noncompetition; Nonsolicitation. (a) For a period of two (2) years from and after the Closing (the "Two Year Term"), no Continuing Affiliate shall and each Continuing Affiliate shall use its reasonable best efforts to cause its officers and directors to not directly or indirectly, (i) own, manage, operate, control or participate in the ownership, management, operation or control of, or be connected as an officer, director, employee, stockholder, partner or any other similar capacity with any business which is in competition with the business of design, assembly and testing of custom complex printed circuit boards for third party electronics original equipment manufacturers ("OEM's") and the business of design, assembly and testing of system level assemblies when acting solely and strictly in the capacity of a subcontractor of an OEM (a "Competitive Business"), or (ii) solicit, interfere with or attempt to entice away (other than through advertisements or general solicitations) from the Company, any of the Transferred Subsidiaries or any successor to any of the foregoing, any individual who is, has agreed to be or within six months of such solicitation, interference or enticement has been, employed or retained by the Company, any of the Transferred Subsidiaries or any successor to any of the foregoing. Ownership of not more than 5% of the outstanding stock of any publicly traded company shall not, in and of itself, be a violation of this Section 4.10. The restrictive covenant contained in this Section 4.10 is a covenant independent of any other provision of this Agreement, and the existence of any claim which MEI or Sub may allege against Investor, the Company, or any of their Affiliates, whether based on this Agreement or otherwise, shall not prevent the enforcement of this covenant. MEI and Sub agree that a breach of this Section 4.10 shall cause irreparable harm to Investor, the Company and their respective Affiliates, that Investor's and the Company's remedies at law for any breach or threat of breach of the provisions of this Section 4.10 shall be inadequate, and that Investor and/or the Company shall be entitled to an injunction or injunctions to prevent breaches of this Section 4.10 and to enforce specifically the terms and provisions hereof, in addition to any other remedy to which Investor and/or the Company may be entitled at law or in equity. The Two Year Period shall be tolled during any period of violation of this Section 4.10 after which MEI is provided notice and during any other period required for litigation during which Investor and/or the Company seeks to enforce this covenant. In the event that this Section 4.10 shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too long a period of time or over too large a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the longest period of time for which it may be enforceable, and/or over the largest geographical area as -29- 36 to which it may be enforceable and/or to the maximum extent in all other aspects as to which it may be enforceable, all as determined by such court in such action. (b) Notwithstanding the foregoing, MEI may acquire any business or entity which has a component which is a Competitive Business (an "Acquired Business") during the Two Year Term, provided that (i) not more than 10% of the revenues of the Acquired Business during the 12 calendar months immediately preceding such acquisition are derived from the business which is competitive with the Business and (ii) MEI uses its best efforts to dispose of the portion of the Acquired Business which is a Competitive Business as soon as commercially practicable. (c) Nothing contained in this Section 4.10 shall prohibit or in any way infringe upon the activities (including conducting the business) of MEI's advanced engineering group consistent with the activities conducted as of December 21, 1997. Section 4.11. Confidentiality. (a) From and after the Closing, MEI and Sub shall, and shall use their respective reasonable best efforts to cause their respective Affiliates and representatives to, keep confidential and not disclose to any other Person or use for their own respective benefit or the benefit of any other Person any trade secrets or other confidential proprietary information in their possession or control regarding the Company, any of the Transferred Subsidiaries or the Business. The obligation of MEI and Sub under this Section 4.11(a) shall not apply to information which (i) is or becomes generally available to the public without breach of the commitment provided for in this Section 4.11(a); or (ii) is required to be disclosed by law, order or regulation of a court or tribunal or governmental authority; provided, however, that, in any such case, the Person subject to such requirement shall notify Investor and the Company as early as reasonably practicable prior to disclosure to allow Investor and the Company to take appropriate measures to preserve the confidentiality of such information. (b) From and after the Closing, the Company shall, and shall cause its Affiliates and representatives to, keep confidential and not disclose to any other Person or use for its own benefit or the benefit of any other Person any trade secrets or other confidential proprietary information in its or their possession or control regarding the Continuing Affiliates or their respective businesses. The obligation of the Company under this Section 4.11(b) shall not apply to information which (i) is or becomes generally available to the public without breach of the commitment provided for in this Section 4.11(b); or (ii) is required to be disclosed by law, order or regulation of a court or tribunal or governmental authority; provided, however, that, in any such case, the Person subject to such requirement shall notify MEI as early as reasonably practicable prior to disclosure to allow MEI to take appropriate measures to preserve the confidentiality of such information. -30- 37 Section 4.12. Nonsolicitation by the Company. For a period of two (2) years from and after the Closing, neither the Company nor any of its Affiliates shall, directly or indirectly, solicit, interfere with or attempt to entice away (other than through advertisements or general solicitations) from any Continuing Affiliate or any successor to any of the foregoing, any individual who is, has agreed to be or within six (6) months of such solicitation, interference or enticement has been, employed or retained by any of the Continuing Affiliates or any successor other than the individuals listed on Schedule 4.12 hereto. Section 4.13. Alternative Financing. In the event the financing described in the BTAB Commitment Letter will not be available at Closing in a manner sufficient to consummate the Recapitalization, Investor shall use commercially reasonable efforts to pursue financing, reasonably acceptable to Investor, on terms in the aggregate not materially worse to Investor or the Company than the terms contained in the BTAB Commitment Letter (taking into account the BTAB Financing as contemplated as of the date hereof); provided, that if Investor is unable to obtain any such alternative financing, Investor shall have no obligation to consummate the Stock Purchase, the Recapitalization or any other transaction contemplated hereby. Section 4.14. License Agreements. The parties hereto acknowledge that the Company currently enjoys certain rights under various agreements listed on Schedule 4.14 hereto to which either MTI or MEI is a party (the "Master Agreements"). MEI and the Company shall use their commercially reasonable efforts to obtain for the Company a replacement license or other agreement (which the Company shall be a party to), on terms reasonably satisfactory to the Company and Investor, with each of the third parties listed on Schedule 4.14 as a replacement for each of the Master Agreements. Section 4.15. Use of Micron Name. It is understood and agreed between the parties hereto that after the Closing, neither the Company nor any of the Transferred Subsidiaries shall have an interest in or right to use, either alone or in combination with other words or phrases, the name "Micron" or the stylized "M" currently used by the Company and the Transferred Subsidiaries. No later than the Closing, MEI shall cause the name of the Company to be changed to "MCMS, Inc." and within three (3) months after Closing will change the font currently used by the Company in the name "MCMS." The Company shall have a transition period of 3 months after the Closing to take all steps within its control to change the name of each Transferred Subsidiary, as necessary, so as to remove the name "Micron" therefrom. MEI acknowledges and agrees that the Company and the Transferred Subsidiaries will have in inventory after the Closing a quantity of work-in-process, preprinted stationery, invoices, receipts, forms, advertising and promotional materials, training and source literature, packaging material and other supplies which bear the "Micron" name and the stylized "M" (collectively, "Supplies"). Notwithstanding anything in this Section 4.15 to the contrary, MEI hereby grants to the Company and the Transferred Subsidiaries a paid-up, royalty-free right and license, to remain in effect until exhaustion of the Supplies (but in no event more than 3 months after Closing) in the ordinary course of business, to use any trademarks, trade names, trade -31- 38 dress, copyright or other proprietary rights of MEI associated with such Supplies, including but not limited to the "Micron" name and the Stylized "M." MEI agrees that the Company shall be permitted to continue to use its current logo and MEI expressly disclaims any rights thereto. Section 4.16. Schedule Supplements. Investor, Sub and MEI agree that during the period between the date hereof and the Closing Date, the schedules to this Agreement relating to Article II may be supplemented in order for MEI, Sub and the Company to bring down the representations and warranties contained in Article II to the Closing Date (but not to change any representations and warranties made by MEI, Sub and the Company as of the date hereof). Notwithstanding the foregoing, no such schedule shall be so amended without the review and approval of Investor, which review and approval shall not be arbitrarily withheld. Section 4.17. Capital Expenditures. Neither the Company nor any Transferred Subsidiary shall make any capital expenditures or commitments, or series thereof, involving more than $6,500,000 in the aggregate for the Company and the Transferred Subsidiaries during the fiscal quarter ending February 28, 1998 or more than $6,000,000 in the aggregate for the Company and the Transferred Subsidiaries during the fiscal quarter ending May 31, 1998. Section 4.18. Leased Property. The parties hereto agree that, prior to Closing, MEI and the Company shall amend the lease (the "MCMS Lease"), dated as of November 1, 1996, by and between MEI and the Company, to provide, notwithstanding any other provision of the MCMS Lease other than Section 13 thereof including, without limitation, any change of control provision, that (1) MEI shall have the right to occupy the premises covered by the MCMS Lease until December 31, 1998, at the rental rates effective on the date hereof, and the Company shall have no right to terminate the MCMS Lease at any time prior to December 31, 1998; provided that MEI will vacate the space it currently occupies in the bullpen area of the Company's accounting area (approximately 3,625 square feet) upon 90 days' advanced written notice by the Company; (2) MEI shall have the right to terminate the MCMS Lease at anytime upon 30 days' written notice to the Company; (3) at any time after March 31, 1998, the Company shall be entitled to occupy (upon the execution of a sublease agreement with customary terms and conditions consistent with the terms and conditions of the lease agreement covering the Shilo Property (as herein defined)) approximately 24,000 square feet of space currently leased by MEI at 1400 Shilo Drive, Nampa, Idaho (the "Shilo Property") (with respect to which MEI warrants its ability to sublease to the Company); provided that the Company give 60 days' advanced written notice of its intent to so occupy and 30 days' advanced written notice of its intent to vacate the Shilo Property; (4) the Company shall pay all fees, expenses and rent associated with its occupancy of the Shilo Property (which fees, expenses and rent shall be no greater than the amounts MEI currently is obligated to pay under its lease of the Shilo Property); provided that MEI shall pay up to $35,000 in start-up/upfit and relocation expenses (whether to or from the Shilo Property) associated with the Company's occupancy of the Shilo Property; (5) prior to the time that MEI vacates the premises covered by the MCMS Lease, MEI will use its reasonable best efforts to assist the Company in locating up to 12,000 additional square feet -32- 39 (in the Company's discretion) of space in Nampa, Idaho (the "Additional Space") after receiving a written request from the Company for such assistance; and (6) the Company shall pay all fees, expenses and rent of any kind associated with its occupancy of the Additional Space. ARTICLE V Employee Benefits Section 5.1. Provision of Benefits. Any Company Plan other than plans maintained for the benefit of Company Employees located in Belgium and Malaysia shall terminate no later than as of the Closing Date. Except as specifically provided in this Article V, MEI shall be responsible for (x) all liabilities and obligations under the Company Plans terminated pursuant to the preceding sentence (other than Liabilities that are accrued on the Company Financial Statements), (y) the $1,009,672.60 amount with respect to potential bonuses that is listed at Schedule 2.4, and (z) all liabilities and obligations under any Plan that is not a Company Plan. As of the Closing Date or as soon as practicable thereafter, the Company shall establish for the benefit of its employees and employees of the Transferred Subsidiaries on and after the Closing Date such Employee Benefit Plans as are reasonably deemed appropriate by the president of the Company and the Investor. The Company agrees, for all purposes under all Employee Benefit Plans applicable to employees of the Company and the Transferred Subsidiaries to treat all service by Company Employees with MEI or any of its Affiliates before the Closing as service with the Company and the Transferred Subsidiaries, except to the extent such treatment would result in duplication of benefits. Section 5.2. Savings Plan. As soon as reasonably practicable after the Closing Date, the Company shall establish one or more defined contribution plans (the "Successor 401(k) Plan") qualified under Section 401 of the Code, and one or more related trusts (the "Successor 401(k) Trust") exempt from taxation under Section 501 of the Code, in which Company Employees will be eligible to participate. The account balances in MEI's 401(k) Plan of all Company Employees shall be transferred to the Successor 401(k) Trust in cash or in kind, as agreed by MEI and the Company. Such transfer shall take place as soon as practicable after the Closing Date, but no earlier than the date on which the Company delivers to MEI either (x) a copy of a favorable determination letter or letters from the IRS that the Successor 401(k) Plan is qualified under Section 401 of the Code and the Successor 401(k) Trust is exempt from taxation under Section 501 of the Code, or (y) an opinion of counsel to the Company, reasonably satisfactory to MEI, that the Successor 401(k) Plan is quali fied under Section 401 of the Code and the Successor 401(k) Trust is exempt from taxation under Section 501 of the Code. Following the Closing Date, Company Employees shall continue to vest in the unvested portion of their account balances in MEI's 401(k) Plan as transferred to the Successor 401(k) Plan, based upon continued employment with the Company and the Affiliates of the Company, and otherwise on the same terms and conditions as applied under MEI's 401(k) Plan. The Company and MEI agree to cooperate in making all appropriate filings and taking all appropriate actions required to implement the provisions of this Section 5.2. -33- 40 Section 5.3. Welfare Benefits. (a) MEI shall be responsible for (i) continuing to provide Company Employees and Former Company Employees and their respective beneficiaries and dependents with welfare benefits, including without limitation life insurance, accidental death and dismemberment insurance, medical, dental, vision, short-term and long-term disability benefits (such benefits, collectively, "Welfare Benefits"), for claims incurred before the Closing Date; and (ii) providing Company Employees, Former Company Employees and their respective current and former dependents and beneficiaries with all required continuation coverage under Section 601 et seq. of ERISA and Section 4980B of the Code for "qualifying events" (as defined in Section 603 of ERISA and the regulations pertaining thereto) occurring on or prior to the Closing Date. The Company and the Transferred Subsidiaries shall be solely responsible for providing Company Employees and their beneficiaries and dependents with the Welfare Benefits that are provided under plans to be established by the Company for claims incurred after the Closing Date; provided, that if as a result of the level of benefits provided by the Company after the Closing Date any employee experiences a "qualifying event" (as defined above) merely as a result of ceasing to participate in the Plans and starting to participate in such plans established by the Company, the Buyer shall compensate MEI for its costs and expenses in providing continuation coverage to such employees. For purposes of this Section 5.3(a), a claim for a medical, dental or other similar benefit shall be con sidered to be incurred when the services that are the subject of the claim are performed; a claim for life insurance or other death-related benefits shall be considered to be incurred when the death of the covered individual occurs; and a claim for disability benefits or other income-replacement benefits shall be considered incurred as and when such benefits are payable. (b) The Welfare Benefits provided by the Company to Company Employees and their beneficiaries and dependents after the Closing shall be provided without evidence of insur ability and without the application of any pre-existing physical or mental condition restrictions, except to the extent such restrictions applied to any particular individual immediately before the Closing Date. To the extent any such individual has, before the Closing Date, satisfied in whole or in part any annual deductible or paid any out-of-pocket or co-payment expenses under the applicable plan of MEI and its Affiliates, such individual shall be credited therefor under the corresponding provisions of the corresponding plan of the Company and the Transferred Subsidiaries in which such individual participates after the Closing Date. Section 5.4. Intercompany Charges. Nothing contained herein shall be deemed to prevent the Company from paying monthly charges accrued for pre-Closing periods for employee benefits, in a manner consistent with past practice (including such charges for any period of less than a month ending immediately on the Closing Date). -34- 41 ARTICLE VI Conditions of Investor's Obligation to Close Investor's obligation to consummate the Recapitalization shall be subject to the satisfaction on or prior to the Closing Date, or waiver by Investor, of all of the following conditions: Section 6.1. Representations, Warranties and Covenants of MEI, Sub and the Company. The covenants and agreements of MEI, Sub and the Company to be performed on or be fore the Closing Date in accordance with this Agreement shall have been duly performed in all respects (except for such failures to be performed which could not reasonably be expected in the aggregate to have a material adverse effect on the Company's Business Condition) and the representations and warranties of MEI, Sub and the Company contained in this Agreement shall be true and correct in all respects (except for such failure to be true and correct which could not reasonably be expected in the aggregate to have a material adverse effect on the Company's Business Condition) as of the date hereof and on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date, except for such representations and warranties that speak as of a specific date or time other than the Closing Date (which need only be true and correct in all respects as of such other date or time (except for such failures to be true and correct which could not reasonably be expected in the aggregate to have a material adverse effect on the Company's Business Condition), and Investor shall have received a certificate to such effect signed by an executive officer of MEI, Sub and the Company. Section 6.2. Filings; Consents; Waiting Periods. The material registrations, filings, applications, notices, consents, approvals, orders, qualifications and waivers which are set forth on Schedule 6.2 (the "Material Consents") shall have been filed, made or obtained, in each case in a form reasonably acceptable to Investor, and all waiting periods applicable under the HSR Act shall have expired or been terminated. Section 6.3. No Injunction. At the Closing Date, there shall be no Order of any nature of any Governmental Authority of competent jurisdiction that is in effect that restrains, enjoins or prohibits the consummation of the Recapitalization or the other transactions contemplated hereby. Section 6.4. Transitional Services Agreement. MEI and MTI shall have duly delivered authorized and executed counterparts of each of the Transitional Services Agreements containing the terms set forth in the term sheet annexed hereto as Exhibit A. Section 6.5. Stockholders Agreement and Registration Rights Agreement. Sub and the Company shall have delivered duly authorized and executed counterparts to a stockholders -35- 42 agreement (the "Stockholders Agreement") and a registration rights agreement (the "Registration Rights Agreement"), in each case, containing the terms set forth in the term sheet annexed hereto as Exhibit C. Section 6.6. Financing. The Company shall have received the financing described in the BTAB Commitment Letter and the BT Letter consistent with the terms therein or otherwise obtained financing sufficient to consummate the transactions contemplated hereby on terms reasonably satisfactory to Investor. Section 6.7. Indebtedness. All outstanding indebtedness for Borrowed Money of the Company and the Transferred Subsidiaries ("Indebtedness") shall be paid in full; any outstanding letters of credit shall be terminated; and the Company shall have obtained (x) the release of all Encumbrances on the capital stock of the Company and each of the Transferred Subsidiaries and all assets securing such Indebtedness and (y) the release of all guarantees with respect to such Indebtedness. At the Closing, the Company shall provide or arrange to be provided to Investor evidence demonstrating the payment in full of such Indebtedness, the termination of such letters of credit and the release of such Encumbrances and guarantees. Section 6.8. Material Adverse Effect. Since February 1, 1998, no event shall have occurred which has or which could reasonably be expected to have a material adverse effect on the Business or the financial condition of the Company and the Transferred Subsidiaries taken as a whole except for any change resulting from (i) any change or any development in worldwide, foreign or national economic, financial or market conditions, (ii) war, insurrection or other political changes or instability or (iii) the announcement of the transactions contemplated hereby. Section 6.9. Opinion of Counsel. MEI, Sub and the Company shall have delivered to Investor an opinion of counsel to MEI, Sub and the Company (which counsel shall be reasonably acceptable to Investor) with respect to items and in a form, in each case, reasonably acceptable to Investor. Section 6.10. Resignation of Directors. MEI, Sub and the Company shall have delivered to Investor the written resignations or evidence of removal of each of the directors of the Company or any of the Transferred Subsidiaries as Investor shall have requested at least two business days prior to the Closing. Section 6.11. Other Closing Documents. The Company shall have obtained title insurance and surveys for each parcel of Owned Real Property located within the United States and Leased Real Property in the United States (to the extent required by the providers of the BTAB Financing), in each case, which is in customary form and does not disclose matters other than (i) Permitted Encumbrances or (ii) matters which do not have a material adverse effect on the current use of such parcel of Real Property. With respect to each leased parcel of Real Property, the -36- 43 Company shall have delivered to Investor (to the extent required by the providers of the BTAB Financing) a consent and waiver and an estoppel letter executed by the landlord, lessor, landlord and/or licensor of such leased Real Property, in each case, in form and substance reasonably acceptable to Investor and the providers of the BTAB Financing. The Company shall have delivered to Investor all other customary closing documents, each in form and substance reasonably acceptable to Investor. Section 6.12. Articles of Incorporation. The Company's Articles of Incorporation shall have been amended and restated to be in a form as provided by Investor to MEI and the Company at least five (5) business days prior to the Closing (the "Amended Charter"). The Amended Charter shall have been filed with the Secretary of State of Idaho, shall be in full force and effect under the laws of the State of Idaho as of the Closing, and no further amendments or modifications shall have been made to the Company's Articles of Incorporation. Section 6.13. Bylaws. The Company's Bylaws shall have been amended and restated to be in a form as provided by Investor to MEI and the Company prior to the Closing (the "Amended Bylaws"). The Amended Bylaws shall be in full force and effect as of the Closing and shall not have been further amended or modified. Section 6.14. Booster Pump and Power Substation. MEI and the Company shall have entered into an arrangement, reasonably satisfactory to Investor and MEI, pursuant to which the Company shall be granted (i) access to the booster pump located on MEI's real property in Nampa, Idaho and (ii) the ability to draw power from the power substation located on MEI's real property in Nampa, Idaho. Section 6.15. Patent Agreement. MEI shall have duly delivered an authorized and executed counterpart of a patent and invention disclosure assignment and license agreement substantially in the form attached hereto as Exhibit D (the "Patent Agreement"). Section 6.16. Know-How Agreement. MEI shall have duly delivered an authorized counterpart of a know-how license agreement substantially in the form attached hereto as Exhibit E (the "Know-How Agreement"). Section 6.17. MTI License Agreement. MTI shall have duly delivered an authorized and executed counterpart of a covenant not to sue agreement substantially in the form attached hereto as Exhibit F (the "MTI Agreement"). -37- 44 ARTICLE VII Conditions to MEI's, Sub's and the Company's Obligation to Close MEI's, Sub's and the Company's obligation to consummate the Recapitalization is subject to the satisfaction on or prior to the Closing Date, or waiver by MEI, Sub and the Company, of all of the following conditions: Section 7.1. Representations, Warranties and Covenants of Investor. The covenants and agreements of Investor to be performed on or before the Closing Date in accordance with this Agreement shall have been duly performed in all material respects and the representations and warranties of Investor contained in this Agreement shall be true and correct in all material respects as of the date hereof and on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date, except for representations and warranties that speak as of a specific date or time other than the Closing Date (which need other only be true and correct in all material respects as of such other date or time), and MEI, Sub and the Company shall have received a certificate to such effect signed by an authorized person of Investor. Section 7.2. Filings; Consents; Waiting Periods. The Material Consents shall have been filed, made or obtained, and all applicable waiting periods under the HSR Act shall have ex pired or been terminated. Section 7.3. No Injunction. At the Closing Date, there shall be no Order of any nature of any Governmental Authority of competent jurisdiction that is in effect that restrains, enjoins or prohibits the consummation of the Recapitalization or the other transactions contemplated hereby. Section 7.4. Transitional Services Agreements. The Company shall have delivered duly authorized and executed counterparts of each of the Transitional Services Agreements. Section 7.5. Stockholders Agreement and Registration Rights Agreement. Investor and the Company shall have delivered duly authorized and executed counterparts to the Stockholders Agreement and the Registration Rights Agreement. Section 7.6. Patent Agreement. The Company shall have duly delivered an authorized and executed counterpart of the Patent Agreement. Section 7.7. Know-How Agreement. The Company shall have duly delivered an authorized and executed counterpart of the Know-How Agreement. -38- 45 Section 7.8. MTI Agreement. The Company shall have duly delivered an authorized and executed counterpart of the MTI Agreement. ARTICLE VIII The Recapitalization; Closing Section 8.1. Authorization. Prior to the Closing Date, the Company shall have authorized (i) the issuance and sale of the Purchase Shares to the Investor and (ii) the other transactions comprising the Recapitalization, including the Stock Redemption and the BTAB Financing. Section 8.2. Stock Purchase. Subject to the terms and conditions of this Agreement, at the Closing, the Company shall issue to the Investor the Purchase Shares in exchange for the Purchase Price. Section 8.3. Stock Redemption. Pursuant to the authorization contemplated by Section 8.1 hereof and subject to the terms and conditions set forth in this Agreement, the parties hereto agree that Sub shall offer for redemption, and the Company shall redeem the Redemption Shares. In consideration for the Redemption Shares, at the Closing, Sub will receive $249,200,000 (the "Redemption Price") from the Company. Section 8.4. Closing. (a) Time and Place of Closing. The Closing shall take place on the Closing Date at 10:00 A.M., New York City time, at the offices of Kirkland & Ellis, 153 East 53rd Street, New York, New York 10022 or such other place at the parties shall mutually agree. (b) Deliveries and Proceedings at the Closing. At the Closing, (1) Deliveries by the Company to Investor. The Company shall deliver to Investor certificate(s) representing the Purchase Shares. (2) Deliveries by Investor to the Company. Investor shall pay to the Company the Purchase Price by wire transfer of immediately available funds to one or more accounts as designated by the Company. (3) Deliveries by Sub to the Company. Sub shall surrender to the Company certificate(s) representing the Redemption Shares, free and clear of all Encumbrances, duly endorsed in blank or accompanied by stock powers or any other proper instrument of assignment -39- 46 duly endorsed in blank in proper form for transfer, with appropriate transfer stamps, if any, affixed, whereupon the Company shall cancel such Redemption Shares, which shall thereafter cease to be issued and outstanding. (4) Deliveries by the Company to Sub. The Company shall pay to Sub the Redemption Price by wire transfer of immediately available funds to one or more accounts as designated by Sub. (5) Other Deliveries. The closing certificates, opinion of counsel and other documents and agreements required to be delivered pursuant to this Agreement with respect to the Closing will be exchanged. ARTICLE IX Tax Matters Section 9.1. Tax Indemnification by MEI and Sub. MEI shall be liable for, and shall hold the Company and any successor corporations thereto or affiliates thereof harmless from and against the following Taxes with respect to the Company or any Transferred Subsidiary: (a) any and all Taxes for any taxable period or portion thereof ending on or before the Closing Date due or payable by the Company or any Transferred Subsidiary (whether or not accrued or reserved for on the books and records of the Company and/or any of the Transferred Subsidiaries), except to the extent provided in Sections 9.2(b) and 9.2(c); and (b) any several liability of the Company under Treasury Regulations Section 1.1502-6 or under any comparable or similar provision under state, local or foreign laws for tax periods or portions thereof ending on or prior to the Closing Date and for tax periods of MEI and any other member of MEI's consolidated tax group (other than the Company and the Transferred Subsidiaries with respect to periods after the Closing) ending after the Closing Date and including the Closing Date. Section 9.2. Tax Indemnification by the Company. The Company shall be liable for, and shall hold MEI and Sub harmless from and against, the following Taxes with respect to the Company or any Transferred Subsidiary: (a) any and all Taxes for any taxable period or portion thereof beginning after the Closing Date, due or payable by the Company or any Transferred Subsidiary; (b) any and all Taxes resulting from transactions, acts or omissions not in the ordinary course of business after the Closing on the Closing Date; and (c) Taxes payable with respect to the business or operations of the Company or the Transferred Subsidiaries during the period from the date hereof through the Closing. For purposes of clause (c) of this Section 9.2, the Company shall -40- 47 compute, or cause to be computed, the Taxes payable (which computation shall be reduced by the amount of any estimated Taxes paid by the Company during such period) within 90 days of the Closing Date and shall pay to MEI such amount. Section 9.3. Filing Responsibility. (a) MEI or Sub shall prepare and file or shall cause the Company to prepare and file the following Returns with respect to the Company: (1) all Income Tax Returns required to be filed for any taxable period ending on or before the Closing Date; (2) all other Returns with respect to Taxes other than Income Taxes required to be filed (taking into account extensions) prior to the Closing Date; and (b) The Company shall, subject to the provisions of Section 9.3(c), file or cause to be filed all Returns for which MEI or Sub does not have filing responsibility pursuant to Section 9.3(a) with respect to the Company. (c) With respect to any Tax Return of the Company and/or the Transferred Subsidiaries for taxable periods beginning before the Closing Date and ending after the Closing Date, the Company shall consult with MEI and Sub concerning such Return and report all items with respect to the portion of the period ending on the Closing Date in accordance with the instructions of MEI, unless otherwise agreed by MEI and Investor and unless, in the written opinion of nationally recognized tax counsel to the Investor, complying with MEI's instructions could subject Investor or the Company to any criminal or civil penalties under Sections 6662 through 6664 of the Code or similar provisions of applicable state, local or foreign laws. (d) The Company, Sub and MEI shall report all transactions not in the ordinary course of business occurring on the Closing Date after the Closing on the Company's federal income tax return to the extent permitted by Reg. ss.1.1502-76(b)(1)(B). Section 9.4. Refunds. (a) Except to the extent that an asset representing a Tax refund is recorded on the audited balance sheet of the Company as of August 28, 1997, MEI shall be entitled to any refunds or credits of Taxes attributable to or arising in taxable periods or portions thereof ending on or before the Closing Date (plus any interest received with respect thereto). (b) The Company shall be entitled to any refunds or credits of Taxes paid in and attributable to taxable periods beginning on or after the Closing Date (plus any interest received with respect thereto). (c) The Company shall promptly forward to MEI or reimburse MEI for any refunds or credits due MEI (pursuant to the terms of this Article IX) after receipt thereof, and MEI -41- 48 shall promptly forward to the Company (pursuant to the terms of this Article IX) or reimburse the Company for any refunds or credits due the Company after receipt thereof. (d) MEI, Sub, Investor and the Company agree that the Company shall not elect to carry back any item of loss, deduction or credit which arises in any taxable period ending after the Closing Date into any taxable period ending on or before the Closing Date. (e) Except as contemplated by this Agreement, all Tax sharing agreements and arrangements of whatever kind with respect to the Company shall be terminated as of the Closing Date without obligation to the Company, and the Company will not have any current or potential contractual obligation to indemnify any other person with respect to Taxes as of or after the Closing Date. Section 9.5. Cooperation and Exchange of Information. (a) Investor, Sub and MEI and their respective affiliates shall cooperate in the preparation of all Returns relating in whole or in part to taxable periods ending on or before or including the Closing Date that are required to be filed after such date. Such cooperation shall include, but not be limited to, furnishing prior years' Returns or return preparation packages illustrating previous reporting practices or containing historical information relevant to the preparation of such Returns, furnishing such other information within such party's possession requested by the party filing such Returns as is relevant to their preparation and making available such knowledgeable employees of the Company, Sub or MEI, as the case may be, as may be reasonably requested. In the case of any state, local or foreign joint, consolidated, combined, unitary or group relief system Returns, such cooperation shall also relate to any other taxable periods in which one party could reasonably require the assistance of the other party in obtaining any necessary information. (b) MEI shall have the right, at its own expense, to control any audit or examination by any Taxing Authority ("Tax Audit"), initiate any claim for refund, contest, resolve and defend against any assessment, notice of deficiency, or other adjustment or proposed adjustment relating to any and all Taxes for any taxable period ending on or before the Closing Date with respect to the Company provided that, with respect to any state and local Income Taxes for any taxable period beginning before the Closing Date and ending after the Closing Date, MEI shall consult with Investor and the Company with respect to the resolution of any issue that would have a material effect on Investor and/or the Company, and not settle any such issue, or file any amended return relating to any such issue, without the consent of Investor, which consent shall not unreason ably be withheld. In the event Investor withholds its consent to any proposed settlement, MEI's liability for Taxes with respect to such proposed settlement shall be limited to the amount of Taxes that the Company would have paid (including as the result of any adjustments to the basis or a changed method of accounting) under the terms of such proposed settlement. Investor shall have the right, at its own expense, to control any proceeding which MEI has declined to control, and any other Tax Audit, initiate any other claim for refund, and contest, resolve and defend against any other -42- 49 assessment, notice of deficiency, or other adjustment or proposed adjustment relating to any and all Taxes for any taxable period beginning on or after the Closing Date with respect to the Company provided that, with respect to any state and local Income Taxes for any taxable period beginning be fore the Closing Date and ending after the Closing Date, Investor shall consult with MEI with respect to the resolution of any issue that would affect MEI, and not settle any such issue, or file any amended return relating to any such issue, without the consent of MEI, which consent shall not un reasonably be withheld. Where consent to a settlement is withheld by the other party pursuant to this Section, such other party may continue or initiate any further proceedings at its own expense, provided that the liability of the first party, after giving effect to this Agreement, shall not exceed the liability that would have resulted from the settlement or amended return. (c) For a period of seven (7) years after the Closing Date, the Company shall retain all Returns, books and records (including computer files) of, or with respect to the activities of, the Company and the Transferred Subsidiaries for all taxable periods ending on or prior to the Closing Date. (d) If any party hereto or an Affiliate thereof fails to provide any information required to be provided hereunder and requested by the other party hereto in the time specified herein, or if no time is specified pursuant to this Section 9.5, within a reasonable period, or otherwise fails to do any act required of it under this Section 9.5, then the first party shall be obligated, notwithstanding any other provision of this Agreement, to indemnify the other party and shall so indemnify the other party and hold the other party harmless from and against any and all costs, claims or damages, including, without limitation, all Taxes or deficiencies thereof, to the extent payable solely as a result of such failure. Section 9.6. Allocation of Certain Taxes. Any Income Taxes for a taxable period beginning before the Closing Date and ending after the Closing Date (a "Straddle Period") shall be apportioned between the portion of such Straddle Period ending on the Closing Date and the portion of such Straddle Period beginning on the day following the Closing Date based on the actual operations of the Company during each such portion of the Straddle Period and for purposes of the provisions of Sections 9.1, 9.2 and 9.5, each portion of such period shall be deemed to be a taxable period (whether or not it is in fact a taxable period). All Taxes other than Income Taxes relating to a Straddle Period shall be apportioned between the portion of such Straddle Period ending on the Closing Date and the portion of such Straddle Period beginning on the day following the Closing Date based on the number of days of the assessment period occurring on and before the Closing Date and the number of days during such period occurring after the Closing Date, and for purposes of Sections 9.1, 9.2, and 9.5 each portion of such period shall be deemed to be a taxable period (whether or not it is in fact a taxable period). To the extent estimated Taxes have been paid prior to the Closing Date with respect to a Straddle Period, MEI's and Sub's liability with respect thereto shall be reduced by that amount. -43- 50 Section 9.7. Certain Taxes. All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement, shall be paid by MEI or Sub when due, and MEI or Sub will, at its own expense, file all necessary Returns and other documentation with respect to all such transfer, documentary, sales, use, stamp, registration and other Taxes and fees, and, if required by applicable law, the Company will, and will cause its affiliates to, join in the execution of any such Return and other documentation. ARTICLE X Termination Section 10.1. Termination. This Agreement may be terminated at any time prior to the Closing by: (a) The mutual consent of each of the parties hereto; (b) Either MEI, the Company or Investor by written notice to all other parties hereto if the Closing has not occurred by the close of business on April 30, 1998 and if the failure to consummate the Recapitalization on or before such date did not result from the failure by the party seeking termination of this Agreement to fulfill any undertaking or commitment provided for herein that is required to be fulfilled prior to Closing and such party is not otherwise in breach of this Agreement; (c) By Investor, at any time prior to the Closing, following written notice by Investor to MEI, Sub and the Company of a material breach of any material representation, warranty or covenant of MEI, Sub or the Company contained in this Agreement, if such breach is not cured within thirty (30) days after receiving notice thereof; or (d) By MEI, at any time prior to the Closing, following written notice by MEI to Investor of a material breach of any material representation, warranty or covenant of Investor contained in this Agreement, if such breach is not cured within thirty (30) days after receiving notice thereof. Section 10.2. Procedure and Effect of Termination. In the event of termination of this Agreement by any party or parties hereto pursuant to Section 10.1, this Agreement shall thereupon terminate and become void and have no effect, and the transactions contemplated hereby shall be abandoned without further action by the parties hereto, except that the provisions of Sections 4.1(b) and 11.5 shall survive the termination of this Agreement; provided, however, that such ter mination shall not relieve any party hereto of any liability for any breach of this Agreement. If this Agreement is terminated as provided herein all filings, applications and other submissions made to -44- 51 any Governmental Authority pursuant to this Agreement shall, to the extent practicable, be with drawn from the agency or other persons to which they were made. ARTICLE XI Miscellaneous Section 11.1. Entire Agreement; Beneficiaries. This Agreement (including the Schedules and Exhibits attached hereto) and the Confidentiality Agreement contain the entire agreement between the parties with respect to the subject matter hereof and there are no agreements, understandings, representations or warranties between the parties relating to the matters set forth herein other than those set forth or referred to herein or therein. This Agreement amends and restates the Original Agreement in its entirety. This Agreement is not intended to confer upon any person not a party hereto (and their successors and assigns permitted by Section 11.7) any rights or remedies hereunder. Section 11.2. Survival of Representations and Warranties and Covenants of Investor. All representations and warranties and covenants of Investor set forth in this Agreement or in any certificate, document or other instrument delivered in connection herewith shall terminate at the earlier of (a) one year after the Closing Date and (b) termination of this Agreement in accordance with Article X hereof. Section 11.3. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes of this Section 11.3, provided receipt of copies of such counterparts is confirmed. Section 11.4. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to the choice of law principles thereof. Section 11.5. Expenses. MEI shall pay and hold the Company, the Transferred Subsidiaries and Investor harmless against liability for the payment of the Coopers Auction Fees, the DMG Fees, the Wachtell Fees, the Fenwick Fees and all fees and expenses paid or payable with respect to the items required to be delivered by the Company pursuant to Section 6.11 (collectively, the "Seller Expenses"). In the event any Seller Expenses have been paid by the Company or any Transferred Subsidiaries prior to the Closing without being reimbursed by a Continuing Affiliate, such amount paid (and not reimbursed) shall be a valid and enforceable receivable of the Company -45- 52 owed from MEI to the Company as of the Closing. Other than the Seller Expenses, neither MEI nor Sub shall be responsible for any fees or expenses incurred by the Company or any Transferred Subsidiary in connection with the negotiation, execution or delivery of the Original Agreement or this Agreement or the consummation of the transactions contemplated thereby or hereby. Except as provided in this Section 11.5 or as otherwise set forth in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. As a matter of clarification, all fees and expenses (including, without limitation, commitment fees, underwriting fees, legal and accounting fees and expenses and printing fees and expenses but excluding any fees and expenses paid or payable with respect to the items required to be delivered by the Company pursuant to Section 6.11) relating to the BTAB Financing or any other financing proposed by Investor and arranged by the Company in lieu of the BTAB Financing shall be the responsibility of the Company, and MEI and Sub shall have no responsibility therefor. Notwithstanding the foregoing, if the transactions contemplated hereby are consummated, then the Company shall pay all fees and expenses of Investor and Investor's Affiliates (other than the Company and the Transferred Subsidiaries) in connection with the transactions contemplated hereby, including, any and all commitment fees and reasonable legal, accounting and consulting fees, and MEI and Sub shall have no responsibility therefor. Section 11.6. Notices. All notices and other communications hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below. Notices to MEI and Sub shall be addressed to: Micron Electronics, Inc. MEI California, Inc. 900 East Karcher Road Nampa, Idaho 83687 Attention: General Counsel Telecopy No: (208) 898-7411 with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Barry A. Bryer Telecopy No: (212) 403-2000 -46- 53 or at such other address and to the attention of such other person as MEI or Sub may designate by written notice to the other parties hereto. Notices to Investor shall be addressed to: Cornerstone Equity Investors IV, L.P. c/o Cornerstone Equity Investors, L.L.C. 717 Fifth Avenue Suite 1100 New York, New York 10022 Attention: Tony Downer Michael E. Najjar Telecopy No: (212) 826-6798 with a copy to: Kirkland & Ellis 153 East 53rd Street New York, New York 10022 Attention: Frederick Tanne Telecopy No: (212) 446-4900 or at such other address and to the attention of such other person as Investor may designate by written notice to the other parties hereto. Notices to the Company prior to the Closing shall be addressed to: Micron Electronics, Inc. 900 East Karcher Road Nampa, Idaho 83687 Attention: General Counsel Telecopy No: (208) 898-7411 with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Barry A. Bryer Telecopy No: (212) 403-2000 and notices to the Company after the Closing shall be addressed to: -47- 54 MCMS, Inc. 16399 Franklin Road Nampa, Idaho 83687 Attention: General Counsel Telecopy No: (208) 893-8711 with a copy to: Cornerstone Equity Investors, L.L.C. 717 Fifth Avenue Suite 1100 New York, New York 10022 Attention: Tony Downer Michael E. Najjar Telecopy No: (212) 826-6798 and Kirkland & Ellis 153 East 53rd Street New York, New York 10022 Attention: Frederick Tanne Telecopy No: (212) 446-4900 or at such other address and to the attention of such other person as the Company may designate by written notice to the other parties hereto. Section 11.7. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that no party hereto will assign its rights or delegate its obligations under this Agreement without the express prior written consent of each other party hereto; provided, further, that, notwithstanding the foregoing, Investor may assign its rights and obligations hereunder in whole or in part to any Affiliate of Investor; Investor may assign its rights and obligations to purchase up to 49.9% of the Purchase Shares to any Person provided that any such assignment shall not release Investor of its purchase obligations hereunder and provided further that the representations and warranties contained in Article III hereof (other than Section 3.4) shall be true and correct with respect to any such assigns; and the Company may assign its rights and obligations hereunder as collateral security to any bona fide financial institution or underwriter providing financing to the Company in connection herewith, in each case, without the consent of any party hereto. -48- 55 Section 11.8. Headings; Definitions. The Section and Article headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. All references to Sections or Articles contained herein mean Sections or Articles of this Agreement unless otherwise stated. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. Section 11.9. Consent to Jurisdiction. Each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any federal court located in the State of New York or any New York state court in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (c) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than a federal court sitting in the State of New York or a New York state court. Section 11.10. Waivers and Amendments. No modification of or amendment to this Agreement shall be valid unless in a writing signed by the parties hereto referring specifically to this Agreement and stating the parties' intention to modify or amend the same. Any waiver of any term or condition of this Agreement must be in a writing signed by the party hereto sought to be charged with such waiver referring specifically to the term or condition to be waived, and no such waiver shall be deemed to constitute the waiver of any other breach of the same or of any other term or condition of this Agreement. Section 11.11. Severability. Any provision of this Agreement which is invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability, without affecting in any way the remaining provisions hereof. Section 11.12. Interpretation; Schedules and Exhibits. For purposes of this Agreement, all representations and warranties contained herein shall be deemed to have been made as of February 1, 1998, except for representations and warranties contained herein that speak as of a specific date (which representations and warranties shall speak as of such specific date). The schedules and exhibits attached to the Original Agreement shall be deemed to be the schedules and exhibits of this Agreement except that (i) all references to MEI contained in Exhibit C are hereby changed to Sub, (ii) the Amended and Restated Schedule 2.8 attached hereto hereby replaces the Schedule 2.8 attached to the Original Agreement, and (iii) the Amended and Restated Schedule 2.10(a) attached hereto hereby replaces the Schedule 2.10(a) attached to the Original Agreement. -49- 56 ARTICLE XII INDEMNIFICATION The parties hereto agree as follows: Section 12.1. General Indemnification Obligations. MEI and Sub hereby agree to, jointly and severally, indemnify, defend and hold Investor and its respective officers, directors and Affiliates (including, after the Closing, the Company and the Transferred Subsidiaries) (the "Investor Indemnitees") harmless from and against and to reimburse the Investor Indemnitees with respect to any one or more of the following: (i) any and all Damages arising out of or resulting from a misrepresentation or breach of warranty of MEI, Sub or the Company contained in this Agreement or in any exhibit or schedule hereto, (ii) any and all Damages arising out of or resulting from any breach of any covenant or obligation of MEI or Sub contained in this Agreement, whether requiring performance before or after the Closing Date, (iii) any and all Damages arising out of or resulting from any breach of any covenant or obligation of the Company contained in this Agreement requiring performance before the Closing Date, and (iv) any and all Damages arising out of or resulting from the matter described on Schedule 2.13(c). Notwithstanding any provision to the contrary contained herein, MEI and Sub agree that neither MEI nor Sub will make any claim for indemnification or contribution against the Company and MEI and Sub will cause their Continuing Affiliates and each of their respective directors, officers and employees not to make any claim for indemnification or contribution against the Company, by reason of the fact that MEI, Sub or any such Affiliate, director, officer or employee was a stockholder, director, officer, employee, or agent of the Company, with respect to or in connection with (a) any action, suit, proceeding, complaint, claim, or demand brought by the Company or the Investor against MEI, Sub or such Affiliate, director, officer or employee (whether such action, suit, proceeding, complaint, claim, or demand is pursuant to this Agreement, applicable law, or otherwise) or (b) any action, suit, proceeding, complaint, claim or demand arising out of or in connection with the Stock Redemption, the Recapitalization or the other transactions contemplated by this Agreement. Section 12.2. General Indemnification Procedures. (a) All of the parties hereto shall cooperate in the defense or prosecution of any claim, action, suit or proceeding by a Person other than a party hereto or an Affiliate of any party hereto in respect of which indemnity may be sought hereunder (a "Third Party Claim") and shall furnish such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials and appeals, as may be reasonably requested in connection therewith. (b) No action or claim for Damages under Section 12.1(i) arising out of or resulting from a breach of representations and warranties contained herein shall be brought or made after the date which is one year after the Closing Date; provided, however, that the foregoing time -50- 57 limitations shall not apply to: (1) any of the representations and warranties contained in Sections 2.1 (other than subsection 2.1(c)(2)), 2.2 (other than subsection 2.2(a)(3)) and 2.6, each of which shall survive until the date which is three years after the Closing Date; (2) any of the representations and warranties contained in Section 2.14 which shall survive until the expiration of the applicable statute of limitations or (3) any such actions or claims which have been the subject of a good faith written notice from any Investor Indemnitee to MEI prior to either such applicable period, which notice specifies in reasonable detail the nature and basis for such action or claim (which shall survive until the final resolution of such actions or claims). (c) Notwithstanding anything to the contrary in this Article 12, no limitation or condition of liability provided in this Article 12 shall apply to the breach of any representations and warranties if such breach was made wilfully or with the intent to deceive. Section 12.3. Indemnification Basket. MEI and Sub shall not be obligated to indemnify the Investor Indemnitees pursuant to this Article 12 for any Damages resulting from any breaches of representations and warranties in this Agreement (which breaches and resulting Damages shall be determined, solely for the purposes of this Section 12.3 as though any materiality limitations in such representations and warranties did not exist), unless (i) the Damages arising from any such breach or series of related breaches and incurred by the Investor Indemnitees exceeds $35,000 only in which such case shall such Damages be counted towards the Threshold, and (ii) the aggregate of all such Damages counted towards the Threshold and incurred by the Investor Indemnitees exceeds $1,000,000 (the "Threshold"), in which event MEI and Sub together shall be liable for all Damages in excess of the Threshold claimed by the Investor Indemnitees; provided, however, that Damages recoverable by the Investor Indemnitees for breaches of the representations and warranties contained in Sections 2.1 (other than subsection 2.1(c)(2)), 2.2 (other than subsection 2.2(a)(3)), 2.6 and 2.14 shall not be subject to the Threshold and shall be paid by MEI and/or Sub in their entirety. Notwithstanding the foregoing, the Threshold shall not be available for any wilful breach of any representation or warranty. Section 12.4. Indemnification Cap. In no event shall MEI and Sub together be required to indemnify the Investor Indemnitees for Damages pursuant to Section 12.1(i) in excess of $13,550,000 (the "Cap"); provided, however, that Damages recoverable by the Investor Indemnitees for breaches of the representations and warranties contained in Sections 2.1(other than subsection 2.1(c)(2)), 2.2 (other than subsection 2.2(a)(3)), 2.6 and 2.14 shall not be subject to the provisions of this Section 12.4 and shall be paid by MEI and/or Sub in their entirety. Notwithstanding the foregoing, the Cap shall not be available for any wilful breach of any representation or warranty. Section 12.5. Indemnity Exclusive Remedy. In the absence of fraud, the indemnification pursuant to this Article XII shall be the exclusive remedy for any breach or misrepresentation of warranty of MEI, Sub or the Company contained in this Agreement or in any -51- 58 exhibit or schedule hereto, any breach of any covenant or obligation of MEI or Sub contained in this Agreement, whether requiring performance before or after the Closing Date, and any breach of any covenant or obligation of the Company contained in this Agreement requiring performance prior to the Closing Date. -52- 59 IN WITNESS WHEREOF, this Amended and Restated Recapitalization Agreement has been signed by or on behalf of each of the parties as of the day first above written. MICRON CUSTOM MANUFACTURING SERVICES, INC. By: /s/ Jess Asla ------------------------------ Name: Jess Asla Title: V.P. Operations MICRON ELECTRONICS, INC. By: ------------------------------ Name: Title: MEI CALIFORNIA, INC. By: ------------------------------ Name: Title: CORNERSTONE EQUITY INVESTORS IV, L.P. By: Cornerstone IV, L.L.C., as General Partner By: ------------------------------ Name: Title: 60 IN WITNESS WHEREOF, this Amended and Restated Recapitalization Agreement has been signed by or on behalf of each of the parties as of the day first above written. MICRON CUSTOM MANUFACTURING SERVICES, INC. By: ------------------------------ Name: Title: MICRON ELECTRONICS, INC. By: /s/ [ILLEGIBLE] ------------------------------ Name: Title: MEI CALIFORNIA, INC. By: /s/ [ILLEGIBLE] ------------------------------ Name: Title: CORNERSTONE EQUITY INVESTORS IV, L.P. By: Cornerstone IV, L.L.C., as General Partner By: ------------------------------ Name: Title: 61 IN WITNESS WHEREOF, this Amended and Restated Recapitalization Agreement has been signed by or on behalf of each of the parties as of the day first above written. MICRON CUSTOM MANUFACTURING SERVICES, INC. By: ------------------------------ Name: Title: MICRON ELECTRONICS, INC. By: ------------------------------ Name: Title: MEI CALIFORNIA, INC. By: ------------------------------ Name: Title: CORNERSTONE EQUITY INVESTORS IV, L.P. By: Cornerstone IV, L.L.C., as General Partner By: /s/ John A. Downer ------------------------------ Name: John A. Downer Title: Managing Director 62 Amended and Restated Schedule 2.8 See Schedule 2.9 See attached 63 - -------------------------------------------------------------------------------- CHARGE OF DISCRIMINATION AGENCY CHARGE NUMBER |_| FEPA |X| EEOC 141980127 This form is affected by the Privacy Act of 1974: see Privacy Act Statement before completing this form - -------------------------------------------------------------------------------- AND EEOC ----------------------------------------------- State or local Agency, if any - -------------------------------------------------------------------------------- Name (indicate Mr. Ms. Mrs.) HOME TELEPHONE (Indicate Area Code) Mr. Rajesh H. Lavani (919) 544-9610 - -------------------------------------------------------------------------------- Street Address DATE OF BIRTH 1707-D East Cornwallis Road, Durham, N.C. 27713 06/08/68 - -------------------------------------------------------------------------------- NAMED IS THE EMPLOYER, LABOR ORGANIZATION, EMPLOYMENT AGENCY APPRENTICESHIP COMMITTEE, STATE OR LOCAL GOVERNMENT AGENCY WHO DISCRIMINATED AGAINST ME (If more than one list below) - -------------------------------------------------------------------------------- NAME NUMBER OF EMPLOYEES, MEMBER TELEPHONE (Indicate Area Code) X Micron CMS 300 + (919) 405-1200 (HR) - -------------------------------------------------------------------------------- Street Address CITY, STATE, AND ZIP CODE COUNTY 2500 S. Triangle Center, Durham, N.C. 27713 Durham - -------------------------------------------------------------------------------- NAME TELEPHONE (Indicate Area Code) - -------------------------------------------------------------------------------- Street Address CITY, STATE, AND ZIP CODE COUNTY - -------------------------------------------------------------------------------- CAUSE OF DISCRIMINATION BASED ON (Check appropriate boxes) |X|RACE |_| COLOR |_| SEX |_| RELIGION |X| NATIONAL ORIGIN |_| RETALIATION |_| AGE |_| DISABILITY |_| OTHER (Specify) - -------------------------------------------------------------------------------- DATE DISCRIMINATION TOOK PLACE EARLIEST LATEST Present 09/10/96 |_| |XX| CONTINUING ACTION - -------------------------------------------------------------------------------- THE PARTICULARS (If additional space is needed, attach extra sheet(s)): SEE ATTACHMENT HERETO. - -------------------------------------------------------------------------------- |_| I want this charge filed with both the EEOC and the State or local Agency, if any. I will advise the agencies if I change my address or telephone number and cooperate fully with them in the processing of my charge in accordance with their procedures. - -------------------------------------------------------------------------------- I declare under penalty of perjury that the foregoing is true and correct Date 11/11/97 /s/Rajesh H. Lavani Charging Party (Signature) - -------------------------------------------------------------------------------- [SEAL] JANET C. FUQUAY NOTARY PUBLIC [ILLEGIBLE N.C.] NOTARY [ILLEGIBLE] /s/ Janet E. Fuquay - -------------------------------------------------------------------------------- I swear of affirm that I have read the above charge and that it is true to the best of my knowledge, information and believe. - -------------------------------------------------------------------------------- SIGNATURE OF COMPLAINANT SUBSCRIBED AND SWORN TO BEFORE ME THIS DATE (Day, Month, and year) Nov 11, 1997 My Comm Exp: [ILLEGIBLE] - -------------------------------------------------------------------------------- 64 - -------------------------------------------------------------------------------- EQUAL EMPLOYMENT OPPORTUNITY COMMISSION | PERSON FILING CHARGE | Lavini, Rajesh H. Ms. Jennifer Mann |--------------------------------------- Director of Human Resources | THIS PERSON (check one) Micron CMS | |X| CLAIMS TO BE AGGRIEVED 2500 S. Triangle Center | |_| IS FILING ON BEHALF OF ANOTHER Durham, NC 27713 |--------------------------------------- | DATE OF ALLEGED VIOLATION | EARLIEST MOST RECENT | 09/10/96 11/11/97 |--------------------------------------- | PLACE OF ALLEGED VIOLATION | Durham, NC |--------------------------------------- |CHARGE NUMBER |141980127 - -------------------------------------------------------------------------------- NOTICE OF CHARGE OF DISCRIMINATION (See EEOC "Rules and Regulations" before completing this Part) You are hereby notified that a charge or employment discrimination has been filed against your organization under: |X| TITLE VII OF THE CIVIL RIGHTS ACT OF 1964 |_| THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1987 |_| THE AMERICANS WITH DISABILITIES ACT |_| THE EQUAL PAY ACT (29 U.S.C. SECT. 206(d)) investigation will be conducted concurrently with our investigation of this charge The boxes checked below apply to your organization: 1. |_| No action is required on your part at this time. 2. |X| Please submit by 12/08/97 a statement of your position with respect to the allegations(s) contained in this charge, with copies of any supporting documentation. This material will be made a part of the file and will be considered at the time that we investigate this charge. Your prompt response to this request will make it easier to conduct and conclude our investigation of this charge. 3. |X| Please respond fully by 12/08/97 to the attached request for information which pertains to the allegations contained in this charge. Such information will be made a part of the file and will be considered by the commission during the course of its investigation or the charge. For further inquiry on this matter, please use the charge number shown above, Your position statement, your response to our request for information, or any inquiry you may have should be directed to: Raleigh Area Office 1309 Annapolis Drive Alvan L. Robinson, Senior Investigator Raleigh, NC 27608-2129 -------------------------------------- (Commission Representative) (919) 856-4076 -------------------------------------- (Telephone Number) |X| Enclosure: Copy of Charge - -------------------------------------------------------------------------------- BASIS OF DISCRIMINATION |X| RACE |_| COLOR |_| SEX |_| RELIGION |X| NAT. ORIGIN |_| AGE |_| DISABILITY |_| RETALIATION |_| OTHER - -------------------------------------------------------------------------------- CIRCUMSTANCES OF ALLEGED VIOLATION See enclosed Form 5, Charge of Discrimination. - -------------------------------------------------------------------------------- DATE TYPED NAME/TITLE OF AUTHORIZED EEOC OFFICIAL SIGNATURE 11/24/97 Richard E. Waltz /s/ Richard E. Waltz - -------------------------------------------------------------------------------- EEOC FORM 151 (Rev. (6/092) RESPONDENT'S COPY - -------------------------------------------------------------------------------- 65 - -------------------------------------------------------------------------------- Equal Employment Opportunity Commission REQUEST FOR INFORMATION - -------------------------------------------------------------------------------- Chg. Party: Lavani, Rajash H. Respondent: Micron CMS Charge No.: 141980127 1. Give the correct name and address of the facility named in the charge. 2. State the total number of persons who were employed by your organization during the relevant period. Include both full and part-time employees. How many employees are employed by your organization at the present time? 3. Supply an organizational chart, statement, or documents which describe your structure, indicating, if any, the relationship between it and superior and subordinate establishments within the organization. 4. Supply a statement or documents which identify the principal product or service of the named facility. 5. State the legal status of your organization, i.e, corporation, partnership, tax-exempt non-profit, etc. If incorporated, identify and the state of incorporation 6. State whether your organization has a contract with any agency of the federal government or is a subcontractor on a project which receives federal funding. Is your organization covered by the provisions of Executive Order 11246? If your answer is yes, has your organization been the subject of a compliance review by the OFCCP at any time during the past two years? 7. Submit a written position statement on each of the allegations of the charge, accompanied by documentary evidence and/or written statements, where appropriate. Also include any additional information and explanation you deem relevant to the charge. 8. Submit copies of all written rules, policies and procedures relating to the issue(s) raised in the charge. If such does not exist in written form, explain rules, polices and procedures. 66 ATTACHMENT TO CHARGE OF DISCRIMINATION OF RAJESH H. LAVANI I began working for Micron, CMS on September 10, 1996. Micron is an electronic assembly plant. I am a test technician. Since I began employment, they have discriminated against me based on my national origin, Indian. My supervisor has discriminated against me in the following ways: 1. I was denied training provided to other employees. In my annual review, they told me that I was doing good work. However, I needed additional training. Target dates were set for the training. When they held the training courses, other employees were allowed to attend and I was not notified of the training programs. 2. My job performance was rated as "exceeds expectations". However, Caucasian employees who hold the same position and have been in that position for a shorter time received higher bonuses than I. 3. The company exceeded performance goals and treated the employees in my department to dinner. They did not include me. I questioned my supervisor, Mr. Chris Landi. I wanted to know if my exclusion was a "major oversight". He told me that it was not an oversight. 67 INFORMATION SHEET ON CHARGES OF DISCRIMINATION EEOC RULES AND REGULATIONS Section 1601.15 of EEOC's Procedure Regulations provides that persons charged with employment discrimination, such as yourself, may submit a statement of position or evidence with respect to the allegations contained in this charge. EEOC's Recordkeeping and Reporting Requirements are set forth at Title 29, Code of Federal Regulations (CFR), Part 1602 (see particularly Section 1602.14 below) for Title VII and the ADA; 29 CFR Part 1620 for the EPA; and 29 CFR Part 1627, for the ADEA. These regulations generally require respondents to preserve payroll and personnel records relevant to a charge of discrimination until disposition of the charge or litigation relating to the charge (for ADEA charges, this notice constitutes the written request set out in Part 1627 for respondents to preserve records relevant to the charge - the records to be retained are as described in Section 1602.14, as cited below, and should be kept for the periods described in that section). Parts 1602, 1620 and 1627 also prescribe record retention periods - generally, three years for basic payroll records and one year for personnel records. Questions regarding retention periods and the types of records to be retained should be resolved by reference to the regulations. Section 1602.14 Preservation of records made or kept. Where a charge of discrimination has been filed, or an action brought by the Commission or the Attorney General, against an employer under Title VII or the ADA, the employer shall preserve all personnel records relevant to the charge or the action. The term "personnel records relevant to the charge, "for example, would include personnel or employment records relating to the aggreived person and to all other aggrieved employees holding positions similar to that held or sought by the aggreived person and application forms or test papers completed by an unsuccessful applicant and by all other candidates for the same position as that for which the aggreived person applied and was rejected. The date of "final disposition of the charge or the action" means the date of expiration of the statutory period within which the aggreived person may bring an action in a U.S. District Court or, where an action is brought against an employer either by the aggreived person, the Commission, or by the Attorney General, the date on which such litigation is terminated. NOTICE OF NON-RETALIATION REQUIREMENTS Section 704(a) of Title VII, Section 4(d) of the ADEA, and Section 503(a) of the ADA provide that it shall be an unlawful employment practice for an employer to discriminate against any of his/her employees or applicants for employment, for an employment agency to discriminate against any individual, or for a labor organization to discriminate against any member thereof or applicant for membership, because s/he has opposed any act or practice made unlawful by these statutes; or because s/he has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under these statutes. The Equal Pay Act of 1963 contains similar provisions. Additionally, Section 503(b) of the ADA prohibits coercion, intimidation, threats, or interference with any person because s/he has exercised or enjoyed, or aided or encouraged others in their exercise or enjoyment, of rights under the Act. Person filing charges of discrimination are advised of these Non-Retaliation Requirements and are instructed to notify EEOC if any attempt at retaliation is made. Note that the Civil Rights Act of 1991 provides substantial additional monetary provisions to remedy instances of retaliation or other discrimination, including, for example, to remedy the emotional harm caused by on-the-job harassment. NOTICE REGARDING REPRESENTATION BY ATTORNEYS Although it is not necessary that you be represented by an attorney while we handle this charge, you have a right, and may wish to retain an attorney to represent you. If you are represented by an attorney we request that you provide the Commission with your attorney's name, address, and telephone number, and that you ask your attorney to write to the Commission confirming such representation. Reverse side of EEOC Form 131/131 A1 68 [LETTERHEAD OF IDAHO HUMAN RIGHTS COMMISSION] RECEIVED JAN - 8 1998 Tuesday January 6, 1998 [SEAL] GREAT SEAL OF THE STATE OF IDAHO Ms. Dena L. Banducci C/O Micron Custom Manufacturing 16399 Franklin Road Nampa, ID 83687-8211 RE: Bruce Moore vs. Micron Custom Manufacturing Complaint No. AD-0198-218; 38C 980095 Dear Ms. Banducci: Enclosed is a copy of a complaint alleging a violation of Title 67, Chapter 59, of the Idaho Code, which prohibits certain kinds of discrimination. You will also note that this case is jointly filed with EEOC under the corresponding federal law. The Idaho Human Rights Commission must by law accept for filing, attempt to resolve, and investigate alleged violations of these laws. Retaliation against the complainant or others for filing a charge or for other involvement in the exercise of these rights is also illegal. The enclosed flow chart more fully explains our process. It is important that you submit a written response to each allegation, with as much supporting detail as possible, within the time limit of 30 days. Each allegation not specifically denied will be considered admitted. A copy of your response will be sent to the complainant for possible rebuttal or explanation. A comprehensive response from you will also provide with an excellent starting point for attempting to resolve the complaint. Efforts will be made toward reaching a negotiated settlement on grounds mutually acceptable to both sides. Commission staff will not act as an advocate for either party during mediation or investigation. Equal Opportunity Employer 69 Dena L. Banducci Page 2 Please be advised that although the files of the Idaho Human Rights Commission are not open to the public at large, this case file is available to both parties during regular business hours (with the exception of confidential negotiations during the course of mediation). Please contact me, or have your representative do so, if you have any questions or concerns regarding your response, mediation options, and the possibility of holding a mediation conference. Sincerely; /s/ Linda L. Goodman Linda L. Goodman Sr. Civil Rights Investigator LLG/ah Enclosure 70 - -------------------------------------------------------------------------------- CHARGE OF DISCRIMINATION This Form is affected by the Privacy Act of 1974; See Privacy Act Statement before completing this form. - -------------------------------------------------------------------------------- AGENCY |x| FGPA |_| EEOC - -------------------------------------------------------------------------------- CHARGE NUMBER A0-0198-218 38C980095 - -------------------------------------------------------------------------------- Idaho Human Rights Commission and EEOC ------------------------------------------------------ State or local Agency, if any - -------------------------------------------------------------------------------- NAME (Indicate Mr., Ms., Mrs.) HOME TELEPHONE (Include Area Code) Mr. Bruce Moore (208) 452-5463 - -------------------------------------------------------------------------------- STREET ADDRESS CITY, STATE, AND ZIP CODE DATE OF BIRTH P.O. Box 139, Fruitland, ID 83619-0139 02/03/61 - -------------------------------------------------------------------------------- NAMED IS THE EMPLOYER, LABOR ORGANIZATION, EMPLOYMENT AGENCY APPRENTICESHIP COMMITTEE, STATE OR LOCAL GOVERNMENT AGENCY WHO DISCRIMINATED AGAINST ME (If more than one list below.) - -------------------------------------------------------------------------------- NAME NUMBER OF EMPLOYEES, MEMBERS TELEPHONE (Include Area Code) Micron Custom Manufacturing 501+ Employees (208) 898-2600 - -------------------------------------------------------------------------------- STREET ADDRESS CITY, STATE AND ZIP CODE COUNTY 16399 Franklin Road, Nampa, ID 83687-8211 027 - -------------------------------------------------------------------------------- NAME TELEPHONE (Include Area Code) - -------------------------------------------------------------------------------- STREET ADDRESS CITY, STATE AND ZIP CODE COUNTY - -------------------------------------------------------------------------------- CAUSE OF DISCRIMINATION BASED ON (Check appropriate box(es) |_| RACE |_| COLOR |_|SEX |_|RELIGION |_| NATIONAL ORIGIN |_| RETALIATION |_| AGE |x| DISABILITY |_| OTHER (Specify) - -------------------------------------------------------------------------------- DATE DISCRIMINATION TOOK PLACE EARLIEST LATEST 12/18/97 12/18/97 |_| CONTINUING ACTION - -------------------------------------------------------------------------------- THE PARTICULARS ARE (If additional space is needed, attach with sheet(s)), **** SEE ATTACHED **** JAN 06, 1998 - -------------------------------------------------------------------------------- |X| I want this charge filed with both the EEOC and the State or local Agency, if any. I will advise the agencies if I change my address or telephone number and cooperate fully with them in the processing of my charge in accordance with their procedures. - -------------------------------------------------------------------------------- I declare under penalty of perjury that the foregoing is true and correct. Date 980101 /s/ Bruce Moore Charging Party (Signature) - -------------------------------------------------------------------------------- EEOC FORM 5 (Rev. 06/82) 71 COMPLAINANT: Bruce Moore vs. Micron Custom Manufacturing PAGE TWO THE PARTICULARS ARE: I. COMPLAINANT'S STATEMENT OF HARM: I was not hired on December 18, 1997. II. RESPONDENT'S REASON FOR ADVERSE ACTION: Respondent gives no reason for the adverse action. III. COMPLAINANT'S STATEMENT OF DISCRIMINATION: I believe I have been discriminated against based on my rights under the Americans with Disabilities Act and the Idaho Human Rights Act. In support of this statement, I offer the following facts: A. On December 15, 1997, I applied with above-named Respondent for a technician or assembly position. On December 16, 1997, I had an interview with Michelle ________. During the interview she said that I was more than qualified for the position. I have five and one half years experience in electronics, including computer repair and upgrade. I am able to perform the essential functions of the job with the accommodation of being allowed to sit down periodically. B. On December 18, 1997, the above-named Respondent sent me a letter saying I did not receive the job. The letter was signed my Paula M. Barber of the personnel department for Respondent. C. The following Sunday, December 21, 1997, the above-named Respondent ran an ad in the paper stating they had 60 positions for assembly work. When I contacted Respondent, Paula M. Barber refused to give me a reason as to why I wasn't accepted as a candidate for employment. D. I believe that Respondent saw my brace and cane and didn't hire me because it believed that I was unable to perform the job because most positions for which I was applying require standing. E. Respondent employs at least 15 employees. I believe the practices of the above-named Respondent are in violation of: |X| Title 67, Chapter 59 of the Idaho Code |_| Title 44, Chapter 17 of the Idaho Code |_| Title VII of the Civil Rights Act of 1964, as amended |_| Age Discrimination in Employment Act of 1967 (ADEA) |X| Americans with Disabilities Act 72 Amended and Restated Schedule 2.10(a) M.C.M.S Sdn. Bhd. has applied for, but has not yet received, a Malaysian environmental permit. M.C.M.S Sdn. Bhd. Does not have an occupancy certificate or a machinery department approval. See Schedule 2.6 EX-2.3 4 AMENDMENT TO AMENDED RECAPITALIZATION AGREEMENT 1 Exhibit 2.3 EXECUTION COPY AMENDMENT NO. 1 TO THE AMENDED AND RESTATED RECAPITALIZATION AGREEMENT THIS AMENDMENT NO. 1 TO THE AMENDED AND RESTATED RECAPITALIZATION AGREEMENT (this "Amendment No. 1") is dated as of February 26, 1998, and is entered into by and among Micron Electronics, Inc., a Minnesota corporation ("MEI"), MEI California, Inc., a California corporation and a wholly owned subsidiary of MEI ("Sub"), MCMS, Inc. (formerly known as Micron Custom Manufacturing Services, Inc.), an Idaho corporation and a wholly-owned subsidiary of Sub (the "Company") and Cornerstone Equity Investors IV L.P., a Delaware limited partnership ("Investor"). WHEREAS, the parties hereto have entered into that certain Amended and Restated Recapitalization Agreement, dated as of February 1, 1998 (the "Original Agreement") (it being understood that capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Original Agreement); WHEREAS, the parties hereto desire to amend certain provisions of the Original Agreement; NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. The fourth whereas clause of the Original Agreement is hereby amended and restated to read in its entirety as follows: "WHEREAS, Investor will contribute $61.2 million (the "Purchase Price") to the Company in exchange for 2,761,176 shares of Class A Common Stock of the Company, 863,824 shares of Class B Common Stock of the Company, 875,000 shares of Class C Common Stock of the Company, 2,761,176 shares of Series A Convertible Preferred Stock of the Company, 863,824 shares of Series B Convertible Preferred Stock of the Company and 875,000 shares of Series C Convertible Preferred Stock of the Company (the Class A Common Stock, Class B Common Stock, Class C Common Stock, Series A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred Stock are referred to herein as the "Recapitalized Securities") which Recapitalized Securities shall have the terms set forth in the Amended Charter (as herein defined) (collectively, the "Purchase Shares") (such purchase, the "Stock Purchase");" 2. The sixth whereas clause of the Original Agreement is hereby amended and restated to read in its entirety: "WHEREAS, the parties hereto desire that, immediately after the Stock Purchase and the BTAB Financing, the Company shall redeem from Sub 1,000 shares (such number to be appropriately adjusted for any stock split or stock dividend of the Company Common Stock after the date hereof and prior to the 2 EXECUTION COPY Closing Date) (the "Redemption Shares") of Company Common Stock in exchange for the Redemption Price (as herein defined) (such redemption, the "Stock Redemption") and that immediately after Closing and payment of the Redemption Price, Sub shall own 10% of the outstanding Recapitalized Securities;" 3. Section 8.3 of the Original Agreement is hereby amended and restated to read in its entirety as follows: "Section 8.3 Stock Redemption. Pursuant to the authorization contemplated by Section 8.1 hereof and subject to the terms and conditions set forth in this Agreement, the parties hereto agree that Sub shall offer for redemption, and the Company shall redeem the Redemption Shares. In consideration for the Redemption Shares, at the Closing, Sub will receive from the Company (a) $249,200,000, (b) 500,000 shares of the Company's Class A Common Stock having the terms set forth in the Amended Charter and (c) 500,000 shares of the Company' Series A Convertible Preferred Stock having the terms set forth in the Amended Charter (the items referred to in (b) and (c) above are referred to herein collectively as the "Recapitalized Shares" and the items referred to in (a), (b) and (c) above are referred to herein collectively as the "Redemption Price")." 4. Section 8.4(b)(4) is hereby amended and restated to read in its entirety as follows: "(4) Deliveries by Company to Sub. The Company shall pay to Sub the cash Redemption Price by wire transfer of immediately available funds to one or more accounts as designated by Sub and shall deliver to Sub certificates evidencing the Recapitalized Shares." 5. Except as expressly set forth herein, the terms of the Original Agreement shall remain in full force and effect. 6. This Amendment No. 1 may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes of this Amendment No. 1, provided receipt of copies of such counterparts is confirmed. 2 3 IN WITNESS WHEREOF, this Amendment No. 1 to the Amended and Restated Recapitalization Agreement has been signed by or on behalf of each of the parties as of the day first above written. MCMS, Inc. (formerly known as Micron Custom Manufacturing Services, Inc.) By: /s/ Robert F. Subia ------------------------------ Name: Robert F. Subia Title: President & CEO MICRON ELECTRONICS, INC. By: ------------------------------ Name: Title: MEI CALIFORNIA, INC. By: ------------------------------ Name: Title: CORNERSTONE EQUITY INVESTORS IV, L.P. By: Cornerstone IV, L.L.C., as General Partner By: /s/ Michael E. Najjar ------------------------------ Name: Michael E. Najjar Title: Managing Director 4 IN WITNESS WHEREOF, this Amendment No. 1 to the Amended and Restated Recapitalization Agreement has been signed by or on behalf of each of the parties as of the day first above written. MCMS, Inc. (formerly known as Micron Custom Manufacturing Services, Inc.) By: ------------------------------ Name: Title: MICRON ELECTRONICS, INC. Reviewed By: /s/ T. Erik Oaas MEI Legal ------------------------------ BTH Name: T. Erik Oaas --------- Title: Executive Vice-President MEI CALIFORNIA, INC. Reviewed By: /s/ T. Erik Oaas MEI Legal ------------------------------ BTH Name: T. Erik Oaas --------- Title: Executive Vice-President CORNERSTONE EQUITY INVESTORS IV, L.P. By: Cornerstone IV, L.L.C., as General Partner By: ------------------------------ Name: Title: EX-3.1 5 AMENDED AND RESTATED ARTICLES OF INCORPORATION 1 Exhibit 3.1 ================================================================================ State of Idaho =================== Department of State =================== I Pete T. Cenarrusa, Secretary of State of the State of Idaho, hereby certify that I am the custodian of the corporation, limited liability company, limited partnership, limited liability partnership, and assumed business name records of this State. I FURTHER CERTIFY That the annexed is a full, true and complete transcript of for amended and restated articles of incorporation of MCMS, INC., file number C 108686, received and filed on February 24, 1998. Dated: February 24, 1998 [SEAL] /s/ Pete T. Cenarrusa SECRETARY OF STATE By /s/ Alisa Hartley --------------------------- ================================================================================ 2 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF MCMS, INC. o o o o 1. The name of the corporation (which is hereinafter referred to as the "Corporation") is MCMS, Inc. 2. The original Articles of Incorporation was filed with the Secretary of State of the State of Idaho on December 23, 1994, under the name Micron Custom Manufacturing Services, Inc. 3. The amendments contained within the Amended and Restated Articles of Incorporation have been duly proposed by resolutions adopted and declared advisable by the Board of Directors were duly adopted by the shareholders of the Corporation pursuant to Section 30-1-1003 of the Idaho Business Corporation Act by the unanimous written consent of the shareholders in lieu of a meeting and vote and duly executed and acknowledged by the officers of the Corporation in accordance with the provisions of Section 30-1-704 of the Idaho Business Corporation Act, and, upon filing with the Secretary of State in accordance with Section 30- 1-1006, shall thenceforth supersede the original Articles of Incorporation and shall, as it may thereafter be amended in accordance with its terms and applicable law, be the Articles of Incorporation of the Corporation. 4. The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation in the manner now or hereafter prescribed by the laws of the State of Idaho, and all rights conferred herein are granted subject to this reservation. 5. The text of the these Articles of Incorporation of the Corporation are hereby amended and restated to read in their entirety as follows: FIRST: The name of the Corporation is MCMS, INC. SECOND: The address of the Corporation's registered office in the State of Idaho is 16399 Franklin Road, Nampa, Idaho 83687. The name of the Corporation's registered agent at such address shall be Angelo M. Ninivaggi, Jr. THIRD: The nature of the business of the Corporation and its objects and purposes are to have and exercise all the powers conferred by the laws of the State of Idaho upon corporations formed under the Business Corporation Act of such State. 3 FOURTH: The Corporation is authorized to issue 6,000,000 shares of Series A Convertible Preferred Stock, par value $0.001 per share (the "Series A Preferred Stock"), 6,000,000 shares of Series B Convertible Preferred Stock, par value $0.001 per share (the "Series B Preferred Stock"), 1,000,000 shares of Series C Convertible Preferred Stock, par value $0.001 per share (the "Series C Preferred Stock" and, together with the Series A Preferred Stock and the Series B Preferred Stock, the "Preferred Stock"), and up to 750,000 shares of undesignated preferred stock, par value $0.001 per share, 30,000,000 shares of voting common stock, par value $0.001 per share (the "Class A Common Stock"), 12,000,000 shares of nonvoting common stock, par value $0.001 per share (the "Class B Common Stock"), 2,000,000 shares of super-voting common stock, par value $0.001 per share (the "Class C Common Stock"), and 1,000 shares of undesignated common stock, par value $0.01 per share (the "Old Common Stock"). The 750,000 undesignated shares of preferred stock authorized by these Amended and Restated Articles of Incorporation may be issued from time to time in one or more series. For any wholly unissued series of previously undesignated preferred stock, the Board of Directors is hereby authorized to fix and alter the dividend rights, dividend rates, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption prices, liquidation preferences, the number of shares constituting any such series and the designation thereof, or any of them. For any series of preferred stock having issued and outstanding shares, the Board of Directors is further authorized to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of such series when the number of shares of such series was originally fixed by the Board of Directors, but such increase or decrease shall be subject to the limitations and restrictions stated in the resolution of the Board of Directors originally fixing the number of shares of such series, if any. If the number of shares of any series is so decreased, then the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. Set forth below is a statement of the preferences, limitations and relative rights of each class and series of stock of the Corporation. Unless otherwise indicated, all cross-references in each Subdivision of this Article Fourth refer to other paragraphs in such Subdivision. I. Preferred Stock Section 1. Dividends. 1A. General Obligation. When, as and if declared by the Corporation's Board of Directors and to the extent permitted under the Idaho Business Corporation -2- 4 Act, the Corporation shall pay preferential dividends in cash to the holders of the Preferred Stock on each share of the Preferred Stock (a "Share") at the rate of 10 percent per annum of the sum of the Liquidation Value thereof plus all declared and unpaid dividends thereon from and including the date of issuance of such Share to and including the first to occur of (i) the date on which the Liquidation Value of such Share (plus all declared and unpaid dividends thereon) is paid to the holder thereof in connection with the liquidation of the Corporation or the redemption of such Share by the Corporation, (ii) the date on which such Share is converted into shares of Conversion Stock hereunder or (iii) the date on which such share is otherwise acquired by the Corporation. Such dividends shall not be cumulative. The date on which the Corporation initially issues any Share shall be deemed to be its "date of issuance" regardless of the number of times transfer of such Share is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such Share. Additionally, in the event that a Share of Series B Preferred Stock is converted into a Share of Series A Preferred Stock, the "date of issuance" with respect to such Share of Series A Preferred Stock shall be the date of issuance of the Share of Series B Preferred Stock, the conversion of which resulted in the issuance of such Share of Series A Preferred Stock. 1B. Participating Dividends. In the event that the Corporation declares or pays any dividends upon the Common Stock (whether payable in cash, securities or other property) other than dividends payable in connection with or pursuant to the Recapitalization (as defined below) or solely in shares of Common Stock, the Corporation shall also declare and pay to the holders of the Preferred Stock at the same time that it declares and pays such dividends to the holders of the Common Stock, the dividends which would have been declared and paid with respect to the Common Stock issuable upon conversion of the Preferred Stock had all of the outstanding Preferred Stock been converted immediately prior to the record date for such dividend, or if no record date is fixed, the date as of which the record holders of Common Stock entitled to such dividends are to be determined; provided that if any dividend consists of voting securities, the Corporation shall make available to each holder of Series B Preferred Stock, at such holder's request, dividends consisting of securities which are non-voting (except as otherwise required by law), which are otherwise identical to the dividends consisting of voting securities and which are convertible into such voting securities on the same terms as Class B Common Stock is convertible into Class A Common Stock. Section 2. Liquidation. Upon any liquidation, dissolution or winding up of the Corporation (whether voluntary or involuntary), each holder of Preferred Stock shall be entitled to be paid, before any distribution or payment is made upon any Junior Securities, an amount in cash equal to the aggregate Liquidation Value of all Shares held by such holder (plus all declared and unpaid dividends thereon), and, except as set forth -3- 5 herein, the holders of Preferred Stock shall not be entitled to any further payment. If upon any such liquidation, dissolution or winding up of the Corporation the Corporation's assets to be distributed among the holders of the Preferred Stock are insufficient to permit payment to such holders of the aggregate amount which they are entitled to be paid under this Section 2, then the entire assets available to be distributed to the Corporation's shareholders shall be distributed pro rata among such holders based upon the aggregate Liquidation Value (plus all declared and unpaid dividends) of the Preferred Stock held by each such holder. Prior to the liquidation, dissolution or winding up of the Corporation, the Corporation shall declare for payment all declared and unpaid dividends with respect to the Preferred Stock, but only to the extent of funds of the Corporation legally available for the payment of dividends. Not less than 60 days prior to the payment date stated therein, the Corporation shall mail written notice of any such liquidation, dissolution or winding up to each record holder of Preferred Stock, setting forth in reasonable detail the amount of proceeds to be paid with respect to each Share and each share of Common Stock in connection with such liquidation, dissolution or winding up. Any Change in Control or Fundamental Change (both as defined below) shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 2. Section 3. Priority of Preferred Stock on Dividends and Redemptions. So long as any Preferred Stock remains outstanding, without the prior written consent of the holders of a majority of the outstanding shares of Preferred Stock, the Corporation shall not, nor shall it permit any Subsidiary to, redeem, purchase or otherwise acquire directly or indirectly any Junior Securities, nor shall the Corporation directly or indirectly pay or declare any dividend or make any distribution upon any Junior Securities, if at the time of or immediately after any such redemption, purchase, acquisition, dividend or distribution the Corporation has failed to pay the full amount of dividends declared but unpaid on the Preferred Stock; provided that the Corporation may repurchase shares of Common Stock from present or former employees of the Corporation and its Subsidiaries in accordance with the provisions of agreements or plans providing the Corporation with repurchase rights. Section 4. Voting Rights. Except as otherwise required by law and subject to the provisions set forth in this Article Fourth, the holders of shares of Common Stock issued and outstanding and Preferred Stock issued and outstanding shall vote together as a single class on all matters subject to shareholder approval. Notwithstanding the foregoing, the holders of Preferred Stock shall have no right to vote except as set forth in this Section 4 and as otherwise expressly required by law. 4A. Series A Preferred Stock. Each holder of the Series A Preferred Stock (i) shall have one vote for each share of Class A Common Stock that would be issuable to such holder upon the conversion of all the shares of Series A Preferred Stock held -4- 6 by such holder on the record date for the determination of shareholders entitled to vote, or if no record date is specified, as of the date of such vote, and (ii) shall be entitled to notice of each shareholders' meeting in accordance with the Bylaws of the Corporation. 4B. Series B Preferred Stock. Holders of Series B Preferred Stock shall have no rights to vote except as provided in this paragraph and as otherwise expressly required by law. In the event a right to vote expressly required by law arises, each holder of Series B Preferred Stock (i) shall be entitled to one vote for each share of Class A Common Stock that would be issuable to such holder upon the conversion of all the shares of Series B Preferred Stock held by such holder (whether by way of conversion through Class B Common Stock or through Series A Preferred Stock) on the record date for the determination of shareholders entitled to vote, or if no record date is specified, as of the date of such vote, and (ii) shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of the Corporation. 4C. Series C Preferred Stock. Each holder of the Series C Preferred Stock (i) shall have two votes for each share of Class C Common Stock that would be issuable to such holder upon the conversion of all the shares of Series C Preferred Stock held by such holder on the record date for the determination of shareholders entitled to vote, or if no record date is specified, as of the date of such vote, and (ii) shall be entitled to notice of each shareholders' meeting in accordance with the Bylaws of the Corporation. Section 5. Conversion. 5A. Conversion Procedure. (i) At any time and from time to time, any holder of Preferred Stock may convert all or any portion of the Preferred Stock (including any fraction of a Share) held by such holder into a number of shares of Conversion Stock computed by multiplying the number of Shares to be converted by $11.33 and dividing the result by the Conversion Price then in effect. Subject to and upon compliance with the provisions of this Section 5, any holder of Series A Preferred Stock shall be entitled at any time and from time to time in such shareholder's sole discretion and at such shareholder's option, to convert any and all of the shares of Series A Preferred Stock held by such shareholder into the same number of shares of Series B Preferred Stock. Any holder of Series B Preferred Stock may convert all or any portion of the Series B Preferred Stock (including any fraction of a Share) held by such holder into an equal number of shares of Series A Preferred Stock; provided however, that no holder of Series B Preferred Stock shall be entitled to convert shares of Series B Preferred Stock into Series A Preferred Stock, if and to the extent that after giving effect to such conversion, such holder (together with all other persons within the same "group" (within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "1934 Act"))) holds shares of capital stock of the -5- 7 Corporation representing more than 49% of the voting power of the then outstanding capital stock of the Corporation; and provided, further, that, Series B Preferred Stock that is Restricted Stock may not be converted into Series A Preferred Stock, if and to the extent that immediately prior thereto, or as a result of such conversion, with respect to such Restricted Stock, the Regulated Shareholder who owns or has owned such Restricted Stock, reasonably determines that the issuance of shares of Series A Preferred Stock upon the conversion of such Restricted Stock would result in a Regulatory Problem for such Regulated Shareholder. (ii) Except as otherwise provided herein, each conversion of Preferred Stock shall be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the Preferred Stock to be converted have been surrendered for conversion at the principal office of the Corporation. At the time any such conversion has been effected, the rights of the holder of the Shares converted as a holder of Preferred Stock shall cease and the Person or Persons in whose name or names any certificate or certificates for shares of Conversion Stock or Preferred Stock, as applicable, are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of Conversion Stock or Preferred Stock, as applicable, represented thereby. (iii) Notwithstanding any other provision hereof, if a conversion of Preferred Stock is to be made in connection with a Qualified Public Offering (as defined below), a Change in Control, a Fundamental Change or other transaction affecting the Corporation, the conversion of any Shares of Preferred Stock may, at the election of the holder thereof, be conditioned upon the consummation of such transaction, in which case such conversion shall not be deemed to be effective until immediately prior to such transaction being consummated. (iv) As soon as possible after a conversion has been effected (but in any event within five (5) business days in the case of subparagraph (a) below), the Corporation shall deliver to the converting holder: (a) a certificate or certificates representing the number of shares of Conversion Stock or Preferred Stock, as applicable, issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified; (b) payment in an amount equal to all declared and unpaid dividends with respect to each Share converted which have not been paid prior thereto, plus the amount payable under subparagraph (ix) below with respect to such conversion; and -6- 8 (c) a certificate representing any Shares of Preferred Stock which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. (v) If at the time of conversion of any Preferred Stock there are declared but unpaid dividends on such Preferred Stock being converted into Conversion Stock, such dividends may, at the converting holder's option, be converted into an additional number of shares of Conversion Stock determined by dividing the amount of the unpaid dividends to be applied for such purpose, by the Conversion Price then in effect. (vi) The issuance of certificates for shares of Conversion Stock or Preferred Stock, as applicable, upon conversion of Preferred Stock shall be made without charge to the holders of such Preferred Stock for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Conversion Stock or Preferred Stock, as applicable, provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Preferred Stock which is being converted. Upon conversion of each Share of Preferred Stock, the Corporation shall take all such actions as are necessary in order to insure that the Conversion Stock or Preferred Stock, as applicable, issuable with respect to such conversion shall be validly issued, fully paid and nonassessable, free and clear of all taxes, liens, charges and encumbrances with respect to the issuance thereof. (vii) The Corporation shall not close its books against the transfer of Preferred Stock or of Conversion Stock issued or issuable upon conversion of Preferred Stock in any manner which interferes with the timely conversion of Preferred Stock. The Corporation shall assist and cooperate with any holder of Shares required to make any governmental filings or obtain any governmental approval prior to or in connection with any conversion of Shares hereunder (including, without limitation, making any filings required to be made by the Corporation). (viii) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Conversion Stock and each series of Preferred Stock, solely for the purpose of issuance upon the conversion of the Preferred Stock, such number of shares of Conversion Stock and each series of Preferred Stock, as applicable, issuable upon the conversion of all outstanding Preferred Stock. All shares of Conversion Stock and each series of Preferred Stock, as applicable, which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to assure that all such shares of Conversion Stock and Preferred Stock, as applicable, may be so issued without violation of any applicable law or governmental regulation or any -7- 9 requirements of any domestic securities exchange upon which shares of Conversion Stock or Preferred Stock, as applicable, may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). The Corporation shall not take any action which would cause the number of authorized but unissued shares of Conversion Stock and shares of each series of Preferred Stock, as applicable, to be less than the number of such shares required to be reserved hereunder for issuance upon conversion of the Preferred Stock. (ix) If any fractional interest in a share of Conversion Stock would, except for the provisions of this subparagraph, be delivered upon any conversion of the Preferred Stock, the Corporation, in lieu of delivering the fractional share therefor, shall pay an amount in cash to the holder thereof equal to the Market Price of such fractional interest as of the date of conversion. 5B. Conversion Events. Each of the following shall constitute a "Conversion Event": (a) any public offering or public sale of securities of the Corporation (including a public offering registered under the Securities Act of 1933, as amended, or a public sale pursuant to Rule 144 of the Securities and Exchange Commission or any similar rule then in force); (b) any sale of securities of the Corporation to a person or a group of persons (within the meaning of the 1934 Act) if, after such sale, such person or group of persons in the aggregate would own or control securities of the Corporation (without giving effect to the Restricted Stock transferred in such Conversion Event) which possess in the aggregate the ordinary voting power to elect a majority of the Corporation's directors; (c) any sale of securities of the Corporation to a person or group of persons (within the meaning of the 1934 Act) if, after such sale, such person or group of persons would not, in the aggregate, own, control or have the right to acquire more than two percent (2%) of the outstanding securities of any class of voting securities of the Corporation; or (d) a transaction approved in advance by the Board of Governors of the Federal Reserve System as being in compliance with the requirements of the Bank Holding Company Act. 5C. Conversion Price. (i) The initial Conversion Price shall be $11.33. In order to prevent dilution of the conversion rights granted under this Section 5, the Conversion Price shall be subject to adjustment from time to time pursuant to this paragraph 5C. -8- 10 (ii) If and whenever on or after the original date of issuance of the Preferred Stock the Corporation issues or sells, or in accordance with paragraph 5D is deemed to have issued or sold, any Additional Stock (as defined below) for a consideration per share less than the Conversion Price in effect immediately prior to the time of such issue or sale, then immediately upon such issue or sale or deemed issue or sale the Conversion Price shall be reduced to the Conversion Price determined by dividing (a) the sum of (1) the product derived by multiplying the Conversion Price in effect immediately prior to such issue or sale by the number of shares of Common Stock Deemed Outstanding immediately prior to such issue or sale, plus (2) the consideration, if any, received by the Corporation upon such issue or sale, by (b) the number of shares of Common Stock Deemed Outstanding immediately after such issue or sale. (iii) "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to paragraph 5D) by the Corporation after the original date of issuance of the Preferred Stock other than: (A) 2,500,000 shares of Common Stock, issued or sold or (deemed issued or sold) to employees, directors, consultants, vendors, lessors and lenders of the Corporation and its Subsidiaries pursuant to stock option plans and stock ownership plans not repurchased at cost by the Corporation and lease and loan (as such number of shares is proportionately adjusted for subsequent stock splits, combinations and dividends affecting the Common Stock and as such number includes all such stock options and purchase rights outstanding at the time of the issuance of the Preferred Stock); (B) Shares of Common Stock issued pursuant to a transaction described in paragraph 5E hereof; (C) Capital stock or warrants or options to purchase capital stock issued as consideration for bona fide acquisitions, mergers or similar transactions, the terms of which are approved by the Board of Directors of the Corporation; (D) Shares of Common Stock issued or issuable upon conversion of the Preferred Stock; (E) Shares of Common Stock issued or issuable in a Qualified Public Offering prior to or in connection with which all outstanding shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock will be converted to Common Stock; and (F) Shares of Common Stock issued in connection with or pursuant to the Recapitalization. -9- 11 5D. Effect on Conversion Price of Certain Events. For purposes of determining the adjusted Conversion Price under paragraph 5C, the following shall be applicable: (i) Issuance of Rights or Options. If the Corporation in any manner grants or sells any Options and the price per share for which Common Stock is issuable upon the exercise of such Options, or upon conversion or exchange of any Convertible Securities issuable upon exercise of such Options, is less than the Conversion Price in effect immediately prior to the time of the granting or sale of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the granting or sale of such Options for such price per share. For purposes of this paragraph, the "price per share for which Common Stock is issuable" shall be determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the granting or sale of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Conversion Price shall be made when Convertible Securities are actually issued upon the exercise of such Options or when Common Stock is actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (ii) Issuance of Convertible Securities. If the Corporation in any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon conversion or exchange thereof is less than the Conversion Price in effect immediately prior to the time of such issue or sale, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Corporation at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this paragraph, the "price per share for which Common Stock is issuable" shall be determined by dividing (A) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Conversion Price shall be made when Common Stock is actually issued upon the conversion or exchange of such Convertible Securities, and -10- 12 if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustments of the Conversion Price had been or are to be made pursuant to other provisions of this Section 5, no further adjustment of the Conversion Price shall be made by reason of such issue or sale. (iii) Change in Option Price or Conversion Rate. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock changes at any time, the Conversion Price in effect at the time of such change shall be immediately adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold; provided that if such adjustment would result in an increase of the Conversion Price then in effect, such adjustment shall not be effective until 30 days after written notice thereof has been given by the Corporation to all holders of the Preferred Stock. For purposes of paragraph 5D, if the terms of any Option or Convertible Security which was outstanding as of the date of issuance of the Preferred Stock are changed in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such change; provided that no such change shall at any time cause the Conversion Price hereunder to be increased. (iv) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Security without the exercise of any such Option or right, the Conversion Price then in effect hereunder shall be adjusted immediately to the Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued; provided that if such adjustment would result in an increase of the Conversion Price then in effect, such adjustment shall not be effective until 30 days after written notice thereof has been given by the Corporation to all holders of the Preferred Stock. For purposes of paragraphs 5C and 5D, the expiration or termination of any Option or Convertible Security which was outstanding as of the date of issuance of the Preferred Stock shall not cause the Conversion Price hereunder to be adjusted unless, and only to the extent that, a change in the terms of such Option or Convertible Security caused it to be deemed to have been issued after the date of issuance of the Preferred Stock. (v) Calculation of Consideration Received. If any Common Stock, Option or Convertible Security is issued or sold or deemed to have been issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation therefor (net of discounts, commissions and related -11- 13 expenses). If any Common Stock, Option or Convertible Security is issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Corporation shall be the Market Price thereof as of the date of receipt. If any Common Stock, Option or Convertible Security is issued to the owners of the non-surviving entity in connection with any merger in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Option or Convertible Security, as the case may be. The fair value of any consideration other than cash and securities shall be determined in good faith by the Board of Directors of the Corporation. If such parties are unable to reach agreement within a reasonable period of time, the fair value of such consideration shall be determined by an independent appraiser experienced in valuing such type of consideration jointly selected by the Corporation and the holders of a majority of the outstanding Preferred Stock. The determination of such appraiser shall be final and binding upon the parties, and the fees and expenses of such appraiser shall be borne by the Corporation. (vi) Integrated Transactions. In case any Option is issued in connection with the issue or sale of other securities of the Corporation, together comprising one integrated transaction in which no specific consideration is allocated to such Option by the parties thereto, the Option shall be deemed to have been issued for a consideration of $0.01. (vii) Treasury Shares. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation or any Subsidiary, and the disposition of any shares so owned or held shall be considered an issue or sale of Common Stock. (viii) Record Date. If the Corporation takes a record of the holders of Common Stock for the purpose of entitling them (a) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (b) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. 5E. Subdivision or Combination of Common Stock. If the Corporation at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and if the Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding -12- 14 shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased. If the Corporation in any manner subdivides its outstanding shares of Series A Preferred Stock into a greater number of shares, then the Series B Preferred Stock shall be similarly subdivided and, if the Corporation in any manner combines its outstanding shares of Series A Preferred Stock into a smaller number of shares, then the number of shares of Series B Preferred Stock immediately prior to such combination shall be proportionately reduced. 5F. Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Corporation's assets or other transaction, in each case which is effected in such a manner that the holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, other than the Recapitalization, is referred to herein as an "Organic Change." Prior to the consummation of any Organic Change, the Corporation shall make appropriate provisions (in form and substance satisfactory to the holders of a majority of the Preferred Stock then outstanding) to insure that each of the holders of Preferred Stock shall thereafter have the right to acquire and receive, in lieu of or in addition to (as the case may be) the shares of Conversion Stock immediately theretofore acquirable and receivable upon the conversion of such holder's Preferred Stock, such shares of stock, securities or assets as such holder would have received in connection with such Organic Change if such holder had converted its Preferred Stock immediately prior to such Organic Change. In each such case, the Corporation shall also make appropriate provisions (in form and substance satisfactory to the holders of a majority of the Preferred Stock then outstanding) to insure that the provisions of this Section 5 and Section 6 hereof shall thereafter be applicable to the Preferred Stock (including, in the case of any such consolidation, merger or sale in which the successor entity or purchasing entity is other than the Corporation, an immediate adjustment of the Conversion Price to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, and a corresponding immediate adjustment in the number of shares of Conversion Stock acquirable and receivable upon conversion of Preferred Stock, if the value so reflected is less than the Conversion Price in effect immediately prior to such consolidation, merger or sale). The Corporation shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Corporation) resulting from consolidation or merger or the entity purchasing such assets assumes by written instrument (in form and substance satisfactory to the holders of a majority of the Preferred Stock then outstanding), the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. 5G. Certain Events. If any event occurs of the type contemplated by the provisions of this Section 5 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom -13- 15 stock rights or other rights with equity features), then the Corporation's Board of Directors shall make an appropriate adjustment in the Conversion Price so as to protect the rights of the holders of Preferred Stock; provided that no such adjustment pursuant to this Section 5G shall increase the Conversion Price as otherwise determined pursuant to this Section 5 or decrease the number of shares of Conversion Stock issuable upon conversion of each Share of Preferred Stock. 5H. Notices. (i) Immediately upon any adjustment of the Conversion Price, the Corporation shall give written notice thereof to all holders of Preferred Stock, setting forth in reasonable detail and certifying the calculation of such adjustment. (ii) The Corporation shall give written notice to all holders of Preferred Stock at least twenty (20) days prior to the date on which the Corporation closes its books or takes a record (a) with respect to any dividend or distribution upon Common Stock (other than the Recapitalization), (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) for determining rights to vote with respect to any Organic Change, dissolution or liquidation. (iii) The Corporation shall also give written notice to the holders of Preferred Stock at least twenty (20) days prior to the date on which any Organic Change shall take place. 5I. Automatic Conversion of Preferred Stock to Common Stock. (i) Each share of Preferred Stock shall automatically be converted into corresponding shares of Conversion Stock at the Conversion Price (without the payment of such Conversion Price) at the time in effect for such share immediately upon the earlier of (i) the Corporation's sale of its Common Stock in a Qualified Public Offering or (ii) the date specified by written consent or agreement of the holders of 67 percent of the then outstanding shares of Preferred Stock. Any such automatic conversion shall only be effected at the time of and subject to the closing of the sale of such shares pursuant to such Qualified Public Offering and upon written notice of such automatic conversion delivered to all holders of Preferred Stock at least seven (7) days prior to such closing. 5J. Automatic Conversion of Series A Preferred Stock or Series C Preferred Stock to Series B Preferred Stock. Notwithstanding anything in these Articles to the contrary, if at any time, any holder of capital stock of the Corporation or group (within the meaning of Section 13(d)(3) of the 1934 Act) including any such holder would hold more than 49 percent of the aggregate voting power of the capital stock of the Corporation then outstanding, all shares of voting capital stock with voting power greater than 49 -14- 16 percent held by such holder shall, immediately prior to such time, automatically convert into shares of the Corporation's non-voting capital stock in accordance with the Conversion Priority. In addition, if at any time, a Regulated Shareholder together with any affiliates thereof collectively would hold more than 4.9 percent of all of voting power of any class of voting capital stock of the Corporation then outstanding, all shares of voting capital stock with voting power greater than 4.9 percent of such class held by the Regulated Shareholder together with any affiliates thereof shall, immediately prior to such time, automatically convert into shares of the Corporation's non-voting capital stock of such class or series, as the case may be. Section 6. Purchase Rights. If at any time the Corporation grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock generally (the "Purchase Rights"), then each holder of Preferred Stock shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Conversion Stock acquirable upon conversion of such holder's Preferred Stock immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights; provided that if the Purchase Rights involve voting securities, the Corporation shall make available to each holder of Series B Preferred Stock, at such holder's request, Purchase Rights involving securities which are non-voting (except as otherwise required by law), which are otherwise identical to the Purchase Rights involving voting securities and which are convertible into such voting securities on the same terms as Class B Common Stock is convertible into Class A Common Stock. Section 7. Registration of Transfer. The Corporation shall keep at its principal office (or such other place as the Corporation reasonably designates) a register for the registration of shares of Preferred Stock. Upon the surrender of any certificate representing shares of any series of Preferred Stock at such place, the Corporation shall, at the request of the registered shareholder of such certificate, execute and deliver a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of such series represented by the surrendered certificate, and the Corporation forthwith shall cancel such surrendered certificate. Each such new certificate will represent such number of shares of such series as is requested by the shareholder of the surrendered certificate and will be substantially identical in form to the surrendered certificate. Subject to any other restrictions on transfer to which such shareholder or such shares may be bound, the Corporation will also register such new certificate in such name as requested by the holder of the surrendered certificate. -15- 17 Section 8. Replacement. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder shall be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing Shares of Preferred Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is a financial institution or other institutional investor its own agreement shall be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of Shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. Section 9. Definitions. "Affiliate" shall mean with respect to any person, any other person, directly or indirectly controlling, controlled by or under common control with such person. For the purpose of the above definition, the term "control" (including with correlative meaning, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities or by contract or otherwise. "Bank Holding Company Act" shall mean the Bank Holding Company Act of 1956, as amended and any rules and regulations or interpretations promulgated thereunder (including without limitation, Regulation Y of the Board of Governors of the Federal Reserve System, 12 CAR Part 225 or any successor to such Regulation) by the Board of Governors of the Federal Reserve System. "Change in Control" means the occurrence of any of the following events: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the 1934 Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said 1934 Act), directly or indirectly, of securities of the Corporation representing 50 percent or more of the total voting power represented by the Corporation's then outstanding voting securities; or (ii) the consummation of a merger or consolidation of the Corporation with any other corporation, other than a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50 percent of the total voting power represented by the voting securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation, (iii) or the shareholders of the Corporation approve a plan of complete liquidation of the -16- 18 Corporation or (iv) the consummation of the sale or disposition by the Corporation of all or substantially all of the Corporation's assets. Notwithstanding anything herein to the contrary, the Recapitalization shall not be deemed a Change in Control. "Common Stock" means, collectively, the Corporation's Class A Common Stock, par value $0.001 per share, the Corporation's Class B Common Stock, par value $0.001 per share, the Corporation's Class C Common Stock, par value $0.001 per share, and any capital stock of any class of the Corporation hereafter authorized which is not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Corporation. "Common Stock Deemed Outstanding" means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to subparagraphs 5D(i) and 5D(ii) hereof whether or not the Options or Convertible Securities are actually exercisable at such time, but excluding any shares of Common Stock issuable upon conversion of the Preferred Stock. "Conversion Priority" means that in the event of an automatic conversion of the voting capital stock into non-voting capital stock pursuant to (i) Article Fourth, Subdivision I, Section 5, Paragraph 5J, (ii) Article Fourth, Subdivision II, Section 4 and (iii) Article Fourth, Subdivision IV, Section 4, then the priority of conversion for all shares of voting capital stock held by an affected holder with voting power greater than 49 percent of the total voting power of the outstanding capital stock of the Corporation shall be (a) Class A Common Stock into Class B Common Stock first, (b) Class C Common Stock into Class B Common Stock second (if additional voting capital stock must be automatically converted), (c) Series A Preferred Stock into Series B Preferred Stock third (if additional voting capital stock must be automatically converted), and (d) Series C Preferred Stock into Series B Preferred Stock (if additional voting capital stock must be automatically converted). "Conversion Stock" with respect to (i) the Series A Preferred Stock, means shares of the Corporation's Class A Common Stock, par value $0.001 per share (ii) the Series B Preferred Stock, means shares of the Corporation's Class B Common Stock, par value $0.001 per share and (iii) the Series C Preferred Stock, means shares of the Corporation's Class C Common Stock, par value $0.001 per share; provided that if there is a change such that the securities issuable upon conversion of the Preferred Stock are issued by an entity other than the Corporation or there is a change in the type or class of securities so issuable, then the term "Conversion Stock" shall mean one share of the security issuable upon conversion of the Preferred Stock if such security is issuable in shares, or shall mean the -17- 19 smallest unit in which such security is issuable if such security is not issuable in shares. "Convertible Securities" means any stock or securities directly or indirectly convertible into or exchangeable for Common Stock. "Fundamental Change" means (a) any sale or transfer of more than 50 percent of the assets of the Corporation and its Subsidiaries on a consolidated basis (measured either by book value in accordance with generally accepted accounting principles consistently applied or by fair market value determined in the reasonable good faith judgment of the Corporation's Board of Directors) in any transaction or series of transactions (other than sales in the ordinary course of business) and (b) any merger or consolidation to which the Corporation is a party, except for a merger in which the Corporation is the surviving corporation, the terms of the Preferred Stock are not changed and the Preferred Stock is not exchanged for cash, securities or other property, and after giving effect to such merger, the holders of the Corporation's outstanding capital stock possessing the voting power (under ordinary circumstances) to elect a majority of the Corporation's Board of Directors immediately prior to the merger shall continue to own the Corporation's outstanding capital stock possessing the voting power (under ordinary circumstances) to elect a majority of the Corporation's Board of Directors; provided that a merger or other transaction conducted for the sole purpose of changing the Corporation's domicile shall not be considered a Fundamental Change. Notwithstanding anything herein to the contrary, the Recapitalization shall not be considered a Fundamental Change. "Junior Securities" means any capital stock or other equity securities of the Corporation, except for (i) the Preferred Stock and (ii) the 12 1/2% Senior Exchangeable Preferred Stock and the 12 1/2% Series B Senior Exchangeable Preferred Stock which are to be designated by the Board of Directors in connection with the Recapitalization. "Liquidation Value" of any Share as of any particular date shall be equal to $11.33. "Market Price" of any security means the average of the closing prices of such security's sales on the principal securities exchange on which such security may at the time be listed, or, if there has been no sales on such exchange on any day, the average of the highest bid and lowest asked prices on such exchange at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of 21 days consisting of the day as of which "Market Price" is being -18- 20 determined and the 20 consecutive business days prior to such day. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" shall be the fair value thereof determined by the Corporation's Board of Directors. If such parties are unable to reach agreement within a reasonable period of time, such fair value shall be determined by an independent appraiser experienced in valuing securities jointly selected by the Corporation and the holders of a majority of the Preferred Stock. The determination of such appraiser shall be final and binding upon the parties, and the Corporation shall pay the fees and expenses of such appraiser. "Options" means any rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities. "Person" means an individual, a partnership, a corporation, a limited liability company, a limited liability, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Qualified Public Offering" means any offering by the Corporation of its capital stock or equity securities to the public pursuant to an effective registration statement under the Securities Act of 1933, as then in effect, or any comparable statement under any similar federal statute then in force pursuant to which the public offering price per share of which is not less than $14.00 (adjusted to reflect stock dividends, stock splits or recapitalizations) after the date hereof and results in aggregate gross cash proceeds to the Corporation of at least $30,000,000 (before deduction of underwriting discounts and expenses). "Recapitalization" means the transactions contemplated by the Recapitalization Agreement. "Recapitalization Agreement" means the Amended and Restated Recapitalization Agreement, dated as of February 1, 1998, by and among the Corporation, Micron Electronics, Inc., MEI California, Inc. and certain investors, as such agreement may from time to time be amended in accordance with its terms. "Regulated Shareholder" shall mean any shareholder (i) that is subject to the provisions of the Bank Holding Company Act and (ii) that holds shares of capital stock of the Corporation. "Regulatory Problem" shall mean, with respect to any shareholder, any set of facts, events or circumstances the existence of which would cause such shareholder to believe that there is a substantial risk of assertion by a governmental entity (which belief shall be reasonable in connection with the prevailing regulatory environment) that such shareholder is or would be in violation of any law, regulation, -19- 21 rule or other requirement of any governmental authority (including without limitation, the Bank Holding Company Act). "Restricted Stock" shall mean Class B Common Stock or Series B Preferred Stock ever held of record by any Regulated Shareholder or its Affiliates, excluding treasury shares; provided, however, that any such shares shall cease to be Restricted Stock when such shares are transferred in a transaction which is a Conversion Event, a transaction approved in advance by the Board of Governors of the Federal Reserve System as being in compliance with the requirements of the Bank Holding Company Act or are acquired by the Corporation or any subsidiary of the Corporation, as the case may be. "Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control the managing general partner of such limited liability company, partnership, association or other business entity. Section 10. Amendment and Waiver. No amendment, modification or waiver shall be binding or effective with respect to any provision of Sections 1 to 11 hereof without the prior written consent of the holders of at least 67 percent of the Preferred Stock outstanding at the time such action is taken; provided that no such action shall change (a) the Conversion Price of the Preferred Stock or the number of shares or class of stock into which the Preferred Stock is convertible, without the prior written consent of the holders of at least 75 percent of the Preferred Stock then outstanding or (b) the percentage of Preferred Stock required to approve any change described in clause (a) above, without the prior written consent of the holders of at least 75 percent of the Preferred Stock then outstanding; and provided further that no change in the terms hereof may be accomplished by merger or consolidation of the Corporation with another corporation or entity unless the Corporation has obtained the prior written consent of the holders of the applicable percentage of the Preferred Stock then outstanding and provided further that (i) no change, amendment, modification or -20- 22 waiver shall be made which adversely affects one class of Common Stock in a manner differently than each other class of Common Stock without the consent of each holder of such class of Common Stock, (ii) no change, amendment, modification or waiver shall be made which adversely affects one series of Preferred Stock in a manner differently than each other series of Preferred Stock without the consent of each holder of such series of Preferred Stock and (iii) no change, amendment, modification or waiver shall be made to the ability of each class and series to convert to non-voting classes and series of common and preferred stock. Section 11. Notices. Except as otherwise expressly provided hereunder, all notices referred to herein shall be in writing and shall be delivered by registered or certified mail, return receipt requested and postage prepaid, or by reputable overnight courier service, charges prepaid, and shall be deemed to have been given when so mailed or sent (i) to the Corporation, at its principal executive offices and (ii) to any shareholder, at such holder's address as it appears in the stock records of the Corporation (unless otherwise indicated by any such holder). II. Class A Common Stock Section 1. Dividends. The holders of shares of Class A Common Stock shall be entitled to receive such dividends as from time to time may be declared by the Board of Directors of the Corporation, subject to the provisions of Subdivision I of this Article Fourth with respect to the rights of holders of the Preferred Stock and subject to the simultaneous payment of equivalent dividends on the Class B Common Stock and Class C Common Stock as set forth in Subdivisions III and IV hereof. Section 2. Liquidation. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment in full of the amounts to be paid to holders of Preferred Stock pursuant to Subdivision I, Section 2 hereof, the holders of Class A Common Stock, the holders of Class B Common Stock, and the holders of Class C Common Stock shall share ratably based upon the number of shares of Common Stock held by them in all remaining assets of the Corporation available for distribution to its shareholders. Section 3. Voting Rights. Except as otherwise required by law and subject to the provisions set forth in this Article Fourth, the holders of shares of Common Stock issued and outstanding and Preferred Stock issued and outstanding shall vote together as a single class on all -21- 23 matters subject to shareholder approval. Notwithstanding the foregoing, the holders of Class A Common Stock shall have no right to vote except as set forth in this section and as otherwise expressly required by law. All shares of Class A Common Stock shall be identical with each other in every respect. The shares of Class A Common Stock shall entitle the holders thereof to one vote for each share upon all matters upon which shareholders have the right to vote. Section 4. Conversion. (i) Shares of Class A Common Stock held by a Substantial Shareholder, a Regulated Shareholder or any of their affiliates may be converted, at the option of the holder thereof at any time, into an equal number of fully paid and non-assessable shares of Class B Common Stock. The Corporation shall at all times take such action as is necessary to assure that an adequate number of shares of Class B Common Stock is available and reserved for issuance upon conversion of all outstanding shares of Class A Common Stock. The Corporation will not take any action with respect to any series or class of its capital stock if subsequent to such action the provisions of the preceding sentence could not be complied with. (ii) Notwithstanding anything in these Articles to the contrary, if at any time, any holder of capital stock of the Corporation or group (within the meaning of Section 13(d)(3) of the 1934 Act) including such holder would hold more than 49 percent of the aggregate voting power of the capital stock of the Corporation then outstanding, all shares of voting capital stock with voting power greater than 49 percent held by such holder shall, immediately prior to such time, automatically convert into shares of the Corporation's non-voting capital stock in accordance with the Conversion Priority. In addition, if at any time, a Regulated Shareholder together with any affiliates thereof collectively would hold more than 4.9 percent of the aggregate voting power of any class of voting capital stock of the Corporation then outstanding, all shares of voting capital stock with voting power greater than 4.9 percent of such class held by such Regulated Shareholder together with any affiliates thereof shall, immediately prior to such time, automatically convert into shares of the Corporation's non-voting capital stock of such class or series, as the case may be. III. Class B Common Stock Section 1. Dividends. The holders of shares of Class B Common Stock shall be entitled to receive such dividends as from time to time may be declared by the Board of Directors of the Corporation, subject to the provisions of Subdivision I of this Article Fourth with respect to the rights of holders of the Preferred Stock. Such dividends shall be equivalent in every respect to dividends declared on Class A Common Stock and -22- 24 Class C Common Stock; provided, however, that in the event that the holders of Class A Common Stock receive a dividend payable in shares of Class A Common Stock or Class C Common Stock, then holders of Class B Common Stock shall receive a number of shares of Class B Common Stock which is equal to the number of shares of Class A Common Stock or Class C Common Stock which they would, but for this proviso, have received pursuant to this paragraph. Section 2. Liquidation. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment in full of the amounts to be paid to holders of Preferred Stock pursuant to Subdivision I, Section 2 hereof, the holders of Class A Common Stock, the holders of Class B Common Stock, and the holders of the Class C Common Stock shall share ratably based upon the number of shares of Common Stock held by them in all remaining assets of the Corporation available for distribution to its shareholders. Section 3. Voting Rights. Except as otherwise required by law and subject to the provision set forth in this Article Fourth, the holders of shares of Common Stock issued and outstanding and Preferred Stock issued and outstanding shall vote together as a single class on all matters subject to shareholder approval. Notwithstanding the foregoing, the holders of Class B Common Stock shall have no right to vote except as set forth in this section and as otherwise expressly required by law. In the event a right to vote expressly required by law arises, each holder of Class B Common Stock (i) shall be entitled to vote, together as a single class with the holders of the Class A Common Stock, (ii) shall be entitled to one vote for each share of Class A Common Stock that would be issuable to such holder upon the conversion of all of the shares of Class B Common Stock held by such holder on the record date for determination of shareholders entitled to vote and (iii) shall be entitled to notice of any shareholders meeting in accordance with the Bylaws of the Corporation. Section 4. Conversion. (i) Subject to and upon compliance with the provisions of this section, each holder of Class B Common Stock shall be entitled at any time and from time to time in such shareholder's sole discretion and at such shareholder's option, to convert any or all of the shares of Class B Common Stock held by such shareholder into the same number of shares of Class A Common Stock; provided, however, that no holder of Class B Common Stock shall be entitled to convert shares of Class B Common Stock into Class A Common Stock, if and to the extent that after giving effect to such conversion, such holder (together with other persons within the same "group" (within the meaning of Section 13(d)(3) of the 1934 Act)) holds shares of -23- 25 capital stock of the Corporation representing more than 49% of the voting power of the then outstanding capital stock of the Corporation; and provided, further, that, Class B Common Stock that is Restricted Stock may not be converted into Class A Common Stock, if and to the extent that immediately prior thereto, or as a result of such conversion, with respect to such Restricted Stock, the Regulated Shareholder who owns or has owned such Restricted Stock, reasonably determines that the issuance of shares of Class A Common Stock upon the conversion of such Restricted Stock would result in a Regulatory Problem for such Regulated Shareholder. (ii) Each share of Class B Common Stock shall automatically be converted into a share of Class A Common Stock immediately upon the Corporation's sale of its Common Stock in a Qualified Public Offering. Any such automatic conversion shall only be effected at the time of and subject to the closing of the sale of such shares pursuant to such Qualified Public Offering and upon written notice of such automatic conversion delivered to all holders of Class B Common Stock at least seven (7) days prior to such closing. Notwithstanding anything herein to the contrary, no shares of Class B Common Stock held by any holder or group (within the meaning of Section 13(d)(3) of the 1934 Act) of holders or a Regulated Shareholder together with any affiliates thereof as the case may be, shall be converted into shares of Class A Common Stock to the extent such conversion, if after giving effect to the Qualified Public Offering, would increase the voting power of capital stock held by such holders or group (within the meaning of Section 13(d)(3) of the 1934 Act) of holders or Regulated Shareholder together with any affiliates thereof above 49 percent or 4.9 percent, respectively, of the voting power of the then outstanding capital stock of the Corporation. IV. Class C Common Stock Section 1. Dividends. The holders of shares of Class C Common Stock shall be entitled to receive such dividends as from time to time may be declared by the Board of Directors of the Corporation, subject to the provisions of Subdivision I of this Article Fourth with respect to the rights of holders of the Preferred Stock and subject to the simultaneous payment of equivalent dividends on the Class A Common Stock and Class B Common Stock as set forth in Subdivisions II and III hereof. Section 2. Liquidation. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment in full of the amounts to be paid to holders of Preferred Stock pursuant to Subdivision I, Section 2 hereof, the holders of Class A Common Stock, the holders of Class B Common Stock, and the holders of Class C Common Stock shall share ratably based upon the number of shares of Common -24- 26 Stock held by them in all remaining assets of the Corporation available for distribution to its shareholders. Section 3. Voting Rights. Except as otherwise required by law and subject to the provision set forth in this Article Fourth, the holders of shares of Common Stock issued and outstanding and Preferred Stock issued and outstanding shall vote together as a single class on all matters subject to shareholder approval. Notwithstanding the foregoing, the holders of Class C Common Stock shall have no right to vote except as set forth in this section and as otherwise expressly required by law. All shares of Class C Common Stock shall be identical with each other in every respect. The shares of Class C Common Stock shall entitle the holders thereof to two votes for each share upon all matters upon which shareholders have the right to vote. Section 4. Conversion. (i) Shares of Class C Common Stock held by any holder of capital stock or group (within the meaning of Section 13(d)(3) of the 1934 Act) including such holder owning 49% or more of the voting power of the outstanding capital stock of the Corporation or a Regulated Shareholder together with any of their affiliates may be converted, at the option of such holder at any time, into an equal number of fully paid and non-assessable shares of Class B Common Stock. The Corporation shall at all times take such action as is necessary to assure that an adequate number of shares of Class B Common Stock is available and reserved for issuance upon conversion of all outstanding shares of Class C Common Stock. The Corporation will not take any action with respect to any series or class of its capital stock if subsequent to such action the provisions of the preceding sentence could not be complied with. (iii) Each share of Class C Common Stock shall automatically be converted into a share of Class A Common Stock immediately upon the Corporation's sale of its Common Stock in a Qualified Public Offering. Any such automatic conversion shall only be effected at the time of and subject to the closing of the sale of such shares pursuant to such Qualified Public Offering and upon written notice of such automatic conversion delivered to all holders of Class C Common Stock at least seven (7) days prior to such closing. (iv) Notwithstanding anything in these Articles to the contrary, if at any time, any holder of capital stock of the Corporation or group (within the meaning of Section 13(d)(3) of the 1934 Act) including such holder would hold more than 49 percent of the aggregate voting power of the capital stock of the Corporation then -25- 27 outstanding, all shares of voting capital stock with voting power greater than 49 percent held by any such holder shall, immediately prior to such time, automatically convert into shares of the Corporation's non-voting capital stock in accordance with the Conversion Priority. In addition, if at any time, a Regulated Shareholder together with any affiliates thereof collectively would hold more than 4.9 percent of the aggregate voting power of any class of voting capital stock of the Corporation then outstanding, all shares of voting capital stock with voting power greater than 4.9 percent of such class held by such Regulated Shareholder together with any affiliates thereof shall, immediately prior to such time, automatically convert into shares of the Corporation's non-voting capital stock of such class or series, as the case may be. V. Old Common Stock All shares of Old Common Stock shall be identical with each other in every respect. The shares of Old Common Stock shall entitle the holders thereof to one vote for each share upon all matters upon which shareholders have the right to vote. If any Old Common Stock is redeemed by the Corporation, the Corporation shall not reissue such Old Common Stock. VI. Provisions Relating to all Classes of Common Stock Section 1. Conversion Procedure. Each conversion of shares of one class of Common Stock of the Corporation into shares of another class of Common Stock of the Corporation shall be effected by the surrender of the certificate or certificates representing the shares to be converted (the "Converting Shares") at the principal office of the Corporation (or such other office or agency of the Corporation as the Corporation may designate by written notice to the holders of Common Stock) at any time during its usual business hours, together with written notice by the holder of such Converting Shares, stating that such shareholder desires to convert the Converting Shares, or a stated number of the shares represented by such certificate or certificates, into an equal number of shares of the other class of Common Stock (the "Converted Shares"). Such notice shall also state the name or names (with addresses) and denominations in which the certificate or certificates for Converted Shares are to be issued and shall include instructions for the delivery thereof. The Corporation shall promptly notify each Regulated Shareholder of its receipt of such notice. Promptly after such surrender and the receipt of such written notice, the Corporation will issue and deliver in accordance with the surrendering shareholder's instructions the certificate or certificates evidencing the Converted Shares issuable upon such conversion, and the Corporation will deliver to the converting shareholder a certificate (which shall contain such legends as were set forth on the surrendered certificate or certificates) representing the shares which were represented by the certificate or certificates that were delivered to the Corporation in connection with such conversion, but which were not converted; provided, however, that if such conversion is subject to Section -26- 28 2 of this Subdivision VI, the Corporation shall not issue such certificate or certificates until the expiration of the Deferral Period referred to therein. Such conversion, to the extent permitted by law, shall be deemed to have been effected as of the close of business on the date on which such certificate or certificates shall have been surrendered and such notice shall have been received by the Corporation, and at such time the rights of the holder of the Converting Shares as such shareholder shall cease (except that, in the case of a conversion subject to Section 2 of this Subdivision VI, the conversion shall be deemed to be effective upon the expiration of the Deferral Period referred to therein) and the person or persons in whose name or names the certificate or certificates for the Converted Shares are to be issued upon such conversion shall be deemed to have become the shareholder or shareholders of record of the Converted Shares. Upon issuance of shares in accordance with this Subdivision VI, such Converted Shares shall be duly authorized, validly issued, fully paid and non-assessable. The Corporation shall take all such actions as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which will be immediately transmitted by the Corporation upon issuance). This Corporation shall not close its books against the transfer of shares of Common Stock in any manner which would interfere with the timely conversion of any shares of Common Stock. Notwithstanding the foregoing, in the event such Regulated Shareholder or any affiliate thereof collectively holds more than an amount equal to 4.9 percent of the aggregate amount of voting capital stock of the Corporation then outstanding, all shares of voting capital stock greater than 4.9 percent shall automatically convert into shares of the Corporation's non-voting Class B Common Stock or Series B Preferred Stock, as the case may be. Section 2. Restrictions on Redemptions, Etc. (1) The Corporation shall not redeem, purchase, acquire or take any other action affecting outstanding shares of Common Stock or Preferred Stock if, after giving effect to such redemption, purchase, acquisition or other action, a Regulated Shareholder (other than any such shareholder which requested that the Corporation take such action, or which otherwise waives in writing its rights under this paragraph (1) of this section) would own more than 4.9 percent of the voting power of any class of voting capital stock of the Corporation then outstanding (determined by assuming such Regulated Shareholder (but no other shareholder) has exercised, converted or exchanged all of its options, warrants and other convertible or exchangeable securities) unless the Corporation gives written notice (the "Deferral Notice") of such action to each Regulated Shareholder. The Corporation will defer making any such conversion, redemption, purchase or other acquisition, or taking any such other action for a period of twenty (20) days (the "Deferral Period") after the receipt of the Deferral Notice by each Regulated Shareholder in order to allow each Regulated Shareholder to determine whether it wishes to convert or take any other action with respect to the Common Stock or Preferred Stock it owns, controls or has the power to vote. Upon -27- 29 complying with the procedures hereinabove set forth in this paragraph (1), the Corporation may so convert or directly or indirectly redeem, purchase or otherwise acquire any shares of Common Stock or any other class of capital stock of the Corporation or take any other action affecting the voting rights of such shares. (2) The Corporation shall not redeem, purchase, acquire or take any other action affecting outstanding shares of Common Stock or Preferred Stock if, after giving effect to such redemption, purchase, acquisition or other action, a Regulated Shareholder would own more than 24.9 percent of the total equity of the Corporation or more than 24.9 percent of the total value of all capital stock of the Corporation (determined by assuming such Regulated Shareholder (but no other shareholder) has exercised, converted or exchanged all of its options, warrants and other convertible or exchangeable securities). Section 3. Stock Splits; Adjustment. If the Corporation shall in any manner subdivide (by stock split, stock dividend or otherwise) or combine (by reverse stock split or otherwise) the outstanding shares of the Class A Common Stock, the Class B Common Stock or the Class C Common Stock, then the outstanding shares of each other class of Common Stock shall be subdivided or combined, as the case may be, to the same extent, shares and share alike, and effective provision shall be made for the protection of the conversion rights hereunder. In case of any reorganization, reclassification or change of shares of the Class A Common Stock, the Class B Common Stock or the Class C Common Stock (other than a change in par value or from par to not par value or as a result of subdivision or combination), or in the case of any consolidation of the Corporation with one or more corporations or a merger of the Corporation with another corporation (other than a consolidation or merger in which the Corporation is the resulting or surviving corporation and which does not result in any reclassification or change of outstanding shares of Class A Common Stock, Class B Common Stock or Class C Common Stock), each holder of Class A Common Stock, Class B Common Stock or Class C Common Stock shall receive the same type, kind and amount of shares of stock and other securities and properties (including cash) receivable upon such reorganization, reclassification, change, consolidation or merger, with respect to each share of Class A Common Stock, Class B Common Stock and Class C Common Stock held; provided, however, that each Regulated Shareholder shall receive non-voting capital stock or cash at the discretion of the Corporation in lieu of and to the extent that any such asset distribution would cause a Regulatory Problem, with respect to such Regulated Shareholder. In the event of such reorganization, reclassification, change, consolidation or merger, effective provision shall be made in the Articles of Incorporation or other operative document of the resulting or surviving corporation or otherwise which shall entitle holders of such other shares of stock and other securities and property deliverable to holders of -28- 30 Class A Common Stock, Class B Common Stock or Class C Common Stock to the conversion rights of the Class A Common Stock, Class B Common Stock and Class C Common Stock, as near as reasonably practicable. Section 4. Reservation of Shares. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock, Class B Common Stock and Class C Common Stock or its treasury shares, solely for the purpose of issuance upon the conversion of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Class A Common Stock, Class B Common Stock and Class C Common Stock, such number of shares of such class as are then issuable upon the conversion of all outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Class A Common Stock, Class B Common Stock and Class C Common Stock which may be converted. Section 5. No Charge. The issuance of certificates for shares of any class of Common Stock (upon conversion of shares of any other class of Common Stock or otherwise) shall be made without charge to the holders of such shares for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and/or the issuance of shares of Common Stock; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Common Stock converted. Section 6. Registration of Transfer. The Corporation shall keep at its principal office (or such other place as the Corporation reasonably designates) a register for the registration of shares of Common Stock. Upon the surrender of any certificate representing shares of any class of Common Stock at such place, the Corporation shall, at the request of the registered shareholder of such certificate, execute and deliver a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of such class represented by the surrendered certificate, and the Corporation forthwith shall cancel such surrendered certificate. Each such new certificate will represent such number of shares of such class as is requested by the shareholder of the surrendered certificate and will be substantially identical in form to the surrendered certificate. Subject to any other restrictions on transfer to which such shareholder or such shares may be bound, the Corporation will also register such new certificate in such name as requested by the holder of the surrendered certificate. -29- 31 FIFTH: A director of the Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability for any breach of the director's duty of loyalty to the Corporation or its shareholders, for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law or for any transaction from which the director derived any improper personal benefit. If the Idaho Business Corporation Act is amended after approval by the shareholders of this Article Fifth to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Idaho Business Corporation Act, as so amended. Any repeal or modification of the foregoing paragraph by the shareholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. SIXTH: Indemnification Section 1. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved (including involvement as a witness) in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Idaho Business Corporation Act, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators; provided, however, that, except as provided in Section 2 hereof with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) is authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Section shall be a -30- 32 contract right and shall include the right to be paid by the Corporation the expenses incurred in connection with any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if and to the extent that the Idaho Business Corporation Act requires, an advancement of expenses incurred by an indemnitee in his or her capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Section or otherwise. Section 2. Right of Indemnitee to Bring Suit. If a claim for indemnification (including the advancement of expenses) under paragraph 1 of this Section is not paid in full by the Corporation within forty-five days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that the indemnitee has not met the applicable standard of conduct set forth in the Idaho Business Corporation Act. In any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking the Corporation shall be entitled to recover such expenses upon a final adjudication that the indemnitee has not met the applicable standard of conduct set forth in the Idaho Business Corporation Act. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Idaho Business Corporation Act, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its shareholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this section or otherwise shall be on the Corporation. -31- 33 Section 3. Service for Subsidiaries. Any person serving as a director, officer, employee or agent of another corporation, partnership, joint venture or other enterprise, at least 50 percent of whose equity interests are owned by the Corporation (hereinafter a "subsidiary"), shall be conclusively presumed to be serving in such capacity at the request of the Corporation. Section 4. Reliance. Persons who after the date of the adoption of this provision become or remain directors or officers of the Corporation or who, while a director or officer of the Corporation, become or remain a director, officer, employee or agent of a subsidiary, shall be conclusively presumed to have relied on the rights to indemnity and advancement of expenses contained in this Article Sixth in entering into or continuing such service. The rights to indemnification and to the advancement of expenses conferred in this Section shall apply to claims made against an indemnitee arising out of acts or omissions which occurred or occur both prior and subsequent to the adoption hereof. Section 5. Non-Exclusivity of Rights. The rights to indemnification and to the advancement of expenses conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under this Articles of Incorporation or under any statute, bylaw, agreement, vote of shareholders or disinterested directors or otherwise. Section 6. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Idaho Business Corporation Act. Section 7. Indemnification of Employees and Agents of the Corporation. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses, to any employee or agent of the Corporation to the fullest extent of the provisions of this Section with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. -32- 34 SEVENTH: The following provisions are inserted for the regulation and conduct of the business and affairs of the Corporation and are in furtherance of and not in limitation or exclusion of any powers conferred upon it by statute: Section 1. Preemptive Rights. No shareholder shall have pursuant to this Articles of Incorporation preemptive rights to acquire unissued shares of the Corporation. Section 2. Cumulative Voting. There shall be no cumulative voting in election of directors. Section 3. Board of Directors Power as to Bylaws. The Board of Directors, by vote of a majority of the whole Board, shall have the power to adopt, make, amend, alter or repeal the Bylaws of the Corporation, but any bylaw adopted by the Board may be amended or repealed by the shareholders. Section 4. Meetings of Shareholders; Presence. A special meeting of the Shareholders of the Corporation may be called, in accordance with the notice provisions of the Corporation's bylaws, by any shareholder or group of shareholders holding shares of the Corporation that represent greater than 10 percent of the votes (unless otherwise required by law) that will be entitled to vote at the meeting so called. EIGHTH: The number of directors constituting the Corporation's Board of Directors shall be determined as set forth in the Bylaws of the Corporation. -33- 35 NINTH: the Corporation is to have perpetual existence. DATED this 23rd day of February, 1998. MCMS, INC. /s/ Rob Subia ------------------------------------- Rob Subia President and Chief Executive Officer -34- EX-3.2 6 AMENDED AND RESTATED BY-LAWS 1 Exhibit 3.2 BYLAWS OF MCMS, INC. --------------------- An Idaho Corporation ARTICLE I OFFICES Section 1. Registered Office. The registered office of the corporation in the State of Idaho shall be located at 16399 Franklin Road, Nampa, Idaho 83687. The registered office and/or registered agent of the corporation may be changed from time to time by action of the board of directors. Section 2. Other Offices. The corporation may also have offices at such other places, both within and without the State of Idaho, as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. Place and Time of Meetings. An annual meeting of the shareholders shall be held each year for the purpose of electing directors and conducting such other proper business as may come before the meeting. The date, time and place of the annual meeting may be determined by resolution of the board of directors or as set by the president of the corporation. Section 2. Special Meetings. Special meetings of shareholders may be called for any purpose (including, without limitation, the filling of board vacancies and newly created directorships), and may be held at such time and place, within or without the State of Idaho, as shall be stated in a notice of meeting or in a duly executed waiver of notice thereof. Such meetings may be called at any time by two or more members of the board of directors, the president or the holders of shares entitled to cast not less than a majority of the votes at the meeting or the holders of greater than ten percent (10%) of the outstanding shares of any series or class of the corporation's capital stock (unless otherwise required by law). Section 3. Place of Meetings. The board of directors may designate any place, either within or without the State of Idaho, as the place of meeting for any annual meeting or for any special meeting called by the board of directors. If no designation is made, or if a special meeting is otherwise called, the place of meeting shall be the principal executive office of the corporation. 2 Section 4. Notice. Whenever shareholders are required or permitted to take action at a meeting, written or printed notice stating the place, date, time, and, in the case of special meetings, the purpose(s), of such meeting, shall be given to each shareholder entitled to vote at such meeting not less than 10 nor more than 60 days before the date of the meeting. All such notices shall be delivered, either personally or by mail, by or at the direction of the board of directors, the president or the secretary, and if mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the shareholder at his, her or its address as the same appears on the records of the corporation. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. If the meeting is called by one or more shareholders of the corporation, the secretary of the corporation shall deliver or cause to be delivered the notice required by this Section 4. Section 5. Shareholders List. The officer having charge of the stock ledger of the corporation shall make, at least 10 days before every meeting of the shareholders, a complete list of the shareholders entitled to vote at such meeting arranged in alphabetical order, showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareholder who is present. Section 6. Quorum. Except as otherwise provided by applicable law or by the corporation's articles of incorporation, a majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders, but in no event shall a quorum consist of less than one-third of the shares entitled to vote at the meeting. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time in accordance with Section 7 of this Article, until a quorum shall be present or represented. Section 7. Adjourned Meetings. When a meeting is adjourned to another time and place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting, at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. Section 8. Vote Required. When a quorum is present, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the question is one upon which by -2- 3 express provisions of an applicable law or of the corporation's articles of incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. Where a separate vote by class is required, the affirmative vote of the majority of shares of such class present in person or represented by proxy at the meeting shall be the act of such class, unless the question is one upon which by express provisions of an applicable law or of the corporation's articles of incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 9. Voting Rights. Except as otherwise provided by the General Business Corporation Act of the State of Idaho or by the articles of incorporation of the corporation or any amendments thereto, every shareholder shall at every meeting of the shareholders be entitled to one vote in person or by proxy for each share of common stock held by such shareholder. Section 10. Proxies. Each shareholder entitled to vote at a meeting of shareholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person(s) to act for him, her or it by proxy. Every proxy must be signed by the shareholder granting the proxy or by his, her or its attorney-in-fact. No proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. Section 11. Action by Written Consent. Unless otherwise provided in the corporation's articles of incorporation, any action required to be taken at any annual or special meeting of shareholders of the corporation, or any action which may be taken at any annual or special meeting of such shareholders, may be taken without a meeting, without prior notice and without a vote, if a consent(s) in writing, setting forth the action so taken and bearing the dates of signature of the shareholders who signed the consent(s), shall be signed by the holders of outstanding shares of stock having not less than a majority of the shares entitled to vote, or, if greater, not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in the state of Idaho, or the corporation's principal place of business, or an officer or agent of the corporation having custody of the book(s) in which proceedings of meetings of the shareholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested, provided, however, that no consent(s) delivered by certified or registered mail shall be deemed delivered until such consent(s) are actually received at the registered office. All consents properly delivered in accordance with this section shall be deemed to be recorded when so delivered. No written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered to the corporation as required by this section, written consents signed by the holders of a sufficient number of shares to take such corporate action are so recorded. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those shareholders who have not consented in writing. Any action taken pursuant to such -3- 4 written consent(s) of the shareholders shall have the same force and effect as if taken by the shareholders at a meeting thereof. Immediately upon receipt of the requisite number of consents (or as otherwise set forth in such consents) the board of directors or officers of the corporation, as applicable, shall take such actions as are necessary to implement the matters that are the subject of any shareholder consent. ARTICLE III DIRECTORS Section 1. General Powers. The business and affairs of the corporation shall be managed by or under the direction of the board of directors. Section 2. Number, Election and Term of Office. The number of directors which shall constitute the first board shall be seven (7), which number may be increased or decreased from time to time by resolution of the board or by action of the shareholders. The directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote in the election of directors. The directors shall be elected in this manner at the annual meeting of the shareholders, except as provided in Section 4 of this Article III. Each director elected shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. Section 3. Removal and Resignation. Any director or the entire board of directors may be removed at any time, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. Whenever the holders of any class or series are entitled to elect one or more directors by the provisions of the corporation's articles of incorporation, the provisions of this section shall apply, in respect to the removal without cause of a director or directors so elected, to the vote of the holders of the outstanding shares of that class or series and not to the vote of the outstanding shares as a whole. Any director may resign at any time upon written notice to the corporation. Section 4. Vacancies. Except as otherwise provided by the articles of incorporation of the corporation or any amendments thereto, vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority vote of the directors then in office, though less than a quorum, or by a sole remaining director and in a manner consistent with the Shareholders Agreement or unless otherwise required by law. Each director so chosen shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as herein provided. Section 5. Annual Meetings. The annual meeting of each newly elected board of directors shall be held without other notice than this bylaw immediately after, and at the same place as, the annual meeting of shareholders. -4- 5 Section 6. Other Meetings and Notice. Regular meetings, other than the annual meeting, of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by resolution of the board. Special meetings of the board of directors may be called by or at the request of the president or any vice president on at least 48 hours notice to each director, either personally, by telephone or telefax, by mail, or by telegraph; in like manner and on like notice the president must call a special meeting immediately upon the written request of at least two directors. Section 7. Quorum, Required Vote and Adjournment. A majority of the total number of directors shall constitute a quorum for the transaction of business; provided however, that a quorum shall not be established if the directors, who are representatives of a person or a group of persons (within the meaning of Section 13(d)(3) of the Securities and Exchange Act of 1934) individually or collectively hold 49 percent or more of the voting capital stock of the Corporation then outstanding (a "Substantial Shareholder"), represent more than a minority of the directors present at any meeting. The vote of a majority of directors present at a meeting at which a quorum is present shall be the act of the board of directors. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 8. Committees. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation, which to the extent provided in such resolution or these by-laws shall have and may exercise the powers of the board of directors in the management and affairs of the corporation except as otherwise limited by law. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Such committee(s) shall have such name(s) as may be determined from time to time by resolution adopted by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. Notwithstanding the foregoing provisions of this Section 8, the corporation's board of directors shall have a compensation committee and audit committee which shall be comprised of directors in a manner strictly consistent with Section 2 of the Shareholders Agreement dated as of February 26, 1998 among the corporation and certain of its shareholders (the "Shareholders Agreement") for so long as the Shareholders Agreement shall be in effect. In addition, in the event that the corporation's board of directors establishes an executive committee, such committee shall be comprised of directors in a manner strictly consistent with Section 2 of the Shareholders Agreement for so long as the Shareholders Agreement shall be in effect. Section 9. Committee Rules. Subject to Section 7 of this Article, each committee of the board of directors may fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by a resolution of the board of directors designating such committee. Unless otherwise provided in such a resolution, the presence of at least a majority of the members of the committee shall be necessary to constitute a quorum; provided however, that a quorum shall not be established for any meeting of any committee if the directors, who are representatives of a Substantial Shareholder, represent more than a minority of the members present -5- 6 at any meeting of such committee. Subject to the prior sentence, in the event that a member and that member's alternate, if alternates are designated by the board of directors as provided in Section 8 of this Article III, of such committee is or are absent or disqualified, the member(s) thereof present at any meeting and not disqualified from voting, whether or not such member(s) constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in place of any such absent or disqualified member. Section 10. Communications Equipment. Members of the board of directors or any committee thereof may participate in and act at any meeting of such board or committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting pursuant to this section shall constitute presence in person at the meeting. Section 11. Waiver of Notice and Presumption of Assent. Any member of the board of directors or any committee thereof who is present at a meeting shall be conclusively presumed to have waived notice of such meeting except when such member attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Such member shall be conclusively presumed to have assented to any action taken unless his or her dissent shall be entered in the minutes of the meeting or unless his or her written dissent to such action shall be filed with the person acting as the secretary of the meeting before the adjournment thereof or shall be forwarded by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to any member who voted in favor of such action. Section 12. Action by Written Consent. Unless otherwise restricted by the corporation's articles of incorporation, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing, and the writing(s) are filed with the minutes of proceedings of the board or committee. ARTICLE IV OFFICERS Section 1. Number. The officers of the corporation shall be elected by the board of directors and shall consist of a chairman, if any is elected, a president, one or more vice presidents, and such other officers and assistant officers as may be deemed necessary or desirable by the board of directors. Any number of offices may be held by the same person, except that no person may simultaneously hold the office of president and secretary. In its discretion, the board of directors may choose not to fill any office for any period as it may deem advisable. Section 2. Election and Term of Office. The officers of the corporation shall be elected annually by the board of directors at its first meeting held after each annual meeting of shareholders -6- 7 or as soon thereafter as conveniently may be. The president shall appoint other officers to serve for such terms as he or she deems desirable. Vacancies may be filled or new offices created and filled at any meeting of the board of directors. Each officer shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. Section 3. Removal. Any officer or agent elected by the board of directors may be removed by the board of directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 4. Vacancies. Any vacancy occurring in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term by the board of directors then in office. Section 5. Compensation. Compensation of all officers shall be fixed by the board of directors, and no officer shall be prevented from receiving such compensation by virtue of his or her also being a director of the corporation. Section 6. The Chairman of the Board. The Chairman of the Board, if one shall have been elected, shall be a member of the board, and, if present, shall preside at each meeting of the board of directors or shareholders. The Chairman of the Board shall advise the president, and in the president's absence, other officers of the corporation, and shall perform such other duties as may from time to time be assigned by the board of directors. Section 7. The President. The president shall be the chief executive officer of the corporation. In the absence of the Chairman of the Board or if a Chairman of the Board shall have not been elected, the president (i) shall preside at all meetings of the shareholders and board of directors at which he or she is present; (ii) subject to the powers of the board of directors, shall have general charge of the business, affairs and property of the corporation, and control over its officers, agents and employees; and (iii) shall see that all orders and resolutions of the board of directors are carried into effect. The president shall have such other powers and perform such other duties as may be prescribed by the board of directors or as may be provided in these bylaws. Section 8. Vice-presidents. The vice-president, if any, or if there shall be more than one, the vice-presidents in the order determined by the board of directors shall, in the absence or disability of the president, act with all of the powers and be subject to all the restrictions of the president. The vice-presidents shall also perform such other duties and have such other powers as the board of directors, the president or these bylaws may, from time to time, prescribe. Section 9. The Secretary and Assistant Secretaries. The secretary shall attend all meetings of the board of directors, all meetings of the committees thereof and all meetings of the shareholders and record all the proceedings of the meetings in a book(s) to be kept for that purpose. Under the president's supervision, the secretary (i) shall give, or cause to be given, all notices required to be given by these bylaws or bylaw; (ii) shall have such powers and perform such duties -7- 8 as the board of directors, the president or these bylaws may, from time to time, prescribe; and (iii) shall have custody of the corporate seal of the corporation. The secretary, or an assistant secretary, shall have authority to affix the corporate seal to any instrument requiring it and when so affixed, it may be attested by his or her signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his or her signature. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors, the president, or secretary may, from time to time, prescribe. Section 10. The Treasurer. The Treasurer (i) shall have the custody of the corporate funds and securities; (ii) shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation; (iii) shall deposit all monies and other valuable effects in the name and to the credit of the corporation as may be ordered by the board of directors; (iv) shall cause the funds of the corporation to be disbursed when such disbursements have been duly authorized, taking proper vouchers for such disbursements; (v) shall render to the president and the board of directors, at its regular meeting or when the board of directors so requires, an account of the corporation; and (vi) shall have such powers and perform such duties as the board of directors, the president or these bylaws may, from time to time, prescribe. If required by the board of directors, the Treasurer shall give the corporation a bond (which shall be rendered every six years) in such sums and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of the office of Treasurer and for the restoration to the corporation, in case of death, resignation, retirement, or removal from office, of all books, papers, vouchers, money, and other property of whatever kind in the possession or under the control of the Treasurer belonging to the corporation. The assistant Treasurer, or if there shall be more than one, the assistant Treasurers in the order determined by the board of directors, shall in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer. The assistant Treasurers shall perform such other duties and have such other powers as the board of directors, the president or Treasurer may, from time to time, prescribe. Section 11. Other Officers, Assistant Officers and Agents. Officers, assistant officers and agents, if any, other than those whose duties are provided for in these bylaws, shall have such authority and perform such duties as may from time to time be prescribed by resolution of the board of directors. Section 12. Absence or Disability of Officers. In the case of the absence or disability of any officer of the corporation and of any person hereby authorized to act in such officer's place during such officer's absence or disability, the board of directors may by resolution delegate the powers and duties of such officer to any other officer or to any director, or to any other person whom it may select. -8- 9 ARTICLE V CERTIFICATES OF STOCK Section 1. Form. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by (i) the chairman of the board, the president or a vice-president and (ii) the secretary or an assistant secretary of the corporation, certifying the number of shares owned by such holder in the corporation. If such a certificate is countersigned (1) by a transfer agent or an assistant transfer agent other than the corporation or its employee or (2) by a registrar, other than the corporation or its employee, the signature of any such chairman of the board, president, vice-president, secretary, or assistant secretary may be facsimiles. In case any officer(s) who have signed, or whose facsimile signature(s) have been used on, any such certificate(s) shall cease to be such officer(s) of the corporation whether because of death, resignation or otherwise before such certificate(s) have been delivered by the corporation, such certificate(s) may nevertheless be issued and delivered as though the person or persons who signed such certificate(s) or whose facsimile signature(s) have been used thereon had not ceased to be such officer(s) of the corporation. All certificates for shares shall be consecutively numbered or otherwise identified. The name of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the books of the corporation. Shares of stock of the corporation shall only be transferred on the books of the corporation by the holder of record thereof or by such holder's attorney duly authorized in writing, upon surrender to the corporation of the certificate(s) for such shares endorsed by the appropriate person(s), with such evidence of the authenticity of such endorsement, transfer, authorization, and other matters as the corporation may reasonably require, and accompanied by all necessary stock transfer stamps. In that event, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate(s), and record the transaction on its books. The board of directors may appoint a bank or trust company organized under the laws of the United States or any state thereof to act as its transfer agent or registrar, or both in connection with the transfer of any class or series of securities of the corporation. Section 2. Lost Certificates. The board of directors may direct a new certificate(s) to be issued in place of any certificate(s) previously issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate(s), the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate(s), or his or her legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against the corporation on account of the loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 3. Fixing a Record Date for Shareholder Meetings. In order that the corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than sixty nor less than ten days before the date -9- 10 of such meeting. If no record date is fixed by the board of directors, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be the close of business on the day immediately preceding the day on which notice is given, or if notice is waived, at the close of business on the day immediately preceding the day on which the meeting is held. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. Section 4. Fixing a Record Date for Action by Written Consent. In order that the corporation may determine the shareholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date (i) shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and (ii) shall not be more than ten days after the earlier of the date upon which the resolution fixing the record date is adopted by the board of directors or the date upon which the first signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation. If no record date has been fixed by the board of directors, the record date for determining shareholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by statute, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Idaho, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of shareholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by statute, the record date for determining shareholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. Section 5. Fixing a Record Date for Other Purposes. In order that the corporation may determine the shareholders entitled to receive payment of any dividend or other distribution or allotment or any rights of the shareholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purposes of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. Section 6. Registered Shareholders. Prior to the surrender to the corporation of the certificate(s) for a share(s) of stock with a request to record the transfer of such share(s), the corporation may treat the registered owner as the person entitled to receive dividends, to vote, to receive notifications, and otherwise to exercise all the rights and powers of an owner. The corporation shall not be bound to recognize any equitable or other claim to or interest in such share(s) on the part of any other person, whether or not it shall have express or other notice thereof. -10- 11 Section 7. Subscriptions for Stock. Unless otherwise provided for in the subscription agreement, subscriptions for shares shall be paid in full at such time, or in such installments and at such times, as shall be determined by the board of directors. Any call made by the board of directors for payment on subscriptions shall be uniform as to all shares of the same class or as to all shares of the same series. In case of default in the payment of any installment or call when such payment is due, the corporation may proceed to collect the amount due in the same manner as any debt due the corporation. ARTICLE VI GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the articles of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the articles of incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum(s) as the directors from time to time, in their absolute discretion, think proper as a reserve(s) to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or any other purpose and the directors may modify or abolish any such reserve in the manner in which it was created. Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders for the payment of money by or to the corporation and all notes and other evidences of indebtedness issued in the name of the corporation shall be signed by such officer(s), agent(s) of the corporation, and in such manner, as shall be determined by resolution of the board of directors or a duly authorized committee thereof. Section 3. Contracts. The board of directors may authorize any officer(s), or any agent(s), of the corporation to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 4. Loans. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest, and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. -11- 12 Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the board of directors. Section 6. Corporate Seal. The board of directors shall provide a corporate seal which shall be in the form of a circle and shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Idaho." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 7. Voting Securities Owned By Corporation. Voting securities in any other corporation held by the corporation shall be voted by the president, unless the board of directors specifically confers authority to vote with respect thereto, which authority may be general or confined to specific instances, upon some other person or officer. Any person authorized to vote securities shall have the power to appoint proxies, with general power of substitution. Section 8. Inspection of Books and Records. Any shareholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its shareholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean any purpose reasonably related to such person's interest as a shareholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the shareholder. The demand under oath shall be directed to the corporation at its registered office in the State of Idaho or at its principal place of business. Section 9. Section Headings. Section headings in these bylaws are for convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein. Section 10. Inconsistent Provisions. In the event that any provision of these bylaws is or becomes inconsistent with any provision of the corporation's articles of incorporation, the Business Corporation Act of the State of Idaho or any other applicable law, such provision of these bylaws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect. ARTICLE VII AMENDMENTS These bylaws may be amended, altered, or repealed and new bylaws adopted at any meeting of the board of directors by a majority vote. The fact that the power to adopt, amend, alter, or repeal the bylaws has been conferred upon the board of directors shall not divest the shareholders of the same powers. -12- EX-4.1 7 INDENTURE 1 Exhibit 4.1 ================================================================================ MCMS, INC. as Issuer and UNITED STATES TRUST COMPANY OF NEW YORK as Trustee ----------------- INDENTURE Dated as of February 26, 1998 ----------------- up to $275,000,000 aggregate principal amount of 9 3/4% Senior Subordinated Notes due 2008 and Floating Interest Rate Subordinated Term Securities ("FIRSTS"(SM)*) due 2008 ================================================================================ - ---------- * FIRSTS is a service mark of BT Alex. Brown Incorporated 2 CROSS-REFERENCE TABLE TIA Indenture Section Section - ------- --------- 310 (a)(1)......................................... 7.10 (a)(2)......................................... 7.10 (a)(3)......................................... N.A. (a)(4)......................................... N.A. (a)(5)......................................... 7.08; 7.10 (b)............................................ 7.08; 7.10; 11.02 (c)............................................ N.A. 311 (a)............................................ 7.11 (b)............................................ 7.11 (c)............................................ N.A. 312 (a)............................................ 2.05 (b)............................................ 11.03 (c)............................................ 11.03 313 (a)............................................ 7.06 (b)(1)......................................... N.A. (b)(2)......................................... 7.06 (c)............................................ 7.06; 11.02 (d)............................................ 7.06 314 (a)............................................ 4.07; 4.08; 11.02 (b)............................................ N.A. (c)(1)......................................... 11.04 (c)(2)......................................... 11.04 (c)(3)......................................... N.A. (d)............................................ N.A. (e)............................................ 11.05 (f)............................................ N.A. 315 (a)............................................ 7.01(b) (b)............................................ 7.05; 11.02 (c)............................................ 7.01(a) (d)............................................ 7.01(c) (e)............................................ 6.11 316 (a)(last sentence)............................. 2.09 (a)(1)(A)...................................... 6.05 (a)(1)(B)...................................... 6.04 (a)(2)......................................... N.A. (b)............................................ 6.07 (c)............................................ 9.05 317 (a)(1)......................................... 6.08 (a)(2)......................................... 6.09 (b)............................................ 2.04 318 (a)............................................ 11.01 (c)............................................ 11.01 - ---------- N.A. means Not Applicable Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. 3 TABLE OF CONTENTS Page ---- ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions......................................... 1 SECTION 1.02. Incorporation by Reference of TIA................... 30 SECTION 1.03. Rules of Construction............................... 30 ARTICLE TWO THE NOTES SECTION 2.01. Form and Dating..................................... 31 SECTION 2.02. Execution and Authentication; Aggregate Principal Amount................................... 32 SECTION 2.03. Registrar and Paying Agent.......................... 34 SECTION 2.04. Paying Agent To Hold Assets in Trust................ 34 SECTION 2.05. Noteholder Lists.................................... 35 SECTION 2.06. Transfer and Exchange............................... 35 SECTION 2.07. Replacement Notes................................... 36 SECTION 2.08. Outstanding Notes................................... 36 SECTION 2.09. Treasury Notes...................................... 37 SECTION 2.10. Temporary Notes..................................... 37 SECTION 2.11. Cancellation........................................ 37 SECTION 2.12. Defaulted Interest.................................. 38 SECTION 2.13. CUSIP Numbers....................................... 38 SECTION 2.14. Deposit of Moneys................................... 38 SECTION 2.15. Restrictive Legends................................. 39 SECTION 2.16. Book-Entry Provisions for Global Security........... 41 SECTION 2.17. Special Transfer Provisions......................... 42 ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee.................................. 45 SECTION 3.02. Selection of Notes To Be Redeemed................... 45 SECTION 3.03. Notice of Redemption................................ 46 SECTION 3.04. Effect of Notice of Redemption...................... 47 SECTION 3.05. Deposit of Redemption Price......................... 48 SECTION 3.06. Notes Redeemed in Part.............................. 48 -i- 4 ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Notes.................................... 48 SECTION 4.02. Maintenance of Office or Agency..................... 49 SECTION 4.03. Corporate Existence................................. 49 SECTION 4.04. Payment of Taxes and Other Claims................... 49 SECTION 4.05. Maintenance of Properties and Insurance............. 50 SECTION 4.06. Compliance Certificate; Notice of Default........... 50 SECTION 4.07. Compliance with Laws................................ 51 SECTION 4.08. SEC Reports......................................... 52 SECTION 4.09. Waiver of Stay, Extension or Usury Laws............. 53 SECTION 4.10. Limitation on Restricted Payments................... 53 SECTION 4.11. Limitation on Transactions with Affiliates.......... 56 SECTION 4.12. Limitation on Incurrence of Additional Indebtedness....................................... 58 SECTION 4.13. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries................ 58 SECTION 4.14. Prohibition on Incurrence of Senior Subordinated Debt.................................. 59 SECTION 4.15. Change of Control................................... 59 SECTION 4.16. Limitation on Asset Sales........................... 62 SECTION 4.17. Limitation on Preferred Stock of Restricted Subsidiaries............................ 66 SECTION 4.18. Limitation on Liens................................. 66 SECTION 4.19. Limitation of Guarantees by Restricted Subsidiaries....................................... 66 SECTION 4.20. Conduct of Business................................. 67 ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. Merger, Consolidation and Sale of Assets............ 68 SECTION 5.02. Successor Corporation Substituted................... 69 ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default................................... 70 SECTION 6.02. Acceleration........................................ 71 SECTION 6.03. Other Remedies...................................... 73 SECTION 6.04. Waiver of Past Defaults............................. 73 -ii- 5 SECTION 6.05. Control by Majority................................. 73 SECTION 6.06. Limitation on Suits................................. 74 SECTION 6.07. Rights of Holders To Receive Payment................ 74 SECTION 6.08. Collection Suit by Trustee.......................... 74 SECTION 6.09. Trustee May File Proofs of Claim.................... 75 SECTION 6.10. Priorities.......................................... 75 SECTION 6.11. Undertaking for Costs............................... 76 ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee................................... 76 SECTION 7.02. Rights of Trustee................................... 78 SECTION 7.03. Individual Rights of Trustee........................ 79 SECTION 7.04. Trustee's Disclaimer................................ 79 SECTION 7.05. Notice of Default................................... 80 SECTION 7.06. Reports by Trustee to Holders....................... 80 SECTION 7.07. Compensation and Indemnity.......................... 80 SECTION 7.08. Replacement of Trustee.............................. 82 SECTION 7.09. Successor Trustee by Merger, Etc.................... 83 SECTION 7.10. Eligibility; Disqualification....................... 83 SECTION 7.11. Preferential Collection of Claims Against Company............................................ 83 ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.01. Termination of the Company's Obligations............ 84 SECTION 8.02. Legal Defeasance and Covenant Defeasance............ 86 SECTION 8.03. Conditions to Legal Defeasance or Covenant Defeasance......................................... 87 SECTION 8.04. Application of Trust Money.......................... 89 SECTION 8.05. Repayment to the Company............................ 90 SECTION 8.06. Reinstatement....................................... 91 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders.......................... 91 SECTION 9.02. With Consent of Holders............................. 92 SECTION 9.03. Effect on Senior Debt............................... 94 SECTION 9.04. Compliance with TIA................................. 94 SECTION 9.05. Revocation and Effect of Consents................... 94 SECTION 9.06. Notation on or Exchange of Notes.................... 95 SECTION 9.07. Trustee To Sign Amendments, Etc..................... 95 -iii- 6 ARTICLE TEN SUBORDINATION SECTION 10.01. Notes Subordinated to Senior Debt................... 95 SECTION 10.02. No Payment on Notes in Certain Circumstances...................................... 96 SECTION 10.03. Payment Over of Proceeds upon Dissolution, Etc................................................ 97 SECTION 10.04. Payments May Be Paid Prior to Dissolution........... 99 SECTION 10.05. Subrogation......................................... 100 SECTION 10.06. Obligations of the Company Unconditional............ 100 SECTION 10.07. Notice to Trustee................................... 100 SECTION 10.08. Reliance on Judicial Order or Certificate of Liquidating Agent............................... 101 SECTION 10.09. Trustee's Relation to Senior Debt................... 102 SECTION 10.10. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Debt........................................ 102 SECTION 10.11. Noteholders Authorize Trustee To Effectuate Subordination of Notes.................. 103 SECTION 10.12. This Article Ten Not To Prevent Events of Default............................................ 104 SECTION 10.13. Trustee's Compensation Not Prejudiced............... 104 ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. TIA Controls........................................ 104 SECTION 11.02. Notices............................................. 104 SECTION 11.03. Communications by Holders with Other Holders............................................ 105 SECTION 11.04. Certificate and Opinion as to Conditions Precedent.......................................... 105 SECTION 11.05. Statements Required in Certificate or Opinion............................................ 106 SECTION 11.06. Rules by Trustee, Paying Agent, Registrar........... 106 SECTION 11.07. Legal Holidays...................................... 107 SECTION 11.08. Governing Law....................................... 107 SECTION 11.09. No Adverse Interpretation of Other Agreements......................................... 107 SECTION 11.10. No Recourse Against Others.......................... 107 SECTION 11.11. Successors.......................................... 107 SECTION 11.12. Duplicate Originals................................. 108 SECTION 11.13. Severability........................................ 108 -iv- 7 SIGNATURES...............................................................109 -v- 8 Exhibit A-1 - Form of Fixed Rate Note............................ A-1 Exhibit A-2 - Form of Floating Rate Note......................... A-2 Exhibit B-1 - Form of Series B Fixed Rate Note................... B-1 Exhibit B-2 - Form of Series B Floating Rate Note................ B-2 Exhibit C - Form of Certificate To Be Delivered in Connection with Transfers to Non-QIB Accredited Investors.............................. C-1 Exhibit D - Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulations S..................................... D-1 Note: This Table of Contents shall not, for any purpose, be deemed to be part of the Indenture. 9 INDENTURE, dated as of February 26, 1998, between MCMS, Inc., an Idaho corporation (the "Company"), and United States Trust Company of New York, a New York corporation, as Trustee (the "Trustee"). The Company has duly authorized the creation of an issue of 9 3/4% Senior Subordinated Notes due 2008 and an issue of Floating Interest Rate Subordinated Term Securities due 2008 and, when and if issued as provided in the Registration Rights Agreement, 9 3/4% Series B Senior Subordinated Notes due 2008 and Series B Floating Interest Rate Subordinated Term Securities, and, to provide therefor, the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Notes, when duly issued and executed by the Company, and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Indenture a valid and binding agreement of the Company, have been done. Each party hereto agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Notes. ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. "Acceleration Notice" has the meaning provided in Section 6.02(a). "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Subsidiaries or assumed in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition, merger or consolidation. "Affiliate" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. The term "control" means the possession, directly or indirectly, of the power to 10 -2- direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. For purposes of this Indenture, BT Alex. Brown Incorporated, Bankers Trust Company and their Affiliates shall not be deemed to be Affiliates of the Company or its Restricted Subsidiaries. "Affiliate Transaction" has the meaning provided in Section 4.11. "Agent" means any Registrar, Paying Agent or co-Registrar. "Agent Members" has the meaning provided in Section 2.16. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company, or (b) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any Person (other than a Restricted Subsidiary of the Company) which constitute all or substantially all of the assets of such Person or comprise any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Company or any of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company of (a) any Capital Stock of any Restricted Subsidiary of the Company or (b) any other property or assets of the Company or any Restricted Subsidiary of the Company other than in the ordinary course of business; provided, however, that Asset Sales shall not include (i) a transaction or series of related transactions for which the Company or its Restricted Subsidiaries receive aggregate consideration of less than $500,000, (ii) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of the Company as permitted under Section 5.01 or any disposition that constitutes a Change of Control, (iii) the sale or discount, in each case without recourse, of accounts 11 -3- receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof, (iv) the factoring of accounts receivable arising in the ordinary course of business pursuant to arrangements customary in the region, (v) the licensing of intellectual property, (vi) disposals or replacements of obsolete equipment in the ordinary course of business, and (vii) the sale, lease, conveyance, disposition or other transfer by the Company or any Restricted Subsidiary of the Company of assets or property in connection with Restricted Payments permitted by Section 4.10. "Authenticating Agent" has the meaning provided in Section 2.02. "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. "Blockage Period" has the meaning provided in Section 10.02. "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day that is not a Legal Holiday. "Calculation Agent" means the person appointed by the Company to calculate the interest on the Floating Rate Notes, which shall initially be the Trustee. "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. 12 -4- "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and preferred stock of such Person, and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; and (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof (whether or not otherwise in 13 -5- compliance with the provisions of this Indenture) other than to the Permitted Holders; (ii) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of this Indenture); (iii) any Person or Group (other than the Permitted Holders) shall become the beneficial owner, directly or indirectly, of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company; or (iv) the first day on which a majority of the members of the Board of Directors of the Company during the two-year period immediately preceding such date are not Continuing Directors. Notwithstanding anything to the contrary contained in the foregoing sentence, a "Change of Control" shall not be deemed to occur upon consummation of (A) the Recapitalization, (B) the merger of the Company with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction or (C) any transaction described in clause (i) or (iii) of the immediately preceding sentence if, after giving effect to such transaction, (1) the Permitted Holders shall beneficially own, directly or indirectly, shares of Capital Stock representing at least 35% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company and (2) no Persons or Group shall beneficially own, directly or indirectly, a greater percentage of such voting power than the Permitted Holders. "Change of Control Date" has the meaning provided in Section 4.15. "Change of Control Offer" has the meaning provided in Section 4.15. "Change of Control Payment Date" has the meaning provided in Section 4.15. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Issue Date or issued after the Issue Date, and includes, without limitation, all series and classes of such common stock. "Company" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means such successor. "Consolidated EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent Consolidated Net Income has been reduced thereby, (A) all income taxes and foreign withholding taxes of such Person and its Restricted Sub- 14 -6- sidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary, unusual or nonrecurring gains or losses or taxes attributable to sales or dispositions outside the ordinary course of business), (B) Consolidated Interest Expense and (C) Consolidated Non-cash Charges less, to the extent Consolidated Net Income has been increased thereby, any non-cash items increasing Consolidated Net Income for such period, all as determined on a consolidated basis for such Person and its Restricted Subsidiaries in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of Consolidated EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to (i) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA (including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under the Securities Act) attributable to the assets which are the subject of the Asset Acquisition or Asset Sale during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as 15 -7- if such Asset Sale or Asset Acquisition (including the incurrence, assumption or liability for any such Indebtedness or Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date and (2) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) Consolidated Interest Expense, plus (ii) the amount of all dividend payments on any series of preferred stock of such Person (other than dividends paid in Qualified Capital Stock or the amortization of deferred financing costs relating to the issuance of the Preferred Stock) paid, accrued or scheduled to be paid or accrued during such period. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum of, without duplication: (i) the aggregate of the interest expense of such Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including, without limitation, (a) any amortization of debt discount and (b) the net costs under Interest Swap Obligations, but excluding any amortization or write-off of deferred financing costs; and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on 16 -8- a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom (a) after-tax gains and losses from Asset Sales (without giving effect to the proviso therein) or abandonments or reserves relating thereto, (b) after-tax items classified as extraordinary or nonrecurring gains and losses, (c) the net income or loss of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Restricted Subsidiary of the referent Person or is merged or consolidated with the referent Person or any Restricted Subsidiary of the referent Person, (d) the net income (but not loss) of any Restricted Subsidiary of the referent Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise, (e) the net loss of any Person other than a Restricted Subsidiary of the Company, (f) the net income of any Person, other than a Restricted Subsidiary of the referent Person, except to the extent of cash dividends or distributions paid to the referent Person or to a Wholly Owned Restricted Subsidiary of the referent Person by such Person, (g) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued), (h) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets, (i) non-cash, non-recurring charges reducing Consolidated Net Income (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of prepaid cash expense that was paid in a prior period not included in the calculation), (j) non-cash compensation charges, including any arising from stock options, (k) gains and losses due solely to fluctuations in currency values and the related tax effects according to GAAP, (l) start-up costs and duplicative costs incurred in connection with the transition services agreements in effect on the Issue Date (as the same may be amended from time to time), not to exceed $200,000, (m) costs relating to the implementation of the Baan information technology system which have not been capitalized and (n) expenses related to the Recapitalization. "Consolidated Non-cash Charges" means, with respect to any Person, for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP. 17 -9- (excluding any such charges constituting an extraordinary item or loss or any such charge which requires an accrual of or a reserve for cash charges for any future period). "Consolidated Tangible Assets" means, with respect to any Person, as of any date of determination, the total assets, less goodwill, deferred financing costs and other intangibles and less accumulated amortization, shown on the most recent balance sheet of such Person, determined on a consolidated basis in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the first day of the two-year period immediately preceding such date of determination or (ii) was nominated for election or elected to such Board of Directors with, or whose election to such Board of Directors was approved by, the affirmative vote of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election or (iii) is any designee of the Principal or its Affiliates or was nominated by the Principal or its Affiliates or any designees of the Principal or its Affiliates on the Board of Directors. "Covenant Defeasance" has the meaning provided in Section 8.02. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary of the Company against fluctuations in currency values. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "Default Notice" has the meaning provided in Section 10.02. "Depository" means The Depository Trust Company, its nominees and successors. 18 -10- "Designated Senior Debt" means (i) Indebtedness under or in respect of the New Revolving Credit Facility and (ii) any other Indebtedness constituting Senior Debt which, at the time of determination, has an aggregate principal amount of at least $25.0 million and is specifically designated in the instrument evidencing such Senior Debt as "Designated Senior Debt" by the Company. "Disqualified Capital Stock" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event (other than upon the occurrence of a Change of Control), matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof on or prior to the final maturity date of the Notes. "Event of Default" has the meaning provided in Section 6.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. "Exchange Debentures" means the 12 1/2% Subordinated Exchange Debentures due 2010, as amended or supplemented from time to time in accordance with the terms of the Exchange Indenture, that are issued pursuant to the Exchange Indenture. "Exchange Indenture" means the indenture, dated as of the Issue Date, between the Company and United States Trust Company of New York, as trustee, relating to the Exchange Debentures, as amended or supplemented from time to time. "Exchange Fixed Rate Notes" means the 9 3/4% Series B Senior Subordinated Notes due 2008 (the terms of which are identical to the Initial Fixed Rate Notes except that, unless any Exchange Fixed Rate Notes shall be issued as Private Exchange Notes (as defined in the Registration Rights Agreement), the Exchange Fixed Rate Notes shall be registered under the Securities Act, and shall not contain the restrictive legend on the face of the form of the Initial Fixed Rate Notes), to be issued in exchange for the Initial Fixed Rate Notes pursuant to the registered Exchange Offer and a Private Exchange (as defined in the Registration Rights Agreement). "Exchange Floating Rate Notes" means the Floating Interest Rate Subordinated Term Securities due 2008 (the terms of which are identical to the Initial Floating Rate Notes except 19 -11- that, unless any Exchange Floating Rate Notes shall be issued as Private Exchange Notes (as defined in the Registration Rights Agreement), the Exchange Floating Rate Notes shall be registered under the Securities Act, and shall not contain the restrictive legend on the face of the form of the Initial Floating Rate Notes), to be issued in exchange for the Initial Floating Rate Notes pursuant to the registered Exchange Offer and a Private Exchange (as defined in the Registration Rights Agreement). "Exchange Notes" means the Exchange Fixed Rate Notes and the Exchange Floating Rate Notes. "Exchange Offer" means the registration by the Company under the Securities Act pursuant to a registration statement of the offer by the Company to each Holder of the Initial Notes to exchange all the Initial Notes held by such Holder for the Exchange Notes in an aggregate principal amount equal to the aggregate principal amount of the Initial Notes held by such Holder, all in accordance with the terms and conditions of the Registration Rights Agreement. "fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a Board Resolution of the Board of Directors of the Company delivered to the Trustee. "Fixed Rate Notes" means the Initial Fixed Rate Notes, the Exchange Fixed Rate Notes and any other 9 3/4% Senior Subordinated Notes due 2008 issued after the Issue Date in accordance with clause (iii) of the fourth paragraph of Section 2.02 treated as a single class of securities, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture. "Floating Rate Notes" means the Initial Floating Rate Notes, the Exchange Floating Rate Notes and any other Floating Interest Rate Subordinated Term Securities due 2008 issued after the Issue Date in accordance with clause (iii) of the fourth paragraph of Section 2.02 treated as a single class of securities, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture. 20 -12- "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Issue Date. Except as otherwise set forth herein, all ratios and computations based on GAAP contained in this Indenture shall be computed in conformity with GAAP applied on a consistent basis. "Global Note" has the meaning provided in Section 2.01. "Guarantee" has the meaning provided in Section 4.19. "Holder" or "Noteholder" means the Person in whose name a Note is registered on the Registrar's books. "incur" has the meaning provided in Section 4.12. "Indebtedness" means with respect to any Person, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all obligations under any title retention agreement (but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business), (v) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (vi) guarantees and other contingent obligations of such Person in respect of Indebtedness referred to in clauses (i) through (v) above and clause (viii) below, (vii) all obligations of any other Person of the type referred to in clauses (i) through (vi) which are secured by any lien on any property or asset of such Person, the amount of such obligation being deemed to be the lesser of the fair market value of such property or asset or the amount of the obligation so secured, (viii) all obligations under currency agreements and interest swap agreements of such Person and (ix) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but ex- 21 -13- cluding accrued dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Independent Financial Advisor" means a firm (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. "Initial Fixed Rate Notes" means the 9 3/4% Senior Subordinated Notes due 2008 of the Company issued on the Issue Date and authenticated and delivered under this Indenture pursuant to Section 2.02 of this Indenture. "Initial Floating Rate Notes" means the Floating Interest Rate Subordinated Term Securities due 2008 issued on the Issue Date and authenticated and delivered under this Indenture pursuant to Section 2.02 of this Indenture. "Initial Notes" means the Initial Fixed Rate Notes and the Initial Floating Rate Notes. "Initial Purchaser" means BT Alex. Brown Incorporated. "Interest Payment Date" means the stated maturity of an installment of interest on the Notes. "Interest Period" means semi-annual periods commencing September 1, 1998, for the period commencing on and including the immediately preceding Interest Payment Date and ending on and including the date next preceding the Interest Payment Date, with the exception that the first Interest Period shall 22 -14- commence on and include February 26, 1998 and end on and include August 31, 1998. "Interest Swap Obligations" means the obligations of any Person, pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter. "Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any Person. "Investment" shall exclude extensions of trade credit by the Company and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. For the purposes of Section 4.10, (i) "Investment" shall include and be valued at the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude the fair market value of the net assets of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any Investment shall be the original cost of such Investment plus the cost of all additional Investments by the Company or any of its Restricted Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by the payment of dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment; provided that no such payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such payment of dividends or distributions or receipt of any such amounts would be included in 23 -15- Consolidated Net Income. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, 100% of the outstanding Common Stock of such Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of. "Issue Date" means February 26, 1998. "Legal Defeasance" has the meaning provided in Section 8.02. "Legal Holiday" has the meaning provided in Section 11.07. "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "Management Services Agreement" means the Management Services Agreement between the Company and the Principal as in effect on the Issue Date. "Maturity Date" means March 1, 2008. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such deferred payment constituting interest) received by the Company or any of its Restricted Subsidiaries from such Asset Sale net of (a) out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions), (b) taxes paid or payable after taking into account any reduction in consolidated tax liability due to available tax credits or deductions and any tax sharing arrangements, (c) repayment of Indebtedness that is required to be repaid in connection with such Asset Sale and (d) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against any liabilities associated with 24 -16- such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, post-closing adjustments, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale. "Net Proceeds Offer" has the meaning provided in Section 4.16. "Net Proceeds Offer Payment Date" has the meaning provided in Section 4.16. "Net Proceeds Offer Trigger Date" has the meaning provided in Section 4.16. "New Revolving Credit Facility" means the credit agreement dated as of the Issue Date, among the Company, the lenders party thereto in their capacities as lenders thereunder and Bankers Trust Company, as agent, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including, without limitation, increasing the amount of available borrowings thereunder or adding Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "Non-U.S. Person" means a person who is not a U.S. person, as defined in Regulation S. "Notes" means the Initial Notes and the Exchange Notes and any other notes issued after the Issue Date in accordance with clause (iii) of the fourth paragraph of Section 2.02 treated as a single class of securities, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture. "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. 25 -17- "Offering Memorandum" means the Offering Memorandum dated February 19, 1998, pursuant to which the Initial Notes were offered, and any supplement thereto. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Treasurer, the Controller, or the Secretary of such Person, or any other officer designated by the Board of Directors serving in a similar capacity. "Officers' Certificate" means, with respect to any Person, a certificate signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of such Person and otherwise complying with the requirements of Sections 11.04 and 11.05, as they relate to the making of an Officers' Certificate. "Opinion of Counsel" means a written opinion from legal counsel, who may be counsel for the Company, and who is reasonably acceptable to the Trustee and not rendered by any employee of the Company or any of its Affiliates or Subsidiaries complying with the requirements of Sections 11.04 and 11.05, as they relate to the giving of an Opinion of Counsel. "Paying Agent" has the meaning provided in Section 2.03. "Permitted Holders" means the Principal and its Affiliates. "Permitted Indebtedness" means, without duplication, each of the following: (i) Indebtedness under the Notes and the Exchange Notes issued in exchange therefor in an aggregate principal amount not to exceed $175.0 million; (ii) Indebtedness incurred pursuant to the New Revolving Credit Facility in an aggregate principal amount at any time outstanding not to exceed the greater of (a) $40.0 million and (b) the excess of (1) the sum of 50% of the book value of the inventory of the Company and its Restricted Subsidiaries and 65% of the book value of the accounts receivable of the Company and its Restricted Subsidiaries over (2) the amount of Indebtedness of foreign Restricted Subsidiaries of the Company outstanding pursuant to clause (xiv) below; 26 -18- (iii) other Indebtedness of the Company and its Restricted Subsidiaries outstanding on the Issue Date reduced by the amount of any scheduled amortization payments or mandatory prepayments when actually paid or permanent reductions thereon; (iv) Interest Swap Obligations of the Company or any of its Restricted Subsidiaries covering Indebtedness of the Company or any of its Restricted Subsidiaries; provided, however, that such Interest Swap Obligations are entered into to protect the Company and its Restricted Subsidiaries from fluctuations in interest rates on Indebtedness incurred in accordance with this Indenture to the extent the notional principal amount of such Interest Swap Obligation does not exceed the principal amount of the Indebtedness to which such Interest Swap Obligation relates; (v) Indebtedness under Currency Agreements; provided that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the Company to the Company or to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by the Company or a Wholly Owned Restricted Subsidiary of the Company, in each case subject to no Lien (other than Liens permitted pursuant to Section 4.18) held by a Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company; provided that if as of any date any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or holds a Lien (other than Liens permitted pursuant to Section 4.18) in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness; (vii) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by a Wholly Owned Restricted Subsidiary of the Company; provided that (a) any Indebtedness of the Company to any Wholly Owned Restricted Subsidiary of the Company is unsecured and subordinated, pursuant to a 27 -19- written agreement, to the Company's obligations under this Indenture and the Notes and (b) if as of any date any Person other than a Wholly Owned Restricted Subsidiary of the Company owns or holds any such Indebtedness or any Person holds a Lien (other than Liens permitted pursuant to Section 4.18) in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the Company; (viii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five business days of incurrence; (ix) Indebtedness of the Company or any of its Restricted Subsidiaries represented by letters of credit for the account of the Company or such Restricted Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business; (x) Indebtedness represented by Capitalized Lease Obligations and Purchase Money Indebtedness of the Company and its Restricted Subsidiaries incurred in the ordinary course of business not to exceed the greater of $7.5 million and 5% of Consolidated Tangible Assets of the Company at any one time outstanding; (xi) Indebtedness arising from agreements of the Company or a Restricted Subsidiary of the Company providing for indemnification, adjustment of purchase price, earn out or other similar obligations, in each case incurred or assumed in connection with the disposition of any business, assets or a Restricted Subsidiary of the Company in a principal amount not to exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition; (xii) obligations in respect of performance and surety bonds and completion guarantees provided by the Company or any Restricted Subsidiary of the Company in the ordinary course of business; 28 -20- (xiii) guarantees by the Company and its Wholly Owned Restricted Subsidiaries of each other's Indebtedness; provided that such Indebtedness is permitted to be incurred under this Indenture, including with respect to Wholly Owned Restricted Subsidiaries of the Company, pursuant to Section 4.19; (xiv) Indebtedness of foreign Restricted Subsidiaries of the Company incurred to finance working capital of such foreign Restricted Subsidiaries in an aggregate principal amount at any time outstanding not to exceed the sum of 50% of the book value of the inventory of such foreign Restricted Subsidiaries and 65% of the book value of the accounts receivable of such foreign Restricted Subsidiaries; (xv) Refinancing Indebtedness; and (xvi) additional Indebtedness of the Company and its Restricted Subsidiaries in an aggregate principal amount not to exceed $20.0 million at any one time outstanding (which amount may, but need not, be incurred in whole or in part under the New Revolving Credit Facility). "Permitted Investments" means: (i) Investments by the Company or any Restricted Subsidiary of the Company in any Person that is or will become immediately after such Investment a Wholly Owned Restricted Subsidiary of the Company or that will merge or consolidate into the Company or a Wholly Owned Restricted Subsidiary of the Company; (ii) Investments in the Company by any Restricted Subsidiary of the Company; provided that any Indebtedness evidencing such Investment is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Notes and this Indenture; (iii) Investments in cash and Cash Equivalents; (iv) loans and advances to employees and officers of the Company and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $500,000 at any one time outstanding; (v) Currency Agreements and Interest Swap Obligations entered into in the ordinary course of the Company's or its Restricted Subsidiaries' businesses and otherwise in compliance with this Indenture; (vi) Investments not to exceed the greater of $7.5 million and 5% of Consolidated Tangible Assets of the Company at the time of such Investment at any one time outstanding; (vii) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (viii) Investments made by the Company or its Restricted Subsidiaries as a result 29 -21- of consideration received in connection with an Asset Sale made in compliance with Section 4.16; (ix) accounts receivable created or acquired in the ordinary course of business; (x) guarantees (a) by the Company of Indebtedness otherwise permitted to be incurred by Restricted Subsidiaries of the Company under this Indenture or (b) permitted by Section 4.19; and (xi) Investments the payment for which consists exclusively of Qualified Capital Stock of the Company. "Permitted Liens" means the following types of Liens: (i) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) judgment Liens not giving rise to an Event of Default; (v) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; 30 -22- (vi) any interest or title of a lessor under any Capitalized Lease Obligation; provided that such Liens do not extend to any property or assets which is not leased property subject to such Capitalized Lease Obligation; (vii) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (viii) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (ix) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set-off; (x) Liens securing Interest Swap Obligations which Interest Swap Obligations relate to Indebtedness that is otherwise permitted under this Indenture; (xi) Liens securing Capitalized Lease Obligations and Purchase Money Indebtedness permitted pursuant to clause (x) of the definition of "Permitted Indebtedness"; provided, however, that in the case of Purchase Money Indebtedness (A) the Indebtedness shall not exceed the cost of such property or assets and shall not be secured by any property or assets of the Company or any Restricted Subsidiary of the Company other than the property and assets acquired or constructed and (B) the Lien securing such Indebtedness shall be created within 180 days of such acquisition or construction or, in the case of a refinancing of any Purchase Money Indebtedness, within 180 days of such refinancing; (xii) Liens securing Indebtedness under Currency Agreements; (xiii) Liens securing Acquired Indebtedness incurred in accordance with Section 4.12; provided that (A) such Liens secured such Acquired Indebtedness at the time of and prior to the incurrence of such Acquired Indebtedness by 31 -23- the Company or a Restricted Subsidiary of the Company and were not granted in connection with, or in anticipation of, the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company and (B) such Liens do not extend to or cover any property or assets of the Company or of any of its Restricted Subsidiaries other than the property or assets that secured the Acquired Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of the Company or a Restricted Subsidiary of the Company and are no more favorable to the lienholders than those securing the Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness by the Company or a Restricted Subsidiary of the Company; (xiv) Liens securing Indebtedness of foreign Restricted Subsidiaries of the Company which Indebtedness is permitted to be incurred pursuant to this Indenture; (xv) Liens incurred in the ordinary course of business of the Company or any Restricted Subsidiary of the Company with respect to obligations that do not in the aggregate exceed $2.0 million at any one time outstanding; (xvi) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries; (xvii) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (xviii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of custom duties in connection with the importation of goods; and (xix) Liens existing on the Issue Date, together with any Liens securing Refinancing Indebtedness incurred in order to refinance the Indebtedness secured by Liens existing on the Issue Date; provided that the Liens securing the Refinancing Indebtedness shall not extend to property other than that pledged under the Liens securing the Indebtedness being refinanced. "Person" means an individual, partnership, corporation, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. 32 -24- "Physical Notes" has the meaning provided in Section 2.01. "preferred stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "Preferred Stock" means the Company's 12 1/2% Senior Exchangeable Preferred Stock. "principal" of any Indebtedness (including the Notes) means the principal amount of such Indebtedness plus the premium when due, if any, on such Indebtedness. "Principal" means Cornerstone Equity Investors, L.L.C. "Private Placement Legend" means the legend initially set forth on the Notes in the form set forth in the first paragraph of Section 2.15. "Proceeds Purchase Date" has the meaning provided in Section 4.16. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act, as determined by the Board of Directors of the Company. "Public Equity Offering" means an underwritten public offering of Qualified Capital Stock of the Company pursuant to a registration statement filed with the SEC in accordance with the Securities Act. "Purchase Money Indebtedness" means Indebtedness of the Company and its Restricted Subsidiaries incurred in the normal course of business for the purpose of financing all or any part of the purchase price, or the cost of installation, construction or improvement, of property or equipment. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Qualified Institutional Buyer" or "QIB" shall have the meaning specified in Rule 144A under the Securities Act. 33 -25- "Recapitalization" means the recapitalization of the Company on the Issue Date pursuant to the Amended and Restated Recapitalization Agreement dated as of February 1, 1998, as amended, by and among Micron Electronics, Inc., MEI California, Inc. Cornerstone Equity Investors, IV, L.P. and the Company. "Record Date" means the Record Dates specified in the Notes, whether or not a Legal Holiday. "Redemption Date," when used with respect to any Note to be redeemed, means the date fixed for such redemption pursuant to this Indenture and the Notes. "Redemption Price," when used with respect to any Note to be redeemed, means the price fixed for such redemption pursuant to this Indenture and the Notes. "Reference Date" has the meaning provided in Section 4.10. "Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means any Refinancing by the Company or any Restricted Subsidiary of the Company of (A) for purposes of clause (xv) of the definition of Permitted Indebtedness, Indebtedness incurred in accordance with Section 4.12 (other than pursuant to clauses (ii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi), (xii), (xiii), (xiv) or (xvi) of the definition of "Permitted Indebtedness") or (B) for any other purpose, Indebtedness incurred in accordance with Section 4.12, in each case that does not (1) result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed Refinancing (plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable expenses incurred by the Company in connection with such Refinancing) except to the extent such increase is otherwise permitted to be incurred under this Indenture or (2) create Indebtedness with a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced; provided that (x) if such Indebtedness being Refinanced is Indebtedness solely of the Company, then such Refinancing Indebtedness shall be In- 34 -26- debtedness solely of the Company and (y) if such Indebtedness being Refinanced is subordinate or junior to the Notes, then such Refinancing Indebtedness is subordinate or junior to the Notes at least to the same extent and in the same manner as the Indebtedness being Refinanced. "Registrar" has the meaning provided in Section 2.03. "Registration Rights Agreement" means the Registration Rights Agreement dated February 26, 1998 between the Company and the Initial Purchaser, as the same may be amended or modified from time to time in accordance with the terms thereof. "Regulation S" means Regulation S under the Securities Act. "Replacement Assets" has the meaning provided in Section 4.16. "Representative" means the indenture trustee or other trustee, agent or representative in respect of any Designated Senior Debt; provided that if, and for so long as, any Designated Senior Debt lacks such a representative, then the Representative for such Designated Senior Debt shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Debt in respect of any Designated Senior Debt. "Restricted Payment" has the meaning provided in Section 4.10. "Restricted Security" has the meaning assigned to such term in Rule 144(a)(3) under the Securities Act; provided that the Trustee shall be entitled to request and conclusively rely on an Opinion of Counsel with respect to whether any Note constitutes a Restricted Security. "Restricted Subsidiary" of any Person means any Subsidiary of such Person which at the time of determination is not an Unrestricted Subsidiary. "Rule 144A" means Rule 144A under the Securities Act. "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Restricted Subsidiary of any property, whether owned by the 35 -27- Company or any Restricted Subsidiary at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property. "SEC" means the Securities and Exchange Commission. "Securities Act" means, the Securities Act of 1933, as amended, or any successor statute or statutes thereto. "Senior Debt" means the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on any Indebtedness of the Company, whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes. Without limiting the generality of the foregoing, "Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, (x) all monetary obligations (including guarantees thereof) of every nature of the Company under the New Revolving Credit Facility, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities, (y) all Interest Swap Obligations (including guarantees thereof) and (z) all obligations (including guarantees thereof) under Currency Agreements, in each case whether outstanding on the Issue Date or thereafter incurred. Notwithstanding the foregoing, Senior Debt shall not include (i) any Indebtedness of the Company to a Subsidiary of the Company or any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of the Company or any Subsidiary of the Company (including, without limitation, amounts owed for compensation), (iii) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services, (iv) Indebtedness represented by Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed or owing by the Company, (vi) that portion of 36 -28- any Indebtedness incurred in violation of the provisions set forth under Section 4.12 (but, as to any such obligation, no such violation shall be deemed to exist for purposes of this clause (vi) if the holder(s) of such obligation or their representative and the Trustee shall have received an Officers' Certificate of the Company to the effect that the incurrence of such Indebtedness does not (or, in the case of revolving credit indebtedness, that the incurrence of the entire committed amount thereof at the date on which the initial borrowing thereunder is made would not) violate such provisions of this Indenture), (vii) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company and (viii) any Indebtedness which is, by its express terms, subordinated in right of payment to any other Indebtedness of the Company including the Exchange Debentures. "Significant Subsidiary", with respect to any Person, means any Restricted Subsidiary of such Person that satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities Act. "Subsidiary", with respect to any Person, means (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. "Surviving Entity" has the meaning provided in Section 5.01. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except as otherwise provided in Section 9.04. "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer this Indenture, or in the case of a successor trustee, an officer assigned to the department, division or group performing the corporation trust work of such successor and assigned to administer this Indenture. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the 37 -29- provisions of this Indenture and thereafter means such successor. "Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided that (x) the Company certifies to the Trustee that such designation complies with Section 4.10 and (y) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if (x) immediately after giving effect to such designation, the Company is able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.12 and (y) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Government Obligations" means direct obligations of, and obligations guaranteed by, the United States of America for the payment of which the full faith and credit of the United States of America is pledged. "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of 38 -30- the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "Wholly Owned Restricted Subsidiary" of any Person means any Restricted Subsidiary of such Person of which all the outstanding voting securities (other than in the case of a foreign Restricted Subsidiary, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law) are owned by such Person or any Wholly Owned Restricted Subsidiary of such Person. SECTION 1.02. Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes. "indenture security holder" means a Holder or a Noteholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the Notes means the Company or any other obligor on the Notes. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; 39 -31- (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP as in effect on the date hereof; (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; and (5) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE TWO THE NOTES SECTION 2.01. Form and Dating. The Initial Notes and the Trustee's certificate of authentication relating thereto shall be substantially in the form of Exhibits A-1 and A-2 hereto. The Exchange Notes and the Trustee's certificate of authentication relating thereto shall be substantially in the form of Exhibits B-1 and B-2 hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or depository rule or usage. The Company and the Trustee shall approve the form of the Notes and any notation, legend or endorsement on them. Each Note shall be dated the date of its issuance and shall show the date of its authentication. The terms and provisions contained in the Notes, annexed hereto as Exhibits A-1 and A-2, and B-1 and B-2, shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Notes offered and sold in reliance on Rule 144A shall be issued initially in the form of one or more permanent global Notes in registered form, substantially in the form set forth in Exhibits A-1 and A-2 (the "Global Notes"), deposited with the Trustee, as custodian for the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided and shall bear the legends set forth in Section 2.15. 40 -32- The aggregate principal amount of the Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depository, as hereinafter provided. Notes issued in exchange for interests in the Global Notes pursuant to Section 2.16 may be issued in the form of permanent certificated Notes in registered form (the "Physical Notes") and shall bear the first legend set forth in Section 2.15. All Notes offered and sold in reliance on Regulation S shall remain in the form of a Global Note until the consummation of the Exchange Offer pursuant to the Registration Rights Agreement. SECTION 2.02. Execution and Authentication; Aggregate Principal Amount. Two Officers, or an Officer and an Assistant Secretary, shall sign, or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to, the Notes for the Company by manual or facsimile signature. The Company's seal shall also be reproduced on the Notes. If an Officer or Assistant Secretary whose signature is on a Note was an Officer or Assistant Secretary at the time of such execution but no longer holds that office or position at the time the Trustee authenticates the Note, the Note shall nevertheless be valid. A Note shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall authenticate (i) Initial Notes for original issue on the Issue Date in the aggregate principal amount not to exceed $175,000,000, (ii) on or prior to the date of the Exchange Offer, Exchange Notes from time to time for issue only in exchange for a like principal amount of Initial Notes and (iii) one or more series of 9 3/4% Senior Subordinated Notes due 2008 and one or more series of Floating Interest Rate Subordinated Term Securities due 2008 for original issue after the Issue Date (such Notes to be substantially in the form of Exhibits A-1 or A-2, as the case may be or Exhibits B-1 or B-2, as the case may be) in an aggregate principal amount not to exceed $100,000,000, (and if in the form of Ex- 41 -33- hibit A-1 or A-2, as the case may be, the same principal amount of Notes in exchange therefor upon consummation of a registered exchange offer) in each case upon written orders of the Company in the form of an Officers' Certificate. In each case, the Officers' Certificate shall specify the amount of Notes to be authenticated, the date on which the Notes are to be authenticated and the aggregate principal amount of Notes outstanding on the date of authentication, whether the Notes are to be Initial Notes, Exchange Notes or Notes issued under clause (iii) of the preceding sentence, and shall further specify the amount of such Notes to be issued as a Global Note or Physical Notes. The aggregate principal amount of Notes outstanding at any time may not exceed $275,000,000, except as provided in Section 2.07 and 2.08. The maximum denomination of a Global Note certificate shall be $100,000,000. In the event that the Company shall issue and the Trustee shall authenticate any Notes issued under this Indenture subsequent to the Issue Date pursuant to clause (ii) or (iii) of the first sentence of the immediately preceding paragraph, the Company shall use its reasonable efforts to obtain the same "CUSIP" number for such Notes as is printed on the Notes outstanding at such time; provided, however, that if any series of Notes issued under this Indenture subsequent to the Issue Date is either determined, pursuant to an Opinion of Counsel of the Company in a form reasonably satisfactory to the Trustee or deemed under standard practices to be a different class of security than the Notes outstanding at such time for federal income tax purposes, the Company shall obtain a "CUSIP" number for such Notes that is different than the "CUSIP" number printed on the Notes then outstanding. Notwithstanding the foregoing, all Notes issued under this Indenture shall vote and consent together on all matters (as to which any of such Notes may vote or consent) as one class and no series of Notes will have the right to vote or consent as a separate class on any matter. The Trustee may appoint an authenticating agent (the "Authenticating Agent") reasonably acceptable to the Company to authenticate Notes. Unless otherwise provided in the appointment, an Authenticating Agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such Authenticating Agent. An Authenticating Agent has the same rights as an Agent to deal with the Company or with any Affiliate of the Company. 42 -34- The Notes shall be issuable in fully registered form only, without coupons, in denominations of $1,000 and any integral multiple thereof. SECTION 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency (which shall be located in the Borough of Manhattan in the City of New York, State of New York) where (a) Notes may be presented or surrendered for registration of transfer or for exchange ("Registrar"), (b) Notes may be presented or surrendered for payment ("Paying Agent") and (c) notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company, upon prior written notice to the Trustee, may have one or more co-Registrars and one or more additional paying agents reasonably acceptable to the Trustee. The term "Paying Agent" includes any additional Paying Agent. Neither the Company nor any Affiliate of the Company may act as Paying Agent. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall incorporate the provisions of the TIA and implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee, in advance, of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such. The Company initially appoints the Trustee as Registrar, Paying Agent, Calculation Agent and agent for service of demands and notices in connection with the Notes, until such time as the Trustee has resigned or a successor has been appointed. The Paying Agent or Registrar may resign upon 30 days notice to the Company. SECTION 2.04. Paying Agent To Hold Assets in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, or interest on, the Notes (whether such assets have been distributed to it by the Company or any other obligor on the Notes), and the Company and the Paying Agent shall notify the Trustee of any Default by the Company (or any other 43 -35- obligor on the Notes) in making any such payment. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to the Paying Agent, the Paying Agent shall have no further liability for such assets. SECTION 2.05. Noteholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Holders. If the Trustee is not the Registrar, the Company shall furnish or cause the Registrar to furnish to the Trustee five (5) Business Days before each Record Date and at such other times as the Trustee may request in writing a list as of such date and in such form as the Trustee may reasonably require of the names and addresses of the Holders, which list may be conclusively relied upon by the Trustee. SECTION 2.06. Transfer and Exchange. Subject to the provisions of Sections 2.15 and 2.16, when Notes are presented to the Registrar or a co-Registrar with a request to register the transfer of such Notes or to exchange such Notes for an equal principal amount of Notes of other authorized denominations, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided, however, that the Notes presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall execute and the Trustee shall authenticate Notes at the Registrar's or co-Registrar's request. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchanges or transfers pursuant to Sections 2.10, 3.06, 4.15, 4.16 or 9.06, 44 -36- in which event the Company shall be responsible for the payment of such taxes). The Registrar or co-Registrar shall not be required to register the transfer of or exchange of any Note (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Notes and ending at the close of business on the day of such mailing and (ii) selected for redemption in whole or in part pursuant to Article Three, except the unredeemed portion of any Note being redeemed in part. Any Holder of the Global Note shall, by acceptance of such Global Note, agree that transfers of beneficial interests in such Global Notes may be effected only through a book entry system maintained by the Holder of such Global Note (or its agent), and that ownership of a beneficial interest in the Note shall be required to be reflected in a book entry. SECTION 2.07. Replacement Notes. If a mutilated Note is surrendered to the Trustee or if the Holder of a Note claims that the Note has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, such Holder must provide an affidavit of lost certificate and an indemnity bond or other indemnity, sufficient in the judgment of both the Company and the Trustee, to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Note is replaced. The Company may charge such Holder for its reasonable, out-of-pocket expenses in replacing a Note, including reasonable fees and expenses of counsel. Every replacement Note shall constitute an additional obligation of the Company. SECTION 2.08. Outstanding Notes. Notes outstanding at any time are all the Notes that have been authenticated by the Trustee except those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Subject to the provisions of Section 2.09, a Note does not cease to be outstanding because the Company or any of its Affiliates holds the Note. If a Note is replaced pursuant to Section 2.07 (other than a mutilated Note surrendered for replacement), it ceases to be outstanding unless the Trustee receives an Opinion of 45 -37- Counsel that the replaced Note is held by a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.07. If on a Redemption Date or the Maturity Date the Paying Agent holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the principal and interest due on the Notes payable on that date and is not prohibited from paying such money to the Holders thereof pursuant to the terms of this Indenture, then on and after that date such Notes cease to be outstanding and interest on them ceases to accrue. SECTION 2.09. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver, consent or notice, Notes owned by the Company or any of its Affiliates shall be considered as though they are not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes which a Trust Officer of the Trustee actually knows are so owned shall be so considered. The Company shall notify the Trustee, in writing, when it or any of its Affiliates repurchases or otherwise acquires Notes, of the aggregate principal amount of such Notes so repurchased or otherwise acquired. SECTION 2.10. Temporary Notes. Until definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes upon receipt of a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of temporary Notes to be authenticated and the date on which the temporary Notes are to be authenticated. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Company considers appropriate for temporary Notes. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate upon receipt of a written order of the Company pursuant to Section 2.02 definitive Notes in exchange for temporary Notes. SECTION 2.11. Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent 46 -38- shall forward to the Trustee any Notes surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent, and no one else, shall cancel and, at the written direction of the Company, shall dispose of all Notes surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.07, the Company may not issue new Notes to replace Notes that it has paid or delivered to the Trustee for cancellation. If the Company shall acquire any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Notes unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. SECTION 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest at the rate of interest then borne by the Fixed Rate Notes or Floating Rate Notes, as the case may be, to the Persons who are Holders on a subsequent special record date, which date shall be the fifteenth day next preceding the date fixed by the Company for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. At least 15 days before the subsequent special record date, the Company shall mail to each Holder, as of a recent date selected by the Company, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. SECTION 2.13. CUSIP Numbers. The Company in issuing the Notes may use one or more "CUSIP" numbers, and if so, the Trustee shall use the CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided that no representation is hereby deemed to be made by the Trustee as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes, and that reliance may be placed only on the other identification numbers printed on the Notes. The Company shall promptly notify the Trustee of any change in the CUSIP numbers. SECTION 2.14. Deposit of Moneys. Prior to 10:00 a.m. New York City time on each Interest Payment Date and on the Maturity Date, the Company shall 47 -39- have deposited with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such Interest Payment Date or Maturity Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such Interest Payment Date or Maturity Date, as the case may be. SECTION 2.15. Restrictive Legends. Each Global Note and Physical Note that constitutes a Restricted Security or is sold in compliance with Regulation S shall bear the following legend (the "Private Placement Legend") on the face thereof until after the second anniversary of the later of the Issue Date and the last date on which the Company or any Affiliate of the Company was the owner of such Note (or any predecessor security) (or such shorter period of time as permitted by Rule 144(k) under the Securities Act or any successor provision thereunder) (or such longer period of time as may be required under the Securities Act or applicable state securities laws in the opinion of counsel for the Company, unless otherwise agreed by the Company and the Holder thereof): THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) or (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY THEREOF OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR") THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED 48 -40- LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Each Global Note shall also bear the following legend on the face thereof: UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR 49 -41- OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.17 OF THE INDENTURE GOVERNING THIS NOTE. SECTION 2.16. Book-Entry Provisions for Global Security. (a) The Global Note initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in Section 2.15. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Note, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Note. (b) Transfers of the Global Note shall be limited to transfers in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Note may be transferred or, subject to Section 2.01, exchanged for Physical Notes in accordance with the rules and procedures of the Depository and the provisions of Section 2.17. In addition, Physical Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in the Global Note if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for the Global Note and a successor depositary is not appointed by the Company within 90 days of such notice or 50 -42- (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from the Depository to issue Physical Notes. (c) In connection with any transfer or exchange of a portion of the beneficial interest in the Global Note to beneficial owners pursuant to paragraph (b), the Registrar shall (if one or more Physical Notes are to be issued) reflect on its books and records the date and a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Physical Notes of like tenor and amount. (d) In connection with the transfer of the entire Global Note to beneficial owners pursuant to paragraph (b), the Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depository in exchange for its beneficial interest in the Global Note, an equal aggregate principal amount of Physical Notes of authorized denominations. (e) Any Physical Note constituting a Restricted Security delivered in exchange for an interest in the Global Note pursuant to paragraph (b) or (c) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section 2.17, bear the legend regarding transfer restrictions applicable to the Physical Notes set forth in Section 2.15. (f) The Holder of the Global Note may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. SECTION 2.17. Special Transfer Provisions. (a) Transfers to Non-QIB Institutional Accredited Investors and Non-U.S. Persons. The following provisions shall apply with respect to the registration of any proposed transfer of a Note constituting a Restricted Security to any Institutional Accredited Investor which is not a QIB or to any Non-U.S. Person: (i) the Registrar shall register the transfer of any Note constituting a Restricted Security, whether or not 51 -43- such Note bears the Private Placement Legend, if (x) the transferee is not an Affiliate of the Company and the requested transfer is after the second anniversary of the later of the (a) Issue Date and (b) the last date on which the Company or an Affiliate of the Company was the owner of such Note (or any predecessor security) or such shorter period of time as permitted by Rule 144(k) under the Securities Act or any successor provision thereunder or (y) (1) in the case of a transfer to an Institutional Accredited Investor which is not a QIB (excluding Non-U.S. Persons), the proposed transferee has delivered to the Registrar a certificate substantially in the form of Exhibit C hereto or (2) in the case of a transfer to a Non-U.S. Person, the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit D hereto and such other information that the Trustee may reasonably request in order to confirm that such transaction is being made pursuant to an exemption from or in a transaction not subject to the registration requirements of the Securities Act; and (ii) if the proposed transferor is an Agent Member holding a beneficial interest in the Global Note, the Registrar shall register the transfer of any Note constituting a Restricted Security, whether or not such Note bears a Private Placement Legend upon receipt by the Registrar of (x) the certificate, if any, required by paragraph (i) above and (y) instructions given in accordance with the Depository's and the Registrar's procedures, whereupon (a) the Registrar shall reflect on its books and records the date and (if the transfer does not involve a transfer of outstanding Physical Notes) a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and (b) the Company shall execute and the Trustee shall authenticate and deliver one or more Physical Notes of like tenor and amount. (b) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Note constituting a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons): (i) the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Note stating, or has otherwise advised the Company and the Regis- 52 -44- trar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; and (ii) if the proposed transferee is an Agent Member, and the Notes to be transferred consist of Physical Notes which after transfer are to be evidenced by an interest in the Global Note, upon receipt by the Registrar of instructions given in accordance with the Depository's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Global Note in an amount equal to the principal amount of the Physical Notes to be transferred, and the Trustee shall cancel the Physical Notes so transferred. (c) Private Placement Legend. Upon the transfer, exchange or replacement of Notes not bearing the Private Placement Legend, the Registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Registrar shall deliver only Notes that bear the Private Placement Legend unless (i) the circumstance contemplated by paragraph (a)(i)(x) of this Section 2.17 exist or (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (d) General. By its acceptance of any Note bearing the Private Placement Legend, each Holder of such a Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture. 53 -45- The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 2.16 or this Section 2.17. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee. If the Company elects to redeem Notes pursuant to Paragraph 6 of the Notes, it shall notify the Trustee and the Paying Agent in writing of the Redemption Date and the principal amount of the Notes to be redeemed. The Company shall give each notice provided for in this Section 3.01 at least 30 days, but not more than 60 days, before the Redemption Date (unless a shorter notice period shall be satisfactory to the Trustee, as evidenced in a writing signed on behalf of the Trustee), together with an Officers' Certificate stating that such redemption shall comply with the conditions contained herein and in the Notes. If the Company is required to make an offer to redeem Notes pursuant to the provisions of Section 4.15 or 4.16 hereof, it shall furnish to the Trustee at least 30 days but not more than 60 days before a Redemption Date (or such shorter period as may be agreed to by the Trustee in writing), an Officers' Certificate setting forth (i) the Section of this Indenture pursuant to which the redemption shall occur, (ii) the Redemption Date, (iii) the principal amount of Notes to be redeemed, (iv) the redemption price and (v) a statement to the effect that (a) the Company or one of its Subsidiaries has effected an Asset Sale and the conditions set forth in Section 4.16 have been satisfied or (b) a Change of Control has occurred and the conditions set forth in Section 4.15 have been satisfied, as applicable. SECTION 3.02. Selection of Notes To Be Redeemed. If fewer than all of the Fixed Rate Notes or Floating Rate Notes, as the case may be, are to be redeemed, selection 54 -46- of the Fixed Rate Notes or Floating Rate Notes, as the case may be, to be redeemed will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Fixed Rate Notes or Floating Rate Notes, as the case may be, are listed or, if the Fixed Rate Notes or Floating Rate Notes, as the case may be, are not then listed on a national securities exchange, on a pro rata basis within such type of Notes, by lot or in such other fair and reasonable manner chosen at the discretion of the Trustee; provided, however, that if a partial redemption is made with the proceeds of a Public Equity Offering, selection of the Fixed Rate Notes or portion thereof for redemption shall be made by the Trustee only on a pro rata basis or as nearly on a pro rata basis as is practicable (subject to the Depository's procedures), unless such method is otherwise prohibited. The Company shall promptly notify the Trustee and the Paying Agent in writing of the date of listing and the name of the securities exchange if and when the Fixed Rate Notes or Floating Rate Notes, as the case may be, are listed on a principal national securities exchange. The Trustee shall make the selection from the Fixed Rate Notes or Floating Rate Notes, as the case may be, outstanding and not previously called for redemption and shall promptly notify the Company in writing of the Fixed Rate Notes or Floating Rate Notes, as the case may be, selected for redemption and, in the case of any Fixed Rate Notes or Floating Rate Notes, as the case may be, selected for partial redemption, the principal amount thereof to be redeemed. Notes in denominations of $1,000 or less may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Notes that have denominations larger than $1,000. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. On and after the date of redemption, interest will cease to accrue on the Notes or portions thereof called for redemption as long as the Company has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to this Indenture. SECTION 3.03. Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail or cause to be mailed a notice of redemption by first class mail, postage prepaid, to each Holder whose Notes are to be redeemed, with a copy to the Trustee and any Paying Agent. At the Company's written request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. 55 -47- Each notice for redemption shall identify the Notes to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price and the amount of accrued interest, if any, to be paid; (3) the name and address of the Paying Agent; (4) the subparagraph of the Notes pursuant to which such redemption is being made; (5) that Notes called for redemption must be surrendered to the Paying Agent to collect the Redemption Price plus accrued interest, if any; (6) that, unless the Company defaults in making the redemption payment, interest on Notes called for redemption ceases to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Notes is to receive payment of the Redemption Price plus accrued interest, if any, upon surrender to the Paying Agent of the Notes redeemed; (7) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date, and upon surrender of such Note, a new Note or Notes in the aggregate principal amount equal to the unredeemed portion thereof will be issued; and (8) if fewer than all the Notes are to be redeemed, the identification of the particular Notes (or portion thereof) to be redeemed, as well as the aggregate principal amount of Notes to be redeemed and the aggregate principal amount of Notes to be outstanding after such partial redemption. SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03, Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price plus accrued interest, if any. Upon surrender to the Trustee or Paying Agent, such Notes called for redemption shall be paid at the Redemption Price (which shall include accrued interest 56 -48- thereon to the Redemption Date, except that installments of interest, the maturity of which is on or prior to the Redemption Date, shall be payable to Holders of record at the close of business on the relevant record dates referred to in the Notes). SECTION 3.05. Deposit of Redemption Price. On or before 10:00 a.m. New York City time on the Redemption Date, the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price plus accrued interest, if any, of all Notes to be redeemed on that date. The Paying Agent shall promptly return to the Company any U.S. Legal Tender so deposited which is not required for that purpose, except with respect to monies owed as obligations to the Trustee pursuant to Article Seven. If the Company complies with the preceding paragraph, then, unless the Company defaults in the payment of such Redemption Price plus accrued interest, if any, interest on the Notes to be redeemed will cease to accrue on and after the applicable Redemption Date, whether or not such Notes are presented for payment. SECTION 3.06. Notes Redeemed in Part. Upon surrender of a Note that is to be redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder a new Note or Notes equal in principal amount to the unredeemed portion of the Note surrendered. ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Notes. The Company shall pay the principal of and interest on the Notes on the dates and in the manner provided in the Notes and in this Indenture. An installment of principal of or interest on the Notes shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company or an Affiliate of the Company) holds on that date U.S. Legal Tender designated for and sufficient to pay the installment in full and is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture. 57 -49- The Company shall pay, to the extent such payments are lawful, interest on overdue principal and on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the rate borne by the Notes. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Notwithstanding anything to the contrary contained in this Indenture, the Company may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal, premium, if any, or interest payments hereunder. SECTION 4.02. Maintenance of Office or Agency. The Company shall maintain the office or agency required under Section 2.03. The Company shall give prior written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 11.02. SECTION 4.03. Corporate Existence. Except as otherwise permitted by Article Five and Section 4.16, the Company shall do or cause to be done, at its own cost and expense, all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each of its Restricted Subsidiaries in accordance with the respective organizational documents of each such Restricted Subsidiary and the material rights (charter and statutory) and franchises of the Company and each such Restricted Subsidiary. SECTION 4.04. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or any of its Subsidiaries or properties of it or any of its Subsidiaries and (ii) all lawful claims for labor, materials and supplies that, 58 -50- if unpaid, might by law become a Lien upon the property of it or any of its Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings properly instituted and diligently conducted for which adequate reserves, to the extent required under GAAP, have been taken. SECTION 4.05. Maintenance of Properties and Insurance. (a) The Company shall, and shall cause each of its Restricted Subsidiaries to, maintain its material properties in good working order and condition (subject to ordinary wear and tear) and make all necessary repairs, renewals, replacements, additions, betterments and improvements thereto, all as in the judgment of the Company or such Restricted Subsidiary may be appropriate in order to conduct and carry on its business; provided, however, that nothing in this Section 4.05 shall prevent the Company or any of its Restricted Subsidiaries from discontinuing the operation and maintenance of any of its properties, if such discontinuance is, in the good faith judgment of the Board of Directors of the Company or the Restricted Subsidiary, as the case may be, desirable in the conduct of their respective businesses. (b) The Company shall provide or cause to be provided, for itself and each of its Restricted Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the good faith judgment of the Board of Directors of the Company, are adequate and appropriate for the conduct of the business of the Company and such Restricted Subsidiaries, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be customary, in the good faith judgment of the Board of Directors of the Company, for companies similarly situated in the industry. SECTION 4.06. Compliance Certificate; Notice of Default. (a) The Company shall deliver to the Trustee, (i) within 90 days after the end of the Company's fiscal year and (ii) within 15 days after the Trustee's written request stating that the Trustee has a reasonable basis to believe an Event of Default has occurred, an Officers' Certificate stating 59 -51- that a review of its activities and the activities of its Subsidiaries during the preceding fiscal year, in the case of Section 4.06(a)(i), or the preceding four fiscal quarters in the case of Section 4.06(a)(ii), has been made under the supervision of the signing Officers with a view to determining whether the Company has complied with its obligations under this Indenture and further stating, as to each such Officer signing such certificate, that to the best of such Officer's knowledge the Company during such preceding fiscal year has complied with each and every such covenant and no Default or Event of Default occurred during such year and at the date of such certificate there is no Default or Event of Default that has occurred and is continuing or, if such signers do know of such Default or Event of Default, the certificate shall describe the Default or Event of Default and its status with particularity. The Officers' Certificate shall also notify the Trustee should the Company elect to change the manner in which it fixes its fiscal year end. (b) The annual financial statements delivered pursuant to Section 4.08 shall be accompanied by a written report of the Company's independent accountants (who shall be a firm of established national reputation) that in conducting their audit of such financial statements nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article Four, Five or Six of this Indenture insofar as they relate to accounting matters or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) (i) If any Default or Event of Default has occurred and is continuing or (ii) if any Holder seeks to exercise any remedy hereunder with respect to a claimed Default under this Indenture or the Notes, the Company shall deliver to the Trustee, at its address set forth in Section 11.02 hereof, by registered or certified mail or by telegram, telex or facsimile transmission followed by hard copy by registered or certified mail an Officers' Certificate specifying such event, notice or other action within five Business Days of its becoming aware of such occurrence. SECTION 4.07. Compliance with Laws. The Company shall comply, and shall cause each of its Restricted Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United 60 -52- States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except for such noncompliances as are not in the aggregate reasonably likely to have a material adverse effect on the financial condition or results of operations of the Company and its Restricted Subsidiaries, taken as a whole. SECTION 4.08. SEC Reports. (a) Upon consummation of the Exchange Offer (as defined in the Registration Rights Agreement) and for so long as the Notes remain outstanding, the Company (at its own expense) shall file with the SEC and shall file with the Trustee within 15 days after it files them with the SEC copies of the quarterly and annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) to be filed pursuant to Section 13 or 15(d) of the Exchange Act (without regard to whether the Company is subject to the requirements of such Section 13 or 15(d) of the Exchange Act); provided that prior to the consummation of the Exchange Offer and the issuance of the Exchange Notes, the Company (at its own expense) will mail to the Trustee and Holders in accordance with paragraph (b) of this Section 4.08 substantially the same information that would have been required by the foregoing documents within 15 days of when any such document would otherwise have been required to be filed with the SEC. Upon qualification of this Indenture under the TIA, the Company shall also comply with the provisions of TIA ss. 314(a). (b) At the Company's expense, the Company shall cause an annual report if furnished by it to stockholders generally and each quarterly or other financial report if furnished by it to stockholders generally to be filed with the Trustee and mailed to the Holders at their addresses appearing in the register of Notes maintained by the Registrar at the time of such mailing or furnishing to stockholders. (c) Prior to the effectiveness of the registration statement relating to the Exchange Offer, the Company shall provide to any Holder any information reasonably requested by such Holder concerning the Company (including financial statements) necessary in order to permit such Holder to sell or transfer Notes in compliance with Rule 144A under the Securi- 61 -53- ties Act, as presently required by Rule 144A(d)(4) under the Securities Act. SECTION 4.09. Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.10. Limitation on Restricted Payments. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Capital Stock of the Company) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock, (c) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, any Indebtedness of the Company that is subordinate or junior in right of payment to the Notes or (d) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (a), (b), (c) and (d) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Default or an Event of Default shall have occurred and be continuing or (ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.12 or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) 62 -54- made subsequent to the Issue Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined reasonably and in good faith by the Board of Directors of the Company) shall exceed the sum of: (w) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to February 26, 1998 and on or prior to the date the Restricted Payment occurs (the "Reference Date") (treating such period as a single accounting period); plus (x) 100% of the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Issue Date and on or prior to the Reference Date of Qualified Capital Stock of the Company; plus (y) without duplication of any amounts included in clause (iii)(x) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock (excluding, in the case of clauses (iii)(x) and (y), any net cash proceeds from a Public Equity Offering to the extent used to redeem the Fixed Rate Notes in accordance with the provisions under paragraph 6(b) of the Fixed Rate Note); plus (z) without duplication, the sum of (1) the aggregate amount returned in cash on or with respect to Investments (other than Permitted Investments) made subsequent to the Issue Date whether through interest payments, principal payments, dividends or other distributions or payments, (2) the net cash proceeds received by the Company or any of its Restricted Subsidiaries from the disposition of all or any portion of such Investments (other than to a Subsidiary of the Company) and (3) upon redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary; provided, however, that the sum of clauses (1), (2) and (3) above shall not exceed the aggregate amount of all such Investments made subsequent to the Issue Date. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (1) the payment of any dividend or the consummation of any irrevocable redemption within 60 days after the date of declaration of such dividend or notice of such redemption if the dividend or the payment of the redemption price, as the case may be, would have been permitted on the date of declaration or notice; (2) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any shares of Capital Stock of the Company, either (i) solely in exchange for shares of Qualified Capital Stock of the Company or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares 63 -55- of Qualified Capital Stock of the Company; (3) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any Indebtedness of the Company that is subordinate or junior in right of payment to the Notes either (i) solely in exchange for shares of Qualified Capital Stock of the Company, or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of (A) shares of Qualified Capital Stock of the Company or (B) Refinancing Indebtedness; (4) payments for the purpose of and in an amount equal to the amount required to permit the Company to redeem or repurchase its equity or options in respect thereof, in each case in connection with the terms of any employee stock option or stock purchase agreements or other agreements to compensate management or other employees; provided that such redemptions or repurchases pursuant to this clause (4) shall not exceed $3.0 million (which amount shall be increased by the amount of any net cash proceeds to the Company from (x) sales of Capital Stock of the Company to management or other employees subsequent to the Issue Date to the extent such amounts have not been included in clause (iii) in the foregoing paragraph and (y) any "key-man" life insurance policies which are used to make such redemptions or repurchases) in the aggregate; provided, further, that the cancellation of Indebtedness owing to the Company from management or other employees of the Company or any of its Restricted Subsidiaries in connection with a repurchase of Capital Stock of the Company will not be deemed to constitute a Restricted Payment under the Indenture; (5) repurchases of Capital Stock deemed to occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price thereof; (6) so long as no Default or Event of Default shall have occurred and be continuing, payments not to exceed $500,000 in the aggregate to enable the Company to make payments to holders of its Capital Stock in lieu of issuance of fractional shares of its Capital Stock; (7) payments or other distributions made in connection with the Recapitalization; (8) if no Default or Event of Default shall have occurred and be continuing, the declaration and payment of cash dividends to holders of the Preferred Stock commencing with the first scheduled dividend payment due subsequent to March 1, 2003; (9) prior to March 1, 2003, the Company's withholding and payment to any taxing authority of any cash amounts required to be withheld with respect to dividends paid to foreign holders of the Preferred Stock to the extent required by law; (10) the exchange of the Preferred Stock for the Exchange Debentures, provided that such exchange is permitted by Section 4.12; and (11) if no Default or Event of Default shall have occurred and be continuing, other Restricted Payments in 64 -56- an aggregate amount not to exceed $10.0 million. In determining the aggregate amount of Restricted Payments made subsequent to the Issue Date in accordance with clause (iii) of the immediately preceding paragraph, (a) amounts expended (to the extent such expenditure is in the form of cash) pursuant to clauses (1), (2)(ii), (4), (8), (9) and (11) shall be included in such calculation; provided that such expenditures pursuant to clause (4) shall not be included to the extent of cash proceeds received by the Company from any "key-man" life insurance policies and (b) amounts expended pursuant to clauses (2)(i), (3), (5), (6), (7) and (10) shall be excluded from such calculation. SECTION 4.11. Limitation on Transactions with Affiliates. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under paragraph (b) below and (y) Affiliate Transactions on terms that are not materially less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $1.0 million shall be approved by the Board of Directors of the Company or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than $10.0 million, the Company or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and file the same with the Trustee. 65 -57- (b) The restrictions set forth in clause (a) shall not apply to (i) reasonable fees and compensation paid to and indemnity provided on behalf of officers, directors, employees or consultants of the Company or any Restricted Subsidiary of the Company as determined in good faith by the Company's Board of Directors or senior management (including, without limitation, fees and compensation under the Management Services Agreement with the Principal as in effect on the Issue Date); (ii) transactions exclusively between or among the Company and any of its Restricted Subsidiaries or exclusively between or among such Restricted Subsidiaries, provided such transactions are not otherwise prohibited by this Indenture; (iii) any agreement as in effect as of the Issue Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date; (iv) Restricted Payments permitted by this Indenture; (v) the existence of, or the performance by the Company or any of its Restricted Subsidiaries of its obligations under the terms of, any stockholders agreement (including any registration rights agreement or purchase agreement related thereto) to which it is a party as of the Issue Date and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by the Company or any of its Restricted Subsidiaries of obligations under, any future amendment to any such existing agreement or under any similar agreement entered into after the Issue Date shall only be permitted by this clause (v) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the Holders of the Notes in any material respect; (vi) transactions permitted by, and complying with, the provisions of Article Five; (vii) the Recapitalization and the transactions contemplated by the Recapitalization Agreement; and (viii) transactions with customers, clients, suppliers, joint venture partners or purchasers or sellers of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of this Indenture, which are fair to the Company or its Restricted Subsidiaries, in the reasonable determination of the Board of Directors of the Company or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. 66 -58- SECTION 4.12. Limitation on Incurrence of Additional Indebtedness. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness); provided, however, that if no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, the Company may incur Indebtedness (including, without limitation, Acquired Indebtedness) and Restricted Subsidiaries of the Company may incur Acquired Indebtedness, in each case if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1.0. SECTION 4.13. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (a) pay dividends or make any other distributions on or in respect of its Capital Stock; (b) make loans or advances or to pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary of the Company; or (c) transfer any of its property or assets to the Company or any other Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of: (1) applicable law; (2) this Indenture and the New Revolving Credit Facility; (3) non-assignment provisions of any contract or any lease; (4) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired; (5) agreements existing on the Issue Date to the extent and in the manner such agreements are in effect on the Issue Date; (6) restrictions on the transfer of assets subject to any Lien permitted under this Indenture imposed by the holder of such Lien; (7) restrictions imposed by any agreement to sell assets or Capital Stock permitted under this Indenture to any Person pending the closing of such sale; (8) any agreement or instru- 67 -59- ment governing Capital Stock of any Person that is acquired; (9) any agreement or instrument governing Indebtedness (whether or not outstanding) of foreign Restricted Subsidiaries of the Company permitted to be incurred pursuant to this Indenture; (10) other Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to the provisions of Section 4.12; provided that any such restrictions are ordinary and customary with respect to the type of Indebtedness being incurred (under the relevant circumstances); (11) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; and (12) any encumbrances or restrictions imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (2) through (11) above; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Company's Board of Directors, no more restrictive with respect to such dividend and other payment restrictions than those contained in the dividend or other payment restrictions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing. SECTION 4.14. Prohibition on Incurrence of Senior Subordinated Debt. The Company shall not incur or suffer to exist Indebtedness that is senior in right of payment to the Notes and subordinate in right of payment to any other Indebtedness of the Company. SECTION 4.15. Change of Control. (a) Upon the occurrence of a Change of Control, the Company shall make an offer to purchase all outstanding Notes pursuant to the offer described in paragraph (b) below (the "Change of Control Offer") at a purchase price equal to 101% of the principal amount thereof plus accrued interest, if any, to the date of purchase. Prior to the mailing of the notice referred to below, but in any event within 30 days following any Change of Control, the Company shall (i) repay in full and terminate all commitments under Indebtedness under the New Revolving Credit Facility and all other Senior Debt the terms of which require repayment upon a Change of Control or offer to repay in full and terminate all commitments under all Indebtedness under the New Revolving Credit Facility and all other such Senior Debt and to repay the Indebtedness owed to each lender 68 -60- which has accepted such offer or (ii) obtain the requisite consents under the New Revolving Credit Facility and all other Senior Debt to permit the repurchase of the Notes as provided below. The Company shall first comply with the covenant in the immediately preceding sentence before it shall be required to repurchase Notes pursuant to the provisions described in this Section 4.15. The Company's failure to comply with the immediately preceding two sentences shall constitute an Event of Default under Section 6.01(3) and not under Section 6.01(2). (b) Within 30 days following the date upon which the Change of Control occurred (the "Change of Control Date"), the Company shall send, by first class mail, a notice to each Holder, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. The notice to the Holders shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Change of Control Offer. Such notice shall state: (1) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Notes tendered and not withdrawn will be accepted for payment; (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 30 days nor later than 45 days from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); (3) that any Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in making payment therefor, any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than five Business Days prior to the Change of Control Payment Date, 69 -61- a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; (7) that Holders whose Notes are purchased only in part will be issued new Notes in a principal amount equal to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in an original principal amount of $1,000 or integral multiples thereof; and (8) the circumstances and relevant facts regarding such Change of Control. On or before the Change of Control Payment Date, the Company shall (i) accept for payment Notes or portions thereof validly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price plus accrued interest, if any, of all Notes so tendered and (iii) deliver to the Trustee Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price plus accrued interest, if any, and the Trustee shall promptly authenticate and mail to such Holders new Notes equal in principal amount to any unpurchased portion of the Notes surrendered. Any Notes not so accepted shall be promptly mailed by the Company to the Holder thereof. For purposes of this Section 4.15, the Trustee shall act as the Paying Agent. Any amounts remaining after the purchase of Notes pursuant to a Change of Control Offer shall be returned by the Trustee to the Company. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent the provisions of any securities laws or regulations conflict with this Section 4.15, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.15 by virtue thereof. 70 -62- SECTION 4.16. Limitation on Asset Sales. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the Company's Board of Directors), (ii) at least 75% of the consideration received by the Company or the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents and is received at the time of such disposition; and (iii) upon the consummation of an Asset Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof either (A) to prepay any Senior Debt (and, in the case of any Senior Debt under any revolving credit facility, including the New Revolving Credit Facility, effect a permanent reduction in the availability under such revolving credit facility), (B) to make an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets of a kind used or usable in the business of the Company and its Restricted Subsidiaries as conducted in accordance with Section 4.20 ("Replacement Assets"), or (C) a combination of prepayment and investment permitted by the foregoing clauses (iii)(A) and (iii)(B). On the 366th day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company or such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 60 days following the applicable Net Proceeds Offer Trigger Date (or if the Net Proceeds Offer has been deferred as described in the last sentence of this paragraph, the date that the unutilized Net Proceeds Offer Amount equals or exceeds $7.5 million), from all Holders on a pro rata basis, that amount of Notes equal to the Net Proceeds Offer Amount at a price equal to 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest thereon, if any, to the date of purchase; provided, however, that if at any time 71 -63- any non-cash consideration received by the Company or any Restricted Subsidiary of the Company, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other than interest received with respect to any such non-cash consideration), then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this covenant. The Company may defer the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $7.5 million resulting from one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not just the amount in excess of $7.5 million, shall be applied as required pursuant to this paragraph). In the event of the transfer of substantially all (but not all) of the property and assets of the Company and its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under Article Five, the successor corporation shall be deemed to have sold the properties and assets of the Company and its Restricted Subsidiaries not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value of such properties and assets of the Company or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this covenant. Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 25 days following the Net Proceeds Offer Trigger Date (or if the Net Proceeds Offer has been deferred as described in the first paragraph of this Section 4.16, the date that the aggregate unutilized Net Proceeds Offer Amount equals or exceeds $7.5 million), with a copy to the Trustee, and shall comply with the procedures set forth in this Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Notes in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open for a period of at least 20 and not more than 30 Business Days or such longer period as may be required by law. To the extent that the aggregate amount of Notes tendered pursuant to a Net Proceeds Offer is less than the Net Proceeds Offer Amount, the Company may use any remaining Net Proceeds Offer Amount for general corporate purposes. Upon completion of any such Net 72 -64- Proceeds Offer, the Net Proceeds Offer Amount shall be reset at zero. (b) Subject to the deferral of the Net Proceeds Offer Trigger Date contained in the first paragraph of subsection (a) above, each notice of a Net Proceeds Offer pursuant to this Section 4.16 shall be mailed or caused to be mailed, by first class mail, by the Company not more than 25 days after the Net Proceeds Offer Trigger Date to all Holders at their last registered addresses as of a date within 15 days of the mailing of such notice, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Net Proceeds Offer and shall state the following terms: (1) that the Net Proceeds Offer is being made pursuant to Section 4.16 and that all Notes tendered will be accepted for payment; provided, however, that if the aggregate principal amount of Notes tendered in a Net Proceeds Offer exceeds the aggregate amount of the Net Proceeds Offer, the Company shall select the Notes to be purchased on a pro rata basis based on the amounts tendered (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000 or multiples thereof shall be purchased); (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be at least 20 and not more than 30 Business Days from the date of mailing of notice of such Net Proceeds Offer, or such longer period as required by law) (the "Proceeds Purchase Date"); (3) that any Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in making payment therefor, any Note accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest after the Proceeds Purchase Date; (5) that Holders electing to have a Note purchased pursuant to a Net Proceeds Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Proceeds Purchase Date; 73 -65- (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than five Business Days prior to the Proceeds Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; and (7) that Holders whose Notes are purchased only in part will be issued new Notes in a principal amount equal to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in an original principal amount of $1,000 or integral multiples thereof; On or before the Proceeds Purchase Date, the Company shall (i) accept for payment Notes or portions thereof validly tendered pursuant to the Net Proceeds Offer which are to be purchased in accordance with item (b)(1) above, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price plus accrued interest, if any, of all Notes to be purchased and (iii) deliver to the Trustee Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price plus accrued interest, if any. For purposes of this Section 4.16, the Trustee shall act as the Paying Agent. Any amounts remaining after the purchase of Notes pursuant to a Net Proceeds Offer shall be returned by the Trustee to the Company. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with this Section 4.16, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.16 by virtue thereof. 74 -66- SECTION 4.17. Limitation on Preferred Stock of Restricted Subsidiaries. The Company shall not permit any of its Restricted Subsidiaries to issue any preferred stock (other than to the Company or to a Wholly Owned Restricted Subsidiary of the Company) or permit any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company) to own any preferred stock of any Restricted Subsidiary of the Company. SECTION 4.18. Limitation on Liens. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or permit or suffer to exist any Liens of any kind against or upon any property or assets of the Company or any of its Restricted Subsidiaries whether owned on the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise convey any right to receive income or profits therefrom unless (i) in the case of Liens securing Indebtedness that is expressly subordinate or junior in right of payment to the Notes, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens and (ii) in all other cases, the Notes are equally and ratably secured, except for (A) Liens existing as of the Issue Date and any extensions, renewals or replacements thereof; (B) Liens securing Senior Debt and Liens on assets of Restricted Subsidiaries of the Company securing guarantees of Senior Debt; (C) Liens of the Company or a Wholly Owned Restricted Subsidiary of the Company on assets of any Restricted Subsidiary of the Company; (D) Liens securing the Notes; (E) Liens securing Refinancing Indebtedness which is incurred to Refinance any Indebtedness which has been secured by a Lien permitted under this Indenture and which has been incurred in accordance with the provisions of this Indenture; provided, however, that such Liens (i) are no less favorable to the Holders and are not more favorable to the lienholders with respect to such Liens than the Liens in respect of the Indebtedness being Refinanced and (ii) do not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries not securing the Indebtedness so Refinanced; and (F) Permitted Liens. SECTION 4.19. Limitation of Guarantees by Restricted Subsidiaries. The Company will not permit any of its domestic Restricted Subsidiaries, directly or indirectly, by way of the 75 -67- pledge of any intercompany note or otherwise, to guarantee any Indebtedness of the Company or any other Restricted Subsidiary of the Company (other than (A) Indebtedness under Currency Agreements in reliance on clause (v) of the definition of Permitted Indebtedness, or (B) Interest Swap Obligations incurred in reliance on clause (iv) of the definition of Permitted Indebtedness), unless, in any such case, (a) such Restricted Subsidiary executes and delivers a supplemental indenture to this Indenture providing a guarantee of payment of the Notes by such Restricted Subsidiary (the "Guarantee") and (b) (x) if any such guarantee of such Restricted Subsidiary is provided in respect of Senior Debt, the guarantee or other instrument provided by such Restricted Subsidiary in respect of such Senior Debt may be superior to the Guarantee pursuant to subordination provisions no less favorable to the Holders of the Notes than those contained in this Indenture and (y) if any such guarantee of such Restricted Subsidiary is provided in respect of Indebtedness that is expressly subordinated to the Notes, the guarantee or other instrument provided by such Restricted Subsidiary in respect of such subordinated Indebtedness shall be subordinated to the Guarantee pursuant to subordination provisions no less favorable to the Holders of the Notes than those contained in this Indenture. Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary of the Notes shall provide by its terms that it shall be automatically and unconditionally released and discharged, without any further action required on the part of the Trustee or any Holder, upon: (i) the unconditional release of such Restricted Subsidiary from its liability in respect of the Indebtedness in connection with which such Guarantee was executed and delivered pursuant to the preceding paragraph; or (ii) any sale or other disposition (by merger or otherwise) to any Person which is not a Restricted Subsidiary of the Company of all of the Company's Capital Stock in, or all or substantially all of the assets of, such Restricted Subsidiary; provided that (a) such sale or disposition of such Capital Stock or assets is otherwise in compliance with the terms of the Indenture and (b) such assumption, guarantee or other liability of such Restricted Subsidiary has been released by the holders of the other Indebtedness so guaranteed. SECTION 4.20. Conduct of Business. The Company and its Restricted Subsidiaries will not engage in any businesses which are not the same, similar, reasonably related, ancillary or complementary to the businesses 76 -68- in which the Company and its Restricted Subsidiaries are engaged on the Issue Date. ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. Merger, Consolidation and Sale of Assets. The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless: (i) either (1) the Company shall be the surviving or continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and of the Company's Restricted Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (y) shall expressly assume, by supplemental indenture (in form and substance satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal and interest on all of the Notes and the performance of every covenant of the Notes, the Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.12; (iii) immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness in- 77 -69- curred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction), no Default or Event of Default shall have occurred or be continuing; and (iv) the Company or the Surviving Entity shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of this Indenture and that all conditions precedent in this Indenture relating to such transaction have been satisfied. Notwithstanding clause (ii) of the preceding sentence, (a) any Restricted Subsidiary of the Company may consolidate with, merge into or transfer all or part of its properties and assets to the Company and (b) the Company may merge with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. SECTION 5.02. Successor Corporation Substituted. Upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture and the Notes with the same effect as if such surviving entity had been named as such. 78 -70- ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default. An "Event of Default" occurs if: (1) the Company fails to pay interest on any Notes when the same becomes due and payable and the Default continues for a period of 30 days (whether or not such payment shall be prohibited by Article Ten of this Indenture); or (2) the Company fails to pay the principal on any Notes when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Notes tendered pursuant to a Change of Control Offer or a Net Proceeds Offer) (whether or not such payment shall be prohibited by Article Ten); or (3) the Company defaults in the observance or performance of any other covenant or agreement contained in this Indenture and which default continues for a period of 30 days after the Company receives written notice specifying the default (and demanding that such default be remedied) from the Trustee or the Holders of at least 25% of the outstanding principal amount of the Notes (except in the case of a default with respect to Section 5.01, which will constitute an Event of Default with such notice requirement but without such passage of time requirement); or (4) the Company fails to pay at final stated maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness for borrowed money of the Company or any Restricted Subsidiary of the Company, and such failure continues for a period of 20 days or more, or the acceleration of the final stated maturity of any such Indebtedness (which acceleration is not rescinded, annulled or otherwise cured within 20 days of receipt by the Company or such Restricted Subsidiary of notice of any such acceleration) if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at final 79 -71- stated maturity or which has been accelerated, in each case with respect to which the 20-day period described above has passed, aggregates $10.0 million or more at any time; or (5) one or more judgments for the payment of money in an aggregate amount in excess of $10.0 million shall have been rendered against the Company or any of its Restricted Subsidiaries and such judgments remain undischarged, unpaid or unstayed for a period of 60 days after such judgment or judgments become final and non-appealable; or (6) the Company or any Significant Subsidiary of the Company (A) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (B) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (C) consents to the appointment of a Custodian of it or for substantially all of its property, (D) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it, (E) makes a general assignment for the benefit of its creditors, or (F) takes any corporate action to authorize or effect any of the foregoing; or (7) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of the Company or any Significant Subsidiary of the Company in an involuntary case or proceeding under any Bankruptcy Law, which shall (A) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of the Company or any such Significant Subsidiary, (B) appoint a Custodian of the Company or any such Significant Subsidiary or for substantially all of its property or (C) order the winding-up or liquidation of its affairs; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days. SECTION 6.02. Acceleration. (a) If an Event of Default (other than an Event of Default specified in Section 6.01(6) or (7) with respect to the Company) occurs and is continuing and has not been waived pursuant to Section 6.04, then the Trustee or the Holders of at least 25% in principal amount of outstanding Notes may declare the principal of and accrued interest on all the Notes to be due and payable by notice in writing to the Company and the 80 -72- Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the New Revolving Credit Facility, shall become immediately due and payable upon the first to occur of an acceleration under the New Revolving Credit Facility or 5 business days after receipt by the Company and the Representative under the New Revolving Credit Facility of such Acceleration Notice but only if such Event of Default is then continuing. Upon any such declaration, but subject to the immediately preceding sentence, such amount shall be immediately due and payable. (b) If an Event of Default specified in Section 6.01(6) or (7) occurs and is continuing with respect to the Company, all unpaid principal of and accrued and unpaid interest on all of the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. (c) At any time after a declaration of acceleration with respect to the Notes in accordance with Section 6.02(a), the Holders of a majority in principal amount of the outstanding Notes may, on behalf of the Holders of all of the Notes, rescind and cancel such declaration and its consequences (i) if the rescission would not conflict with any judgment or decree, (ii) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration, (iii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid, (iv) if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances and (v) in the event of the cure or waiver of an Event of Default of the type described in Section 6.01(6) or (7), the Trustee shall have received an Officers' Certificate and an Opinion of Counsel that such Event of Default has been cured or waived. No such rescission shall affect any subsequent Default or impair any right consequent thereto. The Holders of a majority in principal amount of the outstanding Notes may waive any existing Default or Event of Default under this Indenture, and its consequences, except a default in the payment of the principal of or interest on any Notes. 81 -73- SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. SECTION 6.04. Waiver of Past Defaults. Subject to Sections 2.09, 6.07 and 9.02, the Holders of a majority in principal amount of the outstanding Notes by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of or interest on any Note as specified in clauses (1) and (2) of Section 6.01. When a Default or Event of Default is waived, it is cured and ceases. SECTION 6.05. Control by Majority. Subject to Section 2.09, the Holders of a majority in principal amount of the outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it, including, without limitation, any remedies provided for in Section 6.03. Subject to Section 7.01, however, the Trustee may refuse to follow any direction that the Trustee reasonably believes conflicts with any law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of another Holder, or that may involve the Trustee in personal liability; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction; and provided further that this provision shall not affect the rights of the Trustee set forth in Section 7.01(d). 82 -74- SECTION 6.06. Limitation on Suits. A Holder may not pursue any remedy with respect to this Indenture or the Notes unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) Holders of at least 25% in principal amount of the outstanding Notes make a written request to the Trustee to pursue the remedy; (3) such Holders offer to the Trustee indemnity in its sole discretion satisfactory to the Trustee against any loss, liability, claim or expense (including without limitation attorney's fees) to be incurred in compliance with such request; (4) the Trustee does not comply with the request within 45 days after receipt of the request and the offer of satisfactory indemnity; and (5) during such 45-day period the Holders of a majority in principal amount of the outstanding Notes do not give the Trustee a direction which, in the opinion of the Trustee, is inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. SECTION 6.07. Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on a Note, on or after the respective due dates expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default in payment of principal or interest specified in clause (1) or (2) of Section 6.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Notes for the whole amount of prin- 83 -75- pal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest at the rate set forth in Section 4.01 and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents, consultants and counsel. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, taxes, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relating to the Company or any other obligor upon the Notes, any of their respective creditors or any of their respective property and shall be entitled and empowered to collect and receive any monies or other securities or property payable or deliverable upon conversion or exchange of the Notes or upon any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, taxes, disbursements and advances of the Trustee, its agents, consultants and counsel, and any other amounts due the Trustee under Section 7.07. The Company's payment obligations under this Section 6.09 shall be secured in accordance with the provisions of Section 7.07 hereunder. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. Priorities. If the Trustee collects any money or property pursuant to this Article Six, it shall pay out the money in the following order: First: to the Trustee for amounts due under Sections 6.09 and 7.07; 84 -76- Second: if the Holders are forced to proceed against the Company directly without the Trustee, to Holders for their collection costs; Third: to Holders for amounts due and unpaid on the Notes for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest, respectively; and Fourth: to the Company or any other obligor on the Notes, as their interests may appear, or as a court of competent jurisdiction may direct. The Trustee, upon prior notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07, or a suit by a Holder or Holders of more than 10% in principal amount of the outstanding Notes. ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee. (a) If a Default or an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise thereof as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. 85 -77- (b) Except during the continuance of a Default or an Event of Default: (1) The Trustee need perform only those duties as are specifically set forth in this Indenture and no covenants or obligations shall be implied in this Indenture against the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates (including Officers' Certificates) or opinions (including Opinions of Counsel) furnished to the Trustee and conforming to the requirements of this Indenture. However, as to any certificates or opinions which are required to be delivered or provided to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) Notwithstanding anything to the contrary herein contained, the Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.01. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.02, 6.04 or 6.05. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. 86 -78- (e) Whether or not herein expressly provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01. (f) The Trustee shall not be liable for interest on any money or assets received by it except as the Trustee may agree in writing with the Company. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. SECTION 7.02. Rights of Trustee. Subject to Section 7.01: (a) The Trustee may rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note or other paper or document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel and may require an Officers' Certificate, an Opinion of Counsel or both, which shall conform to Sections 11.04 and 11.05. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. (c) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or indirectly or by or through agents or attorneys and the Trustee shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care. (d) The Trustee shall not be liable for any action that it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers conferred upon it by this Indenture. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, 87 -79- or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled, upon reasonable notice to the Company, to examine the books, records, and premises of the Company, personally or by agent or attorney and to consult with the officers and representatives of the Company, including the Company's accountants and attorneys, at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee in its sole discretion against the costs, expenses and liabilities which may be incurred by it in compliance with such request, order or direction. (g) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company, any Subsidiary of the Company, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.04. Trustee's Disclaimer. The recitals contained herein and in the Notes shall be taken as statements of the Company and the Trustee assumes no responsibility for their correctness. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Notes, and it shall not be accountable for the Company's use of the proceeds from the Notes, and it shall not be responsible for any statement of the Company in this Indenture or the Notes other than the Trustee's certificate of authentication. 88 -80- SECTION 7.05. Notice of Default. If a Default or an Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Holder notice of the uncured Default or Event of Default within 60 days after such Default or Event of Default occurs. Except in the case of a Default or an Event of Default in payment of principal of, or interest on, any Note, including an accelerated payment and the failure to make payment on the Change of Control Payment Date pursuant to a Change of Control Offer or on the Proceeds Purchase Date pursuant to a Net Proceeds Offer and, except in the case of a failure to comply with Article Five hereof, the Trustee may withhold the notice if and so long as its Board of Directors, the executive committee of its Board of Directors or a committee of its directors and/or Trust Officers in good faith determines that withholding the notice is in the interest of the Holders. SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each May 15, the Trustee shall, to the extent that any of the events described in TIA ss. 313(a) occurred within the previous twelve months, but not otherwise, mail to each Holder a brief report dated as of such date that complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss.ss. 313(b), (c) and (d). A copy of each report at the time of its mailing to Holders shall be mailed to the Company and filed with the SEC and each stock exchange, if any, on which the Notes are listed. The Company shall promptly notify the Trustee if the Notes become listed on any stock exchange and the Trustee shall comply with TIA ss. 313(d). SECTION 7.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its services (including without limitation in its capacity as Registrar, Paying Agent and agent for service of demands and notices). The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable fees and expenses, including out-of-pocket expenses incurred or made by it in connection with the performance of its duties under this Indenture. Such expenses shall include the reasonable fees and expenses of the Trustee's agents, consultants and counsel. 89 -81- The Company shall indemnify the Trustee and its agents, employees, stockholders and directors and officers for, and hold them harmless against, any loss, liability or expense incurred by them except for such actions to the extent caused by any negligence, bad faith or willful misconduct on their part, arising out of or in connection with the administration of this trust (including without limitation in its capacity as Registrar, Paying Agent and agent for service of demands and notices) including the reasonable costs and expenses of enforcing this Indenture against the Company (including without limitation pursuant to this Section 7.07) and of defending themselves against any claim (whether asserted by a Noteholder or the Company) or liability in connection with the exercise or performance of any of their rights, powers or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. At the Trustee's reasonable discretion, the Company shall defend the claim and the Trustee shall cooperate and may participate in the defense; provided that any settlement of a claim shall be approved in writing by the Trustee if such settlement would result in an admission of liability by the Trustee or if such settlement would not be accompanied by a full release of the Trustee for all liabilities arising out of the events giving rise to such claim. Alternatively, the Trustee may at its option have separate counsel of its own choosing and the Company shall pay the reasonable fees and expenses of such counsel; provided that the Company will not be required to pay such fees and expenses if it assumes the Trustee's defense and there is no conflict of interest between the Company and the Trustee in connection with such defense as reasonably determined by the Trustee. The Company need not pay for any settlement made without its written consent. The Company need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Notes on all assets or money held or collected by the Trustee, in its capacity as Trustee, except assets or money held in trust to pay principal of or interest on particular Notes. The Trustee's right to receive payment of any amounts due under this Section 7.07 shall not be subordinate to any other liability or indebtedness of the Company (even though the Notes may be subordinate to such other liability or indebtedness). When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(6) or (7) 90 -82- occurs, such expenses and the compensation for such services are intended to constitute expenses of administration under any Bankruptcy Law; provided, however, that this shall not affect the Trustee's rights as set forth in the preceding paragraph or Section 6.10. SECTION 7.08. Replacement of Trustee. The Trustee may resign by so notifying the Company. The Holders of a majority in principal amount of the outstanding Notes may remove the Trustee by so notifying the Company and the Trustee and may appoint a successor Trustee. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 7.07, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. 91 -83- If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee; provided that such corporation shall be otherwise qualified and eligible under this Article Seven. SECTION 7.10. Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirements of TIA ss.ss. 310(a)(1), (2) and (5). The Trustee (or, in the case of a corporation included in a bank holding company system, the related bank holding company) shall have a combined capital and surplus of at least $100 million as set forth in its most recent publicly available annual report of condition and have a Corporate trust office in New York City. In addition, if the Trustee is a corporation included in a bank holding company system, the Trustee, independently of such bank holding company, shall meet the capital requirements of TIA ss. 310(a)(2). The Trustee shall comply with TIA ss. 310(b); provided, however, that there shall be excluded from the operation of TIA ss. 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the requirements for such exclusion set forth in TIA ss. 310(b)(1) are met. The provisions of TIA ss. 310 shall apply to the Company, as obligor on the Notes, and any other obligor on the Notes. SECTION 7.11. Preferential Collection of Claims Against Company. The Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee 92 -84- who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated therein. The provisions of TIA ss. 311 shall apply to the Company, as obligor on the Notes, and any other obligor on the Notes. ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.01. Termination of the Company's Obligations. The Company may terminate its obligations under the Notes and this Indenture, except those obligations referred to in the penultimate paragraph of this Section 8.01, if all Notes previously authenticated and delivered (other than destroyed, lost or stolen Notes which have been replaced or paid or Notes for whose payment U.S. Legal Tender or non-callable U.S. Government Obligations, or a combination thereof, has theretofore been deposited with the Trustee or the Paying Agent in trust or segregated and held in trust by the Company and thereafter repaid to the Company, as provided in Section 8.05) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder, or if: (a) either (i) pursuant to Article Three, the Company shall have given notice to the Trustee and mailed a notice of redemption to each Holder of the redemption of all of the Notes under arrangements satisfactory to the Trustee for the giving of such notice or (ii) all Notes have otherwise become due and payable hereunder; (b) the Company shall have irrevocably deposited or caused to be deposited with the Trustee or a trustee satisfactory to the Trustee, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds in trust solely for the benefit of the Holders for that purpose, U.S. Legal Tender or non-callable U.S. Government Obligations, or a combination thereof, in such amount as is sufficient without consideration of reinvestment of such interest, to pay principal and interest on the outstanding Notes to maturity or redemption, as well as the Trustee's fees and expenses; provided that the Trustee shall have been irrevocably instructed to apply such U.S. Legal Tender to the payment of said principal and interest with respect to the Notes; 93 -85- provided, further, that no deposits made pursuant to this Section 8.01(b) shall cause the Trustee to have a conflicting interest as defined in and for the purposes of the TIA; provided, further, that from and after the time of deposit, the money deposited shall not be subject to the rights of holders of Senior Debt pursuant to the provisions of Article Ten and provided, further, that, as confirmed by an Opinion of Counsel, no such deposit shall result in the Company, the Trustee or the trust becoming or being deemed to be an "investment company" under the Investment Company Act of 1940; (c) no Default or Event of Default with respect to this Indenture or the Notes shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other material instrument to which the Company is a party or by which it is bound (other than a Default or Event of Default resulting from the incurrence of Indebtedness, all or a portion of which will be used to defease the Notes concurrently with such incurrence); (d) the Company shall have paid all other sums payable by it hereunder; and (e) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent providing for or relating to the termination of the Company's obligations under the Notes and this Indenture have been complied with. Such Opinion of Counsel shall also state that such satisfaction and discharge does not result in a default under the New Revolving Credit Facility (if then in effect) or any other agreement or instrument then known to such counsel that binds or affects the Company. Notwithstanding the foregoing paragraph, the Company's obligations in Sections 2.05, 2.06, 2.07, 2.08, 4.01, 4.02, 7.07, 8.05 and 8.06 shall survive until the Notes are no longer outstanding pursuant to the last paragraph of Section 2.08. After the Notes are no longer outstanding, the Company's obligations in Sections 7.07, 8.05 and 8.06 shall survive. After such delivery or irrevocable deposit, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Notes and this Indenture except for those surviving obligations specified above. 94 -86- SECTION 8.02. Legal Defeasance and Covenant Defeasance. (a) The Company may, at its option by Board Resolution of the Board of Directors of the Company, at any time, elect to have either paragraph (b) or (c) below be applied to all outstanding Notes upon compliance with the conditions set forth in Section 8.03. (b) Upon the Company's exercise under paragraph (a) hereof of the option applicable to this paragraph (b), the Company shall, subject to the satisfaction of the conditions set forth in Section 8.03, be deemed to have been discharged from its obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.04 hereof and the other Sections of this Indenture referred to in (i) and (ii) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), and Holders of the Notes and any amounts deposited under Section 8.03 hereof shall cease to be subject to any obligations to, or the rights of, any holder of Senior Debt under Article Ten or otherwise, except for the following provisions, which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of and interest on such Notes when such payments are due, (ii) the Company's obligations with respect to such Notes under Article Two and Section 4.02 hereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (iv) this Article Eight. Subject to compliance with this Article Eight, the Company may exercise its option under this paragraph (b) notwithstanding the prior exercise of its option under paragraph (c) hereof. (c) Upon the Company's exercise under paragraph (a) hereof of the option applicable to this paragraph (c), the Company shall, subject to the satisfaction of the conditions set forth in Section 8.03 hereof, be released from its obligations under the covenants contained in Sections 4.10 through 4.20 and Article Five hereof with respect to the outstanding Notes on 95 -87- and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes) and Holders of the Notes and any amounts deposited under Section 8.03 hereof shall cease to be subject to any obligations to, or the rights of, any holder of Senior Debt under Article Ten or otherwise. For this purpose, such Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event or Default under Section 6.01(3) hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under paragraph (a) hereof of the option applicable to this paragraph (c), subject to the satisfaction of the conditions set forth in Section 8.03 hereof, Sections 6.01(3), 6.01(4) and 6.01(5) shall not constitute Events of Default. SECTION 8.03. Conditions to Legal Defeasance or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.02(b) or 8.02(c) hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, U.S. Legal Tender or U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms, will provide, not later than one day before the due date of any payment on the Notes, U.S. Legal Tender, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and inter- 96 -88- est on the Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, of such principal or installment of principal of or interest on the Notes; provided that the Trustee shall have received an irrevocable written order from the Company instructing the Trustee to apply such U.S. Legal Tender or the proceeds of such U.S. Government Obligations to said payments with respect to the Notes; (b) in the case of an election under Section 8.02(b) hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; provided, however, that notwithstanding the foregoing, the Opinion of Counsel required by this Section 8.03(b) with respect to Legal Defeasance need not be delivered if all of the Notes not theretofore delivered to the Trustee for cancellation (x) have become due and payable, (y) will become due and payable on the maturity date within one year or (z) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company; (c) in the case of an election under Section 8.02(c) hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default or event which with notice or lapse of time or both would become a De- 97 -89- fault or an Event of Default with respect to the Notes shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Notes pursuant to this Article Eight concurrently with such incurrence) or insofar as Sections 6.01(6) and 6.01(7) hereof are concerned, at any time in the period ending on the 91st day after the date of such deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of or constitute a default under this Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; (g) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; and (h) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that (i) the trust funds will not be subject to any rights of any holders of Senior Debt, including, without limitation, those arising under this Indenture, and (ii) assuming no intervening bankruptcy or insolvency of the Company between the date of deposit and the 91st day following the date of deposit and that no Holder is an insider of the Company, after the 91st day following the date of deposit, the trust funds will not be subject to the effect of any applicable Bankruptcy Law. SECTION 8.04. Application of Trust Money. The Trustee or Paying Agent shall hold in trust U.S. Legal Tender or U.S. Government Obligations deposited with it pursuant to Article Eight, and shall apply the deposited U.S. Legal Tender and the money from U.S. Government Obligations in 98 -90- accordance with this Indenture to the payment of principal of and interest on the Notes. The Trustee shall be under no obligation to invest said U.S. Legal Tender or U.S. Government Obligations except as it may agree with the Company. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Legal Tender or U.S. Government Obligations deposited pursuant to Section 8.03 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the Company's request any U.S. Legal Tender or U. S. Government Obligations held by it as provided in Section 8.03 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.05. Repayment to the Company. Subject to Article Eight, the Trustee and the Paying Agent shall promptly pay to the Company upon request any excess U.S. Legal Tender or U.S. Government Obligations held by them at any time and thereupon shall be relieved from all liability with respect to such money. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for two years; provided that the Trustee or such Paying Agent, before being required to make any payment, may at the expense of the Company cause to be published once in a newspaper of general circulation in the City of New York or mail to each Holder entitled to such money notice that such money remains unclaimed and that after a date specified therein which shall be at least 30 days from the date of such publication or mailing any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to such money must look to the Company for payment as general creditors unless an applicable law designates another Person. 99 -91- SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any U.S. Legal Tender or U.S. Government Obligations in accordance with Article Eight by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Article Eight until such time as the Trustee or Paying Agent is permitted to apply all such U.S. Legal Tender or U.S. Government Obligations in accordance with Article Eight; provided that if the Company has made any payment of interest on or principal of any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the U.S. Legal Tender or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders. The Company, when authorized by a Board Resolution, and the Trustee, together, may amend or supplement this Indenture or the Notes without notice to or consent of any Holder: (1) to cure any ambiguity, defect or inconsistency; provided that such amendment or supplement does not, in the opinion of the Trustee, adversely affect the rights of any Holder in any material respect; (2) to comply with Article Five; (3) to provide for uncertificated Notes in addition to or in place of certificated Notes; (4) to comply with any requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (5) to make any change that would provide any additional benefit or rights to the Holders or that does not 100 -92- adversely affect in any material respect the rights of any Holder; or (6) to provide for issuance of the Exchange Notes, which will have terms substantially identical in all material respects to the Initial Notes (except that the transfer restrictions contained in the Initial Notes will be modified or eliminated, as appropriate), and which will be treated together with any outstanding Initial Notes, as a single issue of securities, provided that for purposes of this clause (6), the terms Initial Notes and Exchange Notes, shall include any other Notes issued in accordance with clause (iii) of the fourth paragraph of Section 2.02 or Notes issued in exchange therefor which are identical in all material respects to such Notes (except that the transfer restrictions on the Notes issued in exchange for Notes issued in accordance with clause (iii) of the fourth paragraph of Section 2.02 shall be modified or eliminated, as appropriate); provided that the Company has delivered to the Trustee an Opinion of Counsel and an Officers' Certificate, each stating that such amendment or supplement complies with the provisions of this Section 9.01. SECTION 9.02. With Consent of Holders. Subject to Section 6.07, the Company, when authorized by a Board Resolution, and the Trustee, together, with the written consent of the Holder or Holders of at least a majority in aggregate principal amount of the outstanding Notes, may amend or supplement this Indenture or the Notes, without notice to any other Holders. Subject to Sections 6.04 and 6.07, the Holder or Holders of a majority in aggregate principal amount of the outstanding Notes may waive compliance by the Company with any provision of this Indenture or the Notes without notice to any other Holder. No amendment, supplement or waiver, including a waiver pursuant to Section 6.04, shall, without the consent of each Holder of each Note affected thereby: (1) reduce the amount of Notes whose Holders must consent to an amendment; (2) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any Notes; 101 -93- (3) reduce the principal of or change or have the effect of changing the fixed maturity of any Notes, or change the date on which any Notes may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (4) make any Notes payable in money other than that stated in the Notes; (5) make any change in provisions of this Indenture protecting the right of each Holder to receive payment of principal of and interest on such Note on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of Notes to waive Defaults or Events of Default; (6) amend, modify, change or waive any provision of this Section 9.02; (7) amend, modify or change in any material respect the obligation of the Company to make or consummate a Change of Control Offer in the event of a Change of Control or make and consummate a Net Proceeds Offer in respect of any Asset Sale that has been consummated or modify any of the provisions or definitions with respect thereto after a Change of Control has occurred or the subject Asset Sale has been consummated; or (8) modify Article Ten or the definitions used in Article Ten to adversely affect the Holders of the Notes in any material respect. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. 102 -94- SECTION 9.03. Effect on Senior Debt. No amendment of this Indenture shall adversely affect the rights of any holder of Senior Debt under Article Ten of this Indenture, without the consent of such holder. SECTION 9.04. Compliance with TIA. Every amendment, waiver or supplement of this Indenture or the Notes shall comply with the TIA as then in effect. SECTION 9.05. Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. Subject to the following paragraph, any such Holder or subsequent Holder may revoke the consent as to such Holder's Note or portion of such Note by notice to the Trustee or the Company received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of outstanding Notes have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver (at which time such amendment, supplement or waiver shall become effective). The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes a change described in any of clauses (1) through (8) of Section 9.02, in which case, the amendment, supplement or waiver shall bind only each Holder of a Note who has consented to it and every subsequent Holder of a Note or portion of a Note that evidences the 103 -95- same debt as the consenting Holder's Note; provided that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest on a Note, on or after the respective due dates expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. SECTION 9.06. Notation on or Exchange of Notes. If an amendment, supplement or waiver changes the terms of a Note, the Trustee may require the Holder of such Note to deliver it to the Trustee. The Trustee may place an appropriate notation on the Note about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. Any such notation or exchange shall be made at the sole cost and expense of the Company. SECTION 9.07. Trustee To Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Nine; provided that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate each stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture. Such Opinion of Counsel shall not be an expense of the Trustee. ARTICLE TEN SUBORDINATION SECTION 10.01. Notes Subordinated to Senior Debt. The Company covenants and agrees, and each Holder of the Notes, by its acceptance thereof, likewise covenants and agrees, that all Notes shall be issued subject to the provisions of this Article Ten; and the Trustee and each Person 104 -96- holding any Note, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that the payment of all Obligations on the Notes by the Company shall, to the extent and in the manner herein set forth, be subordinated and junior in right of payment to the prior payment in full in cash or Cash Equivalents of all Obligations on the Senior Debt; that the subordination is for the benefit of, and shall be enforceable directly by, the holders of Senior Debt, and that each holder of Senior Debt whether now outstanding or hereafter created, incurred, assumed or guaranteed shall be deemed to have acquired Senior Debt in reliance upon the covenants and provisions contained in this Indenture and the Notes. SECTION 10.02. No Payment on Notes in Certain Circumstances. (a) If any default occurs and is continuing in the payment when due, whether at maturity, upon redemption, by declaration or otherwise, of any principal of, interest on, unpaid drawings for letters of credit issued in respect of, or regularly accruing fees with respect to, any Senior Debt, no payment of any kind or character shall be made by, or on behalf of, the Company or any other Person on its or their behalf with respect to any Obligations on the Notes, or to acquire any of the Notes for cash or property or otherwise. In addition, if any other event of default occurs and is continuing with respect to any Designated Senior Debt, as such event of default is defined in the instrument creating or evidencing such Designated Senior Debt, permitting the holders of such Designated Senior Debt then outstanding to accelerate the maturity thereof and if the Representative for the respective issue of Designated Senior Debt gives notice of the event of default to the Trustee (a "Default Notice"), then, unless and until all events of default have been cured or waived or have ceased to exist or the Trustee receives notice thereof from the Representative for the respective issue of Designated Senior Debt terminating the Blockage Period (as defined below), during the 180 days after the delivery of such Default Notice (the "Blockage Period"), neither the Company nor any other Person on its behalf shall (x) make any payment of any kind or character with respect to any Obligations on the Notes or (y) acquire any of the Notes for cash or property or otherwise. Notwithstanding anything herein to the contrary, in no event will a Blockage Period extend beyond 180 days from the date the payment on the Notes was due and only one such Blockage Period may be commenced within any 360 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Blockage Period with respect to the Designated Senior Debt shall be, or 105 -97- be made, the basis for the commencement of a second Blockage Period by the Representative of such Designated Senior Debt whether or not within a period of 360 consecutive days, unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period that, in either case, would give rise to an event of default pursuant to any provisions under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). (b) In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee or any Holder when such payment is prohibited by Section 10.02(a), such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt (pro rata to such holders on the basis of the respective amount of Senior Debt held by such holders) or their respective Representatives, as their respective interests may appear. The Trustee shall be entitled to rely on information regarding amounts then due and owing on the Senior Debt, if any, received from the holders of Senior Debt (or their Representatives) or, if such information is not received from such holders or their Representatives, from the Company and only amounts included in the information provided to the Trustee shall be paid to the holders of Senior Debt. Nothing contained in this Article Ten shall limit the right of the Trustee or the Holders of Notes to take any action to accelerate the maturity of the Notes pursuant to Section 6.02 or to pursue any rights or remedies hereunder; provided that all Senior Debt thereafter due or declared to be due shall first be paid in full in cash or Cash Equivalents before the Holders are entitled to receive any payment of any kind or character with respect to Obligations on the Notes. SECTION 10.03. Payment Over of Proceeds upon Dissolution, Etc. (a) Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any total or partial liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to the Company or its prop- 106 -98- erty, whether voluntary or involuntary, all Obligations due or to become due upon all Senior Debt shall first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Senior Debt, before any payment or distribution of any kind or character is made on account of any Obligations on the Notes, or for the acquisition of any of the Notes for cash or property or otherwise. Upon any such dissolution, winding-up, liquidation, reorganization, receivership or similar proceeding, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders of the Notes or the Trustee under this Indenture would be entitled, except for the provisions hereof, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders or by the Trustee under this Indenture if received by them, directly to the holders of Senior Debt (pro rata to such holders on the basis of the respective amounts of Senior Debt held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of Senior Debt remaining unpaid until all such Senior Debt has been paid in full in cash or Cash Equivalents after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of Senior Debt. (b) To the extent any payment of Senior Debt (whether by or on behalf of the Company, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then, if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Senior Debt or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. (c) In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by any Holder when such payment or distribution is prohibited by Section 10.03(a), such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt (pro rata to such holders on the basis of the respective amount of Senior 107 -99- Debt held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of Senior Debt remaining unpaid until all such Senior Debt has been paid in full in cash or Cash Equivalents, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Debt. (d) The consolidation of the Company with, or the merger of the Company with or into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of all or substantially all of its assets, to another corporation upon the terms and conditions provided in Article Five hereof and as long as permitted under the terms of the Senior Debt shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, assume the Company's obligations hereunder in accordance with Article Five hereof. SECTION 10.04. Payments May Be Paid Prior to Dissolution. Nothing contained in this Article Ten or elsewhere in this Indenture shall prevent (i) the Company, except under the conditions described in Sections 10.02 and 10.03, from making payments at any time for the purpose of making payments of principal of and interest on the Notes, or from depositing with the Trustee any moneys for such payments, or (ii) in the absence of actual knowledge by the Trustee that a given payment would be prohibited by Section 10.02 or 10.03, the application by the Trustee of any moneys deposited with it for the purpose of making such payments of principal of, and interest on, the Notes to the Holders entitled thereto unless at least two Business Days prior to the date upon which such payment would otherwise become due and payable a Trust Officer shall have actually received the written notice provided for in the second sentence of Section 10.02(a) or in Section 10.07 (provided that, notwithstanding the foregoing, such application shall otherwise be subject to the provisions of the first sentence of Section 10.02(a) and Section 10.03). The Company shall give prompt written notice to the Trustee of any dissolution, winding-up, liquidation or reorganization of the Company. 108 -100- SECTION 10.05. Subrogation. Subject to the payment in full in cash or Cash Equivalents of all Senior Debt, the Holders of the Notes shall be subrogated to the rights of the holders of Senior Debt to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Debt until the Notes shall be paid in full; and, for the purposes of such subrogation, no such payments or distributions to the holders of the Senior Debt by or on behalf of the Company or by or on behalf of the Holders by virtue of this Article Ten which otherwise would have been made to the Holders shall, as between the Company and the Holders of the Notes, be deemed to be a payment by the Company to or on account of the Senior Debt, it being understood that the provisions of this Article Ten are and are intended solely for the purpose of defining the relative rights of the Holders of the Notes, on the one hand, and the holders of the Senior Debt, on the other hand. SECTION 10.06. Obligations of the Company Unconditional. Nothing contained in this Article Ten or elsewhere in this Indenture or in the Notes is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Debt, and the Holders, the obligation of the Company, which is absolute and unconditional, to pay to the Holders the principal of and any interest on the Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of the Senior Debt, nor shall anything herein or therein prevent the Holder of any Note or the Trustee on its behalf from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, in respect of cash, property or securities of the Company received upon the exercise of any such remedy. SECTION 10.07. Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Notes pursuant to the provisions of this Article Ten. Regardless of anything to the contrary contained in this Article Ten or elsewhere in this Indenture, the Trustee shall not be charged with knowledge of the existence of any default or event of default with respect to any Senior Debt or of any other 109 -101- facts which would prohibit the making of any payment to or by the Trustee unless and until the Trustee shall have received notice in writing from the Company, or from a holder of Senior Debt or a Representative therefor, together with proof satisfactory to the Trustee of such holding of Senior Debt or of the authority of such Representative, and, prior to the receipt of any such written notice, the Trustee shall be entitled to assume (in the absence of actual knowledge to the contrary) that no such facts exist. In the event that the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article Ten, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amounts of Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Ten, and if such evidence is not furnished the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 10.08. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article Ten, the Trustee, subject to the provisions of Article Seven hereof, and the Holders of the Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any insolvency, bankruptcy, receivership, dissolution, winding-up, liquidation, reorganization or similar case or proceeding is pending, or upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, receiver, assignee for the benefit of creditors, agent or other person making such payment or distribution, delivered to the Trustee or the Holders of the Notes, for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Ten. 110 -102- SECTION 10.09. Trustee's Relation to Senior Debt. The Trustee and any agent of the Company or the Trustee shall be entitled to all the rights set forth in this Article Ten with respect to any Senior Debt which may at any time be held by it in its individual or any other capacity to the same extent as any other holder of Senior Debt and nothing in this Indenture shall deprive the Trustee or any such agent of any of its rights as such holder. With respect to the holders of Senior Debt, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Ten, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt. Whenever a distribution is to be made or a notice given to holders or owners of Senior Debt, the distribution may be made and the notice may be given to their Representative, if any. SECTION 10.10. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Debt. No right of any present or future holders of any Senior Debt to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee, without incurring responsibility to the Trustee or the Holders of the Notes and without impairing or releasing the subordination provided in this Article Ten or the obligations hereunder of the Holders of the Notes to the holders of the Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt, or otherwise amend 111 -103- or supplement in any manner Senior Debt, or any instrument evidencing the same or any agreement under which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (iii) release any Person liable in any manner for the payment or collection of Senior Debt; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. SECTION 10.11. Noteholders Authorize Trustee To Effectuate Subordination of Notes. Each Holder of Notes by its acceptance of them authorizes and expressly directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate, as between the holders of Senior Debt and the Holders of Notes, the subordination provided in this Article Ten, and appoints the Trustee its attorney-in-fact for such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards liquidation of the business and assets of the Company, the filing of a claim for the unpaid balance of its Notes and accrued interest in the form required in those proceedings. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Debt or their Representative are or is hereby authorized to have the right to file and are or is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Notes. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Debt or their Representative to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee or the holders of Senior Debt or their Representative to vote in respect of the claim of any Holder in any such proceeding. 112 -104- SECTION 10.12. This Article Ten Not To Prevent Events of Default. The failure to make a payment on account of principal of or interest on the Notes by reason of any provision of this Article Ten will not be construed as preventing the occurrence of an Event of Default. SECTION 10.13. Trustee's Compensation Not Prejudiced. Nothing in this Article Ten will apply to amounts due to the Trustee pursuant to other sections in this Indenture. ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with another provision which is required to be included in this Indenture by the TIA, the required TIA provision shall control. SECTION 11.02. Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by commercial courier service, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Company: MCMS, Inc. 16399 Franklin Road Nampa, ID 83687 Facsimile No.: (208) 898-7411 Attn: Corporate Counsel 113 -105- if to the Trustee: United States Trust Company of New York 114 West 47th Street New York, NY 10036 Facsimile No.: (212) 852-1627 Attention: Corporate Trust and Agency Services Each of the Company and the Trustee by written notice to each other such Person may designate additional or different addresses for notices to such Person. Any notice or communication to the Company or the Trustee shall be deemed to have been given or made as of the date so delivered if personally delivered; when receipt is confirmed if delivered by commercial courier service; when answered back, if telexed; when receipt is acknowledged, if faxed; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Holder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 11.03. Communications by Holders with Other Holders. Holders may communicate pursuant to TIA ss. 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and any other Person shall have the protection of TIA ss. 312(c). SECTION 11.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: 114 -106- (1) an Officers' Certificate, in form and substance satisfactory to the Trustee, stating that, in the opinion of the signers, all conditions precedent to be performed by the Company, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent to be performed by the Company, if any, provided for in this Indenture relating to the proposed action have been complied with. SECTION 11.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 4.06, shall include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition and the definitions relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as is reasonably necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such Person, such condition or covenant has been complied with. SECTION 11.06. Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules in accordance with the Trustee's customary practices for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. 115 -107- SECTION 11.07. Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions in New York, New York or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 11.08. Governing Law. THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE. SECTION 11.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.10. No Recourse Against Others. A director, officer, employee, stockholder or incorporator, as such, of the Company or of the Trustee shall not have any liability for any obligations of the Company under the Notes or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Notes. SECTION 11.11. Successors. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. 116 -108- SECTION 11.12. Duplicate Originals. All parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. SECTION 11.13. Severability. In case any one or more of the provisions in this Indenture or in the Notes shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. 117 -108- SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. Issuer: MCMS, INC. By: /s/ Chris J. Anton -------------------------------- Name: Chris J. Anton Title: Vice President, Finance & CFO Trustee: United States Trust Company of New York, as Trustee By: /s/ James E. Logan -------------------------------- Name: James E. Logan Title: Vice President 118 EXHIBIT A-1 CUSIP No.: MCMS, INC. 9 3/4% Senior Subordinated Notes due 2008 No. $ MCMS, INC., an Idaho corporation (the "Company"), for value received, promises to pay to or registered assigns, the principal sum of Dollars, on March 1, 2008. Interest Payment Dates: March 1 and September 1, commencing September 1, 1998. Record Dates: February 15 and August 15 Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. 119 -2- Dated: MCMS, INC. By: -------------------------------- Name: Title: By: -------------------------------- Name: Title: Trustee's Certificate of Authentication This is one of the 9 3/4% Senior Subordinated Notes due 2008 referred to in the within-mentioned Indenture. Dated: United States Trust Company of New York , as Trustee By: -------------------------------- Authorized Signatory 120 -3- (REVERSE OF SECURITY) 9 3/4% SENIOR SUBORDINATED NOTE DUE 2008 1. Interest. MCMS, INC., an Idaho corporation (the "Company"), promises to pay interest on the principal amount of this Note at the rate per annum shown above. Interest on the Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from February 26, 1998. The Company will pay interest semi-annually in arrears on each Interest Payment Date, commencing September 1, 1998, for the period commencing on and including the immediately preceding Interest Payment Date and ending on and including the date next preceding the Interest Payment Date, with the exception that the first Interest Period shall commence on and include February 26, 1998 and end on and include August 31, 1998. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal and on overdue installments of interest from time to time on demand at the rate borne by the Notes and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. 2. Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Notes are canceled on registration of transfer or registration of exchange (including pursuant to an Exchange Offer (as defined in the Registration Rights Agreement)) after such Record Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, United States Trust Company of New York, a New York corporation (the "Trustee"), will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. 121 -4- 4. Indenture. The Company issued the Notes under an Indenture, dated as of February 26, 1998 (the "Indenture"), between the Company and the Trustee. This Note is one of a duly authorized issue of Initial Fixed Rate Notes of the Company designated as its 9 3/4% Senior Subordinated Notes due 2008 (the "Initial Fixed Rate Notes"). The Notes include the Fixed Rate Notes and the Floating Rate Notes (as defined in the Indenture). The Fixed Rate Notes and the Floating Rate Notes are treated as a single class of securities under the Indenture unless otherwise specified in the Indenture or the Notes. Except as set forth in the Indenture, the Notes are limited in aggregate principal amount outstanding at any time to $275,000,000, which may be issued under the Indenture. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the TIA for a statement of them. The Notes are general unsecured obligations of the Company. 5. Subordination. The Notes are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Senior Debt of the Company, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by its acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on its behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee its attorney-in-fact for such purposes. 6. Redemption. (a) Optional Redemption. The Fixed Rate Notes will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after March 1, 2003, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on March 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption: 122 -5-
Year Percentage - ---- ---------- 2003............................................... 104.875% 2004............................................... 103.250% 2005............................................... 101.625% 2006 and thereafter................................ 100.000%
(b) Optional Redemption upon Public Equity Offerings. At any time, or from time to time, on or prior to March 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem the Fixed Rate Notes at a redemption price equal to 109.750% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption; provided that at least 65% of (x) the principal amount of Fixed Rate Notes originally issued on the Issue Date plus (y) any additional Fixed Rate Notes issued after the Issue Date pursuant to the Indenture remain outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Company shall make such redemption not more than 120 days after the consummation of any such Public Equity Offering. 7. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holder's registered address. Notes in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, if monies for the redemption of the Notes called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless the Company defaults in the payment of such Redemption Price plus accrued and unpaid interest, if any, the Notes called for redemption will cease to bear interest from and after such Redemption Date and the only right of the Holders of such Notes will be to receive payment of the Redemption Price plus accrued and unpaid interest, if any. 8. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide that, after certain Asset Sales and upon the occurrence of a Change of Control, and subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Notes in accordance with the procedures set forth in the Indenture. 123 -6- 9. Registration Rights. Pursuant to the Registration Rights Agreement, the Company will be obligated to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for the Company's 9 3/4% Series B Senior Subordinated Notes due 2008 (the "Exchange Fixed Rate Notes"), which have been registered under the Securities Act, in like principal amount and having terms identical in all material respects to the Initial Fixed Rate Notes. The Holders of the Initial Notes shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 10. Denominations; Transfer; Exchange. The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Notes or portions thereof selected for redemption. 11. Persons Deemed Owners. The registered Holder of a Note shall be treated as the owner of it for all purposes. 12. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. 13. Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Notes to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Notes (including certain covenants, but excluding its obligation to pay the principal of and interest on the Notes). 14. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of at 124 -7- least a majority in aggregate principal amount of the Notes then outstanding, and any existing Default or Event of Default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes, or comply with Article Five of the Indenture or make any other change that does not adversely affect in any material respect the rights of any Holder of a Note. 15. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries to, among other things, incur additional Indebtedness, make payments in respect of its Capital Stock or certain Indebtedness, enter into transactions with Affiliates, create dividend or other payment restrictions affecting Subsidiaries, merge or consolidate with any other Person, sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets or adopt a plan of liquidation. Such limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 16. Successors. When a successor assumes, in accordance with the Indenture, all the obligations of its predecessor under the Notes and the Indenture, the predecessor will be released from those obligations. 17. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Notes then outstanding may declare all the Notes to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Notes unless it has received indemnity reasonably satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interest. 125 -8- 18. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 19. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 20. Authentication. This Note shall not be valid until the Trustee or Authenticating Agent manually signs the certificate of authentication on this Note. 21. Governing Law. The laws of the State of New York shall govern this Note and the Indenture, without regard to principles of conflict of laws. 22. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 23. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. 24. Indenture. Each Holder, by accepting a Note, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time. The Company will furnish to any Holder of a Note upon written request and without charge a copy of the Indenture which has the text of this Note in larger type. Requests may be made to: MCMS, Inc., 16399 Franklin Road, Nampa, ID 83687, Attn: Corporate Counsel. 126 -9- ASSIGNMENT FORM If you the Holder want to assign this Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Note to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type name, address and zip code and social security or tax ID number of assignee) and irrevocably appoint ______________________________________, agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: Signed: ------------------- ------------------------ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ---------------------------- In connection with any transfer of this Note occurring prior to the date which is the earlier of (i) the date of the declaration by the SEC of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act") covering resales of this Note (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii)February 27, 2000, the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer and that this Note is being transferred: 127 -10- [Check One] (1) __ to the Company or a subsidiary thereof; or (2) __ pursuant to and in compliance with Rule 144A under the Securities Act; or (3) __ to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Trustee); or (4) __ outside the United states to a "foreign person" in compliance with Rule 904 of Regulation S under the Securities Act; or (5) __ pursuant to the exemption from registration provided by Rule 144 under the Securities Act; or (6) __ pursuant to an effective registration statement under the Securities Act; or (7) __ pursuant to another available exemption from the registration requirements of the Securities Act; and unless the box below is checked, the undersigned confirms that such Note is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"): |_| The transferee is an Affiliate of the Company. Unless one of the items is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered Holder thereof; provided that if box (3), (4), (5) or (7) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Notes, in its sole discretion, such legal opinions, certifications (including an investment letter in the case of box (3) or (4)) and other information as the Trustee or the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. 128 -11- If none of the foregoing boxes is checked, the Trustee or Registrar shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.17 of the Indenture shall have been satisfied. Dated: Signed: ------------------ ------------------------ (Sign exactly as name appears on the other side of this Security) Signature Guarantee: ----------------------------------------- TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ------------------ -------------------------------- NOTICE: To be executed by an executive officer 129 -12- [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate box: Section 4.15 [ ] Section 4.16 [ ] If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you elect to have purchased: $ ------------------- Dated: ------------------ ------------------------------------ NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever and be guaranteed by the endorser's bank or broker. Signature Guarantee: ----------------------------------------- 130 EXHIBIT A-2 CUSIP No.: MCMS, INC. Floating Interest Rate Subordinated Term Securities due 2008 (FIRSTS)(SM)* No. $ MCMS, INC., an Idaho corporation (the "Company"), for value received, promises to pay to or registered assigns, the principal sum of Dollars, on March 1, 2008. Interest Payment Dates: March 1 and September 1, commencing September 1, 1998. Record Dates: February 15 and August 15 Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. - ---------- * FIRSTS is a service mark of BT Alex. Brown Incorporated. 131 -2- Dated: MCMS, INC. By: ----------------------------- Name: Title: By: ----------------------------- Name: Title: Trustee's Certificate of Authentication This is one of the Floating Interest Rate Subordinated Term Securities due 2008 referred to in the within-mentioned Indenture. Dated: United States Trust Company of New York , as Trustee By: ----------------------------- Authorized Signatory 132 -3- (REVERSE OF SECURITY) FLOATING INTEREST RATE SUBORDINATED TERM SECURITIES DUE 2008 1. Interest. MCMS, INC., an Idaho corporation (the "Company"), promises to pay interest on the principal amount of this Note at the rate per annum, reset semi-annually, equal to LIBOR (as defined below) plus 4 5/8%, as determined by the Calculation Agent. Interest on the Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from February 26, 1998. The Company will pay interest semi-annually in arrears on each Interest Payment Date, commencing September 1, 1998, for the period commencing on and including the immediately preceding Interest Payment Date and ending on and including the day next preceding the Interest Payment Date, with the exception that the first Interest Period shall commence on and include February 26, 1998 and end on and include August 31, 1998. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal and on overdue installments of interest from time to time on demand at the rate borne by the Notes and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. "LIBOR", with respect to an Interest Period, shall be the rate (expressed as a percentage per annum) for deposits in United States dollars for a six-month period beginning on the second London Banking Day (as defined) after the Determination Date (as defined) that appears on Telerate Page 3750 (as defined) as of 11:00 a.m., London time, on the Determination Date. If Telerate Page 3750 does not include such a rate or is unavailable on a Determination Date, LIBOR for the Interest Period shall be the arithmetic mean of the rates (expressed as a percentage per annum) for deposits in a Representative Amount (as defined) in United States dollars for a six-month period beginning on the second London Banking Day after the Determination Date that appears on Reuters Screen LIBO Page (as defined) as of 11:00 a.m., London time, on the Determination Date. If Reuters Screen LIBO Page does not include two or more rates or is unavailable on a Determination Date, the Calculation Agent will request the principal London office of each of four major banks in the London interbank market, as selected by the Calculation Agent, to provide such bank's offered quotation (expressed as a percentage per annum), as of approximately 11:00 a.m., London time, on such Determination Date, to prime 133 -4- banks in the London interbank market for deposits in a Representative Amount in United States dollars for a six-month period beginning on the second London Banking Day after the Determination Date. If at least two such offered quotations are so provided, LIBOR for the Interest Period will be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, the Calculation Agent will request each of three major banks in New York City, as selected by the Calculation Agent, to provide such bank's rate (expressed as a percentage per annum), as of approximately 11:00 a.m., New York City time, on such Determination Date, for loans in a Representative Amount in United States dollars to leading European banks for a six-month period beginning on the second London Banking Day after the Determination Date. If at least two such rates are so provided, LIBOR for the Interest Period will be the arithmetic mean of such rates. If fewer than two such rates are so provided, then LIBOR for the Interest Period will be LIBOR in effect with respect to the immediately preceding Interest Period. "Determination Date," with respect to an Interest Period, will be the second London Banking Day preceding the first day of the Interest Period. "London Banking Day" is any day in which dealings in United States dollars are transacted or, with respect to any future date, are expected to be transacted in the London interbank market. "Representative Amount" means a principal amount of not less than U.S. $1,000,000 for a single transaction in the relevant market at the relevant time. "Telerate Page 3750" means the display designated as "Page 3750" on the Dow Jones Telerate Service (or such other page as may replace Page 3750 on that service). "Reuters Screen LIBO Page" means the display designated as page "LIBO" on The Reuters Monitor Money Rates Service (or such other page as may replace the LIBO page on that service). The amount of interest for each day that this Floating Rate Note is outstanding (the "Daily Interest Amount") will be calculated by dividing the interest rate in effect for such day by 360 and multiplying the result by the principal amount of this Note. The amount of interest to be paid on this Note 134 -5- for each Interest Period will be calculated by adding the Daily Interest Amounts for each day in the Interest Period. All percentages resulting from any of the above calculations will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upwards (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)) and all dollar amounts used in or resulting from such calculations will be rounded to the nearest cent (with one-half cent being rounded upwards). The interest rate on this Note will in no event be higher than the maximum rate permitted by New York law as the same may be modified by United States law of general application. Under current New York law, the maximum rate of interest is 25% per annum on a simple interest basis. This limit may not apply to Notes in which $2,500,000 or more has been invested. The Calculation Agent will, upon the request of the holder of any Floating Rate Note, provide the interest rate then in effect with respect to this Note. All calculations made by the Calculation Agent in the absence of manifest error shall be conclusive for all purposes and binding on the Company and the Holders of this Floating Rate Note. 2. Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Notes are canceled on registration of transfer or registration of exchange (including pursuant to an Exchange Offer (as defined in the Registration Rights Agreement)) after such Record Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 135 -6- 3. Paying Agent, Registrar and Calculation Agent. Initially, United States Trust Company of New York (the "Trustee") will act as Paying Agent, Registrar and Calculation Agent. The Company may change any Paying Agent, Registrar, co-Registrar or Calculation Agent without notice to the Holders. 4. Indenture. The Company issued the Notes under an Indenture, dated as of February 26, 1998 (the "Indenture"), between the Company and the Trustee. This Note is one of a duly authorized issue of Notes of the Company designated as its Floating Interest Rate Subordinated Term Securities due 2008 (the "Floating Rate Notes"). The Notes include the Floating Rate Notes and the Fixed Rate Notes (as defined in the Indenture). The Floating Rate Notes and the Fixed Rate Notes are treated as a single class of securities under the Indenture unless otherwise specified in the Indenture or the Notes. Except as set forth in the Indenture, the Notes are limited in aggregate principal amount outstanding at any time to $275,000,000, which may be issued under the Indenture. Capitalized terms used herein shall have the meanings assigned to them in the Indenture unless otherwise defined herein. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the TIA for a statement of them. The Notes are general unsecured obligations of the Company. 5. Subordination. The Notes are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Senior Debt of the Company, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by its acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on its behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee its attorney-in-fact for such purposes. 136 -7- 6. Optional Redemption. The Floating Rate Notes will be redeemable, at the Company's option, in whole at any time or in part from time to time, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on March 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
Year Percentage - ---- ---------- 1998............................................... 105.000% 1999............................................... 104.000% 2000............................................... 103.000% 2001............................................... 102.000% 2002............................................... 101.000% 2003............................................... 100.000%
7. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holder's registered address. Notes in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, if monies for the redemption of the Notes called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless the Company defaults in the payment of such Redemption Price plus accrued and unpaid interest, if any, the Notes called for redemption will cease to bear interest from and after such Redemption Date and the only right of the Holders of such Notes will be to receive payment of the Redemption Price plus accrued and unpaid interest, if any. 8. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide that, after certain Asset Sales and upon the occurrence of a Change of Control, and subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Notes in accordance with the procedures set forth in the Indenture. 9. Registration Rights. Pursuant to the Registration Rights Agreement, the Company will be obligated to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for the Company's Series B Floating Interest Rate Subordinated Term Securities due 2008 (the "Exchange Floating Rate Notes"), which have been registered under the Securities Act, in like princi- 137 -8- pal amount and having terms identical in all material respects to the Initial Floating Rate Notes. The Holders of the Initial Floating Rate Notes shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 10. Denominations; Transfer; Exchange. The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Notes or portions thereof selected for redemption. 11. Persons Deemed Owners. The registered Holder of a Note shall be treated as the owner of it for all purposes. 12. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. 13. Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Notes to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Notes (including certain covenants, but excluding its obligation to pay the principal of and interest on the Notes). 14. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding, and any existing Default or Event of Default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or sup- 138 -9- plement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes, or comply with Article Five of the Indenture or make any other change that does not adversely affect in any material respect the rights of any Holder of a Note. 15. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries to, among other things, incur additional Indebtedness, make payments in respect of its Capital Stock or certain Indebtedness, enter into transactions with Affiliates, create dividend or other payment restrictions affecting Subsidiaries, merge or consolidate with any other Person, sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets or adopt a plan of liquidation. Such limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 16. Successors. When a successor assumes, in accordance with the Indenture, all the obligations of its predecessor under the Notes and the Indenture, the predecessor will be released from those obligations. 17. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Notes then outstanding may declare all the Notes to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Notes unless it has received indemnity reasonably satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interest. 18. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 139 -10- 19. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 20. Authentication. This Note shall not be valid until the Trustee or Authenticating Agent manually signs the certificate of authentication on this Note. 21. Governing Law. The laws of the State of New York shall govern this Note and the Indenture, without regard to principles of conflict of laws. 22. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 23. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. 24. Indenture. Each Holder, by accepting a Note, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time. The Company will furnish to any Holder of a Note upon written request and without charge a copy of the Indenture which has the text of this Note in larger type. Requests may be made to: MCMS, Inc., 16399 Franklin Road, Nampa, ID 83687, Attn: Corporate Counsel. 140 -11- ASSIGNMENT FORM If you the Holder want to assign this Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Note to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type name, address and zip code and social security or tax ID number of assignee) and irrevocably appoint ______________________________________, agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: Signed: ------------------- ------------------------ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ---------------------------- In connection with any transfer of this Note occurring prior to the date which is the earlier of (i) the date of the declaration by the SEC of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act") covering resales of this Note (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii)February 27, 2000 the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with the transfer and that this Note is being transferred: 141 -12- [Check One] (1) __ to the Company or a subsidiary thereof; or (2) __ pursuant to and in compliance with Rule 144A under the Securities Act; or (3) __ to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Trustee); or (4) __ outside the United states to a "foreign person" in compliance with Rule 904 of Regulation S under the Securities Act; or (5) __ pursuant to the exemption from registration provided by Rule 144 under the Securities Act; or (6) __ pursuant to an effective registration statement under the Securities Act; or (7) __ pursuant to another available exemption from the registration requirements of the Securities Act; and unless the box below is checked, the undersigned confirms that such Note is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"): |_| The transferee is an Affiliate of the Company. Unless one of the items is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any person other than the registered Holder thereof; provided that if box (3), (4), (5) or (7) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Notes, in its sole discretion, such legal opinions, certifications (including an investment letter in the case of box (3) or (4)) and other information as the Trustee or the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. 142 -13- If none of the foregoing boxes is checked, the Trustee or Registrar shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.17 of the Indenture shall have been satisfied. Dated: Signed: ------------------ ------------------------ (Sign exactly as name appears on the other side of this Security) Signature Guarantee: ----------------------------------------- TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ------------------ -------------------------------- NOTICE: To be executed by an executive officer 143 -14- [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate box: Section 4.15 [ ] Section 4.16 [ ] If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you elect to have purchased: $ ------------------- Dated: ------------------ --------------------------------- NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever and be guaranteed by the endorser's bank or broker. Signature Guarantee: ----------------------------------------- 144 EXHIBIT B-1 CUSIP No. MCMS, INC. 9 3/4% Series B Senior Subordinated Notes due 2008 No. $ MCMS, INC., an Idaho corporation (the "Company"), for value received, promises to pay to or registered assigns, the principal sum of Dollars, on March 1, 2008. Interest Payment Dates: March 1 and September 1, commencing September 1, 1998. Record Dates: February 15 and August 15. Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. Dated: MCMS, INC. By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: 145 -2- Trustee's Certificate of Authentication This is one of the 9 3/4% Series B Senior Subordinated Notes due 2008 referred to in the within-mentioned Indenture. Dated: United States Trust Company of New York, as Trustee By: ------------------------------ Authorized Signatory 146 -3- (REVERSE OF SECURITY) 9 3/4% SERIES B SENIOR SUBORDINATED NOTE DUE 2008 1. Interest. MCMS, INC., an Idaho corporation (the "Company"), promises to pay interest on the principal amount of this Note at the rate per annum shown above. Interest on the Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from February 26, 1998. The Company will pay interest semi-annually in arrears on each Interest Payment Date, commencing September 1, 1998, for the period commencing on and including the immediately preceding Interest Payment Date and ending on and including the day next preceding the Interest Payment Date, with the exception that the first Interest Period shall commence on and include February 26, 1998 and end on and include August 31, 1998. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal and on overdue installments of interest from time to time on demand at the rate borne by the Notes and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. 2. Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Notes are canceled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, United States Trust Company of New York, a New York corporation (the "Trustee"), will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. 147 -4- 4. Indenture. The Company issued the Notes under an Indenture, dated as of February 26, 1998 (the "Indenture"), between the Company and the Trustee. This Note is one of a duly authorized issue of Exchange Notes of the Company designated as its 9 3/4% Series B Senior Subordinated Notes due 2008 (the "Exchange Fixed Rate Notes"). The Notes include the Fixed Rate Notes and the Floating Rate Notes (as defined in the Indenture). The Fixed Rate Notes and the Floating Rate Notes are treated as a single class of securities under the Indenture unless otherwise specified in the Indenture or the Notes. Except as set forth in the Indenture, the Notes are limited in aggregate principal amount outstanding at any time to $275,000,000, which may be issued under the Indenture. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and said Act for a statement of them. The Notes are general unsecured obligations of the Company. 5. Subordination. The Notes are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Senior Debt of the Company, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by its acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on its behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee its attorney-in-fact for such purposes. 6. Redemption. (a) Optional Redemption. The Fixed Rate Notes will be redeemable, at the Company's option, in whole at any time or in part from time to time, on and after March 1, 2003, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on March 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption: 148 -5-
Year Percentage - ---- ---------- 2003............................................... 104.875% 2004............................................... 103.250% 2005............................................... 101.625% 2006 and thereafter................................ 100.000%
(b) Optional Redemption upon Public Equity Offerings. At any time, or from time to time, on or prior to March 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings (as defined in the Indenture) to redeem the Fixed Rate Notes at a redemption price equal to 109.750% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption; provided that at least 65% of (x) the principal amount of Fixed Rate Notes originally issued on the Issue Date plus (y) any additional Fixed Rate Notes issued after the Issue Date pursuant to the Indenture remain outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Company shall make such redemption not more than 120 days after the consummation of any such Public Equity Offering. 7. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holder's registered address. Notes in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, if monies for the redemption of the Notes called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless the Company defaults in the payment of such Redemption Price plus accrued and unpaid interest, if any, the Notes called for redemption will cease to bear interest from and after such Redemption Date and the only right of the Holders of such Notes will be to receive payment of the Redemption Price plus accrued and unpaid interest, if any. 8. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide that, after certain Asset Sales and upon the occurrence of a Change of Control, and subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Notes in accordance with the procedures set forth in the Indenture. 149 -6- 9. Denominations; Transfer; Exchange. The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Notes or portions thereof selected for redemption. 10. Persons Deemed Owners. The registered Holder of a Note shall be treated as the owner of it for all purposes. 11. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. 12. Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Notes to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Notes (including certain covenants, but excluding its obligation to pay the principal of and interest on the Notes). 13. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding, and any existing Default or Event of Default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes, or comply with Article Five of the Indenture or make any other change that does not adversely affect in any material respect the rights of any Holder of a Note. 150 -7- 14. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries to, among other things, incur additional Indebtedness, make payments in respect of its Capital Stock or certain Indebtedness, enter into transactions with Affiliates, create dividend or other payment restrictions affecting Subsidiaries, merge or consolidate with any other Person, sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets or adopt a plan of liquidation. Such limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 15. Successors. When a successor assumes, in accordance with the Indenture, all the obligations of its predecessor under the Notes and the Indenture, the predecessor will be released from those obligations. 16. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Notes then outstanding may declare all the Notes to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Notes unless it has received indemnity reasonably satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interest. 17. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 18. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Note by accepting a Note waives and releases 151 -8- all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 19. Authentication. This Note shall not be valid until the Trustee or Authenticating Agent manually signs the certificate of authentication on this Note. 20. Governing Law. The laws of the State of New York shall govern this Note and the Indenture, without regard to principles of conflict of laws. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. 23. Indenture. Each Holder, by accepting a Note, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time. The Company will furnish to any Holder of a Note upon written request and without charge a copy of the Indenture which has the text of this Note in larger type. Requests may be made to: MCMS, Inc., 16399 Franklin Road, Nampa, Idaho 83687, Attn: Corporate Counsel. 152 -9- ASSIGNMENT FORM If you the Holder want to assign this Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Note to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type name, address and zip code and social security or tax ID number of assignee) and irrevocably appoint ______________________________________, agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Dated: Signed: ------------------ ------------------------ (Sign exactly as name appears on the other side of this Note) Signature Guarantee: ----------------------------------------- 153 -10- [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate box: Section 4.15 [ ] Section 4.16 [ ] If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you elect to have purchased: $ ------------------- Dated: ----------------- -------------------------------- NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever and be guaranteed by the endorser's bank or broker. Signature Guarantee: ----------------------------------------- 154 EXHIBIT B-2 CUSIP No.: MCMS, INC. Series B Floating Interest Rate Subordinated Term Securities due 2008 (FIRSTS)(SM)* No. $ MCMS, INC., an Idaho corporation (the "Company"), for value received, promises to pay to or registered assigns, the principal sum of Dollars, on March 1, 2008. Interest Payment Dates: March 1 and September 1, commencing September 1, 1998. Record Dates: February 15 and August 15 Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Security to be signed manually or by facsimile by its duly authorized officers. - ---------- * FIRSTS is a service mark of BT Alex. Brown Incorporated. 155 -2- Dated: MCMS, INC. By: ----------------------------- Name: Title: By: ----------------------------- Name: Title: Trustee's Certificate of Authentication This is one of the Floating Interest Rate Subordinated Term Securities due 2008 referred to in the within-mentioned Indenture. Dated: United States Trust Company of New York, as Trustee By: ----------------------------- Authorized Signatory 156 -3- (REVERSE OF SECURITY) FLOATING INTEREST RATE SUBORDINATED TERM SECURITIES DUE 2008 1. Interest. MCMS, INC., an Idaho corporation (the "Company"), promises to pay interest on the principal amount of this Note at the rate per annum, reset semi-annually, equal to LIBOR (as defined below) plus 4 5/8%, as determined by the Calculation Agent. Interest on the Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from February 26, 1998. The Company will pay interest semi-annually in arrears on each Interest Payment Date, commencing September 1, 1998, for the period commencing on and including the immediately preceding Interest Payment Date and ending on and including the day next preceding the Interest Payment Date, with the exception that the first Interest Period shall commence on and include February 26, 1998 and end on and include August 31, 1998. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal and on overdue installments of interest from time to time on demand at the rate borne by the Notes and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. "LIBOR", with respect to an Interest Period, shall be the rate (expressed as a percentage per annum) for deposits in United States dollars for a six-month period beginning on the second London Banking Day (as defined) after the Determination Date (as defined) that appears on Telerate Page 3750 (as defined) as of 11:00 a.m., London time, on the Determination Date. If Telerate Page 3750 does not include such a rate or is unavailable on a Determination Date, LIBOR for the Interest Period shall be the arithmetic mean of the rates (expressed as a percentage per annum) for deposits in a Representative Amount (as defined) in United States dollars for a six-month period beginning on the second London Banking Day after the Determination Date that appears on Reuters Screen LIBO Page (as defined) as of 11:00 a.m., London time, on the Determination Date. If Reuters Screen LIBO Page does not include two or more rates or is unavailable on a Determination Date, the Calculation Agent will request the principal London office of each of four major banks in the London interbank market, as selected by the Calculation Agent, to provide such bank's offered quotation (expressed as a percentage per annum), as of approximately 11:00 a.m., London time, on such Determination Date, to prime 157 -4- banks in the London interbank market for deposits in a Representative Amount in United States dollars for a six-month period beginning on the second London Banking Day after the Determination Date. If at least two such offered quotations are so provided, LIBOR for the Interest Period will be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, the Calculation Agent will request each of three major banks in New York City, as selected by the Calculation Agent, to provide such bank's rate (expressed as a percentage per annum), as of approximately 11:00 a.m., New York City time, on such Determination Date, for loans in a Representative Amount in United States dollars to leading European banks for a six-month period beginning on the second London Banking Day after the Determination Date. If at least two such rates are so provided, LIBOR for the Interest Period will be the arithmetic mean of such rates. If fewer than two such rates are so provided, then LIBOR for the Interest Period will be LIBOR in effect with respect to the immediately preceding Interest Period. "Determination Date," with respect to an Interest Period, will be the second London Banking Day preceding the first day of the Interest Period. "London Banking Day" is any day in which dealings in United States dollars are transacted or, with respect to any future date, are expected to be transacted in the London interbank market. "Representative Amount" means a principal amount of not less than U.S. $1,000,000 for a single transaction in the relevant market at the relevant time. "Telerate Page 3750" means the display designated as "Page 3750" on the Dow Jones Telerate Service (or such other page as may replace Page 3750 on that service). "Reuters Screen LIBO Page" means the display designated as page "LIBO" on The Reuters Monitor Money Rates Service (or such other page as may replace the LIBO page on that service). The amount of interest for each day that this Floating Rate Note is outstanding (the "Daily Interest Amount") will be calculated by dividing the interest rate in effect for such day by 360 and multiplying the result by the principal amount of this Note. The amount of interest to be paid on this Note 158 -5- for each Interest Period will be calculated by adding the Daily Interest Amounts for each day in the Interest Period. All percentages resulting from any of the above calculations will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point rounded upwards (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)) and all dollar amounts used in or resulting from such calculations will be rounded to the nearest cent (with one-half cent being rounded upwards). The interest rate on this Note will in no event be higher than the maximum rate permitted by New York law as the same may be modified by United States law of general application. Under current New York law, the maximum rate of interest is 25% per annum on a simple interest basis. This limit may not apply to Notes in which $2,500,000 or more has been invested. The Calculation Agent will, upon the request of the holder of any Floating Rate Note, provide the interest rate then in effect with respect to this Note. All calculations made by the Calculation Agent in the absence of manifest error shall be conclusive for all purposes and binding on the Company and the Holders of this Floating Rate Note. 2. Method of Payment. The Company shall pay interest on the Notes (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Notes are canceled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 159 -6- 3. Paying Agent, Registrar and Calculation Agent. Initially, United States Trust Company of New York (the "Trustee") will act as Paying Agent, Registrar and Calculation Agent. The Company may change any Paying Agent, Registrar, co-Registrar or Calculation Agent without notice to the Holders. 4. Indenture. The Company issued the Notes under an Indenture, dated as of February 26, 1998 (the "Indenture"), between the Company and the Trustee. This Note is one of a duly authorized issue of Exchange Notes of the Company designated as its Series B Floating Interest Rate Subordinated Term Securities due 2008 (the "Exchange Floating Rate Notes"). The Notes include the Floating Rate Notes and the Fixed Rate Notes (as defined in the Indenture). The Floating Rate Notes and the Fixed Rate Notes are treated as a single class of securities under the Indenture unless otherwise specified in the Indenture or the Notes. Except as set forth in the Indenture, the Notes are limited in aggregate principal amount outstanding at any time to $275,000,000, which may be issued under the Indenture. Capitalized terms used herein shall have the meanings assigned to them in the Indenture unless otherwise defined herein. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the TIA for a statement of them. The Notes are general unsecured obligations of the Company. 5. Subordination. The Notes are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents of all Senior Debt of the Company, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by its acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on its behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee its attorney-in-fact for such purposes. 160 -7- 6. Optional Redemption. The Floating Rate Notes will be redeemable, at the Company's option, in whole at any time or in part from time to time, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on March 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
Year Percentage - ---- ---------- 1998............................................... 105.000% 1999............................................... 104.000% 2000............................................... 103.000% 2001............................................... 102.000% 2002............................................... 101.000% 2003............................................... 100.000%
7. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holder's registered address. Notes in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, if monies for the redemption of the Notes called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless the Company defaults in the payment of such Redemption Price plus accrued and unpaid interest, if any, the Notes called for redemption will cease to bear interest from and after such Redemption Date and the only right of the Holders of such Notes will be to receive payment of the Redemption Price plus accrued and unpaid interest, if any. 8. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide that, after certain Asset Sales and upon the occurrence of a Change of Control, and subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Notes in accordance with the procedures set forth in the Indenture. 9. Denominations; Transfer; Exchange. The Notes are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000. A Holder shall register the transfer of or exchange Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental 161 -8- charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Notes or portions thereof selected for redemption. 10. Persons Deemed Owners. The registered Holder of a Note shall be treated as the owner of it for all purposes. 11. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. 12. Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Notes to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Notes (including certain covenants, but excluding its obligation to pay the principal of and interest on the Notes). 13. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Notes then outstanding, and any existing Default or Event of Default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes, or comply with Article Five of the Indenture or make any other change that does not adversely affect in any material respect the rights of any Holder of a Note. 14. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries to, among other things, incur additional Indebtedness, make payments in respect of its Capital Stock or certain Indebtedness, enter into transactions with Affiliates, create dividend or other payment restrictions affecting Subsidiaries, merge or consolidate with any other Person, sell, assign, transfer, lease, convey or otherwise dispose of all or 162 -9- substantially all of its assets or adopt a plan of liquidation. Such limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 15. Successors. When a successor assumes, in accordance with the Indenture, all the obligations of its predecessor under the Notes and the Indenture, the predecessor will be released from those obligations. 16. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Notes then outstanding may declare all the Notes to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Notes unless it has received indemnity reasonably satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interest. 17. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 18. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Notes or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 19. Authentication. This Note shall not be valid until the Trustee or Authenticating Agent manually signs the certificate of authentication on this Note. 163 -10- 20. Governing Law. The laws of the State of New York shall govern this Note and the Indenture, without regard to principles of conflict of laws. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. 23. Indenture. Each Holder, by accepting a Note, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time. The Company will furnish to any Holder of a Note upon written request and without charge a copy of the Indenture which has the text of this Note in larger type. Requests may be made to: MCMS, Inc., 16399 Franklin Road, Nampa, ID 83687, Attn: Corporate Counsel. 164 -11- ASSIGNMENT FORM If you the Holder want to assign this Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Note to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type name, address and zip code and social security or tax ID number of assignee) and irrevocably appoint ______________________________________, agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: Signed: ------------------- ------------------------ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ---------------------------- 165 -12- [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate box: Section 4.15 [ ] Section 4.16 [ ] If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you elect to have purchased: $ ------------------- Dated: ------------------ --------------------------------- NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever and be guaranteed by the endorser's bank or broker. Signature Guarantee: ----------------------------------------- 166 Exhibit C Form of Certificate To Be Delivered in Connection with Transfers to Non-QIB Accredited Investors [ ], [ ] United States Trust Company of New York 114 West 47th Street New York, New York 10036 Attention: Securities Processing Window Level SC1 Re: MCMS, Inc. 9 3/4% Senior Subordinated Notes due 2008 (the "Fixed Rate Notes") or Floating Interest Rate Subordinated Term Securities due 2008 (the "Floating Rate Notes," and together with the Fixed Rate Notes, the "Notes") Ladies and Gentlemen: In connection with our proposed purchase of [Fixed Rate Notes] [Floating Rate Notes] of MCMS, Inc. (the "Company"), we confirm that: 1. We have received a copy of the Offering Memorandum (the "Offering Memorandum"), dated February 26, 1998 relating to the Notes and such other information as we deem necessary in order to make our investment decision. We acknowledge that we have read and agreed to the matters stated on pages (i)-(iv) of the Offering Memorandum and in the section entitled "Transfer Restrictions" of the Offering Memorandum, including the restrictions on duplication and circulation of the Offering Memorandum. 2. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Indenture relating to the Notes (as described in the Offering Memorandum) and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes 167 -2- except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 3. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell or otherwise transfer any Notes prior to the date which is two years after the original issuance of the Notes, we will do so only (i) to the Company or any of its subsidiaries, (ii) inside the United States in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act), (iii) inside the United States to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to the Trustee (as defined in the Indenture relating to the Notes), a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Notes, (iv) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (v) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available), or (vi) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein. 4. We are not acquiring the Notes for or on behalf of, and will not transfer the Notes to, any pension or welfare plan (as defined in Section 3 of the Employee Retirement Income Security Act of 1974), except as permitted in the section entitled "Transfer Restrictions" of the Offering Memorandum. 5. We understand that, on any proposed resale of any Notes, we will be required to furnish to the Trustee and the Company such certification, legal opinions and other information as the Trustee and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 6. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of 168 -3- evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or their investment, as the case may be. 7. We are acquiring the Notes purchased by us for our account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, By: --------------------------- Name: Title: 169 Exhibit D Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulation S [ ], [ ] United States Trust Company of New York 114 West 47th Street New York, NY 10036 Attention: Securities Processing Window Level SC1 Re: MCMS, INC. (the "Company") 9 3/4% Senior Subordinated Notes due 2008 (the "Fixed Rate Notes") or Floating Interest Rate Subordinated Term Securities due 2008 (the "Floating Rate Notes," and together with the Fixed Rate Notes, the "Notes") Ladies and Gentlemen: In connection with our proposed sale of $ aggregate principal amount of the [Fixed Rate Notes] [Floating Rate Notes], we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) the offer of the Notes was not made to a person in the United States; (2) either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated off-shore securities market and neither we nor any person acting on our behalf knows that the transaction has been pre-arranged with a buyer in the United States; 170 -2- (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and (5) we have advised the transferee of the transfer restrictions applicable to the Notes. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: ----------------------------- Authorized Signature EX-4.2 8 EXCHANGE INDENTURE 1 Exhibit 4.2 ================================================================================ MCMS, INC. as Issuer and UNITED STATES TRUST COMPANY OF NEW YORK as Trustee ------------------------- INDENTURE Dated as of February 26, 1998 ------------------------- 12 1/2% Subordinated Exchange Debentures due 2010 ================================================================================ 2 CROSS-REFERENCE TABLE TIA Indenture Section Section - ------- --------- 310(a)(1)..................................................... 7.10 (a)(2)..................................................... 7.10 (a)(3)..................................................... N.A. (a)(4)..................................................... N.A. (a)(5)..................................................... 7.08; 7.10 (b)........................................................ 7.08; 7.10; 11.02 (c)........................................................ N.A. 311(a)........................................................ 7.11 (b)........................................................ 7.11 (c)........................................................ N.A. 312(a)........................................................ 2.05 (b)........................................................ 11.03 (c)........................................................ 11.03 313(a)........................................................ 7.06 (b)(1)..................................................... N.A. (b)(2)..................................................... 7.06 (c)........................................................ 7.06; 11.02 (d)........................................................ 7.06 314(a)........................................................ 4.07; 4.08; 11.02 (b)........................................................ N.A. (c)(1)..................................................... 11.04 (c)(2)..................................................... 11.04 (c)(3)..................................................... N.A. (d)........................................................ N.A. (e)........................................................ 11.05 (f)........................................................ N.A. 315(a)........................................................ 7.01(b) (b)........................................................ 7.05; 11.02 (c)........................................................ 7.01(a) (d)........................................................ 7.01(c) (e)........................................................ 6.11 316(a)(last sentence)......................................... 2.09 (a)(1)(A).................................................. 6.05 (a)(1)(B).................................................. 6.04 (a)(2)..................................................... N.A. (b)........................................................ 6.07 (c)........................................................ 9.05 317(a)(1)..................................................... 6.08 (a)(2)..................................................... 6.09 (b)........................................................ 2.04 318(a)........................................................ 11.01 (c)........................................................ 11.01 - ---------- N.A. means Not Applicable Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. 3 TABLE OF CONTENTS Page ---- ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions......................................................1 SECTION 1.02. Incorporation by Reference of TIA...............................25 SECTION 1.03. Rules of Construction...........................................25 ARTICLE TWO THE DEBENTURES SECTION 2.01. Form and Dating.................................................26 SECTION 2.02. Execution and Authentication; Aggregate Principal Amount........26 SECTION 2.03. Registrar and Paying Agent......................................29 SECTION 2.04. Paying Agent To Hold Assets in Trust............................29 SECTION 2.05. Securityholder Lists............................................30 SECTION 2.06. Transfer and Exchange...........................................30 SECTION 2.07. Replacement Debentures..........................................31 SECTION 2.08. Outstanding Debentures..........................................31 SECTION 2.09. Treasury Debentures.............................................32 SECTION 2.10. Temporary Debentures............................................32 SECTION 2.11. Cancellation....................................................32 SECTION 2.12. Defaulted Interest..............................................33 SECTION 2.13. CUSIP Numbers...................................................33 SECTION 2.14. Deposit of Moneys or Preferred Stock............................33 SECTION 2.16. Book-Entry Provisions for Global Security.......................35 ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee..............................................36 SECTION 3.02. Selection of Debentures To Be Redeemed..........................37 SECTION 3.03. Notice of Redemption............................................38 SECTION 3.04. Effect of Notice of Redemption..................................39 SECTION 3.05. Deposit of Redemption Price.....................................39 SECTION 3.06. Debentures Redeemed in Part.....................................39 ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Debentures...........................................40 -i- 4 Page ---- SECTION 4.02. Maintenance of Office or Agency.................................40 SECTION 4.03. Corporate Existence.............................................40 SECTION 4.04. Payment of Taxes and Other Claims...............................41 SECTION 4.05. Maintenance of Properties and Insurance.........................41 SECTION 4.06. Compliance Certificate; Notice of Default.......................42 SECTION 4.07. Compliance with Laws............................................43 SECTION 4.08. SEC Reports.....................................................43 SECTION 4.09. Waiver of Stay, Extension or Usury Laws.........................44 SECTION 4.10. Limitation on Restricted Payments...............................44 SECTION 4.11. Limitation on Transactions with Affiliates......................47 SECTION 4.12. Limitation on Incurrence of Additional Indebtedness.............48 SECTION 4.13. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries..............................49 SECTION 4.14. Limitation on Preferred Stock of Restricted Subsidiaries........50 SECTION 4.15. Change of Control...............................................50 SECTION 4.16. Limitation on Asset Sales.......................................52 ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. Merger, Consolidation and Sale of Assets........................56 SECTION 5.02. Successor Corporation Substituted...............................58 ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default...............................................58 SECTION 6.02. Acceleration....................................................60 SECTION 6.03. Other Remedies..................................................61 SECTION 6.04. Waiver of Past Defaults.........................................61 SECTION 6.05. Control by Majority.............................................62 SECTION 6.06. Limitation on Suits.............................................62 SECTION 6.07. Rights of Holders To Receive Payment............................63 SECTION 6.08. Collection Suit by Trustee......................................63 SECTION 6.09. Trustee May File Proofs of Claim................................63 SECTION 6.10. Priorities .................................................... 64 SECTION 6.11. Undertaking for Costs...........................................64 -ii- 5 Page ---- ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee...............................................65 SECTION 7.02. Rights of Trustee...............................................66 SECTION 7.03. Individual Rights of Trustee....................................68 SECTION 7.04. Trustee's Disclaimer............................................68 SECTION 7.05. Notice of Default...............................................68 SECTION 7.06. Reports by Trustee to Holders...................................69 SECTION 7.07. Compensation and Indemnity......................................69 SECTION 7.08. Replacement of Trustee..........................................70 SECTION 7.09. Successor Trustee by Merger, Etc................................71 SECTION 7.10. Eligibility; Disqualification...................................72 SECTION 7.11. Preferential Collection of Claims Against Company...............72 ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.01. Termination of the Company's Obligations........................72 SECTION 8.02. Legal Defeasance and Covenant Defeasance........................74 SECTION 8.03. Conditions to Legal Defeasance or Covenant Defeasance...........76 SECTION 8.04. Application of Trust Money......................................78 SECTION 8.05. Repayment to the Company........................................79 SECTION 8.06. Reinstatement...................................................79 ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders......................................80 SECTION 9.02. With Consent of Holders.........................................81 SECTION 9.03. Effect on Senior Debt...........................................82 SECTION 9.04. Compliance with TIA.............................................82 SECTION 9.05. Revocation and Effect of Consents...............................82 SECTION 9.06. Notation on or Exchange of Debentures...........................83 SECTION 9.07. Trustee To Sign Amendments, Etc.................................84 ARTICLE TEN SUBORDINATION SECTION 10.01. Debentures Subordinated to Senior Debt.........................84 -iii- 6 Page ---- SECTION 10.02. No Payment on Debentures in Certain Circumstances..............85 SECTION 10.03. Payment Over of Proceeds upon Dissolution, Etc.................86 SECTION 10.04. Payments May Be Paid Prior to Dissolution......................88 SECTION 10.05. Subrogation....................................................88 SECTION 10.06. Obligations of the Company Unconditional.......................89 SECTION 10.07. Notice to Trustee..............................................89 SECTION 10.08. Reliance on Judicial Order or Certificate of Liquidating Agent...............................................90 SECTION 10.09. Trustee's Relation to Senior Debt..............................90 SECTION 10.10. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Debt...............91 SECTION 10.11. Securityholders Authorize Trustee To Effectuate Subordination of Debentures.........................92 SECTION 10.12. This Article Ten Not To Prevent Events of Default..............92 SECTION 10.13. Trustee's Compensation Not Prejudiced..........................92 ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. TIA Controls...................................................93 SECTION 11.02. Notices .......................................................93 SECTION 11.03. Communications by Holders with Other Holders...................94 SECTION 11.04. Certificate and Opinion as to Conditions Precedent.............94 SECTION 11.05. Statements Required in Certificate or Opinion..................94 SECTION 11.06. Rules by Trustee, Paying Agent, Registrar......................95 SECTION 11.07. Legal Holidays.................................................95 SECTION 11.08. Governing Law..................................................95 SECTION 11.09. No Adverse Interpretation of Other Agreements..................96 SECTION 11.10. No Recourse Against Others.....................................96 SECTION 11.11. Successors.....................................................96 SECTION 11.12. Duplicate Originals............................................96 SECTION 11.13. Severability...................................................96 SIGNATURES -iv- 7 Exhibit A Form of Exchange Debenture.............................. A-1 Note: This Table of Contents shall not, for any purpose, be deemed to be part of the Indenture. -vi- 8 INDENTURE, dated as of February 26, 1998, between MCMS, Inc., an Idaho corporation (the "Company"), and UNITED STATES TRUST COMPANY OF NEW YORK, a New York corporation, as Trustee (the "Trustee"). Each party hereto agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Debentures. ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. "Acceleration Notice" has the meaning provided in Section 6.02(a). "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of the Company or at the time it merges or consolidates with the Company or any of its Restricted Subsidiaries or assumed in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such acquisition, merger or consolidation. "Affiliate" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. 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, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. For purposes of this Indenture, BT Alex. Brown Incorporated, Bankers Trust Company and their Affiliates shall not be deemed to be Affiliates of the Company or its Restricted Subsidiaries. "Affiliate Transaction" has the meaning provided in Section 4.11. "Agent" means any Registrar, Paying Agent or co-Registrar. 9 -2- "Agent Members" has the meaning provided in Section 2.16. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary of the Company in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company or shall be merged with or into the Company or any Restricted Subsidiary of the Company, or (b) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any Person (other than a Restricted Subsidiary of the Company) which constitute all or substantially all of the assets of such Person or comprise any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Company or any of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company of (a) any Capital Stock of any Restricted Subsidiary of the Company or (b) any other property or assets of the Company or any Restricted Subsidiary of the Company other than in the ordinary course of business; provided, however, that Asset Sales shall not include (i) a transaction or series of related transactions for which the Company or its Restricted Subsidiaries receive aggregate consideration of less than $500,000, (ii) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of the Company as permitted under Section 5.01 or any disposition that constitutes a Change of Control, (iii) the sale or discount, in each case without recourse, of accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof, (iv) the factoring of accounts receivable arising in the ordinary course of business pursuant to arrangements customary in the region, (v) the licensing of intellectual property, (vi) disposals or replacements of obsolete equipment in the ordinary course of business, and (vii) the sale, lease, conveyance, disposition or other transfer by the Company or any Restricted Subsidiary of the Company of assets or property in connection with Restricted Payments permitted by Section 4.10. "Authenticating Agent" has the meaning provided in Section 2.02. 10 -3- "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. "Blockage Period" has the meaning provided in Section 10.02. "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day that is not a Legal Holiday. "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and preferred stock of such Person, and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Corporation ("S&P") or 11 -4- Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; and (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of this Indenture) other than to the Permitted Holders; (ii) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of this Indenture); (iii) any Person or Group (other than the Permitted Holders) shall become the beneficial owner, directly or indirectly, of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company; or (iv) the first day on which a majority of the members of the Board of Directors of the Company during the two-year period immediately preceding such date are not Continuing Directors. Notwithstanding anything to the contrary contained in the foregoing sentence, a "Change of Control" shall not be deemed to occur upon consummation of (A) the Recapitalization, (B) the merger of the Company with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction or (C) any transaction described in clause (i) or (iii) of the immediately preceding sentence if, after giving effect to such transaction, (1) the Permitted Holders shall beneficially own, directly or indirectly, shares of Capital Stock representing at least 35% of the aggregate ordinary voting power represented by the issued and outstanding Capital 12 -5- Stock of the Company and (2) no Persons or Group shall beneficially own, directly or indirectly, a greater percentage of such voting power than the Permitted Holders. "Change of Control Date" has the meaning provided in Section 4.15. "Change of Control Offer" has the meaning provided in Section 4.15. "Change of Control Payment Date" has the meaning provided in Section 4.15. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Effective Date or issued after the Effective Date, and includes, without limitation, all series and classes of such common stock. "Company" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means such successor. "Consolidated EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent Consolidated Net Income has been reduced thereby, (A) all income taxes and foreign withholding taxes of such Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary, unusual or nonrecurring gains or losses or taxes attributable to sales or dispositions outside the ordinary course of business), (B) Consolidated Interest Expense and (C) Consolidated Non-cash Charges less, to the extent Consolidated Net Income has been increased thereby, any non-cash items increasing Consolidated Net Income for such period, all as determined on a consolidated basis for such Person and its Restricted Subsidiaries in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of Consolidated EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for the Four Quarter Pe- 13 -6- riod. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to (i) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA (including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under the Securities Act) attributable to the assets which are the subject of the Asset Acquisition or Asset Sale during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition (including the incurrence, assumption or liability for any such Indebtedness or Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date and (2) notwithstanding clause (1) above, interest on Indebtedness determined on a 14 -7- fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) Consolidated Interest Expense, plus (ii) the amount of all dividend payments on any series of preferred stock of such Person (other than dividends paid in Qualified Capital Stock or the amortization of deferred financing costs relating to the issuance of the Preferred Stock) paid, accrued or scheduled to be paid or accrued during such period. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum of, without duplication: (i) the aggregate of the interest expense of such Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including, without limitation, (a) any amortization of debt discount and (b) the net costs under Interest Swap Obligations, but excluding any amortization or write-off of deferred financing costs; and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom (a) after-tax gains and losses from Asset Sales (without giving effect to the proviso therein) or abandonments or reserves relating thereto, (b) after-tax items classified as extraordinary or nonrecurring gains and losses, (c) the net income or loss of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Restricted Subsidiary of the referent Person or is merged or consolidated with the referent Person or any Restricted Subsidiary of the referent Person, (d) the net income (but not loss) of any Restricted Subsidiary of the referent Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise, (e) the net loss of any Person other than a Restricted Subsidiary of the Company, (f) the net income of any Person, other than a Restricted Subsidiary of the referent Person, except to the extent of cash dividends or distributions paid to 15 -8- the referent Person or to a Wholly Owned Restricted Subsidiary of the referent Person by such Person, (g) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued), (h) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets, (i) non-cash, non-recurring charges reducing Consolidated Net Income (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of prepaid cash expense that was paid in a prior period not included in the calculation), (j) non-cash compensation charges, including any arising from stock options, (k) gains and losses due solely to fluctuations in currency values and the related tax effects according to GAAP, (l) start-up costs and duplicative costs incurred in connection with the transition services agreements in effect on the Effective Date (as the same may be amended from time to time), not to exceed $200,000, (m) costs relating to the implementation of the Baan information technology system which have not been capitalized and (n) expenses related to the Recapitalization. "Consolidated Non-cash Charges" means, with respect to any Person, for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss or any such charge which requires an accrual of or a reserve for cash charges for any future period). "Consolidated Tangible Assets" means, with respect to any Person, as of any date of determination, the total assets, less goodwill, deferred financing costs and other intangibles and less accumulated amortization, shown on the most recent balance sheet of such Person, determined on a consolidated basis in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who (i) was a member of such Board of Directors on the first day of the two-year period immediately preceding such date of determination or (ii) was nominated for election or elected to such Board of Directors with, or whose election to such Board of Directors was approved by, the affirmative vote 16 -9- of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election or (iii) is any designee of the Principal or its Affiliates or was nominated by the Principal or its Affiliates or any designees of the Principal or its Affiliates on the Board of Directors. "Covenant Defeasance" has the meaning provided in Section 8.02. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any Restricted Subsidiary of the Company against fluctuations in currency values. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Debentures" means the 12 1/2% Subordinated Exchange Debentures due 2010, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture. "Default" means an event or condition the occurrence of which is, or with the lapse of time or the giving of notice or both would be, an Event of Default. "Default Notice" has the meaning provided in Section 10.02. "Depository" means The Depository Trust Company, its nominees and successors. "Designated Senior Debt" means (i) Indebtedness under or in respect of the New Revolving Credit Facility and (ii) any other Indebtedness constituting Senior Debt which, at the time of determination, has an aggregate principal amount of at least $25.0 million and is specifically designated in the instrument evidencing such Senior Debt as "Designated Senior Debt" by the Company. "Disqualified Capital Stock" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event (other than upon the occurrence of a Change of Control), matures or is man- 17 -10- datorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof on or prior to the final maturity date of the Debentures. "Effective Date" means the date of this Indenture. "Event of Default" has the meaning provided in Section 6.01. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. "Exchange Date" means the date on which shares of Exchangeable Preferred Stock are exchanged by the Company for Debentures. "fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Company acting reasonably and in good faith and shall be evidenced by a Board Resolution of the Board of Directors of the Company delivered to the Trustee. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Effective Date. Except as otherwise set forth herein, all ratios and computations based on GAAP contained in this Indenture shall be computed in conformity with GAAP applied on a consistent basis. "Global Debentures" has the meaning provided in Section 2.01. "Holder" or "Securityholder" means the Person in whose name a Debenture is registered on the Registrar's books. "incur" has the meaning provided in Section 4.12. 18 -11- "Indebtedness" means with respect to any Person, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all obligations under any title retention agreement (but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business), (v) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (vi) guarantees and other contingent obligations of such Person in respect of Indebtedness referred to in clauses (i) through (v) above and clause (viii) below, (vii) all obligations of any other Person of the type referred to in clauses (i) through (vi) which are secured by any lien on any property or asset of such Person, the amount of such obligation being deemed to be the lesser of the fair market value of such property or asset or the amount of the obligation so secured, (viii) all obligations under currency agreements and interest swap agreements of such Person and (ix) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Independent Financial Advisor" means a firm (i) which does not, and whose directors, officers and employees or Affiliates do not, have a direct or indirect financial interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. 19 -12- "Initial Purchaser" means BT Alex. Brown Incorporated. "Interest Payment Date" means the stated maturity of an installment of interest on the Debentures. "Interest Swap Obligations" means the obligations of any Person, pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter. "Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any Person. "Investment" shall exclude extensions of trade credit by the Company and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. For the purposes of Section 4.10, (i) "Investment" shall include and be valued at the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude the fair market value of the net assets of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any Investment shall be the original cost of such Investment plus the cost of all additional Investments by the Company or any of its Restricted Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by the payment of dividends or distri- 20 -13- butions in connection with such Investment or any other amounts received in respect of such Investment; provided that no such payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such payment of dividends or distributions or receipt of any such amounts would be included in Consolidated Net Income. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, 100% of the outstanding Common Stock of such Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of. "Legal Defeasance" has the meaning provided in Section 8.02. "Legal Holiday" has the meaning provided in Section 11.07. "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). "Management Services Agreement" means the Management Services Agreement between the Company and the Principal as in effect on the Effective Date. "Maturity Date" means March 1, 2010. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (other than the portion of any such deferred payment constituting interest) received by the Company or any of its Restricted Subsidiaries from such Asset Sale net of (a) out-of-pocket expenses and fees relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees and sales commissions), (b) taxes paid or payable after taking into account any reduction in consolidated tax liability due to available tax credits or deductions and any tax sharing arrangements, (c) repayment of Indebtedness that is required to be repaid in connection with such Asset Sale and (d) appropriate amounts to be provided by the Company or any Restricted Subsidiary, as the case may be, as a reserve, in ac- 21 -14- cordance with GAAP, against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary, as the case may be, after such Asset Sale, including, without limitation, post-closing adjustments, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale. "Net Proceeds Offer" has the meaning provided in Section 4.16. "Net Proceeds Offer Payment Date" has the meaning provided in Section 4.16. "Net Proceeds Offer Trigger Date" has the meaning provided in Section 4.16. "New Revolving Credit Facility" means the credit agreement dated as of February 26, 1998, among the Company, the lenders party thereto in their capacities as lenders thereunder and Bankers Trust Company, as agent, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including, without limitation, increasing the amount of available borrowings thereunder or adding Restricted Subsidiaries of the Company as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "Note Indenture" means the Indenture dated February 26, 1998, by and among the Company and United States Trust Company of New York, as trustee, governing the Notes, as amended or supplemented from time to time. "Notes" means the $145,000,000 aggregate principal amount of 9 3/4% Senior Subordinated Notes and $30,000,000 aggregate principal amount of Floating Interest Rate Subordinated Term Securities due 2008, both issued by the Company on February 26, 1998, and any other notes issued thereafter in accordance with the Note Indenture, as amended or supplemented from time to time in accordance with the terms of the Note Indenture. 22 -15- "Obligations" means all obligations for principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Treasurer, the Controller, or the Secretary of such Person, or any other officer designated by the Board of Directors serving in a similar capacity. "Officers' Certificate" means, with respect to any Person, a certificate signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of such Person and otherwise complying with the requirements of Sections 11.04 and 11.05, as they relate to the making of an Officers' Certificate. "Opinion of Counsel" means a written opinion from legal counsel, who may be counsel for the Company, and who is reasonably acceptable to the Trustee and not rendered by any employee of the Company or any of its Affiliates or Subsidiaries complying with the requirements of Sections 11.04 and 11.05, as they relate to the giving of an Opinion of Counsel. "Paying Agent" has the meaning provided in Section 2.03. "Permitted Holders" means the Principal and its Affiliates. "Permitted Indebtedness" means, without duplication, each of the following: (i) Indebtedness under the Notes in an aggregate principal amount not to exceed $175.0 million and Indebtedness under the Debentures; (ii) Indebtedness incurred pursuant to the New Revolving Credit Facility in an aggregate principal amount at any time outstanding not to exceed the greater of (a) $40.0 million and (b) the excess of (1) the sum of 50% of the book value of the inventory of the Company and its Restricted Subsidiaries and 65% of the book value of the accounts receivable of the Company and its Restricted Subsidiaries over (2) the amount of Indebtedness of foreign 23 -16- Restricted Subsidiaries of the Company outstanding pursuant to clause (xiv) below; (iii) other Indebtedness of the Company and its Restricted Subsidiaries outstanding on the Effective Date reduced by the amount of any scheduled amortization payments or mandatory prepayments when actually paid or permanent reductions thereon; (iv) Interest Swap Obligations of the Company or any of its Restricted Subsidiaries covering Indebtedness of the Company or any of its Restricted Subsidiaries; provided, however, that such Interest Swap Obligations are entered into to protect the Company and its Restricted Subsidiaries from fluctuations in interest rates on Indebtedness incurred in accordance with this Indenture to the extent the notional principal amount of such Interest Swap Obligation does not exceed the principal amount of the Indebtedness to which such Interest Swap Obligation relates; (v) Indebtedness under Currency Agreements; provided that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Company and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the Company to the Company or to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by the Company or a Wholly Owned Restricted Subsidiary of the Company; provided that if as of any date any Person other than the Company or a Wholly Owned Restricted Subsidiary of the Company owns or holds any such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness; (vii) Indebtedness of the Company to a Wholly Owned Restricted Subsidiary of the Company for so long as such Indebtedness is held by a Wholly Owned Restricted Subsidiary of the Company; provided that (a) any Indebtedness of the Company to any Wholly Owned Restricted Subsidiary of the Company is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under this Indenture and the Debentures and (b) if as of any date any 24 -17- Person other than a Wholly Owned Restricted Subsidiary of the Company owns or holds any such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the Company; (viii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five business days of incurrence; (ix) Indebtedness of the Company or any of its Restricted Subsidiaries represented by letters of credit for the account of the Company or such Restricted Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business; (x) Indebtedness represented by Capitalized Lease Obligations and Purchase Money Indebtedness of the Company and its Restricted Subsidiaries incurred in the ordinary course of business not to exceed the greater of $7.5 million and 5% of Consolidated Tangible Assets of the Company at any one time outstanding; (xi) Indebtedness arising from agreements of the Company or a Restricted Subsidiary of the Company providing for indemnification, adjustment of purchase price, earn out or other similar obligations, in each case incurred or assumed in connection with the disposition of any business, assets or a Restricted Subsidiary of the Company in a principal amount not to exceed the gross proceeds actually received by the Company or any of its Restricted Subsidiaries in connection with such disposition; (xii) obligations in respect of performance and surety bonds and completion guarantees provided by the Company or any Restricted Subsidiary of the Company in the ordinary course of business; (xiii) guarantees by the Company and its Wholly Owned Restricted Subsidiaries of each other's Indebtedness; provided that such Indebtedness is permitted to be incurred under this Indenture; 25 -18- (xiv) Indebtedness of foreign Restricted Subsidiaries of the Company incurred to finance working capital of such foreign Restricted Subsidiaries in an aggregate principal amount at any time outstanding not to exceed the sum of 50% of the book value of the inventory of such foreign Restricted Subsidiaries and 65% of the book value of the accounts receivable of such foreign Restricted Subsidiaries; (xv) Refinancing Indebtedness; and (xvi) additional Indebtedness of the Company and its Restricted Subsidiaries in an aggregate principal amount not to exceed $20.0 million at any one time outstanding (which amount may, but need not, be incurred in whole or in part under the New Revolving Credit Facility). "Permitted Investments" means: (i) Investments by the Company or any Restricted Subsidiary of the Company in any Person that is or will become immediately after such Investment a Wholly Owned Restricted Subsidiary of the Company or that will merge or consolidate into the Company or a Wholly Owned Restricted Subsidiary of the Company; (ii) Investments in the Company by any Restricted Subsidiary of the Company; provided that any Indebtedness evidencing such Investment is unsecured and subordinated, pursuant to a written agreement, to the Company's obligations under the Debentures and this Indenture; (iii) Investments in cash and Cash Equivalents; (iv) loans and advances to employees and officers of the Company and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $500,000 at any one time outstanding; (v) Currency Agreements and Interest Swap Obligations entered into in the ordinary course of the Company's or its Restricted Subsidiaries' businesses and otherwise in compliance with this Indenture; (vi) Investments not to exceed the greater of $7.5 million and 5% of Consolidated Tangible Assets of the Company at the time of such Investment at any one time outstanding; (vii) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (viii) Investments made by the Company or its Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale made in compliance with Section 4.16; (ix) accounts receivable created or acquired in the ordinary course of business; (x) guarantees (a) by the Company of Indebtedness otherwise permitted to be incurred by Restricted Subsidiaries of the Company under this Indenture or (b) by a Restricted Subsidiary of the Company of Indebtedness otherwise permitted to be incurred by the Com- 26 -19- pany or Restricted Subsidiaries of the Company under this Indenture; and (xi) Investments the payment for which consists exclusively of Qualified Capital Stock of the Company. "Person" means an individual, partnership, corporation, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "Physical Debentures" has the meaning provided in Section 2.01. "preferred stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "Preferred Stock" means the Company's 12 1/2% Senior Exchangeable Preferred Stock and the 12 1/2% Series B Senior Exchangeable Preferred Stock issued in accordance with the Certificate of Designation relating thereto. "principal" of any Indebtedness (including the Debentures) means the principal amount of such Indebtedness plus, when due, the premium, if any, on such Indebtedness. "Principal" means Cornerstone Equity Investors, L.L.C. "Proceeds Purchase Date" has the meaning provided in Section 4.16. "pro forma" means, with respect to any calculation made or required to be made pursuant to the terms of this Indenture, a calculation in accordance with Article 11 of Regulation S-X under the Securities Act, as determined by the Board of Directors of the Company. "Public Equity Offering" means an underwritten public offering of Qualified Capital Stock of the Company pursuant to a registration statement filed with the SEC in accordance with the Securities Act. "Purchase Money Indebtedness" means Indebtedness of the Company and its Restricted Subsidiaries incurred in the normal course of business for the purpose of financing all or any part of the purchase price, or the cost of installation, construction or improvement, of property or equipment. 27 -20- "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Recapitalization" means the recapitalization of the Company on the Effective Date pursuant to the Amended and Restated Recapitalization Agreement dated as of February 1, 1998, as amended, by and among Micron Electronics, Inc., MEI California, Inc. Cornerstone Equity Investors, IV, L.P. and the Company. "Record Date" means the Record Dates specified in the Debentures, whether or not a Legal Holiday. "Redemption Date," when used with respect to any Debenture to be redeemed, means the date fixed for such redemption pursuant to this Indenture and the Debentures. "Redemption Price," when used with respect to any Debenture to be redeemed, means the price fixed for such redemption pursuant to this Indenture and the Debentures. "Reference Date" has the meaning provided in Section 4.10. "Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means any Refinancing by the Company or any Restricted Subsidiary of the Company of (A) for purposes of clause (xv) of the definition of Permitted Indebtedness, Indebtedness incurred in accordance with Section 4.12 (other than pursuant to clauses (ii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi), (xii), (xiii), (xiv) or (xvi) of the definition of "Permitted Indebtedness") or (B) for any other purpose, Indebtedness incurred in accordance with Section 4.12, in each case that does not (1) result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed Refinancing (plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable expenses incurred by the Company in connection with such Refinancing) except to the extent such increase is otherwise permitted to be incurred under this Indenture or (2) create Indebtedness with a Weighted Average Life to 28 -21- Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced; provided that (x) if such Indebtedness being Refinanced is Indebtedness solely of the Company, then such Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if such Indebtedness being Refinanced is subordinate or junior to the Debentures, then such Refinancing Indebtedness is subordinate or junior to the Debentures at least to the same extent and in the same manner as the Indebtedness being Refinanced. "Registrar" has the meaning provided in Section 2.03. "Registration Rights Agreement" means the Registration Rights Agreement dated February 26, 1998 between the Company and the Initial Purchaser, as the same may be amended or modified from time to time in accordance with the terms thereof. "Replacement Assets" has the meaning provided in Section 4.16. "Representative" means the indenture trustee or other trustee, agent or representative in respect of any Designated Senior Debt; provided that if, and for so long as, any Designated Senior Debt lacks such a representative, then the Representative for such Designated Senior Debt shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Debt in respect of any Designated Senior Debt. "Restricted Payment" has the meaning provided in Section 4.10. "Restricted Subsidiary" of any Person means any Subsidiary of such Person which at the time of determination is not an Unrestricted Subsidiary. "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Company or a Restricted Subsidiary of any property, whether owned by the Company or any Restricted Subsidiary at the Issue Date or later acquired, which has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property. "SEC" means the Securities and Exchange Commission. 29 -22- "Secondary Debentures" has the meaning specified in paragraph 1 to the form of Debenture attached hereto as Exhibit A. "Securities Act" means, the Securities Act of 1933, as amended, or any successor statute or statutes thereto. "Senior Debt" means the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on any Indebtedness of the Company, whether outstanding on the Effective Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Debentures. Without limiting the generality of the foregoing, "Senior Debt" shall also include the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all other amounts owing in respect of, (w) all monetary obligations of every nature of the Company under the Notes, including, without limitation, obligations to pay principal and interest, (x) all monetary obligations (including guarantees thereof) of every nature of the Company under the New Revolving Credit Facility, including, without limitation, obligations to pay principal and interest, reimbursement obligations under letters of credit, fees, expenses and indemnities, (y) all Interest Swap Obligations (including guarantees thereof) and (z) all obligations (including guarantees thereof) under Currency Agreements, in each case whether outstanding on the Effective Date or thereafter incurred. Notwithstanding the foregoing, Senior Debt shall not include (i) any Indebtedness of the Company to a Subsidiary of the Company or any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii) Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer or employee of the Company or any Subsidiary of the Company (including, without limitation, amounts owed for compensation), (iii) Indebtedness to trade creditors and other amounts incurred in connection with obtaining goods, materials or services, (iv) Indebtedness represented by Disqualified Capital Stock, (v) any liability for federal, state, local or other taxes owed or owing by the Company, (vi) that portion of any Indebtedness incurred in violation of the provisions set forth under Section 4.12 30 -23- (but, as to any such obligation, no such violation shall be deemed to exist for purposes of this clause (vi) if the holder(s) of such obligation or their representative and the Trustee shall have received an Officers' Certificate of the Company to the effect that the incurrence of such Indebtedness does not (or, in the case of revolving credit indebtedness, that the incurrence of the entire committed amount thereof at the date on which the initial borrowing thereunder is made would not) violate such provisions of this Indenture), (vii) Indebtedness which, when incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to the Company and (viii) any Indebtedness (other than Indebtedness under the Notes) which is, by its express terms, subordinated in right of payment to any other Indebtedness of the Company. "Significant Subsidiary", with respect to any Person, means any Restricted Subsidiary of such Person that satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities Act. "Subsidiary", with respect to any Person, means (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. "Surviving Entity" has the meaning provided in Section 5.01. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except as otherwise provided in Section 9.04. "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer this Indenture, or in the case of a successor trustee, an officer assigned to the department, division or group performing the corporation trust work of such successor and assigned to administer this Indenture. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. 31 -24- "Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided that (x) the Company certifies to the Trustee that such designation complies with Section 4.10 and (y) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if (x) immediately after giving effect to such designation, the Company is able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.12 and (y) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. Government Obligations" means direct obligations of, and obligations guaranteed by, the United States of America for the payment of which the full faith and credit of the United States of America is pledged. "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final 32 -25- maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "Wholly Owned Restricted Subsidiary" of any Person means any Restricted Subsidiary of such Person of which all the outstanding voting securities (other than in the case of a foreign Restricted Subsidiary, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law) are owned by such Person or any Wholly Owned Restricted Subsidiary of such Person. SECTION 1.02. Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Debentures. "indenture security holder" means a Holder or a Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on these Debentures means the Company or any other obligor on the Debentures. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.03. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP as in effect on the date hereof; 33 -26- (3) "or" is not exclusive; (4) words in the singular include the plural, and words in the plural include the singular; and (5) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE TWO THE DEBENTURES SECTION 2.01. Form and Dating. The Debentures and the Trustee's certificate of authentication relating thereto shall be substantially in the form of Exhibit A hereto. The Debentures may have notations, legends or endorsements required by law, stock exchange rule or depository rule or usage. The Company and the Trustee shall approve the form of the Debentures and any notation, legend or endorsement on them. Each Debenture shall be dated the date of its authentication. The terms and provisions contained in the Debentures, annexed hereto as Exhibit A, shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Debentures shall be issued in the form of (i) one or more permanent Global Debentures (the "Global Debentures"), in registered form, substantially in the form of Exhibit A hereto deposited with the Trustee, as custodian for the Depository, duly executed by the Company and authenticated by the Trustee as hereinafter provided and shall bear the legends set forth in Section 2.15 and/or (ii) one or more permanent certificated Debentures, in registered form (the "Physical Debentures"), substantially in the form of Exhibit A. SECTION 2.02. Execution and Authentication; Aggregate Principal Amount. Two Officers, or an Officer and an Assistant Secretary, shall sign, or one Officer shall sign and one Officer or 34 -27- an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to, the Debentures for the Company by manual or facsimile signature. The Company's seal shall also be reproduced on the Debentures. If an Officer or Assistant Secretary whose signature is on a Debenture was an Officer or Assistant Secretary at the time of such execution but no longer holds that office or position at the time the Trustee authenticates the Debenture, the Debenture shall nevertheless be valid. A Debenture shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Debenture. The signature shall be conclusive evidence that the Debenture has been authenticated under this Indenture. The Trustee shall authenticate Debentures for original issue in the aggregate principal amount of the liquidation preference of the outstanding shares of Preferred Stock on the Exchange Date (including Preferred Stock issued in lieu of cash dividends on the Preferred Stock), plus accumulated and unpaid dividends (such Debentures to be substantially in the form of Exhibit A), upon receipt of a written order of the Company in the form of an Officers' Certificate. Such Officers' Certificate shall specify the amount of Debentures to be authenticated and the date on which the Debentures are to be authenticated. The aggregate principal amount of Debentures outstanding at any time may not exceed the principal amount of the liquidation preference of the outstanding shares of Preferred Stock on the Exchange Date (including Preferred Stock issued in lieu of cash dividends on the Preferred Stock), plus accumulated and unpaid dividends, except that the principal amount of Debentures outstanding at any time may exceed such amount, as provided in Section 2.07 hereof or if Secondary Debentures are issued in lieu of cash interest payments on the Debentures. If the Exchange Date occurs prior to an exchange offer effected pursuant to the Registration Rights Agreement, this Indenture shall permit (i) the Debentures to contain the appropriate restrictive legends as required by applicable law and (ii) upon the consummation of an exchange offer as contemplated by the Registration Rights Agreement, new Debentures to be issued in the same aggregate principal amount of Debentures as those exchanged therefor and with identical terms to the Debentures prior to the exchange offer, except that the new Debentures will not contain restrictive legends. 35 -28- The Trustee may appoint an authenticating agent (the "Authenticating Agent") reasonably acceptable to the Company to authenticate Debentures. Unless otherwise provided in the appointment, an Authenticating Agent may authenticate Debentures whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such Authenticating Agent. An Authenticating Agent has the same rights as an Agent to deal with the Company or with any Affiliate of the Company. The Debentures shall be issuable in fully registered form only, without coupons, in denominations of $1,000 and any integral multiple thereof; provided, however, that Debentures may be issued, at the option of the Company, in denominations of less than $1,000 (but not less than $1.00) upon the initial exchange of the Preferred Stock for the Debentures such that each holder of Preferred Stock shall receive Debentures in a principal amount equal to the full liquidation preference of the Preferred Stock on the Exchange Date (including Preferred Stock issued in lieu of cash dividends on the Preferred Stock), plus accumulated and unpaid dividends (as specified to the Trustee in the Officers' Certificate delivered pursuant to this Section 2.02); provided, further, however, that Secondary Debentures may be issued in denominations of less than $1,000 (but not less than $1.00). In the event that the Company shall issue and the Trustee shall authenticate any Debentures issued under this Indenture subsequent to the Exchange Date pursuant to paragraph 1 of the Debenture, the Company shall use its reasonable efforts to obtain the same "CUSIP" number for such Debentures as is printed on the Debentures outstanding at such time; provided, however, that if any series of Debentures issued under this Indenture subsequent to the Exchange Date is either determined, pursuant to an Opinion of Counsel of the Company in a form reasonably satisfactory to the Trustee, or deemed under standard practices to be a different class of security than the Debentures outstanding at such time for federal income tax purposes, the Company shall obtain a "CUSIP" number for such Debentures that is different than the "CUSIP" number printed on the Debentures then outstanding. Notwithstanding the foregoing, all Debentures issued under this Indenture shall vote and consent together on all matters (as to which any of such Debentures may vote or consent) as one class and no series of Debentures will have the right to vote or consent as a separate class on any matter. 36 -29- SECTION 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency (which shall be located in the Borough of Manhattan in the City of New York, State of New York) where (a) Debentures may be presented or surrendered for registration of transfer ("Registrar"), (b) Debentures may be presented or surrendered for payment ("Paying Agent") and (c) notices and demands to or upon the Company in respect of the Debentures and this Indenture may be served. The Registrar shall keep a register of the Debentures and of their transfer and exchange. The Company, upon prior written notice to the Trustee, may have one or more co-Registrars and one or more additional paying agents reasonably acceptable to the Trustee. The term "Paying Agent" includes any additional Paying Agent. Neither the Company nor any Affiliate of the Company may act as Paying Agent. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall incorporate the provisions of the TIA and implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee, in advance, of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such. The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of demands and notices in connection with the Debentures, until such time as the Trustee has resigned or a successor has been appointed. The Paying Agent or Registrar may resign upon 30 days notice to the Company. SECTION 2.04. Paying Agent To Hold Assets in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, or interest on, the Debentures (whether such assets have been distributed to it by the Company or any other obligor on the Debentures), and the Company and the Paying Agent shall notify the Trustee of any Default by the Company (or any other obligor on the Debentures) in making any such payment. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the 37 -30- continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to the Paying Agent, the Paying Agent shall have no further liability for such assets. SECTION 2.05. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Holders. If the Trustee is not the Registrar, the Company shall furnish or cause the Registrar to furnish to the Trustee five (5) Business Days before each Record Date and at such other times as the Trustee may request in writing a list as of such date and in such form as the Trustee may reasonably require of the names and addresses of the Holders, which list may be conclusively relied upon by the Trustee. SECTION 2.06. Transfer and Exchange. Subject to the provisions of Section 2.15 and 2.16, when Debentures are presented to the Registrar or a co-Registrar with a request to register the transfer of such Debentures or to exchange such Debentures for an equal principal amount of Debentures of other authorized denominations, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided, however, that the Debentures presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall execute and the Trustee shall authenticate Debentures at the Registrar's or co-Registrar's request. No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchanges or transfers pursuant to Sections 2.10, 3.06, 4.15, 4.16 or 9.06, in which event the Company shall be responsible for the payment of such taxes). 38 -31- The Registrar or co-Registrar shall not be required to register the transfer of or exchange of any Debenture (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Debentures and ending at the close of business on the day of such mailing and (ii) selected for redemption in whole or in part pursuant to Article Three, except the unredeemed portion of any Debenture being redeemed in part. SECTION 2.07. Replacement Debentures. If a mutilated Debenture is surrendered to the Trustee or if the Holder of a Debenture claims that the Debenture has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Debenture if the Trustee's requirements are met. If required by the Trustee or the Company, such Holder must provide an affidavit of lost certificate and an indemnity bond or other indemnity, sufficient in the judgment of both the Company and the Trustee, to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Debenture is replaced. The Company may charge such Holder for its reasonable, out-of-pocket expenses in replacing a Debenture, including reasonable fees and expenses of counsel. Every replacement Debenture shall constitute an additional obligation of the Company. SECTION 2.08. Outstanding Debentures. Debentures outstanding at any time are all the Debentures that have been authenticated by the Trustee except those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Subject to the provisions of Section 2.09, a Debenture does not cease to be outstanding because the Company or any of its Affiliates holds the Debenture. If a Debenture is replaced pursuant to Section 2.07 (other than a mutilated Debenture surrendered for replacement), it ceases to be outstanding unless the Trustee receives an Opinion of Counsel that the replaced Debenture is held by a bona fide purchaser. A mutilated Debenture ceases to be outstanding upon surrender of such Debenture and replacement thereof pursuant to Section 2.07. If on a Redemption Date or the Maturity Date the Paying Agent holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the principal and interest due on the Debentures payable on that date and is not prohibited 39 -32- from paying such money to the Holders thereof pursuant to the terms of this Indenture, then on and after that date such Debentures cease to be outstanding and interest on them ceases to accrue. SECTION 2.09. Treasury Debentures. In determining whether the Holders of the required principal amount of Debentures have concurred in any direction, waiver, consent or notice, Debentures owned by the Company or any of its Affiliates shall be considered as though they are not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Debentures which a Trust Officer of the Trustee actually knows are so owned shall be so considered. The Company shall notify the Trustee, in writing, when it or any of its Affiliates repurchases or otherwise acquires Debentures, of the aggregate principal amount of such Debentures so repurchased or otherwise acquired. SECTION 2.10. Temporary Debentures. Until definitive Debentures are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Debentures upon receipt of a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of temporary Debentures to be authenticated and the date on which the temporary Debentures are to be authenticated. Temporary Debentures shall be substantially in the form of definitive Debentures but may have variations that the Company considers appropriate for temporary Debentures. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate upon receipt of a written order of the Company pursuant to Section 2.02 definitive Debentures in exchange for temporary Debentures. SECTION 2.11. Cancellation. The Company at any time may deliver Debentures to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Debentures surrendered to them for transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent, and no one else, shall cancel and, at the written direction of the Company, shall dispose of all Debentures surrendered for transfer, exchange, payment or cancellation. Subject to Section 2.07, the Company may not issue new Debentures to replace Debentures that it has paid or delivered to the Trustee for can- 40 -33- cellation. If the Company shall acquire any of the Debentures, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Debentures unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.11. SECTION 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Debentures, it shall pay the defaulted interest, plus (to the extent lawful) any interest payable on the defaulted interest at the rate of interest then borne by the Debentures to the Persons who are Holders on a subsequent special record date, which date shall be the fifteenth day next preceding the date fixed by the Company for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. At least 15 days before the subsequent special record date, the Company shall mail to each Holder, as of a recent date selected by the Company, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. SECTION 2.13. CUSIP Numbers. The Company in issuing the Debentures may use one or more "CUSIP" numbers, and if so, the Trustee shall use the CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided that no representation is hereby deemed to be made by the Trustee as to the correctness or accuracy of the CUSIP number printed in the notice or on the Debentures, and that reliance may be placed only on the other identification numbers printed on the Debentures. The Company shall promptly notify the Trustee of any change in the CUSIP numbers. SECTION 2.14. Deposit of Moneys or Preferred Stock. Except where the Company has elected to pay interest in Secondary Debentures in accordance with paragraph 1 of the Debentures, prior to 10:00 a.m. New York City time on each Interest Payment Date and on the Maturity Date, the Company shall have deposited with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such Interest Payment Date or Maturity Date, as the case may be, in a timely manner which permits the Paying Agent to remit 41 -34- payment to the Holders on such Interest Payment Date or Maturity Date, as the case may be. In the event Secondary Debentures will be issued in lieu of cash interest payments on the Debentures in accordance with paragraph 1 of the Debentures, prior to 10:00 a.m. New York City time on the day prior to each applicable Record Date, the Company shall authorize the Trustee to authenticate the specified amount of Secondary Debentures by transmitting to the Trustee a written order in the form of an Officer's Certificate. 2.15 Restrictive Legends. Each Global Note shall also bear the following legend on the face thereof: UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE. 42 -35- SECTION 2.16. Book-Entry Provisions for Global Security. (a) Any Global Debenture initially shall (i) be registered in the name of the Depository or the nominee of such Depository, (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in Section 2.15. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Debenture held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Debenture, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Debenture for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Debenture. (b) Transfers of the Global Debenture shall be limited to transfers in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Note may be transferred or, subject to Section 2.01, exchanged for Physical Debentures in accordance with the rules and procedures of the Depository. In addition, Physical Debentures shall be transferred to all beneficial owners in exchange for their beneficial interests in the Global Debenture if (i) the Depository notifies the Company that it is unwilling or unable to continue as Depository for the Global Debenture and a successor depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from the Depository to issue Physical Debentures. (c) In connection with any transfer or exchange of a portion of the beneficial interest in the Global Debenture to beneficial owners pursuant to paragraph (b), the Registrar shall (if one or more Physical Debentures are to be issued) reflect on its books and records the date and a decrease in the principal amount of the Global Debenture in an amount equal to the principal amount of the beneficial interest in the Global Debenture to be transferred, and the Company shall execute, and 43 -36- the Trustee shall authenticate and deliver, one or more Physical Debentures of like tenor and amount. (d) In connection with the transfer of the entire Global Debenture to beneficial owners pursuant to paragraph (b), the Global Debenture shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depository in exchange for its beneficial interest in the Global Debenture, an equal aggregate principal amount of Physical Debentures of authorized denominations. (e) The Holder of the Global Debenture may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Debenture. ARTICLE THREE REDEMPTION SECTION 3.01. Notices to Trustee. If the Company elects to redeem Debentures pursuant to Paragraph 6 (a) or (b) of the Debentures, it shall notify the Trustee and the Paying Agent in writing of the Redemption Date and the principal amount of the Debentures to be redeemed. Except as set forth in the succeeding paragraph, the Company shall give each notice provided for in this Section 3.01 at least 30 days, but not more than 60 days, before the Redemption Date (unless a shorter notice period shall be satisfactory to the Trustee, as evidenced in a writing signed on behalf of the Trustee), together with an Officers' Certificate stating that such redemption shall comply with the conditions contained herein and in the Debentures. If the Company is required to make an offer to redeem Debentures pursuant to the provisions of Section 4.15 or 4.16 hereof, it shall furnish to the Trustee at least 30 days but not more than 60 days before a Redemption Date, in the case of an offer to redeem pursuant to Section 4.16 and at least 60 days but not more than 90 days before a Redemption Date, in the case of an offer to redeem pursuant to Section 4.15 (or such 44 -37- shorter period as may be agreed to by the Trustee in writing), an Officers' Certificate setting forth (i) the Section of this Indenture pursuant to which the redemption shall occur, (ii) the Redemption Date, (iii) the principal amount of Debentures to be redeemed, (iv) the redemption price and (v) a statement to the effect that (a) the Company or one of its Restricted Subsidiaries has effected an Asset Sale and the conditions set forth in Section 4.16 have been satisfied or (b) a Change of Control has occurred and the conditions set forth in Section 4.15 have been satisfied, as applicable. SECTION 3.02. Selection of Debentures To Be Redeemed. If fewer than all of the Debentures are to be redeemed, selection of the Debentures to be redeemed will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Debentures are listed or, if the Debentures are not then listed on a national securities exchange, on a pro rata basis, by lot or in such other fair and reasonable manner chosen at the discretion of the Trustee; provided, however, that if a partial redemption is made with the proceeds of a Public Equity Offering, selection of the Debentures or portion thereof for redemption shall be made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as practicable (subject to the Depository's procedures), unless such method is otherwise prohibited. The Company shall promptly notify the Trustee and the Paying Agent in writing of the date of listing and the name of the securities exchange if and when the Debentures are listed on a principal national securities exchange. The Trustee shall make the selection from the Debentures outstanding and not previously called for redemption and shall promptly notify the Company in writing of the Debentures selected for redemption and, in the case of any Debenture selected for partial redemption, the principal amount thereof to be redeemed. Debentures in denominations of $1,000 or less may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Debentures that have denominations larger than $1,000. Provisions of this Indenture that apply to Debentures called for redemption also apply to portions of Debentures called for redemption. On and after the date of redemption, interest will cease to accrue on the Debentures or portions thereof called for redemption as long as the Company has deposited with the Paying Agent funds in satisfaction of the applicable redemption price pursuant to this Indenture. 45 -38- SECTION 3.03. Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail or cause to be mailed a notice of redemption by first class mail, postage prepaid, to each Holder whose Debentures are to be redeemed, with a copy to the Trustee and any Paying Agent. At the Company's written request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. Each notice for redemption shall identify the Debentures to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price and the amount of accrued interest, if any, to be paid; (3) the name and address of the Paying Agent; (4) the subparagraph of the Debentures pursuant to which such redemption is being made; (5) that Debentures called for redemption must be surrendered to the Paying Agent to collect the Redemption Price plus accrued interest, if any; (6) that, unless the Company defaults in making the redemption payment, interest on Debentures called for redemption ceases to accrue on and after the Redemption Date, and the only remaining right of the Holders of such Debentures is to receive payment of the Redemption Price plus accrued interest, if any, upon surrender to the Paying Agent of the Debentures redeemed; (7) if any Debenture is being redeemed in part, the portion of the principal amount of such Debenture to be redeemed and that, after the Redemption Date, and upon surrender of such Debenture, a new Debenture or Debentures in the aggregate principal amount equal to the unredeemed portion thereof will be issued; and (8) if fewer than all the Debentures are to be redeemed, the identification of the particular Debentures (or portion thereof) to be redeemed, as well as the aggregate principal amount of Debentures to be redeemed and the aggregate principal amount of Debentures to be outstanding after such partial redemption. 46 -39- SECTION 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03, Debentures called for redemption become due and payable on the Redemption Date and at the Redemption Price plus accrued interest, if any. Upon surrender to the Trustee or Paying Agent, such Debentures called for redemption shall be paid at the Redemption Price (which shall include accrued interest thereon to the Redemption Date, except that installments of interest, the maturity of which is on or prior to the Redemption Date, shall be payable to Holders of record at the close of business on the relevant record dates referred to in the Debentures). SECTION 3.05. Deposit of Redemption Price. On or before 10:00 a.m. New York City time on the Redemption Date, the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price plus accrued interest, if any, of all Debentures to be redeemed on that date. The Paying Agent shall promptly return to the Company any U.S. Legal Tender so deposited which is not required for that purpose, except with respect to monies owed as obligations to the Trustee pursuant to Article Seven. If the Company complies with the preceding paragraph, then, unless the Company defaults in the payment of such Redemption Price plus accrued interest, if any, interest on the Debentures to be redeemed will cease to accrue on and after the applicable Redemption Date, whether or not such Debentures are presented for payment. SECTION 3.06. Debentures Redeemed in Part. Upon surrender of a Debenture that is to be redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder a new Debenture or Debentures equal in principal amount to the unredeemed portion of the Debenture surrendered. 47 -40- ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Debentures. The Company shall pay the principal of and interest on the Debentures on the dates and in the manner provided in the Debentures and in this Indenture. An installment of principal of or interest on the Debentures shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company or an Affiliate of the Company) holds on that date U.S. Legal Tender designated for and sufficient to pay the installment in full and is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture. The Company shall pay, to the extent such payments are lawful, interest on overdue principal and on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the rate borne by the Debentures. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Notwithstanding anything to the contrary contained in this Indenture, the Company may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal or interest payments hereunder. SECTION 4.02. Maintenance of Office or Agency. The Company shall maintain the office or agency required under Section 2.03. The Company shall give prior written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee set forth in Section 11.02. SECTION 4.03. Corporate Existence. Except as otherwise permitted by Article Five and Section 4.16, the Company shall do or cause to be done, at its own cost and expense, all things necessary to preserve and keep 48 -41- in full force and effect its corporate existence and the corporate existence of each of its Restricted Subsidiaries in accordance with the respective organizational documents of each such Restricted Subsidiary and the material rights (charter and statutory) and franchises of the Company and each such Restricted Subsidiary. SECTION 4.04. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or any of its Subsidiaries or properties of it or any of its Subsidiaries and (ii) all lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of it or any of its Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings properly instituted and diligently conducted for which adequate reserves, to the extent required under GAAP, have been taken. SECTION 4.05. Maintenance of Properties and Insurance. (a) The Company shall, and shall cause each of its Restricted Subsidiaries to, maintain its material properties in good working order and condition (subject to ordinary wear and tear) and make all necessary repairs, renewals, replacements, additions, betterments and improvements thereto, all as in the judgment of the Company or such Restricted Subsidiary may be appropriate in order to conduct and carry on its business; provided, however, that nothing in this Section 4.05 shall prevent the Company or any of its Restricted Subsidiaries from discontinuing the operation and maintenance of any of its properties, if such discontinuance is, in the good faith judgment of the Board of Directors of the Company or the Restricted Subsidiary, as the case may be, desirable in the conduct of their respective businesses. (b) The Company shall provide or cause to be provided, for itself and each of its Restricted Subsidiaries, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the good faith judgment of the 49 -42- Board of Directors of the Company, are adequate and appropriate for the conduct of the business of the Company and such Restricted Subsidiaries, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be customary, in the good faith judgment of the Board of Directors of the Company, for companies similarly situated in the industry. SECTION 4.06. Compliance Certificate; Notice of Default. (a) The Company shall deliver to the Trustee, within (i) 90 days after the end of the Company's fiscal year, and (ii) 15 days after the Trustee's written request stating that the Trustee has a reasonable basis to believe an Event of Default has occurred, an Officers' Certificate stating that a review of its activities and the activities of its Subsidiaries during the preceding fiscal year, in the case of (a)(i) of this Section 4.06, or the preceding four fiscal quarters in the case of (a)(ii) of this Section 4.06, has been made under the supervision of the signing Officers with a view to determining whether the Company has complied with its obligations under this Indenture and further stating, as to each such Officer signing such certificate, that to the best of such Officer's knowledge the Company during such preceding fiscal year has complied with each and every such covenant and no Default or Event of Default occurred during such year and at the date of such certificate there is no Default or Event of Default that has occurred and is continuing or, if such signers do know of such Default or Event of Default, the certificate shall describe the Default or Event of Default and its status with particularity. The Officers' Certificate shall also notify the Trustee should the Company elect to change the manner in which it fixes its fiscal year end. (b) The annual financial statements delivered pursuant to Section 4.08 shall be accompanied by a written report of the Company's independent accountants (who shall be a firm of established national reputation) that in conducting their audit of such financial statements nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Article Four, Five or Six of this Indenture insofar as they relate to accounting matters or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. 50 -43- (c) (i) If any Default or Event of Default has occurred and is continuing or (ii) if any Holder seeks to exercise any remedy hereunder with respect to a claimed Default under this Indenture or the Debentures, the Company shall deliver to the Trustee, at its address set forth in Section 11.02 hereof, by registered or certified mail or by telegram, telex or facsimile transmission followed by hard copy by registered or certified mail an Officers' Certificate specifying such event, notice or other action within five Business Days of its becoming aware of such occurrence. SECTION 4.07. Compliance with Laws. The Company shall comply, and shall cause each of its Restricted Subsidiaries to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities thereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except for such noncompliances as are not in the aggregate reasonably likely to have a material adverse effect on the financial condition or results of operations of the Company and its Restricted Subsidiaries, taken as a whole. SECTION 4.08. SEC Reports. (a) Upon consummation of the Exchange Offer (as defined in the Registration Rights Agreement) and so long as the Debentures are outstanding, the Company (at its own expense) shall file with the SEC and shall file with the Trustee within 15 days after it files them with the SEC copies of the quarterly and annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) to be filed pursuant to Section 13 or 15(d) of the Exchange Act (without regard to whether the Company is subject to the requirements of such Section 13 or 15(d) of the Exchange Act). (b) At the Company's expense, the Company shall cause an annual report if furnished by it to stockholders generally and each quarterly or other financial report if furnished by it to stockholders generally to be filed with the Trustee and mailed to the Holders at their addresses appearing in the register of Debentures maintained by the Registrar at the time of such mailing or furnishing to stockholders. 51 -44- SECTION 4.09. Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Debentures as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.10. Limitation on Restricted Payments. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Capital Stock of the Company) on or in respect of shares of the Company's Capital Stock to holders of such Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any warrants, rights or options to purchase or acquire shares of any class of such Capital Stock, (c) make any principal payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for value, prior to any scheduled final maturity, scheduled repayment or scheduled sinking fund payment, any Indebtedness of the Company that is subordinate or junior in right of payment to the Debentures or (d) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (a), (b), (c) and (d) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Default or an Event of Default shall have occurred and be continuing or (ii) the Company is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.12 or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Effective Date (the amount expended for such purposes, if other than in cash, being the fair market 52 -45- value of such property as determined reasonably and in good faith by the Board of Directors of the Company) shall exceed the sum of: (w) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Company earned subsequent to February 26, 1998 and on or prior to the date the Restricted Payment occurs (the "Reference Date") (treating such period as a single accounting period); plus (x) 100% of the aggregate net cash proceeds received by the Company from any Person (other than a Subsidiary of the Company) from the issuance and sale subsequent to the Effective Date and on or prior to the Reference Date of Qualified Capital Stock of the Company; plus (y) without duplication of any amounts included in clause (iii)(x) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Company from a holder of the Company's Capital Stock); plus (z) without duplication, the sum of (1) the aggregate amount returned in cash on or with respect to Investments (other than Permitted Investments) made subsequent to the Effective Date whether through interest payments, principal payments, dividends or other distributions or payments, (2) the net cash proceeds received by the Company or any of its Restricted Subsidiaries from the disposition of all or any portion of such Investments (other than to a Subsidiary of the Company) and (3) upon redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary; provided, however, that the sum of clauses (1), (2) and (3) above shall not exceed the aggregate amount of all such Investments made subsequent to the Effective Date. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (1) the payment of any dividend or the consummation of any irrevocable redemption within 60 days after the date of declaration of such dividend or notice of such redemption if the dividend or the payment of the redemption price, as the case may be, would have been permitted on the date of declaration or notice; (2) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any shares of Capital Stock of the Company, either (i) solely in exchange for shares of Qualified Capital Stock of the Company or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the Company; (3) if no Default or Event of Default shall have occurred and be continuing, the acquisition of any Indebtedness of the Company that is subordinate or junior in right of payment to the Debentures either (i) solely in exchange for shares of Qualified Capital Stock of the Company, or (ii) through the application of net proceeds of 53 -46- a substantially concurrent sale for cash (other than to a Subsidiary of the Company) of (A) shares of Qualified Capital Stock of the Company or (B) Refinancing Indebtedness; (4) payments for the purpose of and in an amount equal to the amount required to permit the Company to redeem or repurchase its equity or options in respect thereof, in each case in connection with the terms of any employee stock option or stock purchase agreements or other agreements to compensate management or other employees; provided that such redemptions or repurchases pursuant to this clause (4) shall not exceed $3.0 million (which amount shall be increased by the amount of any net cash proceeds to the Company from (x) sales of Capital Stock of the Company to management or other employees subsequent to the Effective Date to the extent such amounts have not been included in clause (iii) in the foregoing paragraph and (y) any "key-man" life insurance policies which are used to make such redemptions or repurchases) in the aggregate; provided, further, that the cancellation of Indebtedness owing to the Company from management or other employees of the Company or any of its Restricted Subsidiaries in connection with a repurchase of Capital Stock of the Company will not be deemed to constitute a Restricted Payment under this Indenture; (5) repurchases of Capital Stock deemed to occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price thereof; (6) so long as no Default or Event of Default shall have occurred and be continuing, payments not to exceed $500,000 in the aggregate to enable the Company to make payments to holders of its Capital Stock in lieu of issuance of fractional shares of its Capital Stock; (7) payments or other distributions made in connection with the Recapitalization; and (8) if no Default or Event of Default shall have occurred and be continuing, other Restricted Payments in an aggregate amount not to exceed $10.0 million. In determining the aggregate amount of Restricted Payments made subsequent to the Effective Date in accordance with clause (iii) of the immediately preceding paragraph, (a) amounts expended (to the extent such expenditure is in the form of cash) pursuant to clauses (1), (2)(ii), (4) and (8) shall be included in such calculation; provided that such expenditures pursuant to clause (4) shall not be included to the extent of cash proceeds received by the Company from any "key-man" life insurance policies and (b) amounts expended pursuant to clauses (2)(i), (3), (5), (6) and (7) shall be excluded from such calculation. 54 -47- SECTION 4.11. Limitation on Transactions with Affiliates. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with, or for the benefit of, any of its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate Transactions permitted under paragraph (b) below and (y) Affiliate Transactions on terms that are not materially less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arm's-length basis from a Person that is not an Affiliate of the Company or such Restricted Subsidiary. All Affiliate Transactions (and each series of related Affiliate Transactions which are similar or part of a common plan) involving aggregate payments or other property with a fair market value in excess of $1.0 million shall be approved by the Board of Directors of the Company or such Restricted Subsidiary, as the case may be, such approval to be evidenced by a Board Resolution stating that such Board of Directors has determined that such transaction complies with the foregoing provisions. If the Company or any Restricted Subsidiary of the Company enters into an Affiliate Transaction (or a series of related Affiliate Transactions related to a common plan) that involves an aggregate fair market value of more than $10.0 million, the Company or such Restricted Subsidiary, as the case may be, shall, prior to the consummation thereof, obtain a favorable opinion as to the fairness of such transaction or series of related transactions to the Company or the relevant Restricted Subsidiary, as the case may be, from a financial point of view, from an Independent Financial Advisor and file the same with the Trustee. (b) The restrictions set forth in clause (a) shall not apply to (i) reasonable fees and compensation paid to and indemnity provided on behalf of officers, directors, employees or consultants of the Company or any Restricted Subsidiary of the Company as determined in good faith by the Company's Board of Directors or senior management (including, without limitation, fees and compensation under the Management Services Agreement with the Principal as in effect on the Effective Date); (ii) transactions exclusively between or among the Company and any of its Restricted Subsidiaries or exclusively between or among such Restricted Subsidiaries, provided such transactions are not otherwise prohibited by this Indenture; (iii) any agreement as in effect as of the Effective Date or 55 -48- any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Effective Date; (iv) Restricted Payments permitted by this Indenture; (v) the existence of, or the performance by the Company or any of its Restricted Subsidiaries of its obligations under the terms of, any stockholders agreement (including any registration rights agreement or purchase agreement related thereto) to which it is a party as of the Effective Date and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by the Company or any of its Restricted Subsidiaries of obligations under, any future amendment to any such existing agreement or under any similar agreement entered into after the Effective Date shall only be permitted by this clause (v) to the extent that the terms of any such amendment or new agreement are not otherwise disadvantageous to the Holders of the Debentures in any material respect; (vi) transactions permitted by, and complying with, the provisions of Article Five; (vii) the Recapitalization and the transactions contemplated by the Recapitalization Agreement; and (viii) transactions with customers, clients, suppliers, joint venture partners or purchasers or sellers of goods or services, in each case in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of this Indenture, which are fair to the Company or its Restricted Subsidiaries, in the reasonable determination of the Board of Directors of the Company or the senior management thereof, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party. SECTION 4.12. Limitation on Incurrence of Additional Indebtedness. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness); provided, however, that if no Default or Event of Default shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, the Company may incur Indebtedness (including, without limitation, Acquired Indebtedness) and Restricted Subsidiaries of the Company may incur Acquired Indebtedness, in 56 -49- each case if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater than 2.0 to 1.0. SECTION 4.13. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company will not, and will not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (a) pay dividends or make any other distributions on or in respect of its Capital Stock; (b) make loans or advances or to pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary of the Company; or (c) transfer any of its property or assets to the Company or any other Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of: (1) applicable law; (2) this Indenture, the Note Indenture and the New Revolving Credit Facility; (3) non-assignment provisions of any contract or any lease; (4) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired; (5) agreements existing on the Effective Date to the extent and in the manner such agreements are in effect on the Effective Date; (6) restrictions on the transfer of assets subject to any Lien imposed by the holder of such Lien; (7) restrictions imposed by any agreement to sell assets or Capital Stock permitted under this Indenture to any Person pending the closing of such sale; (8) any agreement or instrument governing Capital Stock of any Person that is acquired; (9) any agreement or instrument governing Indebtedness (whether or not outstanding) of foreign Restricted Subsidiaries of the Company permitted to be incurred pursuant to this Indenture; (10) other Indebtedness permitted to be incurred subsequent to the Effective Date pursuant to the provisions of Section 4.12; provided that any such restrictions are ordinary and customary with respect to the type of Indebtedness being incurred (under the relevant circumstances); (11) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; and (12) any encumbrances or restrictions imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instru- 57 -50- ments or obligations referred to in clauses (2) through (11) above; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Company's Board of Directors, no more restrictive with respect to such dividend and other payment restrictions than those contained in the dividend or other payment restrictions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing. SECTION 4.14. Limitation on Preferred Stock of Restricted Subsidiaries. The Company shall not permit any of its Restricted Subsidiaries to issue any preferred stock (other than to the Company or to a Wholly Owned Restricted Subsidiary of the Company) or permit any Person (other than the Company or a Wholly Owned Restricted Subsidiary of the Company) to own any preferred stock of any Restricted Subsidiary of the Company. SECTION 4.15. Change of Control. (a) Upon the occurrence of a Change of Control, the Company shall make an offer to purchase all outstanding Debentures pursuant to the offer described in paragraph (b) below (the "Change of Control Offer") at a purchase price equal to 101% of the principal amount thereof plus accrued interest, if any, to the date of purchase. Prior to the mailing of the notice referred to below, but in any event within 60 days following any Change of Control, the Company shall (i) repay in full and terminate all commitments under Indebtedness under the Note Indenture, the New Revolving Credit Facility and all other Senior Debt the terms of which require repayment upon a Change of Control or offer to repay in full and terminate all commitments under all Indebtedness under the Note Indenture, the New Revolving Credit Facility and all other such Senior Debt and to repay the Indebtedness owed to each lender which has accepted such offer or (ii) obtain the requisite consents under the Note Indenture, the New Revolving Credit Facility and all other Senior Debt to permit the repurchase of the Debentures as provided below. The Company shall first comply with the covenant in the immediately preceding sentence before it shall be required to repurchase Debentures pursuant to the provisions described in this Section 4.15. The Company's failure to comply with the immediately preceding two sentences shall constitute an Event of Default under Section 6.01(3) and not under Section 6.01(2). 58 -51- (b) Within 60 days following the date upon which the Change of Control occurred (the "Change of Control Date"), the Company shall send, by first class mail, a notice to each Holder, with a copy to the Trustee, which notice shall govern the terms of the Change of Control Offer. The notice to the Holders shall contain all instructions and materials necessary to enable such Holders to tender Debentures pursuant to the Change of Control Offer. Such notice shall state: (1) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Debentures tendered and not withdrawn will be accepted for payment; (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be no earlier than 60 days nor later than 90 days from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); (3) that any Debenture not tendered will continue to accrue interest; (4) that, unless the Company defaults in making payment therefor, any Debenture accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have a Debenture purchased pursuant to a Change of Control Offer will be required to surrender the Debenture, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Debenture completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than five Business Days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Debentures the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Debentures purchased; (7) that Holders whose Debentures are purchased only in part will be issued new Debentures in a principal amount equal to the unpurchased portion of the Debentures 59 -52- surrendered; provided that each Debenture purchased and each new Debenture issued shall be in an original principal amount of $1,000 or integral multiples thereof; and (8) the circumstances and relevant facts regarding such Change of Control. On or before the Change of Control Payment Date, the Company shall (i) accept for payment Debentures or portions thereof validly tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price plus accrued interest, if any, of all Debentures so tendered and (iii) deliver to the Trustee Debentures so accepted together with an Officers' Certificate stating the Debentures or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Debentures so accepted payment in an amount equal to the purchase price plus accrued interest, if any, and the Trustee shall promptly authenticate and mail to such Holders new Debentures equal in principal amount to any unpurchased portion of the Debentures surrendered. Any Debentures not so accepted shall be promptly mailed by the Company to the Holder thereof. For purposes of this Section 4.15, the Trustee shall act as the Paying Agent. Any amounts remaining after the purchase of Debentures pursuant to a Change of Control Offer shall be returned by the Trustee to the Company. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Debentures pursuant to a Change of Control Offer. To the extent the provisions of any securities laws or regulations conflict with this Section 4.15, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.15 by virtue thereof. SECTION 4.16. Limitation on Asset Sales. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or the applicable Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined in good faith by the 60 -53- Company's Board of Directors), (ii) at least 75% of the consideration received by the Company or the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the form of cash or Cash Equivalents and is received at the time of such disposition; and (iii) upon the consummation of an Asset Sale, the Company shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within 365 days of receipt thereof either (A) to prepay any Senior Debt (and, in the case of any Senior Debt under any revolving credit facility, including the New Revolving Credit Facility, effect a permanent reduction in the availability under such revolving credit facility), (B) to make an investment in properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets of a kind used or usable in the business of the Company and its Restricted Subsidiaries ("Replacement Assets"), or (C) a combination of prepayment and investment permitted by the foregoing clauses (iii)(A) and (iii)(B). On the 366th day after an Asset Sale or such earlier date, if any, as the Board of Directors of the Company or of such Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have not been applied on or before such Net Proceeds Offer Trigger Date as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company or such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 60 days following the applicable Net Proceeds Offer Trigger Date (or if the Net Proceeds Offer has been deferred as described in the last sentence of this paragraph, the date that the unutilized Net Proceeds Offer Amount equals or exceeds $7.5 million), from all Holders on a pro rata basis, that amount of Debentures equal to the Net Proceeds Offer Amount at a price equal to 100% of the principal amount of the Debentures to be purchased, plus accrued and unpaid interest thereon, if any, to the date of purchase; provided, however, that if at any time any non-cash consideration received by the Company or any Restricted Subsidiary of the Company, as the case may be, in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash (other than interest received with respect to any such non-cash consideration), then such conversion or disposition shall be deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be applied in accordance with this covenant. The Company may defer the Net Proceeds Offer until there is an ag- 61 -54- gregate unutilized Net Proceeds Offer Amount equal to or in excess of $7.5 million resulting from one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and not just the amount in excess of $7.5 million, shall be applied as required pursuant to this paragraph). In the event of the transfer of substantially all (but not all) of the property and assets of the Company and its Restricted Subsidiaries as an entirety to a Person in a transaction permitted under Article Five, the successor corporation shall be deemed to have sold the properties and assets of the Company and its Restricted Subsidiaries not so transferred for purposes of this covenant, and shall comply with the provisions of this covenant with respect to such deemed sale as if it were an Asset Sale. In addition, the fair market value of such properties and assets of the Company or its Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this covenant. Each Net Proceeds Offer will be mailed to the record Holders as shown on the register of Holders within 25 days following the Net Proceeds Offer Trigger Date (or if the Net Proceeds Offer has been deferred as described in the first paragraph of this Section 4.16(a), the date that the aggregate unutilized Net Proceeds Offer Amount equals or exceeds $7.5 million), with a copy to the Trustee, and shall comply with the procedures set forth in this Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect to tender their Debentures in whole or in part in integral multiples of $1,000 in exchange for cash. To the extent Holders properly tender Debentures in an amount exceeding the Net Proceeds Offer Amount, Debentures of tendering Holders will be purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open for a period of at least 20 and not more than 30 Business Days or such longer period as may be required by law. To the extent that the aggregate amount of Debentures tendered pursuant to a Net Proceeds Offer is less than the Net Proceeds Offer Amount, the Company may use any remaining Net Proceeds Offer Amount for general corporate purposes. Upon completion of any such Net Proceeds Offer, the Net Proceeds Offer Amount shall be reset at zero. (b) Subject to the deferral of the Net Proceeds Offer Trigger Date contained in the first paragraph of subsection (a) above, each notice of a Net Proceeds Offer pursuant to this Section 4.16 shall be mailed or caused to be mailed, by first class mail, by the Company not more than 25 days after the Net Proceeds Offer Trigger Date to all Holders at their last regis- 62 -55- tered addresses as of a date within 15 days of the mailing of such notice, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Debentures pursuant to the Net Proceeds Offer and shall state the following terms: (1) that the Net Proceeds Offer is being made pursuant to Section 4.16 and that all Debentures tendered will be accepted for payment; provided, however, that if the aggregate principal amount of Debentures tendered in a Net Proceeds Offer exceeds the aggregate amount of the Net Proceeds Offer, the Company shall select the Debentures to be purchased on a pro rata basis based on the amounts tendered (with such adjustments as may be deemed appropriate by the Company so that only Debentures in denominations of $1,000 or multiples thereof shall be purchased); (2) the purchase price (including the amount of accrued interest) and the purchase date (which shall be at least 20 and not more than 30 Business Days from the date of mailing of notice of such Net Proceeds Offer, or such longer period as required by law) (the "Proceeds Purchase Date"); (3) that any Debenture not tendered will continue to accrue interest; (4) that, unless the Company defaults in making payment therefor, any Debenture accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest after the Proceeds Purchase Date; (5) that Holders electing to have a Debenture purchased pursuant to a Net Proceeds Offer will be required to surrender the Debenture, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Debenture completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Proceeds Purchase Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than five Business Days prior to the Proceeds Purchase Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Debentures the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Debenture purchased; and 63 -56- (7) that Holders whose Debentures are purchased only in part will be issued new Debentures in a principal amount equal to the unpurchased portion of the Debentures surrendered; provided that each Debenture purchased and each new Debenture issued shall be in an original principal amount of $1,000 or integral multiples thereof; On or before the Proceeds Purchase Date, the Company shall (i) accept for payment Debentures or portions thereof validly tendered pursuant to the Net Proceeds Offer which are to be purchased in accordance with item (b)(1) above, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase price plus accrued interest, if any, of all Debentures to be purchased and (iii) deliver to the Trustee Debentures so accepted together with an Officers' Certificate stating the Debentures or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to the Holders of Debentures so accepted payment in an amount equal to the purchase price plus accrued interest, if any. For purposes of this Section 4.16, the Trustee shall act as the Paying Agent. Any amounts remaining after the purchase of Debentures pursuant to a Net Proceeds Offer shall be returned by the Trustee to the Company. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of Debentures pursuant to a Net Proceeds Offer. To the extent that the provisions of any securities laws or regulations conflict with this Section 4.16, the Company shall comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations under this Section 4.16 by virtue thereof. ARTICLE FIVE SUCCESSOR CORPORATION SECTION 5.01. Merger, Consolidation and Sale of Assets. The Company will not, in a single transaction or series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or other- 64 -57- wise dispose of (or cause or permit any Restricted Subsidiary of the Company to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Company's assets (determined on a consolidated basis for the Company and the Company's Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person unless: (i) either (1) the Company shall be the surviving or continuing corporation or (2) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Company and of the Company's Restricted Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be a corporation organized and validly existing under the laws of the United States or any State thereof or the District of Columbia and (y) shall expressly assume, by supplemental indenture (in form and substance satisfactory to the Trustee), executed and delivered to the Trustee, the due and punctual payment of the principal and interest on all of the Debentures and the performance of every covenant of the Debentures, the Indenture and the Registration Rights Agreement on the part of the Company to be performed or observed; (ii) immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction), the Company or such Surviving Entity, as the case may be, shall be able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.12; (iii) immediately before and immediately after giving effect to such transaction and the assumption contemplated by clause (i)(2)(y) above (including, without limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred and any Lien granted in connection with or in respect of the transaction), no Default or Event of Default shall have occurred or be continuing; and (iv) the Company or the Surviving Entity shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with the applicable provisions of this Indenture and that all conditions precedent in this Indenture relating to such transaction have been satisfied. Notwithstanding clause (ii) of the preceding sentence, (a) any Restricted Subsidiary of the Company may consolidate with, merge into or transfer all or part of its properties and assets to the Company and (b) the Company may merge 65 -58- with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Restricted Subsidiaries of the Company the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. SECTION 5.02. Successor Corporation Substituted. Upon any consolidation, combination or merger or any transfer of all or substantially all of the assets of the Company in accordance with the foregoing, in which the Company is not the continuing corporation, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, lease or transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture and the Debentures with the same effect as if such surviving entity had been named as such. ARTICLE SIX DEFAULT AND REMEDIES SECTION 6.01. Events of Default. An "Event of Default" occurs if: (1) the Company fails to pay interest on any Debentures when the same becomes due and payable and the Default continues for a period of 30 days (whether or not such payment shall be prohibited by Article Ten of this Indenture); or (2) the Company fails to pay the principal on any Debentures when such principal becomes due and payable, at maturity, upon redemption or otherwise (including the failure to make a payment to purchase Debentures tendered pursuant to a Change of Control Offer or a Net Proceeds 66 -59- Offer) (whether or not such payment shall be prohibited by Article Ten); or (3) the Company defaults in the observance or performance of any other covenant or agreement contained in this Indenture, which default continues for a period of 30 days after the Company receives written notice specifying the default (and demanding that such default be remedied) from the Trustee or the Holders of at least 25% of the outstanding principal amount of the Debentures (except in the case of a default with respect to Section 5.01, which will constitute an Event of Default with such notice requirement but without such passage of time requirement); or (4) the Company fails to pay at final stated maturity (giving effect to any applicable grace periods and any extensions thereof) the principal amount of any Indebtedness for borrowed money of the Company or any Restricted Subsidiary of the Company, and such failure continues for a period of 20 days or more, or the acceleration of the final stated maturity of any such Indebtedness (which acceleration is not rescinded, annulled or otherwise cured within 20 days of receipt by the Company or such Restricted Subsidiary of notice of any such acceleration) if the aggregate principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness in default for failure to pay principal at final stated maturity or which has been accelerated, in each case with respect to which the 20-day period described above has passed, aggregates $10.0 million or more at any time; or (5) one or more judgments for the payment of money in an aggregate amount in excess of $10.0 million shall have been rendered against the Company or any of its Restricted Subsidiaries and such judgments remain undischarged, unpaid or unstayed for a period of 60 days after such judgment or judgments become final and non-appealable; or (6) the Company or any Significant Subsidiary of the Company (A) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (B) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (C) consents to the appointment of a Custodian of it or for substantially all of its property, 67 -60- (D) consents to or acquiesces in the institution of a bankruptcy or an insolvency proceeding against it, (E) makes a general assignment for the benefit of its creditors, or (F) takes any corporate action to authorize or effect any of the foregoing; or (7) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of the Company or any Significant Subsidiary of the Company in an involuntary case or proceeding under any Bankruptcy Law, which shall (A) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of the Company or any such Significant Subsidiary, (B) appoint a Custodian of the Company or any such Significant Subsidiary or for substantially all of its property or (C) order the winding-up or liquidation of its affairs; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days. SECTION 6.02. Acceleration. (a) If an Event of Default (other than an Event of Default specified in Section 6.01(6) or (7) with respect to the Company) occurs and is continuing and has not been waived pursuant to Section 6.04, then the Trustee or the Holders of at least 25% in principal amount of outstanding Debentures may declare the principal of and accrued interest on all the Debentures to be due and payable by notice in writing to the Company and the Trustee specifying the respective Event of Default and that it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i) shall become immediately due and payable or (ii) if there are any amounts outstanding under the New Revolving Credit Facility, shall become immediately due and payable upon the first to occur of an acceleration under the New Revolving Credit Facility or 5 business days after receipt by the Company and the Representative under the New Revolving Credit Facility of such Acceleration Notice but only if such Event of Default is then continuing. Upon any such declaration, but subject to the immediately preceding sentence, such amount shall be immediately due and payable. (b) If an Event of Default specified in Section 6.01(6) or (7) occurs and is continuing with respect to the Company, all unpaid principal and accrued and unpaid interest on all of the outstanding Debentures shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. 68 -61- (c) At any time after a declaration of acceleration with respect to the Debentures in accordance with Section 6.02(a), the Holders of a majority in principal amount of the outstanding Debentures may, on behalf of the Holders of all of the Debentures, rescind and cancel such declaration and its consequences (i) if the rescission would not conflict with any judgment or decree, (ii) if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration, (iii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid, (iv) if the Company has paid the Trustee its reasonable compensation and reimbursed the Trustee for its expenses, disbursements and advances and (v) in the event of the cure or waiver of an Event of Default of the type described in Section 6.01(6) or (7), the Trustee shall have received an Officers' Certificate and an Opinion of Counsel that such Event of Default has been cured or waived. No such rescission shall affect any subsequent Default or impair any right consequent thereto. The Holders of a majority in principal amount of the outstanding Debentures may waive any existing Default or Event of Default under this Indenture, and its consequences, except a default in the payment of the principal of or interest on any Debentures. SECTION 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of or interest on the Debentures or to enforce the performance of any provision of the Debentures or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Debentures or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. SECTION 6.04. Waiver of Past Defaults. Subject to Sections 2.09, 6.07 and 9.02, the Holders of a majority in principal amount of the outstanding Debentures by notice to the Trustee may waive an existing Default or Event 69 -62- of Default and its consequences, except a Default in the payment of principal of or interest on any Debenture as specified in clauses (1) and (2) of Section 6.01. When a Default or Event of Default is waived, it is cured and ceases. SECTION 6.05. Control by Majority. Subject to Section 2.09, the Holders of a majority in principal amount of the outstanding Debentures may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it, including, without limitation, any remedies provided for in Section 6.03. Subject to Section 7.01, however, the Trustee may refuse to follow any direction that the Trustee reasonably believes conflicts with any law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of another Holder, or that may involve the Trustee in personal liability; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction; and provided further that this provision shall not affect the rights of the Trustee set forth in Section 7.01(d). SECTION 6.06. Limitation on Suits. A Holder may not pursue any remedy with respect to this Indenture or the Debentures unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) Holders of at least 25% in principal amount of the outstanding Debentures make a written request to the Trustee to pursue the remedy; (3) such Holders offer to the Trustee indemnity in its sole discretion satisfactory to the Trustee against any loss, liability, claim or expense (including, without limitation, attorney's fees) to be incurred in compliance with such request; (4) the Trustee does not comply with the request within 45 days after receipt of the request and the offer of satisfactory indemnity; and (5) during such 45-day period the Holders of a majority in principal amount of the outstanding Debentures 70 -63- do not give the Trustee a direction which, in the opinion of the Trustee, is inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. SECTION 6.07. Rights of Holders To Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal of and interest on a Debenture, on or after the respective due dates expressed in such Debenture, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. SECTION 6.08. Collection Suit by Trustee. If an Event of Default in payment of principal or interest specified in clause (1) or (2) of Section 6.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Debentures for the whole amount of principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest at the rate set forth in Section 4.01 and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents, consultants and counsel. SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, taxes, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relating to the Company or any other obligor upon the Debentures, any of their respective creditors or any of their respective property and shall be entitled and empowered to collect and receive any monies or other securities or property payable or deliverable upon the exchange of the Debentures or upon any such claims and to distribute the 71 -64- same, and any Custodian in any such judicial proceedings is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, taxes, disbursements and advances of the Trustee, its agents, consultants and counsel, and any other amounts due the Trustee under Section 7.07. The Company's payment obligations under this Section 6.09 shall be secured in accordance with the provisions of Section 7.07 hereunder. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10. Priorities. If the Trustee collects any money or property pursuant to this Article Six, it shall pay out the money in the following order: First: to the Trustee for amounts due under Sections 6.09 and 7.07; Second: if the Holders are forced to proceed against the Company directly without the Trustee, to Holders for their collection costs; Third: to Holders for amounts due and unpaid on the Debentures for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Debentures for principal and interest, respectively; and Fourth: to the Company or any other obligor on the Debentures, as their interests may appear, or as a court of competent jurisdiction may direct. The Trustee, upon prior notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for 72 -65- any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07, or a suit by a Holder or Holders of more than 10% in principal amount of the outstanding Debentures. ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee. (a) If a Default or an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise thereof as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of a Default or an Event of Default: (1) The Trustee need perform only those duties as are specifically set forth in this Indenture and the TIA and no covenants or obligations shall be implied in this Indenture against the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates (including Officers' Certificates) or opinions (including Opinions of Counsel) furnished to the Trustee and conforming to the requirements of this Indenture. However, as to any certificates or opinions which are required to be delivered or provided to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). 73 -66- (c) Notwithstanding anything to the contrary herein contained, the Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.01. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.02, 6.04 or 6.05. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Whether or not herein expressly provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01. (f) The Trustee shall not be liable for interest on any money or assets received by it except as the Trustee may agree in writing with the Company. Assets held in trust by the Trustee need not be segregated from other assets except to the extent required by law. SECTION 7.02. Rights of Trustee. Subject to Section 7.01: (a) The Trustee may rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, note or other paper or document believed by it to be genuine and to have been signed or presented by the proper 74 -67- Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel and may require an Officers' Certificate, an Opinion of Counsel or both, which shall conform to Sections 11.04 and 11.05. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. (c) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or indirectly or by or through agents or attorneys and the Trustee shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care. (d) The Trustee shall not be liable for any action that it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers conferred upon it by this Indenture. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled, upon reasonable notice to the Company, to examine the books, records, and premises of the Company, personally or by agent or attorney and to consult with the officers and representatives of the Company, including the Company's accountants and attorneys, at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to the Trustee in its sole discretion against the costs, expenses and liabilities 75 -68- which may be incurred by it in compliance with such request, order or direction. (g) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. SECTION 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Debentures and may otherwise deal with the Company, any Subsidiary of the Company, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11. SECTION 7.04. Trustee's Disclaimer. The recitals contained herein and in the Debentures shall be taken as statements of the Company and the Trustee assumes no responsibility for their correctness. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Debentures, and it shall not be accountable for the Company's use of the proceeds from the Debentures, and it shall not be responsible for any statement of the Company in this Indenture or the Debentures other than the Trustee's certificate of authentication. SECTION 7.05. Notice of Default. If a Default or an Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Holder notice of the uncured Default or Event of Default within 60 days after such Default or Event of Default occurs. Except in the case of a Default or an Event of Default in payment of principal of, or interest on, any Debenture, including an accelerated payment and the failure to make payment on the Change of Control Payment Date pursuant to a Change of Control Offer or on the Proceeds Purchase Date pursuant to a Net Proceeds Offer and, except in the case of a failure to comply with Article Five hereof, the Trustee may withhold the notice if and so long as its Board of Directors, the executive committee of its Board of Directors or a committee of its directors and/or Trust Officers in good faith determines that withholding the notice is in the interest of the Holders. 76 -69- SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each May 15, the Trustee shall, to the extent that any of the events described in TIA ss. 313(a) occurred within the previous twelve months, but not otherwise, mail to each Holder a brief report dated as of such date that complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss.ss. 313(b), (c) and (d). A copy of each report at the time of its mailing to Holders shall be mailed to the Company and filed with the SEC and each stock exchange, if any, on which the Debentures are listed. The Company shall promptly notify the Trustee if the Debentures become listed on any stock exchange and the Trustee shall comply with TIA ss. 313(d). SECTION 7.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its services (including, without limitation, as Registrar, and agent for service of demands and notices). The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable fees and expenses, including out-of-pocket expenses incurred or made by it in connection with the performance of its duties under this Indenture. Such expenses shall include the reasonable fees and expenses of the Trustee's agents, consultants and counsel. The Company shall indemnify the Trustee and its agents, employees, stockholders and directors and officers for, and hold them harmless against, any loss, liability or expense incurred by them except for such actions to the extent caused by any negligence, bad faith or willful misconduct on their part, arising out of or in connection with the administration of this trust (including, without limitation, as Paying Agent, Registrar and agent for service of demands and notices) including the reasonable costs and expenses of enforcing this Indenture against the Company (including, without limitation, Section 7.07 hereof) and defending themselves against any claim (whether asserted by a Securityholder or the Company) or liability in connection with the exercise or performance of any of their rights, powers or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. At the Trustee's rea- 77 -70- sonable discretion, the Company shall defend the claim and the Trustee shall cooperate and may participate in the defense; provided that any settlement of a claim shall be approved in writing by the Trustee, if such settlement would result in an admission of liability by the Trustee or if such settlement would not be accompanied by a full release of the Trustee for all liability arising out of the events giving rise to such claim. Alternatively, the Trustee may at its option have separate counsel of its own choosing and the Company shall pay the reasonable fees and expenses of such counsel; provided that the Company will not be required to pay such fees and expenses if it assumes the Trustee's defense and there is no conflict of interest between the Company and the Trustee in connection with such defense as reasonably determined by the Trustee. The Company need not pay for any settlement made without its written consent. The Company need not reimburse any expense or indemnify against any loss or liability to the extent incurred by the Trustee through its negligence, bad faith or willful misconduct. To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Debentures on all assets or money held or collected by the Trustee, in its capacity as Trustee, except assets or money held in trust to pay principal of or interest on particular Debentures. The Trustee's right to receive payment of any amounts due under this Section 7.07 shall not be subordinate to any other liability or indebtedness of the Company (even though the Debentures may be subordinate to such other liability or indebtedness). When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(6) or (7) occurs, such expenses and the compensation for such services are intended to constitute expenses of administration under any Bankruptcy Law; provided, however, that this shall not affect the Trustee's rights as set forth in the preceding paragraph or Section 6.10. SECTION 7.08. Replacement of Trustee. The Trustee may resign by so notifying the Company. The Holders of a majority in principal amount of the outstanding Debentures may remove the Trustee by so notifying the Company and the Trustee and may appoint a successor Trustee. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; 78 -71- (2) the Trustee is adjudged bankrupt or insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Debentures may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 7.07, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the outstanding Debentures may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 shall continue for the benefit of the retiring Trustee. SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if 79 -72- such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee; provided that such corporation shall be otherwise qualified and eligible under this Article Seven. SECTION 7.10. Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirements of TIA ss.ss. 310(a)(1), (2) and (5). The Trustee (or, in the case of a corporation included in a bank holding company system, the related bank holding company) shall have a combined capital and surplus of at least $100 million as set forth in its most recent publicly available annual report of condition and have a corporate trust office in New York City. In addition, if the Trustee is a corporation included in a bank holding company system, the Trustee, independently of such bank holding company, shall meet the capital requirements of TIA ss. 310(a)(2). The Trustee shall comply with TIA ss. 310(b); provided, however, that there shall be excluded from the operation of TIA ss. 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the requirements for such exclusion set forth in TIA ss. 310(b)(1) are met. The provisions of TIA ss. 310 shall apply to the Company, as obligor on the Debentures, and any other obligor on the Debentures. SECTION 7.11. Preferential Collection of Claims Against Company. The Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated therein. The provisions of TIA ss. 311 shall apply to the Company, as obligor on the Debentures, and any other obligor on the Debentures. ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE SECTION 8.01. Termination of the Company's Obligations. The Company may terminate its obligations under the Debentures and this Indenture, except those obligations re- 80 -73- ferred to in the penultimate paragraph of this Section 8.01, if all Debentures previously authenticated and delivered (other than destroyed, lost or stolen Debentures which have been replaced or paid or Debentures for whose payment U.S. Legal Tender or non-callable U.S. Government Obligations, or a combination thereof, has theretofore been deposited with the Trustee or the Paying Agent in trust or segregated and held in trust by the Company and thereafter repaid to the Company, as provided in Section 8.05) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder, or if: (a) either (i) pursuant to Article Three, the Company shall have given notice to the Trustee and mailed a notice of redemption to each Holder of the redemption of all of the Debentures under arrangements satisfactory to the Trustee for the giving of such notice or (ii) all Debentures have otherwise become due and payable hereunder; (b) the Company shall have irrevocably deposited or caused to be deposited with the Trustee or a trustee satisfactory to the Trustee, under the terms of an irrevocable trust agreement in form and substance satisfactory to the Trustee, as trust funds in trust solely for the benefit of the Holders for that purpose, U.S. Legal Tender or non-callable U.S. Government Obligations, or a combination thereof, in such amount as is sufficient without consideration of reinvestment of such interest, to pay principal of, premium, if any, and interest on the outstanding Debentures to maturity or redemption, as well as the Trustee's fees and expenses; provided that the Trustee shall have been irrevocably instructed to apply such U.S. Legal Tender to the payment of said principal and interest with respect to the Debentures; provided, further, that no deposits made pursuant to this Section 8.01(b) shall cause the Trustee to have a conflicting interest as defined in and for the purposes of the TIA; provided, further, that from and after the time of deposit, the money deposited shall not be subject to the rights of holders of Senior Debt pursuant to the provisions of Article Ten and provided, further, that, as confirmed by an Opinion of Counsel, no such deposit shall result in the Company, the Trustee or the trust becoming or being deemed to be an "investment company" under the Investment Company Act of 1940; (c) no Default or Event of Default with respect to this Indenture or the Debentures shall have occurred and 81 -74- be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other material instrument to which the Company is a party or by which it is bound (other than a Default or Event of Default resulting from the incurrence of Indebtedness, all or a portion of which will be used to defease the Debentures concurrently with such incurrence); (d) the Company shall have paid all other sums payable by it hereunder; and (e) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent providing for or relating to the termination of the Company's obligations under the Debentures and this Indenture have been complied with. Such Opinion of Counsel shall also state that such satisfaction and discharge does not result in a default under the Note Indenture (if then in effect) or the New Revolving Credit Facility (if then in effect) or any other agreement or instrument then known to such counsel that binds or affects the Company. Notwithstanding the foregoing paragraph, the Company's obligations in Sections 2.05, 2.06, 2.07, 2.08, 4.01, 4.02, 7.07, 8.05 and 8.06 shall survive until the Debentures are no longer outstanding pursuant to the last paragraph of Section 2.08. After the Debentures are no longer outstanding, the Company's obligations in Sections 7.07, 8.05 and 8.06 shall survive. After such delivery or irrevocable deposit, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Debentures and this Indenture except for those surviving obligations specified above. SECTION 8.02. Legal Defeasance and Covenant Defeasance. (a) The Company may, at its option by Board Resolution of the Board of Directors of the Company, at any time, elect to have either paragraph (b) or (c) below be applied to all outstanding Debentures upon compliance with the conditions set forth in Section 8.03. (b) Upon the Company's exercise under paragraph (a) hereof of the option applicable to this paragraph (b), the Com- 82 -75- pany shall, subject to the satisfaction of the conditions set forth in Section 8.03, be deemed to have been discharged from its obligations with respect to all outstanding Debentures on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Debentures, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.04 hereof and the other Sections of this Indenture referred to in (i) and (ii) below, and to have satisfied all its other obligations under such Debentures and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), and Holders of the Debentures and any amounts deposited under Section 8.03 hereof shall cease to be subject to any obligations to, or the rights of, any holder of Senior Debt under Article Ten or otherwise, except for the following provisions, which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of outstanding Debentures to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of and interest on such Debentures when such payments are due, (ii) the Company's obligations with respect to such Debentures under Article Two and Section 4.02 hereof, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (iv) this Article Eight. Subject to compliance with this Article Eight, the Company may exercise its option under this paragraph (b) notwithstanding the prior exercise of its option under paragraph (c) hereof. (c) Upon the Company's exercise under paragraph (a) hereof of the option applicable to this paragraph (c), the Company shall, subject to the satisfaction of the conditions set forth in Section 8.03 hereof, be released from its obligations under the covenants contained in Sections 4.10 through 4.16 and Article Five hereof with respect to the outstanding Debentures on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Debentures shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Debentures shall not be deemed outstanding for accounting purposes) and Holders of the Debentures and any amounts deposited under Section 8.03 hereof shall cease to be 83 -76- subject to any obligations to, or the rights of, any holder of Senior Debt under Article Ten or otherwise. For this purpose, such Covenant Defeasance means that, with respect to the outstanding Debentures, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event or Default under Section 6.01(3) hereof, but, except as specified above, the remainder of this Indenture and such Debentures shall be unaffected thereby. In addition, upon the Company's exercise under paragraph (a) hereof of the option applicable to this paragraph (c), subject to the satisfaction of the conditions set forth in Section 8.03 hereof, Sections 6.01(3), 6.01(4) and 6.01(5) shall not constitute Events of Default. SECTION 8.03. Conditions to Legal Defeasance or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.02(b) or 8.02(c) hereof to the outstanding Debentures: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, U.S. Legal Tender or U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms, will provide, not later than one day before the due date of any payment on the Debentures, U.S. Legal Tender, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Debentures on the stated date for payment thereof or on the applicable redemption date, as the case may be, of such principal or installment of principal of or interest on the Debentures; provided that the Trustee shall have received an irrevocable written order from the Company instructing the Trustee to apply such U.S. Legal Tender or the proceeds of such U.S. Government Obligations to said payments with respect to the Debentures; 84 -77- (b) in the case of an election under Section 8.02(b) hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the Debentures will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; provided, however, that notwithstanding the foregoing, the Opinion of Counsel required by this Section 8.03(b) with respect to Legal Defeasance need not be delivered if all of the Debentures not theretofore delivered to the Trustee for cancellation (x) have become due and payable, (y) will become due and payable on the maturity date within one year or (z) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company; (c) in the case of an election under Section 8.02(c) hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the Debentures will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default or event which with notice or lapse of time or both would become a Default or an Event of Default with respect to the Debentures shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Debentures pursuant to this Article Eight concurrently with such incurrence) or insofar as Sections 6.01(6) and 6.01(7) hereof are concerned, at any time in the period ending on the 91st day after the date of such deposit; 85 -78- (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of or constitute a default under this Indenture or any other material agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; (g) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with; and (h) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that (i) the trust funds will not be subject to any rights of any holders of Senior Debt, including, without limitation, those arising under this Indenture, and (ii) assuming no intervening bankruptcy or insolvency of the Company between the date of deposit and the 91st day following the date of deposit and that no Holder is an insider of the Company, after the 91st day following the date of deposit, the trust funds will not be subject to the effect of any applicable Bankruptcy Law. SECTION 8.04. Application of Trust Money. The Trustee or Paying Agent shall hold in trust U.S. Legal Tender or U.S. Government Obligations deposited with it pursuant to Article Eight, and shall apply the deposited U.S. Legal Tender and the money from U.S. Government Obligations in accordance with this Indenture to the payment of principal of and interest on the Debentures. The Trustee shall be under no obligation to invest said U.S. Legal Tender or U.S. Government Obligations except as it may agree with the Company. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Legal Tender or U.S. Government Obligations deposited pursuant to Section 8.03 hereof or the principal and interest received in respect thereof other than any such tax, 86 -79- fee or other charge which by law is for the account of the Holders of the outstanding Debentures. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the Company's request any U.S. Legal Tender or U. S. Government Obligations held by it as provided in Section 8.03 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. SECTION 8.05. Repayment to the Company. Subject to Article Eight, the Trustee and the Paying Agent shall promptly pay to the Company upon request any excess U.S. Legal Tender or U.S. Government Obligations held by them at any time and thereupon shall be relieved from all liability with respect to such money. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for two years; provided that the Trustee or such Paying Agent, before being required to make any payment, may at the expense of the Company cause to be published once in a newspaper of general circulation in the City of New York or mail to each Holder entitled to such money notice that such money remains unclaimed and that after a date specified therein which shall be at least 30 days from the date of such publication or mailing any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to such money must look to the Company for payment as general creditors unless an applicable law designates another Person. SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any U.S. Legal Tender or U.S. Government Obligations in accordance with Article Eight by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Debentures shall be revived and reinstated as though no deposit had occurred pursuant to Article Eight until such time as the Trustee or Paying Agent is permitted to apply all such U.S. Legal Tender or U.S. Government Obligations in accordance with 87 -80- Article Eight; provided that if the Company has made any payment of interest on or principal of any Debentures because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Debentures to receive such payment from the U.S. Legal Tender or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.01. Without Consent of Holders. The Company, when authorized by a Board Resolution, and the Trustee, together, may amend or supplement this Indenture or the Debentures without notice to or consent of any Holder: (1) to cure any ambiguity, defect or inconsistency; provided that such amendment or supplement does not, in the opinion of the Trustee, adversely affect the rights of any Holder in any material respect; (2) to comply with Article Five; (3) to provide for uncertificated Debentures in addition to or in place of certificated Debentures; (4) to maintain compliance with any requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (5) to make any change that would provide any additional benefit or rights to the Holders or that does not adversely affect in any material respect the rights of any Holder; or (6) to provide for issuance of new Debentures in connection with an exchange offer pursuant to the Registration Rights Agreement which will have terms substantially identical in all material respects to the Debentures, except that the transfer restrictions contained in the Debentures will be modified or eliminated, as appropriate, in the new Debentures; 88 -81- provided that the Company has delivered to the Trustee an Opinion of Counsel and an Officers' Certificate, each stating that such amendment or supplement complies with the provisions of this Section 9.01. SECTION 9.02. With Consent of Holders. Subject to Section 6.07, the Company, when authorized by a Board Resolution, and the Trustee, together, with the written consent of the Holder or Holders of at least a majority in aggregate principal amount of the outstanding Debentures, or if prior to the Exchange Date, the holders of at least a majority of the issued and outstanding shares of Preferred Stock, may amend or supplement this Indenture or the Debentures, without notice to any other Holders or other holders of shares of Preferred Stock, as the case may be. Subject to Sections 6.04 and 6.07, the Holder or Holders of a majority in aggregate principal amount of the outstanding Debentures may waive compliance by the Company with any provision of this Indenture or the Debentures without notice to any other Holder. No amendment, supplement or waiver, including a waiver pursuant to Section 6.04, shall, without the consent of each Holder of each Debenture or if prior to the Exchange Date, each holder of shares of Preferred Stock affected thereby: (1) reduce the amount of Debentures whose Holders must consent to an amendment; (2) reduce the rate of or change or have the effect of changing the time for payment of interest, including defaulted interest, on any Debentures; (3) reduce the principal of or change or have the effect of changing the fixed maturity of any Debentures, or change the date on which any Debentures may be subject to redemption or repurchase, or reduce the redemption or repurchase price therefor; (4) make any Debentures payable in money other than that stated in the Debentures; (5) make any change in provisions of this Indenture protecting the right of each Holder to receive payment of principal of and interest on such Debenture on or after the due date thereof or to bring suit to enforce such payment, or permitting Holders of a majority in principal amount of Debentures to waive Defaults or Events of Default; 89 -82- (6) amend, modify, change or waive any provision of this Section 9.02; (7) amend, modify or change in any material respect the obligation of the Company to make or consummate a Change of Control Offer in the event of a Change of Control or make and consummate a Net Proceeds Offer in respect of any Asset Sale that has been consummated or modify any of the provisions or definitions with respect thereto after a Change of Control has occurred or the subject Asset Sale has been consummated; or (8) modify Article Ten or the definitions used in Article Ten to adversely affect the Holders of the Debentures in any material respect. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company shall mail to the Holders affected thereby or if no Holders, the holders of shares of Preferred Stock affected thereby, a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. SECTION 9.03. Effect on Senior Debt. No amendment of this Indenture shall adversely affect the rights of any holder of Senior Debt under Article Ten of this Indenture, without the consent of such holder. SECTION 9.04. Compliance with TIA. Every amendment, waiver or supplement of this Indenture or the Debentures shall comply with the TIA as then in effect. SECTION 9.05. Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Debenture or por- 90 -83- tion of a Debenture that evidences the same debt as the consenting Holder's Debenture, even if notation of the consent is not made on any Debenture. Subject to the following paragraph, any such Holder or subsequent Holder may revoke the consent as to such Holder's Debenture or portion of such Debenture by notice to the Trustee or the Company received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of outstanding Debentures have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver (at which time such amendment, supplement or waiver shall become effective). The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the last sentence of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes a change described in any of clauses (1) through (8) of Section 9.02, in which case, the amendment, supplement or waiver shall bind only each Holder of a Debenture who has consented to it and every subsequent Holder of a Debenture or portion of a Debenture that evidences the same debt as the consenting Holder's Debenture; provided that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest on a Debenture, on or after the respective due dates expressed in such Debenture, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. The provisions of this Section 9.05 shall relate to holders of shares of Preferred Stock, if an amendment becomes effective prior to the Exchange Date. SECTION 9.06. Notation on or Exchange of Debentures. If an amendment, supplement or waiver changes the terms of a Debenture, the Trustee may require the Holder of 91 -84- such Debenture to deliver it to the Trustee. The Trustee may place an appropriate notation on the Debenture about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Debenture shall issue and the Trustee shall authenticate a new Debenture that reflects the changed terms. Any such notation or exchange shall be made at the sole cost and expense of the Company. SECTION 9.07. Trustee To Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Nine; provided that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate each stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or permitted by this Indenture. Such Opinion of Counsel shall not be an expense of the Trustee. ARTICLE TEN SUBORDINATION SECTION 10.01. Debentures Subordinated to Senior Debt. The Company covenants and agrees, and each Holder of the Debentures, by its acceptance thereof, likewise covenants and agrees, that all Debentures shall be issued subject to the provisions of this Article Ten; and the Trustee and each Person holding any Debenture, whether upon original issue or upon transfer, assignment or exchange thereof, accepts and agrees that the payment of all Obligations on the Debentures by the Company shall, to the extent and in the manner herein set forth, be subordinated and junior in right of payment to the prior payment in full in cash or Cash Equivalents of all Obligations on the Senior Debt; that the subordination is for the benefit of, and shall be enforceable directly by, the holders of Senior Debt, and that each holder of Senior Debt whether now outstanding or hereafter created, incurred, assumed or guaranteed shall be deemed to have acquired Senior Debt in reliance 92 -85- upon the covenants and provisions contained in this Indenture and the Debentures. SECTION 10.02. No Payment on Debentures in Certain Circumstances. (a) If any default occurs and is continuing in the payment when due, whether at maturity, upon redemption, by declaration or otherwise, of any principal of, interest on, unpaid drawings for letters of credit issued in respect of, or regularly accruing fees with respect to, any Senior Debt, no payment of any kind or character (except in securities substantially identical to the Debentures issued by the Company in payment of interest accrued thereon) shall be made by, or on behalf of, the Company or any other Person on its or their behalf with respect to any Obligations on the Debentures, or to acquire any of the Debentures for cash or property or otherwise. In addition, if any other event of default occurs and is continuing with respect to any Designated Senior Debt, as such event of default is defined in the instrument creating or evidencing such Designated Senior Debt, permitting the holders of such Designated Senior Debt then outstanding to accelerate the maturity thereof and if the Representative for the respective issue of Designated Senior Debt gives notice of the event of default to the Trustee (a "Default Notice"), then, unless and until all events of default have been cured or waived or have ceased to exist or the Trustee receives notice thereof from the Representative for the respective issue of Designated Senior Debt terminating the Blockage Period (as defined below), during the 180 days after the delivery of such Default Notice (the "Blockage Period"), neither the Company nor any other Person on its behalf shall (x) make any payment of any kind or character (except in securities substantially identical to the Debentures issued by the Company in payment of interest accrued thereon) with respect to any Obligations on the Debentures or (y) acquire any of the Debentures for cash or property or otherwise. Notwithstanding anything herein to the contrary, in no event will a Blockage Period extend beyond 180 days from the date the payment on the Debentures was due and only one such Blockage Period may be commenced within any 360 consecutive days. No event of default which existed or was continuing on the date of the commencement of any Blockage Period with respect to the Designated Senior Debt shall be, or be made, the basis for the commencement of a second Blockage Period by the Representative of such Designated Senior Debt whether or not within a period of 360 consecutive days, unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any 93 -86- subsequent action, or any breach of any financial covenants for a period commencing after the date of commencement of such Blockage Period that, in either case, would give rise to an event of default pursuant to any provisions under which an event of default previously existed or was continuing shall constitute a new event of default for this purpose). (b) In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee or any Holder when such payment is prohibited by Section 10.02(a), such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt (pro rata to such holders on the basis of the respective amount of Senior Debt held by such holders) or their respective Representatives, as their respective interests may appear. The Trustee shall be entitled to rely on information regarding amounts then due and owing on the Senior Debt, if any, received from the holders of Senior Debt (or their Representatives) or, if such information is not received from such holders or their Representatives, from the Company and only amounts included in the information provided to the Trustee shall be paid to the holders of Senior Debt. Nothing contained in this Article Ten shall limit the right of the Trustee or the Holders of Debentures to take any action to accelerate the maturity of the Debentures pursuant to Section 6.02 or to pursue any rights or remedies hereunder; provided that all Senior Debt thereafter due or declared to be due shall first be paid in full in cash or Cash Equivalents before the Holders are entitled to receive any payment of any kind or character with respect to Obligations on the Debentures. SECTION 10.03. Payment Over of Proceeds upon Dissolution, Etc. (a) Upon any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any total or partial liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors or marshaling of assets of the Company or in a bankruptcy, reorganization, insolvency, receivership or other similar proceeding relating to the Company or its property, whether voluntary or involuntary, all Obligations due or to become due upon all Senior Debt shall first be paid in full in cash or Cash Equivalents, or such payment duly provided for to the satisfaction of the holders of Senior Debt, before any payment or distribution of any kind or character is made on ac- 94 -87- count of any Obligations on the Debentures, or for the acquisition of any of the Debentures for cash or property or otherwise. Upon any such dissolution, winding-up, liquidation, reorganization, receivership or similar proceeding, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders of the Debentures or the Trustee under this Indenture would be entitled, except for the provisions hereof, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders or by the Trustee under this Indenture if received by them, directly to the holders of Senior Debt (pro rata to such holders on the basis of the respective amounts of Senior Debt held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, for application to the payment of Senior Debt remaining unpaid until all such Senior Debt has been paid in full in cash or Cash Equivalents after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of Senior Debt. (b) To the extent any payment of Senior Debt (whether by or on behalf of the Company, as proceeds of security or enforcement of any right of setoff or otherwise) is declared to be fraudulent or preferential, set aside or required to be paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person under any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law, then, if such payment is recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating trustee, agent or other similar Person, the Senior Debt or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. (c) In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, shall be received by any Holder when such payment or distribution is prohibited by Section 10.03(a), such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt (pro rata to such holders on the basis of the respective amount of Senior Debt held by such holders) or their respective Representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, for application to the payment 95 -88- of Senior Debt remaining unpaid until all such Senior Debt has been paid in full in cash or Cash Equivalents, after giving effect to any concurrent payment, distribution or provision therefor to or for the holders of such Senior Debt. (d) The consolidation of the Company with, or the merger of the Company with or into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of all or substantially all of its assets, to another corporation upon the terms and conditions provided in Article Five hereof and as long as permitted under the terms of the Senior Debt shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, assume the Company's obligations hereunder in accordance with Article Five hereof. SECTION 10.04. Payments May Be Paid Prior to Dissolution. Nothing contained in this Article Ten or elsewhere in this Indenture shall prevent (i) the Company, except under the conditions described in Sections 10.02 and 10.03, from making payments at any time for the purpose of making payments of principal of and interest on the Debentures, or from depositing with the Trustee any moneys for such payments, or (ii) in the absence of actual knowledge by the Trustee that a given payment would be prohibited by Section 10.02 or 10.03, the application by the Trustee of any moneys deposited with it for the purpose of making such payments of principal of, and interest on, the Debentures to the Holders entitled thereto unless at least two Business Days prior to the date upon which such payment would otherwise become due and payable a Trust Officer shall have actually received the written notice provided for in the second sentence of Section 10.02(a) or in Section 10.07 (provided that, notwithstanding the foregoing, such application shall otherwise be subject to the provisions of the first sentence of Section 10.02(a) and Section 10.03). The Company shall give prompt written notice to the Trustee of any dissolution, winding-up, liquidation or reorganization of the Company. SECTION 10.05. Subrogation. Subject to the payment in full in cash or Cash Equivalents of all Senior Debt, the Holders of the Debentures shall be subrogated to the rights of the holders of Senior Debt to receive payments or distributions of cash, property or securities of the Company applicable to the Senior Debt until the 96 -89- Debentures shall be paid in full; and, for the purposes of such subrogation, no such payments or distributions to the holders of the Senior Debt by or on behalf of the Company or by or on behalf of the Holders by virtue of this Article Ten which otherwise would have been made to the Holders shall, as between the Company and the Holders of the Debentures, be deemed to be a payment by the Company to or on account of the Senior Debt, it being understood that the provisions of this Article Ten are and are intended solely for the purpose of defining the relative rights of the Holders of the Debentures, on the one hand, and the holders of the Senior Debt, on the other hand. SECTION 10.06. Obligations of the Company Unconditional. Nothing contained in this Article Ten or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as among the Company, its creditors other than the holders of Senior Debt, and the Holders, the obligation of the Company, which is absolute and unconditional, to pay to the Holders the principal of and any interest on the Debentures as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders and creditors of the Company other than the holders of the Senior Debt, nor shall anything herein or therein prevent the Holder of any Debenture or the Trustee on its behalf from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, in respect of cash, property or securities of the Company received upon the exercise of any such remedy. SECTION 10.07. Notice to Trustee. The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article Ten. Regardless of anything to the contrary contained in this Article Ten or elsewhere in this Indenture, the Trustee shall not be charged with knowledge of the existence of any default or event of default with respect to any Senior Debt or of any other facts which would prohibit the making of any payment to or by the Trustee unless and until the Trustee shall have received notice in writing from the Company, or from a holder of Senior Debt or a Representative therefor, together with proof satisfactory to the Trustee of such holding of Senior Debt or of the authority of such Representative, and, prior to the receipt of any such written notice, the Trustee shall be entitled 97 -90- to assume (in the absence of actual knowledge to the contrary) that no such facts exist. In the event that the Trustee determines in good faith that any evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article Ten, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amounts of Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Ten, and if such evidence is not furnished the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 10.08. Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article Ten, the Trustee, subject to the provisions of Article Seven hereof, and the Holders of the Debentures shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any insolvency, bankruptcy, receivership, dissolution, winding-up, liquidation, reorganization or similar case or proceeding is pending, or upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, receiver, assignee for the benefit of creditors, agent or other person making such payment or distribution, delivered to the Trustee or the Holders of the Debentures, for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Ten. SECTION 10.09. Trustee's Relation to Senior Debt. The Trustee and any agent of the Company or the Trustee shall be entitled to all the rights set forth in this Article Ten with respect to any Senior Debt which may at any time be held by it in its individual or any other capacity to the same extent as any other holder of Senior Debt and nothing in this Indenture shall deprive the Trustee or any such agent of any of its rights as such holder. 98 -91- With respect to the holders of Senior Debt, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Ten, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt. Whenever a distribution is to be made or a notice given to holders or owners of Senior Debt, the distribution may be made and the notice may be given to their Representative, if any. SECTION 10.10. Subordination Rights Not Impaired by Acts or Omissions of the Company or Holders of Senior Debt. No right of any present or future holders of any Senior Debt to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee, without incurring responsibility to the Trustee or the Holders of the Debentures and without impairing or releasing the subordination provided in this Article Ten or the obligations hereunder of the Holders of the Debentures to the holders of the Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Senior Debt, or otherwise amend or supplement in any manner Senior Debt, or any instrument evidencing the same or any agreement under which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Debt; (iii) release any Person liable in any manner for the payment or collection of Senior Debt; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. 99 -92- SECTION 10.11. Securityholders Authorize Trustee To Effectuate Subordination of Debentures. Each Holder of Debentures by its acceptance of them authorizes and expressly directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate, as between the holders of Senior Debt and the Holders of Debentures, the subordination provided in this Article Ten, and appoints the Trustee its attorney-in-fact for such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency, receivership, reorganization or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards liquidation of the business and assets of the Company, the filing of a claim for the unpaid balance of its Debentures and accrued interest in the form required in those proceedings. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or claims, then the holders of the Senior Debt or their Representative are or is hereby authorized to have the right to file and are or is hereby authorized to file an appropriate claim for and on behalf of the Holders of said Debentures. Nothing herein contained shall be deemed to authorize the Trustee or the holders of Senior Debt or their Representative to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or the rights of any Holder thereof, or to authorize the Trustee or the holders of Senior Debt or their Representative to vote in respect of the claim of any Holder in any such proceeding. SECTION 10.12. This Article Ten Not To Prevent Events of Default. The failure to make a payment on account of principal of or interest on the Debentures by reason of any provision of this Article Ten will not be construed as preventing the occurrence of an Event of Default. SECTION 10.13. Trustee's Compensation Not Prejudiced. Nothing in this Article Ten will apply to amounts due to the Trustee pursuant to other sections in this Indenture. 100 -93- ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with another provision which is required to be included in this Indenture by the TIA, the required TIA provision shall control. SECTION 11.02. Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by commercial courier service, by telex, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Company: MCMS, Inc. 16399 Franklin Road Nampa, ID 83687 Facsimile No.: (208) 898-7411 Attn: Corporate Counsel if to the Trustee: United States Trust Company of New York 114 West 47th Street New York, New York 10036 Facsimile No.: (212) 852-1627 Attention: Corporate Trust and Agency Services Each of the Company and the Trustee by written notice to each other such Person may designate additional or different addresses for notices to such Person. Any notice or communication to the Company or the Trustee shall be deemed to have been given or made as of the date so delivered if personally delivered; when receipt is confirmed if delivered by commercial courier service; when answered back, if telexed; when receipt is acknowledged, if faxed; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). 101 -94- Any notice or communication mailed to a Holder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 11.03. Communications by Holders with Other Holders. Holders may communicate pursuant to TIA ss. 312(b) with other Holders with respect to their rights under this Indenture or the Debentures. The Company, the Trustee, the Registrar and any other Person shall have the protection of TIA ss. 312(c). SECTION 11.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate, in form and substance satisfactory to the Trustee, stating that, in the opinion of the signers, all conditions precedent to be performed by the Company, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent to be performed by the Company, if any, provided for in this Indenture relating to the proposed action have been complied with. SECTION 11.05. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 4.06, shall include: 102 -95- (1) a statement that the Person making such certificate or opinion has read such covenant or condition and the definitions relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as is reasonably necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such Person, such condition or covenant has been complied with. SECTION 11.06. Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules in accordance with the Trustee's customary practices for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 11.07. Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions in New York, New York or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 11.08. Governing Law. THIS INDENTURE AND THE DEBENTURES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE. 103 -96- SECTION 11.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any of its Subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.10. No Recourse Against Others. A director, officer, employee, stockholder or incorporator, as such, of the Company or of the Trustee shall not have any liability for any obligations of the Company under the Debentures or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Debenture waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Debentures. SECTION 11.11. Successors. All agreements of the Company in this Indenture and the Debentures shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 11.12. Duplicate Originals. All parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. SECTION 11.13. Severability. In case any one or more of the provisions in this Indenture or in the Debentures shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. 104 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. Issuer: MCMS, INC. By: /s/ Chris J. Anton ------------------------------------ Name: Chris J. Anton Title: Vice President, Finance & CEO Trustee: UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By: /s/ James E. Logan ------------------------------------ Name: James E. Logan Title: Vice President 105 EXHIBIT A CUSIP No.: MCMS, INC. 12 1/2% Subordinated Exchange Debentures due 2010 No. $ MCMS, INC., an Idaho corporation (the "Company"), for value received, promises to pay to or registered assigns, the principal sum of Dollars, on March 1, 2010. Interest Payment Dates: March 1 and September 1. Record Dates: February 15 and August 15. Reference is made to the further provisions of this Debenture contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Debenture to be signed manually or by facsimile by its duly authorized officers. Dated: MCMS, INC. By: ----------------------------- Name: Title: By: ----------------------------- Name: Title: Trustee's Certificate of Authentication This is one of the 12 1/2% Subordinated Exchange Debentures due 2010 referred to in the within-mentioned Indenture. Dated: United States Trust Company of New York, as Trustee By: --------------------------------- Authorized Signatory A-1 106 (REVERSE OF SECURITY) 12 1/2% SUBORDINATED EXCHANGE DEBENTURES DUE 2010 1. Interest. MCMS, INC., an Idaho corporation (the "Company"), promises to pay interest on the principal amount of this Debenture at the rate per annum shown above. Interest on the Debentures will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from [ ].* The Company will pay interest semi-annually in arrears on each Interest Payment Date, commencing [ ].** Interest will be computed on the basis of a 360-day year of twelve 30-day months. Notwithstanding anything herein to the contrary, on each Interest Payment Date through and including March 1, 2003, the entire amount of the interest payment on the Debentures may be paid, at the option of the Company, in additional Debentures ("Secondary Debentures") (valued at 100% of the principal amount thereof). The Company may, at its option, pay cash in lieu of issuing any Secondary Debenture to the extent the principal amount of such Secondary Debenture is not an integral multiple of $1,000. The Company shall notify the Trustee of the Company's election to pay interest in Secondary Debentures not less than 10 days prior to the Record Date for an Interest Payment Date. On each such Interest Payment Date, the Trustee shall authenticate Secondary Debentures for original issuance to each holder of Debentures on the preceding Record Date, as shown on the Debenture register, in the amount required to pay such interest. For purposes of determining the principal amount of Secondary Debentures to be issued in payment of interest, the Company shall be entitled to aggregate as to each holder the principal amount of all Debentures and Secondary Debentures held of record by such holder. The Company shall pay interest on overdue principal and on overdue installments of interest from time to time on demand at the rate borne by the Debentures and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful. - ---------- * Insert date of original issuance. ** Insert first Interest Payment Date following the date of original issuance. A-2 107 2. Method of Payment. The Company shall pay interest on the Debentures (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Debentures are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Debentures to a Paying Agent to collect principal payments. The Company shall pay principal and, except to the extent the Company issues Secondary Debentures in lieu of cash interest in accordance with paragraph 1 hereof, interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and, except to the extent the Company issues Secondary Debentures in lieu of cash interest in accordance with paragraph 1 hereof, interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. 3. Paying Agent and Registrar. Initially, United States Trust Company of New York, a New York corporation (the "Trustee"), will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. 4. Indenture. The Company issued the Debentures under an Indenture, dated as of February 26, 1998 (the "Indenture"), between the Company and the Trustee. This Debenture is one of a duly authorized issue of Debentures of the Company designated as its 12 1/2% Subordinated Exchange Debentures due 2010 (the "Debentures"). The Debentures are limited (except as otherwise provided in the Indenture or this Debenture) in aggregate principal amount equal to the liquidation preference of the outstanding shares of Preferred Stock on the Exchange Date (including Preferred Stock issued in lieu of cash dividends on the Preferred Stock), plus accumulated and unpaid dividends, which may be issued under the Indenture. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Debentures include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Debentures are subject to all such terms, and Holders of Debentures are referred to the Indenture and said Act for a statement of them. The Debentures are general unsecured obligations of the Company. 5. Subordination. The Debentures are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full in cash or Cash A-3 108 Equivalents of all Senior Debt of the Company, whether outstanding on the date of the Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder by its acceptance hereof agrees to be bound by such provisions and authorizes and expressly directs the Trustee, on its behalf, to take such action as may be necessary or appropriate to effectuate the subordination provided for in the Indenture and appoints the Trustee its attorney-in-fact for such purposes. 6. Redemption. (a) Optional Redemption. The Debentures will be redeemable, at the Company's option, in whole or in part, at any time, on and after March 1, 2003, upon not less than 30 nor more than 60 days' notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the twelve-month period commencing on March 1 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
Year Percentage - ---- ---------- 2003......................................................... 106.250% 2004......................................................... 104.167% 2005......................................................... 102.083% 2006 and thereafter.......................................... 100.000%
(b) Optional Redemption upon Public Equity Offerings. At any time, or from time to time, on or prior to March 1, 2001, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings to redeem, in whole or in part, the Debentures at a redemption price equal to 112.5% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Company shall make such redemption not more than 120 days after the consummation of any such Public Equity Offering. 7. Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Debentures to be redeemed at such Holder's registered address. Debentures in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, if monies for the redemption of the Debentures called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless the Company defaults in the payment of such Redemption Price plus accrued and unpaid inter- A-4 109 est, if any, the Debentures called for redemption will cease to bear interest from and after such Redemption Date and the only right of the Holders of such Debentures will be to receive payment of the Redemption Price plus accrued and unpaid interest, if any. 8. Offers to Purchase. Sections 4.15 and 4.16 of the Indenture provide that, after certain Asset Sales and upon the occurrence of a Change of Control, and subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Debentures in accordance with the procedures set forth in the Indenture. 9. Denominations; Transfer; Exchange. The Debentures are in registered form, without coupons, in denominations of $1,000 and integral multiples of $1,000, except as otherwise provided in the Indenture or this Debenture. A Holder shall register the transfer of or exchange Debentures in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Debentures during a period beginning 15 days before the mailing of a redemption notice for any Debentures or portions thereof selected for redemption. 10. Persons Deemed Owners. The registered Holder of a Debenture shall be treated as the owner of it for all purposes. 11. Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. 12. Discharge Prior to Redemption or Maturity. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Debentures to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Debentures (including certain covenants, but excluding its obligation to pay the principal of and interest on the Debentures). 13. Amendment; Supplement; Waiver. Subject to certain exceptions, the Indenture or the Debentures may be amended or supplemented with the written consent of the Holders of at least a majority in aggregate principal amount of the Debentures then outstanding, and any existing Default or Event of Default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in aggregate principal amount of the Deben- A-5 110 tures then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Debentures to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Debentures in addition to or in place of certificated Debentures, or comply with Article Five of the Indenture or make any other change that does not adversely affect in any material respect the rights of any Holder of a Debenture. 14. Restrictive Covenants. The Indenture imposes certain limitations on the ability of the Company and its Restricted Subsidiaries to, among other things, incur additional Indebtedness, make payments in respect of its Capital Stock or certain Indebtedness, enter into transactions with Affiliates, create dividend or other payment restrictions affecting Subsidiaries, merge or consolidate with any other Person, sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets or adopt a plan of liquidation. Such limitations are subject to a number of important qualifications and exceptions. The Company must annually report to the Trustee on compliance with such limitations. 15. Successors. When a successor assumes, in accordance with the Indenture, all the obligations of its predecessor under the Debentures and the Indenture, the predecessor will be released from those obligations. 16. Defaults and Remedies. If an Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of Debentures then outstanding may declare all the Debentures to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Debentures may not enforce the Indenture or the Debentures except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Debentures unless it has received indemnity reasonably satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Debentures then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Debentures notice of any continuing Default or Event of Default (except a Default in payment of principal or interest) if it determines that withholding notice is in their interest. 17. Trustee Dealings with Company. The Trustee under the Indenture, in its individual or any other capacity, may A-6 111 become the owner or pledgee of Debentures and may otherwise deal with the Company, its Subsidiaries or their respective Affiliates as if it were not the Trustee. 18. No Recourse Against Others. No stockholder, director, officer, employee or incorporator, as such, of the Company shall have any liability for any obligation of the Company under the Debentures or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Debenture by accepting a Debenture waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Debentures. 19. Authentication. This Debenture shall not be valid until the Trustee or Authenticating Agent manually signs the certificate of authentication on this Debenture. 20. Governing Law. The laws of the State of New York shall govern this Debenture and the Indenture, without regard to principles of conflict of laws. 21. Abbreviations and Defined Terms. Customary abbreviations may be used in the name of a Holder of a Debenture or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Debentures as a convenience to the Holders of the Debentures. No representation is made as to the accuracy of such numbers as printed on the Debentures and reliance may be placed only on the other identification numbers printed hereon. 23. Indenture. Each Holder, by accepting a Debenture, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time. The Company will furnish to any Holder of a Debenture upon written request and without charge a copy of the Indenture which has the text of this Debenture in larger type. Requests may be made to: MCMS, Inc., 16399 Franklin Road, Nampa, ID 83687, Attn: Corporate Counsel. A-7 112 ASSIGNMENT FORM If you the Holder want to assign this Debenture, fill in the form below and have your signature guaranteed: I or we assign and transfer this Debenture to: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type name, address and zip code and social security or tax ID number of assignee) and irrevocably appoint ______________________________________, agent to transfer this Debenture on the books of the Company. The agent may substitute another to act for him. Date: Signed: ----------------------------- ----------------------------- (Sign exactly as your name appears on the other side of this Debenture) Signature Guarantee: ------------------------------------ A-8 113 [OPTION OF HOLDER TO ELECT PURCHASE] If you want to elect to have this Debenture purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate box: Section 4.15 [ ] Section 4.16 [ ] If you want to elect to have only part of this Debenture purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you elect to have purchased: $_______________________ Dated: -------------------------- ------------------------------------------ NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Debenture in every particular without alteration or enlargement or any change whatsoever and be guaranteed by the endorser's bank or broker. Signature Guarantee: ------------------------------------ A-9 EX-4.3 9 CERTIFICATE OF DESIGNATION 1 Exhibit 4.3 ================================================================================ State of Idaho =================== Department of State =================== I Pete T. Cenarrusa, Secretary of State of the State of Idaho, hereby certify that I am the custodian of the corporation, limited liability company, limited partnership, limited liability partnership, and assumed business name records of this State. I FURTHER CERTIFY That the annexed is a full, true and complete transcript of articles of amendment to articles of incorporation for MCMS, INC., file number C 108686, received and filed on February 24, 1998. Dated: February 25, 1998 [SEAL OMITTED] /s/ Pete [illegible] Cenarrusa GREAT SEAL OF THE STATE OF SECRETARY OF STATE IDAHO By /s/ Alisa Hardley -------------------------- ================================================================================ 2 MCMS, INC. CERTIFICATE OF DESIGNATION OF THE POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS OF 12 1/2% SENIOR EXCHANGEABLE PREFERRED STOCK AND 12 1/2% SERIES B SENIOR EXCHANGEABLE PREFERRED STOCK AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF - -------------------------------------------------------------------------------- Pursuant to Section 30-1-602 of the Business Corporation Act of the State of Idaho - -------------------------------------------------------------------------------- MCMS, Inc. (the "Corporation"), a corporation organized and existing under the Business Corporation Act of the State of Idaho, does hereby certify that, pursuant to authority conferred upon the board of directors of the Corporation (the "Board of Directors") by its Amended and Restated Articles of Incorporation (hereinafter referred to as the "Articles of Incorporation"), and pursuant to the provisions of Section 30-1-602 of the Business Corporation Act of the State of Idaho, said Board of Directors, by unanimous written consent dated, February 23, 1998, duly approved and adopted the following resolution (the "Resolution"): RESOLVED, that, pursuant to the authority vested in the Board of Directors by its Articles of Incorporation, the Board of Directors does hereby create, authorize and provide for the issuance of 12 1/2% Senior Exchangeable Preferred Stock and 12 1/2% Series B Senior Exchangeable Preferred Stock, each with a par value of $.001 per share, and each with a stated value of $100.00 per share, consisting initially of an aggregate of 750,000 shares, having the designations, preferences, relative, participating, optional and other special rights and the qualifications, limitations and restrictions thereof that are set forth in the Articles of Incorporation and in this Resolution as follows: (a) Designation. There is hereby created out of the authorized and unissued shares of preferred stock of the Corporation a class of preferred stock, which includes preferred stock designated as the "12 1/2% Senior Exchangeable Preferred Stock" and preferred stock designated as the "12 1/2% Series B Senior Exchangeable Preferred Stock." The 12 1/2% Senior Exchangeable Preferred Stock and the 12 1/2% Series B Senior Exchangeable Preferred Stock shall have identical terms, except that the 12 1/2% Series B Senior Exchangeable Preferred Stock 3 -2- will not contain terms with respect to transfer restrictions. The 12 1/2% Senior Exchangeable Preferred Stock and the 12 1/2% Series B Senior Exchangeable Preferred Stock are hereby collectively referred to as the "Exchangeable Preferred Stock." The number of shares constituting Exchangeable Preferred Stock shall be 750,000. 250,000 shares of the Exchangeable Preferred Stock shall be initially issued, with an aggregate of 500,000 additional shares reserved for issuance in accordance with paragraph (c)(i) hereof and the Exchange Offer (as defined in the Registration Rights Agreement). The liquidation preference of the Exchangeable Preferred Stock shall be $100.00 per share. (b) Rank. The Exchangeable Preferred Stock shall, with respect to dividend rights and rights upon liquidation, winding-up and dissolution of the Corporation, rank (i) senior to all classes of Common Stock of the Corporation and to each other class of preferred stock of the Corporation established hereafter by the Board of Directors, the terms of which do not expressly provide that it ranks senior or on a parity with the Exchangeable Preferred Stock as to dividend rights and rights upon liquidation, winding-up and dissolution of the Corporation (collectively referred to, together with all classes of common stock of the Corporation, as "Junior Stock"); (ii) subject to certain conditions, on a parity with each other class of preferred stock of the Corporation established hereafter by the Board of Directors, the terms of which expressly provide that such class or series will rank on a parity with the Exchangeable Preferred Stock as to dividend rights and rights upon liquidation, winding-up and dissolution (collectively referred to as "Parity Stock"); and (iii) subject to certain conditions, junior to each class of preferred stock of the Corporation established after the date hereof by the Board of Directors, the terms of which expressly provide that such class will rank senior to the preferred stock as to dividend rights and rights upon liquidation, winding-up and dissolution of the Corporation (collectively referred to as "Senior Stock"). (c) Dividends. (i) The Holders of the outstanding shares of Exchangeable Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available therefor, distributions in the form of cash dividends on each share of Exchangeable Preferred Stock, at a rate per annum equal to 12 1/2% of the liquidation preference per share of the Exchangeable Preferred Stock, payable quarterly. All dividends shall be cumulative, whether or not earned or declared, on a daily basis from the Issue Date and shall be payable quarterly 4 -3- in arrears on each Dividend Payment Date, commencing on June 1, 1998, to holders of record on each Dividend Record Date immediately preceding the relevant Dividend Payment Date, provided that if any dividend (including Additional Dividends, if any) payable on any Dividend Payment Date on or before March 1, 2003 is not paid in full in cash on such Dividend Payment Date, the amount payable as dividends on such Dividend Payment Date that is not paid in cash on such Dividend Payment Date shall be paid in additional shares of Exchangeable Preferred Stock (including fractional shares) (calculated by dividing (x) the amount of the cash dividend payable to each holder of record of the Exchangeable Preferred Stock on the basis of all shares held of record by such Holder, whether evidenced by one or more certificates, by (y) $100.00), on such Dividend Payment Date and shall be deemed paid in full and shall not accumulate. After March 1, 2003, all dividends shall be paid in cash. Each dividend shall be payable to Holders of record of the Exchangeable Preferred Stock as they appear on the stock books of the Corporation on the Dividend Record Date immediately preceding the related Dividend Payment Date. Dividends shall cease to accumulate in respect of the Exchangeable Preferred Stock on the Exchange Date or on the date of their earlier redemption unless the Corporation shall have failed to issue the appropriate aggregate principal amount of Exchange Debentures in respect of the Exchangeable Preferred Stock on such Exchange Date or shall have failed to pay the relevant redemption price on the date fixed for redemption. (ii) All dividends paid with respect to shares of the Exchangeable Preferred Stock pursuant to paragraph (c)(i) shall be paid pro rata to the Holders entitled thereto. (iii) Nothing herein contained shall in any way or under any circumstances be construed or deemed to require the Board of Directors to declare, or the Corporation to pay or set apart for payment, any dividends on shares of the Exchangeable Preferred Stock at any time. (iv) Dividends on account of arrears for any past Dividend Period and dividends in connection with any optional redemption pursuant to paragraph (e)(i) may be declared and paid at any time, without reference to any regular Dividend Payment Date, to Holders of record on such date, not more than forty-five (45) days prior to the payment thereof, as may be fixed by the Board of Directors. 5 -4- (v) No full dividends may be declared by the Board of Directors or paid or funds set apart for the payment of dividends by the Corporation on any Parity Stock for any period unless full cumulative dividends shall have been or contemporaneously are declared and paid (or are deemed declared and paid) in full or declared and, if payable in cash, a sum in cash sufficient for such payment is set apart for such payment on the Exchangeable Preferred Stock for all Dividend Periods terminating on or prior to the date of payment of such full dividends on such Parity Stock. If full dividends are not so paid, all dividends declared upon shares of the Exchangeable Preferred Stock and any other Parity Stock shall be declared pro rata so that --- ---- the amount of dividends declared per share on the Exchangeable Preferred Stock and such Parity Stock shall in all cases bear to each other the same ratio that accumulated and unpaid dividends per share on the Exchangeable Preferred Stock and such Parity Stock bear to each other. (vi) (A) Holders of shares of the Exchangeable Preferred Stock shall be entitled to receive the dividends provided for in paragraph (c)(i) hereof in preference to and in priority over any dividends upon any of the Junior Stock. (B) So long as any share of the Exchangeable Preferred Stock is outstanding, the Corporation shall not declare, pay or set apart for payment any dividend on any of the Junior Stock or make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any of the Junior Stock or any warrants, rights, calls or options exercisable for or convertible into any of the Junior Stock whether in cash, obligations or shares of the Corporation or other property (other than dividends in Junior Stock to the holders of Junior Stock), and shall not permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase or redeem any of the Junior Stock or any such warrants, rights, calls or options unless full cumulative dividends determined in accordance herewith on the Exchangeable Preferred Stock have been paid (or are deemed paid) in full or declared and, if payable in cash, a sum in cash set apart sufficient for such payment on the Exchangeable Preferred Stock for all Dividend Periods terminating on or prior to the date of such dividends or payments on such Junior Stock. 6 -5- (C) So long as any share of the Exchangeable Preferred Stock is outstanding, the Corporation shall not make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any of the Parity Stock or any warrants, rights, calls or options exercisable for or convertible into any of the Parity Stock and shall not permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase or redeem any of the Parity Stock or any such warrants, rights, calls or options unless full cumulative dividends determined in accordance herewith on the Exchangeable Preferred Stock have been paid (or are deemed paid) in full. (vii) Dividends payable on the Exchangeable Preferred Stock for any period less than a year shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of Additional Dividends (if any) will be determined consistent with the preceding sentence and by multiplying the applicable Additional Dividends by a fraction, the numerator of which is the number of days such rate was applicable during any Dividend Period and the denominator of which is 360. (d) Liquidation Preference. (i) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the Holders of shares of Exchangeable Preferred Stock then outstanding shall be entitled to be paid, out of the assets of the Corporation available for distribution to its shareholders, an amount in cash equal to the liquidation preference for each share outstanding, plus, without duplication, an amount in cash equal to accumulated and unpaid dividends thereon to the date fixed for liquidation, dissolution or winding up (including an amount equal to a prorated dividend for the period from the last Dividend Payment Date to the date fixed for liquidation, dissolution or winding up) before any payment shall be made or any assets distributed to the holders of any of the Junior Stock, including, without limitation, Common Stock of the Corporation. If, upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the assets of the Corporation are not sufficient to pay in full the liquidation payments payable to the holders of outstanding shares of the Exchangeable Preferred Stock and all other Parity Stock, then the holders of all such shares shall share equally and ratably in 7 -6- any such distribution of assets in proportion to the full liquidation preference to which each is entitled until such liquidation preferences are paid in full, and then in proportion to their respective amounts of accumulated but unpaid dividends. The holders of outstanding shares of Exchangeable Preferred Stock and all other Parity Stock shall not be entitled to any further participation in any distribution of assets of the Corporation after payment of the full amount of the liquidation preferences and accumulated and unpaid dividends to which such holders are entitled. (ii) For the purposes of this paragraph (d), neither the sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Corporation nor the consolidation or merger of the Corporation with or into one or more entities shall be deemed to be a liquidation, dissolution or winding-up of the affairs of the Corporation. (e) Redemption. (i) Optional Redemption. (A) The Corporation may, at the option of the Board of Directors, redeem at any time on or after March 1, 2003, subject to contractual and other restrictions with respect thereto and to the legal availability of funds therefor, in whole or in part, in the manner provided for in paragraph (e)(iii) hereof, any or all of the shares of the Exchangeable Preferred Stock, at the redemption prices (expressed as a percentage of the liquidation preference) set forth below, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends per share to the Redemption Date (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Redemption Date to the Redemption Date) (the "Optional Redemption Price"), if redeemed during the twelve-month period commencing on March 1 of each of the years set forth below:
2003............................................ 106.250% 2004............................................ 104.167% 2005............................................ 102.083% 2006 and thereafter............................. 100.000%
(B) In addition to the foregoing paragraph (e)(i)(A), prior to March 1, 2001, the Corporation may, at its option, use the net cash proceeds of one or more Pub- 8 -7- lic Equity Offerings to redeem in whole, or in part, from any source of funds legally available therefor, in the manner provided for in paragraph (e)(iii) hereof, the Preferred Stock, at a redemption price of 112.50% of the liquidation preference thereof, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends to the Redemption Date including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Redemption Date to the Redemption Date (the "Cash Proceeds Redemption Price"). In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Corporation shall make such redemption not more than 120 days after the consummation of any such Public Equity Offering. (ii) Mandatory Redemption. On March 1, 2010, the Corporation shall redeem (subject to the legal availability of funds therefor) in the manner provided for in paragraph (e)(iii) hereof, all of the shares of the Exchangeable Preferred Stock then outstanding at a redemption price equal to 100% of the liquidation preference per share, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends per share to the Redemption Date (including an amount equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Redemption Date to the Redemption Date) (the "Mandatory Redemption Price"). (iii) Procedures for Redemption. (A) At least thirty (30) days and not more than sixty (60) days prior to the date fixed for any redemption of the Exchangeable Preferred Stock, the Corporation shall send written notice (the "Redemption Notice") by first class mail, postage prepaid, to each Holder of record on the record date fixed for such redemption of the Exchangeable Preferred Stock at such Holder's address as it appears on the stock books of the Corporation, provided that no failure to give such notice nor any deficiency therein shall affect the validity of the procedure for the redemption of any shares of Exchangeable Preferred Stock to be redeemed except as to the Holder or Holders to whom the Corporation has failed to give said notice or except as to the Holder or Holders whose notice was defective. The Redemption Notice shall state: (1) whether the redemption is pursuant to paragraph (e)(i)(A), (e)(i)(B) or (e)(ii); 9 -8- (2) the Optional Redemption Price, the Cash Proceeds Redemption Price or the Mandatory Redemption Price, as the case may be; (3) in the case of an optional redemption pursuant to (e)(i)(A) or (e)(i)(B) hereof, whether all or less than all the outstanding shares of the Exchangeable Preferred Stock are to be redeemed and the total number of shares of the Exchangeable Preferred Stock being redeemed; (4) the date fixed for redemption; (5) that the Holder is to surrender to the Corporation, in the manner, at the place or places and at the price designated, his/her certificate or certificates representing the shares of Exchangeable Preferred Stock to be redeemed; and (6) that dividends on the shares of the Exchangeable Preferred Stock to be redeemed shall cease to accumulate on such Redemption Date unless the Corporation defaults in the payment of the Optional Redemption Price, the Cash Proceeds Redemption Price or the Mandatory Redemption Price, as the case may be. (B) Each Holder of Exchangeable Preferred Stock called for redemption shall surrender the certificate or certificates representing such shares of Exchangeable Preferred Stock to the Corporation, duly endorsed (or otherwise in proper form for transfer, as determined by the Corporation), in the manner and at the place designated in the Redemption Notice, and on the Redemption Date the full Optional Redemption Price, the Cash Proceeds Redemption Price or Mandatory Redemption Price, as the case may be, for such shares shall be payable in cash to the Person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be canceled and retired. In the event that less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (C) On and after the Redemption Date, unless the Corporation defaults in the payment in full of the applicable redemption price, dividends on the Exchangeable Preferred Stock called for redemption shall cease to accumulate, and all rights of the Holders of such shares shall terminate with respect thereto on the Redemption Date, 10 -9- other than the right to receive the Optional Redemption Price, the Cash Proceeds Redemption Price or the Mandatory Redemption Price, as the case may be, without interest; provided, however, that if a notice of redemption shall have been given as provided in paragraph (iii)(A) above and the funds necessary for redemption (including an amount in respect of all dividends that will accumulate to the Redemption Date) shall have been segregated and irrevocably set apart by the Corporation, in trust for the equal and ratable benefit of the Holders of the shares to be redeemed, then, at the close of business on the day on which such funds are segregated and set apart, the Holders of the shares to be redeemed shall cease to be shareholders of the Corporation and shall be entitled only to receive the Optional Redemption Price, the Cash Proceeds Redemption Price or the Mandatory Redemption Price, as the case may be, without interest. (D) In the event of a redemption pursuant to paragraph (e)(i)(A) or (e)(i)(B) hereof of only a portion of the then outstanding shares of the Exchangeable Preferred Stock, the Corporation shall effect such redemption on a pro rata basis according to the number of shares held by each Holder of the Exchangeable Preferred Stock, except that the Corporation may redeem such shares held by Holders of fewer than 100 shares (or shares held by Holders who would hold less than 100 shares as a result of such redemption), as may be determined by the Corporation. (f) Voting Rights. (i) The Holders of Exchangeable Preferred Stock, except as otherwise required under Idaho law or as set forth in paragraphs (ii), (iii) and (iv) below, shall not be entitled or permitted to vote on any matter required or permitted to be voted upon by the shareholders of the Corporation. (ii) (A) So long as any shares of the Exchangeable Preferred Stock are outstanding, the Corporation shall not authorize any class of Senior Stock without the affirmative vote or consent of Holders of at least a majority of the outstanding shares of Exchangeable Preferred Stock, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting. (B) So long as any shares of the Exchangeable Preferred Stock are outstanding, the Corporation shall not 11 -10- authorize any class of Parity Stock without the affirmative vote or consent of Holders of at least a majority of the then outstanding shares of Exchangeable Preferred Stock, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting; provided, however, that no such vote or consent shall be necessary in connection with the authorization of the issuance of Exchangeable Preferred Stock to satisfy dividend payments in lieu of cash on outstanding shares of Exchangeable Preferred Stock prior to March 1, 2003. (C) So long as any shares of the Exchangeable Preferred Stock are outstanding, the Corporation shall not amend this Certificate of Designation so as to affect materially and adversely the specified rights, preferences, privileges or voting rights of the then outstanding shares of Exchangeable Preferred Stock or to authorize the issuance of any additional shares of Exchangeable Preferred Stock without the affirmative vote or consent of Holders of at least a majority of the issued and outstanding shares of Exchangeable Preferred Stock, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting. (D) Prior to the exchange of Exchangeable Preferred Stock for Exchange Debentures, the Corporation shall not amend or modify the Exchange Indenture for the Exchange Debentures in the form as executed on the Effective Date (the "Exchange Indenture") (except as expressly provided therein in respect of amendments without the consent of Holders of Exchange Debentures) without the affirmative vote or consent of Holders of at least a majority of the shares of Exchangeable Preferred Stock then outstanding, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting. (iii) Without the affirmative vote or consent of Holders of a majority of the issued and outstanding shares of Exchangeable Preferred Stock and any Parity Stock, voting or consenting, as the case may be, as one class, given in person or by proxy, either in writing or by resolution adopted at an annual or special meeting, the Corporation shall not, in a single transaction or a series of related transactions, consolidate or merge with or into any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or cause or permit any Restricted Subsidiary 12 -11- of the Corporation to sell, assign, transfer, lease, convey or otherwise dispose of) all or substantially all of the Corporation's assets (determined on a consolidated basis for the Corporation and the Corporation's Restricted Subsidiaries) whether as an entirety or substantially as an entirety to any Person or adopt a plan of liquidation unless (A) either (1) the Corporation is the surviving or continuing Person or (2) the Person (if other than the Corporation) formed by such consolidation or into which the Corporation is merged or the Person which acquires by sale, assignment, transfer, lease, conveyance or other disposition the properties and assets of the Corporation and of the Corporation's Restricted Subsidiaries substantially as an entirety or, in the case of a plan of liquidation, the Person to which assets of the Corporation have been transferred shall be a corporation existing under the laws of the United States or any State thereof or the District of Columbia; (B) if the Corporation is not the surviving or continuing Person, the Exchangeable Preferred Stock shall be converted into or exchanged for and shall become shares of such successor, transferee or resulting person, having in respect of such successor, transferee or resulting person the same powers, preferences and relative participating, optional or other special rights and the qualifications, limitations or restrictions thereon, that the Exchangeable Preferred Stock had immediately prior to such transaction; (C) immediately after giving effect to such transaction and the use of the proceeds therefrom (on a pro forma basis, including giving effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in connection with such transaction), the Corporation (in the case of clause (1) of the foregoing clause (A)) or such person (in the case of clause (2) of the foregoing clause (A)) shall be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with paragraph (l)(i) hereof; and (D) immediately after giving effect to such transactions, no Voting Rights Triggering Event shall have occurred or be continuing. Notwithstanding clause (C) of the preceding sentence, (a) any Restricted Subsidiary of the Corporation may consolidate with, merge into or transfer all or part of its properties and assets to the Corporation and (b) the Corporation may merge with an Affiliate incorporated solely for the purpose of reincorporating the Corporation in another jurisdiction. For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially 13 -12- all of the properties or assets of one or more Restricted Subsidiaries of the Corporation, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Corporation, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Corporation. (iv) (A) If (1) after March 1, 2003, cash dividends on the Exchangeable Preferred Stock are in arrears and unpaid for six or more Dividend Periods (whether or not consecutive) (a "Dividend Default"); (2) the Corporation fails to redeem all of the then outstanding shares of Exchangeable Preferred Stock on March 1, 2010; (3) the Corporation fails to make a Change of Control Offer following a Change of Control if such Change of Control Offer is required by paragraph (h) hereof or fails to purchase shares of Exchangeable Preferred Stock from Holders who elect to have such shares purchased pursuant to the Change of Control Offer; (4) the Corporation breaches or violates any of the provisions set forth in paragraph (l) hereof and the breach or violation continues for a period of 30 days or more after the Corporation receives notice thereof specifying the default from the Holders of at least 25% of the shares of Exchangeable Preferred Stock then outstanding; or (5) the Corporation fails to pay at the final stated maturity (giving effect to any extensions thereof) the principal amount of any Indebtedness of the Corporation or any Restricted Subsidiary of the Corporation, or the final stated maturity of any such Indebtedness is accelerated, if the aggregate principal amount of such Indebtedness, together with the aggregate principal amount of any other such Indebtedness in default for failure to pay principal at the final stated maturity (giving effect to any extensions thereof) or that has been accelerated, aggregates $10.0 million or more at any one time, in each case, after a 20-day period during which such default shall not have been cured or such acceleration rescinded, then in the case of any of clauses (1)-(5) the number of directors constituting the Board of Directors shall be adjusted by the number, if any, necessary to permit the Holders of Exchangeable Preferred Stock, voting separately and as one class (together with the holders of any Parity Stock having similar voting rights), to elect the lesser of two directors or that number of directors constituting 25% of the members of the Board of Directors. Each such event described in clauses (1), (2), (3), (4) and (5) is a "Voting Rights Triggering Event." Holders of a majority of the issued and outstanding shares of Exchangeable Preferred Stock, voting separately and as one class (together 14 -13- with the holders of any Parity Stock having similar voting rights), shall have the exclusive right to elect the lesser of two directors or 25% of the number of members constituting the Board of Directors at a meeting therefor called upon occurrence of such Voting Rights Triggering Event, and at every subsequent meeting at which the terms of office of the directors so elected by the Holders of the Exchangeable Preferred Stock expire (other than as described in (f)(iv)(B) below). The voting rights provided herein shall be the exclusive remedy at law or in equity of the Holders of the Exchangeable Preferred Stock for any Voting Rights Triggering Event. (B) The right of the Holders of Exchangeable Preferred Stock voting separately and as one class (together with the holders of any Parity Stock then having similar rights) to elect members of the Board of Directors as set forth in subparagraph (f)(iv)(A) above shall continue until such time as (x) in the event such right arises due to a Dividend Default, all accumulated dividends that are in arrears on the Exchangeable Preferred Stock are paid in full in cash; and (y) in all other cases, the failure, breach or default giving rise to such Voting Rights Triggering Event is remedied or waived by the holders of at least a majority of the shares of Exchangeable Preferred Stock then outstanding and entitled to vote thereon, at which time (1) the special right of the Holders of Exchangeable Preferred Stock so to vote as a class for the election of directors and (2) the term of office of the directors elected by the Holders of the Exchangeable Preferred Stock shall each terminate and the directors elected by the holders of Capital Stock (other than the Exchangeable Preferred Stock or Parity Stock having similar voting rights) shall constitute the entire Board of Directors. At any time after voting power to elect directors shall have become vested and be continuing in the Holders of Exchangeable Preferred Stock pursuant to paragraph (f)(iv) hereof, or if vacancies shall exist in the offices of directors elected by the Holders of Exchangeable Preferred Stock, a proper officer of the Corporation may, and upon the written request of the Holders of record of at least twenty percent (20%) of the shares of Exchangeable Preferred Stock then outstanding addressed to the secretary of the Corporation shall, call a special meeting of the Holders of Exchangeable Preferred Stock, for the purpose of electing the directors which such Holders are entitled to elect. If such meeting shall not be called by a proper officer of the Corporation within twenty (20) days after personal service of said written 15 -14- request upon the secretary of the Corporation, or within twenty (20) days after mailing the same within the United States by certified mail, addressed to the secretary of the Corporation at its principal executive offices, then the Holders of record of at least twenty percent (20%) of the outstanding shares of Exchangeable Preferred Stock may designate in writing one of their number to call such meeting at the expense of the Corporation, and such meeting may be called by the Person so designated upon the notice required for the annual meetings of shareholders of the Corporation and shall be held at the place for holding the annual meetings of shareholders. Any Holder of Exchangeable Preferred Stock so designated shall have, and the Corporation shall provide, access to the lists of shareholders to be called pursuant to the provisions hereof. (C) At any meeting held for the purpose of electing directors at which the Holders of Exchangeable Preferred Stock (and any Parity Stock having similar voting rights) shall have the right, voting together as a separate class, to elect directors as aforesaid, the presence in person or by proxy of the Holders of at least a majority of the outstanding shares of Exchangeable Preferred Stock (and any Parity Stock having similar voting rights) shall be required to constitute a quorum of such Exchangeable Preferred Stock. (D) Any vacancy occurring in the office of a director elected by the Holders of Exchangeable Preferred Stock (and any Parity Stock having similar voting rights) may be filled by the remaining directors elected by the Holders of Exchangeable Preferred Stock and holders of such Parity Stock unless and until such vacancy shall be filled by the Holders of Exchangeable Preferred Stock and holders of such Parity Stock. In any case in which the Holders of Exchangeable Preferred Stock shall be entitled to vote pursuant to this paragraph (f) or pursuant to Idaho law, each Holder of Exchangeable Preferred Stock entitled to vote with respect to such matter shall be entitled to one vote for each share of Exchangeable Preferred Stock held. (g) Exchange. (i) Requirements. The outstanding shares of Exchangeable Preferred Stock are exchangeable in whole but not in part, at the option of the Corporation at any time 16 -15- on any Dividend Payment Date for the Corporation's 12 1/2% Subordinated Exchange Debentures due 2010 (the "Exchange Debentures") to be substantially in the form of Exhibit A to the form of Exchange Indenture, a copy of which is on file with the secretary of the Corporation, provided that any such exchange may only be made if on or prior to the Exchange Date (i) the Corporation has paid (or is deemed to have paid) all accumulated dividends on the Exchangeable Preferred Stock (including the dividends payable on the date of exchange) and there shall be no contractual impediment to such exchange; (ii) there shall be funds legally available sufficient therefor; (iii) immediately after giving effect to such exchange, no Default or Event of Default (each as defined in the Exchange Indenture) would exist under the Exchange Indenture, no Default or Event of Default (each as defined in the Indenture) would exist under the Indenture, no default or event of default (each as defined in the New Revolving Credit Facility) would exist under the New Revolving Credit Facility and no default or event of default under any other material instrument governing Indebtedness outstanding at the time would be caused thereby; and (iv) the Exchange Indenture has been qualified under the TIA, if such qualification is required at the time of exchange. The exchange rate shall be $1.00 principal amount of Exchange Debentures for each $1.00 of liquidation preference of Exchangeable Preferred Stock. Exchange Debentures issued in exchange for Exchangeable Preferred Stock shall be issued in principal amounts of $1,000 and integral multiples thereof to the extent possible and also will be issued in principal amounts less than $1,000 so that each holder of Exchangeable Preferred Stock will receive certificates representing the entire amount of Exchange Debentures to which such holder's shares of Exchangeable Preferred Stock entitle such holder; provided that the Corporation may pay cash in lieu of issuing an Exchange Debenture in a principal amount less than $1,000. (ii) Procedure for Exchange. (A) At least thirty (30) days and not more than sixty (60) days prior to the date fixed for exchange, the Corporation shall send written notice (the "Exchange Notice") by first-class mail, postage prepaid, to each Holder of record on the record date fixed for such exchange of the Exchangeable Preferred Stock at such Holder's address as the same appears on the stock books of the Corporation, provided that no failure to give such notice nor any deficiency therein shall affect the validity of the procedure for the exchange of any shares of Exchangeable Preferred Stock to be exchanged except as to the Holder or Holders to whom the Corporation 17 -16- has failed to give said notice or except as to the Holder or Holders whose notice was defective. The Exchange Notice shall state: (1) the date fixed for exchange; (2) that the Holder is to surrender to the Corporation, in the manner and at the place or places designated, his/her certificate or certificates representing the shares of Exchangeable Preferred Stock to be exchanged; (3) that dividends on the shares of Exchangeable Preferred Stock to be exchanged shall cease to accrue on such Exchange Date whether or not certificates for shares of Exchangeable Preferred Stock are surrendered for exchange on such Exchange Date unless the corporation shall default in the delivery of Exchange Debentures; and (4) that interest on the Exchange Debentures shall accrue from the Exchange Date whether or not certificates for shares of Exchangeable Preferred Stock are surrendered for exchange on such Exchange Date. (B) On or before the Exchange Date, each Holder of Exchangeable Preferred Stock shall surrender the certificate or certificates representing such shares of Exchangeable Preferred Stock, in the manner and at the place designated in the Exchange Notice. The Corporation shall cause the Exchange Debentures to be executed on the Exchange Date and, upon surrender in accordance with the Exchange Notice of the certificates for any shares of Exchangeable Preferred Stock so exchanged, duly endorsed (or otherwise in proper form for transfer, as determined by the Corporation), such shares shall be exchanged by the Corporation into Exchange Debentures. The Corporation shall pay interest on the Exchange Debentures at the rate and on the dates specified therein from the Exchange Date. (C) If notice has been mailed as aforesaid, and if before the Exchange Date specified in such notice (1) the Exchange Indenture shall have been duly executed and delivered by the Corporation and the Debenture Trustee thereunder and (2) all Exchange Debentures necessary for such exchange shall have been duly executed by the Corporation and delivered to the Debenture Trustee under the Exchange Indenture with irrevocable instructions to 18 -17- authenticate the Exchange Debentures necessary for such exchange, then the rights of the Holders of Exchangeable Preferred Stock so exchanged as shareholders of the Corporation shall cease (except the right to receive Exchange Debentures, an amount in cash, to the extent applicable, equal to the amount of accrued and unpaid dividends to the Exchange Date and, if the Corporation so elects, cash in lieu of any Exchange Debenture that is in a principal amount that is not an integral multiple of $1,000), and the Person or Persons entitled to receive the Exchange Debentures issuable upon exchange shall be treated for all purposes as the registered holder or holders of such Exchange Debentures as of the Exchange Date. (iii) No Exchange in Certain Cases. Notwithstanding the foregoing provisions of this paragraph (g), the Corporation shall not be entitled to exchange the Exchangeable Preferred Stock for Exchange Debentures if such exchange, or any term or provision of the Exchange Indenture or the Exchange Debentures, or the performance of the Corporation's obligations under the Exchange Indenture or the Exchange Debentures, shall materially violate or conflict with any applicable law or agreement or instrument then binding on the Corporation or if, at the time of such exchange, the Corporation is insolvent or if it would be rendered insolvent by such exchange. (h) Change of Control. (i) In the event of a Change of Control (the date of such occurrence being the "Change of Control Date"), the Corporation shall notify the Holders of the Exchangeable Preferred Stock in writing of such occurrence and shall make an offer to purchase (the "Change of Control Offer") all then outstanding shares of Exchangeable Preferred Stock at a purchase price equal to 101% of the liquidation preference thereof, plus, without duplication, an amount in cash equal to all accumulated and unpaid dividends per share to the Change of Control Payment Date (including an amount in cash equal to a prorated dividend for the period from the Dividend Payment Date immediately prior to the Change of Control Payment Date to the Change of Control Payment Date). (ii) Within 60 days following the Change of Control Date, the Corporation shall send, by first class mail, postage prepaid, a notice to each Holder of Exchangeable Preferred Stock at such Holder's address as it appears on the stock books of the Corporation, which no- 19 -18- tice shall govern the terms of the Change of Control Offer. The notice to the Holders shall contain all instructions and materials necessary to enable such Holders to tender Exchangeable Preferred Stock pursuant to the Change of Control Offer. Such notice shall state: (A) that a Change of Control has occurred, that the Change of Control Offer is being made pursuant to this paragraph (h) and that all Exchangeable Preferred Stock validly tendered and not withdrawn will be accepted for payment; (B) the purchase price (including the amount of accrued dividends, if any) and the purchase date (which shall be no earlier than 60 days nor later than 90 days from the date such notice is mailed, other than as may be required by law) (the "Change of Control Payment Date"); (C) that any shares of Exchangeable Preferred Stock not tendered will continue to accrue dividends; (D) that, unless the Corporation defaults in making payment therefor, any share of Exchangeable Preferred Stock accepted for payment pursuant to the Change of Control Offer shall cease to accrue dividends after the Change of Control Payment Date; (E) that Holders electing to have any shares of Exchangeable Preferred Stock purchased pursuant to a Change of Control Offer will be required to surrender the certificate or certificates representing such shares, properly endorsed for transfer, together with such customary documents as the Corporation and the transfer agent may reasonably require, in the manner and at the place specified in the notice prior to the close of business on the third Business Day prior to the Change of Control Payment Date; (F) that Holders will be entitled to withdraw their election if the Corporation receives, not later than five Business Days prior to the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the number of shares of Exchangeable Preferred Stock the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such shares of Exchangeable Preferred Stock purchased; 20 -19- (G) that Holders whose shares of Exchangeable Preferred Stock are purchased only in part will be issued a new certificate representing the unpurchased shares of Exchangeable Preferred Stock; and (H) the circumstances and relevant facts regarding such Change of Control. (iii) The Corporation shall comply with any securities laws and regulations, to the extent such laws and regulations are applicable to the repurchase of the Exchangeable Preferred Stock in connection with a Change of Control Offer. (iv) On the Change of Control Payment Date the Corporation shall (A) accept for payment the shares of Exchangeable Preferred Stock validly tendered pursuant to the Change of Control Offer, (B) pay to the Holders of shares so accepted the purchase price therefor in cash and (C) cancel and retire each surrendered certificate. Unless the Corporation defaults in the payment for the shares of Exchangeable Preferred Stock tendered pursuant to the Change of Control Offer, dividends will cease to accrue with respect to the shares of Exchangeable Preferred Stock tendered and all rights of Holders of such tendered shares will terminate, except for the right to receive payment therefor, on the Change of Control Payment Date. (v) If the purchase of the Exchangeable Preferred Stock would violate or constitute a default under the New Revolving Credit Facility, the Indenture or any other Indebtedness of the Corporation, then, notwithstanding anything to the contrary contained above, prior to complying with the foregoing provisions, but in any event within 60 days following the Change of Control Date, the Corporation shall, to the extent needed to permit such purchase of Exchangeable Preferred Stock, either (A) repay in full all such Indebtedness and terminate all commitments outstanding thereunder or (B) obtain the requisite consents, if any, under such Indebtedness required to permit the repurchase of Exchangeable Preferred Stock required by this paragraph (h). Until the requirements of the immediately preceding sentence are satisfied, the Corporation shall not make, and shall not be obligated to make, any Change of Control Offer. (i) Conversion or Exchange. The Holders of shares of Exchangeable Preferred Stock shall not have any rights here- 21 -20- under to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of Capital Stock of the Corporation. (j) Reissuance of Exchangeable Preferred Stock. Shares of Exchangeable Preferred Stock that have been issued and reacquired in any manner, including shares purchased or redeemed or exchanged, shall (upon compliance with any applicable provisions of the laws of Idaho) have the status of authorized but unissued shares of preferred stock undesignated as to series and may be redesignated and reissued as part of any series of preferred stock, provided that any issuance or reissuance of such shares as Exchangeable Preferred Stock must be in compliance with the terms hereof. (k) Business Day. If any payment, redemption or exchange shall be required by the terms hereof to be made on a day that is not a Business Day, such payment, redemption or exchange shall be made on the immediately succeeding Business Day. (l) Certain Additional Provisions. (i) Limitation on Incurrence of Additional Indebtedness. The Corporation shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of (collectively, "incur") any Indebtedness (other than Permitted Indebtedness); provided, however, that if no Voting Rights Triggering Event shall have occurred and be continuing at the time of or as a consequence of the incurrence of any such Indebtedness, the Corporation may incur Indebtedness (including, without limitation, Acquired Indebtedness) and Restricted Subsidiaries of the Corporation may incur Acquired Indebtedness, in each case if on the date of the incurrence of such Indebtedness, after giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Corporation is greater than 2.0 to 1.0. (ii) Limitation on Restricted Payments. The Corporation shall not, and shall not cause or permit any of its Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make any distribution (other than dividends or distributions payable in Qualified Capital Stock of the Corporation) on or in respect of shares of the Corporation's Junior Stock to holders of such Junior Stock, (b) purchase, redeem or otherwise acquire or retire for value any Junior Stock of the Corporation or any warrants, rights or options 22 -21- to purchase or acquire shares of any class of such Junior Stock, or (c) make any Investment (other than Permitted Investments) (each of the foregoing actions set forth in clauses (a), (b) and (c) being referred to as a "Restricted Payment"), if at the time of such Restricted Payment or immediately after giving effect thereto, (i) a Voting Rights Triggering Event shall have occurred and be continuing or (ii) the Corporation is not able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with paragraph (l)(i) hereof or (iii) the aggregate amount of Restricted Payments (including such proposed Restricted Payment) made subsequent to the Effective Date (the amount expended for such purposes, if other than in cash, being the fair market value of such property as determined reasonably and in good faith by the Board of Directors of the Corporation) shall exceed the sum of: (w) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Corporation earned subsequent to February 26, 1998 and on or prior to the date the Restricted Payment occurs (the "Reference Date") (treating such period as a single accounting period); plus (x) 100% of the aggregate net cash proceeds received by the Corporation from any Person (other than a Subsidiary of the Corporation) from the issuance and sale subsequent to the Effective Date and on or prior to the Reference Date of Qualified Capital Stock of the Corporation; plus (y) without duplication of any amounts included in clause (iii)(x) above, 100% of the aggregate net cash proceeds of any equity contribution received by the Corporation from a holder of the Corporation's Capital Stock; plus (z) without duplication, the sum of (1) the aggregate amount returned in cash on or with respect to Investments (other than Permitted Investments) made subsequent to the Effective Date whether through interest payments, principal payments, dividends or other distributions or payments, (2) the net cash proceeds received by the Corporation or any of its Restricted Subsidiaries from the disposition of all or any portion of such Investments (other than to a Subsidiary of the Corporation) and (3) upon redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value of such Subsidiary; provided, however, that the sum of clauses (1), (2) and (3) above shall not exceed the aggregate amount of all such Investments made subsequent to the Effective Date. Notwithstanding the foregoing, the provisions set forth in the immediately preceding paragraph do not prohibit: (1) the payment of any dividend or the consummation of any irrevocable redemption within 60 days after the date of declaration of such dividend or notice of such redemption if the dividend or the payment of the redemption price, as the case may 23 -22- be, would have been permitted on the date of declaration or notice; (2) if no Voting Rights Triggering Event shall have occurred and be continuing, the acquisition of any shares of Capital Stock of the Corporation, either (i) solely in exchange for shares of Qualified Capital Stock of the Corporation or (ii) through the application of net proceeds of a substantially concurrent sale for cash (other than to a Subsidiary of the Corporation) of shares of Qualified Capital Stock of the Corporation; (3) payments for the purpose of and in an amount equal to the amount required to permit the Corporation to redeem or repurchase its equity or options in respect thereof, in each case in connection with the terms of any employee stock option or stock purchase agreements or other agreements to compensate management or other employees; provided that such redemptions or repurchases pursuant to this clause (3) shall not exceed $3.0 million (which amount shall be increased by the amount of any net cash proceeds to the Corporation from (x) sales of Capital Stock of the Corporation to management or other employees subsequent to the Effective Date to the extent such amounts have not been included in clause (iii) in the foregoing paragraph and (y) any "key-man" life insurance policies which are used to make such redemptions or repurchases) in the aggregate; provided, further, that the cancellation of Indebtedness owing to the Corporation from management or other employees of the Corporation or any of its Restricted Subsidiaries in connection with a repurchase of Capital Stock of the Corporation shall not be deemed to constitute a Restricted Payment under this Certificate of Designation; (4) repurchases of Capital Stock deemed to occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price thereof; (5) so long as no Voting Rights Triggering Event shall have occurred and be continuing, payments not to exceed $500,000 in the aggregate to enable the Corporation to make payments to holders of its Capital Stock in lieu of issuance of fractional shares of its Capital Stock; (6) payments or other distributions made in connection with the Recapitalization; and (7) if no Voting Rights Triggering Event shall have occurred and be continuing, other Restricted Payments in an aggregate amount not to exceed $10.0 million. In determining the aggregate amount of Restricted Payments made subsequent to the Effective Date in accordance with clause (iii) of the immediately preceding paragraph, (a) amounts expended (to the extent such expenditure is in the form of cash) pursuant to clauses (1), (2)(ii), (3) and (7) shall be included in such calculation; provided such expenditures pursuant to clause (3) shall not be included to the extent of cash proceeds received by the Corporation from any "key-man" life insurance policies and (b) amounts expended pursuant to clauses (2)(i), (4), (5) and (6) shall be excluded from such calculation. 24 -23- (iii) Limitation on Exchangeable Preferred Stock of Restricted Subsidiaries. The Corporation shall not permit any of its Restricted Subsidiaries to issue any preferred stock (other than to the Corporation or to a Wholly Owned Restricted Subsidiary of the Corporation) or permit any Person (other than the Corporation or a Wholly Owned Restricted Subsidiary of the Corporation) to own any preferred stock of any Restricted Subsidiary of the Corporation. (iv) Reports. (a) Upon consummation of the Exchange Offer (as defined in the Registration Rights Agreement) and so long as any shares of Exchangeable Preferred Stock are outstanding, the Corporation (at its own expense) shall file with the Commission and shall file with the Transfer Agent within 15 days after it files them with the Commission copies of the quarterly and annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) to be filed pursuant to Section 13 or 15(d) of the Exchange Act (without regard to whether the Corporation is subject to the requirements of such Section 13 or 15(d) of the Exchange Act); provided that prior to the consummation of the Exchange Offer (as defined in the Registration Rights Agreement) and the issuance of the Exchange Preferred Stock (as defined in the Registration Rights Agreement), the Corporation (at its own expense) will mail to the Transfer Agent and Holders in accordance with paragraph (l)(iv)(b) hereof substantially the same information that would have been required by the foregoing documents within 15 days of when any such document would otherwise have been required to be filed with the Commission. (b) At the Corporation's expense, the Corporation shall cause an annual report if furnished by it to shareholders generally and each quarterly or other financial report if furnished by it to shareholders generally to be filed with the Transfer Agent and mailed to the Holders at their addresses as they appear on the stock books of the Corporation at the time of such mailing or furnishing to shareholders. (c) The Corporation shall provide to any Holder any information reasonably requested by such Holder concerning the Corporation (including financial statements) necessary in order to permit such Holder to sell or transfer shares of Exchangeable Preferred Stock in compliance with Rule 144A under the Securities Act, as presently required by Rule 144A(d)(4) under the Securities Act. 25 -24- (m) Definitions. As used in this Certificate of Designation, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires: "Acquired Indebtedness" means Indebtedness of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of the Corporation or at the time it merges or consolidates with the Corporation or any of its Subsidiaries or assumed in connection with the acquisition of assets from such Person and in each case not incurred by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Corporation or such acquisition, merger or consolidation. "Additional Dividends" shall have the meaning ascribed to it in the Registration Rights Agreement. "Affiliate" means, with respect to any specified Person, any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. 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, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative of the foregoing. For purposes of this Certificate of Designation, BT Alex. Brown Incorporated, Bankers Trust Company and their Affiliates shall not be deemed to be Affiliates of the Corporation or its Restricted Subsidiaries. "Asset Acquisition" means (a) an Investment by the Corporation or any Restricted Subsidiary of the Corporation in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Corporation or any Restricted Subsidiary of the Corporation, or shall be merged with or into the Corporation or any Restricted Subsidiary of the Corporation, or (b) the acquisition by the Corporation or any Restricted Subsidiary of the Corporation of the assets of any Person (other than a Restricted Subsidiary of the Corporation) which constitute all or substantially all of the assets of such Person or comprises any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. 26 -25- "Asset Sale" means any direct or indirect sale, issuance, conveyance, transfer, lease (other than operating leases entered into in the ordinary course of business), assignment or other transfer for value by the Corporation or any of its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any Person other than the Corporation or a Wholly Owned Restricted Subsidiary of the Corporation of (a) any Capital Stock of any Restricted Subsidiary of the Corporation; or (b) any other property or assets of the Corporation or any Restricted Subsidiary of the Corporation other than in the ordinary course of business; provided, however, that Asset Sales shall not include (i) a transaction or series of related transactions for which the Corporation or its Restricted Subsidiaries receive aggregate consideration of less than $500,000, (ii) the sale, lease, conveyance, disposition or other transfer of all or substantially all of the assets of the Corporation as permitted under paragraph (f)(iii) hereof or any disposition that constitutes a Change of Control, (iii) the sale or discount, in each case without recourse, of accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof, (iv) the factoring of accounts receivable arising in the ordinary course of business pursuant to arrangements customary in the region, (v) the licensing of intellectual property, (vi) disposals or replacements of obsolete equipment in the ordinary course of business, and (vii) the sale, lease, conveyance, disposition or other transfer by the Corporation or any Restricted Subsidiary of the Corporation of assets or property in connection with Restricted Payments permitted under paragraph (l)(ii) hereof. "Board of Directors" shall have the meaning ascribed to it in the first paragraph of this Resolution. "Board Resolution" means, with respect to any Person, a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Transfer Agent. "Business Day" means any day that is not a Saturday, a Sunday or a day on which banking institutions in New York, New York are required to be closed. "Capitalized Lease Obligation" means, as to any Person, the obligations of such Person under a lease that are 27 -26- required to be classified and accounted for as capital lease obligations under GAAP and, for purposes of this definition, the amount of such obligations at any date shall be the capitalized amount of such obligations at such date, determined in accordance with GAAP. "Capital Stock" means (i) with respect to any Person that is a corporation, any and all shares, interests, participations or other equivalents (however designated and whether or not voting) of corporate stock, including each class of Common Stock and preferred stock of such Person and (ii) with respect to any Person that is not a corporation, any and all partnership or other equity interests of such Person. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $250,000,000; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; and (vi) investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (v) above. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer (in one transaction or a series 28 -27- of related transactions) of all or substantially all of the assets of the Corporation to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of this Certificate of Designation) other than to the Permitted Holders; (ii) the approval by the holders of Capital Stock of the Corporation of any plan or proposal for the liquidation or dissolution of the Corporation (whether or not otherwise in compliance with this Certificate of Designation); (iii) any Person or Group (other than the Permitted Holders) shall become the owner, directly or indirectly, beneficially, of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Corporation; or (iv) the first day on which a majority of the members of the Board of Directors of the Corporation during the two-year period immediately preceding such date are not Continuing Directors. Notwithstanding anything to the contrary contained in the foregoing sentence, a "Change of Control" shall not be deemed to occur upon consummation of (A) the Recapitalization, (B) the merger of the Corporation with an Affiliate incorporated solely for the purpose of reincorporating the Corporation in another jurisdiction or (C) any transaction described in clauses (i) or (iii) of the immediately preceding sentence if, after giving effect to such transaction, (1) the Permitted Holders shall beneficially own, directly or indirectly, shares of Capital Stock representing at least 35% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Corporation and (2) no Person or Group shall beneficially own, directly or indirectly, a greater percentage of such voting power than the Permitted Holders. "Change of Control Date" shall have the meaning ascribed to it in paragraph (h) hereof. "Change of Control Payment Date" shall have the meaning ascribed to it in paragraph (h) hereof. "Commission" means the Securities and Exchange Commission. "Common Stock" of any Person means any and all shares, interests or other participations in, and other equivalents (however designated and whether voting or non-voting) of such Person's common stock, whether outstanding on the Effective Date or issued after the Effec- 29 -28- tive Date, and includes, without limitation, all series and classes of such common stock. "Consolidated EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to the extent Consolidated Net Income has been reduced thereby, (A) all income taxes and foreign withholding taxes of such Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP for such period (other than income taxes attributable to extraordinary, unusual or nonrecurring gains or losses or taxes attributable to sales or dispositions outside the ordinary course of business), (B) Consolidated Interest Expense and (C) Consolidated Non-cash Charges less, to the extent Consolidated Net Income has been increased thereby, any non-cash items increasing Consolidated Net Income for such period, all as determined on a consolidated basis for such Person and its Restricted Subsidiaries in accordance with GAAP. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of Consolidated EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to (i) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period and (ii) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Sub- 30 -29- sidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any Consolidated EBITDA (including any pro forma expense and cost reductions calculated on a basis consistent with Regulation S-X under the Securities Act) attributable to the assets which are the subject of the Asset Acquisition or Asset Sale during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and (2) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by agreements relating to Interest Swap Obligations, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) Consolidated Interest Expense, plus (ii) the amount of all dividend payments on any series of preferred stock of such Person (other than dividends paid in Qualified Capital Stock or the amortization of deferred financing costs relating to the issuance of the Exchangeable Preferred Stock) paid, accrued or scheduled to be paid or accrued during such period. "Consolidated Interest Expense" means, with respect to any Person for any period, the sum of, without duplication: (i) the aggregate of the interest expense of such 31 -30- Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP, including, without limitation, (a) any amortization of debt discount and (b) the net costs under Interest Swap Obligations, but excluding any amortization or write-off of deferred financing costs; and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such Person and its Restricted Subsidiaries during such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate net income (or loss) of such Person and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded therefrom (a) after-tax gains and losses from Asset Sales (without giving effect to the proviso therein) or abandonments or reserves relating thereto, (b) after-tax items classified as extraordinary or nonrecurring gains and losses, (c) the net income or loss of any Person acquired in a "pooling of interests" transaction accrued prior to the date it becomes a Restricted Subsidiary of the referent Person or is merged or consolidated with the referent Person or any Restricted Subsidiary of the referent Person, (d) the net income (but not loss) of any Restricted Subsidiary of the referent Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is restricted by a contract, operation of law or otherwise, (e) the net loss of any Person other than a Restricted Subsidiary of the Corporation, (f) the net income of any Person, other than a Restricted Subsidiary of the referent Person, except to the extent of cash dividends or distributions paid to the referent Person or to a Wholly Owned Restricted Subsidiary of the referent Person by such Person, (g) income or loss attributable to discontinued operations (including, without limitation, operations disposed of during such period whether or not such operations were classified as discontinued), (h) in the case of a successor to the referent Person by consolidation or merger or as a transferee of the referent Person's assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets, (i) non-cash, non-recurring charges reducing Consolidated Net Income (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of prepaid cash expense that was paid in a prior period not included in the calculation), (j) non-cash compensation charges, 32 -31- including any arising from stock options, (k) gains and losses due solely to fluctuations in currency values and the related tax effects according to GAAP, (l) start-up costs and duplicative costs incurred in connection with the transition services agreements in effect on the Effective Date (as the same may be amended from time to time), not to exceed $200,000, (m) costs relating to the implementation of the Baan information technology system which have not been capitalized and (n) expenses related to the Recapitalization. "Consolidated Non-cash Charges" means, with respect to any Person, for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss or any such charge which requires an accrual of or a reserve for cash charges for any future period). "Consolidated Tangible Assets" means, with respect to any Person, as of any date of determination, the total assets, less goodwill, deferred financing costs and other intangibles and less accumulated amortization, shown on the most recent balance sheet of such Person, determined on a consolidated basis in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Corporation who (i) was a member of such Board of Directors on the first day of the two-year period immediately preceding such date of determination or (ii) was nominated for election or elected to such Board of Directors with, or whose election to such Board of Directors was approved by, the affirmative vote of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election or (iii) is any designee of the Principal or its Affiliates or was nominated by the Principal or its Affiliates or any designees of the Principal or its Affiliates on the Board of Directors. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Corporation or any Restricted Subsidiary of the Corporation against fluctuations in currency values. 33 -32- "Debenture Trustee" means the trustee under the Exchange Indenture. "Disqualified Capital Stock" means that portion of any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event (other than upon the occurrence of a Change of Control), matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the sole option of the holder thereof on or prior to the date of the mandatory redemption of the Exchangeable Preferred Stock. "Dividend Payment Date" means March 1, June 1, September 1 and December 1 of each year. "Dividend Period" means the Initial Dividend Period and, thereafter, each Quarterly Dividend Period. "Dividend Record Date" means February 15, May 15, August 15 and November 15 of each year. "Effective Date" means February 26, 1998, the date the first share of Exchangeable Preferred Stock is issued. "Exchangeable Preferred Stock" shall have the meaning ascribed to it in paragraph (a) hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute or statutes thereto. "Exchange Date" means a date on which shares of Exchangeable Preferred Stock are exchanged by the Corporation for Exchange Debentures. "Exchange Debentures" shall have the meaning ascribed to it in paragraph (g) hereof. "Exchange Indenture" shall mean the indenture governing the Exchange Debentures, if issued. "Exchange Notes" means notes to be issued in exchange for the Notes in accordance with the Indenture and the Registration Rights Agreement. "Exchange Notice" shall have the meaning ascribed to it in paragraph (g) hereof. 34 -33- "fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair market value shall be determined by the Board of Directors of the Corporation acting reasonably and in good faith and shall be evidenced by a Board Resolution of the Board of Directors of the Corporation delivered to the Transfer Agent. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States, which are in effect as of the Effective Date. Except as otherwise set forth herein, all ratios and computations based on GAAP contained in this Certificate of Designation shall be computed in conformity with GAAP applied on a consistent basis. "Holder" means a holder of shares of Exchangeable Preferred Stock as reflected in the stock books of the Corporation. "Indebtedness" means with respect to any Person, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all obligations under any title retention agreement (but excluding trade accounts payable and other accrued liabilities arising in the ordinary course of business), (v) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction, (vi) guarantees and other contingent obligations of such Person in respect of Indebtedness referred to in clauses (i) through (v) above and clause (viii) below, (vii) all obligations of any other Person of the type referred to in clauses (i) through (vi) which are secured by any lien on any property or asset of such Person, the amount of such obligation being deemed to be the lesser of the fair market value of such property or asset or the amount of the 35 -34- obligation so secured, (viii) all obligations under currency agreements and interest swap agreements of such Person and (ix) all Disqualified Capital Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Capital Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Capital Stock as if such Disqualified Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Certificate of Designation, and if such price is based upon, or measured by, the fair market value of such Disqualified Capital Stock, such fair market value shall be determined reasonably and in good faith by the Board of Directors of the issuer of such Disqualified Capital Stock. "Indenture" means the indenture dated as of February 26, 1998 by and between the Corporation and United States Trust Company of New York, as Trustee, governing the Notes and the Exchange Notes. "Initial Dividend Period" means the dividend period commencing on the Issue Date and ending on the next succeeding Dividend Payment Date. "Interest Swap Obligations" means the obligations of any Person pursuant to any arrangement with any other Person, whereby, directly or indirectly, such Person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such other Person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of In- 36 -35- debtedness issued by, any Person. "Investment" shall exclude extensions of trade credit by the Corporation and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Corporation or such Restricted Subsidiary, as the case may be. For the purposes of paragraph (l)(ii) hereof, (i) "Investment" shall include and be valued at the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude the fair market value of the net assets of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any Investment shall be the original cost of such Investment plus the cost of all additional Investments by the Corporation or any of its Restricted Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by the payment of dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment; provided that no such payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such payment of dividends or distributions or receipt of any such amounts would be included in Consolidated Net Income. If the Corporation or any Restricted Subsidiary of the Corporation sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Corporation such that, after giving effect to any such sale or disposition, the Corporation no longer owns, directly or indirectly, 100% of the outstanding Common Stock of such Restricted Subsidiary, the Corporation shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of. "Issue Date" means, with respect to each share of Exchangeable Preferred Stock, the date of original issuance of such share. "Lien" means any lien, mortgage, deed of trust, pledge, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof and any agreement to give any security interest). 37 -36- "New Revolving Credit Facility" means the Credit Agreement dated as of the Effective Date, among the Corporation, the lenders party thereto in their capacities as lenders thereunder and Bankers Trust Company, as agent, together with the related documents thereto (including, without limitation, any guarantee agreements and security documents), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, replacing or otherwise restructuring (including, without limitation, increasing the amount of available borrowings thereunder or adding Subsidiaries of the Corporation as additional borrowers or guarantors thereunder) all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders. "Notes" means the 9 3/4% Senior Subordinated Notes due 2008 and the Floating Interest Rate Subordinated Term Securities due 2008. "Permitted Holders" means the Principal and its Affiliates. "Permitted Indebtedness" means, without duplication, each of the following: (i) Indebtedness under the Notes and the Exchange Notes issued in exchange therefor in an aggregate principal amount not to exceed $175.0 million; (ii) Indebtedness incurred pursuant to the New Revolving Credit Facility in an aggregate principal amount at any time outstanding not to exceed the greater of (a) $40.0 million and (b) the excess of (1) the sum of 50% of the book value of the inventory of the Corporation and its Restricted Subsidiaries and 65% of the book value of the accounts receivable of the Corporation and its Restricted Subsidiaries over (2) the amount of Indebtedness of foreign Restricted Subsidiaries of the Corporation outstanding pursuant to clause (xiv) below; (iii) other Indebtedness of the Corporation and its Restricted Subsidiaries outstanding on the Effective Date reduced by the amount of any scheduled amortization payments or mandatory prepayments when actually paid or permanent reductions thereon; 38 -37- (iv) Interest Swap Obligations of the Corporation or any of its Restricted Subsidiaries covering Indebtedness of the Corporation or any of its Restricted Subsidiaries; provided, however, that such Interest Swap Obligations are entered into to protect the Corporation and its Restricted Subsidiaries from fluctuations in interest rates on Indebtedness incurred in accordance with this Certificate of Designation to the extent the notional principal amount of such Interest Swap Obligation does not exceed the principal amount of the Indebtedness to which such Interest Swap Obligation relates; (v) Indebtedness under Currency Agreements; provided that in the case of Currency Agreements which relate to Indebtedness, such Currency Agreements do not increase the Indebtedness of the Corporation and its Restricted Subsidiaries outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the Corporation to the Corporation or to a Wholly Owned Restricted Subsidiary of the Corporation for so long as such Indebtedness is held by the Corporation or a Wholly Owned Restricted Subsidiary of the Corporation; provided that if as of any date any Person other than the Corporation or a Wholly Owned Restricted Subsidiary of the Corporation owns or holds any such Indebtedness in respect of such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the issuer of such Indebtedness; (vii) Indebtedness of the Corporation to a Wholly Owned Restricted Subsidiary of the Corporation for so long as such Indebtedness is held by a Wholly Owned Restricted Subsidiary of the Corporation; provided that if as of any date any Person other than a Wholly Owned Restricted Subsidiary of the Corporation owns or holds any such Indebtedness, such date shall be deemed the incurrence of Indebtedness not constituting Permitted Indebtedness by the Corporation; (viii) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insuf- 39 -38- ficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five Business Days of incurrence; (ix) Indebtedness of the Corporation or any of its Restricted Subsidiaries represented by letters of credit for the account of the Corporation or such Restricted Subsidiary, as the case may be, in order to provide security for workers' compensation claims, payment obligations in connection with self-insurance or similar requirements in the ordinary course of business; (x) Indebtedness represented by Capitalized Lease Obligations and Purchase Money Indebtedness of the Corporation and its Restricted Subsidiaries incurred in the ordinary course of business not to exceed the greater of $7.5 million and 5% of Consolidated Tangible Assets of the Corporation at any one time outstanding; (xi) Indebtedness arising from agreements of the Corporation or a Restricted Subsidiary of the Corporation providing for indemnification, adjustment of purchase price, earn out or other similar obligations, in each case incurred or assumed in connection with the disposition of any business, assets or a Restricted Subsidiary of the Corporation in a principal amount not to exceed the gross proceeds actually received by the Corporation or any of its Restricted Subsidiaries in connection with such disposition; (xii) obligations in respect of performance and surety bonds and completion guarantees provided by the Corporation or any Restricted Subsidiary of the Corporation in the ordinary course of business; (xiii) guarantees by the Corporation and its Wholly Owned Restricted Subsidiaries of each other's Indebtedness; provided that such Indebtedness is permitted to be incurred under this Certificate of Designation; (xiv) Indebtedness of foreign Restricted Subsidiaries of the Corporation incurred to finance working capital of such foreign Restricted Subsidiaries in an aggregate principal amount at any time outstanding not to exceed the sum of 50% of the book value of the inventory of such foreign Restricted 40 -39- Subsidiaries and 65% of the book value of the accounts receivable of such foreign Restricted Subsidiaries; (xv) Refinancing Indebtedness; and (xvi) additional Indebtedness of the Corporation and its Restricted Subsidiaries in an aggregate principal amount not to exceed $20.0 million at any one time outstanding (which amount may, but need not, be incurred in whole or in part under the New Revolving Credit Facility). "Permitted Investments" means (i) Investments by the Corporation or any Restricted Subsidiary of the Corporation in any Person that is or will become immediately after such Investment a Wholly Owned Restricted Subsidiary of the Corporation or that will merge or consolidate into the Corporation or a Wholly Owned Restricted Subsidiary of the Corporation, (ii) Investments in the Corporation by any Restricted Subsidiary of the Corporation; (iii) investments in cash and Cash Equivalents; (iv) loans and advances to employees and officers of the Corporation and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $500,000 at any one time outstanding; (v) Currency Agreements and Interest Swap Obligations entered into in the ordinary course of the Corporation's or its Restricted Subsidiaries' businesses and otherwise in compliance with this Certificate of Designation; (vi) Investments not to exceed the greater of $7.5 million and 5% of Consolidated Tangible Assets of the Corporation at the time of such Investment at any one time outstanding; (vii) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (viii) Investments made by the Corporation or its Restricted Subsidiaries as a result of consideration received in connection with an Asset Sale; (ix) accounts receivable created or acquired in the ordinary course of business; (x) guarantees (a) by the Corporation of Indebtedness otherwise permitted to be incurred by Restricted Subsidiaries of the Corporation under this Certificate of Designation or (b) by a Restricted Subsidiary of the Corporation of Indebtedness otherwise permitted to be incurred by the Corporation or Restricted Subsidiaries of the Corporation under this Certificate of Designation; and (xi) Investments the payment for which consists exclusively of Qualified Capital Stock of the Corporation. 41 -40- "Person" means an individual, partnership, corporation, unincorporated organization, trust or joint venture, or a governmental agency or political subdivision thereof. "preferred stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemptions or upon liquidation. "Principal" means Cornerstone Equity Investors, L.L.C. "Public Equity Offering" means an underwritten public offering of Qualified Capital Stock of the Corporation, pursuant to a registration statement filed with the Commission in accordance with the Securities Act. "Purchase Money Indebtedness" means Indebtedness of the Corporation and its Restricted Subsidiaries incurred in the normal course of business for the purpose of financing all or any part of the purchase price, or the cost of installation, construction or improvement, of property or equipment. "Qualified Capital Stock" means any Capital Stock that is not Disqualified Capital Stock. "Quarterly Dividend Period" shall mean the quarterly period commencing on each March 1, June 1, September 1 and December 1 and ending on the next succeeding Dividend Payment Date, respectively. "Recapitalization," means the recapitalization of the Corporation on the Effective Date pursuant to the Amended and Restated Recapitalization Agreement dated as of February 1, 1998 by and among Micron Electronics, Inc., MEI California, Inc. Cornerstone Equity Investors IV L.P. and the Corporation, as amended. "Redemption Date," with respect to any shares of Exchangeable Preferred Stock, means the date on which such shares of Exchangeable Preferred Stock are to be redeemed by the Corporation. "Redemption Notice" shall have the meaning ascribed to it in paragraph (e) (iii) hereof. "Refinance" means, in respect of any security or Indebtedness, to refinance, extend, renew, refund, repay, 42 -41- prepay, redeem, defease or retire, or to issue a security or Indebtedness in exchange or replacement for, such security or Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means any Refinancing by the Corporation or any Restricted Subsidiary of the Corporation of (A) for purposes of clause (xv) of the definition of Permitted Indebtedness, Indebtedness incurred in accordance with paragraph (l)(i) hereof (other than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi), (xii), (xiii), (xiv) or (xvi) of the definition of Permitted Indebtedness) or (B) for any other purpose, Indebtedness incurred in accordance with paragraph (l)(i) hereof, in each case that does not (1) result in an increase in the aggregate principal amount of Indebtedness of such Person as of the date of such proposed Refinancing (plus the amount of any premium required to be paid under the terms of the instrument governing such Indebtedness and plus the amount of reasonable expenses incurred by the Corporation in connection with such Refinancing) except to the extent such increase is otherwise permitted to be incurred under this Certificate of Designation or (2) create Indebtedness with a Weighted Average Life to Maturity that is less than the Weighted Average Life to Maturity of the Indebtedness being Refinanced; provided that if such Indebtedness being Refinanced is Indebtedness solely of the Corporation, then such Refinancing Indebtedness shall be Indebtedness solely of the Corporation. "Registration Rights Agreement" means the Registration Rights Agreement dated February 26, 1998 among the Corporation and BT Alex. Brown Incorporated. "Restricted Subsidiary" of any Person means any Subsidiary of such Person which at the time of determination is not an Unrestricted Subsidiary. "Sale and Leaseback Transaction" means any direct or indirect arrangement with any Person or to which any such Person is a party, providing for the leasing to the Corporation or a Restricted Subsidiary of any property, whether owned by the Corporation or any Restricted Subsidiary at the Effective Date or later acquired, which has been or is to be sold or transferred by the Corporation or such Restricted Subsidiary to such Person or to any other Person from whom funds have been or are to be advanced by such Person on the security of such Property. 43 -42- "Securities Act" means the Securities Act of 1933, as amended, or any successor statute or statutes thereto. "Subsidiary", with respect to any Person, means (i) any corporation of which the outstanding Capital Stock having at least a majority of the votes entitled to be cast in the election of directors under ordinary circumstances shall at the time be owned, directly or indirectly, by such Person or (ii) any other Person of which at least a majority of the voting interest under ordinary circumstances is at the time, directly or indirectly, owned by such Person. "TIA" shall mean the Trust Indenture Act of 1939, as amended. "Transfer Agent" shall mean United States Trust Company of New York. "Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Corporation or any other Subsidiary of the Corporation that is not a Subsidiary of the Subsidiary to be so designated; provided that (x) the Corporation certifies to the Transfer Agent that such designation complies with paragraph (l)(ii) hereof and (y) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Corporation or any of its Restricted Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if (x) immediately after giving effect to such designation, the Corporation is able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with paragraph (l)(i) hereof and (y) immediately before and immediately after giving effect to such designation, no Voting Rights Triggering Event shall have occurred and be continuing under this Certificate of Designation. Any such designation 44 -43- by the Board of Directors shall be evidenced by an officers' certificate certifying that such designation complied with the foregoing provisions. "Voting Rights Triggering Event" shall have the meaning ascribed to it in paragraph (f)(iv) hereof. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "Wholly Owned Restricted Subsidiary" of any Person means any Restricted Subsidiary of such Person of which all the outstanding voting securities (other than in the case of a foreign Restricted Subsidiary, directors' qualifying shares or an immaterial amount of shares required to be owned by other Persons pursuant to applicable law) are owned by such Person or any Wholly Owned Restricted Subsidiary of such Person. 45 IN WITNESS WHEREOF, said MCMS, INC. has caused this Certificate to be signed by Robert F. Subia, its President and Chief Executive Officer, this 24th day of February, 1998. MCMS, INC. By: /s/ Robert F. Subia ----------------------------- Name: Robert F. Subia Title: President and Chief Executive Officer EX-10.1 10 MANAGEMENT SERVICES AGREEMENT 1 Exhibit 10.1 EXECUTION COPY MANAGEMENT SERVICES AGREEMENT THIS MANAGEMENT SERVICES AGREEMENT dated as of February 26, 1998 is between MCMS, Inc., an Idaho corporation and f/k/a Micron Custom Manufacturing Services, Inc. (the "Company"), and Cornerstone Equity Investors, LLC ("Cornerstone"). WHEREAS, the Company desires to retain Cornerstone and Cornerstone desires to perform for the Company certain services; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: 1. Term. This Agreement shall be in effect for an initial term of five (5) years commencing on the date hereof (the "Term"), and shall be automatically extended thereafter on a year to year basis unless the Company or Cornerstone gives written notice of its desire to terminate this Agreement to the other party 90 days prior to the expiration of the Term or any extension thereof. 2. Services. Cornerstone shall perform or cause to be performed such services for the Company and its direct and indirect subsidiaries as directed by the Company's board of directors and agreed to by Cornerstone, which may include, without limitation, the following: (a) general management services; (b) identification, support, negotiation and analysis of acquisitions and dispositions; (c) support, negotiation and analysis of financing alternatives, including, without limitation, in connection with acquisitions, capital expenditures and refinancing of existing indebtedness; (d) finance functions, including assistance in the preparation of financial projections, and monitoring of compliance with financing agreements; (e) strategic planning functions, including evaluating major strategic alternatives; and (f) other services for the Company and its subsidiaries upon which the Company's board of directors and Cornerstone agree. 3. Advisory Fees and Transaction Fees. (a) Payment to Cornerstone for services rendered in connection with the performance of services pursuant to this Agreement shall be $250,000 per year or such other amount as the parties hereto shall agree ("Advisory Fees") plus reasonable out-of-pocket expenses of 2 Cornerstone. The Advisory Fees shall be payable quarterly in advance by the Company in immediately available funds, the first such payment to be made promptly after the date hereof. (b) During the term of this Agreement, Cornerstone shall be entitled to receive from the Company a transaction fee in connection with the consummation by the Company or any of its subsidiaries of (i) each material acquisition of an additional business (ii) each material divestiture and (iii) each material financing or refinancing, in each case, in an amount equal to 1% of the aggregate value of such transaction (each such payment, a "Transaction Fee"). (c) Upon the consummation of the recapitalization of the Company contemplated by the Recapitalization Agreement dated as of December 21, 1997, by and among Micron Electronics, Inc., the Company and Cornerstone Equity Investors IV, L.P., the Company shall pay to Cornerstone a transaction fee of $2,710,000 (the "Closing Fee") in immediately available funds, to an account designated by Cornerstone; it being understood that the Closing Fee shall be in lieu of the Transaction Fee with respect to such recapitalization. 4. Personnel. Cornerstone shall provide and devote to the performance of this Agreement such employees, affiliates and agents of Cornerstone as Cornerstone shall deem appropriate to the furnishing of the services required. 5. Liability. Neither Cornerstone nor any of its affiliates, members, partners, employees or agents shall be liable to the Company or any of its subsidiaries or affiliates for any loss, liability, damage or expense arising out of or in connection with the performance of services contemplated by this 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 Cornerstone, its affiliates, members, partners, employees or agents acting within the scope of their employment or authority. 6. Indemnity. The Company and its subsidiaries shall defend, indemnify and hold harmless Cornerstone, its affiliates, members, partners, employees and agents from and against any and all loss, liability, damage, or expenses arising from any claim (a "Claim") by any person with respect to, or in any way related to, the performance of services contemplated by this Agreement (including attorneys' fees) (collectively, "Claims") resulting from any act or omission of Cornerstone, its affiliates, members, partners, employees or agents, other than for Claims which shall be proven to be the direct result of gross negligence, bad faith or willful misconduct by Cornerstone, its affiliates, members, partners, employees or agents. The Company and its subsidiaries shall defend at its own cost and expense any and all suits or actions (just or unjust) which may be brought against the Company, and/or any of its subsidiaries and any of Cornerstone, its officers, directors, affiliates, members, partners, employees or agents or in which any of Cornerstone, its affiliates, members, partners, employees or agents may be impleaded with others upon any Claim or Claims, or upon any matter, directly or indirectly, related to or arising out of this Agreement or the performance hereof by Cornerstone, its affiliates, members, partners, employees or agents, except that if such damage shall be proven to be the direct result of gross negligence, bad faith or willful misconduct by Cornerstone, its affiliates, members, partners, employees or agents, 2 3 then Cornerstone shall reimburse the Company for the costs of defense and other costs incurred by the Company. 7. Notices. All notices or other communications required or permitted by this Agreement shall be effective upon receipt and shall be in writing and delivered personally or by overnight courier, or sent by facsimile, as follows: To the Company: MCMS, Inc. 16399 Franklin Road Nampa, Idaho 83687 Attention: President Telecopy No.: (208) 893-8711 To Cornerstone: Cornerstone Equity Investors, LLC 717 Fifth Avenue, Suite 1100 New York, NY 10022 Attention: Tony Downer Michael E. Najjar Telecopy No.: (212) 826-6798 8. Assignment. No party hereto may assign any obligations hereunder to any other party without the prior written consent of the other party hereto, which consent shall not be unreasonably withheld; provided, however, that, notwithstanding the foregoing, Cornerstone may assign its rights and obligations under this Agreement to any of its affiliates without the consent of the Company. 9. Successors. This Agreement and all the obligations and benefits hereunder shall inure to the successors and assigns of the parties hereto. 10. Counterparts. This Agreement may be executed and delivered by the parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original and both of which taken together shall constitute but one and the same agreement. 11. 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 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 Agreement nor waiver of the terms or conditions hereof shall be binding upon any party hereto unless approved in writing by an authorized representative of such party. All issues concerning this Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the 3 4 State of New York or any other jurisdiction) that would cause the application of the law of any jurisdiction other than the State of New York. 4 5 IN WITNESS WHEREOF, the parties have executed this Management Services Agreement as of the date first written above. MCMS, INC. By: /s/ Robert F. Subia ------------------------------------- Name: Robert F. Subia Title: President & CEO CORNERSTONE EQUITY INVESTORS, LLC By: /s/ Michael E. Najjar ------------------------------------- Name: Michael E. Najjar Title: Managing Director 5 EX-10.2 11 PURCHASE AGREEMENT 1 Exhibit 10.2 MCMS, Inc. $145,000,000 9-3/4% Senior Subordinated Notes due 2008 $30,000,000 Floating Interest Rate Subordinated Term Securities due 2008 and 250,000 Shares 12-1/2% Senior Exchangeable Preferred Stock PURCHASE AGREEMENT February 19, 1998 BT ALEX. BROWN INCORPORATED Bankers Trust Plaza 130 Liberty Street New York, New York 10006 Ladies and Gentlemen: MCMS, Inc., an Idaho corporation (the "Company"), hereby confirms its agreement with you (the "Initial Purchaser"), as set forth below. 1. The Securities. Subject to the terms and conditions herein contained, the Company proposes to issue and sell to the Initial Purchaser $145,000,000 aggregate principal amount of its 9-3/4% Senior Subordinated Notes due 2008 and $30,000,000 aggregate principal amount of its Floating Interest Rate Subordinated Term Securities due 2008 (collectively, the "Notes") and 250,000 shares of its 12-1/2% Senior Exchangeable Preferred Stock (the "Preferred Stock" and, together with the Notes, the "Securities"). The Notes are to be issued under an indenture (the "Indenture") to be dated as of February 26, 1998 by and between the Company and United States Trust Company of New York, as Trustee (the "Trustee"). The Preferred Stock is to be exchangeable at the option of the Company, in whole but not in part, on any dividend payment date for the Company's 12-1/2% Subordinated Exchange Debentures due 2010 (the "Exchange Debentures"). The Exchange Debentures are to be issued under an indenture (the "Exchange Indenture") to be dated as of February 26, 1998 by and between the Company and United States Trust Company of New York, as Trustee (the "Debenture Trustee"). The Securities will be offered and sold to the Initial Purchaser without being registered under the Securities 2 Act of 1933, as amended (the "Act"), in reliance on exemptions therefrom. The Securities are being offered (the "Offering") as part of the financing that will be used to consummate the recapitalization of the Company (the "Recapitalization"). The Recapitalization will be effected pursuant to an amended and restated Recapitalization Agreement dated as of February 1, 1998, as amended (the "Recapitalization Agreement"). Pursuant to the terms of the Recapitalization Agreement by and among Micron Electronics, Inc. ("MEI"), a Minnesota corporation, Cornerstone Equity Investors IV, L.P., a Delaware limited partnership ("Cornerstone"), MEI California Inc., a California corporation and wholly owned subsidiary of MEI, and the Company, a wholly owned subsidiary of MEIC, Cornerstone and certain other investors will acquire shares of capital stock from the Company, which shares will represent approximately 90% of the Company's outstanding capital stock (other than the Preferred Stock) immediately after the Recapitalization. In connection with the Recapitalization, the Company will also enter into a $40.0 million revolving credit facility (the "New Revolving Credit Facility" and, together with the Recapitalization Agreement, the "Other Agreements") pursuant to a credit agreement with Bankers Trust Company, as agent, which is anticipated to be undrawn at the date of the consummation of the Offering. The consummation of each of the Offering, the New Revolving Credit Facility and the Recapitalization and the transactions contemplated thereby will be concurrent. The Offering is conditioned upon the consummation of the New Revolving Credit Facility, the Recapitalization and the transactions contemplated thereby. The Offering, the New Revolving Credit Facility, and the Recapitalization and the transactions contemplated thereby are referred to collectively herein as the "Transactions." In connection with the sale of the Securities, the Company has prepared a preliminary offering memorandum dated February 2, 1998 (the "Preliminary Memorandum"), and a final offering memorandum dated February 19, 1998 (the "Final Memorandum"; the Preliminary Memorandum and the Final Memorandum each herein being referred to as a "Memorandum") setting forth or including a description of the terms of the Securities and the Exchange Debentures, the terms of the offering of the Securities, a description of the Company and any material developments relating to the Company occurring after the date of the most recent historical financial statements included therein. The Initial Purchaser and their direct and indirect transferees of the Securities will be entitled to the benefits of the Registration Rights Agreement, substantially in the form attached hereto as Exhibit A (the "Registration Rights Agreement"), pursuant to which the Company has agreed, among other things, to file a registration statement (the "Registration -2- 3 Statement") with the Securities and Exchange Commission (the "Commission") registering the Securities or the Exchange Securities (as defined in the Registration Rights Agreement) under the Act. 2. Representations and Warranties. The Company represents and warrants to and agrees with the Initial Purchaser that: (a) Neither the Preliminary Memorandum as of the date thereof nor the Final Memorandum nor any amendment or supplement thereto as of the date thereof and at all times subsequent thereto up to the Closing Date (as defined in Section 3 below) contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this Section 2(a) do not apply to statements or omissions made in reliance upon and in conformity with information relating to the Initial Purchaser furnished to the Company in writing by the Initial Purchaser expressly for use in the Preliminary Memorandum, the Final Memorandum or any amendment or supplement thereto. (b) As of immediately following the Recapitalization on the Closing Date, the Company will have the authorized, issued and outstanding capitalization set forth in the Final Memorandum; all of the subsidiaries of the Company as of the Closing Date are listed in Schedule 1 attached hereto (each, a "Subsidiary" and, collectively, the "Subsidiaries"); all of the outstanding shares of capital stock of the Company and the Subsidiaries have been, and as of the Closing Date will be, duly authorized and validly issued, are fully paid and nonassessable and were not issued in violation of any preemptive or similar rights; except as set forth in the Final Memorandum, all of the outstanding shares of capital stock of the Company and of each of the Subsidiaries will be free and clear of all liens, encumbrances, equities and claims or restrictions on transferability (other than those imposed by the Act and the securities or "Blue Sky" laws of certain jurisdictions) or voting; except as set forth or contemplated in the Final Memorandum, as of the Closing Date, there are no (i) options, warrants or other rights to purchase from the Company, (ii) agreements or other obligations of the Company to issue or (iii) other rights issued by the Company to convert any obligation into, or exchange any securities for, shares of capital stock of or ownership interests in the Company or any of the Subsidiaries outstanding. Except for the Subsidiaries or as disclosed in the Final Memorandum, the Company does not own, directly or indirectly, any shares of capital stock or any other equity or long-term debt securities or have any equity interest in any firm, partnership, joint venture or other entity. -3- 4 (c) Each of the Company and the Subsidiaries is duly incorporated, validly existing and in good standing under the laws of its respective jurisdiction of incorporation and has all requisite corporate power and authority to own its properties and conduct its business as now conducted and as described in the Final Memorandum; each of the Company and the Subsidiaries is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions where the ownership or leasing of its properties or the conduct of its business as now conducted requires such qualification, except where the failure to be so qualified would not, individually or in the aggregate, have a material adverse effect on the business, condition (financial or otherwise), prospects or results of operations of the Company and the Subsidiaries, taken as a whole (any such event, a "Material Adverse Effect"). (d) The Notes, the Exchange Notes and the Private Exchange Notes (as defined in the Registration Rights Agreement) have been duly authorized by the Company for issuance and conform in all material respects to the descriptions thereof in the Final Memorandum. The Notes, the Exchange Notes and the Private Exchange Notes, when executed by the Company and authenticated by the Trustee in accordance with the provisions of the Indenture and when, in the case of the Notes, issued and delivered to and paid for by the Initial Purchaser in accordance with the terms hereof, and, in the case of the Exchange Notes and Private Exchange Notes, issued and delivered in accordance with the Registration Rights Agreement, will constitute valid and legally binding obligations of the Company, entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law). The Company has all requisite corporate power and authority to execute, deliver and perform its obligations under the Indenture. The Indenture meets the requirements for qualification under the Trust Indenture Act of 1939, as amended (the "TIA"). The Indenture has been duly authorized by the Company and, when executed and delivered by the Company (assuming the due authorization, execution and delivery by the Trustee), will constitute a valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may -4- 5 be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law). (e) The Certificate of Designation (the "Certificate of Designation") relating to the Preferred Stock and any additional shares of Preferred Stock (the "Dividend Shares") which may be issued as dividends in accordance with the terms of the Certificate of Designation has been duly authorized by the Company. 750,000 shares of Preferred Stock have been duly authorized by the Company for issuance and conform in all material respects to the descriptions thereof in the Final Memorandum. The Preferred Stock, when issued and delivered to and paid for by the Initial Purchaser in accordance with the terms hereof, and the Dividend Shares, when issued in accordance with the terms of the Certificate of Designation, will be validly issued, fully paid and nonassessable and free of any preemptive or similar rights. The Company has reserved for issuance the maximum number of Dividend Shares issuable as dividends pursuant to the terms of the Certificate of Designation. The articles of incorporation of the Company, by virtue of the Certificate of Designation, sets forth the rights, preferences and priorities of the Preferred Stock. The holders of the Preferred Stock and Dividend Shares will not be subject to personal liability for obligations of the Company by reason of being such holders. The Exchange Preferred Stock and the Private Exchange Preferred Stock (as defined in the Registration Rights Agreement) have been duly authorized and, when issued and delivered by the Company in accordance with the provisions of the exchange offer contemplated by the Registration Rights Agreement, will be validly issued, fully paid and nonassessable, free of any preemptive or similar rights and will conform to the description thereof in the Final Memorandum. As of the Closing Date, the capital stock of the Company shall conform, in all material respects, to the description thereof in the Final Memorandum. (f) The Exchange Debentures have been duly authorized by the Company for issuance and conform in all material respects to the description thereof in the Final Memorandum. The Exchange Debentures, when executed by the Company and authenticated by the Debenture Trustee in accordance with the provisions of the Exchange Indenture and when delivered upon the exchange of the Preferred Stock, will constitute valid and legally binding obligations of the Company, entitled to the benefits of the Exchange Indenture and enforceable against the Company in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such en- -5- 6 forcement is considered in a proceeding in equity or at law). The Company has all requisite corporate power and authority to execute, deliver and perform its obligations under the Exchange Indenture; the Exchange Indenture has been duly authorized by the Company and, when executed and delivered by the Company (assuming the due authorization, execution and delivery by the Debenture Trustee), will constitute a valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (ii) generally principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law). (g) The Company has all requisite corporate power and authority to execute, deliver and perform its obligations under the Registration Rights Agreement. The Registration Rights Agreement has been duly and validly authorized by the Company and, when executed and delivered by the Company, will constitute a valid and legally binding agreement of the Company enforceable against the Company in accordance with its terms, except that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law) and (B) any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. (h) The Company has all requisite corporate power and authority to execute, deliver and perform its obligations pursuant to the Transactions, including the execution and delivery of all documents executed in connection with the Transactions. The Transactions and all documents executed in connection with the Transactions have been duly and validly authorized by the Company and, when executed by the Company, will constitute valid and legally binding agreements of the Company enforceable against the Company in accordance with their terms, except that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law) and (B) any rights to indemnity or contribution thereunder may be limited by -6- 7 federal and state securities laws and public policy considerations. (i) The Company has all requisite corporate power and authority to execute and deliver this Agreement and, subsequent to the filing of the Certificate of Designation, to issue and deliver the Securities and to consummate the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Company. Assuming the accuracy of the representations and warranties of the Initial Purchaser pursuant to Section 8 hereof, no consent, approval, authorization or order of any court or governmental agency or body, or third party is required for the issuance and sale by the Company of the Securities to the Initial Purchaser or the consummation by the Company of the other transactions contemplated hereby, except such as have been obtained and such as may be required under state securities or "Blue Sky" laws in connection with the purchase and resale of the Securities by the Initial Purchaser. None of the Company or the Subsidiaries is (i) in violation of its articles of incorporation or bylaws (or similar organizational documents), (ii) in breach or violation of any statute, judgment, decree, order, rule or regulation applicable to any of them or any of their respective properties or assets, except for any such breach or violation which would not, individually or in the aggregate, have a Material Adverse Effect, or (iii) in breach of or default under (nor has any event occurred which, with notice or passage of time or both, would constitute a default under) or in violation of any of the terms or provisions of any indenture, mortgage, deed of trust, loan agreement, note, lease, license, franchise agreement, permit, certificate, contract or other agreement or instrument to which any of them is a party or to which any of them or their respective properties or assets is subject (collectively, "Contracts"), except for any such breach, default, violation or event which would not, individually or in the aggregate, have a Material Adverse Effect. (j) The execution, delivery and performance by the Company of this Agreement, the Indenture, the Registration Rights Agreement and any and all documents executed in connection with the Transactions and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and sale of the Securities to the Initial Purchaser) and the execution and delivery of the Exchange Indenture will not conflict with or constitute or result in a breach of or a default under (or an event which with notice or passage of time or both would constitute a default under) or violation of any of (i) the terms or provisions of any Contract, except for any such conflict, breach, violation, default or event which would not, individually or in the aggregate, have a Material Adverse Effect, (ii) the articles of incorporation or bylaws (or similar organizational documents) of -7- 8 the Company or any of the Subsidiaries, or (iii) (assuming compliance with all applicable state securities or "Blue Sky" laws and assuming the accuracy of the representations and warranties of the Initial Purchaser in Section 8 hereof) any statute, judgment, decree, order, rule or regulation applicable to the Company or any of the Subsidiaries or any of their respective properties or assets, except for any such conflict, breach or violation which would not, individually or in the aggregate, have a Material Adverse Effect. (k) The audited consolidated financial statements of the Company and the Subsidiaries included in the Final Memorandum present fairly in all material respects the financial position, results of operations and cash flows of the Company and the Subsidiaries at the dates and for the periods to which they relate and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis, except as otherwise stated therein. The summary and selected financial and statistical data in the Final Memorandum present fairly in all material respects the information shown therein and have been prepared and compiled on a basis consistent with the audited financial statements included therein, except as otherwise stated therein. Each of Coopers & Lybrand L.L.P. and KPMG Peat Marwick LLP (the "Independent Accountants") are independent public accounting firms within the meaning of the Act and the rules and regulations promulgated thereunder. (l) The pro forma financial statements (including the notes thereto) and the other pro forma financial information included in the Final Memorandum have been properly computed on the bases described therein; the assumptions used in the preparation of the pro forma financial data and other pro forma financial information included in the Final Memorandum are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (m) There is not pending or, to the knowledge of the Company, threatened any action, suit, proceeding, inquiry or investigation to which the Company or any of the Subsidiaries is a party, or to which the property or assets of the Company or any of the Subsidiaries are subject, before or brought by any court, arbitrator or governmental agency or body which, if determined adversely to the Company or any of the Subsidiaries, would, individually or in the aggregate, have a Material Adverse Effect or which seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance or sale of the Securities to be sold hereunder or the consummation of the other transactions described in the Final Memorandum. (n) Each of the Company and the Subsidiaries possesses all licenses, permits, certificates, consents, orders, -8- 9 approvals and other authorizations from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, presently required or necessary to own or lease, as the case may be, and to operate its respective properties and to carry on its respective businesses as now or proposed to be conducted as set forth in the Final Memorandum ("Permits"), except where the failure to obtain such Permits would not, individually or in the aggregate, have a Material Adverse Effect; each of the Company and the Subsidiaries has fulfilled and performed all of its obligations with respect to such Permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit, except where the failure to fulfill or perform such obligations or such event would not individually or in the aggregate have a Material Adverse Effect; and none of the Company or the Subsidiaries has received any notice of any proceeding relating to revocation or modification of any such Permit, except as described in the Final Memorandum and except where such revocation or modification would not, individually or in the aggregate, have a Material Adverse Effect. (o) Since the date of the most recent financial statements appearing in the Final Memorandum, except as described in the Final Memorandum, (i) none of the Company or the Subsidiaries has incurred any liabilities or obligations, direct or contingent, or entered into or agreed to enter into any transactions or contracts (written or oral) not in the ordinary course of business which liabilities, obligations, transactions or contracts would, individually or in the aggregate, be material to the business, condition (financial or otherwise), prospects or results of operations of the Companies and its Subsidiaries, taken as a whole, (ii) none of the Company or the Subsidiaries has purchased any of its outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock (other than with respect to any of such Subsidiaries, the purchase of, or dividend or distribution on, capital stock owned by the Company) and (iii) there shall not have been any change in the capital stock or long-term indebtedness of the Company or the Subsidiaries. (p) Each of the Company and the Subsidiaries has filed all necessary federal, state and foreign income and franchise tax returns, except where the failure to so file such returns would not, individually or in the aggregate, have a Material Adverse Effect, and has paid all taxes shown as due thereon; and other than tax deficiencies which the Company or any Subsidiary is contesting in good faith and for which the Company or such Subsidiary has provided adequate reserves, -9- 10 there is no tax deficiency that has been asserted against the Company or any of the Subsidiaries that would have, individually or in the aggregate, a Material Adverse Effect. (q) The statistical and market-related data included in the Final Memorandum are based on or derived from sources which the Company believes to be reliable and accurate. (r) None of the Company, the Subsidiaries or any agent acting on their behalf has taken or will take any action that might cause this Agreement or the sale of the Securities to violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System, in each case as in effect, or as the same may hereafter be in effect, on the Closing Date. (s) Each of the Company and the Subsidiaries has good and marketable title to all real property and good title to all personal property described in the Final Memorandum as being owned by it and good and marketable title to a leasehold estate in the real and personal property described in the Final Memorandum as being leased by it free and clear of all liens, charges, encumbrances or restrictions, except as described in the Final Memorandum or to the extent the failure to have such title or the existence of such liens, charges, encumbrances or restrictions would not, individually or in the aggregate, have a Material Adverse Effect. All material leases, contracts and agreements to which the Company or any of the Subsidiaries is a party or by which any of them is bound are valid and enforceable against the Company or such Subsidiary, and are in full force and effect with only such exceptions as would not, individually or in the aggregate, have a Material Adverse Effect. To the actual knowledge of the Company, the operation of the business of the Company and the Subsidiaries as described in the Final Memorandum does not infringe any material patents, trademarks, service marks, trade names, copyrights or know-how of any third party and none of the Company or the Subsidiaries has received any written notice of infringement of or conflict with asserted rights of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how which, if such assertion of infringement or conflict were sustained, would have a Material Adverse Effect. (t) To the best knowledge of the Company, there are no legal or governmental proceedings involving or affecting the Company or any Subsidiary or any of their respective properties or assets which would be required to be described in a prospectus pursuant to the Act that are not described in the Final Memorandum, nor are there any material contracts or other documents which would be required to be described in a prospectus pursuant to the Act that are not described in the Final Memorandum. -10- 11 (u) Except as would not, individually or in the aggregate, have a Material Adverse Effect (A) each of the Company and the Subsidiaries is in compliance with and not subject to liability under applicable Environmental Laws (as defined below), (B) each of the Company and the Subsidiaries has made all filings and provided all notices required under any applicable Environmental Law, and has been and is in compliance with all Permits required under any applicable Environmental Laws and each of them is in full force and effect, (C) there is no civil, criminal or administrative action, suit, demand, claim, hearing, notice of violation, investigation, proceeding, notice or demand letter or request for information pending or, to the knowledge of the Company or any of the Subsidiaries, threatened against the Company or any of the Subsidiaries under any Environmental Law, (D) no lien, charge, encumbrance or restriction has been recorded under any Environmental Law with respect to any assets, facility or property owned, operated, leased or controlled by the Company or any of the Subsidiaries, (E) none of the Company or the Subsidiaries has received notice that it has been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA") or any comparable state law, (F) no property or facility of the Company or any of the Subsidiaries is (i) listed or proposed for listing on the National Priorities List under CERCLA or is (ii) listed in the Comprehensive Environmental Response, Compensation, Liability Information System List promulgated pursuant to CERCLA, or on any comparable list maintained by any state or local governmental authority. For purposes of this Agreement, "Environmental Laws" means the common law and all applicable federal, state and local laws or regulations, codes, orders, decrees, judgments or injunctions issued, promulgated, approved or entered thereunder, relating to pollution or protection of public or employee health and safety or the environment, including, without limitation, laws relating to (i) emissions, discharges, releases or threatened releases of hazardous materials into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), (ii) the manufacture, processing, distribution, use, generation, treatment, storage, disposal, transport or handling of hazardous materials, and (iii) underground and above ground storage tanks and related piping, and emissions, discharges, releases or threatened releases therefrom. (v) There is no strike, labor dispute, slowdown or work stoppage with the employees of the Company or any of the Subsidiaries which is pending or, to the knowledge of the Company or any of the Subsidiaries, threatened. -11- 12 (w) Each of the Company and the Subsidiaries carries insurance in such amounts and covering such risks as is adequate for the conduct of its business and the value of its properties. (x) Assuming the accuracy of the representations and warranties of the Initial Purchaser in Section 8 hereof, none of the Company or the Subsidiaries has any liability for any prohibited transaction or funding deficiency or any complete or partial withdrawal liability with respect to any pension, profit sharing or other plan which is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), to which the Company or any of the Subsidiaries makes or ever has made a contribution and in which any employee of the Company or of any Subsidiary is or has ever been a participant. With respect to such plans, the Company and each Subsidiary is in compliance in all material respects with all applicable provisions of ERISA. (y) Each of the Company and the Subsidiaries (i) makes and keeps accurate books and records and (ii) maintains internal accounting controls which provide reasonable assurance that (A) transactions are executed in accordance with management's authorization, (B) transactions are recorded as necessary to permit preparation of its financial statements and to maintain accountability for its assets, (C) access to its assets is permitted only in accordance with management's authorization and (D) the reported accountability for its assets is compared with existing assets at reasonable intervals. (z) None of the Company or the Subsidiaries will be an "investment company" or "promoter" or "principal underwriter" for an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended, and the rules and regulations thereunder. (aa) No holder of securities of the Company or any Subsidiary will be entitled to have such securities registered under the registration statements required to be filed by the Company pursuant to the Registration Rights Agreement other than as expressly permitted thereby. (bb) Immediately after the consummation of the Transactions, including the transactions contemplated by this Agreement, the fair value and present fair salable value of the assets of each of the Company and the Subsidiaries (each on a consolidated basis) will exceed the sum of its stated liabilities and identified contingent liabilities; none of the Company or the Subsidiaries (each on a consolidated basis) is, nor will any of the Company or the Subsidiaries (each on a consolidated basis) be, after giving effect to the execution, delivery and performance of this Agreement, and the consummation of the -12- 13 transactions contemplated hereby, (a) left with unreasonably small capital with which to carry on its business as it is proposed to be conducted, (b) unable to pay its debts (contingent or otherwise) as they mature or (c) otherwise insolvent. (cc) Assuming the accuracy of the representations and warranties of the Initial Purchaser in Section 8 hereof, none of the Company, the Subsidiaries or any of their respective Affiliates (as defined in Rule 501(b) of Regulation D under the Act) has directly, or through any agent, (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any "security" (as defined in the Act) which is or could be integrated with the sale of the Securities in a manner that would require the registration under the Act of the Securities or (ii) engaged in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) in connection with the offering of the Securities or in any manner involving a public offering of the Securities within the meaning of Section 4(2) of the Act. Assuming the accuracy of the representations and warranties of the Initial Purchaser in Section 8 hereof, it is not necessary in connection with the offer, sale and delivery of the Securities to the Initial Purchaser in the manner contemplated by this Agreement to register any of the Securities under the Act or to qualify the Indenture or the Exchange Indenture under the TIA. (dd) No securities of the Company or any Subsidiary are of the same class (within the meaning of Rule 144A under the Act) as the Securities and listed on a national securities exchange registered under Section 6 of the Exchange Act, or quoted in a U.S. automated inter-dealer quotation system. (ee) None of the Company or the Subsidiaries has taken, nor will any of them take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in stabilization or manipulation of the price of the Securities. (ff) None of the Company, the Subsidiaries, any of their respective Affiliates or any person acting on its or their behalf (other than the Initial Purchaser) has engaged in any directed selling efforts (as that term is defined in Regulation S under the Act ("Regulation S")) with respect to the Securities; the Company, the Subsidiaries and their respective Affiliates and any person acting on its or their behalf (other than the Initial Purchaser) have complied with the offering restrictions requirement of Regulation S. Any certificate signed by any officer of the Company or any Subsidiary and delivered to any Initial Purchaser or to counsel for the Initial Purchaser shall be deemed a joint and several representation and warranty by the Company and each of -13- 14 the Subsidiaries to the Initial Purchaser as to the matters covered thereby. 3. Purchase, Sale and Delivery of the Securities. On the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the Initial Purchaser, and the Initial Purchaser agrees to purchase from the Company, the Notes at 97% of their principal amount and the Preferred Stock, at 96% of their liquidation preference. One or more certificates in definitive form for each of the Securities that the Initial Purchaser has agreed to purchase hereunder, and in such denomination or denominations and registered in such name or names as the Initial Purchaser requests upon notice to the Company at least 36 hours prior to the Closing Date, shall be delivered by or on behalf of the Company to the Initial Purchaser, against payment by or on behalf of the Initial Purchaser of the purchase price therefor by wire transfer (same day funds) to such account or accounts as the Company shall specify prior to the Closing Date, or by such means as the parties hereto shall agree prior to the Closing Date. Such delivery of and payment for the Securities shall be made at the offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York at 10:00 A.M., New York time, on February 26, 1998, or at such other place, time or date as the Initial Purchaser, on the one hand, and the Company, on the other hand, may agree upon, such time and date of delivery against payment being herein referred to as the "Closing Date." The Company will make such certificates for the Securities available for checking and packaging by the Initial Purchaser at the offices of BT Alex. Brown Incorporated in New York, New York, or at such other place as BT Alex. Brown Incorporated may designate, at least 24 hours prior to the Closing Date. 4. Offering by the Initial Purchaser. The Initial Purchaser proposes to make an offering of the Securities at the price and upon the terms set forth in the Final Memorandum, as soon as practicable after this Agreement is entered into and as in the judgment of the Initial Purchaser is advisable. 5. Covenants of the Company. The Company covenants and agrees with the Initial Purchaser that: (a) The Company will not amend or supplement the Final Memorandum or any amendment or supplement thereto of which the Initial Purchaser shall not previously have been advised and furnished a copy for a reasonable period of time prior to the proposed amendment or supplement and as to which the Initial Purchaser shall not have given their consent. The Company will promptly, upon the reasonable request of the Initial Purchaser or counsel for the Initial Purchaser, make any amendments or supplements to the Preliminary Memorandum or the Final -14- 15 Memorandum that may be necessary or advisable in connection with the resale of the Securities by the Initial Purchaser. (b) The Company will cooperate with the Initial Purchaser in arranging for the qualification of the Securities for offering and sale under the securities or "Blue Sky" laws of such jurisdictions as the Initial Purchaser may designate and will continue such qualifications in effect for as long as may be necessary to complete the resale of the Securities; provided, however, that in connection therewith, the Company shall not be required to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction or subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject. (c) If, at any time prior to the completion of the distribution by the Initial Purchaser of the Securities, the Exchange Notes, the Private Exchange Notes, the Exchange Preferred Stock or the Private Exchange Preferred Stock, any event occurs or information becomes known as a result of which the Final Memorandum as then amended or supplemented would include any untrue statement of a material fact, or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if for any other reason it is necessary at any time to amend or supplement the Final Memorandum to comply with applicable law, the Company will promptly notify the Initial Purchaser thereof and will prepare, at the expense of the Company, an amendment or supplement to the Final Memorandum that corrects such statement or omission or effects such compliance. (d) The Company will, without charge, provide to the Initial Purchaser and to counsel for the Initial Purchaser as many copies of the Preliminary Memorandum and the Final Memorandum or any amendment or supplement thereto as the Initial Purchaser may reasonably request. (e) The Company will apply the net proceeds from the sale of the Securities as set forth under "Use of Proceeds" in the Final Memorandum. (f) For so long as any of the Securities remain outstanding, the Company will furnish to the Initial Purchaser upon request copies of all reports and other communications (financial or otherwise) furnished by the Company to the Trustee or to the holders of the Securities and, as soon as available, copies of any reports or financial statements furnished to or filed by the Company with the Commission or any national securities exchange on which any class of securities of the Company may be listed. -15- 16 (g) Prior to the Closing Date, if available, the Company will furnish to the Initial Purchaser, as soon as they have been prepared, a copy of any unaudited interim financial statements of the Company for any period subsequent to the period covered by the most recent financial statements appearing in the Final Memorandum. (h) None of the Company or any of its Affiliates will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any "security" (as defined in the Act) which could be integrated with the sale of the Securities in a manner which would require the registration under the Act of the Securities. (i) The Company will not, and will not permit any of the Subsidiaries to, engage in any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) in connection with the offering of the Securities or prior to the Closing Date in any manner involving a public offering of the Securities within the meaning of Section 4(2) of the Act. (j) For so long as any of the Securities remain outstanding, the Company will make available at its expense, upon request, to any holder of such Securities and any prospective Purchaser thereof the information specified in Rule 144A(d)(4) under the Act, unless the Company is then subject to Section 13 or 15(d) of the Exchange Act. (k) The Company will use its best efforts to (i) permit the Securities to be designated PORTAL securities in accordance with the rules and regulations adopted by the NASD relating to trading in the Private Offerings, Resales and Trading through Automated Linkages market (the "PORTAL Market") and (ii) permit the Securities to be eligible for clearance and settlement through The Depository Trust Company. (l) In connection with Securities offered and sold in an offshore transaction (as defined in Regulation S) the Company will not register any transfer of such Securities not made in accordance with the provisions of Regulation S and will not, except in accordance with the provisions of Regulation S, if applicable, issue any such Notes or Preferred Stock in the form of definitive securities. (m) None of the Company or the Subsidiaries has taken, nor will any of them take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Securities. -16- 17 6. Expenses. The Company agrees to pay all costs and expenses incident to the performance of its obligations under this Agreement, whether or not the transactions contemplated herein are consummated or this Agreement is terminated pursuant to Section 11 hereof, including all costs and expenses incident to (i) the printing, word processing or other production of documents with respect to the transactions contemplated hereby, including any costs of printing the Preliminary Memorandum and the Final Memorandum and any amendment or supplement thereto, and any "Blue Sky" memoranda, (ii) all arrangements relating to the delivery to the Initial Purchaser of copies of the foregoing documents, (iii) the fees and disbursements of the counsel, the accountants and any other experts or advisors retained by the Company, (iv) preparation (including printing), issuance and delivery to the Initial Purchaser of the Securities, including transfer agent's fees, (v) the qualification of the Securities under state securities and "Blue Sky" laws, including filing fees and fees and disbursements of counsel for the Initial Purchaser relating thereto, (vi) expenses in connection with any meetings with prospective investors in the Securities, (vii) fees and expenses of the Trustee and Debenture Trustee, including fees and expenses of counsel, (viii) all expenses and listing fees incurred in connection with the application for quotation of the Securities on the PORTAL Market and (ix) any fees charged by investment rating agencies for the rating of the Securities. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Initial Purchaser set forth in Section 7 hereof is not satisfied, because this Agreement is terminated pursuant to Section 11 or because of any failure, refusal or inability on the part of the Company to perform all obligations and satisfy all conditions on their part to be performed or satisfied hereunder (other than solely by reason of a default by the Initial Purchaser of its obligations hereunder after all conditions hereunder have been satisfied in accordance herewith), the Company agrees to promptly reimburse the Initial Purchaser upon demand for all out-of-pocket expenses (including fees, disbursements and charges of Cahill Gordon & Reindel, counsel for the Initial Purchaser) that shall have been incurred by the Initial Purchaser in connection with the proposed purchase and sale of the Securities. 7. Conditions of the Initial Purchaser's Obligations. The obligation of the Initial Purchaser to purchase and pay for the Securities shall, in its sole discretion, be subject to the satisfaction or waiver of the following conditions on or prior to the Closing Date: (a) On the Closing Date, the Initial Purchaser shall have received the opinion, dated as of the Closing Date and addressed to the Initial Purchaser, of Kirkland & Ellis, counsel -17- 18 for the Company, in form and substance satisfactory to counsel for the Initial Purchaser, to the effect that: (i) The Company is a corporation existing in good standing under the laws of the State of Idaho. (ii) The Company has the corporate power and authority to enter into, execute, deliver and perform its obligations under the Notes, the Exchange Notes, the Private Exchange Notes, Exchange Debentures, Indenture, the Registration Rights Agreement, this Agreement, the Exchange Indenture and the Other Agreements, including, without limitation, the corporate power to issue, sell and deliver the Notes and Preferred Stock as contemplated by this Agreement. (iii) The Company's Board of Directors has adopted by requisite vote the resolutions necessary to authorize the Company's execution, delivery and performance of the Indenture, the Certificate of Designation, the Registration Rights Agreement, this Agreement, the Exchange Indenture and the Other Agreements, and the pricing advisor appointed by the Company's Board of Directors has approved the price and interest rate set forth therein. (iv) The Notes have each been duly and validly authorized by the Company and, when duly executed and delivered by the Company and paid for by the Initial Purchaser in accordance with the terms of this Agreement (assuming the due authorization, execution and delivery of the Indenture by the Trustee and due authentication and delivery of the Notes by the Trustee in accordance with the Indenture), will constitute Notes under the Indenture and will constitute the valid and legally binding obligations of the Company and the Notes and the Indenture will each be enforceable against the Company in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law). (v) The Exchange Notes and the Private Exchange Notes have been duly and validly authorized by the Company, and when the Exchange Notes and the Private Exchange Notes have been duly executed and delivered by the Company in accordance with the terms of the Registration Rights Agreement and the Indenture (assuming the due authorization, execution and delivery of the Indenture by the Trus- -18- 19 tee and due authentication and delivery of the Exchange Notes and the Private Exchange Notes by the Trustee in accordance with the Indenture), the Exchange Notes and Private Exchange Notes will constitute Notes under the Indenture, will constitute the valid and legally binding obligations of the Company and will be enforceable against the Company in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law). (vi) The Exchange Debentures have been duly and validly authorized by the Company and, when executed by the Company, and authenticated by the Trustee in accordance with the terms of the Exchange Indenture, will constitute Exchange Debentures under the Exchange Indenture and will constitute the valid and legally binding obligations of the Company and the Exchange Debentures and the Exchange Indenture will each be enforceable against the Company in accordance with their terms, except that enforceability thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law). (vii) When duly executed and delivered by the Company (assuming due authorization, execution and delivery thereof by the Initial Purchaser), the Registration Rights Agreement will constitute the valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law) and (B) any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. -19- 20 (viii) When executed by the Company, the Other Agreements will constitute valid and legally binding agreements of the Company enforceable against the Company in accordance with their terms, except that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law) and (B) any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. (ix) The statements in the Final Memorandum under the headings "Description of Notes," "Description of the Senior Exchangeable Preferred Stock and Exchange Debentures" and "Exchange Offer; Registration Rights," insofar as such statements purport to summarize certain provisions of the Indenture, the Notes, the Certificate of Designation, the Preferred Stock, the Exchange Indenture, the Exchange Debentures and the Registration Rights Agreement and subject to the limitations contained in such statements, provide a fair and accurate summary in all material respects of such provisions of such agreements. (x) To the actual knowledge of such counsel, no legal or governmental proceedings are pending to which any of the Company or the Subsidiaries is a party or to which the property or assets of the Company or any Subsidiary is subject which seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance or sale of the Securities to be sold to the Initial Purchaser or the performance of this Agreement, the Registration Rights Agreement, the Indenture, the Exchange Indenture or the Certificate of Designation. (xi) The Company's execution and delivery of this Agreement, the Registration Rights Agreement, the Certificate of Designation and the Indenture, and the performance of its agreements under this Agreement, the Registration Rights Agreement, the Certificate of Designation and the Indenture (including, without limitation, the issuance and sale of the Securities to the Initial Purchaser) will not (i) violate the articles of incorporation or bylaws (or similar organizational documents) of the Company or any of its Subsidiaries, (ii) constitute a material violation of any statute or governmental rule or regulation, which in the experience of such counsel, is normally applicable both to the general business corporations that are not engaged in regulated business activities and to transactions -20- 21 of the type contemplated by the Final Memorandum (but without such counsel having made any special investigations as to other laws and provided that such counsel need express no opinion with respect to (a) any laws, rules or regulations to which the Company may be subject as a result of the Initial Purchaser's legal or regulatory status or (b) any laws, rules or regulations relating to misrepresentation or fraud), or (iii) constitute or result in a breach or default under (or an event which with notice or the passage of time or both would constitute a default under) the terms or provisions of any contract set forth on a schedule to such counsel's opinion, except (in the case of clauses (ii) and (iii) above) for any such conflict, breach, violation, default or event which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Such counsel's opinion in this paragraph need not address any impact the Company's actions may have under any financial maintenance covenants or tests in contracts specified in clause (iii) above, any consequences a default by the Company under this Agreement, the Registration Rights Agreement, the Certificate of Designation, the Exchange Indenture or the Indenture may have under any contract specified in clause (iii) above or any cross default provisions in the contracts specified in clause (iii) above. (xii) To the actual knowledge of counsel, no consent, approval, authorization or order of any governmental authority is required for the issuance and sale by the Company of the Securities to the Initial Purchaser or the consummation by the Company of the other transactions contemplated hereby, except such as may be required under the Act, the Exchange Act, the TIA and the Blue Sky laws, as to which such counsel need express no opinion, and those which have previously been obtained. (xiii) To the actual knowledge of such counsel, there are no legal or governmental proceedings involving or affecting the Company or the Subsidiaries that would cause such counsel to conclude that such proceeding is required by Item 103 of Regulation S-X to be described in a prospectus pursuant to the Act that are not described in the Final Memorandum, nor are there any material contracts or other documents which would be required to be described in a prospectus pursuant to the Act that are not described in the Final Memorandum. (xiv) None of the Company or the Subsidiaries is, or immediately after the sale of the Securities to be sold to the Initial Purchaser and the application of the proceeds from such sale (as described in the Final Memorandum under the caption "Use of Proceeds") will be, an "investment -21- 22 company" as such term is defined in the Investment Company Act of 1940, as amended. (xv) No registration under the Act of the Securities is required in connection with the sale of the Securities to the Initial Purchaser as contemplated by this Agreement and the Final Memorandum or in connection with the initial resale of the Securities by the Initial Purchaser in accordance with Section 8 of this Agreement, and prior to the commencement of the Exchange Offer (as defined in the Registration Rights Agreement) or the effectiveness of the Shelf Registration Statement (as defined in the Registration Rights Agreement), the Indenture is not required to be qualified under the TIA, in each case assuming (i) (A) that the purchasers who buy such Securities in the initial resale thereof are qualified institutional buyers as defined in Rule 144A promulgated under the Act ("QIBs") or (B) that the offer or sale of the Securities is made in an offshore transaction as defined in Regulation S, (ii) the accuracy and completeness of the Initial Purchaser's representations in Section 8, and those of the Company contained in this Agreement regarding the absence of a general solicitation in connection with the sale of such Securities to the Initial Purchaser and the initial resale thereof and (iii) the due performance by the Initial Purchaser of the agreements set forth in Section 8 hereof. (xvi) Neither the sale, issuance, execution or delivery of the Securities nor the application of the net proceeds therefrom as described in the Final Memorandum under the caption "Use of Proceeds" will violate Regulation G, T, U or X of the Board of Governors of the Federal Reserve System. At the time the foregoing opinion is delivered, Kirkland & Ellis shall additionally state that it has participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants for the Company, representatives of the Initial Purchaser and counsel for the Initial Purchaser, at which conferences the contents of the Final Memorandum and related matters were discussed, and, although it has not independently verified and is not passing upon and assumes no responsibility for the accuracy, completeness or fairness of the statements contained in the Final Memorandum (except to the extent specified in subsection 7(a)(x)), no facts have come to its attention which lead it to believe that the Final Memorandum, on the date thereof or at the Closing Date, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements contained therein, in the light of the circumstances under which they were made, not misleading (it being understood -22- 23 that such firm need express no opinion with respect to the financial statements and related notes thereto and the other financial, statistical and accounting data included in the Final Memorandum). In rendering such opinion, Kirkland & Ellis shall have received and may rely upon such certificates and other documents and information as they may reasonably request to pass on such matters. In addition, in rendering their opinion, Kirkland & Ellis may state that their opinion is limited to matters of New York law and the Federal Law of the United States. The opinion of Kirkland & Ellis described in this Section shall be rendered to the Initial Purchaser at the request of the Company and shall so state therein. References to the Final Memorandum in this subsection (a) shall include any amendment or supplement thereto prepared in accordance with the provisions of this Agreement at the Closing Date. (b) On the Closing, the Initial Purchaser shall have received the opinion of Angelo M. Ninivaggi, Jr., general counsel for the Company, dated as of the Closing Date, in the form set forth below and otherwise reasonably satisfactory to the Initial Purchaser and counsel for the Initial Purchaser, to the effect that: (1) The Company has been duly incorporated and is validly existing under the laws of the State of Idaho, with corporate power and authority to own, lease and operate its assets and properties and conduct its business as described in the Final Memorandum and to enter into and perform its obligations under this Agreement and each of the Other Agreements; the Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; (2) The Company has the authorized, issued and outstanding capitalization set forth in the Final Memorandum; all of the outstanding shares of capital stock of the Company and the Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable and were not issued in violation of any preemptive or similar rights; except as set forth in the Final Memorandum, all of the outstanding shares of capital stock of the Subsidiaries are owned, directly or indirectly, by the Company, free and clear of all perfected security interests and, to the knowledge of such counsel, free and clear of all other liens, encumbrances, equities and claims or restrictions on transferability (other than those imposed by the Act -23- 24 and the securities or "Blue Sky" laws of certain jurisdictions) or voting; (3) Each of the Subsidiaries has been duly organized and is validly existing in good standing under the laws of the jurisdiction of its organization, has the requisite power and authority to own, lease and operate its properties and to conduct its business as described in the Final Memorandum and is duly qualified to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing individually or in the aggregate would not result in a Material Adverse Effect; all of the issued and outstanding capital stock or other ownership interests of each of the Subsidiaries has been duly authorized and validly issued, is fully paid and non-assessable and, to such counsel's knowledge and information, except as set forth in the Final Memorandum, is owned by the Company directly, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; (4) The issuance, sale and delivery of the Notes, the Exchange Notes and the Private Exchange Notes, if any, the Preferred Stock, Exchange Preferred Stock and the Private Exchange Preferred Stock, if any, the execution, delivery and performance by the Company of this Agreement, the Indenture, the Certificate of Designation and the Registration Rights Agreement (in each case assuming due authorization and execution by each party other than the Company), and the consummation by the Company of the transactions contemplated hereby and thereby and the compliance by the Company with the terms of the foregoing and the execution and delivery of the Exchange Indenture do not, and, at the Closing Date, will not, conflict with or constitute or result in a breach or violation by the Company or any of the Subsidiaries of any of the terms or provisions of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) by the Company, or give rise to any right to accelerate the maturity or require the prepayment of any indebtedness under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any Subsidiary under any material Contract known to such counsel, except where any such conflict, breach, violation or default would not result in a Material Adverse Effect; (5) This Agreement, the Registration Rights Agreement, the Indenture and the Exchange Indenture have been duly and validly authorized by the Company and, when duly -24- 25 executed and delivered by the Company (assuming due authorization, execution and delivery thereof by the Initial Purchaser), this Agreement, the Registration Rights Agreement, the Indenture and the Exchange Indenture will constitute the valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights and remedies generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought (regardless of whether such enforcement is considered in a proceeding in equity or at law) and (B) any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations; (6) The Company has all requisite corporate power and authority to execute, deliver and perform its obligations pursuant to the Transactions, including the execution and delivery of all documents executed in connection with the Transactions. The Transactions and all documents executed in connection with the Transactions have been duly and validly authorized by the Company; (7) To the actual knowledge of such counsel, other than as described in the Final Memorandum, no legal, regulatory or governmental proceedings are pending to which the Company or any of the Subsidiaries is a party or to which the property or assets of the Company or any of the Subsidiaries are subject which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or which, individually or in the aggregate, could have a material adverse effect on the power or ability of the Company to perform its obligations under the Transactions or to consummate the transactions contemplated thereby or by the Offering Memorandum including the Transactions described in the Final Memorandum under the caption "Use of Proceeds," and to the actual knowledge of such counsel, no such material proceedings have been threatened against the Company or any of the Subsidiaries or with respect to any of their respective assets or properties; (8) Except as set forth in the Final Memorandum (A) no options, warrants or other rights to purchase from the Company or any Subsidiary shares of capital stock or ownership interests in the Company or any Subsidiary are outstanding, (B) no agreements or other obligations of the Company or any Subsidiary to issue, or other rights to convert, any obligation into, or exchange any securities -25- 26 for, shares of capital stock or ownership interests in the Company or any Subsidiary are outstanding and (C) no holder of securities of the Company or any Subsidiary is entitled to have such securities registered under a registration statement filed by the Company pursuant to the Registration Rights Agreement; and (9) The Company and the Subsidiaries have obtained all Permits necessary to conduct the businesses now or proposed to be conducted by them as described in the Final Memorandum, the lack of which would, individually or in the aggregate, have a Material Adverse Effect; to the actual knowledge of counsel, each of the Company and the Subsidiaries has fulfilled and performed all of its material obligations with respect to such Permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit, except where any such failure to fulfill or perform, revocation or termination would not result, individually or in the aggregate, in a Material Adverse Effect. In addition such counsel shall state that such counsel has participated in conferences with representatives of the Initial Purchaser, officers and other representatives of the Company and representatives of the independent certified accountants of the Company, at which conferences the contents of the Final Memorandum and the business and affairs of the Company and the Subsidiaries were discussed, and although such counsel has not verified and does not pass upon or assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Final Memorandum, on the basis of the foregoing, no facts have come to the attention of such counsel which lead such counsel to believe that the Final Memorandum at the date thereof or as of the Closing Date, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need not express any comment with respect to the financial statements, including the notes thereto and supporting schedules, or any other financial data set forth or referred to in the Final Memorandum). In rendering his opinion, Angelo Ninivaggi may state that his opinion is limited to matters of New York law and the Federal Law of the United States. (c) On the Closing Date, the Initial Purchaser shall have received the opinion, in form and substance satisfactory to the Initial Purchaser and counsel for the Initial Purchaser, of -26- 27 Evans, Keane LLP dated as of the Closing Date and addressed to the Initial Purchaser, with respect to certain legal matters under the Idaho General Business Corporation Act including that: (1) The Certificate of Designation has been duly authorized by the Company and is valid under the terms of the Idaho General Business Corporation Act. 750,000 shares of Preferred Stock have been duly authorized and, when issued and delivered against payment therefor in accordance with the terms hereof, in the case of the Preferred Stock, and in accordance with the terms of the Certificate of Designation, in the case of the Dividend Shares, will be validly issued, fully paid and nonassessable and will not have been issued in violation of any preemptive or similar rights. The Exchange Preferred Stock and Private Exchange Preferred Stock have been duly and validly authorized and reserved for issuance and when issued in accordance with the terms of the Registration Rights Agreement will be duly authorized, validly issued, fully paid and nonassessable and will not have been issued in violation of any preemptive rights. (2) The statements in the Final Memorandum relating to Preferred Stock, in so far as such statements purport to summarize Idaho law, provide a fair and accurate summary of Idaho law as of the Closing Date. (d) On the Closing Date, the Initial Purchaser shall have received the opinion, in form and substance satisfactory to the Initial Purchaser, dated as of the Closing Date and addressed to the Initial Purchaser, of Cahill Gordon & Reindel, counsel for the Initial Purchaser, with respect to certain legal matters relating to this Agreement and such other related matters as the Initial Purchaser may reasonably require. In rendering such opinion, Cahill Gordon & Reindel shall have received and may rely upon such certificates and other documents and information as it may reasonably request to pass upon such matters. (e) The Initial Purchaser shall have received from each of the Independent Accountants a comfort letter or letters dated the date hereof and the Closing Date, in form and substance satisfactory to counsel for the Initial Purchaser. (f) The representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date; the statements of the Company's officers made pursuant to any certificate delivered in accordance with the provisions hereof shall be true and correct in all material respects on and as of the date made and on and as of the Closing Date; the -27- 28 Company shall have performed in all material respects all covenants and agreements and satisfied all conditions on their part to be performed or satisfied hereunder at or prior to the Closing Date; and, except as described in the Final Memorandum (exclusive of any amendment or supplement thereto after the date hereof), subsequent to the date of the most recent financial statements in such Final Memorandum, there shall have been no event or development, and no information shall have become known, that, individually or in the aggregate, has or would be reasonably likely to have a Material Adverse Effect. (g) The sale of the Securities hereunder shall not be enjoined (temporarily or permanently) on the Closing Date. (h) Subsequent to the date of the most recent financial statements in the Final Memorandum (exclusive of any amendment or supplement thereto after the date hereof), none of the Company or any of the Subsidiaries shall have sustained any loss or interference with respect to its business or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any strike, labor dispute, slow down or work stoppage or from any legal or governmental proceeding, order or decree, which loss or interference, individually or in the aggregate, has or would be reasonably likely to have a Material Adverse Effect. (i) The Initial Purchaser shall have received a certificate of the Company, dated the Closing Date, signed on behalf of the Company by its Chairman of the Board, President or any Senior Vice President and the Chief Financial Officer, to the effect that: (i) The representations and warranties of the Company contained in this Agreement are true and correct in all material respects on and as of the date hereof and on and as of the Closing Date, and the Company has performed in all material respects all covenants and agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date; (ii) At the Closing Date, since the date hereof or since the date of the most recent financial statements in the Final Memorandum (exclusive of any amendment or supplement thereto after the date hereof), no event or development has occurred, and no information has become known, that, individually or in the aggregate, has or would be reasonably likely to have a Material Adverse Effect; and (iii) The sale of the Securities hereunder has not been enjoined (temporarily or permanently). -28- 29 (j) On the Closing Date, the Initial Purchaser shall have received the Registration Rights Agreement, substantially in the form of Exhibit A, executed by the Company and such agreement shall be in full force and effect at all times from and after the Closing Date. (k) On the Closing Date, the Initial Purchaser shall have received an opinion from Valuation Research Corp., in form and substance satisfactory to the Initial Purchaser and its Counsel, regarding the solvency of the Company immediately after the consummation of the Transactions. (l) The amendment to the Company's articles of incorporation including the Certificate of Designation shall have been filed with the Secretary of State of Idaho and shall have become effective. (m) Each of the Transactions (other than the offerings) shall have been consummated simultaneously with the Offering, on terms and conditions set forth in the documents executed in connection with the Transactions in the forms previously delivered to the Initial Purchaser. On or before the Closing Date, the Initial Purchaser and counsel for the Initial Purchaser shall have received such further documents, opinions, certificates, letters and schedules or instruments relating to the business, corporate, legal and financial affairs of the Company and the Subsidiaries as they shall have heretofore reasonably requested from the Company. All such documents, opinions, certificates, letters, schedules or instruments delivered pursuant to this Agreement will comply with the provisions hereof only if they are reasonably satisfactory in all material respects to the Initial Purchaser and counsel for the Initial Purchaser. The Company shall furnish to the Initial Purchaser such conformed copies of such documents, opinions, certificates, letters, schedules and instruments in such quantities as the Initial Purchaser shall reasonably request. 8. Offering of the Securities; Restrictions on Transfer. (a) The Initial Purchaser represents and warrants that it is a QIB. The Initial Purchaser agrees with the Company that (i) it has not and will not solicit offers for, or offer or sell, the Securities by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Act; and (ii) it has and will solicit offers for the Securities only from, and will offer the Securities only to (A) in the case of offers inside the United States, persons whom the Initial Pur- -29- 30 chaser reasonably believes to be QIBs or, if any such person is buying for one or more institutional accounts for which such person is acting as fiduciary or agent, only when such person has represented to the Initial Purchaser that each such account is a QIB, to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A, and, in each case, in transactions under Rule 144A and (B) in the case of offers outside the United States, to persons other than U.S. persons ("foreign purchasers," which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners (other than an estate or trust)); provided, however, that, in the case of this clause (B), in purchasing such Securities such persons are deemed to have represented and agreed as provided under the caption "Transfer Restrictions" contained in the Final Memorandum. (b) The Initial Purchaser represents and warrants with respect to offers and sales outside the United States that (i) it has and will comply with all applicable laws and regulations in each jurisdiction in which it acquires, offers, sells or delivers Securities or has in its possession or distributes any Memorandum or any such other material, in all cases at its own expense; (ii) the Securities have not been and will not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Act or pursuant to an exemption from the registration requirements of the Act; (iii) it has offered the Securities and will offer and sell the Securities (A) as part of its distribution at any time and (B) otherwise until 40 days after the later of the commencement of the offering and the Closing Date, only in accordance with Rule 903 of Regulation S and, accordingly, neither it nor any persons acting on its behalf have engaged or will engage in any directed selling efforts (within the meaning of Regulation S) with respect to the Securities, and any such persons have complied and will comply with the offering restrictions requirement of Regulation S; and (iv) it agrees that, at or prior to confirmation of sales of the Securities, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Securities from it during the restricted period a confirmation or notice to substantially the following effect: "The Securities covered hereby have not been registered under the United States Securities Act of 1933 (the "Securities Act") and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of the distribution of the Securities at any time or (ii) otherwise until 40 days after the -30- 31 later of the commencement of the offering and the closing date of the offering, except in either case in accordance with Regulation S (or Rule 144A if available) under the Securities Act. Terms used above have the meaning given to them in Regulation S." Terms used in this Section 8 and not defined in this Agreement have the meanings given to them in Regulation S. 9. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless the Initial Purchaser, and each person, if any, who controls any Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities to which any Initial Purchaser or such controlling person may become subject under the Act, the Exchange Act or otherwise, insofar as any such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in any Memorandum or any amendment or supplement thereto or any application or other document, or any amendment or supplement thereto, executed by the Company or based upon written information furnished by or on behalf of the Company filed in any jurisdiction in order to qualify the Securities under the securities or "Blue Sky" laws thereof or filed with any securities association or securities exchange (each, an "Application"); or (ii) the omission or alleged omission to state, in any Memorandum or any amendment or supplement thereto or any Application, a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse, as incurred, the Initial Purchaser and each such controlling person for any legal or other expenses incurred by the Initial Purchaser or such controlling person in connection with investigating, defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action; provided, however, the Company will not be liable in any such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in any Memorandum or any amendment or supplement thereto or any Application in reliance upon and in conformity with written information concerning the Initial Purchaser furnished to the Company by the Initial Pur- -31- 32 chaser specifically for use therein. This indemnity agreement will be in addition to any liability that the Company may otherwise have to the indemnified parties. The Company shall not be liable under this Section 9 for any settlement of any claim or action effected without its prior written consent, which shall not be unreasonably withheld. (b) The Initial Purchaser agrees to indemnify and hold harmless the Company, its directors, its officers and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act against any losses, claims, damages or liabilities to which the Company or any such director, officer or controlling person may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any Memorandum or any amendment or supplement thereto or any Application, or (ii) the omission or the alleged omission to state therein a material fact required to be stated in any Memorandum or any amendment or supplement thereto or any Application, or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning such Initial Purchaser, furnished to the Company by the Initial Purchaser specifically for use therein; and subject to the limitation set forth immediately preceding this clause, will reimburse, as incurred, any legal or other expenses incurred by the Company or any such director, officer or controlling person in connection with investigating or defending against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action in respect thereof. This indemnity agreement will be in addition to any liability that the Initial Purchaser may otherwise have to the indemnified parties. The Initial Purchaser shall not be liable under this Section 9 for any settlement of any claim or action effected without their consent, which shall not be unreasonably withheld. The Company shall not, without the prior written consent of the Initial Purchaser, effect any settlement or compromise of any pending or threatened proceeding in respect of which any Initial Purchaser is or could have been a party, or indemnity could have been sought hereunder by any Initial Purchaser, unless such settlement (A) includes an unconditional written release of the Initial Purchaser, in form and substance reasonably satisfactory to the Initial Purchaser, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of any Initial Purchaser. -32- 33 (c) Promptly after receipt by an indemnified party under this Section 9 of notice of the commencement of any action for which such indemnified party is entitled to indemnification under this Section 9, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 9, notify the indemnifying party of the commencement thereof in writing; but the omission to so notify the indemnifying party (i) will not relieve it from any liability under paragraph (a) or (b) above unless and to the extent such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraphs (a) and (b) above. In case any such action is brought against any indemnified party, and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, that if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it and/or other indemnified parties that are different from or additional to those available to the indemnifying party, or (iii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after receipt by the indemnifying party of notice of the institution of such action, then, in each such case, the indemnifying party shall not have the right to direct the defense of such action on behalf of such indemnified party or parties and such indemnified party or parties shall have the right to select separate counsel to defend such action on behalf of such indemnified party or parties. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying party will not be liable to such indemnified party under this Section 9 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the immediately preceding sentence (it being understood, however, that in connection with such action the indemnifying party shall not be liable for the expenses of more than one separate counsel (in addition to local counsel) in any one action or separate but substantially similar actions in the same jurisdiction arising -33- 34 out of the same general allegations or circumstances, designated by the Initial Purchaser in the case of paragraph (a) of this Section 9 or the Company in the case of paragraph (b) of this Section 9, representing the indemnified parties under such paragraph (a) or paragraph (b), as the case may be, who are parties to such action or actions) or (ii) the indemnifying party has authorized in writing the employment of counsel for the indemnified party at the expense of the indemnifying party. After such notice from the indemnifying party to such indemnified party, the indemnifying party will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the prior written consent of the indemnifying party (which consent shall not be unreasonably withheld), unless such indemnified party waived in writing its rights under this Section 9, in which case the indemnified party may effect such a settlement without such consent. (d) In circumstances in which the indemnity agreement provided for in the preceding paragraphs of this Section 9 is unavailable to, or insufficient to hold harmless, an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof), each indemnifying party, in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect (i) the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the offering of the Securities or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof). The relative benefits received by the Company on the one hand and the Initial Purchaser on the other shall be deemed to be in the same proportion as the total proceeds from the Offering (before deducting expenses) received by the Company bear to the total discounts and commissions received by the Initial Purchaser. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand, or the Initial Purchaser on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission or alleged statement or omission, and any other equitable considerations appropriate in the circumstances. The Company and the Initial Purchaser agree that it would not be equitable if the amount of such contribution were -34- 35 determined by pro rata or per capita allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph (d). Notwithstanding any other provision of this paragraph (d), no Initial Purchaser shall be obligated to make contributions hereunder that in the aggregate exceed the total discounts, commissions and other compensation received by such Initial Purchaser under this Agreement, less the aggregate amount of any damages that such Initial Purchaser has otherwise been required to pay by reason of the untrue or alleged untrue statements or the omissions or alleged omissions to state a material fact, and no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person, if any, who controls an Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Initial Purchaser, and each director of the Company, each officer of the Company and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall have the same rights to contribution as the Company. 10. Survival Clause. The respective representations, warranties, agreements, covenants, indemnities and other statements of the Company, its officers and the Initial Purchaser set forth in this Agreement or made by or on behalf of them pursuant to this Agreement shall remain in full force and effect, regardless of (i) any investigation made by or on behalf of the Company, any of its officers or directors, the Initial Purchaser or any controlling person referred to in Section 9 hereof and (ii) delivery of and payment for the Securities. The respective agreements, covenants, indemnities and other statements set forth in Sections 6, 9 and 15 hereof shall remain in full force and effect, regardless of any termination or cancellation of this Agreement. 11. Termination. (a) This Agreement may be terminated in the sole discretion of the Initial Purchaser by notice to the Company given prior to the Closing Date in the event that the Company shall have failed, refused or been unable to perform all obligations and satisfy all conditions on its part to be performed or satisfied hereunder at or prior thereto or, if at or prior to the Closing Date: -35- 36 (i) any of the Company or the Subsidiaries shall have sustained any loss or interference with respect to its businesses or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any strike, labor dispute, slow down or work stoppage or any legal or governmental proceeding, which loss or interference, in the sole judgment of the Initial Purchaser, has had or has a Material Adverse Effect, or there shall have been, in the sole judgment of the Initial Purchaser, any event or development that, individually or in the aggregate, has or could be reasonably likely to have a Material Adverse Effect (including without limitation a change in control of the Company or the Subsidiaries (other than pursuant to the Transactions)), except in each case as described in the Final Memorandum (exclusive of any amendment or supplement thereto); (ii) trading in securities on the New York Stock Exchange, American Stock Exchange or the NASDAQ National Market shall have been suspended or minimum or maximum prices shall have been established on any such exchange or market; (iii) a banking moratorium shall have been declared by New York or United States authorities; or (iv) there shall have been (A) an outbreak or escalation of hostilities between the United States and any foreign power, or (B) an outbreak or escalation of any other insurrection or armed conflict involving the United States or any other national or international calamity or emergency, or (C) any material change in the financial markets of the United States which, in the case of (A), (B) or (C) above and in the sole judgment of the Initial Purchaser, makes it impracticable or inadvisable to proceed with the offering or the delivery of the Securities as contemplated by the Final Memorandum; or (v) any securities of the Company shall have been downgraded or placed on any "watch list" for possible downgrading by any nationally recognized statistical rating organization. (b) Termination of this Agreement pursuant to this Section 11 shall be without liability of any party to any other party except as provided in Section 10 hereof. 12. Information Supplied by the Initial Purchaser. The statements set forth in the last paragraph on the front cover page and in the fourth sentence of the fifth paragraph and the sixth paragraph and the seventh paragraph under the heading "Private Placement" in the Final Memorandum (to the ex- -36- 37 tent such statements relate to the Initial Purchaser) constitute the only information furnished by the Initial Purchaser to the Company for the purposes of Sections 2(a) and 9 hereof. 13. Notices. All communications hereunder shall be in writing and, if sent to the Initial Purchaser, shall be mailed or delivered to (i) BT Alex. Brown Incorporated, 130 Liberty Street, New York, New York 10006, Attention: Corporate Finance Department; and (ii) if sent to the Company, shall be mailed or delivered to the Company at 16399 Franklin Road, Nampa, Idaho 83687, Attention: Corporate Counsel, with a copy to Cornerstone Equity Investors IV L.P., 717 Fifth Avenue, Suite 1100, New York, New York 10022, Attention: John A. Downer and Michael E. Najjar. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; and one business day after being timely delivered to a next-day air courier. 14. Successors. This Agreement shall inure to the benefit of and be binding upon the Initial Purchaser, the Company and their respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained; this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person except that (i) the indemnities of the Company contained in Section 9 of this Agreement shall also be for the benefit of any person or persons who control the Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the indemnities of the Initial Purchaser contained in Section 9 of this Agreement shall also be for the benefit of the directors of the Company, its officers and any person or persons who control the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of Securities from the Initial Purchaser will be deemed a successor because of such purchase. 15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW. 16. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an -37- 38 original, but all of which together shall constitute one and the same instrument. [Remainder of page intentionally left blank] -38- 39 If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between the Company and the Initial Purchaser. Very truly yours, MCMS, INC. By: /s/ Robert F. Subia ---------------------------- Name: Robert F. Subia Title: President and CEO The foregoing Agreement is hereby confirmed and accepted as of the date first above written. BT ALEX. BROWN INCORPORATED By: /s/ MK Lynch ------------------------- Name: Mary Kathryn Lynch Title: VP -39- 40 SCHEDULE 1 Subsidiaries of the Company --------------------------- Jurisdiction of Name Incorporation - ---- --------------- M.C.M.S. International, Inc. British Virgin Islands M.C.M.S. SDN. BHD. Malaysia M.C.M.S. Belgium S.A. Belgium M.C.M.S. Netherlands B.V. Netherlands M.C.M.S. Asia Pacific Pte. Ltd. Singapore 41 EXHIBIT A [FORM OF REGISTRATION RIGHTS AGREEMENT] EX-10.3 12 REGISTRATION RIGHTS AGREEMENT 1 Exhibit 10.3 - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT Dated as of February 26, 1998 Among MCMS, INC. as Issuer and BT ALEX. BROWN INCORPORATED as Initial Purchaser 9 3/4% Senior Subordinated Notes due 2008 and Floating Interest Rate Subordinated Term Securities due 2008 and 12 1/2% Senior Exchangeable Preferred Stock - -------------------------------------------------------------------------------- 2 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement") is dated as of February 26, 1998, among MCMS, INC., an Idaho corporation (f/k/a Micron Custom Manufacturing Services, Inc.) (the "Company" or "Issuer"), as issuer, and BT ALEX. BROWN INCORPORATED, as Initial Purchaser (the "Initial Purchaser"). This Agreement is entered into in connection with the Purchase Agreement, dated as of February 19, 1998, among the Issuer and the Initial Purchaser (the "Purchase Agreement"), which provides for, among other things, the sale by the Company to the Initial Purchaser of $145,000,000 aggregate principal amount of the Company's 9 3/4% Senior Subordinated Notes due 2008 (the "Fixed Rate Notes"), the sale by the Company to the Initial Purchaser of $30,000,000 aggregate principal amount of the Company's Floating Interest Rate Subordinated Term Securities (the "Floating Rate Notes," and together with the Fixed Rate Notes, the "Notes") and the sale by the Company to the Initial Purchaser of 250,000 shares of 12 1/2% Senior Exchangeable Preferred Stock with a liquidation preference of $100.00 per share (the "Preferred Stock" and, together with the Notes, the "Securities"). In order to induce the Initial Purchaser to enter into the Purchase Agreement, the Issuer has agreed to provide the registration rights set forth in this Agreement for the benefit of the Initial Purchaser and any subsequent holder or holders of each of the Notes and the Preferred Stock. The execution and delivery of this Agreement is a condition to the Initial Purchaser's obligation to purchase the Securities under the Purchase Agreement. The parties hereby agree as follows: 1. Definitions As used in this Agreement, the following terms shall have the following meanings: Additional Dividends: See Section 4 hereof. Additional Interest: See Section 4 hereof. Advice: See Section 5 hereof. Agreement: See the introductory paragraphs hereto. Applicable Period: See Section 2 hereof. 3 -2- Certificate of Designation: Means the certificate of designation governing the 12 1/2% Senior Exchangeable Preferred Stock of the Company. Closing: See Purchase Agreement. Company: See the introductory paragraph hereto. Debenture Trustee: The trustee under the Exchange Indenture and the trustee under any indenture governing the Debentures and Private Exchange Debentures. Debentures: The 12 1/2% Exchange Debentures of the Company issuable under the Exchange Indenture and the Series B Exchange Debentures, if any. Effectiveness Date: The 120th day after the Issue Date; provided, however, that with respect to any Shelf Registration other than a Shelf Registration if no Exchange Offer Registration Statement has been filed, the Effectiveness Date shall be the 60th day after the applicable Registration Statement with respect thereto is filed. Effectiveness Period: See Section 3 hereof. Event Date: See Section 4 hereof. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Exchange Debentures: The 12 1/2% Exchange Debentures of the Company issuable under the Exchange Indenture. Exchange Indenture: The Exchange Indenture, dated February 26, 1998, between the Issuer and United States Trust Company of New York, as Debenture Trustee, pursuant to which the Debentures may be issued, as the same may be amended or supplemented from time to time in accordance with the terms hereof. Exchange Notes: See Section 2 hereof. Exchange Preferred Stock: See Section 2 hereof. Exchange Offer: See Section 2 hereof. 4 -3- Exchange Offer Registration Statements: See Section 2 hereof. Exchange Offers: See Section 2 hereof. Exchange Securities: See Section 2 hereof. Filing Date: (i) with respect to the Exchange Offer Registration Statement, the 60th day after the Issue Date and (ii) with respect to any Shelf Registration Statement, (A) if no Exchange Offer Registration Statement has been filed by the Issuer pursuant to this Agreement, the 60th day after the Issue Date and (B) in each other case (which may be applicable notwithstanding the consummation of the Exchange Offer), the 120th day after the delivery of a Shelf Notice. Fixed Rate Notes: See the introductory paragraphs hereto. Floating Rate Notes: See the introductory paragraphs hereto. Holder: Any holder of a Registrable Security or Registrable Securities and/or a Debenture or Debentures. Indemnified Person: See Section 7(c) hereof. Indemnifying Person: See Section 7(c) hereof. Indenture: The Indenture, dated as of February 26, 1998, between the Issuer and United States Trust Company of New York, as Trustee, pursuant to which the Notes are being issued, as the same may be amended or supplemented from time to time in accordance with the terms thereof. Initial Purchaser: See the introductory paragraphs hereto. Initial Shelf Registration: See Section 3(a) hereof. Inspectors: See Section 5(m) hereof. Issue Date: February 26, 1998, the date of original issuance of the Securities. Issuer: See the introductory paragraphs hereto. NASD: See Section 5(s) hereof. 5 -4- Notes: See the introductory paragraphs hereto. Offering Memorandum: The final offering memorandum of the Company dated February 19, 1998, in respect of the offering of the Securities. Participant: See Section 7(a) hereof. Participating Broker-Dealer: See Section 2 hereof. Person: An individual, trustee, corporation, partnership, joint stock company, trust, unincorporated association, union, business association, firm or other legal entity. Preferred Stock: See the introductory paragraphs hereto. Private Exchange: See Section 2 hereof. Private Exchange Debentures: Debentures which, if the Company exchanges Registrable Preferred Stock for Exchange Debentures prior to a Registration Statement with respect to the Preferred Stock being declared effective by the SEC, the Company shall issue and deliver to the Initial Purchaser pursuant to the third paragraph of Section 2(b) in exchange for Exchange Debentures which are held by the Initial Purchaser and are reasonably likely to be determined to have the status of an unsold allotment in an initial distribution. The Private Exchange Debentures shall be issued pursuant to the same indenture as the Series B Exchange Debentures. Private Exchange Notes: See Section 2 hereof. Private Exchange Preferred Stock: See Section 2 hereof. Private Exchange Securities: See Section 2 hereof. Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act and any term sheet filed pursuant to Rule 434 under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by refer- 6 -5- ence or deemed to be incorporated by reference in such Prospectus. Purchase Agreement: See the introductory paragraphs hereto. Records: See Section 5(m) hereof. Registrable Notes: Each Note upon its original issuance and at all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv) hereof is applicable upon original issuance and at all times subsequent thereto and each Private Exchange Note upon original issuance thereof and at all times subsequent thereto, until (i) a Registration Statement (other than, with respect to any Exchange Note as to which Section 2(c)(iv) hereof is applicable, the Exchange Offer Registration Statement) covering such Note, Exchange Note or Private Exchange Note has been declared effective by the SEC and such Note, Exchange Note or such Private Exchange Note, as the case may be, has been disposed of in accordance with such effective Registration Statement, (ii) such Note has been exchanged pursuant to the Exchange Offer for an Exchange Note or Exchange Notes that may be resold without complying with the prospectus delivery requirements under the Securities Act, (iii) such Note, Exchange Note or Private Exchange Note, as the case may be, ceases to be outstanding for purposes of the Indenture or (iv) such Note, Exchange Note or Private Exchange Note, as the case may be, may be resold without restriction pursuant to Rule 144 under the Securities Act. Registrable Preferred Stock: Each share of Preferred Stock upon its original issuance and at all times subsequent thereto, each share of Exchange Preferred Stock as to which Section 2(c)(iv) hereof is applicable upon original issuance and at all times subsequent thereto and each share of Private Exchange Preferred Stock upon original issuance thereof and at all times subsequent thereto, until (i) a Registration Statement (other than, with respect to any Exchange Preferred Stock as to which Section 2(c)(iv) hereof is applicable, the Exchange Offer Registration Statement) covering such Preferred Stock, Exchange Preferred Stock or Private Exchange Preferred Stock has been declared effective by the SEC and such Preferred Stock, Exchange Preferred Stock or such Private Exchange Preferred Stock, as the case may be, has been disposed of in accordance with such effective Registration Statement, (ii) such Preferred Stock has been exchanged pursuant to the Exchange Offer for Exchange Preferred Stock that may be resold without complying with the prospectus delivery requirements under the 7 -6- Securities Act, (iii) such Preferred Stock, Exchange Preferred Stock or Private Exchange Preferred Stock, as the case may be, ceases to be outstanding or (iv) such Preferred Stock, Exchange Preferred Stock or Private Exchange Preferred Stock, as the case may be, may be resold without restriction pursuant to Rule 144 under the Securities Act. Registrable Securities: The Registrable Notes and the Registrable Preferred Stock. Registrar: The registrar under the Certificate of Designation. Registration Statement: Any registration statement of the Issuer that covers any of the Notes, the Exchange Notes or the Private Exchange Notes, the Preferred Stock, the Exchange Preferred Stock or Private Exchange Preferred Stock, or Debentures filed with the SEC under the Securities Act, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of the issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities: See the introductory paragraphs hereto. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. 8 -7- Series B Exchange Debentures: See Section 2 hereof. Shelf Notice: See Section 2 hereof. Shelf Registration: See Section 3(b) hereof. Subsequent Shelf Registration: See Section 3(b) hereof. TIA: The Trust Indenture Act of 1939, as amended. Transfer Agent: The transfer agent under the Certificate of Designation. Trustee: The trustee under the Indenture and the trustee under any indenture governing the Exchange Notes and Private Exchange Notes. Underwritten registration or underwritten offering: A registration in which securities of the Issuer are sold to an underwriter for reoffering to the public. 2. Exchange Offer (a) The Issuer shall file with the SEC, no later than the Filing Date with respect to the Exchange Offer Registration Statement, Registration Statements (each an "Exchange Offer Registration Statement") on appropriate registration forms with respect to registered offers (with respect to each of the Notes and the Preferred Stock, an "Exchange Offer" and together the "Exchange Offers") to exchange any and all of each of the Registrable Notes and Registrable Preferred Stock for a like aggregate principal amount of Notes (the "Exchange Notes") and aggregate liquidation preference of Preferred Stock (the "Exchange Preferred Stock," and together with the Exchange Notes, the "Exchange Securities"), as the case may be, of the Company that are identical in all material respects to each of the respective Securities, except that the Exchange Securities shall contain no restrictive legend thereon. The Exchange Notes shall be entitled to the benefits of the Indenture or a trust indenture which is identical in all material respects to the Indenture (other than such changes to the Indenture or any such identical trust indenture as are necessary to comply with the TIA) and which, in either case, has been qualified under the TIA. The Exchange Offer Registration Statement with respect to the Registrable Preferred Stock will also register any deemed offering of the Debentures by the issuer pursuant to the Exchange Offer; provided that if the Company exchanges the Reg- 9 -8- istrable Preferred Stock for the Exchange Debentures at any time prior to a Registration Statement with respect to the Preferred Stock being declared effective by the SEC, then the Issuer shall file with the SEC, no later than the Filing Date with respect to the Exchange Offer Registration Statement, a Registration Statement on an appropriate registration form with respect to a registered offer to exchange any and all of the Exchange Debentures for a like aggregate principal amount of new Exchange Debentures (the "Series B Exchange Debentures"), except that the Series B Exchange Debentures shall contain no restrictive legend thereon and shall be entitled to the benefits of the Exchange Indenture. In the event the Issuer is so required to register and exchange the Exchange Debentures for Series B Exchange Debentures, the Issuer shall be subject to all covenants, warranties and obligations under this Agreement, with respect to the Series B Exchange Debentures, to which it would otherwise be subject with respect to the Registrable Notes, Exchange Notes and Private Exchange Notes, except that the Debentures will be governed by the Exchange Indenture. The Exchange Offers shall comply with all applicable tender offer rules and regulations under the Exchange Act and other applicable law. The Issuer shall use its reasonable best efforts to (x) cause each Exchange Offer Registration Statement to be declared effective under the Securities Act on or before the Effectiveness Date; (y) keep each Exchange Offer open for at least 20 business days (or longer if required by applicable law) after the date that notice of the Exchange Offer is mailed to Holders; and (z) consummate each Exchange Offer on or prior to the 45th day following the date on which the applicable Exchange Offer Registration Statement is declared effective by the SEC. If, after an Exchange Offer Registration Statement is initially declared effective by the SEC, that Exchange Offer or the issuance of the Exchange Notes or Exchange Preferred Stock thereunder, as the case may be, is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, that Exchange Offer Registration Statement shall be deemed not to have become effective for purposes of this Agreement. Each Holder that participates in an Exchange Offer will be required, as a condition to its participation in the Exchange Offer, to represent to the Company in writing (which may be contained in the applicable letter of transmittal) that any Exchange Securities to be received by it will be acquired in the ordinary course of its business, that at the time of the consummation of the Exchange Offer such Holder will have no arrangement or understanding with any Person to participate in the distribution of the Exchange Securities in violation of the 10 -9- provisions of the Securities Act, that such Holder is not an affiliate of the Company within the meaning of the Securities Act and that such Holder reasonably believes such Holder is not acting on behalf of any Person that could not truthfully make the foregoing representations. Upon consummation of an Exchange Offer in accordance with this Section 2, the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to Registrable Securities that are Private Exchange Securities, Exchange Securities as to which Section 2(c)(iv) is applicable and Exchange Securities held by Participating Broker-Dealers (as defined), and the Issuer shall have no further obligation to register Registrable Securities (other than Private Exchange Securities and other than in respect of any Exchange Securities as to which clause 2(c)(iv) hereof applies) pursuant to Section 3 hereof. Other than in connection with a deemed offering of the Debentures, or a required exchange of Exchange Debentures for Series B Exchange Debentures, required by this Section 2, no securities other than the Exchange Securities shall be included in the Exchange Offer Registration Statement. (b) The Issuer shall include within the Prospectus contained in the Exchange Offer Registration Statement a section entitled "Plan of Distribution," reasonably acceptable to the Initial Purchaser, which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential "underwriter" status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of any Exchange Securities received by such broker-dealer in any Exchange Offer (a "Participating Broker-Dealer"), whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies represent the prevailing views of the staff of the SEC. Such "Plan of Distribution" section shall also expressly permit, to the extent permitted by applicable policies and regulations of the SEC, the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including, to the extent permitted by applicable policies and regulations of the SEC, all Participating Broker-Dealers, and include a statement describing the means by which Participating Broker-Dealers may resell the Exchange Securities in compliance with the Securities Act. The Issuer shall use its reasonable best efforts to keep each Exchange Offer Registration Statement effective and 11 -10- to amend and supplement the Prospectus contained therein in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as is necessary to comply with applicable law in connection with any resale of the Exchange Securities covered thereby; provided, however, that such period shall not exceed 180 days after consummation of the Exchange Offer (or such longer period if extended by the last paragraph of Section 5 herein)) (the "Applicable Period"). If, prior to consummation of the Exchange Offers, the Initial Purchaser holds any Securities acquired by it that have, or that are reasonably likely to be determined to have, the status of an unsold allotment in an initial distribution, the Company upon the request of the Initial Purchaser shall simultaneously with the delivery of the Exchange Notes or Exchange Preferred Stock, as the case may be, in the Exchange Offer, issue and deliver to the Initial Purchaser, in exchange (each, a "Private Exchange") for such Notes or Preferred Stock, as the case may be, held by the Initial Purchaser, a like principal amount or liquidation preference, as the case may be, of Notes (the "Private Exchange Notes") or Preferred Stock (the "Private Exchange Preferred Stock," and together with the Private Exchange Notes, the "Private Exchange Securities"), as the case may be, of the Company that are identical in all material respects to the Exchange Notes or Exchange Preferred Stock, as the case may be, except for the placement of a restrictive legend on such Private Exchange Securities. The Private Exchange Notes shall be issued pursuant to the same indenture as the Exchange Notes. Each of the Private Exchange Securities shall bear the same CUSIP number as the applicable Exchange Securities. Interest on the Exchange Notes and any Private Exchange Notes will accrue from (A) the later of (i) the last interest payment date on which interest was paid on the Notes surrendered in exchange therefor or (ii) if the Notes are surrendered for exchange on a date in a period which includes the record date for an interest payment date to occur on or after the date of such exchange and as to which interest will be paid, the date on such interest payment date or (B), if no interest has been paid on the Notes, from the Issue Date. Dividends on the Exchange Preferred Stock and any Private Exchange Preferred Stock will accumulate from (A) the later of (i) the last dividend payment date on which dividends were paid on the Preferred Stock surrendered in exchange therefor or, (ii) if the Preferred Stock is surrendered for exchange on a date in a period which includes the record date for a dividend payment to 12 -11- occur on or after the date of such exchange and as to which a dividend will be paid, the date of such dividend payment date or (B) if no dividends have been paid on the Preferred Stock, from the Issue Date. In connection with each of the Exchange Offers, the Issuer shall: (1) mail, or cause to be mailed, to each Holder of record entitled to participate in the Exchange Offer a copy of the Prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (2) use their best efforts to keep the Exchange Offer open for not less than 20 business days after the date that notice of the Exchange Offer is mailed to Holders (or longer if required by applicable law); (3) utilize the services of a depositary for the Exchange Offer with an address in the Borough of Manhattan, The City of New York; (4) permit Holders to withdraw tendered Notes or Preferred Stock, as the case may be, at any time prior to the close of business, New York time, on the last business day on which the applicable Exchange Offer shall remain open; and (5) otherwise comply in all material respects with all applicable laws, rules and regulations. As soon as practicable after the close of the applicable Exchange Offer and the applicable Private Exchange, if any, the Issuer shall: (1) accept for exchange all Registrable Notes or Registrable Preferred Stock, as the case may be, validly tendered and not validly withdrawn pursuant to the applicable Exchange Offer and the applicable Private Exchange, if any; (2) deliver to the Transfer Agent for cancellation all Registrable Preferred Stock or portions thereof so accepted for exchange by the Issuer, and cause the Transfer Agent to countersign and deliver promptly to each Holder of Registrable Preferred Stock shares of Exchange Preferred Stock or Private Exchange Preferred Stock, as the 13 -12- case may be, equal in liquidation preference to the Registrable Preferred Stock of such Holder so accepted for exchange; and (3) deliver to the Trustee for cancellation all Registrable Notes so accepted for exchange and cause the Trustee to authenticate and deliver promptly to each Holder Registrable Notes, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the securities of such Holder so accepted for exchange. Each Exchange Offer and Private Exchange shall not be subject to any conditions, other than that (i) the Exchange Offer or Private Exchange, as the case may be, does not violate applicable law or any applicable interpretation of the staff of the SEC, (ii) no action or proceeding shall have been instituted or threatened in any court or by any governmental agency which might materially impair the ability of the Issuer to proceed with the Exchange Offer or the Private Exchange, and no material adverse development shall have occurred in any existing action or proceeding with respect to the Issuer and (iii) all governmental approvals shall have been obtained, which approvals the Issuer deems necessary for the consummation of the Exchange Offer or Private Exchange. The Exchange Notes and the Private Exchange Notes shall be issued under (i) the Indenture or (ii) an indenture identical in all material respects to the Indenture and which, in either case, has been qualified under the TIA or is exempt from such qualification and shall provide that (a) the Exchange Notes shall not be subject to the transfer restrictions set forth in the Indenture and (b) the Private Exchange Notes shall be subject to the transfer restrictions set forth in such indenture. The Indenture or such indenture shall provide that the Exchange Notes, the Private Exchange Notes and the Notes shall vote and consent together on all matters as one class and that none of the Exchange Notes, the Private Exchange Notes or the Notes will have the right to vote or consent as a separate class on any matter. The Certificate of Designation shall provide that the Exchange Preferred Stock, the Private Exchange Preferred Stock and the Preferred Stock shall vote and consent together on all matters as one class and that none of the Exchange Preferred Stock, the Private Exchange Preferred Stock or the Preferred Stock will have the right to vote or consent as a separate class on any matter. 14 -13- (c) If, (i) because of any change in law or in currently prevailing interpretations of the staff of the SEC, the Issuer is not permitted to effect the Exchange Offers, (ii) the Exchange Offers are not consummated within 180 days of the Issue Date, (iii) any holder of any Private Exchange Securities so requests in writing to the Company within 60 days after the consummation of the applicable Exchange Offer, or (iv) in the case of any Holder that participates in either of the Exchange Offers, such Holder does not receive the applicable Exchange Securities on the date of the exchange that may be sold without restriction under state and federal securities laws (other than due solely to the status of such Holder as an affiliate of the Company within the meaning of the Securities Act), then in the case of each of clauses (i) to and including (iv) of this sentence, the Company shall promptly deliver to the Holders and the Trustee and/or the Transfer Agent and Registrar, as applicable, written notice thereof (the "Shelf Notice") and shall file a Shelf Registration pursuant to Section 3 hereof. 3. Shelf Registration If at any time a Shelf Notice is delivered as contemplated by Section 2(c) hereof, then: (a) Shelf Registration. The Issuer shall file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Securities not exchanged in the Exchange Offer, Private Exchange Securities and Exchange Securities as to which Section 2(c)(iv) is applicable (the "Initial Shelf Registration"). The Issuer shall use its best efforts to file with the SEC the Initial Shelf Registration on or before the applicable Filing Date. The Initial Shelf Registration shall be on Form S-1 or another appropriate form permitting registration of such Registrable Securities for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). Any Shelf Registration (as defined herein) will also register any deemed Offering of the Exchange Debentures pursuant to the resale of Preferred Stock, Exchange Preferred Stock or Private Exchange Preferred Stock, as the case may be. Other than with respect to the Exchange Debentures as provided in this Agreement, the Issuer shall not permit any securities other than the Registrable Securities to be included in the Initial Shelf Registration or any Subsequent Shelf Registration (as defined below). The Issuer shall use its reasonable best efforts to cause the Initial Shelf Registration to be declared effective 15 -14- under the Securities Act on or prior to the Effectiveness Date and to keep the Initial Shelf Registration continuously effective under the Securities Act until the date which is two years from the Issue Date (the "Effectiveness Period"), or such shorter period ending when (i) all Registrable Notes or Registrable Preferred Stock, as the case may be, covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration or (ii) a Subsequent Shelf Registration covering all of the Registrable Notes or Registrable Preferred Stock, as the case may be, covered by and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf Registration has been declared effective under the Securities Act; provided, however, that the Effectiveness Period in respect of the Initial Shelf Registration shall be extended to the extent required to permit dealers to comply with the applicable prospectus delivery requirements of Rule 174 under the Securities Act and as otherwise provided herein. (b) Subsequent Shelf Registrations. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), the Issuer shall use its best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 60 days of such cessation of effectiveness amend the Initial Shelf Registration in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Notes or Registrable Preferred Stock, as the case may be, covered by and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf Registration (each, a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Issuer shall use their best efforts to cause the Subsequent Shelf Registration to be declared effective under the Securities Act as soon as practicable after such filing and to keep such subsequent Shelf Registration continuously effective for the remainder of the Effectiveness Period. As used herein the term "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration. (c) Supplements and Amendments. The Issuer shall promptly supplement and amend any Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the 16 -15- Holders of a majority in aggregate principal amount of the Registrable Notes, in the case of Registrable Notes, or a majority in aggregate liquidation preference of the Registrable Preferred Stock, in the case of the Registrable Preferred Stock, covered by such Registration Statement or by any underwriter of such Registrable Securities. 4. Additional Interest and Additional Dividends (a) The Issuer and the Initial Purchaser agree that the Holders will suffer damages if the Issuer fails to fulfill its obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Company agrees to pay, as liquidated damages, additional interest on the Notes ("Additional Interest") and additional dividends on the Preferred Stock ("Additional Dividends") under the circumstances and to the extent set forth below (each of which shall be given independent effect): (i) if (A) neither the Exchange Offer Registration Statement nor the Initial Shelf Registration has been filed on or prior to the applicable Filing Date or (B) notwithstanding that the Issuer has consummated or will consummate the Exchange Offer, the Issuer is required to file a Shelf Registration and such Shelf Registration is not filed on or prior to the Filing Date applicable thereto, then commencing on the day after any such Filing Date, Additional Interest or Additional Dividends, as applicable, shall accrue on the principal amount of the Notes or accumulate on the then effective liquidation preference of the Preferred Stock, as applicable, at a rate of 0.25% per annum for the first 90 days immediately following each such Filing Date, and the rate of such Additional Interest or Additional Dividends, as applicable, shall increase by an additional .25% per annum at the beginning of each subsequent 90-day period; or (ii) if (A) neither the Exchange Offer Registration Statement nor the Initial Shelf Registration is declared effective by the SEC on or prior to the relevant Effectiveness Date or (B) notwithstanding that the Issuer has consummated or will consummate the Exchange Offer, the Issuer is required to file a Shelf Registration and such Shelf Registration is not declared effective by the SEC on or prior to the Effectiveness Date in respect of such Shelf Registration, then, commencing on the day after the applicable Effectiveness Date, Additional Interest or Ad- 17 -16- ditional Dividends, as applicable, shall accrue on the principal amount of the Notes or accumulate on the then effective liquidation preference of the Preferred Stock, as applicable, at a rate of 0.25% per annum for the first 90 days immediately following the day after such Effectiveness Date, and the rate of such Additional Interest or Additional Dividends, as applicable, shall increase by an additional .25% per annum at the beginning of each subsequent 90-day period; or (iii) if (A) the Issuer has not exchanged Exchange Securities for all Securities validly tendered in accordance with the terms of the Exchange Offer on or prior to the 45th day after the date on which the Exchange Offer Registration Statement relating thereto was declared effective or (B) if applicable, a Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period (other than such time as all Securities have been disposed of thereunder), then Additional Interest or Additional Dividends, as applicable, shall accrue on the principal amount of the Notes or accumulate on the then effective liquidation preference of the Preferred Stock, as applicable, at a rate of 0.25% per annum for the first 90 days commencing on the (x) 46th day after such effective date, in the case of (A) above, or (y) the day such Shelf Registration ceases to be effective in the case of (B) above, and the rate of such Additional Interest or Additional Dividends, as applicable, shall increase by an additional .25% per annum at the beginning of each such subsequent 90-day period (it being understood and agreed that, notwithstanding any provision to the contrary, so long as any Security that is the subject of a Shelf Notice is then covered by an effective Shelf Registration, no Additional Interest or Additional Dividends shall accrue or accumulate on such Securities, as applicable); provided, however, that the rate of Additional Interest that shall accrue on the Notes or Additional Dividends that shall accumulate on the then effective liquidation preference of the Preferred Stock, as applicable, may not exceed in the aggregate 1.0% per annum; provided, further, however, that (1) upon the filing of the applicable Exchange Offer Registration Statement or the applicable Shelf Registration as required hereunder (in the case of clause (i) above of this Section 4(a)), (2) upon the effectiveness of the applicable Exchange Offer Registration Statement or the applicable Shelf Registration Statement as required hereunder (in the case of clause (ii) of this Sec- 18 -17- tion 4(a)), or (3) upon the exchange of the applicable Exchange Securities for all Securities tendered (in the case of clause (iii)(A) of this Section 4(a), or upon the effectiveness of the applicable Shelf Registration Statement which had ceased to remain effective (in the case of (iii)(B) of this Section 4(a)), Additional Interest or Additional Dividends, as applicable, on the Securities in respect of which such events relate as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue or accumulate, as the case may be. (b) The Issuer shall notify the Trustee (who shall be acting under and protected by the terms of the Indenture) within three business days after each and every date on which an event occurs in respect of which Additional Interest or Additional Dividends, as applicable, are required to be paid (an "Event Date"). Any amounts of Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 shall be payable in cash semiannually on each March 1 and September 1 (to the holders of record on the February 15 and August 15 immediately preceding such dates), commencing with the first such date occurring after any such Additional Interest commences to accrue. Any Additional Dividends due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 shall be payable on each dividend payment date specified by the Certificate of Designation to the record holders entitled to receive the dividend payment to be made on such date, commencing with the first such date occurring after any such Additional Dividends commence to accumulate. The amount of Additional Interest or Additional Dividends, as applicable, will be determined by multiplying the applicable rate of Additional Interest or Additional Dividends, as applicable, by the principal amount of the Registrable Notes or liquidation preference of the Preferred Stock, as applicable, multiplied by a fraction, the numerator of which is the number of days such rate of Additional Interest or Additional Dividends was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360. 5. Registration Procedures In connection with the filing of any Registration Statement pursuant to Sections 2 or 3 hereof, the Issuer shall effect such registrations to permit the sale of the securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connec- 19 -18- tion with any Registration Statement filed by the Issuer hereunder, the Issuer shall: (a) Prepare and file with the SEC prior to the applicable Filing Date, a Registration Statement or Registration Statements as prescribed by Sections 2 or 3 hereof, and use its reasonable best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, however, that, if (1) such filing is pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes or Exchange Preferred Stock, as the case may be, during the Applicable Period relating thereto, before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Issuer shall furnish to and afford the Holders of the applicable Registrable Securities included in such Registration Statement or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed (in each case at least five days prior to such filing, or such later date as is reasonable under the circumstances). The Issuer shall not file any Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority in aggregate principal amount of the Registrable Notes or aggregate liquidation preference of the Registrable Preferred Stock, as the case may be, included in such Registration Statement, or any such Participating Broker-Dealer, as the case may be, their counsel, or the managing underwriters, if any, shall reasonably object on a timely basis. (b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration Statement or Exchange Offer Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period, as the case may be; cause the related Prospectus to be supplemented by any prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented and with respect to the subsequent resale of any 20 -19- securities being sold by a Participating Broker-Dealer covered by any such Prospectus. The Issuer shall be deemed not to have used its best efforts to keep a Registration Statement effective during the Effectiveness Period or the Applicable Period, as the case may be, relating thereto if the Issuer voluntarily takes any action that would result in selling Holders of the Registrable Securities covered thereby or Participating Broker-Dealers seeking to sell Exchange Securities not being able to sell such Registrable Securities or such Exchange Securities during that period unless such action is required by applicable law or permitted by this Agreement. (c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes or Exchange Preferred Stock, as the case may be, during the Applicable Period relating thereto from whom the Company has received written notice that it will be a Participating Broker-Dealer in the applicable Exchange Offer, notify the selling Holders of Registrable Notes or Registrable Preferred Stock, as the case may be, or each such Participating Broker-Dealer, as the case may be, their counsel and the managing underwriters, if any, promptly (but in any event within 2 business days), and confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, at the sole expense of the Issuer, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Notes or Registrable Preferred Stock, as the case may be, or resales of Exchange Notes or Exchange Preferred Stock, as the case may be, by Participating Broker-Dealers the representations and warranties of the Issuer contained in any agreement (including any underwriting agreement) contemplated by Section 5(l) hereof cease to be true and correct in all material respects, (iv) of the receipt by the Issuer of any notification with respect to 21 -20- the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Notes or Registrable Preferred Stock, as the case may be, or the Exchange Notes or Exchange Preferred Stock, as the case may be, to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or written threat of any proceeding for such purpose, (v) of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (vi) of the Issuer's determination that a post-effective amendment to a Registration Statement would be appropriate. (d) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes or Exchange Preferred Stock, as the case may be, during the Applicable Period, use its reasonable best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Notes or Registrable Preferred Stock, as the case may be, or the Exchange Notes or Exchange Preferred Stock, as the case may be, to be sold by any Participating Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued, to use its reasonable best efforts to obtain the withdrawal of any such order at the earliest possible moment. (e) If a Shelf Registration is filed pursuant to Section 3 and if reasonably requested by the managing underwriter or underwriters (if any), the Holders of a majority in aggregate principal amount of the Registrable Notes being sold in connection with an underwritten offering or the Holders of a 22 -21- majority in aggregate liquidation preference of the Registrable Preferred Stock being sold in connection with an underwritten offering, as applicable, (i) as promptly as practicable incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters (if any), such Holders, or counsel for any of them determine is reasonably necessary to be included therein, (ii) make all required filings of such prospectus supplement or such post-effective amendment as soon as practicable after the Issuer has received notification of the matters to be incorporated in such prospectus supplement or post-effective amendment, and (iii) supplement or make amendments to such Registration Statement. (f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes or Exchange Preferred Stock, as the case may be, during the Applicable Period, furnish to each selling Holder of Registrable Notes or Registrable Preferred Stock, as the case may be, and to each such Participating Broker-Dealer who so requests and to their respective counsel and each managing underwriter, if any, at the sole expense of the Issuer, one conformed copy of the applicable Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules, and, if requested, all documents incorporated or deemed to be incorporated therein by reference and all exhibits. (g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes or Exchange Preferred Stock, as the case may be, during the Applicable Period, deliver to each selling Holder of Registrable Notes or Registrable Preferred Stock, as the case may be, or each such Participating Broker-Dealer, as the case may be, their respective counsel, and the underwriters, if any, at the sole expense of the Issuer, as many copies of the Prospectus or Prospectuses (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the last paragraph of this Section 5, the Issuer hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling 23 -22- Holders of Registrable Notes or Registrable Preferred Stock, as the case may be, or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Notes or Registrable Preferred Stock, as the case may be, covered by, or the sale by Participating Broker-Dealers of the Exchange Notes or Exchange Preferred Stock, as the case may be, pursuant to, such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Notes or Registrable Preferred Stock, as the case may be, or any delivery of a Prospectus contained in the applicable Exchange Offer Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes or Exchange Preferred Stock, as the case may be, during the Applicable Period, use its reasonable best efforts to register or qualify, and to cooperate with the selling Holders of Registrable Notes or Registrable Preferred Stock, as the case may be, or each such Participating Broker-Dealer, as the case may be, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Notes or Registrable Preferred Stock, as the case may be, for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer, or the managing underwriter or underwriters reasonably request in writing; provided, however, that where Exchange Notes or Exchange Preferred Stock, as the case may be, held by Participating Broker-Dealers or Registrable Notes or Registrable Preferred Stock, as the case may be, are offered other than through an underwritten offering, the Issuer agrees to cause their counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 5(h), keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Exchange Notes or Exchange Preferred Stock, as the case may be, held by Participating Broker-Dealers or the Registrable Notes or Registrable Preferred Stock, as the case may be, covered by the applicable Registration Statement; provided, however, that the Issuer shall not be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject it- 24 -23- self to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject. (i) If a Shelf Registration is filed pursuant to Section 3 hereof, cooperate with the selling Holders of Registrable Notes or Registrable Preferred Stock, as the case may be, and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Notes or Registrable Preferred Stock, as the case may be, to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such Registrable Notes or Registrable Preferred Stock, as the case may be, to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or Holders may reasonably request. (j) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in the Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes or Exchange Preferred Stock, as the case may be, during the Applicable Period, upon the occurrence of any event contemplated by paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to Section 5(a) hereof) file with the SEC, at the sole expense of the Issuer, a supplement or post-effective amendment to the applicable Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Notes or Registrable Preferred Stock, as the case may be, being sold thereunder or to the purchasers of the Exchange Notes or Exchange Preferred Stock, as the case may be, to whom such Prospectus will be delivered by a Participating Broker-Dealer, any such Prospectus will not contain 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, in light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, the Issuer shall not be required to amend or supplement a Registration Statement, any related Prospectus or any document incorporated therein by reference, in the event that, and for a period not to exceed an aggregate of 60 days in any calendar year if, (i) an event occurs and is continuing as a result of which a Shelf Registration would, in the Company's good faith judgment, contain an untrue statement of a material fact or omit to state a material fact necessary 25 -24- in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (ii) (a) the Company determines in its good faith judgment that the disclosure of such event at such time would have a material adverse effect on the business, operations or prospects of the Company or (b) the disclosure otherwise relates to a pending material business transaction that has not yet been publicly disclosed. (k) Prior to the effective date of the first Registration Statement relating to each of the Registrable Securities, (A) with respect to the Registrable Notes (i) provide the Trustee with certificates for the Registrable Notes in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Registrable Notes, (B) with respect to the Registrable Preferred Stock (i) provide the Transfer Agent with printed certificates for the Registrable Preferred Stock in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Registrable Preferred Stock and (C) prior to the issuance of the Exchange Debentures, provide a CUSIP number therefor. (l) In connection with any underwritten offering of Registrable Notes or Registrable Preferred Stock, as the case may be, pursuant to a Shelf Registration, enter into an underwriting agreement as is customary in underwritten offerings of securities similar to the Notes or Preferred Stock, as the case may be, in form and substance reasonably satisfactory to the Company and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Notes or Registrable Preferred Stock, as the case may be, and, in such connection, (i) make such representations and warranties to, and covenants with, the underwriters with respect to the business of the Company and the subsidiaries of the Company (including any acquired business, properties or entity, if applicable) and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings of securities similar to each of the Securities, and confirm the same in writing if and when requested in form and substance reasonably satisfactory to the Company; (ii) obtain the written opinions of counsel to the Company and written updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions reasonably requested in underwritten offerings and such other 26 -25- matters as may be reasonably requested by the managing underwriter or underwriters; (iii) use its reasonable best efforts to obtain "cold comfort" letters and updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent public accountants of the Company (and, if necessary, any other independent public accountants of the Company, any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included or incorporated by reference in a Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings of debt securities similar to the Notes and equity securities similar to the Preferred Stock and such other matters as reasonably requested by the managing underwriter or underwriters as permitted by the Statement on Auditing Standards No. 72; and (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the sellers and underwriters, if any, than those set forth in Section 7 hereof (or such other provisions and procedures acceptable to Holders of a majority in aggregate principal amount or liquidation preference, as applicable, of each of the Registrable Notes and Registrable Preferred Stock, as applicable, covered by such Registration Statement and the managing underwriter or underwriters or agents, if any). The above shall be done at each closing under such underwriting agreement, or as and to the extent required thereunder. (m) If (1) a Shelf Registration is filed pursuant to Section 3 hereof, or (2) a Prospectus contained in an Exchange Offer Registration Statement filed pursuant to Section 2 hereof is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes or Exchange Preferred Stock, as the case may be, during the Applicable Period, make available for inspection by any selling Holder of such Registrable Notes or Registrable Preferred Stock, as the case may be, being sold, or each such Participating Broker-Dealer, as the case may be, any underwriter participating in any such disposition of Registrable Notes or Registrable Preferred Stock, as the case may be, if any, and any attorney, accountant or other agent retained by any such selling Holder or each such Participating Broker-Dealer, as the case may be, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and instruments of the Company and subsidiaries of the Company 27 -26- (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Company and any of its subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement and Prospectus. Each Inspector shall agree in writing that it will keep the Records confidential and that it will not disclose any of the Records that the Company determines, in good faith, to be confidential and notifies the Inspectors in writing are confidential unless (i) the disclosure of such Records is necessary to avoid or correct a material misstatement or material omission in such Registration Statement or Prospectus, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, or (iii) the information in such Records has been made generally available to the public; provided, however, that prior notice shall be provided as soon as practicable to the Company of the potential disclosure of any information by such Inspector pursuant to clauses (i) or (ii) of this sentence to permit the Company to obtain a protective order (or waive the provisions of this paragraph (m)) and that such Inspector shall take such actions as are reasonably necessary to protect the confidentiality of such information (if practicable) to the extent such action is otherwise not inconsistent with, an impairment of or in derogation of the rights and interests of the Holder or any Inspector. (n) Provide an indenture trustee for the Registrable Notes or the Exchange Notes, as the case may be, and cause the Indenture or the trust indenture provided for in Section 2(a) hereof, as the case may be, to be qualified under the TIA not later than the effective date of the first Registration Statement relating to the Registrable Notes; and in connection therewith, cooperate with the trustee under any such indenture and the Holders of the Registrable Notes, to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its reasonable best efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. (o) Provide an indenture trustee for the Debentures and cause the Exchange Indenture to be qualified under the TIA not later than the earlier of (i) the effective date of the first Registration Statement relating to the Registrable Preferred Stock and (ii) the effective date of the first Registra- 28 -27- tion Statement relating to the Debentures; and in connection therewith, cooperate with the trustee under any such indenture and the holders of the Preferred Stock and/or the Exchange Preferred Stock and Private Exchange Preferred Stock, to effect such changes to the Exchange Indenture, if any, as may be required for the Exchange Indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its reasonable efforts to cause such trustee to execute, all customary documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable the Exchange Indenture to be so qualified in a timely manner. (p) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders with regard to any applicable Registration Statement, a consolidated earnings statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any twelve-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which any Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (q) Upon consummation of an Exchange Offer or a Private Exchange, obtain an opinion of counsel to the Company, in a form customary for underwritten transactions, addressed to the Trustee for the benefit of all Holders of Registrable Notes, and addressed to the Transfer Agent for the benefit of each Holder of Registrable Preferred Stock, participating in the Exchange Offer or the Private Exchange, as the case may be, that the Exchange Notes or Exchange Preferred Stock, as the case may be, or Private Exchange Notes or Private Exchange Preferred Stock, as the case may be, and the related indenture, for purposes of the Registrable Notes, constitute legal, valid and binding obligations of the Issuer, enforceable against the Issuer in accordance with their respective terms subject to customary exceptions and qualifications. (r) If the Exchange Offer or a Private Exchange is to be consummated, upon delivery of the Registrable Notes or Registrable Preferred Stock, as the case may be, by Holders to the Company (or to such other Person as directed by the Issuer) 29 -28- in exchange for the Exchange Notes or Exchange Preferred Stock, as the case may be, or the Private Exchange Notes or Private Exchange Preferred Stock, as the case may be, the Company shall mark, or cause to be marked, on such Registrable Notes or Registrable Preferred Stock, as the case may be, that such Registrable Notes or Registrable Preferred Stock, as the case may be, are being canceled in exchange for the Exchange Notes or Exchange Preferred Stock, as the case may be, or the Private Exchange Notes or Private Exchange Preferred Stock, as the case may be; provided that in no event shall such Registrable Notes or Registrable Preferred Stock, as the case may be, be marked as paid or otherwise satisfied. (s) Cooperate with each seller of Registrable Notes or Registrable Preferred Stock, as the case may be, covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Notes or Registrable Preferred Stock, as the case may be, and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"). (t) Use its best efforts to take all other steps reasonably necessary to effect the registration of the applicable Registrable Securities covered by a Registration Statement contemplated hereby. The Company may require each seller of any Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such seller and the distribution of such Registrable Notes or Registrable Preferred Stock, as the case may be, as the Company may, from time to time, reasonably request. The Company may exclude from such registration the Registrable Notes or Registrable Preferred Stock, as the case may be, of any seller for so long as such seller fails to furnish such information within a reasonable time after receiving such request and in such event shall have no further obligation under this Agreement (including without limitation the obligation under Section 4) with respect to such seller or any subsequent holder of such Registrable Securities. Each seller as to which any Shelf Registration is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such seller not materially misleading. If any such Registration Statement refers to any Holder by name or otherwise as the holder of any securities of 30 -29- the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force, the deletion of the reference to such Holder in any amendment or supplement to the applicable Registration Statement filed or prepared subsequent to the time that such reference ceases to be required. Each Holder of Registrable Notes or Registrable Preferred Stock, as the case may be, and each Participating Broker-Dealer agrees by its acquisition of such Registrable Notes or Registrable Preferred Stock, as the case may be, or Exchange Notes or Exchange Preferred Stock, as the case may be, to be sold by such Participating Broker-Dealer, as the case may be, that, upon actual receipt of any notice from the Company of the happening of any event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such Holder or Participating Broker-Dealer, as the case may be, will forthwith discontinue disposition of such Registrable Notes, Registrable Preferred Stock, Exchange Notes or Exchange Preferred Stock, as the case may be, covered by such Registration Statement or Prospectus until such Holder's or Participating Broker-Dealer's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(j) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. In the event that the Company shall give any such notice, the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each seller of Registrable Notes or Registrable Preferred Stock, as the case may be, covered by such Registration Statement or Exchange Notes or Exchange Preferred Stock, as the case may be, to be sold by such Participating Broker-Dealer, as the case may be, shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 5(j) hereof or (y) the Advice. 31 -30- 6. Registration Expenses All fees and expenses incident to the performance of or compliance with this Agreement by the Issuer (other than any underwriting discounts or commissions) shall be borne by the Company whether or not the Exchange Offer Registration Statements or any Shelf Registration is filed or becomes effective or the Exchange Offer is consummated, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) reasonable fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Securities or Exchange Securities and determination of the eligibility of the Registrable Securities or Exchange Securities for investment under the laws of such jurisdictions (x) where the holders of Registrable Notes, Registrable Preferred Stock, Exchange Notes or Exchange Preferred Stock, as the case may be, are located, or (y) as provided in Section 5(h) hereof, in the case of Registrable Notes or Registrable Preferred Stock, as the case may be, or Exchange Notes or Exchange Preferred Stock, as the case may be, to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Securities or Exchange Securities in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, by the Holders of a majority in aggregate principal amount of the Registrable Notes, or liquidation preference of the Registrable Preferred Stock, as the case may be, included in any Registration Statement or to be sold by any Participating Broker-Dealer, as the case may be, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and reasonable fees and disbursements of one special counsel for all of the sellers of each of the Registrable Notes or Registrable Preferred Stock, as the case may be, (exclusive of any counsel retained pursuant to Section 7 hereof), (v) reasonable fees and disbursements of all independent certified public accountants referred to in Section 5(l)(iii) hereof (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) Securities Act liability insurance, if the Company desires such insurance, (vii) fees and expenses of all other Persons retained by the Issuer, (viii) internal expenses of the Company (including, without limitation, all salaries and expenses of 32 -31- officers and employees of the Company performing legal or accounting duties), (ix) the expense of any annual audit, (x) any fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, and the obtaining of a rating of the securities, in each case, if applicable, and (xi) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, indentures and any other documents necessary in order to comply with this Agreement. 7. Indemnification and Contribution (a) The Issuer agrees to indemnify and hold harmless each Holder of the Registrable Notes and Registrable Preferred Stock, as the case may be, and each Participating Broker-Dealer selling the Exchange Notes and Exchange Preferred Stock, as the case may be, during the Applicable Period, the affiliates, officers and directors of each such Person, and each Person, if any, who controls any such Person within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (each, a "Participant"), from and against any and all losses, claims, damages, judgments, liabilities and expenses (including, without limitation, the reasonable legal fees and other expenses actually incurred in connection with any suit, action or proceeding or any claim asserted) caused by, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by, arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the case of the Prospectus in light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Participant furnished to the Company in writing by such Participant expressly for use therein and with respect to any preliminary Prospectus, to the extent that any such loss, claim, damage or liability arises solely from the fact that any Participant sold Registrable Notes, Registrable Preferred Stock, Exchange Notes or Exchange Preferred Stock to a person to whom there was not sent or given a copy of the Prospectus (as amended or supplemented) at or prior to the written confirmation of such sale if the Company shall have previously furnished copies thereof to the Participant in accordance herewith 33 -32- and the Prospectus (as amended or supplemented) would have corrected any such untrue statement or omission. (b) Each Participant agrees, severally and not jointly, to indemnify and hold harmless the Issuer, the affiliates, officers and directors of the Issuer and each Person who controls the Issuer within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent (but on a several, and not joint, basis) as the foregoing indemnity from the Issuer to each Participant, but only with reference to information relating to such Participant furnished to the Company in writing by or on behalf of such Participant expressly for use in any Registration Statement or Prospectus, any amendment or supplement thereto, or any preliminary prospectus. The liability of any Participant under this paragraph shall in no event exceed the proceeds received by such Participant from sales of Registrable Securities or Exchange Securities giving rise to such obligations. (c) If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "Indemnified Person") shall promptly notify the Persons against whom such indemnity may be sought (the "Indemnifying Persons") in writing, and the Indemnifying Persons, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Persons may reasonably designate in such proceeding and shall pay the fees and expenses actually incurred by such counsel related to such proceeding; provided, however, that the failure to so notify the Indemnifying Persons will not relieve it from any liability under paragraph (a) or (b) above unless and to the extent such failure results in the forfeiture by the Indemnifying Person of substantial rights and defenses and the Indemnifying Person was not otherwise aware of such action or claim. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Persons and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Persons shall have failed within a reasonable period of time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both any Indemnifying Person and the Indemnified Person or any affiliate thereof and representation of both parties by the 34 -33- same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that the Indemnifying Persons shall not, in connection with such proceeding or separate but substantially similar related proceedings in the same jurisdiction arising out of the same general allegations, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed promptly as they are incurred. Any such separate firm for the Participants and such control Persons of Participants shall be designated in writing by Participants who sold a majority in interest of Registrable Notes or Registrable Preferred Stock, as the case may be, and Exchange Notes or Exchange Preferred Stock, as the case may be, sold by all such Participants and shall be reasonably acceptable to the Company, and any such separate firm for the Issuer, their affiliates, officers, directors, representatives, employees and agents and such control Persons of such Issuer shall be designated in writing by such Issuer and shall be reasonably acceptable to the Holders. The Indemnifying Persons shall not be liable for any settlement of any proceeding effected without its prior written consent (which consent shall not be unreasonably withheld or delayed), but if settled with such consent or if there be a final non-appealable judgment for the plaintiff for which the Indemnified Person is entitled to indemnification pursuant to this Agreement, each of the Indemnifying Persons agrees to indemnify and hold harmless each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior written consent of the Indemnified Persons (which consent shall not be unreasonably withheld or delayed), effect any settlement or compromise of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party, or indemnity could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional written release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to an admission of fault, culpability or failure to act by or on behalf of such Indemnified Person. (d) If the indemnification provided for in the first and second paragraphs of this Section 7 is for any reason unavailable to, or insufficient to hold harmless, an Indemnified Person in respect of any losses, claims, damages or liabilities 35 -34- referred to therein, then each Indemnifying Person under such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect (i) the relative benefits received by the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other from the offering of the applicable Securities or (ii) if the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the Indemnifying Person or Persons on the one hand and the Indemnified Person or Persons on the other in connection with the statements or omissions or alleged statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Issuer on the one hand or such Participant or such other Indemnified Person, as the case may be, on the other, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, and any other equitable considerations appropriate in the circumstances. (e) The parties agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Participants were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages, judgments, liabilities and expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any reasonable legal or other expenses actually incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall a Participant be required to contribute any amount in excess of the amount by which proceeds received by such Participant from sales of Registrable Securities or Exchange Securities, as the case may be, exceeds the amount of any damages that such Participant has otherwise been required to pay or has paid by reason of such untrue or alleged untrue statement or omission or alleged omis- 36 -35- sion. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. (f) The indemnity and contribution agreements contained in this Section 7 will be in addition to any liability which the Indemnifying Persons may otherwise have to the Indemnified Persons referred to above. 8. Rules 144 and 144A The Issuer covenants and agrees that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, if at any time such Issuer is not required to file such reports, such Issuer will, upon the request of any Holder or beneficial owner of Registrable Notes or Registrable Preferred Stock, as the case may be, make available such information necessary to permit sales pursuant to Rule 144A under the Securities Act. The Issuer further covenants and agrees, for so long as any Registrable Securities remain outstanding that it will take such further action as any Holder of Registrable Notes or Registrable Preferred Stock, as the case may be, may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Notes or Registrable Preferred Stock, as the case may be, without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. 9. Underwritten Registrations If any of the Registrable Notes or Registrable Preferred Stock, as the case may be, covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Registrable Notes, or liquidation preference of such Registrable Preferred Stock, as the case may be, included in such offering and shall be reasonably acceptable to the Issuer. No Holder of Registrable Notes or Registrable Preferred Stock, as the case may be, may participate in any under- 37 -36- written registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Notes or Registrable Preferred Stock, as the case may be, on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. 10. Miscellaneous (a) No Inconsistent Agreements. The Issuer has not, as of the date hereof, and the Issuer shall not, after the date of this Agreement, enter into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Registrable Notes, Registrable Preferred Stock or the Debentures in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Issuer's other issued and outstanding securities under any such agreements. The Issuer will not enter into any agreement with respect to any of their securities which will grant to any Person piggy-back registration rights with respect to any Registration Statement. (b) Adjustments Affecting Registrable Securities. The Issuer shall not, directly or indirectly, take any action with respect to the Registrable Notes or Registrable Preferred Stock, as the case may be, that would adversely affect the ability of the Holders of Registrable Notes or Registrable Preferred Stock, as the case may be, to include such Registrable Notes or Registrable Preferred Stock, as the case may be, in a registration undertaken pursuant to this Agreement. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of (I) the Company and (II)(A) the Holders of not less than a majority in aggregate principal amount or liquidation preference, as the case may be, of the then outstanding Registrable Notes or Registrable Preferred Stock, as the case may be, and (B) in circumstances that would adversely affect the Participating Broker-Dealers, the Participating Broker-Dealers holding not less than a majority in aggregate principal amount or liquidation preference, as the case may be, of the Exchange Notes or Exchange Preferred Stock, as the case may be, held by all 38 -37- Participating Broker-Dealers; provided, however, that Section 7 and this Section 10(c) may not be amended, modified or supplemented without the prior written consent of each Holder and each Participating Broker-Dealer (including any person who was a Holder or Participating Broker-Dealer of Registrable Securities or Exchange Securities, as the case may be, disposed of pursuant to any Registration Statement) affected by any such amendment, modification or supplement. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Notes or Registrable Preferred Stock, as the case may be, whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Notes or Registrable Preferred Stock, as the case may be, may be given by Holders of at least a majority in aggregate principal amount or liquidation preference, as the case may be, of the Registrable Notes or Registrable Preferred Stock, as the case may be, being sold pursuant to such Registration Statement. (d) Notices. All notices and other communications (including, without limitation, any notices or other communications to the Trustee, Debenture Trustee or Transfer Agent) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or facsimile: (i) if to a Holder of Registrable Notes, Registrable Preferred Stock or Debentures or any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer, as the case may be, set forth on the records of the registrar under the Indenture, the Exchange Indenture or of the Company, as appropriate. (ii) if to the Issuer, at the address as follows: MCMS, Inc. 16399 Franklin Road Nampa, ID 83687 Facsimile No.: (208) 898-2796 Attention: Corporate Counsel All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; one business day after being 39 -38- timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if sent by facsimile. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same (i) to the Trustee at the address and in the manner specified in the Indenture if such communication relates to the Notes, Exchange Notes or Private Exchange Notes, (ii) to the Transfer Agent at the address and in the manner specified in the Certificate of Designation if such communication relates to the Preferred Stock, Exchange Preferred Stock or Private Exchange Preferred Stock or (iii) to the Debenture Trustee at the address and in the manner specified in the Exchange Indenture if such communication relates to the Debentures. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, the Holders and the Participating Broker-Dealers; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor of assign of a Holder or a Participating Broker-Dealer unless and to the extent such successor or assign holds Registable Securities. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and ef- 40 -39- fect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) Securities Held by the Company or Its Affiliates. Whenever the consent or approval of Holders of a specified percentage of Registrable Notes or Registrable Preferred Stock, as the case may be, is required hereunder, Registrable Notes or Registrable Preferred Stock, as the case may be, held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (k) Third-Party Beneficiaries. Holders of Registrable Notes, Holders of the Registrable Preferred Stock, Holders of the Debentures (to the extent Preferred Stock has been exchanged for Debentures prior to the filing of a Registration Statement) and Participating Broker-Dealers are intended third-party beneficiaries of this Agreement, and this Agreement may be enforced by such Persons. (l) Entire Agreement. This Agreement, together with the Purchase Agreement, the Certificate of Designation, the Indenture and the Exchange Indenture are intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Holders on the one hand and the Issuer on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. 41 -40- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. MCMS, INC. By: /s/ Chris J. Anton ------------------------------------ Name: Chris J. Anton Title: Vice President, Finance & CEO The foregoing Agreement is hereby confirmed and accepted as of the date first above written. BT ALEX. BROWN INCORPORATED as Initial Purchaser By: /s/ MK Lynch ---------------------- Name: MK Lynch Title: VP EX-10.4 13 CREDIT AGREEMENT 1 Exhibit 10.4 [Conformed Copy with Exhibits F and G conformed as executed] - -------------------------------------------------------------------------------- CREDIT AGREEMENT among MCMS, INC. VARIOUS LENDING INSTITUTIONS, and BANKERS TRUST COMPANY, AS AGENT -------------------------------- Dated as of February 26, 1998 -------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS Page ---- SECTION 1. Amount and Terms of Credit ........................... 1 1.01 Commitments .......................................... 1 1.02 Minimum Borrowing Amounts, etc ....................... 3 1.03 Notice of Borrowing .................................. 3 1.04 Disbursement of Funds ................................ 4 1.05 Notes ................................................ 5 1.06 Conversions .......................................... 5 1.07 Pro Rata Borrowings .................................. 6 1.08 Interest ............................................. 6 1.09 Interest Periods ..................................... 7 1.10 Increased Costs, Illegality, etc ..................... 8 1.11 Compensation ......................................... 10 1.12 Change of Lending Office ............................. 11 1.13 Replacement of Banks ................................. 11 SECTION 2. Letters of Credit .................................... 12 2.01 Letters of Credit .................................... 12 2.02 Letter of Credit Requests; Notices of Issuance ....... 14 2.03 Agreement to Repay Letter of Credit Payments ......... 14 2.04 Letter of Credit Participations ...................... 15 2.05 Increased Costs ...................................... 17 SECTION 3. Fees; Commitments .................................... 18 3.01 Fees ................................................. 18 3.02 Voluntary Termination or Reduction of Total Unutilized Revolving Loan Commitment ............................ 19 3.03 Mandatory Reduction of Revolving Loan Commitments .... 20 SECTION 4. Payments ............................................. 22 4.01 Voluntary Prepayments ................................ 22 4.02 Mandatory Prepayments ................................ 23 4.03 Method and Place of Payment .......................... 23 4.04 Net Payments ......................................... 24 SECTION 5. Conditions Precedent ................................. 26 5.01 Execution of Agreement; Notes ........................ 26 5.02 No Default; Representations and Warranties ........... 26 3 Page ---- 5.03 Officer's Certificate ................................ 26 5.04 Opinions of Counsel .................................. 26 5.05 Corporate Proceedings ................................ 27 5.06 Adverse Change, etc .................................. 27 5.07 Litigation ........................................... 27 5.08 Approvals ............................................ 28 5.09 Consummation of the Transaction ...................... 28 5.10 Security Documents ................................... 30 5.11 Subsidiary Guaranty .................................. 32 5.12 Existing Indebtedness, etc ........................... 32 5.13 Plans; Collective Bargaining Agreements; Existing Indebtedness Agreements; Shareholders' Agreements; Management Agreements; Employment Agreements; Tax Allocation Agreements; Material Contracts ............ 32 5.14 Solvency Opinion; Environmental Analyses; Evidence of Insurance; Financial Statements ...................... 34 5.15 Pro Forma Balance Sheet .............................. 34 5.16 Projections .......................................... 35 5.17 Payment of Fees ...................................... 35 5.18 Notice of Borrowing; Letter of Credit Request ........ 35 SECTION 6. Representations, Warranties and Agreements ........... 35 6.01 Corporate Status ..................................... 35 6.02 Corporate Power and Authority ........................ 36 6.03 No Violation ......................................... 36 6.04 Litigation ........................................... 36 6.05 Use of Proceeds; Margin Regulations .................. 36 6.06 Governmental Approvals ............................... 37 6.07 Investment Company Act ............................... 37 6.08 Public Utility Holding Company Act ................... 37 6.09 True and Complete Disclosure ......................... 37 6.10 Financial Condition; Financial Statements ............ 38 6.11 Security Interests ................................... 39 6.12 Transaction .......................................... 39 6.13 Compliance with ERISA ................................ 39 6.14 Capitalization ....................................... 41 6.15 Subsidiaries ......................................... 42 6.16 Intellectual Property ................................ 42 6.17 Compliance with Statutes, etc ........................ 42 6.18 Environmental Matters ................................ 42 6.19 Properties ........................................... 43 6.20 Labor Relations ...................................... 43 6.21 Tax Returns and Payments.............................. 44 (ii) 4 Page ---- 6.22 Existing Indebtedness ................................ 44 6.23 Representations and Warranties in Other Documents..... 44 6.24 Subordination ........................................ 44 SECTION 7. Affirmative Covenants ................................ 45 7.01 Information Covenants ................................ 45 7.02 Books, Records and Inspections ....................... 48 7.03 Insurance ............................................ 48 7.04 Payment of Taxes ..................................... 49 7.05 Corporate Franchises ................................. 49 7.06 Compliance with Statutes, etc ........................ 49 7.07 Compliance with Environmental Laws ................... 49 7.08 ERISA ................................................ 50 7.09 Good Repair .......................................... 51 7.10 End of Fiscal Years; Fiscal Quarters ................. 51 7.11 Additional Security; Further Assurances .............. 51 7.12 Register ............................................. 52 7.13 Foreign Subsidiaries Security ........................ 53 SECTION 8. Negative Covenants ................................... 54 8.01 Changes in Business .................................. 54 8.02 Consolidation, Merger, Sale or Purchase of Assets, etc .......................................... 54 8.03 Liens ................................................ 59 8.04 Indebtedness ......................................... 61 8.05 Advances, Investments and Loans ...................... 63 8.06 Dividends, etc ....................................... 65 8.07 Transactions with Affiliates ......................... 67 8.08 Capital Expenditures ................................. 67 8.09 Minimum Consolidated EBITDA .......................... 69 8.10 Interest Coverage Ratio .............................. 69 8.11 Leverage Ratio ....................................... 70 8.12 Limitation on Voluntary Payments and Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; Issuance of Capital Stock; etc ........................................... 72 8.13 Limitation on Certain Restrictions on Subsidiaries.... 73 8.14 Limitation on the Creation of Subsidiaries ........... 74 8.15 Designated Senior Debt ............................... 74 SECTION 9. Events of Default .................................... 74 9.01 Payments ............................................. 74 (iii) 5 Page ---- 9.02 Representations, etc ................................. 75 9.03 Covenants ............................................ 75 9.04 Default Under Other Agreements ....................... 75 9.05 Bankruptcy, etc ...................................... 75 9.06 ERISA ................................................ 76 9.07 Security Documents ................................... 76 9.08 Subsidiary Guaranty .................................. 77 9.09 Judgments ............................................ 77 9.10 Ownership ............................................ 77 SECTION 10. Definitions .......................................... 78 SECTION 11. The Agent ............................................ 102 11.01 Appointment .......................................... 102 11.02 Delegation of Duties ................................. 102 11.03 Exculpatory Provisions ............................... 102 11.04 Reliance by Agent .................................... 103 11.05 Notice of Default .................................... 103 11.06 Non-reliance on Agent and Other Banks ................ 104 11.07 Indemnification ...................................... 104 11.08 Agent in its Individual Capacity ..................... 105 11.09 Holders .............................................. 105 11.10 Resignation of the Agent; Successor Agent ............ 105 SECTION 12. Miscellaneous ........................................ 106 12.01 Payment of Expenses, etc ............................. 106 12.02 Right of Setoff; Collateral Matters .................. 107 12.03 Notices .............................................. 107 12.04 Benefit of Agreement ................................. 107 12.05 No Waiver; Remedies Cumulative ....................... 109 12.06 Payments Pro Rata .................................... 109 12.07 Calculations; Computations ........................... 110 12.08 Governing Law; Submission to Jurisdiction; Venue ..... 110 12.09 Counterparts ......................................... 111 12.10 Effectiveness ........................................ 111 12.11 Headings Descriptive ................................. 112 12.12 Amendment or Waiver; etc ............................. 112 12.13 Survival ............................................. 113 12.14 Domicile of Loans .................................... 113 12.15 Confidentiality ...................................... 113 12.16 Waiver of Jury Trial ................................. 114 (iv) 6 Page ---- ANNEX I List of Banks and Commitments ANNEX II Bank Addresses ANNEX III Real Properties ANNEX IV Projections ANNEX V Subsidiaries ANNEX VI Existing Indebtedness ANNEX VII Insurance ANNEX VIII Existing Liens ANNEX IX Existing Investments ANNEX X Plans ANNEX XI Approvals ANNEX XII Capitalization EXHIBIT A-1 -- Form of Notice of Borrowing EXHIBIT A-2 -- Form of Letter of Credit Request EXHIBIT B-1 -- Form of Revolving Note EXHIBIT B-2 -- Form of Swingline Note EXHIBIT C -- Form of Section 4.04(b)(ii) Certificate EXHIBIT D -- Form of Opinion of Kirkland & Ellis EXHIBIT E -- Form of Officers' Certificate EXHIBIT F -- Form of Pledge Agreement EXHIBIT G -- Form of Security Agreement EXHIBIT H -- Form of Subsidiary Guaranty EXHIBIT I -- Form of Subordination Provisions EXHIBIT J -- Form of Assignment and Assumption Agreement EXHIBIT K -- Form of Intercompany Note EXHIBIT L -- Form of Shareholder Subordinated Note (v) 7 CREDIT AGREEMENT, dated as of February 26, 1998, among MCMS, INC., an Idaho corporation (the "Borrower"), the lenders from time to time party hereto (each, a "Bank" and, collectively, the "Banks"), and BANKERS TRUST COMPANY, as Agent (in such capacity, the "Agent"). Unless otherwise defined herein, all capitalized terms used herein and defined in Section 10 are used herein as so defined. W I T N E S S E T H : WHEREAS, subject to and upon the terms and conditions herein set forth, the Banks are willing to make available the credit facilities provided for herein; NOW, THEREFORE, IT IS AGREED: SECTION 1. Amount and Terms of Credit. 1.01 Commitments. (a) Subject to and upon the terms and conditions herein set forth, each Bank severally agrees, at any time and from time to time after the Effective Date and prior to the Final Maturity Date, to make a revolving loan or loans (each, a "Revolving Loan" and, collectively, the "Revolving Loans") to the Borrower, which Revolving Loans (i) shall be denominated in U.S. Dollars, (ii) except as hereinafter provided, may, at the option of the Borrower, be incurred and maintained as and/or converted into Base Rate Loans or Eurodollar Loans, provided, that (x) all Revolving Loans made as part of the same Borrowing shall, unless otherwise specifically provided herein, consist of Revolving Loans of the same Type and (y) unless the Agent has determined that the Syndication Date has occurred (at which time this clause (y) shall no longer be applicable), no Revolving Loans to be maintained as Eurodollar Loans may be incurred prior to the 45th day after the Effective Date, (iii) may be repaid and reborrowed in accordance with the provisions hereof and (iv) shall not exceed for any Bank at any time outstanding that aggregate principal amount which, when combined with (I) the aggregate principal amount of all other then outstanding Revolving Loans made by such Bank and (II) such Bank's Percentage of the Swingline Loans then outstanding and the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, Revolving Loans or Swingline Loans) at such time, equals the Revolving Loan Commitment, if any, of such Bank at such time. (b) Subject to and upon the terms and conditions herein set forth, BTCo in its individual capacity agrees to make at any time and from time to time after the 8 Effective Date and prior to the Swingline Expiry Date, a revolving loan or loans to the Borrower (each, a "Swingline Loan" and, collectively, the "Swingline Loans"), which Swingline Loans (i) shall be made and maintained as Base Rate Loans, (ii) shall be denominated in U.S. Dollars, (iii) may be repaid and reborrowed in accordance with the provisions hereof, (iv) shall not exceed in aggregate principal amount at any time outstanding, when combined with the aggregate principal amount of all Revolving Loans then outstanding and the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the proceeds of, and simultaneously with the incurrence of, Revolving Loans or Swingline Loans) at such time, an amount equal to the Total Revolving Loan Commitment then in effect and (v) shall not exceed in aggregate principal amount at any time outstanding the Maximum Swingline Amount. BTCo shall not be obligated to make any Swingline Loans at a time when a Bank Default exists unless BTCo has entered into arrangements satisfactory to it and the Borrower to eliminate BTCo's risk with respect to the Defaulting Bank's or Banks' participation in such Swingline Loans, including by cash collateralizing such Defaulting Bank's or Banks' Percentage of the outstanding Swingline Loans. BTCo will not make a Swingline Loan after it has received written notice from the Borrower or the Required Banks stating that a Default or an Event of Default exists until such time as BTCo shall have received a written notice of (i) rescission of such notice from the party or parties originally delivering the same or (ii) a waiver of such Default or Event of Default from the Required Banks. (c) On any Business Day, BTCo may, in its sole discretion, give notice to the Banks that its outstanding Swingline Loans shall be funded with a Borrowing of Revolving Loans (provided that each such notice shall be deemed to have been automatically given upon the occurrence of a Default or an Event of Default under Section 9.05 or upon the exercise of any of the remedies provided in the last paragraph of Section 9), in which case a Borrowing of Revolving Loans constituting Base Rate Loans (each such Borrowing, a "Mandatory Borrowing") shall be made on the immediately succeeding Business Day by all Banks pro rata based on each Bank's Percentage, and the proceeds thereof shall be applied directly to repay BTCo for such outstanding Swingline Loans. Each Bank hereby irrevocably agrees to make Base Rate Loans upon one Business Day's notice pursuant to each Mandatory Borrowing in the amount and in the manner specified in the preceding sentence and on the date specified in writing by BTCo notwithstanding (i) that the amount of the Mandatory Borrowing may not comply with the Minimum Borrowing Amount otherwise required hereunder, (ii) whether any conditions specified in Section 5 are then satisfied, (iii) whether a Default or an Event of Default has occurred and is continuing, (iv) the date of such Mandatory Borrowing and (v) any reduction in the Total Revolving Loan Commitment after any such Swingline Loans were made. In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code in respect of the Borrower), each Bank (other than BTCo) hereby agrees that it shall forthwith purchase from BTCo (without recourse or warranty) such assignment of the out- -2- 9 standing Swingline Loans as shall be necessary to cause the Banks to share in such Swingline Loans ratably based upon their respective Percentages, provided that all interest payable on the Swingline Loans shall be for the account of BTCo until the date the respective assignment is purchased and, to the extent attributable to the purchased assignment, shall be payable to the Bank purchasing same from and after such date of purchase. 1.02 Minimum Borrowing Amounts, etc. The aggregate principal amount of each Borrowing shall not be less than the applicable Minimum Borrowing Amount. More than one Borrowing may be incurred on any day, provided, that at no time shall there be outstanding more than eight Borrowings of Eurodollar Loans. 1.03 Notice of Borrowing. (a) Whenever the Borrower desires to incur Revolving Loans hereunder (excluding Borrowings of Revolving Loans incurred pursuant to a Mandatory Borrowing), it shall give the Agent at its Notice Office, prior to 1:00 P.M. (New York time), at least three Business Days' prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing of Eurodollar Loans and at least one Bus iness Day's prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing of Base Rate Loans to be made hereunder. Each such notice (each, a "Notice of Borrowing") shall, except as provided in Section 1.10, be irrevocable, and, in the case of each written notice and each confirmation of telephonic notice, shall be in the form of Exhibit A-1, appropriately completed to specify (i) the aggregate principal amount of the Revolving Loans to be made pursuant to such Borrowing, (ii) the date of such Borrowing (which shall be a Business Day) and (iii) whether the respective Borrowing shall consist of Base Rate Loans or, to the extent permitted hereunder, Eurodollar Loans and, if Eurodollar Loans, the Interest Period to be initially applicable thereto. The Agent shall promptly give each Bank written notice (or telephonic notice promptly confirmed in writing) of each proposed Borrowing, of such Bank's proportionate share thereof and of the other matters covered by the Notice of Borrowing. (b) (i) Whenever the Borrower desires to incur Swingline Loans here under, it shall give BTCo not later than 2:00 P.M. (New York time) on the day such Swingline Loan is to be made, written notice (or telephonic notice promptly confirmed in writing) of each Swingline Loan to be made hereunder. Each such notice shall be irrevocable and shall specify in each case (x) the date of such Borrowing (which shall be a Business Day) and (y) the aggregate principal amount of the Swingline Loan to be made pursuant to such Borrowing. (ii) Mandatory Borrowings shall be made upon the notice specified in Section 1.01(c), with the Borrower irrevocably agreeing, by its incurrence of any Swingline Loan, to the making of Mandatory Borrowings as set forth in such Section 1.01(c). -3- 10 (c) Without in any way limiting the obligation of the Borrower to confirm in writing any telephonic notice permitted to be given hereunder, the Agent or BTCo (in the case of a Borrowing of Swingline Loans) or the Letter of Credit Issuer (in the case of Letters of Credit), as the case may be, may prior to receipt of written confirmation act without liability upon the basis of such telephonic notice, believed by the Agent, BTCo or the Letter of Credit Issuer, as the case may be, in good faith to be from an Authorized Officer of the Borrower. In each such case, the Borrower hereby waives the right to dispute the Agent's, BTCo's or the Letter of Credit Issuer's record of the terms of such telephonic notice. 1.04 Disbursement of Funds. (a) No later than 1:00 P.M. (New York time) on the date specified in each Notice of Borrowing (or (x) in the case of Swingline Loans, no later than 4:00 P.M. (New York time) on the date specified in Section 1.03(b)(i) or (y) in the case of Mandatory Borrowings, no later than 1:00 P.M. (New York time) on the date specified in Section 1.01(c)), each Bank will make available its pro rata share, if any, of each Borrowing requested to be made on such date (or in the case of Swingline Loans, BTCo shall make available the full amount thereof) in the manner provided below. All amounts shall be made available to the Agent in U.S. Dollars and immediately available funds at the Payment Office and the Agent promptly will make available to the Borrower by depositing to its account at the Payment Office the aggregate of the amounts so made available in the type of funds received. Unless the Agent shall have been notified by any Bank prior to the date of Borrowing that such Bank does not intend to make available to the Agent its portion of the Borrowing or Borrowings to be made on such date, the Agent may assume that such Bank has made such amount available to the Agent on such date of Borrowing, and the Agent, in reliance upon such assumption, may (in its sole discretion and without any obligation to do so) make available to the Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Agent by such Bank and the Agent has made available same to the Borrower, the Agent shall be entitled to recover such corresponding amount from such Bank. If such Bank does not pay such corresponding amount forthwith upon the Agent's demand therefor, the Agent shall promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Agent. The Agent shall also be entitled to recover from the Bank or the Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Agent to the Borrower to the date such corresponding amount is recovered by the Agent, at a rate per annum equal to (x) if paid by such Bank, the overnight Federal Funds Rate or (y) if paid by the Borrower, the then applicable rate of interest, calculated in accordance with Section 1.08, for the respective Loans. (b) Nothing herein shall be deemed to relieve any Bank from its obligation to fulfill its commitments hereunder or to prejudice any rights which the Borrower may have against any Bank as a result of any default by such Bank hereunder. -4- 11 1.05 Notes. (a) The Borrower's obligation to pay the principal of, and interest on, all the Loans made to it by each Bank shall be evidenced (i) if Revolving Loans, by a promissory note substantially in the form of Exhibit B-1 with blanks appropriately completed in conformity herewith (each, a "Revolving Note" and, collectively, the "Revolving Notes") and (ii) if Swingline Loans, by a promissory note substantially in the form of Exhibit B-2 with blanks appropriately completed in conformity herewith (the "Swingline Note"). (b) The Revolving Note issued to each Bank shall (i) be executed by the Borrower, (ii) be payable to the order of such Bank and be dated the Effective Date, (iii) be in a stated principal amount equal to the Revolving Loan Commitment of such Bank (or, if issued after the termination of such Revolving Loan Commitment, be in a stated principal amount equal to the outstanding Revolving Loans of such Bank at such time) and be payable in the principal amount of the Revolving Loans evidenced thereby, (iv) mature on the Final Maturity Date, (v) bear interest as provided in the appropriate clause of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01, and mandatory repayment as provided in Section 4.02, and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (c) The Swingline Note issued to BTCo shall (i) be executed by the Borrower, (ii) be payable to the order of BTCo and be dated the Effective Date, (iii) be in a stated principal amount equal to the Maximum Swingline Amount and be payable in the principal amount of the Swingline Loans evidenced thereby, (iv) mature on the Swingline Expiry Date, (v) bear interest as provided in Section 1.08 in respect of the Base Rate Loans evidenced thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01, and mandatory repayment as provided in Section 4.02, and (vii) be entitled to the benefits of this Agreement and the other Credit Documents. (d) Each Bank will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will prior to any transfer of any of its Notes endorse on the reverse side thereof the outstanding principal amount of Loans evidenced thereby. Failure to make any such notation shall not affect the Borrower's obligations in respect of such Loans. 1.06 Conversions. The Borrower shall have the option to convert on any Business Day occurring on or after the earlier of (x) the Syndication Date and (y) the 45th day after the Effective Date, all or a portion at least equal to the applicable Minimum Borrowing Amount of the outstanding principal amount of Revolving Loans made pursuant to one or more Borrowings of one or more Types of Revolving Loans into a Borrowing or Borrowings of another Type of Revolving Loan; provided, that (i) except as otherwise provided in Section 1.10(b), no partial conversion of a Borrowing of Eurodollar Loans shall -5- 12 reduce the outstanding principal amount of the Eurodollar Loans made pursuant to such Borrowing to less than the Minimum Borrowing Amount applicable thereto, (ii) Base Rate Loans may only be converted into Eurodollar Loans if no payment or bankruptcy Default, or no Event of Default, is in existence on the date of the conversion, and (iii) Borrowings of Eurodollar Loans resulting from this Section 1.06 shall be limited in number as provided in Section 1.02. Each such conversion shall be effected by the Borrower by giving the Agent at its Notice Office, prior to 1:00 P.M. (New York time), at least three Business Days' (or one Business Day's in the case of a conversion into Base Rate Loans) prior written notice (or telephonic notice promptly confirmed in writing) (each a "Notice of Conversion") specifying the Revolving Loans to be so converted, the Borrowing(s) pursuant to which the Revolving Loans were made and, if to be converted into a Borrowing of Eurodollar Loans, the Interest Period to be initially applicable thereto. The Agent shall give each Bank prompt notice of any such proposed conversion affecting any of its Revolving Loans. 1.07 Pro Rata Borrowings. All Borrowings of Revolving Loans shall be made by the Banks pro rata on the basis of their Revolving Loan Commitments. It is under stood that no Bank shall be responsible for any default by any other Bank of its obligation to make Revolving Loans hereunder and that each Bank shall be obligated to make the Revolving Loans to be made by it hereunder, regardless of the failure of any other Bank to fulfill its commitments hereunder. 1.08 Interest. (a) The unpaid principal amount of each Base Rate Loan shall bear interest from the date of the Borrowing thereof until the earlier of (i) the maturity (whether by acceleration or otherwise) of such Base Rate Loan and (ii) the conversion of such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.06, at a rate per annum which shall at all times be the Applicable Base Rate Margin plus the Base Rate in effect from time to time. (b) The unpaid principal amount of each Eurodollar Loan shall bear interest from the date of the Borrowing thereof until the earlier of (i) the maturity (whether by acceleration or otherwise) of such Eurodollar Loan and (ii) the conversion of such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10(b), as applicable, at a rate per annum which shall at all times be the Applicable Eurodollar Margin plus the relevant Eurodollar Rate. (c) Overdue principal and, to the extent permitted by law, overdue interest in respect of each Loan shall bear interest at a rate per annum equal to the rate which is 2% in excess of the rate otherwise applicable to Base Rate Loans from time to time; provided that principal in respect of Eurodollar Loans shall bear interest after the same becomes due (whether by acceleration or otherwise) until the end of the applicable Interest Period for such Eurodollar Loan at a per annum rate equal to 2% in excess of the -6- 13 rate of interest applicable on the due date therefor. Interest which accrues under this Section 1.08(c) shall be payable on demand. (d) Interest shall accrue from and including the date of any Borrowing to but excluding the date of any repayment thereof and shall be payable (i) in respect of each Base Rate Loan, quarterly in arrears on each Quarterly Payment Date, (ii) in respect of each Eurodollar Loan, on (x) the date of any prepayment or repayment thereof (on the amount prepaid or repaid), (y) the date of any conversion into a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10(b), as applicable (on the amount converted) and (z) the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on each date occurring at three month intervals after the first day of such Interest Period and (iii) in respect of each Loan, at maturity (whether by acceleration or otherwise) and, after such maturity, on demand. (e) All computations of interest hereunder shall be made in accordance with Section 12.07(b). (f) The Agent, upon determining the interest rate for any Borrowing of Eurodollar Loans for any Interest Period, shall promptly notify the Borrower and the Banks thereof. 1.09 Interest Periods. At the time the Borrower gives a Notice of Borrowing or Notice of Conversion in respect of the making of, or conversion into, a Borrowing of Eurodollar Loans (in the case of the initial Interest Period applicable thereto) or prior to 1:00 P.M. (New York time) on the third Business Day prior to the expiration of an Interest Period applicable to a Borrowing of Eurodollar Loans, the Borrower shall have the right to elect by giving the Agent written notice (or telephonic notice promptly confirmed in writing) of the Interest Period applicable to such Borrowing, which Interest Period shall, at the option of the Borrower, be a one, two, three or six month period or, if available to each of the Banks, a twelve-month period. Notwithstanding anything to the contrary contained above: (i) all Eurodollar Loans comprising a Borrowing shall have the same Interest Period; (ii) the initial Interest Period for any Borrowing of Eurodollar Loans shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of Base Rate Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires; -7- 14 (iii) if any Interest Period begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month; (iv) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided, that if any Interest Period would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (v) no Interest Period may be elected if it would extend beyond the Final Maturity Date; and (vi) no Interest Period may be elected at any time when a payment or bankruptcy Default, or an Event of Default, is then in existence. If upon the expiration of any Interest Period applicable to a Borrowing of Eurodollar Loans, the Borrower has failed to elect, or is not permitted to elect by virtue of the application of clause (vi) above, a new Interest Period to be applicable to the respective Borrowing of Eurodollar Loans as provided above, the Borrower shall be deemed to have elected to convert such Borrowing into a Borrowing of Base Rate Loans effective as of the expiration date of such current Interest Period. 1.10 Increased Costs, Illegality, etc. (a) In the event that (x) in the case of clause (i) below, the Agent, or (y) in the case of clauses (ii) and (iii) below, any Bank, shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto): (i) on any date for determining the Eurodollar Rate for any Interest Period, that, by reason of any changes arising after the date of this Agreement affect ing the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of Eurodollar Rate; or (ii) at any time, that such Bank shall incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loans (other than any increased cost or reduction in the amount received or receivable resulting from the imposition of or a change in the rate of net income taxes or similar charges) because of (x) any change since the date of this Agreement in any applicable law, governmental rule, regulation, guideline, order or request (whether -8- 15 or not having the force of law), or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, guide line, order or request (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding reserves required under Regulation D to the extent included in the computation of the Eurodollar Rate) and/or (y) other circumstances affecting such Bank, the interbank Eurodollar market or the position of such Bank in such market; or (iii) at any time since the date of this Agreement, that the making or continuance of any Eurodollar Loan has become unlawful by compliance by such Bank in good faith with any law, governmental rule, regulation, guideline or order (or would conflict with any such governmental rule, regulation, guideline or order not having the force of law but with which such Bank customarily complies even though the failure to comply therewith would not be unlawful), or has become impracticable as a result of a contingency occurring after the date of this Agreement which materially and adversely affects the interbank Eurodollar market; then, and in any such event, such Bank (or the Agent in the case of clause (i) above) shall (x) on such date and (y) as promptly as practicable (and in any event within five Business Days) after the date on which such event no longer exists give notice (by telephone confirmed in writing) to the Borrower and (except in the case of clause (i)) to the Agent of such determination (which notice the Agent shall promptly transmit to each of the other Banks). Thereafter, (x) in the case of clause (i) above, Eurodollar Loans shall no longer be available until such time as the Agent notifies the Borrower and the Banks that the circumstances giving rise to such notice by the Agent no longer exist, and any Notice of Borrowing or Notice of Conversion given by the Borrower with respect to Eurodollar Loans which have not yet been incurred shall be deemed rescinded by the Borrower, (y) in the case of clause (ii) above, the Borrower agrees to pay to such Bank, within five Business Days after written demand therefor (accompanied by the written notice referred to below), such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Bank in its sole discretion shall determine) as shall be required to compensate such Bank for such increased costs or reductions in amounts received or receivable hereunder (a written notice as to the additional amounts owed to such Bank, showing the basis for the calculation thereof, submitted to the Borrower by such Bank shall, absent manifest error, be final and conclusive and binding upon all parties hereto) and (z) in the case of clause (iii) above, the Borrower shall take one of the actions specified in Section 1.10(b) as promptly as possible and, in any event, within the time period required by law. (b) At any time that any Eurodollar Loan is affected by the circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and in the case of a Eurodollar Loan affected pursuant to Section 1.10(a)(iii) the Borrower shall) either (i) if the affected Eurodollar Loan is then being made pursuant to a Borrowing, cancel said Borrowing by giving the Agent telephonic notice (confirmed promptly in writing) thereof on the same date that the Borrower was notified by a Bank pursuant to Section 1.10(a)(ii) or (iii)), or (ii) if the -9- 16 affected Eurodollar Loan is then outstanding, upon at least three Business Days' notice to the Agent, require the affected Bank to convert each such Eurodollar Loan into a Base Rate Loan (which conversion, in the case of the circumstances described in Section 1.10(a)(iii), shall occur no later than the last day of the Interest Period then applicable to such Eurodollar Loan (or such earlier date as shall be required by applicable law)); provided, that if more than one Bank is affected at any time, then all affected Banks must be treated the same pursuant to this Section 1.10(b). (c) If any Bank shall have determined that after the date hereof, the adoption or effectiveness of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by the National Association of Insurance Commissioners ("NAIC") or any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Bank or any corporation controlling such Bank with any request or directive regarding capital adequacy (whether or not having the force of law) of the NAIC or any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank's or such other corporation's capital or assets as a consequence of such Bank's Revolving Loan Commitment or obligations hereunder to a level below that which such Bank or such other corporation could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Bank's or such other corporation's policies with respect to capital adequacy), then from time to time, within five Business Days after written demand by such Bank (with a copy to the Agent), accompanied by the notice referred to in the last sentence of this clause (c), the Borrower agrees to pay to such Bank such additional amount or amounts as will compensate such Bank or such other corporation for such reduction. Each Bank, upon determining in good faith that any additional amounts will be payable pursuant to this Section 1.10(c), will give prompt written notice thereof to the Borrower, which notice shall set forth the basis of the calculation of such additional amounts, although the failure to give any such notice shall not release or diminish the Borrower's obligations to pay additional amounts pursuant to this Section 1.10(c) upon the subsequent receipt of such notice. 1.11 Compensation. The Borrower agrees to compensate each Bank, promptly upon its written request (which request shall set forth the basis for requesting such compensation and shall be made through the Agent), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Bank to fund its Eurodollar Loans but excluding loss of anticipated profit with respect to any Eurodollar Loans) which such Bank may sustain: (i) if for any reason (other than a default by such Bank or the Agent) a Borrowing of Eurodollar Loans does not occur on a date specified -10- 17 therefor in a Notice of Borrowing or Notice of Conversion (whether or not withdrawn by the Borrower or deemed withdrawn pursuant to Section 1.10(a)); (ii) if any repayment (including any prepayment or repayment made pursuant to Section 4.01 or 4.02 or as a result of an acceleration of the Loans pursuant to Section 9) or conversion of any Eurodollar Loans occurs on a date which is not the last day of an Interest Period applicable thereto; (iii) if any prepayment of any Eurodollar Loans is not made on any date specified in a notice of prepayment given by the Borrower; or (iv) as a consequence of (x) any other default by the Borrower to repay its Eurodollar Loans when required by the terms of this Agreement or (y) an election made pursuant to Section 1.10(b). Calculation of all amounts payable to a Bank under this Section 1.11 shall be made as though that Bank had actually funded its relevant Eurodollar Loan through the purchase of a Eurodollar deposit bearing interest at the Euro dollar Rate in an amount equal to the amount of that Loan, having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of that Bank to a domestic office of that Bank in the United States of America; provided, however, that each Bank may fund each of its Eurodollar Loans in any manner it sees fit and the foregoing assumption shall be utilized only for the calculation of amounts payable under this Section 1.11. It is further understood and agreed that if any prepayment of Eurodollar Loans pursuant to Section 4.01 or any conversion of Eurodollar Loans pursuant to Section 1.06 in either case occurs on a date which is not the last day of an Interest Period applicable thereto, such prepayment or conversion shall be accompanied by any amounts owing to any Bank pursuant to this Section 1.11. 1.12 Change of Lending Office. Each Bank agrees that, upon the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii), 1.10(c), 2.05 or 4.04 with respect to such Bank, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Bank) to designate another lending office for any Loans or Letters of Credit affected by such event; provided, that such designation is made on such terms that, in the sole judgment of such Bank, such Bank suffers no economic, legal or regulatory disadvantage, with the object of avoiding the consequences of the event giving rise to the operation of any such Section. Nothing in this Section 1.12 shall affect or postpone any of the obligations of the Borrower or the right of any Bank provided in Section 1.10, 2.05 or 4.04. 1.13 Replacement of Banks. (x) If any Bank becomes a Defaulting Bank, (y) upon the occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.05 or Section 4.04 with respect to any Bank which results in such Bank charging to the Borrower increased costs in excess of those being generally charged by the other Banks or (z) in the case of a refusal by a Bank to consent to a proposed change, waiver, discharge or termination with respect to this Agreement which has been approved by the Required Banks as provided in Section 12.12(b), the Borrower shall have the right, if no payment or bankruptcy Default, or no Event of Default, then -11- 18 exists, to replace such Bank (the "Replaced Bank") with one or more other Eligible Transferee or Transferees reasonably acceptable to the Agent, none of whom shall constitute a Defaulting Bank at the time of such replacement (collectively, the "Replacement Bank"), provided that (i) at the time of any replacement pursuant to this Section 1.13, the Replacement Bank shall enter into one or more Assignment and Assumption Agreements pursuant to Section 12.04(b) (and with all fees payable pursuant to said Section 12.04(b) to be paid by the Replacement Bank) pursuant to which the Replacement Bank shall acquire the Revolving Loan Commitment and outstanding Revolving Loans of, and in each case participations in Letters of Credit by, the Replaced Bank and, in connection therewith, shall pay to (x) the Replaced Bank in respect thereof an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Revolving Loans of the Replaced Bank, (B) an amount equal to all Unpaid Drawings that have been funded by (and not reimbursed to) such Replaced Bank, together with all then unpaid interest with respect thereto at such time and (C) an amount equal to all accrued, but theretofore unpaid, Fees owing to the Replaced Bank pursuant to Section 3.01, (y) the Letter of Credit Issuer an amount equal to such Replaced Bank's Percentage of any Unpaid Drawing (which at such time remains an Unpaid Drawing) with respect to any Letter of Credit to the extent such amount was not theretofore funded by such Replaced Bank and (z) BTCo an amount equal to such Replaced Bank's Percentage of any Mandatory Borrowing to the extent such amount was not theretofore funded by such Replaced Bank, and (ii) all obligations (including, without limitation, all such amounts, if any, due and owing under Section 1.11) of the Borrower due and owing to the Replaced Bank (other than those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid) shall be paid in full to such Replaced Bank concurrently with such replacement. Upon the execution of the respective Assignment and Assumption Agreements, the payment of amounts referred to in clauses (i) and (ii) above, recordation of the assignment on the Register by the Agent pursuant to Section 7.12 and, if so requested by the Replacement Bank, delivery to the Replacement Bank of the appropriate Revolving Note or Revolving Notes executed by the Borrower, (x) the Replacement Bank shall become a Bank hereunder and the Replaced Bank shall cease to constitute a Bank hereunder, except with respect to indemnification provisions under this Agreement, which shall survive as to such Replaced Bank and (y) Annex I shall be deemed modified to reflect the changed Revolving Loan Commitments resulting from the assignment from the Replaced Bank to the Replacement Bank. SECTION 2. Letters of Credit. 2.01 Letters of Credit. (a) Subject to and upon the terms and conditions herein set forth, the Borrower may request the Letter of Credit Issuer at any time and from time to time on or after the Effective Date and prior to the date which is 30 days prior to the Final Maturity Date to issue, for the account of the Borrower and in support of, (x) -12- 19 trade obligations of the Borrower or any of its Subsidiaries that arise in the ordinary course of business and are in respect of general corporate purposes of the Borrower or its Subsidiaries, as the case may be, and/or (y) on a standby basis, L/C Supportable Indebtedness, and subject to and upon the terms and conditions herein set forth, the Letter of Credit Issuer agrees to issue from time to time, irrevocable letters of credit in such form as may be approved by the Letter of Credit Issuer (each such letter of credit, a "Letter of Credit" and, collectively, the "Letters of Credit"). Notwithstanding the foregoing, the Letter of Credit Issuer shall not be under any obligation to issue any Letter of Credit if at the time of such issuance: (i) any order, judgment or decree of any governmental authority or arbitrator shall purport by its terms to enjoin or restrain the Letter of Credit Issuer from issuing such Letter of Credit or any requirement of law applicable to the Letter of Credit Issuer or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over the Letter of Credit Issuer shall prohibit, or request that the Letter of Credit Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Letter of Credit Issuer with respect to such Letter of Credit any restriction or reserve or capital requirement (for which the Letter of Credit Issuer is not otherwise compensated) not in effect on the date hereof, or any unreimbursed loss, cost or expense which was not applicable, in effect or known to the Letter of Credit Issuer as of the date hereof and which the Letter of Credit Issuer in good faith deems material to it; or (ii) the Letter of Credit Issuer shall have received notice from the Required Banks prior to the issuance of such Letter of Credit of the type described in clause (vi) of Section 2.01(b). (b) Notwithstanding the foregoing, (i) no Letter of Credit shall be issued the Stated Amount of which, when added to the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and prior to the issuance of, the respective Letter of Credit) at such time, would exceed either (x) $10,000,000 or (y) when added to the aggregate principal amount of all Revolving Loans and Swingline Loans then outstanding, the Total Revolving Loan Commitment at such time; (ii) (x) each standby Letter of Credit shall have an expiry date occurring not later than one year after such standby Letter of Credit's date of issuance, provided, that any standby Letter of Credit may be automatically extendable for periods of up to one year so long as such standby Letter of Credit provides that the Letter of Credit Issuer retains an option, satisfactory to the Letter of Credit Issuer, to terminate such standby Letter of Credit within a specified period of time prior to each scheduled extension date and (y) each trade Letter of Credit shall have an expiry date occurring not later than 180 days after such trade Letter of Credit's date of issuance; (iii) (x) no standby Letter of Credit shall have an expiry date occurring later than -13- 20 the Business Day next preceding the Final Maturity Date and (y) no trade Letter of Credit shall have an expiry date occurring later than 30 days prior to the Final Maturity Date; (iv) each Letter of Credit shall be denominated in U.S. Dollars and payable on a sight basis; (v) the initial Stated Amount of each Letter of Credit shall not be less than $100,000 or such lesser amount as is acceptable to the Letter of Credit Issuer; and (vi) the Letter of Credit Issuer will not issue any Letter of Credit after it has received written notice from the Borrower or the Required Banks stating that a Default or an Event of Default exists until such time as the Letter of Credit Issuer shall have received a written notice of (i) rescission of such notice from the party or parties originally delivering the same or (ii) a waiver of such Default or Event of Default by the Required Banks. (c) Notwithstanding the foregoing, in the event a Bank Default exists, the Letter of Credit Issuer shall not be required to issue any Letter of Credit unless the Letter of Credit Issuer has entered into arrangements satisfactory to it and the Borrower to eliminate the Letter of Credit Issuer's risk with respect to the participation in Letters of Credit of the Defaulting Bank or Banks, including by cash collateralizing such Defaulting Bank's or Banks' Percentage of the Letter of Credit Outstandings. 2.02 Letter of Credit Requests; Notices of Issuance. (a) Whenever the Borrower desires that a Letter of Credit be issued, it shall give the Agent and the Letter of Credit Issuer written notice (or facsimile transmission notice confirmed in writing) thereof prior to 1:00 P.M. (New York time) at least five Business Days (or such shorter period as may be acceptable to the Letter of Credit Issuer) prior to the proposed date of issuance (which shall be a Business Day) which written notice shall be in the form of Exhibit A-2 (each such notice, a "Letter of Credit Request"). Each Letter of Credit Request shall include any other documents as the Letter of Credit Issuer customarily requires in connection therewith. (b) The Letter of Credit Issuer shall, promptly after the date of each issuance of or amendment or modification to a Letter of Credit, give the Agent, each Bank and the Borrower written notice of the issuance of or amendment or modification to such Letter of Credit, accompanied by a copy to the Agent of such Letter of Credit or Letters of Credit or such amendment or modification. 2.03 Agreement to Repay Letter of Credit Payments. (a) The Borrower hereby agrees to reimburse the Letter of Credit Issuer, by making payment to the Agent in immediately available funds at the Payment Office, for any payment or disbursement made by the Letter of Credit Issuer under any Letter of Credit issued by it (each such amount so paid or disbursed until reimbursed, an "Unpaid Drawing") no later than one Business Day following the date of such payment or disbursement, with interest on the amount so paid or disbursed by the Letter of Credit Issuer, to the extent not reimbursed prior to 1:00 P.M. (New York time) on the date of such payment or disbursement, from and including the date -14- 21 paid or disbursed to but not including the date the Letter of Credit Issuer is reimbursed there for at a rate per annum which shall be the Applicable Base Rate Margin plus the Base Rate as in effect from time to time (plus an additional 2% per annum if not reimbursed by the third Business Day after the date of such payment or disbursement), such interest also to be payable on demand. The Letter of Credit Issuer shall provide the Borrower prompt notice of any payment or disbursement made by it under any Letter of Credit, although the failure of, or delay in, giving any such notice shall not release or diminish the obligations of the Borrower under this Section 2.03(a) or under any other Section of this Agreement. (b) The Borrower's obligation under this Section 2.03 to reimburse the Letter of Credit Issuer with respect to Unpaid Drawings (including, in each case, interest thereon) shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower or any of its Subsidiaries may have or have had against the Letter of Credit Issuer, the Agent or any Bank, including, without limitation, any defense based upon the failure of any drawing under a Letter of Credit to substantially conform to the terms of the Letter of Credit or any non-application or misapplication by the beneficiary of the proceeds of such drawing; provided, however, that the Borrower shall not be obligated to reimburse the Letter of Credit Issuer for any wrongful payment made by the Letter of Credit Issuer under a Letter of Credit as a result of acts or omissions constituting willful misconduct or gross negligence as determined by a court of competent jurisdiction on the part of the Letter of Credit Issuer. 2.04 Letter of Credit Participations. (a) Immediately upon the issuance by the Letter of Credit Issuer of any Letter of Credit, the Letter of Credit Issuer shall be deemed to have sold and transferred to each other Bank, and each such Bank (each, a "Participant") shall be deemed irrevocably and unconditionally to have purchased and received from the Letter of Credit Issuer, without recourse or warranty, an undivided interest and participation, to the extent of such Participant's Percentage, in such Letter of Credit, each substitute Letter of Credit, each drawing made thereunder and the obligations of the Borrower under this Agreement with respect thereto (although Letter of Credit Fees shall be payable directly to the Agent for the account of the Banks as provided in Section 3.01(b) and the Participants shall have no right to receive any portion of any Facing Fees) and any security therefor or guaranty pertaining thereto. Upon any change in the Revolving Loan Commitments of the Banks pursuant to Section 1.13 or 12.04(b) or otherwise, it is hereby agreed that, with respect to all outstanding Letters of Credit and Unpaid Drawings, there shall be an automatic ad justment to the participations pursuant to this Section 2.04 to reflect the new Percentages of the assigning and assignee Banks. (b) In determining whether to pay under any Letter of Credit, the Letter of Credit Issuer shall not have any obligation relative to the Participants other than to deter mine that any documents required to be delivered under such Letter of Credit have been delivered and that they appear to substantially comply on their face with the requirements -15- 22 of such Letter of Credit. Any action taken or omitted to be taken by the Letter of Credit Issuer under or in connection with any Letter of Credit if taken or omitted in the absence of gross negligence or willful misconduct as determined by a court of competent jurisdiction, shall not create for the Letter of Credit Issuer any resulting liability. (c) In the event that the Letter of Credit Issuer makes any payment under any Letter of Credit and the Borrower shall not have reimbursed such amount in full to the Letter of Credit Issuer pursuant to Section 2.03(a), the Letter of Credit Issuer shall promptly notify the Agent, and the Agent shall promptly notify each Participant of such failure, and each Participant shall promptly and unconditionally pay to the Agent for the account of the Letter of Credit Issuer, the amount of such Participant's Percentage of such payment in U.S. Dollars and in same day funds; provided, however, that no Participant shall be obligated to pay to the Agent its Percentage of such unreimbursed amount for any wrongful payment made by the Letter of Credit Issuer under a Letter of Credit as a result of acts or omissions constituting willful misconduct or gross negligence on the part of the Letter of Credit Issuer as determined by a court of competent jurisdiction. If the Agent so notifies any Participant required to fund a payment under a Letter of Credit prior to 11:00 A.M. (New York time) on any Business Day, such Participant shall make available to the Agent for the account of the Letter of Credit Issuer such Participant's Percentage of the amount of such payment on such Business Day in same day funds. If and to the extent such Participant shall not have so made its Percentage of the amount of such payment available to the Agent for the account of the Letter of Credit Issuer, such Participant agrees to pay to the Agent for the account of the Letter of Credit Issuer, forthwith on demand such amount, together with interest thereon, for each day from such date until the date such amount is paid to the Agent for the account of the Letter of Credit Issuer at the overnight Federal Funds Rate. The failure of any Participant to make available to the Agent for the account of the Letter of Credit Issuer its Percentage of any payment under any Letter of Credit shall not relieve any other Participant of its obligation hereunder to make available to the Agent for the account of the Letter of Credit Issuer its Percentage of any payment under any such Letter of Credit on the date required, as specified above, but no Participant shall be responsible for the failure of any other Participant to make available to the Agent for the account of the Letter of Credit Issuer such other Participant's Percentage of any such payment. (d) Whenever the Letter of Credit Issuer receives a payment of a reimbursement obligation as to which the Agent has received for the account of the Letter of Credit Issuer any payments from the Participants pursuant to clause (c) above, the Letter of Credit Issuer shall promptly pay to the Agent and the Agent shall promptly pay to each Participant which has paid its Percentage thereof, in U.S. Dollars and in same day funds, an amount equal to such Participant's Percentage of the principal amount thereof and interest thereon accruing after the purchase of the respective participations. -16- 23 (e) The obligations of the Participants to make payments to the Agent for the account of the Letter of Credit Issuer with respect to Letters of Credit shall be irrevocable and not subject to counterclaim, set-off or other defense or any other qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including, without limitation, any of the following circumstances: (i) any lack of validity or enforceability of this Agreement or any of the other Credit Documents; (ii) the existence of any claim, set-off, defense or other right which the Borrower or any of its Subsidiaries may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), the Agent, the Letter of Credit Issuer, any Bank, or other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Borrower or any of its Subsidiaries and the beneficiary named in any such Letter of Credit); (iii) any draft, certificate or other document presented under the 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; (iv) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Credit Documents; or (v) the occurrence of any Default or Event of Default. 2.05 Increased Costs. If after the date hereof, the adoption or effectiveness of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Letter of Credit Issuer or any Participant with any request or directive (whether or not having the force of law) by any such authority, central bank or comparable agency shall either (i) impose, modify or make applicable any reserve, deposit, capital adequacy or similar requirement against Letters of Credit issued by the Letter of Credit Issuer or such Participant's participation therein, or (ii) impose on the Letter of Credit Issuer or any Participant any other conditions affecting this Agreement, any Letter of Credit or such Participant's participation therein; and the result of any of the foregoing is to increase the cost to the Letter of Credit Issuer or such Participant of issuing, maintaining or participating in any Letter of Credit, or to reduce the amount of any sum received or receivable by the Letter of Credit Issuer or such Participant hereunder, then, within five Business Days after written -17- 24 demand to the Borrower by the Letter of Credit Issuer or such Participant (a copy of which notice shall be sent by the Letter of Credit Issuer or such Participant to the Agent), accompanied by the certificate described in the last sentence of this Section 2.05, the Borrower shall pay to the Letter of Credit Issuer or such Participant such additional amount or amounts as will compensate the Letter of Credit Issuer or such Participant for such increased cost or reduction. A certificate submitted to the Borrower by the Letter of Credit Issuer or such Participant, as the case may be (a copy of which certificate shall be sent by the Letter of Credit Issuer or such Participant to the Agent), setting forth the basis for the determination of such additional amount or amounts necessary to compensate the Letter of Credit Issuer or such Participant as aforesaid shall be final and conclusive and binding on the Borrower absent manifest error, although the failure to deliver any such certificate shall not release or diminish the Borrower's obligations to pay additional amounts pursuant to this Section 2.05 upon subsequent receipt of such certificate. SECTION 3. Fees; Commitments. 3.01 Fees. (a) The Borrower shall pay to the Agent for distribution to each Non-Defaulting Bank a commitment fee (the "Commitment Fee") for the period from the Effective Date to but not including the Final Maturity Date (or such earlier date as the Total Revolving Loan Commitment has been terminated), computed at a rate for each day equal to the Applicable Commitment Fee Percentage per annum of the daily average Unutilized Revolving Loan Commitment of such Non-Defaulting Bank. Accrued Commitment Fees shall be due and payable quarterly in arrears on each Quarterly Payment Date and on the Final Maturity Date (or such earlier date upon which the Total Revolving Loan Commitment has been terminated). (b) The Borrower shall pay to the Agent for the account of the Banks pro rata on the basis of their Percentages, a fee in respect of each Letter of Credit (the "Letter of Credit Fee") computed at a rate per annum equal to the Applicable Eurodollar Margin then in effect on the daily Stated Amount of such Letter of Credit. Accrued Letter of Credit Fees shall be due and payable quarterly in arrears on each Quarterly Payment Date and upon the first day after the termination of the Total Revolving Loan Commitment upon which no Letters of Credit remain outstanding. (c) The Borrower shall pay to the Agent for the account of the Letter of Credit Issuer a fee in respect of each Letter of Credit (the "Facing Fee") computed at the rate of 1/4 of 1% per annum on the daily Stated Amount of such Letter of Credit; provided, that in no event shall the annual Facing Fee with respect to each Letter of Credit be less than $500; it being agreed that, on the date of issuance of any Letter of Credit and on each anniversary thereof prior to the termination of such Letter of Credit, if $500 will exceed the amount of Facing Fees that will accrue with respect to such Letter of Credit for -18- 25 the immediately succeeding 12-month period, the full $500 shall be payable on the date of issuance of such Letter of Credit and on each such anniversary thereof prior to the termination of such Letter of Credit. Except as provided in the immediately preceding sentence, accrued Facing Fees shall be due and payable quarterly in arrears on each Quarterly Payment Date and upon the first day after the termination of the Total Revolving Loan Commitment upon which no Letters of Credit remain outstanding. (d) The Borrower hereby agrees to pay directly to the Letter of Credit Issuer upon each issuance of, payment under, and/or amendment of, a Letter of Credit such amount as shall at the time of such issuance, payment or amendment be the administrative charge which the Letter of Credit Issuer is customarily charging for issuances of, payments under or amendments of, letters of credit issued by it. (e) The Borrower shall pay to the Agent, for its own account, such fees as may be agreed to from time to time between the Borrower and the Agent, when and as due. (f) All computations of Fees shall be made in accordance with Section 12.07(b). 3.02 Voluntary Termination or Reduction of Total Unutilized Revolving Loan Commitment. (a) Upon at least two Business Days' prior written notice (or telephonic notice promptly confirmed in writing) to the Agent at its Notice Office (which notice the Agent shall promptly transmit to each of the Banks), the Borrower shall have the right, without premium or penalty, to terminate or partially reduce the Total Unutilized Revolving Loan Commitment; provided that (x) any such termination or partial reduction shall apply to proportionately and permanently reduce the Revolving Loan Commitment of each of the Banks and (y) any partial reduction pursuant to this Section 3.02(a) shall be in the amount of at least $1,000,000. (b) In the event of certain refusals by a Bank to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Banks as provided in Section 12.12(b), the Borrower shall have the right, upon five Business Days' prior written notice to the Agent at its Notice Office (which notice the Agent shall promptly transmit to each of the Banks), to terminate the entire Revolving Loan Commitment of such Bank, so long as all Revolving Loans, together with accrued and unpaid interest, Fees and all other amounts, due and owing to such Bank are repaid concurrently with the effectiveness of such termination pursuant to Section 4.01(b) and the Borrower shall pay to the Agent at such time an amount in cash and/or Cash Equivalents equal to such Bank's Percentage of the outstanding Letters of Credit (which cash and/or Cash Equivalents shall be held by the Agent as security for the obligations of the Borrower hereunder in respect of the outstanding Letters of Credit -19- 26 pursuant to a cash collateral agreement to be entered into in form and substance reasonably satisfactory to the Agent, which shall permit certain investments in Cash Equivalents reasonably satisfactory to the Agent until the proceeds are applied to the secured obligations) (at which time Annex I shall be deemed modified to reflect such changed amounts), and at such time, such Bank shall no longer constitute a "Bank" for purposes of this Agreement, except with respect to indemnifications under this Agreement (including, without limitation, Sections 1.10, 1.11, 2.05, 4.04, 12.01 and 12.06), which shall survive as to such repaid Bank. 3.03 Mandatory Reduction of Revolving Loan Commitments. (a) The Total Revolving Loan Commitment (and the Revolving Loan Commitment of each Bank) shall terminate in its entirety on April 30, 1998 unless the Effective Date has occurred on or before such date. (b) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, on each date on or after the Effective Date on which the Borrower or any of its Subsidiaries receives Proceeds from any Asset Sale, the Total Revolving Loan Commitment shall be permanently reduced by an amount equal to 100% (or, if on the date of any Asset Sale (i) no payment or bankruptcy Default, or Event of Default, then exists and (ii) the Pro Forma Leverage Ratio is less than 3.00:1.00, 75%) of the Net Proceeds from such Asset Sale, provided that with respect to no more than $5,000,000 in the aggregate of such Net Proceeds in any fiscal year of the Borrower, such Net Proceeds shall not give rise to a reduction to the Total Revolving Loan Commitment on such date to the extent that no payment or bankruptcy Default, or Event of Default, then exists and the Borrower delivers a certificate to the Agent on or prior to such date stating that such Net Proceeds shall be used to purchase assets used or to be used in the businesses permitted pursuant to Section 8.01 (including, without limitation (but only to the extent permitted by Section 8.02), the purchase of the capital stock of a Person engaged in such businesses) within one year following the date of receipt of such Net Proceeds from such Asset Sale (which certificate shall set forth the estimates of the proceeds to be so expended), and provided further, that (1) if all or any portion of such Net Proceeds are not so used (or contractually committed to be used) within such one year period, the Total Revolving Loan Commitment shall be permanently reduced on the last day of such period by an amount equal to such remaining portion and (2) if all or any portion of such Net Proceeds are not so used within such one year period referred to in clause (1) above because such amount is contractually committed to be used and subsequent to such date such contract is terminated or expires without such portion being so used, the Total Revolving Loan Commitment shall be permanently reduced on the date of such termination or expiration by an amount equal to such remaining portion. (c) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, on each date on or after the Effective Date on which the Borrower or -20- 27 any of its Subsidiaries receives any cash proceeds from any incurrence of Indebtedness (other than Indebtedness permitted to be incurred pursuant to Section 8.04 as in effect on the Effective Date) by the Borrower or any of its Subsidiaries, the Total Revolving Loan Commitment shall be permanently reduced by an amount equal to 100% of the cash proceeds (net of all underwriting discounts, fees and commissions and other costs and expenses associated therewith) of the respective incurrence of Indebtedness. (d) In addition to any other mandatory commitment reductions pursuant to this Section 3.03, within 10 days following each date on or after the Effective Date on which the Borrower or any of its Subsidiaries receives any cash proceeds from any Recovery Event, the Total Revolving Loan Commitment shall be permanently reduced by an amount equal to 100% of such cash proceeds of such Recovery Event (net of all costs, expenses and taxes incurred in connection with such Recovery Event), provided that so long as no payment or bankruptcy Default, or Event of Default, then exists, and such proceeds do not exceed $5,000,000, such proceeds shall not give rise to a reduction to the Total Revolving Loan Commitment on such date to the extent that the Borrower has delivered a certificate to the Agent on or prior to such date stating that such proceeds shall be used to replace or restore any properties or assets in respect of which such proceeds were paid within one year follow ing the date of receipt of such proceeds (which certificate shall set forth the estimates of the proceeds to be so expended), and provided further, that (i) if the amount of such proceeds exceeds $5,000,000, then the Total Revolving Loan Commitment shall be reduced by the entire amount of such proceeds and not just the portion in excess of $5,000,000 as provided above in this Section 3.03(d), (ii) if all or any portion of such proceeds are not so used (or contractually committed to be used) within such one year period, the Total Revolving Loan Commitment shall be permanently reduced on the last day of such period by an amount equal to such remaining portion and (iii) if all or any portion of such proceeds are not so used within such one year period referred to in clause (ii) above because such amount is contractually committed to be used and subsequent to such date such contract is terminated or expires without such portion being so used, the Total Revolving Loan Commitment shall be permanently reduced on the date of such termination or expiration by an amount equal to such remaining portion. (e) The Total Revolving Loan Commitment (and the Revolving Loan Commitment of each Bank) shall terminate in its entirety on the earlier of (i) the date on which a Change of Control Event occurs and (ii) the Final Maturity Date. (f) Notwithstanding anything to the contrary contained in Sections 3.03(b), (c) and (d), in no event shall the Total Revolving Loan Commitment be reduced to an amount less than $25,000,000 pursuant to or as a result of any such Section. -21- 28 (g) Each reduction to the Total Revolving Loan Commitment pursuant to this Section 3.03 shall apply proportionately to permanently reduce the Revolving Loan Commitment of each Bank. SECTION 4. Payments. 4.01 Voluntary Prepayments. (a) The Borrower shall have the right to prepay the Loans made to it, in whole or in part, without premium or penalty, except as other wise provided in this Agreement, from time to time on the following terms and conditions: (i) the Borrower shall give the Agent at its Notice Office written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay such Loans, whether such Loans are Revolving Loans or Swingline Loans, the amount of such prepayment and (in the case of Eurodollar Loans) the specific Borrowing(s) pursuant to which made, which notice shall be given by the Borrower prior to 1:00 P.M. (New York time) (x) at least one Business Day prior to the date of such prepayment in the case of Revolving Loans maintained as Base Rate Loans, (y) on the date of such prepayment in the case of Swingline Loans and (z) at least three Business Days prior to the date of such prepayment in the case of Eurodollar Loans, which notice shall, except in the case of Swingline Loans, promptly be transmitted by the Agent to each of the Banks; (ii) each prepayment shall be in an aggregate principal amount of (A) at least $500,000 in the case of Eurodollar Loans and (B) at least $250,000 in the case of Base Rate Loans (or $100,000 in the case of Swingline Loans); provided, that no partial prepayment of Eurodollar Loans made pursuant to a Borrowing shall reduce the aggregate principal amount of the Eurodollar Loans outstanding pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount applicable thereto; and (iii) each prepayment in respect of any Revolving Loans made pursuant to a Borrowing shall be applied pro rata among such Revolving Loans; provided, that at the Borrower's election in connection with any prepayment of Revolving Loans pursuant to this Section 4.01(a), such prepayment shall not be applied to any Revolving Loans of a Defaulting Bank. (b) In the event of certain refusals by a Bank to consent to certain proposed changes, waivers, discharges or terminations with respect to this Agreement which have been approved by the Required Banks as provided in Section 12.12(b), the Borrower shall have the right, upon five Business Days' prior written notice to the Agent at its Notice Office (which notice the Agent shall promptly transmit to each of the Banks) to repay all Revolving Loans of such Bank, together with accrued and unpaid interest, Fees and all other amounts due and owing to such Bank in accordance with said Section 12.12(b), so long as (A) in the case of the repayment of Revolving Loans of any Bank pursuant to this clause (b), the Revolving Loan Commitment of such Bank is terminated concurrently with such repayment pursuant to Section 3.02(b) (at which time Annex I shall be deemed modified to reflect the changed Revolving Loan Commitments) and (B) in the case of the repay- -22- 29 ment of Revolving Loans of any Bank, the consents required by Section 12.12(b) in connection with the repayment pursuant to this clause (b) shall have been obtained. 4.02 Mandatory Prepayments. (a) If on any date the sum of (i) the aggregate outstanding principal amount of Revolving Loans and Swingline Loans (after giving effect to all other repayments thereof on such date) plus (ii) the Letter of Credit Outstandings on such date exceeds the Total Revolving Loan Commitment as then in effect, the Borrower shall repay on such date the principal of Swingline Loans, and if no Swingline Loans are or remain outstanding, Revolving Loans, in an aggregate amount equal to such excess. If, after giving effect to the prepayment of all outstanding Swingline Loans and Revolving Loans, the aggregate amount of Letter of Credit Outstandings exceeds the Total Revolving Loan Commitment as then in effect, the Borrower agrees to pay to the Agent on such date an amount in cash and/or Cash Equivalents equal to such excess (up to the aggregate amount of Letter of Credit Outstandings at such time) and the Agent shall hold such payment as security for the obligations of the Borrower hereunder pursuant to a cash collateral agreement to be entered into in form and substance reasonably satisfactory to the Agent (which shall permit certain investments in Cash Equivalents reasonably satisfactory to the Agent until the proceeds are applied to such obligations). (b) With respect to each repayment of Revolving Loans required by Section 4.02(a), the Borrower may designate the Types of Revolving Loans which are to be repaid and, in the case of Eurodollar Loans, the specific Borrowing(s) pursuant to which made; provided, that (i) Eurodollar Loans may be designated for repayment pursuant to Section 4.02(a) only on the last day of an Interest Period applicable thereto unless all Eurodollar Loans with Interest Periods ending on such date of required prepayment and all Base Rate Loans have been paid in full; (ii) if any repayment of Eurodollar Loans made pursuant to a single Borrowing shall reduce the outstanding Loans made pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount, such Borrowing shall be immediately converted into Base Rate Loans; and (i) each repayment of any Revolving Loans made pursuant to a Borrowing shall be applied pro rata among such Revolving Loans. In the absence of a designation by the Borrower as described in the preceding sentence, the Agent shall, subject to the above, make such designation in its sole discretion with a view, but no obligation, to minimize breakage costs owing under Section 1.11. (c) Notwithstanding anything to the contrary contained elsewhere in this Agreement, (i) all then outstanding Swingline Loans shall be repaid in full on the Swingline Expiry Date, (ii) all then outstanding Revolving Loans shall be repaid in full on the Final Maturity Date and (iii) all then outstanding Loans shall be repaid in full on the date on which a Change of Control Event occurs. 4.03 Method and Place of Payment. Except as otherwise specifically provided herein, all payments under this Agreement shall be made to the Agent for the ratable -23- 30 account of the Banks entitled thereto, not later than 12:00 Noon (New York time) on the date when due and shall be made in immediately available funds and in U.S. Dollars at the Payment Office, it being understood that written, telex or facsimile transmission notice by the Borrower to the Agent to make a payment from the funds in the Borrower's account at the Payment Office shall constitute the making of such payment to the extent of such funds held in such account. Any payments under this Agreement which are made later than 12:00 Noon (New York time) shall be deemed to have been made on the next succeeding Business Day. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable during such extension at the applicable rate in effect immediately prior to such extension. 4.04 Net Payments. (a) All payments made by the Borrower hereunder or under any Note will be made without setoff, counterclaim or other defense. Except as provided in Section 4.04(b), all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding, except as provided in the second succeeding sentence, any tax imposed on or measured by the net income or net profits of a Bank pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Bank is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "Taxes"). If any Taxes are so levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. If any amounts are payable in respect of Taxes pursuant to the preceding sentence, the Borrower agrees to reimburse each Bank, within five Business Days after the written request of such Bank, for taxes imposed on or measured by the net income or net profits of such Bank pursuant to the laws of the jurisdiction in which the principal office or applicable lend ing office of such Bank is located or under the laws of any political subdivision or taxing authority of any such jurisdiction in which the principal office or applicable lending office of such Bank is located and for any withholding of taxes as such Bank shall determine are pay able by, or withheld from, such Bank in respect of such amounts so paid to or on behalf of such Bank pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Bank pursuant to this sentence. The Borrower will furnish to the Agent within 45 days after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by the Borrower. The Borrower agrees to indemnify and hold harmless each Bank, and -24- 31 reimburse such Bank within five Business Days after its written request, for the amount of any Taxes so levied or imposed and paid by such Bank. (b) Each Bank that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) agrees to deliver to the Borrower and the Agent on or prior to the Effective Date, or in the case of a Bank that is an assignee or transferee of an interest under this Agreement pursuant to Section 1.13 or 12.04 (unless the respective Bank was already a Bank hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Bank, (i) two accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001 (or successor forms) certifying to such Bank's entitlement as of such date to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Note, or (ii) if the Bank is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and can not deliver either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit C (any such certificate, a "Section 4.04(b)(ii) Certificate") and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8 (or successor form) certifying to such Bank's entitlement to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note. In addition, each Bank agrees that from time to time after the Effective Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrower and the Agent two new accurate and complete original signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 and a Section 4.04(b)(ii) Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Bank to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any Note, or it shall immediately notify the Borrower and the Agent of its inability to deliver any such Form or Certificate in which case such Bank shall not be required to deliver any such Form or Certificate pursuant to this Section 4.04(b). Notwithstanding anything to the contrary contained in Section 4.04(a), but subject to Section 12.04(b) and the immediately succeeding sentence, (x) the Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political sub division or taxing authority thereof or therein) from interest, fees or other amounts payable hereunder for the account of any Bank which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that such Bank has not provided to the Borrower U.S. Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Borrower shall not be obligated pursuant to Section 4.04(a) hereof to gross-up payments to be made to a Bank in respect of income or similar taxes imposed by the United States if (I) such Bank has not provided to the Borrower the Internal Revenue Service Forms required to be provided to the Borrower pursuant to this Section 4.04(b) or (II) in the case of a payment, other than -25- 32 interest, to a Bank described in clause (ii) above, to the extent that such Forms do not establish a complete exemption from withholding of such taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 4.04 and except as set forth in Section 12.04(b), the Borrower agrees to pay additional amounts and to indemnify each Bank in the manner set forth in Section 4.04(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any amounts deducted or withheld by it as described in the immediately preceding sentence as a result of any changes that are effective after the Effective Date in any applicable law, treaty, govern mental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of Taxes. SECTION 5. Conditions Precedent. The occurrence of the Effective Date pursuant to Section 12.10 and the obligation of each Bank to make each Loan to the Borrower hereunder, and the obligation of the Letter of Credit Issuer to issue each Letter of Credit hereunder, is subject, at the time of each such Credit Event (except as otherwise hereinafter indicated), to the satisfaction of the following conditions: 5.01 Execution of Agreement; Notes. On or prior to the Effective Date, (i) this Agreement shall have been executed and delivered as provided in Section 12.10 and (ii) there shall have been delivered to the Agent for the account of each Bank the appropriate Revolving Note and to BTCo the Swingline Note, in each case executed by the Borrower and in the amount, maturity and as otherwise provided herein. 5.02 No Default; Representations and Warranties. At the time of each Credit Event and also after giving effect thereto (i) there shall exist no Default or Event of Default and (ii) all representations and warranties contained herein or in the other Credit Documents in effect at such time shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of such Credit Event, unless stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date. 5.03 Officer's Certificate. On the Effective Date, the Agent shall have received a certificate dated such date signed by an Authorized Officer of the Borrower stating that all of the applicable conditions set forth in Sections 5.02, 5.07, 5.08 and 5.09 have been satisfied as of such date. 5.04 Opinions of Counsel. On the Effective Date, the Agent shall have received opinions, addressed to the Agent and each of the Banks and dated the Effective Date, from (i) Kirkland & Ellis, counsel to the Credit Parties, which opinion shall cover the matters contained in Exhibit D and such other matters incident to the transactions con- -26- 33 templated herein as the Agent may reasonably request and (ii) local counsel and other counsel to the Credit Parties and/or the Agent reasonably satisfactory to the Agent, which opinions shall cover such matters incident to the transactions contemplated herein and the other Credit Documents as the Agent may reasonably request and shall be in form and substance reasonably satisfactory to the Agent. 5.05 Corporate Proceedings. (a) On the Effective Date, the Agent shall have received from each Credit Party a certificate, dated the Effective Date, signed by an Authorized Officer of such Credit Party, and attested to by another Authorized Officer of such Credit Party, in the form of Exhibit E with appropriate insertions, together with copies of the Certificate of Incorporation and By-Laws of such Credit Party and the resolutions of such Credit Party referred to in such certificate and all of the foregoing (including each such Certificate of Incorporation and By-Laws) shall be reasonably satisfactory to the Agent. (b) On the Effective Date, all corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Documents shall be reasonably satisfactory in form and substance to the Agent, and the Agent shall have received all information and copies of all certificates, documents and papers, including good standing certificates, bring-down certificates and any other records of corporate proceedings and governmental approvals, if any, which the Agent reasonably may have requested in connection therewith, such documents and papers, where appropriate, to be certified by proper corporate or governmental authorities. 5.06 Adverse Change, etc. On or prior to the Effective Date, nothing shall have occurred since August 28, 1997 (and neither the Banks nor the Agent shall have become aware of any facts or conditions not previously known) which the Required Banks or the Agent shall determine (a) has, or could reasonably be expected to have, a material adverse effect on the rights or remedies of the Banks or the Agent, or on the ability of any Credit Party to perform its obligations to them hereunder or under any other Credit Document or (b) has, or could reasonably be expected to have, a Material Adverse Effect. 5.07 Litigation. On the Effective Date, there shall be no actions, suits or proceedings pending or threatened (a) with respect to this Agreement or any other Document or the Transaction or (b) which the Agent or the Required Banks shall determine could reasonably be expected to (i) have a Material Adverse Effect or (ii) have a material adverse effect on the Transaction, or the rights or remedies of the Banks or the Agent hereunder or under any other Credit Document or on the ability of any Credit Party to perform its respective obligations to the Banks or the Agent hereunder or under any other Credit Document. -27- 34 5.08 Approvals. On or prior to the Effective Date, except to the extent set forth on Annex XI, all necessary governmental (domestic and foreign) and third party approvals in connection with the Transaction and the transactions contemplated by the Documents and otherwise referred to herein or therein shall have been obtained and remain in effect, and all applicable waiting periods shall have expired without any action being taken by any competent authority which restrains, prevents or imposes materially adverse conditions upon the consummation of the Transaction or the transactions contemplated by the Documents and otherwise referred to herein. Additionally, there shall not exist any judgment, order, injunction or other restraint issued or filed or a hearing seeking injunctive relief or other restraint pending or notified prohibiting or imposing materially adverse conditions upon the consummation of the Transaction or the making of Loans. 5.09 Consummation of the Transaction. (a) On or prior to the Effective Date, the Recapitalization shall have been consummated in accordance with the Recapitalization Documents and all applicable laws, and each of the conditions precedent to the consummation of the Recapitalization as set forth in the Recapitalization Documents shall have been satisfied and not waived except with the consent of the Agent and the Required Banks to the reasonable satisfaction of the Agent and the Required Banks. (b) (i) On or prior to the Effective Date, the total commitments in respect of the Indebtedness to be Refinanced shall have been terminated, all loans with respect thereto shall have been repaid in full, together with interest thereon, all letters of credit issued thereunder shall have been terminated and all other amounts due and owing pursuant to the Indebtedness to be Refinanced shall have been repaid in full and all documents in respect of the Indebtedness to be Refinanced and all guarantees with respect thereto shall have been terminated (except as to indemnification provisions which may survive to the extent provided therein) and be of no further force and effect. (ii) On or prior to the Effective Date, the creditors in respect of the Indebtedness to be Refinanced shall have terminated and released all security interests and Liens on the assets owned by the Borrower and its Subsidiaries. The Agent shall have received such releases of security interests in and Liens on the assets owned by the Borrower and its Subsidiaries as may have been requested by the Agent, which releases shall be in form and substance reasonably satisfactory to the Agent. Without limiting the foregoing, there shall have been delivered (i) proper termination statements (Form UCC-3 or the appropriate equivalent) for filing under the UCC of each jurisdiction where a financing statement (Form UCC-1 or the appropriate equivalent) was filed with respect to the Borrower or any of its Subsidiaries in connection with the security interests created with respect to the Indebtedness to be Refinanced and the documentation related thereto, (ii) termination or reassignment of any security interest in, or Lien on, any patents, trademarks, copyrights, or similar interests of the Borrower or any of its Subsidiaries on which filings have been made, (iii) terminations of all mortgages, leasehold mortgages, deeds of trust and -28- 35 leasehold deeds of trust created with respect to property of the Borrower or any of its Subsidiaries, in each case, to secure the obligations in respect of the Indebtedness to be Refinanced, all of which shall be in form and substance reasonably satisfactory to the Agent, and (iv) all collateral owned by the Borrower or any of its Subsidiaries in the possession of any of the creditors in respect of the Indebtedness to be Refinanced or any collateral agent or trustee under any related security document shall have been returned to the Borrower or such Subsidiary. (c) On or prior to the Effective Date, the Borrower shall have received gross cash proceeds of $175,000,000 from the issuance of a like principal amount of the Subordinated Notes (it being understood that such cash proceeds shall include all amounts directly applied to finance the Transaction and pay related fees and expenses incurred in connection therewith), and the Banks shall have received true and correct copies of all Subordinated Note Documents (certified as such by an Authorized Officer of the Borrower), and all of the terms and conditions of such Subordinated Note Documents (including, without limitation, amortization, maturities, interest rates, absence of security, covenants, default, remedies, sinking fund provisions and other provisions) and the purchasers thereof shall be satisfactory to the Agent and the Required Banks. All of the Subordinated Note Documents shall have been duly executed and delivered by the parties thereto, shall be in full force and effect and each of the conditions precedent to the obligations of the parties to effectuate the issuance of the Subordinated Notes as set forth in the Subordinated Note Documents shall have been satisfied and not waived except with the consent of the Agent and the Required Banks to the reasonable satisfaction of the Agent and the Required Banks, and the Subordinated Notes shall have been issued in accordance with the Subordinated Note Documents and all applicable laws, rules and regulations. (d) On or prior to the Effective Date, (i) the Borrower shall have received gross cash proceeds of at least $68,000,000 from the Capital Stock Financing (of which up to $6,800,000 may constitute a rollover of a portion of the equity interests owned prior to the Effective Date by Micron Electronics), and (ii) the Borrower shall have received gross cash proceeds of at least $25,000,000 from the Exchangeable Preferred Equity Financing. All of the terms and conditions of the Equity Financing, including, without limitation, with respect to the Exchangeable Preferred Equity Financing, the terms and provisions relating to the payment of dividends on the Exchangeable Preferred Stock in kind, shall be satisfactory to the Agent and the Required Banks. Each of the conditions precedent to the obligations of the Borrower, Micron Electronics and the purchasers of equity in the respective Equity Financing to consummate such Equity Financing as set forth in the respective Equity Financing Documents shall have been satisfied and not waived except with the consent of the Agent and the Required Banks to the reasonable satisfaction of the Agent and the Required Banks and the Common Stock and/or Preferred Stock, as the case may be, issued in connection with the Equity Financing shall have been issued in -29- 36 accordance with the respective Equity Financing Documents and all applicable laws, rules and regulations. (e) On or prior to the Effective Date, (x) the Borrower shall have used the net cash proceeds received by it pursuant to each of the Equity Financing and the issuance of the Subordinated Notes to make payments owing in connection with the Transaction and (y) the Agent shall have received evidence in form, scope and substance reasonably satisfactory to it that the matters set forth in this Section 5.09 have been satisfied on such date. (f) On or prior to the Effective Date, there shall have been delivered to the Banks true and correct copies of all Documents entered into in connection with the Transaction (including, without limitation, the Recapitalization Documents, the Subordinated Note Documents, the Equity Financing Documents and the Refinancing Documents), and all of the terms and conditions of such Documents, as well as the structure of the Transaction and the ownership interests in the Borrower after giving effect to the Transaction, shall be in form and substance reasonably satisfactory to the Agent and the Required Banks. 5.10 Security Documents. (a) On the Effective Date, each Credit Party shall have duly authorized, executed and delivered a Pledge Agreement in the form of Exhibit F (as modified, amended or supplemented from time to time in accordance with the terms thereof and hereof, the "Pledge Agreement") and shall have delivered to the Collateral Agent, as pledgee thereunder, all of the Pledged Securities referred to therein, endorsed in blank in the case of promissory notes or accompanied by executed and undated stock powers in the case of capital stock, and the Pledge Agreement shall be in full force and effect. (b) On the Effective Date, each Credit Party shall have duly authorized, executed and delivered a Security Agreement in the form of Exhibit G (as modified, amended or supplemented from time to time in accordance with the terms thereof and hereof, the "Security Agreement") covering all of the Security Agreement Collateral, together with: (A) executed copies of Financing Statements (Form UCC-1) or appropriate local equivalent in appropriate form for filing under the UCC or appropriate local equivalent of each jurisdiction as may be necessary to perfect the security interests purported to be created by the Security Agreement; (B) certified copies of Requests for Information or Copies (Form UCC-11), or equivalent reports, each of a recent date listing all effective financing statements that name the Borrower or any of its Domestic Subsidiaries or a division or oper- -30- 37 ating unit of any such Person as debtor and that are filed in the jurisdictions referred to in clause (A) above, together with copies of such financing statements that name the Borrower or any of its Domestic Subsidiaries as debtor (none of which shall cover the Collateral except (x) those with respect to which appropriate termination statements executed by the secured lender thereunder have been delivered to the Agent and (y) to the extent evidencing Permitted Liens); (C) evidence of the completion of all other recordings and filings of, or with respect to, the Security Agreement as may be necessary or, in the opinion of the Collateral Agent, desirable to perfect the security interests intended to be created by the Security Agreement; and (D) evidence that all other actions necessary or, in the reasonable opinion of the Collateral Agent, desirable to perfect the security interests purported to be created by the Security Agreement have been taken; and the Security Agreement shall be in full force and effect. (c) On the Effective Date, the Collateral Agent shall have received fully executed counterparts of deeds of trust, mortgages and similar documents in each case in form and substance satisfactory to the Collateral Agent (as amended, modified or supplemented from time to time in accordance with the terms hereof and thereof, each a "Mortgage" and collectively, the "Mortgages") with respect to each of the Mortgaged Properties, and arrangements reasonably satisfactory to the Collateral Agent shall be in place to provide that counter parts of such Mortgages shall be recorded on the Effective Date in all places to the extent necessary or desirable, in the judgment of the Collateral Agent, effectively to create a valid and enforceable first priority Lien, subject only to Permitted Encumbrances, on each such Mortgaged Property in favor of the Collateral Agent (or such other trustee as may be required or desired under local law) for the benefit of the Secured Creditors, together with: (A) mortgagee title insurance policies (or binding commitments to issue such title insurance policies) issued by title insurers reasonably satisfactory to the Collateral Agent (the "Mortgage Policies") in amounts reasonably satisfactory to the Collateral Agent and assuring the Collateral Agent that the Mortgages are valid and enforceable first priority mortgage Liens on the respective Mortgaged Properties, free and clear of all defects and encumbrances except Permitted Encumbrances, and such Mortgage Policies shall be in form and substance reasonably satisfactory to the Collateral Agent and (i) shall include an endorsement for future advances under this Agreement, the Notes and the Mortgages and for any other matter that the Collateral Agent in its discretion may reasonably request (to the extent available in the respective jurisdiction of each Mortgaged Property), (ii) shall not include an -31- 38 exception for mechanics' liens, and (iii) shall provide for affirmative insurance and such reinsurance (including direct access agreements) as the Collateral Agent in its discretion may reasonably request; (B) surveys in form and substance reasonably satisfactory to the Collateral Agent of each Mortgaged Property designated as "owned" on Annex III hereto, dated a recent date reasonably acceptable to the Collateral Agent, certified in a manner reasonably satisfactory to the Collateral Agent by a licensed professional surveyor reasonably satisfactory to the Collateral Agent; and (C) such estoppel letters, landlord waiver letters, non-disturbance letters and similar assurances as may have been requested by the Collateral Agent, which letters shall be in form and substance reasonably satisfactory to the Collateral Agent. 5.11 Subsidiary Guaranty. On the Effective Date, each Subsidiary Guarantor, if any, shall have duly authorized, executed and delivered a Subsidiary Guaranty in the form of Exhibit H (as modified, amended or supplemented from time to time in accordance with the terms hereof and thereof, the "Subsidiary Guaranty"), and the Subsidiary Guaranty shall be in full force and effect. 5.12 Existing Indebtedness, etc. On the Effective Date and after giving effect to the Transaction, neither the Borrower nor any of its Subsidiaries shall have any preferred stock or Indebtedness outstanding except for the Preferred Stock and for Indebtedness permitted under Section 8.04. On and as of the Effective Date, all of the Existing Indebtedness shall remain outstanding after giving effect to the Transaction and the other transactions contemplated hereby without any default or events of default existing thereunder or arising as a result of the Transaction and the other transactions contemplated hereby (except to the extent amended or waived by the parties thereto on terms and conditions reasonably satisfactory to the Agent and the Required Banks). On and as of the Effective Date, the Agent and the Required Banks shall be satisfied with the amount of and the terms and conditions of all Existing Indebtedness. 5.13 Plans; Collective Bargaining Agreements; Existing Indebtedness Agreements; Shareholders' Agreements; Management Agreements; Employment Agreements; Tax Allocation Agreements; Material Contracts. On or prior to the Effective Date, there shall have been delivered to the Banks copies, certified as true and correct by an Authorized Officer of the Borrower of: (a) all Plans (and for each Plan that is required to file an annual report on Internal Revenue Service Form 5500-series, a copy of the most recent such report (including, to the extent required, the related financial and actuarial -32- 39 statements and opinions and other supporting statements, certifications, schedules and information), and for each Plan that is a "single-employer plan," as defined in Section 4001(a)(15) of ERISA, the most recently prepared actuarial valuation therefor) and any other material agreements, plans or arrangements, with or for the benefit of current or former employees of the Borrower or any of the Subsidiaries or any ERISA Affiliate (provided that the foregoing shall apply in the case of any multiemployer plan, as defined in Section 4001(a)(3) of ERISA, only to the extent that any document described therein is in the possession of the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate or reasonably available thereto from the sponsor or trustee of any such Plan); (b) any collective bargaining agreements or any other similar agreement or arrangement covering the employees of the Borrower or any of its Subsidiaries that are to remain in effect after giving effect to the consummation of the Transaction (collectively, the "Collective Bargaining Agreements"); (c) all agreements evidencing or relating to the Existing Indebtedness that are to remain in effect after giving effect to the consummation of the Transaction (collectively, the "Existing Indebtedness Agreements"); (d) all agreements entered into by the Borrower or any of its Subsidiaries governing the terms and relative rights of its capital stock, and any agreements entered into by shareholders relating to any such entity with respect to their capital stock, in each case that are to remain in effect after giving effect to the consummation of the Transaction (collectively, the "Shareholders' Agreements"); (e) any material agreements (or the forms thereof) with members of, or with respect to, the management of the Borrower or any of its Subsidiaries that are to remain in effect after giving effect to the consummation of the Transaction (collectively, the "Management Agreements"); (f) any employment agreements entered into by the Borrower or any of its Subsidiaries (collectively, the "Employment Agreements"); (g) any tax sharing or tax allocation agreements entered into by the Borrower or any of its Subsidiaries (collectively, the "Tax Allocation Agreements"); and (h) all material contracts and licenses of the Borrower or any of its Subsidiaries that are to remain in effect after giving effect to the consummation of the Transaction (collectively, the "Material Contracts"); -33- 40 all of which Plans, Collective Bargaining Agreements, Existing Indebtedness Agreements, Shareholders' Agreements, Management Agreements, Employment Agreements, Tax Allocation Agreements and Material Contracts shall be in form and substance reasonably satisfactory to the Agent and the Required Banks and shall be in full force and effect on the Effective Date. 5.14 Solvency Opinion; Environmental Analyses; Evidence of Insurance; Financial Statements. On the Effective Date, the Agent shall have received: (a) a solvency opinion in form and substance reasonably satisfactory to the Agent and the Required Banks from Valuation Research Corporation addressed to the Agent, each of the Banks and the Board of Directors of the Borrower and dated the Effective Date and supporting the conclusions, that, after giving effect to the Transaction and the incurrence of all financings contemplated herein, the Borrower and its Subsidiaries (on a consolidated basis) are not insolvent and will not be rendered insolvent by the indebtedness incurred in connection herewith, will not be left with unreasonably small capital with which to engage in their respective businesses and will not have incurred debts beyond their ability to pay such debts as they mature and become due; (b) Phase I environmental assessments from Environ Corporation, the results of which shall be in form and substance satisfactory to the Agent and the Required Banks; (c) evidence of insurance complying with the requirements of Section 7.03 for the business and properties of the Borrower and its Subsidiaries, in scope, form and substance reasonably satisfactory to the Agent and the Required Banks and naming the Collateral Agent as an additional insured and/or loss payee, and stating that such insurance shall not be cancelled or revised without at least 30 days prior written notice by the insurer to the Collateral Agent; and (d) true and correct copies of the financial statements referred to in Section 6.10(b) and such financial statements shall be in form and substance satisfactory to the Agent and the Required Banks. 5.15 Pro Forma Balance Sheet. On or prior to the Effective Date, there shall have been delivered to the Agent, an unaudited pro forma consolidated balance sheet of the Borrower and its Subsidiaries after giving effect to the Transaction and prepared in accordance with GAAP, together with a related funds flow statement, which pro forma balance sheet and funds flow statement shall be reasonably satisfactory in form and substance to the Agent and the Required Banks. -34- 41 5.16 Projections. On or prior to the Effective Date, the Banks shall have received the financial projections (the "Projections") set forth on Annex IV, which include the projected results of the Borrower and its Subsidiaries for the five fiscal years ended after the Effective Date. 5.17 Payment of Fees. On the Effective Date, all costs, fees and expenses, and all other compensation contemplated by this Agreement, due to the Agent or the Banks (including, without limitation, legal fees and expenses) shall have been paid to the extent due. 5.18 Notice of Borrowing; Letter of Credit Request. Prior to the incurrence of any Loan, the Agent shall have received prior notice satisfying the requirements of Section 1.03. Prior to the issuance of any Letter of Credit, the Agent and the Letter of Credit Issuer shall have received prior notice satisfying the requirements of Section 2.02. The occurrence of the Effective Date and the acceptance of the benefits of each other Credit Event shall constitute a representation and warranty by each Credit Party to each of the Banks that all of the applicable conditions specified above exist as of the date of such Credit Event. All of the certificates, legal opinions and other documents and papers referred to in this Section 5, unless otherwise specified, shall be delivered to the Agent at its Notice Office for the account of each of the Banks and, except for the Notes, in sufficient counterparts for each of the Banks and shall be reasonably satisfactory in form and substance to the Agent and the Required Banks. SECTION 6. Representations, Warranties and Agreements. In order to induce the Banks to enter into this Agreement and to make the Loans and issue and/or participate in the Letters of Credit provided for herein, the Borrower makes the following representations, warranties and agreements with the Banks in each case after giving effect to the Transaction, all of which shall survive the execution and delivery of this Agreement, the making of the Loans and the issuance of the Letters of Credit (with the occurrence of the Effective Date and each other Credit Event being deemed to constitute a representation and warranty that the matters specified in this Section 6 are true and correct in all material respects on and as of the Effective Date and the date of each such other Credit Event, unless stated to relate to a specific earlier date in which case such representations and warranties shall be true and correct in all material respects as of such earlier date): 6.01 Corporate Status. Each of the Borrower and each of its Subsidiaries (i) is a duly organized and validly existing corporation in good standing (to the extent such concept is relevant in such jurisdiction) under the laws of the jurisdiction of its organization, (ii) has the corporate power and authority to own its property and assets and to transact the business in which it is engaged and presently proposes to engage and (iii) is -35- 42 duly qualified and is authorized to do business and is in good standing in all jurisdictions where it is required to be so qualified and where the failure to be so qualified would have a Material Adverse Effect. 6.02 Corporate Power and Authority. Each Credit Party has the corporate power and authority to execute, deliver and carry out the terms and provisions of the Documents to which it is a party and has taken all necessary corporate action to authorize the execution, delivery and performance of each Document to which it is a party. Each Credit Party has duly executed and delivered each Document to which it is a party and each such Document constitutes the legal, valid and binding obligation of such Credit Party enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws generally affecting creditors' rights and by equitable principles (regardless of whether enforcement is sought in equity or at law). 6.03 No Violation. Neither the execution, delivery or performance by any Credit Party of the Documents to which it is a party nor compliance by any Credit Party with the terms and provisions thereof, nor the consummation of the transactions contemplated herein or therein, (i) will contravene any applicable provision of any law, statute, rule or regulation, or any order, writ, injunction or decree of any court or governmental instrumentality, (ii) will conflict or be inconsistent with or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or (other than pursuant to the Security Documents) result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of the Borrower or any of its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, credit agreement or any other material agreement or instrument to which the Borrower or any of its Subsidiaries is a party or by which it or any of its property or assets are bound or to which it may be subject or (iii) will violate any provision of the Certificate of Incorporation or ByLaws of the Borrower or any of its Subsidiaries. 6.04 Litigation. There are no actions, suits or proceedings pending or, to the knowledge of the Borrower or any of its Subsidiaries, threatened, with respect to the Borrower or any of its Subsidiaries (i) that could reasonably be expected to have a Material Adverse Effect or (ii) that could reasonably be expected to have a material adverse effect on the rights or remedies of the Banks or on the ability of any Credit Party to perform its respective obligations to the Banks hereunder and under the other Credit Documents to which it is, or will be, a party. Additionally, there does not exist any judgment, order or injunction prohibiting or imposing material adverse conditions upon the occurrence of any Credit Event. 6.05 Use of Proceeds; Margin Regulations. (a) The proceeds of the Loans shall be utilized only for the general corporate and working capital purposes of the -36- 43 Borrower and its Subsidiaries; provided that no proceeds of any Loan may be utilized to finance any portion of the Transaction or to pay fees or expenses incurred in connection therewith. (b) Neither the making of any Loan hereunder, nor the use of the proceeds thereof, nor the occurrence of any other Credit Event, will violate the provisions of Regulation G, T, U or X of the Board of Governors of the Federal Reserve System and no part of the proceeds of any Loan or the use of any Letter of Credit will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock. 6.06 Governmental Approvals. Except to the extent set forth on Annex XI, no order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any foreign or domestic governmental or public body or authority, or any subdivision thereof, is required to authorize or is required in connection with (i) the execution, delivery and performance of any Document or (ii) the legality, validity, binding effect or enforceability of any Document, other than filings, recordings and registrations required to perfect security interests created under the Security Documents. 6.07 Investment Company Act. Neither the Borrower nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. 6.08 Public Utility Holding Company Act. Neither the Borrower nor any of its Subsidiaries is 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. 6.09 True and Complete Disclosure. All factual information (taken as a whole) heretofore or contemporaneously furnished by or on behalf of the Borrower or any of its Subsidiaries in writing to the Agent or any Bank (including, without limitation, all information contained in the Documents) for purposes of or in connection with this Agreement or any transaction contemplated herein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of any such Persons in writing to the Agent or any Bank 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 (taken as a whole) not misleading at such time in light of the circumstances under which such information was provided. -37- 44 6.10 Financial Condition; Financial Statements. (a) On and as of the Effective Date, on a pro forma basis after giving effect to the Transaction and to all Indebtedness incurred and to be incurred (including, without limitation, the Loans) and Liens created, and to be created, by each Credit Party in connection therewith, with respect to each of the Borrower and its Subsidiaries (on a consolidated basis) and of the Borrower (on a stand-alone basis) (x) the sum of the assets, at a fair valuation, of each of the Borrower and its Subsidiaries (on a consolidated basis) and of the Borrower (on a stand-alone basis) will exceed its debts, (y) it has not incurred nor intended to, nor believes that it will, incur debts beyond its ability to pay such debts as such debts mature and (z) it will have sufficient capital with which to conduct its business. For purposes of this Section 6.10, "debt" means any liability on a claim, and "claim" means (i) right to payment whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (ii) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. (b) The consolidated balance sheets of the Borrower and its Subsidiaries at August 28, 1997 and at November 27, 1997 and the related statements of operations and cash flows and changes in shareholders' equity of the Borrower and its Subsidiaries for the fiscal year or three-month period as the case may be, ended as of said dates, copies of which have heretofore been furnished to each Bank, present fairly in all material respects the consolidated financial position of the Borrower and its Subsidiaries at the dates of said statements and the results of operations and cash flows for the periods covered thereby. All such financial statements have been prepared in accordance with GAAP consistently applied except to the extent provided in the notes to said financial statements and subject in the case of the November 27, 1997 statements to normal year-end audit adjustments and the absence of footnotes. (c) Since August 28, 1997, nothing has occurred that has had or could reasonably be expected to have a Material Adverse Effect. (d) Except as fully reflected in the financial statements described in Section 6.10(b) and the Indebtedness incurred under this Agreement and under the Subordinated Notes, (i) there were as of the Effective Date, no liabilities or obligations (excluding current obligations incurred in the ordinary course of business) with respect to the Borrower or any of its Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or other wise and whether or not due), and (ii) the Borrower does not know of any basis for the assertion against the Borrower or any of its Subsidiaries of any such liability or obligation which, in the case of clause (i) or (ii) either individually or in the aggregate, is, or would be reasonably likely to have, a Material Adverse Effect. -38- 45 (e) The Projections are based on good faith estimates and assumptions made by the management of the Borrower, and on the Effective Date such management believed that the Projections were reasonable and attainable, it being recognized by the Banks, however, that projections as to future events are not to be viewed as facts and that the actual results during the period or periods covered by the Projections probably will differ from the projected results and that the differences may be material. There is no fact known to the Borrower or any of its Subsidiaries which would have a Material Adverse Effect, which has not been disclosed herein or in such other documents, certificates and statements furnished to the Banks for use in connection with the transactions contemplated hereby. 6.11 Security Interests. On and after the Effective Date, each of the Security Documents creates (or after the execution and delivery thereof will create), as security for the Obligations, a valid and enforceable perfected security interest in and Lien on all of the Collateral subject thereto, superior to and prior to the rights of all third Persons, and subject to no other Liens (except that the Security Agreement Collateral, the Mortgaged Properties and the collateral covered by the Additional Security Documents may be subject to Permitted Liens relating thereto), in favor of the Collateral Agent. No filings or recordings are required in order to perfect the security interests created under any Security Document except for filings or recordings required in connection with any such Security Document which shall have been made on or prior to the Effective Date as contemplated by Section 5.10(b) or (c) or on or prior to the execution and delivery thereof as contemplated by Sections 7.11, 7.13 and 8.14. 6.12 Transaction. At the time of consummation thereof, the Transaction shall have been consummated in all material respects in accordance with the terms of the Documents and all applicable laws. At the time of consummation thereof, all consents and approvals of, and filings and registrations with, and all other actions in respect of, all govern mental agencies, authorities or instrumentalities required in order to make or consummate the Transaction have been obtained, given, filed or taken or waived and are or will be in full force and effect (or effective judicial relief with respect thereto has been obtained) except where the failure to obtain, give, file, or take would not reasonably be expected to have a Material Adverse Effect. All applicable waiting periods with respect thereto have or, prior to the time when required, will have, expired without, in all such cases, any action being taken by any competent authority which restrains, prevents, or imposes material adverse conditions upon the Transaction. Additionally, there does not exist any judgment, order or injunction prohibiting or imposing material adverse conditions upon the Transaction or the performance by the Borrower and its Subsidiaries of their obligations under the Documents and all applicable laws. 6.13 Compliance with ERISA. (a) Annex X sets forth, as of the Effective Date, each Plan maintained or contributed to by the Borrower and its Subsidiaries; -39- 46 each Plan (and each related trust, insurance contract or fund) is in substantial compliance with its terms and with all applicable laws, including without limitation ERISA and the Code; each Plan (and each related trust, if any) which is intended to be qualified under Section 401(a) of the Code has received a determination letter from the Internal Revenue Service (or has submitted an application for a determination letter with the Internal Revenue Service and is awaiting receipt of a response) to the effect that it meets the requirements of Sections 401(a) and 501(a) of the Code; no Reportable Event has occurred; no Plan which is a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) is insolvent or in reorganization; no Plan has an Unfunded Current Liability; no Plan which is subject to Section 412 of the Code or Section 302 of ERISA has an accumulated or waived funding deficiency within the meaning of such sections of the Code or ERISA, or has applied for or received a waiver of an accumulated funding deficiency or an extension of any amortization period, within the meaning of Section 412 of the Code or Section 303 or 304 of ERISA; except as would not result in any material liability, all contributions required to be made with respect to a Plan have been timely made; neither the Borrower nor any Subsidiary of the Borrower nor any ERISA Affiliate has incurred any material liability (including any indirect, contingent or secondary liability) to or on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or reasonably expects to incur any such liability under any of the foregoing sections with respect to any Plan (other than liabilities of any ERISA Affiliate which could not, by operation of law or otherwise, become a liability of the Borrower or any of its Subsidiaries); no condition exists which presents a material risk to the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate of incurring a liability to or on account of a Plan pursuant to the foregoing provisions of ERISA and the Code; no proceedings have been instituted to terminate or appoint a trustee to administer any Plan subject to Title IV of ERISA; no action, suit, proceeding, hearing, audit or investigation with respect to the administration, operation or the investment of assets of any Plan (other than routine claims for benefits) which is reasonably likely to result in a material liability to the Borrower or any Subsidiary of the Borrower is pending, threatened or reasonably expected; using actuarial assumptions and computation methods consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate liabilities of the Borrower and its Subsidiaries and its ERISA Affiliates to all Plans which are multiemployer plans (as defined in Section 4001(a)(3) of ERISA) in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Plan ended prior to the date of the most recent Credit Event, would not result in a Material Adverse Effect; each group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or has covered employees or former employees of the Borrower, any Subsidiary of the Borrower, or any ERISA Affiliate has at all times been operated in all material respects in compliance with the provisions of Part 6 of subtitle B of Title I of ERISA and Section 4980B of the Code; no lien imposed under the Code or ERISA on the assets of the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate exists or is reasonably expected to arise on account of any Plan; and -40- 47 the Borrower and its Subsidiaries may cease contributions to or terminate any employee benefit plan maintained by any of them without incurring any material liability. (b) Each Foreign Pension Plan has been maintained in substantial compliance with its terms and with the requirements of any and all applicable laws, statutes, rules, regulations and orders and has been maintained, where required, in good standing with applicable regulatory authorities. All contributions required to be made with respect to a Foreign Pension Plan have been timely made. Neither the Borrower nor any of its Subsidiaries has incurred any material obligation in connection with the termination of or withdrawal from any Foreign Pension Plan. The present value of the accrued benefit liabilities (whether or not vested) under each Foreign Pension Plan, determined as of the end of the most recently ended fiscal year of the Borrower on the basis of actuarial assumptions, each of which is reasonable, did not exceed the current value of the assets of such Foreign Pension Plan, allocable to such benefit liabilities. 6.14 Capitalization. On the Effective Date and after giving effect to the Transaction, the authorized capital stock of the Borrower shall consist of (i) 30,000,000 shares of Class A Common Stock, par value $0.001 per share, 3,261,177 of which are issued and outstanding, (ii) 12,000,000 shares of Class B Common Stock, par value $0.001 per share, 863,823 of which are issued and outstanding, (iii) 2,000,000 shares of Class C Common Stock, par value $0.001 per share, 874,999 of which are issued and outstanding, (iv) 1,000 shares of undesignated common stock, par value $0.01 per share, none of which are issued and outstanding (such Class A Common Stock, Class B Common Stock, Class C Common Stock and undesignated common stock being hereinafter called the "Common Stock"), (v) 6,000,000 shares of Series A Convertible Preferred Stock, par value $0.001 per share, 3,261,177 of which are issued and outstanding, (vi) 6,000,000 shares of Series B Convertible Preferred Stock, par value $0.001 per share, 863,823 of which are issued and outstanding, (vii) 1,000,000 shares of Series C Convertible Preferred Stock, par value $0.001 per share, 874,999 of which are issued and outstanding and (viii) 750,000 shares of 12-1/2% Senior Exchangeable Preferred Stock (the "Exchangeable Preferred Stock"), par value $0.001 per share, 250,000 of which are issued and outstanding (such Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Exchangeable Preferred Stock being hereinafter called the "Preferred Stock"). All such outstanding shares have been duly and validly issued, are fully paid and nonassessable. Except as set forth on Annex XII, as of the Effective Date, the Borrower does not have outstanding any securities convertible into or exchangeable for its capital stock or outstanding any rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, its capital stock except for options to purchase Capital Stock issued or to be issued to management and other employees of the Borrower and its Subsidiaries. -41- 48 6.15 Subsidiaries. On and as of the Effective Date and after giving effect to the consummation of the Transaction, the Borrower has no Subsidiaries other than those Subsidiaries listed on Annex V. Annex V correctly sets forth, as of the Effective Date and after giving effect to the Transaction, the percentage ownership (direct and indirect) of the Borrower in each class of capital stock of each of its Subsidiaries and also identifies the direct owner thereof. All outstanding shares of capital stock of each Subsidiary of the Borrower have been duly and validly issued, are fully paid and nonassessable and have been issued free of preemptive rights. No Subsidiary of the Borrower has outstanding any securities convertible into or exchangeable for its capital stock or outstanding any right to subscribe for or to purchase, or any options or warrants for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of or any calls, commitments or claims of any character relating to, its capital stock or any stock appreciation or similar rights. 6.16 Intellectual Property. The Borrower and each of its Subsidiaries owns or holds a valid license or other right to use all the material patents, trademarks, service marks, trade names, technology, know-how and formulas free from restrictions that are materially adverse to the use thereof, that are used in the operation of the business of the Borrower and each of its Subsidiaries as presently conducted. 6.17 Compliance with Statutes, etc. The Borrower and its Subsidiaries are in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including compliance with all applicable Environmental Laws with respect to any Real Property or governing its business and the requirements of any permits issued under such Environmental Laws with respect to any such Real Property or the operations of the Borrower or any of its Subsidiaries), except such non-compliance as is not likely to, individually or in the aggregate, have a Material Adverse Effect. 6.18 Environmental Matters. (a) The Borrower and its Subsidiaries have complied with, and on the date of each Credit Event are in compliance with, all applicable Environmental Laws and the requirements of any permits issued under such Environmental Laws. There are no pending or, to the best knowledge of the Borrower, past or threatened Environmental Claims against the Borrower or any of its Subsidiaries or any Real Property owned or operated by the Borrower or any of its Subsidiaries. There are no facts, circumstances, conditions or occurrences concerning the business or operations of the Borrower or any of its Subsidiaries or any Real Property at any time owned or operated by the Borrower or any of its Subsidiaries or, to the best knowledge of the Borrower, on any property adjoining or in the vicinity of any such Real Property that would reasonably be expected (i) to form the basis of an Environmental Claim against the Borrower or any of its Subsidiaries or any such currently owned or operated Real Property or (ii) to cause any such Real Property to be subject to any restrictions on the ownership, occupancy, use or -42- 49 transferability of such Real Property by the Borrower or any of its Subsidiaries under any applicable Environmental Law. (b) Hazardous Materials have not at any time been generated, used, treated or stored on, or transported to or from, any Real Property owned or operated by the Borrower or any of its Subsidiaries where such generation, use, treatment or storage has violated or would reasonably be expected to violate any Environmental Law. Hazardous Materials have not at any time been Released on or from any Real Property owned or operated by the Borrower or any of its Subsidiaries. There are not now any underground storage tanks located on any Real Property owned or operated by the Borrower or any of its Subsidiaries. (c) Notwithstanding anything to the contrary in this Section 6.18, the representations made in this Section 6.18 shall only be untrue if the aggregate effect of all restrictions, failures, noncompliance, Environmental Claims, Releases and presence of under ground storage tanks, in each case of the types described above in clauses (a) and (b), would reasonably be expected to have a Material Adverse Effect. 6.19 Properties. All Real Property owned or leased by the Borrower or any of its Domestic Subsidiaries as of the Effective Date and after giving effect to the Transaction, and the nature of the interest therein, is correctly set forth in Annex III. The Borrower and its Subsidiaries have good and marketable title to, or a validly subsisting leasehold interest in, all material properties owned or leased by it, including all Real Property reflected in Annex III or in the financial statements referred to in Section 6.10(b), free and clear of all Liens, other than Permitted Liens. 6.20 Labor Relations. Neither the Borrower nor any of its Subsidiaries is engaged in any unfair labor practice that could reasonably be expected to have a Material Adverse Effect. There is (i) no unfair labor practice complaint pending against the Borrower or any of its Subsidiaries or, to the best knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries, before the National Labor Relations Board, and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement is so pending against the Borrower or any of its Subsidiaries or, to the best knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries, (ii) no strike, labor dispute, slowdown or stoppage pending against the Borrower or any of its Subsidiaries or, to the best knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries and (iii) to the best knowledge of the Borrower, no union representation question existing with respect to the employees of the Borrower or any of its Subsidiaries and, to the best knowledge of the Borrower, no union organizing activities are taking place, except (with respect to any matter specified in clause (i), (ii) or (iii) above, either individually or in the aggregate) such as is not reasonably likely to have a Material Adverse Effect. -43- 50 6.21 Tax Returns and Payments. All Federal, state, foreign and other material returns, statements, forms and reports for taxes (the "Returns") required to be filed by or with respect to the income, properties or operations of the Borrower and/or any of its Subsidiaries have been timely filed with the appropriate taxing authority. The Returns accurately reflect all liability for taxes of the Borrower and its Subsidiaries for the periods covered thereby. The Borrower and each of its Subsidiaries have paid all taxes payable by them other than immaterial taxes and other taxes which are not yet due and payable, and other than those contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP. Except as disclosed in the financial statements referred to in Section 6.10(b), there is no material action, suit, proceeding, investigation, audit, or claim now pending or, to the knowledge of the Borrower, threatened by any authority regarding any taxes relating to the Borrower or any of its Subsidiaries. As of the Effective Date, neither the Borrower nor any of its Subsidiaries has entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the payment or collection of taxes of the Borrower or any of its Subsidiaries, or is aware of any circumstances that would cause the taxable years or other taxable periods of the Borrower or any of its Subsidiaries not to be subject to the normally applicable statute of limitations. Neither the Borrower nor any of its Subsidiaries have provided, with respect to themselves or property held by them, any consent under Section 341 of the Code. Neither the Borrower nor any of its Subsidiaries has incurred, or will incur, any material tax liability in connection with the Transaction and the other transactions contemplated hereby. 6.22 Existing Indebtedness. Annex VI sets forth a true and complete list of all Indebtedness of the Borrower and its Subsidiaries as of the Effective Date and which is to remain outstanding after giving effect to the Transaction (excluding the Loans, the Letters of Credit, the Subordinated Notes and Intercompany Loans, the "Existing Indebtedness"), in each case showing the aggregate principal amount thereof and the name of the respective borrower and any other entity which directly or indirectly guaranteed such debt. 6.23 Representations and Warranties in Other Documents. All representations and warranties set forth in the Documents (other than the Credit Documents) were true and correct in all material respects as of the time such representations and warranties were made and shall be true and correct in all material respects as of the Effective Date as if such representations and warranties were made on and as of such date, unless stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date. 6.24 Subordination. The subordination provisions contained in the Subordinated Note Documents are enforceable against the Borrower and the holders thereof, -44- 51 and all Obligations are within the definition of "Senior Debt" and "Designated Senior Debt" included in such subordination provisions. SECTION 7. Affirmative Covenants. The Borrower hereby covenants and agrees that as of the Effective Date and thereafter for so long as this Agreement is in effect and until the Total Revolving Loan Commitment has terminated, no Letters of Credit (other than Letters of Credit, together with all Fees that have accrued and will accrue thereon through the stated termination date of such Letters of Credit, which have been supported in a manner satisfactory to the Letter of Credit Issuer in its sole and absolute discretion) or Notes are outstanding and the Loans and Unpaid Drawings, together with interest, Fees and all other Obligations (other than any indemnities described in Section 12.13 hereof which are not then due and payable) incurred hereunder, are paid in full: 7.01 Information Covenants. The Borrower will furnish to each Bank: (a) Monthly Reports. Within 30 days (or 45 days for February, March, April and May of 1998) after the end of each fiscal month of the Borrower, the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal month and the related consolidated statements of income and retained earnings and of cash flows for such fiscal month and for the elapsed portion of the fiscal year ended with the last day of such fiscal month, in each case setting forth comparative figures for the corresponding month in the prior fiscal year and comparative budgeted figures for such fiscal month, all of which shall be certified by the chief financial officer or other Authorized Officer of the Borrower, subject to normal year-end audit adjustments and the absence of footnote disclosure. (b) Quarterly Financial Statements. Within 45 days (or 60 days for the quarterly accounting periods ending in February and May of 1998) after the close of the first three quarterly accounting periods in each fiscal year of the Borrower, the consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such quarterly accounting period and the related consolidated statements of income and retained earnings and of cash flows for such quarterly accounting period and for the elapsed portion of the fiscal year ended with the last day of such quarterly accounting period, all of which shall be in reasonable detail and certified by the chief financial officer or other Authorized Officer of the Borrower that they fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the dates indicated and the results of their operations and changes in their cash flows for the periods indicated, subject to normal year-end audit adjustments and the absence of footnote disclosure. (c) Annual Financial Statements. Within 90 days after the close of each fiscal year of the Borrower, the consolidated balance sheet of the Borrower and its -45- 52 Subsidiaries as at the end of such fiscal year and the related consolidated statements of income and retained earnings and of cash flows for such fiscal year, in each case setting forth comparative figures for the preceding fiscal year and comparative budgeted figures for such fiscal year, and, in the case of all such financial statements (but excluding such comparative budgeted figures), certified by KPMG Peat Marwick or such other independent certified public accountants of recognized national standing as shall be reasonably acceptable to the Agent, in each case to the effect that such statements fairly present in all material respects the financial condition of the Borrower and its Subsidiaries as of the dates indicated and the results of their operations and cash flows, together with a certificate of such accounting firm stating that in the course of its regular audit of the business of the Borrower and its Subsidiaries, which audit was conducted in accordance with generally accepted auditing standards, no Default or Event of Default which has occurred and is continuing has come to their attention insofar as such Default or Event of Default relates to financial and accounting matters or, if such a Default or an Event of Default has come to their attention a statement as to the nature thereof. (d) Budgets, etc. Not more than 60 days after the commencement of each fiscal year of the Borrower, budgets of the Borrower and its Subsidiaries in reason able detail for each of the four fiscal quarters of such fiscal year as customarily prepared by management for its internal use setting forth, with appropriate discussion, the principal assumptions upon which such budgets are based. Together with each delivery of financial statements pursuant to Sections 7.01(b) and (c), a comparison of the current year to date financial results (other than in respect of the balance sheets included therein) against the budgets required to be submitted pursuant to this clause (d) shall be presented. (e) Officer's Certificates. At the time of the delivery of the financial statements provided for in Sections 7.01(b) and (c), a certificate of the chief financial officer or other Authorized Officer of the Borrower to the effect that no Default or Event of Default exists or, if any Default or Event of Default does exist, specifying the nature and extent thereof, which certificate shall set forth the calculations required to establish whether the Borrower and its Subsidiaries were in compliance with the provisions of Sections 8.04(e), 8.05 and 8.08 through and including 8.11, as at the end of such fiscal quarter or year, as the case may be. (f) Notice of Default or Litigation. Promptly, and in any event within five Business Days (or 10 Business Days in the case of clause (y) below) after any Senior Officer of the Borrower or any of its Subsidiaries obtains knowledge thereof, notice of (x) the occurrence of any event which constitutes a Default or an Event of Default, which notice shall specify the nature thereof, the period of existence thereof and what action the Borrower proposes to take with respect thereto and shall -46- 53 state that such notice is a "notice of default" and (y) the commencement of, or threat of, or any significant development in, any litigation or governmental proceeding pending against the Borrower or any of its Subsidiaries which is likely to have a Material Adverse Effect, or a material adverse effect on the ability of any Credit Party to perform its respective obligations hereunder or under any other Credit Document. (g) Auditors' Reports. Promptly upon receipt thereof, a copy of each report or "management letter" submitted to the Borrower or any of its Subsidiaries by its independent accountants in connection with any annual, interim or special audit made by them of the books of the Borrower or any of its Subsidiaries. (h) Environmental Matters. Promptly after obtaining knowledge of any of the following, written notice of: (i) any pending or threatened material Environmental Claim against the Borrower or any of its Subsidiaries or any Real Property owned or operated by the Borrower or any of its Subsidiaries; (ii) any condition or occurrence on any Real Property owned or operated by the Borrower or any of its Subsidiaries that (x) results in material noncompliance by the Borrower or any of its Subsidiaries with any applicable Environmental Law or (y) could reasonably be anticipated to form the basis of a material Environmental Claim against the Borrower or any of its Subsidiaries or any such Real Property; (iii) any condition or occurrence on any Real Property owned or operated by the Borrower or any of its Subsidiaries that could reasonably be anticipated to cause such Real Property to be subject to any material restrictions on the ownership, occupancy, use or transferability by the Borrower or its Subsidiary, as the case may be, of its interest in such Real Property under any Environmental Law; and (iv) the taking of any material removal or remedial action in response to the actual or alleged presence of any Hazardous Material on any Real Property owned or operated by the Borrower or any of its Subsidiaries where the Borrower or any of its Subsidiaries is or is reasonably expected to be responsible for the cost of such action or where the taking of such action could reasonably be expected to materially interfere with the operations of the Borrower or any of its Subsidiaries at such Real Property. -47- 54 All such notices shall describe in reasonable detail the nature of the claim, investigation, condition, occurrence or removal or remedial action and the Borrower's response thereto. In addition, the Borrower agrees to provide the Banks with copies of all material written communications by the Borrower or any of its Subsidiaries with any Person, government or governmental agency relating to any of the matters set forth in clauses (i)-(iv) above, and such detailed reports relating to any of the matters set forth in clauses (i)-(iv) above as may reasonably be requested by the Agent or the Required Banks. (i) Other Information. Promptly upon transmission thereof, copies of any filings and registrations with, and reports to, the SEC by the Borrower or any of its Subsidiaries and copies of all financial statements, proxy statements, notices and reports as the Borrower or any of its Subsidiaries shall generally send to analysts or the holders of their capital stock or the holders of the Exchangeable Preferred Stock or the holders of the Subordinated Notes in their capacity as such holders (to the extent not theretofore delivered to the Banks pursuant to this Agreement) and, with reasonable promptness, such other information or documents (financial or otherwise) as the Agent on its own behalf or on behalf of any Bank may reasonably request from time to time. 7.02 Books, Records and Inspections. The Borrower will, and will cause each of its Subsidiaries to, permit, upon notice to the chief financial officer or other Authorized Officer of the Borrower, (x) officers and designated representatives of the Agent or any Bank to visit and inspect any of the properties or assets of the Borrower and any of its Subsidiaries in whomsoever's possession, and to examine the books of account of the Borrower and any of its Subsidiaries and discuss the affairs, finances and accounts of the Borrower and of any of its Subsidiaries with, and be advised as to the same by, their officers and independent accountants, all at such reasonable times and intervals and to such reasonable extent as the Agent or any Bank may desire and (y) the Agent, at the request of the Required Banks, to conduct, at the Borrower's expense, an audit of the accounts receivable and/or inventories of the Borrower and its Subsidiaries at such times (but no more frequently than once a year unless an Event of Default has occurred and is continuing) as the Required Banks shall reasonably require. 7.03 Insurance. The Borrower will, and will cause each of its Subsidiaries to, at all times from and after the Effective Date maintain in full force and effect insurance with reputable and solvent insurance carriers in such amounts, covering such risks and liabilities and with such deductibles or self-insured retentions as are in accordance with normal industry practice. At any time that insurance at the levels described in Annex VII is not being maintained by the Borrower and its Subsidiaries, the Borrower will notify the Banks in writing thereof and, if thereafter notified by the Agent to do so, the Borrower will obtain insurance at such levels to the extent then generally available (but in any event within -48- 55 deductible or self-insured retention limitations set forth in the preceding sentence) or otherwise as are acceptable to the Agent. The Borrower will furnish to the Agent on the Effective Date and on each date as the Agent or the Required Banks may reasonably request, a summary of the insurance carried in respect of the Borrower and its Subsidiaries and the assets of the Borrower and its Subsidiaries together with certificates of insurance and other evidence of such insurance, if any, naming the Collateral Agent as an additional insured and/or loss payee. 7.04 Payment of Taxes. The Borrower will pay and discharge, and will cause each of its Subsidiaries to pay and discharge, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which material penalties attach thereto, and all lawful claims for sums that have become due and payable which, if unpaid, might become a Lien not otherwise permitted under Section 8.03(a) or charge upon any properties of the Borrower or any of its Subsidiaries; provided, that neither the Borrower nor any of its Subsidiaries shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings if it has maintained adequate reserves with respect thereto in accordance with GAAP. 7.05 Corporate Franchises. The Borrower will do, and will cause each of its Subsidiaries to do, or cause to be done, all things necessary to preserve and keep in full force and effect its existence and its material rights, franchises and authority to do business; provided, however, that any transaction permitted by Section 8.02 will not constitute a breach of this Section 7.05. 7.06 Compliance with Statutes, etc. The Borrower will, and will cause each of its Subsidiaries to, comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property (including applicable statutes, regulations, orders and restrictions relating to environmental standards and controls) other than such non-compliance as would not have a Material Adverse Effect or a material adverse effect on the ability of any Credit Party to perform its obligations under any Credit Document to which it is a party. 7.07 Compliance with Environmental Laws. (a) The Borrower will pay, and will cause each of its Subsidiaries to pay, all costs and expenses incurred by it in keeping in compliance with all Environmental Laws, and will keep or cause to be kept all Real Properties owned or operated by the Borrower or any of its Subsidiaries free and clear of any Liens imposed pursuant to such Environmental Laws; and (b) neither the Borrower nor any of its Subsidiaries will generate, use, treat, store, release or dispose of, or permit the generation, use, treatment, storage, release or disposal of, Hazardous Materials on any Real Property owned or operated by the Borrower or any of its Subsidiaries, or transport or per- -49- 56 mit the transportation of Hazardous Materials to or from any such Real Property, unless the failure to comply with the requirements specified in clause (a) or (b) above, either individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. If the Borrower or any of its Subsidiaries, or any tenant or occupant of any Real Property, cause or permit any intentional or unintentional act or omission resulting in the presence or Release of any Hazardous Material (except in compliance with applicable Environmental Laws), the Borrower agrees to undertake, and/or to cause any of its Subsidiaries, tenants or occupants to undertake, at their sole expense, any clean up, removal, remedial or other action required pursuant to Environmental Laws to remove and clean up any Hazardous Materials from any Real Property except where the failure to do so would not be reasonably expected to have a Material Adverse Effect; provided that neither the Borrower nor any of its Subsidiaries shall be required to comply with any such order or directive which is being contested in good faith and by proper proceedings so long as it has maintained adequate reserves with respect to such compliance to the extent required in accordance with GAAP. 7.08 ERISA. As soon as possible and, in any event, within ten (10) days after the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate knows or has reason to know of the occurrence of any of the following, the Borrower will deliver to each of the Banks a certificate of the chief financial officer or other Authorized Officer of the Borrower setting forth the full details as to such occurrence and the action, if any, which the Borrower, such Subsidiary or such ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by the Borrower, such Subsidiary, such ERISA Affiliate, the PBGC, a Plan participant or the Plan administrator with respect thereto: that a Reportable Event has occurred (except to the extent that the Borrower has previously delivered to the Banks a certificate and notices (if any) concerning such event pursuant to the next clause hereof); that a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof), and an event described in Subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 is reasonably expected to occur with respect to such Plan within the following 30 days; that an accumulated funding deficiency, within the meaning of Section 412 of the Code or Section 302 of ERISA, has been incurred or an application may be or has been made for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code or Section 303 or 304 of ERISA with respect to a Plan; except as would otherwise result in a material liability, that any contribution required to be made to a Plan or Foreign Pension Plan has not been timely made; that a Plan has been or is reasonably expected to be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA; that a Plan has an Unfunded Current Liability; that proceedings are reasonably expected to be or have been instituted to terminate or appoint a trustee to administer a Plan which is subject to Title IV of ERISA; that a -50- 57 proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Plan; that the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate will or could reasonably be expected to incur any material liability (including any indirect, contingent or secondary liability) to or on account of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409, 502(i) or 502(l) of ERISA or with respect to a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code; or that the Borrower or any Subsidiary of the Borrower could reasonably be expected to incur any material liability pursuant to any employee welfare benefit plan (within the meaning of Section 3(1) of ERISA) that provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any Plan or any Foreign Pension Plan. At the request of any Bank, the Borrower will deliver such Bank (i) a complete copy of the annual report (on Internal Revenue Service Form 5500-series) of each Plan required to be filed with the Internal Revenue Service and (ii) copies of any records, documents or other information that must be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of ERISA. In addition to any certificates or notices delivered to the Banks pursuant to the first sentence hereof, at the request of any Bank, copies of annual reports and any records, documents or other information required to be furnished to the PBGC, and any material notices received by the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate with respect to any Plan or Foreign Pension Plan shall be delivered to such Bank no later than ten (10) days after any such request. 7.09 Good Repair. The Borrower will, and will cause each of its Subsidiaries to, ensure that its material properties and equipment used in its business are kept in good repair, working order and condition, normal wear and tear and damage by casualty excepted, and, subject to Section 8.08, that from time to time there are made in such properties and equipment all needful and proper repairs, renewals, replacements, extensions, additions, betterments and improvements thereto, to the extent and in the manner useful or customary for companies in similar businesses. 7.10 End of Fiscal Years; Fiscal Quarters. The Borrower will, for financial reporting purposes, cause (i) each of its, and each of its Subsidiaries', fiscal years to end on the Thursday occurring closest to August 31 of each year and (ii) each of its, and each of its Subsidiaries', fiscal quarters to end on dates which are consistent with a fiscal year ending as provided in preceding clause (i). 7.11 Additional Security; Further Assurances. (a) The Borrower will, and will cause each of its Domestic Subsidiaries (and to the extent Section 7.13 is operative, each of its Foreign Subsidiaries) to, grant to the Collateral Agent security interests and mortgages in such assets and properties of the Borrower and its Subsidiaries as are not -51- 58 covered by the initial Security Documents, and as may be requested from time to time by the Agent or the Required Banks (collectively, the "Additional Security Documents"). All such security interests and mortgages shall be granted pursuant to documentation reasonably satisfactory in form and substance to the Agent and shall constitute valid and enforceable perfected security interests and mortgages superior to and prior to the rights of all third Persons and subject to no other Liens except for Permitted Liens. The Additional Security Documents or instruments related thereto shall have been duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Collateral Agent required to be granted pursuant to the Additional Security Documents and all taxes, fees and other charges payable in connection therewith shall have been paid in full. (b) The Borrower will, and will cause each of its Subsidiaries to, at the expense of the Borrower, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, real property surveys, reports and other assurances or instruments and take such further steps relating to the collateral covered by any of the Security Documents as the Collateral Agent may reasonably require. Furthermore, the Borrower shall cause to be delivered to the Collateral Agent such opinions of counsel, title insurance and other related documents as may be reasonably requested by the Agent to assure themselves that this Section 7.11 has been complied with. (c) If the Agent or the Required Banks determine that they are required by law or regulation to have appraisals prepared in respect of the Real Property of the Borrower and its Subsidiaries constituting Collateral, the Borrower shall provide to the Agent appraisals which satisfy the applicable requirements of the Real Estate Appraisal Reform Amendments of the Financial Institution Reform, Recovery and Enforcement Act of 1989 and which shall be in form and substance satisfactory to the Agent. (d) The Borrower agrees that each action required above by this Section 7.11 shall be completed as soon as possible, but in no event later than 90 days after such action is either requested to be taken by the Agent or the Required Banks or required to be taken by the Borrower and its Subsidiaries pursuant to the terms of this Section 7.11; provided that in no event shall the Borrower be required to take any action, other than using its reasonable efforts, to obtain consents from third parties with respect to its compliance with this Section 7.11. 7.12 Register. The Borrower hereby designates the Agent to serve as the Borrower's agent, solely for purposes of this Section 7.12, to maintain a register (the "Register") on which it will record the Revolving Loan Commitments from time to time of each of the Banks, the Loans made by each of the Banks and each repayment in respect of the -52- 59 principal amount of the Loans of each Bank. Failure to make any such recordation, or any error in such recordations shall not affect the Borrower's obligations in respect of such Loans. With respect to any Bank, the transfer of the Revolving Loan Commitment of such Bank and the rights to the principal of, and interest on, any Revolving Loan made pursuant to such Revolving Loan Commitment shall not be effective until such transfer is recorded on the Register maintained by the Agent with respect to ownership of such Revolving Loan Commitment and Revolving Loans and prior to such recordation all amounts owing to the transferor with respect to such Revolving Loan Commitment and Revolving Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Revolving Loan Commitment and Revolving Loans shall be recorded by the Agent on the Register only upon the acceptance by the Agent of a properly executed and delivered Assignment and Assumption Agreement pursuant to Section 12.04(b). Coincident with the delivery of such an Assignment and Assumption Agreement to the Agent for acceptance and registration of assignment or transfer of all or part of a Revolving Loan Commitment, or as soon thereafter as practicable, the assigning or transferor Bank shall surrender its Revolving Note, and thereupon one or more new Revolving Notes in the same aggregate principal amount shall be issued to the assigning or transferor Bank and/or the new Bank. The Borrower agrees to indemnify the Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Agent in performing its duties under this Section 7.12. unless such losses, claims, damages and liabilities are caused by the gross negligence or willful misconduct of the Agent. 7.13 Foreign Subsidiaries Security. If following a change in the relevant sections of the Code or the regulations, rules, rulings, notices or other official pronouncements issued or promulgated thereunder, counsel for the Borrower reasonably acceptable to the Agent and the Required Banks does not within 30 days after a request from the Agent or the Required Banks deliver evidence, in form and substance mutually satisfactory to the Agent and the Borrower, with respect to any Foreign Subsidiary which has not already had all of its stock pledged pursuant to the Pledge Agreement that (i) a pledge (x) of 66-2/3% or more of the total combined voting power of all classes of capital stock of such Foreign Subsidiary entitled to vote, and (y) of any promissory note issued by such Foreign Subsidiary to the Borrower or any of its Domestic Subsidiaries, (ii) the entering into by such Foreign Subsidiary of a security agreement in substantially the form of the Security Agreement and (iii) the entering into by such Foreign Subsidiary of a guaranty in substantially the form of the Subsidiary Guaranty, in any such case could reasonably be expected to cause (I) the undistributed earnings of such Foreign Subsidiary as determined for Federal income tax purposes to be treated as a deemed dividend to such Foreign Subsidiary's United States parent for Federal income tax purposes or (II) other material adverse federal income tax consequences to the Credit Parties, then in the case of a failure to deliver the evidence described in clause (i) above, that portion of such Foreign Subsidiary's outstanding capital stock or any promissory notes so issued by such Foreign Subsidiary, in each case not there- -53- 60 tofore pledged pursuant to the Pledge Agreement shall be pledged to the Collateral Agent for the benefit of the Secured Creditors pursuant to the Pledge Agreement (or another pledge agreement in substantially similar form, if needed), and in the case of a failure to deliver the evidence described in clause (ii) above, such Foreign Subsidiary shall execute and deliver the Security Agreement (or another security agreement in substantially similar form, if needed), granting the Secured Creditors a security interest in all of such Foreign Subsidiary's assets and securing the Obligations of the Borrower under the Credit Documents and under any Interest Rate Protection Agreement or Other Hedging Agreement and, in the event the Subsidiary Guaranty shall have been executed by such Foreign Subsidiary, the obligations of such Foreign Subsidiary thereunder, and in the case of a failure to deliver the evidence described in clause (iii) above, such Foreign Subsidiary shall execute and deliver the Subsidiary Guaranty (or another guaranty in substantially similar form, if needed), guaranteeing the Obligations of the Borrower under the Credit Documents and under any Interest Rate Protection Agreement or Other Hedging Agreement, in each case to the extent that the entering into such Security Agreement or Subsidiary Guaranty is permitted by the laws of the respective foreign jurisdiction and with all documents delivered pursuant to this Section 7.13 to be in form and substance reasonably satisfactory to the Agent and the Required Banks. SECTION 8. Negative Covenants. The Borrower hereby covenants and agrees that as of the Effective Date and thereafter for so long as this Agreement is in effect and until the Total Revolving Loan Commitment has terminated, no Letters of Credit (other than Letters of Credit, together with all Fees that have accrued and will accrue thereon through the stated termination date of such Letters of Credit, which have been supported in a manner satisfactory to the Letter of Credit Issuer in its sole and absolute discretion) or Notes are outstanding and the Loans and Unpaid Drawings, together with interest, Fees and all other Obligations (other than any indemnities described in Section 12.13 hereof which are not then due and payable) incurred hereunder, are paid in full: 8.01 Changes in Business. The Borrower and its Subsidiaries will not engage in any business other than the business engaged in by the Borrower and its Subsidiaries as of the Effective Date and activities directly related thereto, and ancillary, complimentary, similar or reasonably related businesses. 8.02 Consolidation, Merger, Sale or Purchase of Assets, etc. The Borrower will not, and will not permit any of its Subsidiaries to, wind up, liquidate or dissolve its affairs or enter into any transaction of merger or consolidation, or convey, sell, lease or otherwise dispose of all or any part of its property or assets (other than inventory in the ordinary course of business), or enter into any partnerships, joint ventures or sale-leaseback transactions, or purchase or otherwise acquire (in one or a series of related transactions) any part of the property or assets (other than purchases or other acquisitions of inventory, materials and equipment in the ordinary course of business) of any Person (or -54- 61 agree to do any of the foregoing at any future time), except that the following shall be permitted: (a) the Borrower and its Subsidiaries may lease as lessee or lessor or license as licensee or licensor real or personal property in the ordinary course of business and otherwise in compliance with this Agreement, so long as any such lease or license by the Borrower or any of its Subsidiaries in its capacity as lessor or licensor, as the case may be, does not prohibit the granting of a Lien by the Borrower or any of its Subsidiaries pursuant to the Mortgages in the real property covered by such lease or pursuant to the Security Agreement in the personal property covered by such lease or license, as the case may be; (b) Capital Expenditures by the Borrower and its Subsidiaries to the extent not in violation of Section 8.08; (c) the advances, investments and loans permitted pursuant to Section 8.05; (d) the Borrower and its Subsidiaries may sell or discount, in each case without recourse, accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof; (e) the Borrower and its Subsidiaries may sell or exchange specific items of equipment, so long as the purpose of each such sale or exchange is to acquire (and results within 180 days of such sale or exchange in the acquisition of) replacement items of equipment which are, in the reasonable business judgment of the Borrower and its Subsidiaries, the functional equivalent of the item of equipment so sold or exchanged; (f) the Borrower and its Subsidiaries may, in the ordinary course of business, license, as licensee or licensor, patents, trademarks, copyrights and know-how to or from third Persons and to one another so long as any such license by the Borrower or any of its Subsidiaries in its capacity as licensor is permitted to be assigned pursuant to the Security Agreement (to the extent that a security interest in such patents, trademarks, copyrights and know-how is granted thereunder) and does not otherwise prohibit the granting of a Lien by the Borrower or any of its Subsidiaries pursuant to the Security Agreement in the intellectual property covered by such license; (g) any Foreign Subsidiary may be merged with and into, or be dissolved or liquidated into, or transfer any of its assets to, any Wholly-Owned Foreign Subsidiary so long as (i) such Wholly-Owned Foreign Subsidiary is the sur- -55- 62 viving corporation of any such merger, dissolution or liquidation and (ii) in each case at least 65% of the total combined voting power of all classes of capital stock of all first-tier Foreign Subsidiaries are pledged pursuant to the Pledge Agreement; (h) the assets of any Foreign Subsidiary may be transferred to the Borrower or any of its Wholly-Owned Domestic Subsidiaries, and any Foreign Subsidiary may be merged with and into, or be dissolved or liquidated into, the Borrower or any of its Wholly-Owned Domestic Subsidiaries so long as the Borrower or such Wholly-Owned Domestic Subsidiary is the surviving corporation of any such merger, dissolution or liquidation; (i) the Borrower and its Subsidiaries may sell or otherwise transfer inventory to their respective Subsidiaries for resale by such Subsidiaries, and Subsidiaries of the Borrower may sell or otherwise transfer inventory to the Borrower for resale by the Borrower, so long as the security interest granted to the Collateral Agent for the benefit of the Secured Creditors pursuant to the Security Agreement in the inventory so transferred (or the proceeds thereof, in the case of a transfer to a Foreign Subsidiary) shall remain in full force and effect and perfected (to at least the same extent as in effect immediately prior to such transfer); (j) each of the Borrower and its Subsidiaries may sell assets, provided that (x) the aggregate sale proceeds from all assets subject to such sales pursuant to this clause (j) shall not exceed $5,000,000 in any fiscal year of the Borrower, (y) any such asset sale is for at least 80% in cash and at fair market value (as determined in good faith by the Board of Directors or senior management of the Borrower) and (z) the Net Proceeds therefrom are either applied to reduce the Total Revolving Loan Commitment as provided in Section 3.03(b) or reinvested to the extent permitted by Section 3.03(b); (k) each of the Borrower and its Subsidiaries may sell other assets, provided that the aggregate sale proceeds from all assets subject to such sales pursuant to this clause (k) shall not exceed $100,000 in any fiscal year of the Borrower; (l) any Domestic Subsidiary of the Borrower may transfer assets (other than inventory) to the Borrower or to any other Wholly-Owned Domestic Subsidiary of the Borrower so long as the security interests granted to the Collateral Agent for the benefit of the Secured Creditors pursuant to the Security Documents in the assets so transferred shall remain in full force and effect and perfected (to at least the same extent as in effect immediately prior to such transfer); (m) any Wholly-Owned Domestic Subsidiary of the Borrower may merge with and into, or be dissolved or liquidated into, the Borrower so long as (i) the -56- 63 Borrower is the surviving corporation of such merger, dissolution or liquidation and (ii) the security interests granted to the Collateral Agent for the benefit of the Secured Creditors pursuant to the Security Documents in the assets of such Wholly-Owned Domestic Subsidiary shall remain in full force and effect and perfected (to at least the same extent as in effect immediately prior to such merger); (n) any Domestic Subsidiary of the Borrower may merge with and into, or be dissolved or liquidated into, any Wholly-Owned Domestic Subsidiary of the Borrower so long as (i) such Wholly-Owned Domestic Subsidiary of the Borrower is the surviving corporation of such merger, dissolution or liquidation and (ii) the security interests granted to the Collateral Agent for the benefit of the Secured Creditors pursuant to the Security Documents in the assets of such Domestic Subsidiary shall remain in full force and effect and perfected (to at least the same extent as in effect immediately prior to such merger, dissolution or liquidation); (o) the Borrower and its Subsidiaries may, in the ordinary course of business, sell, transfer or otherwise dispose of assets (including, without limitation, patents, trademarks, copyrights and know-how) which, in the reasonable judgment of the Borrower or such Subsidiary, are determined to be uneconomical, negligible or obsolete in the conduct of its business; (p) so long as no Default or Event of Default then exists or would result therefrom, the Borrower and its Wholly-Owned Subsidiaries may acquire the assets or the capital stock of any Person (any such acquisition permitted by this clause (p), a "Permitted Acquisition"), provided, that (i) no Default or Event of Default then exists or would result therefrom, (ii) such Person (or the assets so acquired) was, immediately prior to such acquisition, engaged (or used) primarily in the businesses permitted pursuant to Section 8.01, (iii) if such acquisition is structured as a stock acquisition, then either (A) the Person so acquired becomes a Wholly-Owned Subsidiary of the Borrower or (B) such Person is merged with and into the Borrower or a Wholly-Owned Subsidiary of the Borrower (with the Borrower or such Wholly-Owned Subsidiary, as the case may be, being the surviving corporation of such merger), and in any case, all of the provisions of Section 8.14 have been complied with in respect of such Person, (iv) any Liens or Indebtedness assumed or issued in connection with such acquisition are otherwise permitted under Section 8.03 or 8.04, as the case may be, (v) the only consideration paid in connection with such Permitted Acquisition consists of cash, common stock of the Borrower, Qualified Preferred Stock, Qualified PIK Debt Securities and/or cash earn-out, non-compete or deferred compensation arrangements, (vi) at least 10 Business Days prior to the consummation of any Permitted Acquisition, the Borrower shall deliver to the Agent and each of the Banks a certificate of the Borrower's Chief Financial Officer certifying (and showing the calculations therefor in reasonable detail) that -57- 64 the Borrower would have been in compliance with the financial covenants set forth in Section 8.09, 8.10 and 8.11 for the Test Period than most recently ended prior to the date of the consummation of such Permitted Acquisition, in each case with such financial covenants to be determined on a Pro Forma Basis as if such Permitted Acquisition had been consummated on the first day of such Test Period and (vii) the aggregate amount expended (including the fair market value of all common stock and Qualified Preferred Stock and the maximum amount payable in connection with any earn-out, non-compete or deferred compensation arrangements) in connection with all such Permitted Acquisitions consummated after the Effective Date shall not exceed $30,000,000 (not more than $15,000,000 of which may be in the form of cash); (q) the Borrower and its Wholly-Owned Domestic Subsidiaries may contribute cash to one or more Wholly-Owned Domestic Subsidiaries formed after the Effective Date in accordance with Section 8.14, so long as the aggregate amount of such cash so contributed to all such Domestic Subsidiaries does not exceed $1,000,000; (r) the Borrower and its Domestic Subsidiaries may transfer assets (other than inventory) to Wholly-Owned Foreign Subsidiaries so long as the aggregate fair market value of all such assets so transferred (determined in good faith by the Board of Directors or senior management of the Borrower) to all such Foreign Subsidiaries, when added to (x) the aggregate outstanding principal amount of Indebtedness under Section 8.04(j), (y) the aggregate outstanding principal amount of Intercompany Loans made to Foreign Subsidiaries by the Borrower and its Domestic Subsidiaries under Section 8.05(g) and (z) the aggregate amount of contributions, capitalizations and forgiveness theretofore made pursuant to Section 8.05(j), does not exceed $30,000,000; (s) the Borrower may make a one-time election to merge with and into a newly formed direct Wholly-Owned Subsidiary of the Borrower incorporated under the laws of the State of Delaware solely for the purpose of reincorporating the Borrower in the State of Delaware, provided that, (i) such Wholly-Owned Subsidiary shall not have any liabilities, contingent or otherwise, at the time of, and immediately prior to giving effect to, such merger, (ii) the surviving Wholly-Owned Subsidiary shall, immediately upon completion of such merger, change its name to MCMS, Inc., (iii) such Wholly-Owned Subsidiary shall assume all obligations and responsibilities of the Borrower hereunder and shall become the Borrower for all purposes under this Agreement and the other Credit Documents, in each case pursuant to documentation in form and substance reasonably satisfactory to the Agent, and (iv) the security interest granted to the Collateral Agent for the benefit of the Secured Creditors pursuant to the Security Documents in the assets of the -58- 65 Borrower shall remain in full force and effect and perfected (to at least the same extent as in effect immediately prior to such merger); and (t) the Transaction shall be permitted. To the extent the Required Banks waive the provisions of this Section 8.02 with respect to the sale or other disposition of any Collateral, or any Collateral is sold or disposed of as permitted by this Section 8.02 (and such Collateral is permitted to be released from the Liens created by the respective Security Document), such Collateral in each case shall be sold or otherwise disposed of free and clear of the Liens created by the Security Documents and the Agent shall take such actions (including, without limitation, directing the Collateral Agent to take such actions) as are appropriate in connection therewith. 8.03 Liens. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets of any kind (real or personal, tangible or intangible) of the Borrower or any of its Subsidiaries, whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable or notes with recourse to the Borrower or any of its Subsidiaries) or assign any right to receive income, except for the following (collectively, the "Permitted Liens"): (a) inchoate Liens for taxes, assessments or governmental charges or levies not yet due or Liens for taxes, assessments or governmental charges or levies being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP; (b) Liens in respect of property or assets of the Borrower or any of its Subsidiaries imposed by law which were incurred in the ordinary course of business and which have not arisen to secure Indebtedness for borrowed money, such as carriers', warehousemen's and mechanics' Liens, statutory landlord's Liens, and other similar Liens arising in the ordinary course of business, and which either (x) do not in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Borrower or any of its Subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or asset subject to such Lien; (c) Liens created by or pursuant to this Agreement and the Security Documents; -59- 66 (d) Liens in existence on the Effective Date which are listed, and the property subject thereto described, in Annex VIII, without giving effect to any extensions or renewals thereof; (e) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under Section 9.09; (f) Liens incurred or deposits made (x) in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, government contracts, performance and return-of-money bonds and other similar obligations incurred in the ordinary course of business (exclusive of obligations in respect of the payment for borrowed money) and (y) to secure the performance of leases of Real Property, to the extent incurred or made in the ordinary course of business consistent with past practices; (g) licenses, leases or subleases granted to third Persons not interfering in any material respect with the business of the Borrower or any of its Subsidiaries; (h) easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (i) Liens arising from precautionary UCC financing statements regarding operating leases permitted by this Agreement; (j) any interest or title of a licensor, lessor or sublessor under any lease permitted by this Agreement; (k) Permitted Encumbrances; (l) Liens arising pursuant to purchase money mortgages, Capital Leases or security interests securing Indebtedness representing the purchase price (or financing of the purchase price within 90 days after the respective purchase) of assets acquired after the Effective Date, provided that (i) any such Liens attach only to the assets so purchased, (ii) the Indebtedness secured by any such Lien does not exceed 100%, nor is less than 80%, of the lesser of the fair market value or the purchase price of the property being purchased at the time of the incurrence of such Indebtedness and (iii) the Indebtedness secured thereby is permitted to be incurred pursuant to Section 8.04(e); -60- 67 (m) Liens securing Indebtedness of Foreign Subsidiaries permitted to be incurred pursuant to Section 8.04(j), so long as any such Lien attaches only to the assets of the respective Foreign Subsidiary that has incurred such Indebtedness; (n) Liens on property or assets acquired pursuant to a Permitted Acquisition, or on property or assets of a Subsidiary of the Borrower in existence at the time such Subsidiary is acquired pursuant to a Permitted Acquisition, provided that (i) any Indebtedness that is secured by such Liens is permitted to exist under Section 8.04(i) and (ii) such Liens are not incurred in connection with or in anticipation of such Permitted Acquisition and do not attach to any other asset of the Borrower or any of its Subsidiaries; and (o) additional Liens incurred by the Borrower and its Subsidiaries so long as the value of the property subject to such Liens, and the Indebtedness and other obligations secured thereby, do not exceed $250,000. 8.04 Indebtedness. The Borrower will not, and will not permit any of its Subsidiaries to, contract, create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness incurred pursuant to this Agreement and the other Credit Documents; (b) Existing Indebtedness outstanding on the Initial Borrowing Date and listed on Annex VI, without giving effect to any subsequent extension, renewal or refinancing thereof; (c) Indebtedness of the Borrower incurred under the Subordinated Notes and the other Subordinated Note Documents in an aggregate principal amount not to exceed $175,000,000 (as reduced by any repayments or prepayments of principal thereof); (d) Indebtedness under Interest Rate Protection Agreements entered into to protect the Borrower against fluctuations in interest rates in respect of the Obligations; (e) Capitalized Lease Obligations and Indebtedness of the Borrower and its Subsidiaries incurred pursuant to purchase money Liens, provided, that (x) all such Capitalized Lease Obligations are permitted under Section 8.08 and (y) the sum of (i) the aggregate Capitalized Lease Obligations incurred in any fiscal year plus (ii) the aggregate principal amount of such purchase money Indebtedness incurred in such fiscal year shall not exceed $4,000,000; -61- 68 (f) Indebtedness constituting Intercompany Loans to the extent permitted by Section 8.05(g); (g) Indebtedness under Other Hedging Agreements providing protection against fluctuations in currency values in connection with the Borrower's or any of its Subsidiaries' operations so long as management of the Borrower or such Subsidiary, as the case may be, has determined that the entering into of such Other Hedging Agreements are bona fide hedging activities; (h) Indebtedness consisting of guaranties (x) by the Borrower of Indebtedness, leases and other obligations permitted to be incurred by Wholly-Owned Domestic Subsidiaries, (y) by Domestic Subsidiaries of Indebtedness, leases and other obligations permitted to be incurred by the Borrower or other Wholly-Owned Domestic Subsidiaries and (z) by Foreign Subsidiaries of Indebtedness, leases and other obligations permitted to be incurred by other Wholly-Owned Foreign Subsidiaries; (i) Indebtedness of a Subsidiary acquired pursuant to a Permitted Acquisition (or Indebtedness assumed at the time of a Permitted Acquisition of an asset securing such Indebtedness), provided that (i) such Indebtedness was not incurred in connection with or in anticipation of such Permitted Acquisition, (ii) such Indebtedness does not constitute debt for borrowed money, it being understood and agreed that Capitalized Lease Obligations and purchase money Indebtedness shall not constitute debt for borrowed money for purposes of this clause (j), and (iii) at the time of such Permitted Acquisition such Indebtedness does not exceed 10% of the total value of the assets of the Subsidiary so acquired, or of the asset so acquired, as the case may be; (j) Indebtedness of Foreign Subsidiaries under lines of credit extended by third Persons to any such Foreign Subsidiary the proceeds of which Indebtedness are used for such Foreign Subsidiary's working capital purposes, provided that the aggregate principal amount of all such Indebtedness outstanding at any time for all Foreign Subsidiaries shall not exceed (1) $5,000,000 or (2) when added to (x) the aggregate amount of assets transferred to Foreign Subsidiaries pursuant to Section 8.02(r), (y) the aggregate outstanding principal amount of Intercompany Loans made by the Borrower and its Domestic Subsidiaries to Foreign Subsidiaries under Section 8.05(g) and (z) the aggregate amount of contributions, capitalizations and forgiveness made pursuant to Section 8.05(j), $30,000,000; (k) Indebtedness of the Borrower under the Shareholder Subordinated Notes; -62- 69 (l) Indebtedness of the Borrower evidenced by Qualified PIK Debt Securities issued as consideration for, and pursuant to, a Permitted Acquisition under Section 8.02(p) plus the amount of interest on such Qualified PIK Debt Securities paid in kind or through accretion or capitalization, provided that the aggregate principal amount of all Qualified PIK Debt Securities shall not exceed $5,000,000 plus the amount of interest on such Qualified PIK Debt Securities paid in kind or through accretion or capitalization; (m) obligations of the Borrower in connection with earn-out, non-compete or deferred compensation arrangements entered into pursuant to Section 8.02(p); and (n) additional Indebtedness of the Borrower and its Subsidiaries not otherwise permitted hereunder not exceeding $500,000 in aggregate principal amount at any time outstanding. 8.05 Advances, Investments and Loans. The Borrower will not, and will not permit any of its Subsidiaries to, lend money or credit or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any Person, or purchase or own a futures contract or other wise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract, or hold any cash, Cash Equivalents or Foreign Cash Equivalents, except: (a) the Borrower and its Subsidiaries may invest in cash and Cash Equivalents, and Foreign Subsidiaries may invest in Foreign Cash Equivalents; (b) the Borrower and its Subsidiaries may acquire and hold receivables owing to it, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms of the Borrower or such Subsidiary; (c) the Borrower and its Subsidiaries may acquire and own investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in good faith settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (d) Interest Rate Protection Agreements entered into in compliance with Section 8.04(d) shall be permitted; -63- 70 (e) the Borrower may acquire and hold obligations of one or more officers or other employees of the Borrower or its Subsidiaries in connection with such officers' or employees' acquisition of shares of capital stock of the Borrower or options to purchase shares of capital stock of the Borrower so long as no cash is paid by the Borrower or any of its Subsidiaries in connection with the acquisition of any such obligations; (f) deposits made in the ordinary course of business consistent with past practices to secure the performance of leases shall be permitted; (g) the Borrower and its Subsidiaries may maintain and make intercompany loans and advances between or among one another ("Intercompany Loans"), provided, that (w) at no time shall the aggregate outstanding principal amount of Intercompany Loans made pursuant to this clause (g) by the Borrower and its Domestic Subsidiaries to Foreign Subsidiaries, when added to the sum of (x) the aggregate amount of all assets transferred to Foreign Subsidiaries pursuant to Section 8.02(r), (y) the aggregate outstanding principal amount of Indebtedness under Section 8.04(j) and (z) the amount of contributions, capitalizations and forgiveness theretofore made pursuant to Section 8.05(j), exceed $30,000,000 (determined without regard to any write-downs or write-offs of such loans and advances), (x) each Intercompany Loan made by a Foreign Subsidiary to the Borrower or a Domestic Subsidiary shall contain the subordination provisions set forth on Exhibit I, (y) each Intercompany Loan shall be evidenced by an Intercompany Note and (z) each such Intercompany Note (other than (1) Intercompany Notes issued by Foreign Subsidiaries to the Borrower or Domestic Subsidiaries and (2) Intercompany Notes held by Foreign Subsidiaries (except, in either case, to the extent otherwise required to be pledged pursuant to Section 7.13)) shall be pledged to the Collateral Agent pursuant to the Pledge Agreement; (h) loans and advances by the Borrower and its Subsidiaries to employees of the Borrower and its Subsidiaries for moving and travel expenses and other similar expenses, in each case incurred in the ordinary course of business, in an aggregate outstanding principal amount not to exceed $350,000 at any time (determined without regard to any write-down or write-offs of such loans and advances) shall be permitted; (i) Other Hedging Agreements may be entered into in compliance with Section 8.04(g); (j) the Borrower and its Domestic Subsidiaries may make cash capital contributions to Foreign Subsidiaries, and may capitalize or forgive any Indebtedness owed to them by a Foreign Subsidiary and outstanding under clause -64- 71 (g) of this Section 8.05, provided that the aggregate amount of such contributions, capitalizations and forgiveness made pursuant to this clause (j) shall not exceed an amount which, when added to (x) the aggregate amount of all assets transferred to Foreign Subsidiaries pursuant to Section 8.02(r), (y) the aggregate outstanding principal amount of Indebtedness under Section 8.04(j) and (z) the aggregate outstanding principal amount of Intercompany Loans made by the Borrower and its Domestic Subsidiaries to Foreign Subsidiaries under clause (g) of this Section 8.05, equals $30,000,000 (determined without regard to any write-downs or write-offs thereof); (k) the Borrower and its Subsidiaries may hold additional investments in their respective Subsidiaries to the extent that such investments reflect an increase in the value of such Subsidiaries; (l) the Borrower and its Subsidiaries may make transfers of assets to their respective Subsidiaries in accordance with Section 8.02(g), (h), (i), (l) and (r); (m) advances, loans and investments in existence on the Effective Date and listed on Annex IX shall be permitted, without giving effect to any additions thereto or replacements thereof (except those additions or replacements which are existing obligations as of the Effective Date); (n) the Borrower and its Subsidiaries may acquire and hold debt and/or equity securities as partial consideration for a sale of assets pursuant to Section 8.02(j) or (k) to the extent permitted by any such Section; (o) Permitted Acquisitions shall be permitted in accordance with Section 8.02(p); and (p) in addition to investments permitted by clauses (a) through (o) above, so long as no Default or Event of Default then exists or would result therefrom, the Borrower and its Subsidiaries may make additional loans, advances and investments to or in a Person so long as the aggregate amount of all such loans, advances or investments does not exceed $500,000 (determined without regard to any write-downs or write-offs thereof and net of cash repayments of principal in the case of loans and cash equity returns (whether as a dividend or redemption) in the case of equity investments), provided that neither the Borrower nor any of its Subsidiaries may make or own any investment in Margin Stock. 8.06 Dividends, etc. The Borrower will not, and will not permit any of its Subsidiaries to, declare or pay any dividends (other than dividends payable solely in common stock of the Borrower) or return any capital to, its stockholders or authorize or -65- 72 make any other distribution, payment or delivery of property or cash to its stockholders as such, or redeem, retire, purchase or otherwise acquire, directly or indirectly, for a consideration, any shares of any class of its capital stock, now or hereafter outstanding (or any warrants for or options or stock appreciation rights in respect of any of such shares), or set aside any funds for any of the foregoing purposes, and the Borrower will not permit any of its Subsidiaries to purchase or otherwise acquire for consideration any shares of any class of the capital stock of the Borrower or any other Subsidiary, as the case may be, now or hereafter outstanding (or any options or warrants or stock appreciation rights issued by such Person with respect to its capital stock) (all of the foregoing "Dividends"), except that: (i) the Recapitalization shall be permitted; (ii) any Subsidiary of the Borrower may pay Dividends to the Borrower or any Wholly-Owned Subsidiary of the Borrower; and (iii) the Borrower may redeem or purchase shares of its capital stock (other than Exchangeable Preferred Stock) or options to purchase its capital stock (other than Exchangeable Preferred Stock) held by former employees of the Borrower or any of its Subsidiaries following the termination of their employment, provided that (x) the only consideration paid by the Borrower in respect of such redemptions and/or purchases shall be cash and/or Shareholder Subordinated Notes, (y) the sum of (1) the aggregate amount of cash paid by the Borrower in respect of all such redemptions and/or purchases plus (2) the aggregate amount of all principal and interest payments made on Shareholder Subordinated Notes, shall not exceed $750,000 in any fiscal year of the Borrower, provided that such amount shall be increased by an amount equal to the net cash proceeds received by the Borrower after the Effective Date from the sale or issuance of capital stock of the Borrower to management of the Borrower or any of its Subsidiaries (less the amount of such net cash proceeds previously applied to redeem or purchase capital stock of the Borrower pursuant to this Section 8.06(iii)) and (z) at the time of any payment permitted to be made pursuant to this Section 8.06, no Default or Event of Default shall then exist or result therefrom; (iv) the Borrower may pay regularly scheduled Dividends on the Preferred Stock and Qualified Preferred Stock pursuant to the terms thereof solely through the issuance of additional shares of such Preferred Stock or Qualified Preferred Stock, as the case may be, or by an increase in the liquidation preference thereof; and (v) the Borrower may issue its common stock to holders of Preferred Stock (other than Exchangeable Preferred Stock), preferred stock which is substantially similar to the Preferred Stock (other than Exchangeable Preferred -66- 73 Stock) and Qualified Preferred Stock, in each case upon the conversion thereof in accordance with the terms thereof; 8.07 Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any transaction or series of transactions with any Affiliate other than in the ordinary course of business and on terms and conditions substantially as favorable to the Borrower or such Subsidiary as would be obtainable by the Borrower or such Subsidiary at the time in a comparable arm's-length transaction with a Person other than an Affiliate; provided, that the following shall in any event be permitted: (i) the Transaction; (ii) loans may be made and other transactions may be entered into by the Borrower and its Subsidiaries to the extent permitted by Sections 8.02, 8.04 and 8.05; (iii) the payment on the Effective Date of one time consulting fees to Cornerstone Equity Investors, L.L.C. and/or any Related Party in an aggregate amount (for Cornerstone Equity Investors, L.L.C. and all such Related Parties taken together) not to exceed $2,750,000 (plus reasonable out-of-pocket expenses incurred by Cornerstone Equity Investors, L.L.C. and all such Related Parties in providing services to the Borrower in connection with the Transaction); (iv) the payment of reasonable out-of-pocket expenses incurred by Cornerstone Equity Investors, L.L.C. and the Related Parties in providing services to the Borrower from time to time; (v) the payment of management fees to Cornerstone Equity Investors, L.L.C. and/or Related Parties in an aggregate amount (for all such Persons taken together) not to exceed $250,000 in any fiscal year of the Borrower, provided that no amount may be paid pursuant to this clause (v) at a time when an Event of Default exists; (vi) the Borrower may pay customary fees to, and the out-of-pocket expenses of, its Board of Directors and may provide customary indemnities for the benefit of members of its Board of Directors; and (vii) the payment by the Borrower, in connection with any acquisition, divestiture or financing transaction that is consummated, of a transaction fee to Cornerstone Equity Investors, L.L.C. and/or any Related Party in an aggregate amount (for all such Persons taken together) not to exceed 1% of the aggregate value of any such transaction. 8.08 Capital Expenditures. (a) The Borrower will not, and will not permit any of its Subsidiaries to, make any Capital Expenditures, except that during any fiscal year of the Borrower set forth below, the Borrower and its Subsidiaries may make Capital Expenditures in an aggregate amount not to exceed the amount set forth opposite such fiscal year below: Fiscal Year ending on or about Amount ------------------ ------ August 31, 1998 $18,800,000 August 31, 1999 $17,500,000 August 31, 2000 $30,000,000 -67- 74 Fiscal Year ending on or about Amount ------------------ ------ August 31, 2001 $35,300,000 August 31, 2002 $42,500,000 August 31, 2003 $50,800,000 (b) Notwithstanding the foregoing, in the event that the amount of Capital Expenditures permitted to be made by the Borrower and its Subsidiaries pursuant to clause (a) above in any fiscal year of the Borrower (before giving effect to any increase in such amount pursuant to this clause (b)) is greater than the amount of such Capital Expenditures made by the Borrower and its Subsidiaries during such fiscal year, such excess (the "Rollover Amount") may be carried forward and utilized to make Capital Expenditures in the immediately succeeding fiscal year of the Borrower, provided that in no event shall the aggregate amount of Capital Expenditures made by the Borrower and its Subsidiaries during any fiscal year pursuant to Section 8.08(a) and this Section 8.08(b) exceed 125% of the amount permitted to be made in such fiscal year pursuant to Section 8.08(a). (c) Notwithstanding the foregoing, the Borrower and its Subsidiaries may make Capital Expenditures (which Capital Expenditures will not be included in any determination under the foregoing clause (a)) in connection with any Permitted Acquisition. (d) Notwithstanding the foregoing, the Borrower and its Subsidiaries may make Capital Expenditures (which Capital Expenditures will not be included in any determination under the foregoing clause (a)) with the proceeds of Asset Sales to the extent such proceeds do not result in a reduction of the Total Revolving Loan Commitment pursuant to Section 3.03(b). (e) Notwithstanding the foregoing, the Borrower and its Subsidiaries may make Capital Expenditures (which Capital Expenditures will not be included in any determination under the foregoing clause (a)) with the insurance proceeds received by the Borrower or any of its Subsidiaries from any Recovery Event so long as such Capital Expenditures are to replace or restore any properties or assets in respect of which such proceeds were paid within one year following the date of the receipt of such insurance proceeds to the extent such insurance proceeds do not result in a reduction of the Total Revolving Loan Commitment pursuant to Section 3.03(d). (f) Notwithstanding the foregoing, the Borrower and its Subsidiaries may make Capital Expenditures (which Capital Expenditures will not be included in any determination under the foregoing clause (a)) relating to its "Year 2000 Problem" Baan project during its fiscal years ending on or about August 31, 1998 and August 31, 1999, -68- 75 provided that the aggregate amount of Capital Expenditures made pursuant to this clause (f) shall not exceed $10,400,000. 8.09 Minimum Consolidated EBITDA. The Borrower will not permit Consolidated EBITDA for any Test Period ending on the last day of a fiscal quarter of the Borrower set forth below to be less than the amount set forth opposite such fiscal quarter below: Fiscal Quarter Ending on or about Amount ------------------ ------ May 31, 1998 $31,700,000 August 31, 1998 $31,800,000 November 30, 1998 $31,900,000 February 28, 1999 $35,600,000 May 31, 1999 $38,200,000 August 31, 1999 $39,100,000 November 30, 1999 $40,900,000 February 28, 2000 $44,100,000 May 31, 2000 $46,600,000 August 31, 2000 $49,700,000 November 30, 2000 $52,400,000 February 28, 2001 $55,300,000 May 31, 2001 $58,200,000 August 31, 2001 $61,300,000 November 30, 2001 $64,600,000 February 28, 2002 $68,100,000 May 31, 2002 $71,700,000 August 31, 2002 $75,500,000 November 30, 2002 $77,400,000 February 28, 2003 $79,400,000 8.10 Interest Coverage Ratio. The Borrower will not permit the Interest Coverage Ratio for any Test Period ending on the last day of a fiscal quarter of the Borrower set forth below to be less than the ratio set forth opposite such fiscal quarter below: Fiscal Quarter Ending on or about Ratio ------------------ ----- May 31, 1998 1.8:1.0 August 31, 1998 1.8:1.0 -69- 76 Fiscal Quarter Ending on or about Ratio ------------------ ----- November 30, 1998 1.8:1.0 February 28, 1999 2.0:1.0 May 31, 1999 2.1:1.0 August 31, 1999 2.2:1.0 November 30, 1999 2.3:1.0 February 28, 2000 2.4:1.0 May 31, 2000 2.5:1.0 August 31, 2000 2.7:1.0 November 30, 2000 2.8:1.0 February 28, 2001 3.0:1.0 May 31, 2001 3.1:1.0 August 31, 2001 3.3:1.0 Thereafter 3.5:1.0 8.11 Leverage Ratio. The Borrower will not permit the Leverage Ratio at any time during a period set forth below to be more than the ratio set forth opposite such period below: Period Ratio ------ ----- The Effective Date to but not including the last day of the Borrower's fiscal quarter ending on or about February 28, 1999 5.7:1.0 Thereafter to but not including the last day of the Borrower's fiscal quarter ending on or about May 31, 1999 5.1:1.0 Thereafter to but not including the last day of the Borrower's fiscal quarter ending on or about August 31, 1999 4.8:1.0 -70- 77 Period Ratio ------ ----- Thereafter to but not including the last day of the Borrower's fiscal quarter ending on or about November 31, 1999 4.7:1.0 Thereafter to but not including the last day of the Borrower's fiscal quarter ending on or about February 28, 2000 4.6:1.0 Thereafter to but not including the last day of the Borrower's fiscal quarter ending on or about May 31, 2000 4.3:1.0 Thereafter to but not including the last day of the Borrower's fiscal quarter ending on or about August 31, 2000 4.1:1.0 Thereafter to but not including the last day of the Borrower's fiscal quarter ending on or about November 30, 2000 3.9:1.0 Thereafter to but not including the last day of the Borrower's fiscal quarter ending on or about February 28, 2001 3.7:1.0 Thereafter to but not including the last day of the Borrower's fiscal quarter ending on or about May 31, 2001 3.6:1.0 Thereafter to but not including the last day of the Borrower's fiscal quarter ending on or about August 31, 2001 3.4:1.0 -71- 78 Period Ratio ------ ----- Thereafter to but not including the last day of the Borrower's fiscal quarter ending on or about November 30, 2001 3.2:1.0 Thereafter to but not including the last day of the Borrower's fiscal quarter ending on or about February 28, 2002 3.1:1.0 Thereafter to but not including the last day of the Borrower's fiscal quarter ending on or about May 31, 2002 2.9:1.0 Thereafter to but not including the last day of the Borrower's fiscal quarter ending on or about August 31, 2002 2.8:1.0 Thereafter 2.75:1.0 8.12 Limitation on Voluntary Payments and Modifications of Indebtedness; Modifications of Certificate of Incorporation, By-Laws and Certain Other Agreements; Issuance of Capital Stock; etc. The Borrower will not, and will not permit any of its Subsidiaries to: (i) make (or give any notice in respect of) any voluntary or optional payment or prepayment on or redemption or acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto or any other Person money or securities before due for the purpose of paying when due) any Subordinated Note or any Shareholder Subordinated Note, provided that the Series B Subordinated Notes may be issued in exchange for the Series A Subordinated Notes in accordance with the terms of the Subordinated Note Documents; (ii) make (or give any notice in respect of) any prepayment or redemption of any Subordinated Note as a result of any asset sale, change of control or -72- 79 similar event (including, without limitation, by way of depositing with the trustee with respect thereto or any other Person money or securities before due for the purpose of paying when due any Subordinated Note), provided that the Borrower may redeem or repurchase Subordinated Notes with the net cash proceeds from any public offering of its common stock; (iii) amend, modify or change, or permit the amendment or modification of, any provision of any Subordinated Note Document, any Shareholder Subordinated Note or any other document relating to the foregoing (other than any amendment or modification of any Shareholder Subordinated Note which extends the maturity thereof or reduces the rate of interest thereon, in either case so long as no consideration is paid by the Borrower or any of its Subsidiaries in connection therewith); (iv) amend, modify or change in any way adverse to the interests of the Banks, any Management Agreement, the terms of any Tax Allocation Agreement, its Certificate of Incorporation (including, without limitation, by the filing or modification of any certificate of designation) or By-Laws, or any agreement entered into by it with respect to its capital stock (including any Shareholders' Agreement) or enter into any new agreement with respect to its capital stock, in each case, which would be adverse to the interests of the Banks (it being understood and agreed that the Borrower may amend its Certificate of Incorporation and By-Laws in order to effect the reincorporation of the Borrower permitted by Section 8.02(s)); and (v) issue any class of capital stock other than (x) non-redeemable common stock and (y) in the case of the Borrower, (1) the issuance on the Effective Date of the Capital Stock, (2) the issuance of Qualified Preferred Stock in connection with and as consideration for a Permitted Acquisition in accordance with Section 8.02(p), (3) the issuance of Preferred Stock and Qualified Preferred Stock in accordance with Section 8.06(iv) and (4) the issuance of additional shares of Preferred Stock (other than Exchangeable Preferred Stock) or other preferred stock which is substantially similar to the Preferred Stock (other than the Exchangeable Preferred Stock.) 8.13 Limitation on Certain Restrictions on Subsidiaries. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Subsidiary to (a) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by the Borrower or any Subsidiary of the Borrower, or pay any Indebtedness owed to the Borrower or a Subsidiary of the Borrower, (b) make loans or advances to the Borrower or any of the -73- 80 Borrower' Subsidiaries or (c) transfer any of its properties or assets to the Borrower or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) this Agreement and the other Credit Documents, (iii) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Borrower or a Subsidiary of the Borrower, (iv) customary provisions restricting assignment of any licensing agreement entered into by the Borrower or any Subsidiary of the Borrower in the ordinary course of business, (v) the Subordinated Note Documents, (vi) the Existing Indebtedness Agreements, and (vii) customary provisions restricting the transfer of assets subject to Liens permitted under Section 8.03(l), (m) and (n). 8.14 Limitation on the Creation of Subsidiaries. Notwithstanding anything to the contrary contained in this Agreement, the Borrower will not, and will not permit any of its Subsidiaries to, establish, create or acquire after the Effective Date any Subsidiary; provided that, the Borrower and its Wholly-Owned Subsidiaries shall be permitted to establish or create Wholly-Owned Subsidiaries so long as (i) at least 30 days' prior written notice thereof (or such shorter period of time as is acceptable to the Agent) is given to the Agent, (ii) the capital stock of each such new Subsidiary is pledged pursuant to, and to the extent required by, this Agreement and the Pledge Agreement and the certificates, if any, represent ing such stock, together with stock powers duly executed in blank, are delivered to the Collateral Agent, (iii) each such new Subsidiary (other than a Foreign Subsidiary except to the extent otherwise required pursuant to Section 7.13) executes a counterpart of the Subsidiary Guaranty, the Pledge Agreement and the Security Agreement, and (iv) to the extent requested by the Agent or the Required Banks, the Borrower takes, or causes its Subsidiaries to take, all actions required pursuant to Section 7.11. In addition, at the request of the Agent, each new Subsidiary that is required to execute any Credit Document shall execute and deliver, or cause to be executed and delivered, all other relevant documentation of the type described in Section 5 as such new Subsidiary would have had to deliver if such new Subsidiary were a Credit Party on the Effective Date. 8.15 Designated Senior Debt. The Borrower will not, and will not permit any of its Subsidiaries to, designate any Indebtedness (other than the Obligations) as "Designated Senior Debt" for purposes of, and as defined in, the Subordinated Note Indenture. SECTION 9. Events of Default. Upon the occurrence of any of the following specified events (each, an "Event of Default"): 9.01 Payments. The Borrower shall (i) default in the payment when due of any principal of the Loans or (ii) default, and such default shall continue for three or more Business Days, in the payment when due of any Unpaid Drawing, any interest on the Loans or any Fees or any other amounts owing hereunder or under any other Credit Document; or -74- 81 9.02 Representations, etc. Any representation, warranty or statement made by the Borrower or any other Credit Party herein or in any other Credit Document or in any statement or certificate delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or 9.03 Covenants. Any Credit Party shall (a) default in the due performance or observance by it of any term, covenant or agreement contained in Section 7.01(f)(x), 7.10, 7.11 or 8, or (b) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in Section 9.01, 9.02 or clause (a) of this Section 9.03) contained in this Agreement and such default shall continue unremedied for a period of at least 30 days after notice to the defaulting party by the Agent or the Required Banks; or 9.04 Default Under Other Agreements. (a) The Borrower or any of its Subsidiaries shall (i) default in any payment with respect to any Indebtedness (other than the Obligations) beyond the period of grace, if any, provided in the instrument or agreement under which Indebtedness was created or (ii) default in the observance or performance of any agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause any such Indebtedness to become due prior to its stated maturity; or (b) any Indebtedness (other than the Obligations) of the Borrower or any of its Subsidiaries shall be declared to be due and payable, or shall be required to be prepaid other than by a regularly scheduled required prepayment or as a mandatory prepayment (unless such required prepayment or mandatory prepayment results from a default thereunder or an event of the type that constitutes an Event of Default), prior to the stated maturity thereof; provided, that it shall not constitute an Event of Default pursuant to clause (a) or (b) of this Section 9.04 unless the principal amount of any one issue of such Indebtedness, or the aggregate amount of all such Indebtedness referred to in clauses (a) and (b) above, exceeds $5,000,000 at any one time; or 9.05 Bankruptcy, etc. The Borrower or any of its Subsidiaries shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the Borrower or any of its Subsidiaries and the petition is not controverted within 10 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower or any of its Subsidiaries; or the Borrower or any of its Subsidiaries commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether -75- 82 now or hereafter in effect relating to the Borrower or any of its Subsidiaries; or there is commenced against the Borrower or any of its Subsidiaries any such proceeding which remains undismissed for a period of 60 days; or the Borrower or any of its Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrower or any of its Subsidiaries suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or the Borrower or any of its Subsidiaries makes a general assignment for the benefit of creditors; or any corporate action is taken by the Borrower or any of its Subsidiaries for the purpose of effecting any of the foregoing; or 9.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding standard required for any plan year or part thereof under Section 412 of the Code or Section 302 of ERISA or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code or Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA shall be subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur with respect to such Plan within the following thirty (30) days, any Plan which is subject to Title IV of ERISA shall have had or is likely to have a trustee appointed to administer such Plan, any Plan which is subject to Title IV of ERISA is, shall have been or is likely to be terminated or to be the subject of termination proceedings under ERISA, any Plan shall have an Unfunded Current Liability, a contribution required to be made with respect to a Plan or a Foreign Pension Plan has not been timely made, the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate has incurred or is likely to incur any liability to or on account of a Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971, or 4975 of the Code or on account of a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code, or the Borrower or any Subsidiary of the Borrower has incurred or is likely to incur liabilities pursuant to one or more employee welfare benefit plans (as defined in Section 3(1) of ERISA) that provide benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or Plans or Foreign Pension Plans; (b) there shall result from any such event or events the imposition of a lien, the granting of a security interest, or a liability or a material risk of incurring a liability; and (c) which lien, security interest or liability, individually, and/or in the aggregate, in the opinion of the Required Banks, has had, or could reasonably be expected to have a Material Adverse Effect; or 9.07 Security Documents. (a) Except in each case to the extent resulting from the failure of the Collateral Agent to retain possession of the applicable Pledged -76- 83 Securities, any Security Document shall cease to be in full force and effect, or shall cease to give the Collateral Agent the Liens, rights, powers and privileges purported to be created thereby in favor of the Collateral Agent, or (b) any Credit Party shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to any such Security Document and such default shall continue beyond any cure or grace period specifically applicable thereto pursuant to the terms of such Security Document; or 9.08 Subsidiary Guaranty. The Subsidiary Guaranty or any provision thereof shall cease to be in full force and effect, or any Subsidiary Guarantor or any Person acting by or on behalf of such Subsidiary Guarantor shall deny or disaffirm such Subsidiary Guarantor's obligations under the Subsidiary Guaranty or any Subsidiary Guarantor shall default in the due performance or observance of any term, covenant or agreement on its part to be performed or observed pursuant to the Subsidiary Guaranty; or 9.09 Judgments. One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving a liability (not paid or not fully covered by insurance) in excess of $5,000,000 for all such judgments and decrees and all such judgments or decrees shall not have been vacated, discharged or stayed or bonded pending appeal within 60 days from the entry thereof; or 9.10 Ownership. A Change of Control Event shall have occurred; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Agent shall, upon the written request of the Required Banks, by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of the Agent or any Bank to enforce its claims against any Subsidiary Guarantor or the Borrower, except as otherwise specifically provided for in this Agreement (provided, that if an Event of Default specified in Section 9.05 shall occur with respect to the Borrower, the result which would occur upon the giving of written notice by the Agent as specified in clauses (i) and (ii) below shall occur automatically without the giving of any such notice): (i) declare the Total Revolving Loan Commitment terminated, whereupon the Revolving Loan Commitment of each Bank shall forthwith terminate immediately and any Commitment Fees shall forthwith become due and payable without any other notice of any kind; (ii) declare the principal of and any accrued interest in respect of all Loans and all Obligations owing hereunder (including Unpaid Drawings) to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; (iii) enforce, as Collateral Agent (or direct the Collateral Agent to enforce), any or all of the Liens and security interests created pursuant to the Security Documents; (iv) terminate any Letter of Credit which may be terminated in accordance with its terms; and (v) direct the Borrower to pay (and the Borrower hereby agrees upon receipt of such notice, or upon the occurrence of any -77- 84 Event of Default specified in Section 9.05, to pay) to the Collateral Agent at the Payment Office such additional amounts of cash, to be held as security for the Borrower's reimbursement obligations in respect of Letters of Credit then outstanding, equal to the aggregate Stated Amount of all Letters of Credit then outstanding. SECTION 10. Definitions. As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms in this Agreement shall include in the singular number the plural and in the plural the singular: "Additional Security Documents" shall have the meaning provided in Section 7.11. "Adjusted Certificate of Deposit Rate" shall mean, on any day, the sum (rounded to the nearest 1/100 of 1%) of (1) the rate obtained by dividing (x) the most recent weekly average dealer offering rate for negotiable certificates of deposit with a three-month maturity in the secondary market as published in the most recent Federal Reserve System publication entitled "Select Interest Rates," published weekly on Form H.15 as of the date hereof, or if such publication or a substitute containing the foregoing rate information shall not be published by the Federal Reserve System for any week, the weekly average offering rate determined by the Agent on the basis of quotations for such certificates received by it from three certificate of deposit dealers in New York of recognized standing or, if such quotations are unavailable, then on the basis of other sources reasonably selected by the Agent, by (y) a percentage equal to 100% minus the stated maximum rate of all reserve requirements as specified in Regulation D applicable on such day to a three-month certificate of deposit of a member bank of the Federal Reserve System in excess of $100,000 (including, without limitation, any marginal, emergency, supplemental, special or other reserves), plus (2) the then daily net annual assessment rate as estimated by the Agent for determining the current annual assessment payable by BTCo to the Federal Deposit Insurance Corporation for insuring three month certificates of deposit. "Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control a corporation if such Person possesses, directly or in directly, the power (i) to vote 5% or more of the securities having ordinary voting power for the election of directors of such corporation or (ii) to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. -78- 85 "Agent" shall have the meaning provided in the first paragraph of this Agreement and shall include any successor to the Agent appointed pursuant to Section 11.10. "Agreement" shall mean this Credit Agreement, as the same may be from time to time modified, amended and/or supplemented. "Applicable Base Rate Margin" shall mean a percentage per annum equal to 1.75%, less the then applicable Reduction Discount. "Applicable Commitment Fee Percentage" shall mean 1/2 of 1% less the then applicable Reduction Discount. "Applicable Eurodollar Margin" shall mean a percentage per annum equal to 2.75%, less the then applicable Reduction Discount. "Applicable Period" shall mean each period which shall commence on a date on which the financial statements are delivered pursuant to Section 7.01(b) or (c), as the case may be, and which shall end on the earlier of (i) the date of actual delivery of the next financial statements pursuant to Section 7.01(b) or (c), as the case may be, and (ii) the latest date on which the next financial statements are required to be delivered pursuant to Section 7.01(b) or (c), as the case may be. "Asset Sale" shall mean any sale, transfer or other disposition by the Borrower or any of its Subsidiaries to any Person other than the Borrower or any Wholly-Owned Subsidiary of the Borrower of any asset (including, without limitation, any capital stock or other securities of another Person, but excluding the sale by such Person of its own capital stock) of the Borrower or such Subsidiary other than (i) sales, transfers or other dispositions of inventory made in the ordinary course of business and (ii) sales of assets pursuant to Sections 8.02(a), (d), (e), (f), (g), (h), (i), (k), (l), (o) or (r). "Assignment and Assumption Agreement" shall mean the Assignment and Assumption Agreement substantially in the form of Exhibit J (appropriately completed). "Authorized Officer" shall mean, as to any Person, the Chairman, the Chief Executive Officer, the President, the Chief Financial Officer, the Treasurer, the Controller or the Secretary or any other senior officer of such Person designated as such in writing to the Agent by such Person, in each case to the extent reasonably acceptable to the Agent. "Bank" shall have the meaning provided in the first paragraph of this Agreement. -79- 86 "Bank Default" shall mean (i) the refusal (which has not been retracted) of a Bank to make available its portion of any Borrowing or to fund its portion of any unreimbursed payment under Section 2.04(c) or (ii) a Bank having notified the Agent and/or the Borrower that it does not intend to comply with the obligations under Section 1.01(a), 1.01(c) or 2.04(c), in the case of either clause (i) or (ii) above as a result of the appointment of a receiver or conservator with respect to such Bank at the direction or request of any regulatory agency or authority. "Bankruptcy Code" shall have the meaning provided in Section 9.05. "Base Rate" at any time shall mean the highest of (x) the rate which is 1/2 of 1% in excess of the Adjusted Certificate of Deposit Rate, (y) the rate which is 1/2 of 1% in excess of the Federal Funds Rate and (z) the Prime Lending Rate. "Base Rate Loan" shall mean each Loan bearing interest at the rates provided in Section 1.08(a). "Borrower" shall have the meaning provided in the first paragraph of this Agreement, and shall also include any successor corporation pursuant to a merger permitted under Section 8.02(s). "Borrowing" shall mean and include (i) the borrowing of Swingline Loans from BTCo on a given date and (ii) the borrowing of one Type of Revolving Loan from all of the Banks on a given date (or resulting from conversions on a given date), having in the case of Eurodollar Loans the same Interest Period; provided, that Base Rate Loans incurred pursuant to Section 1.10(b) shall be considered part of any related Borrowing of Eurodollar Loans. "BTCo" shall mean Bankers Trust Company, in its individual capacity, and any successor corporation thereto by merger, consolidation or otherwise. "Business Day" shall mean (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which shall be in the City of New York a legal holiday or a day on which banking institutions are authorized by law or other governmental actions to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in U.S. dollar deposits in the interbank Eurodollar market. "Calculation Period" shall mean the Test Period most recently ended on or prior to the date that any determination is required to be made hereunder on a Pro Forma Basis. -80- 87 "Capital Expenditures" shall mean, with respect to any Person, without duplication, all expenditures by such Person which should be capitalized in accordance with GAAP, including, without duplication, all such expenditures with respect to fixed or capital assets (including, without limitation, expenditures for maintenance and repairs which should be capitalized in accordance with GAAP) and the amount of all Capitalized Lease Obligations incurred by such Person. "Capital Lease," as applied to any Person, shall mean any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "Capital Stock" shall mean the Common Stock and the Preferred Stock. "Capital Stock Financing" shall mean the issuance by the Borrower of shares of its Capital Stock (other than its Exchangeable Preferred Stock) to Cornerstone and certain other investors reasonably acceptable to the Agent on or prior to the Effective Date as part of the Transaction. "Capitalized Lease Obligations" shall mean all obligations under Capital Leases of the Borrower or any of its Subsidiaries in each case taken at the amount thereof accounted for as liabilities in accordance with GAAP. "Cash Equivalents" shall mean (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided, that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than twelve months from the date of acquisition, (ii) U.S. dollar denominated time deposits, certificates of deposit and bankers acceptances of (x) any Bank or (y) any bank whose short-term commercial paper rating from Standard & Poor's Ratings Service ("S&P") is at least A-1 or the equivalent thereof or from Moody's Investors Service Inc. ("Moody's") is at least P-1 or the equivalent thereof (any such bank or Bank, an "Approved Bank"), in each case with maturities of not more than twelve months from the date of acquisition, (iii) commercial paper issued by any Approved Bank or by the parent company of any Approved Bank and commercial paper issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating of at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's, or guaranteed by any industrial company with a long term unsecured debt rating of at least A or A2, or the equivalent of each thereof, from S&P or Moody's, as the case may be, and in each case maturing within twelve months after the date of acquisition, (iv) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within twelve months from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P -81- 88 or Moody's and (v) investments in money market funds substantially all the assets of which are comprised of securities of the types described in clauses (i) through (iv) above. "Change of Control Event" shall mean (a) Cornerstone and its Related Parties shall cease to own on a fully diluted basis in the aggregate at least 35% of the economic and voting interest in the Borrower's capital stock, (b) any other Person or "group" (within the meaning of Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as in effect on the Effective Date) shall own at any time on a fully diluted basis a percentage of either the economic or the voting interest in the Borrower's capital stock which percentage exceeds the percentage of such interest therein owned by Cornerstone and its Related Parties, (c) the Board of Directors of the Borrower shall cease to consist of the majority of Continuing Directors, or (d) a "change of control," "change of ownership" or similar event shall occur as provided in the Subordinated Note Indenture. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to the Code are to the Code, as in effect at the date of this Agreement and any subsequent provisions of the Code amendatory thereof, supplemental thereto or substituted therefor. "Collateral" shall mean all of the Collateral as defined in each of the Security Documents. "Collateral Agent" shall mean the Agent acting as collateral agent for the Secured Creditors. "Collective Bargaining Agreements" shall have the meaning provided in Section 5.13(b). "Commitment Fee" shall have the meaning provided in Section 3.01(a). "Common Stock" shall have the meaning provided in Section 6.14. "Consolidated Debt" shall mean, at any time, all Indebtedness of the Borrower and its Subsidiaries determined on a consolidated basis at such time, provided, that for purposes of this definition, the amount of Indebtedness in respect of Interest Rate Protection Agreements shall be at any time the unrealized net loss portion, if any, of the Borrower and/or its Subsidiaries thereunder on a marked-to-market basis determined no more than one month prior to such time. "Consolidated EBIT" shall mean, for any period, Consolidated Net Income for such period, before (i) total interest expense (inclusive of amortization of deferred finan- -82- 89 cing fees, premiums on Interest Rate Protection Agreements and any other original issue discount) of the Borrower and its Subsidiaries determined on a consolidated basis, (ii) any non-cash charges deducted in determining Consolidated Net Income for such period and related to the issuance by the Borrower or any of its Subsidiaries of stock, warrants or options to management (or any exercise of any such warrants or options), (iii) provisions for taxes based on income and foreign withholding taxes, (iv) giving effect to any extraordinary gains or losses but with giving effect to gains or losses from sales of assets sold in the ordinary course of business, (v) any non-cash charges in accordance with purchase accounting, (vi) giving effect to start-up costs and duplicative costs incurred in connection with the transition services agreement to which the Borrower is a party as of the Effective Date (not to exceed $200,000 for purposes of this clause (vi)), (vii) giving effect to costs related to the "Year 2000 Problem" Baan project which have not been capitalized (not to exceed $400,000 for purposes of this clause (vii)) and (viii) giving effect to expenses related to the Recapitalization (not to exceed $8,000,000 for purposes of this clause (viii)). "Consolidated EBITDA" shall mean, for any period, Consolidated EBIT for such period, adjusted by adding thereto the amount of all depreciation expense and amortization expense that were deducted in determining Consolidated EBIT for such period. "Consolidated Interest Expense" shall mean, for any period, total interest expense (including that attributable to Capital Leases in accordance with GAAP) of the Borrower and its Subsidiaries determined on a consolidated basis for such period with respect to all outstanding Indebtedness of the Borrower and its Subsidiaries, including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs or benefits under Interest Rate Protection Agreements, but excluding, however, amortization of any payments made to obtain any Interest Rate Protection Agreement and deferred financing costs and any interest expense on deferred compensation arrangements to the extent included in total interest expense. "Consolidated Net Income" shall mean, for any period, the net income (or loss), after provision for taxes, of the Borrower and its Subsidiaries on a consolidated basis for such period taken as a single accounting period but excluding any unrealized losses and gains for such period resulting from marked-to-market of Other Hedging Agreements and any writeoff of deferred financing costs as a result of the refinancing of any Indebtedness to be Refinanced; provided that (x) for purposes of determining compliance with Section 8.11 and the definition of Reduction Discount there shall be included (to the extent not already included) in determining Consolidated Net Income for any period the net income (or loss) of any Person, business, property or asset acquired during such period pursuant to Section 8.02(p) and not subsequently sold or otherwise disposed of by the Borrower or one of its Subsidiaries during such period (each such Person, business, property or asset acquired and not subsequently disposed of during such period, an "Acquired Entity or -83- 90 Business"), in each case based on the actual net income (or loss) of such Acquired Entity or Business for the entire period (including the portion thereof occurring prior to such acquisition). "Contingent Obligations" shall mean as to any Person any obligation of such Person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (x) for the purchase or payment of any such primary obligation or (y) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof; provided, however, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection or standard contractual indemnities entered into, in each case in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. "Continuing Directors" shall mean the directors of the Borrower on the Effective Date and each other director if such director's nomination for the election to the Board of Directors of the Borrower is recommended by a majority of the then Continuing Directors. "Cornerstone" shall mean Cornerstone Equity Investors IV, L.P., a Delaware limited partnership. "Credit Documents" shall mean this Agreement, the Notes, the Subsidiary Guaranty and each Security Document. "Credit Event" shall mean (i) the occurrence of the Effective Date and (ii) the making of a Loan (other than a Revolving Loan made pursuant to a Mandatory Borrowing) or the issuance of a Letter of Credit. "Credit Party" shall mean the Borrower and each Subsidiary Guarantor. -84- 91 "Default" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "Defaulting Bank" shall mean any Bank with respect to which a Bank Default is in effect. "Dividends" shall have the meaning provided in Section 8.06. "Documents" shall mean the Credit Documents, the Refinancing Documents, the Equity Financing Documents, the Subordinated Note Documents and the Recapitalization Documents. "Domestic Subsidiary" shall mean each Subsidiary of the Borrower incorporated or organized in the United States or any State or territory thereof. "Effective Date" shall have the meaning provided in Section 12.10. "Eligible Transferee" shall mean and include a commercial bank, investment company, financial institution or other "accredited investor" (as defined in Regulation D of the Securities Act). "Employment Agreements" shall have the meaning provided in Section 5.13(f). "Environmental Claims" shall mean any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of non-compliance or violation, investigations or proceedings relating in any way to any violation (or alleged violation) by the Borrower or any of its Subsidiaries under any Environmental Law (hereafter "Claims") or any permit issued to the Borrower or any of its Subsidiaries under any such law, including, without limitation, (a) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment. "Environmental Law" shall mean any federal, state or local statute, law, rule, regulation, ordinance, code, policy or rule of common law now or hereafter in effect and in each case as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment (for purposes of this definition (collectively, "Laws")), relating to the environment or Hazardous -85- 92 Materials or health and safety to the extent health and safety issues arise under the Occupational Safety and Health Act of 1970, as amended, or any such similar Laws. "Equity Financing" shall mean and include each of the Capital Stock Financing and the Exchangeable Preferred Equity Financing. "Equity Financing Documents" shall mean each agreement, document and instrument entered into in connection with the Capital Stock Financing and/or the Exchangeable Preferred Equity Financing. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and the rulings issued there under. Section references to ERISA are to ERISA as in effect at the date of this Agreement and any subsequent provisions of ERISA amendatory thereof, supplemental thereto or substituted therefor. "ERISA Affiliate" shall mean each person (as defined in Section 3(9) of ERISA) which together with the Borrower or any Subsidiary of the Borrower would be deemed to be a "single employer" (i) within the meaning of Section 414(b), (c), (m) or (o) of the Code or (ii) as a result of the Borrower or any Subsidiary of the Borrower being or having been a general partner of such person. "Eurodollar Loans" shall mean each Loan bearing interest at the rates provided in Section 1.08(b). "Eurodollar Rate" shall mean, with respect to each Interest Period for a Eurodollar Loan, (i) the arithmetic average (rounded to the nearest 1/100 of 1%) of the offered quotation to first-class banks in the interbank Eurodollar market by BTCo for U.S. dollar deposits of amounts in same day funds comparable to the outstanding principal amount of the Eurodollar Loan of BTCo for which an interest rate is then being determined with maturities comparable to the Interest Period to be applicable to such Eurodollar Loan, deter mined as of 10:00 A.M. (New York time) on the date which is two Business Days prior to the commencement of such Interest Period divided (and rounded upward to the next whole multiple of 1/16 of 1%) by (ii) a percentage equal to 100% minus the then stated maximum rate of all reserve requirements (including, without limitation, any marginal, emergency, supplemental, special or other reserves) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D). "Event of Default" shall have the meaning provided in Section 9. -86- 93 "Exchangeable Preferred Equity Financing" shall mean the issuance by the Borrower of shares of its Exchangeable Preferred Stock on or prior to the Effective Date as part of the Transaction. "Exchangeable Preferred Stock" shall have the meaning provided in Section 6.14. "Existing Indebtedness" shall have the meaning provided in Section 6.22. "Existing Indebtedness Agreements" shall have the meaning provided in Section 5.13(c). "Facing Fee" shall have the meaning provided in Section 3.01(c). "Federal Funds Rate" shall mean, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal Funds transactions with members of the Federal Reserve System arranged by Federal Funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal Funds brokers of recognized standing selected by the Agent. "Fees" shall mean all amounts payable pursuant to, or referred to in, Section 3.01. "Final Maturity Date" shall mean February 26, 2003. "Foreign Cash Equivalents" shall mean certificates of deposit or bankers acceptances of any bank organized under the laws of Canada, Japan or any country that is a member of the European Economic Community whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent thereof, in each case with maturities of not more than twelve months from the date of acquisition. "Foreign Pension Plan" shall mean any plan, fund (including, without limitation, any superannuation fund) or other similar program established or maintained outside the United States of America by the Borrower or any one or more of its Subsidiaries primarily for the benefit of employees of the Borrower or such Subsidiaries residing outside the United States of America, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement or payments -87- 94 to be made upon termination of employment, and which plan is not subject to ERISA or the Code. "Foreign Subsidiary" shall mean each Subsidiary of the Borrower that is incorporated under the laws of any jurisdiction other than the United States of America, any State thereof or any territory thereof. "GAAP" shall mean generally accepted accounting principles in the United States of America, as promulgated by the American Institute of Certified Public Accountants and its committees, as in effect from time to time; it being understood and agreed that determinations in accordance with GAAP for purposes of Section 8, including defined terms as used therein, are subject (to the extent provided therein) to Section 12.07(a). "Hazardous Materials" shall mean (a) any petrochemical or petroleum products, radioactive materials, asbestos in any form that is or could become friable, urea formal dehyde foam insulation, transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls, and radon gas; and (b) any chemicals, materials or substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "restricted hazardous materials," "extremely hazardous wastes," "restrictive hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or "pollutants," or words of similar meaning and regulatory effect. "Indebtedness" of any Person shall mean, without duplication, (i) all indebtedness of such Person for borrowed money, (ii) the deferred purchase price of assets or services payable to the sellers thereof or any of such seller's assignees which in accordance with GAAP would be shown on the liability side of the balance sheet of such Person but excluding deferred rent as determined in accordance with GAAP, (iii) the face amount of all letters of credit issued for the account of such Person and, without duplication, all drafts drawn there under, (iv) all Indebtedness of a second Person secured by any Lien on any property owned by such first Person, whether or not such Indebtedness has been assumed, (v) all Capitalized Lease Obligations of such Person, (vi) all obligations of such Person to pay a specified purchase price for goods or services whether or not delivered or accepted, i.e., take-or-pay and similar obligations, (vii) all obligations under Interest Rate Protection Agreements and Other Hedging Agreements and (viii) all Contingent Obligations of such Person, provided, that Indebtedness shall not include trade payables and accrued expenses, in each case arising in the ordinary course of business. "Indebtedness to be Refinanced" shall mean all Indebtedness outstanding pursuant to the Term WCMA Loan Agreement, dated as of April 15, 1997, between the Borrower and Merrill Lynch Business Financial Services, Inc. -88- 95 "Intercompany Loan" shall have the meaning provided in Section 8.05(g). "Intercompany Notes" shall mean promissory notes, in the form of Exhibit K, evidencing Intercompany Loans. "Interest Coverage Ratio" shall mean, for any period, the ratio of Consolidated EBITDA to Consolidated Interest Expense for such period. "Interest Period," with respect to any Eurodollar Loan, shall mean the interest period applicable thereto, as determined pursuant to Section 1.09. "Interest Rate Protection Agreement" shall mean any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedging agreement or other similar agreement or arrangement. "L/C Supportable Indebtedness" shall mean (i) obligations of the Borrower or its Subsidiaries incurred in the ordinary course of business with respect to insurance obligations and workers' compensation, surety bonds and other similar statutory obligations and (ii) such other obligations of the Borrower or any of its Subsidiaries as are reasonably acceptable to the Agent and the Letter of Credit Issuer and otherwise permitted to exist pursuant to the terms of this Agreement. "Leasehold" of any Person shall mean all of the right, title and interest of such Person as lessee or licensee in, to and under leases or licenses of land, improvements and/or fixtures. "Letter of Credit" shall have the meaning provided in Section 2.01(a). "Letter of Credit Fee" shall have the meaning provided in Section 3.01(b). "Letter of Credit Issuer" shall mean BTCo. "Letter of Credit Outstandings" shall mean, at any time, the sum of, without duplication, (i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii) the aggregate amount of all Unpaid Drawings in respect of all Letters of Credit. "Letter of Credit Request" shall have the meaning provided in Section 2.02(a). "Leverage Ratio" shall mean, at any time, the ratio of (i) Consolidated Debt at such time minus the amount of cash and Cash Equivalents held by the Borrower and its Subsidiaries at such time to (ii) Consolidated EBITDA for the Test Period then last ended. -89- 96 "Lien" shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any financing or similar statement or notice filed under the UCC or any similar recording or notice statute, and any lease having substantially the same effect as the foregoing). "Loan" shall mean each Revolving Loan and each Swingline Loan. "Management Agreements" shall have the meaning provided in Section 5.13(e). "Mandatory Borrowing" shall have the meaning provided in Section 1.01(c). "Margin Stock" shall have the meaning provided in Regulation U. "Material Adverse Effect" shall mean a material adverse effect on the business, properties, assets, liabilities, condition (financial or otherwise) or prospects of the Borrower or of the Borrower and its Subsidiaries taken as a whole. "Material Contracts" shall have the meaning provided in Section 5.13(h). "Maximum Swingline Amount" shall mean $5,000,000. "Micron Electronics" shall mean MEI California, Inc., a California corporation. "Minimum Borrowing Amount" shall mean (i) for Revolving Loans, $500,000 and (ii) for Swingline Loans, $100,000. "Mortgage" shall have the meaning provided in Section 5.10(c). "Mortgage Policies" shall have the meaning provided in Section 5.10(c)(A). "Mortgaged Properties" shall mean and include (i) all Real Properties owned or leased by the Borrower and its Domestic Subsidiaries to the extent designated as such on Annex III and (ii) each Real Property subjected to a mortgage in favor of the Collateral agent for the benefit of the Secured Creditors pursuant to Section 7.11. "NAIC" shall have the meaning provided in Section 1.10(c). "Net Proceeds" shall mean, with respect to any Asset Sale, the Proceeds resulting therefrom net of (a) cash expenses of sale (including brokerage fees, if any, -90- 97 transfer taxes and payment of principal, premium and interest of Indebtedness (other than the Loans) and the Subordinated Notes) required to be repaid as a result of such Asset Sale) and (b) incremental income taxes paid or payable as a result thereof. "Non-Defaulting Bank" shall mean each Bank other than a Defaulting Bank. "Note" shall mean each Revolving Note and the Swingline Note. "Notice of Borrowing" shall have the meaning provided in Section 1.03. "Notice of Conversion" shall have the meaning provided in Section 1.06. "Notice Office" shall mean the office of the Agent located at One Bankers Trust Plaza, New York, New York 10006 or such other office as the Agent may designate to the Borrower and the Banks from time to time. "Obligations" shall mean all amounts, direct or indirect, contingent or absolute, of every type or description, and at any time existing, owing to the Agent, the Col lateral Agent, the Letter of Credit Issuer or any Bank pursuant to the terms of this Agreement or any other Credit Document. "Other Hedging Agreements" shall mean any foreign exchange contracts, currency swap agreements or other similar agreements or arrangements designed to protect against fluctuations in currency values. "Participant" shall have the meaning provided in Section 2.04(a). "Payment Office" shall mean the office of the Agent located at One Bankers Trust Plaza, New York, New York 10006 or such other office as the Agent may designate to the Borrower and the Banks from time to time. "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto. "Percentage" shall mean, at any time for each Bank, the percentage obtained by dividing such Bank's Revolving Loan Commitment at such time by the Total Revolving Loan Commitment then in effect, provided, that if the Total Revolving Loan Commitment has been terminated, the Percentage of each Bank shall be determined by dividing such Bank's Revolving Loan Commitment as in effect immediately prior to such termination by the Total Revolving Loan Commitment as in effect immediately prior to such termination. "Permitted Acquisition" shall have the meaning provided in Section 8.02(p). -91- 98 "Permitted Encumbrances" shall mean (i) those liens, encumbrances and other matters affecting title to any Mortgaged Property listed in the Mortgage Policies in respect thereof and found, on the date of delivery of such Mortgage Policies to the Agent in accordance with the terms hereof, reasonably acceptable by the Agent, (ii) as to any particular Mortgaged Property at any time, such easements, encroachments, covenants, rights of way, minor defects, irregularities or encumbrances on title which do not, in the reasonable opinion of the Agent, materially impair such Mortgaged Property for the purpose for which it is held by the mortgagor thereof, or the lien held by the Collateral Agent, (iii) municipal and zoning ordinances which are not violated in any material respect by the existing improvements and the present use made by the mortgagor thereof of the Premises (as defined in the respective Mortgage), (iv) general real estate taxes and assessments not yet delinquent, and (v) such other items with respect to Real Property as the Agent may consent to (such consent not to be unreasonably withheld). "Permitted Liens" shall have the meaning provided in Section 8.03. "Person" shall mean any individual, partnership, limited liability company, joint venture, firm, corporation, limited liability company, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. "Plan" shall mean any pension plan as defined in Section 3(2) of ERISA, which is maintained or contributed to by (or to which there is an obligation to contribute of) the Borrower, any of its Subsidiaries or any ERISA Affiliate and each such plan for the five calendar year period immediately following the latest date on which the Borrower, any of its Subsidiaries or any ERISA Affiliate maintained, contributed to or had an obligation to contribute to such plan. "Pledge Agreement" shall have the meaning provided in Section 5.10(a). "Pledge Agreement Collateral" shall mean all "Collateral" as defined in the Pledge Agreement. "Pledged Securities" shall mean all the Pledged Securities as defined in the Pledge Agreement. "Preferred Stock" shall have the meaning provided in Section 6.14. "Prime Lending Rate" shall mean the rate which BTCo announces from time to time as its prime lending rate, the Prime Lending Rate to change when and as such prime lending rate changes. The Prime Lending Rate is a reference rate and does not necessarily -92- 99 represent the lowest or best rate actually charged to any customer. BTCo may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate. "Proceeds" shall mean, with respect to any Asset Sale, the aggregate cash payments (including any cash received by way of deferred payment pursuant to a note receivable issued in connection with any such Asset Sale, other than the portion of such deferred payment constituting interest, but only as and when so received) received by the Borrower and/or any of its Subsidiaries from such Asset Sale. "Pro Forma Basis" shall mean, in connection with any calculation of compliance with any financial covenant or financial term, the calculation thereof after giving effect on a pro forma basis to (w) if the relevant period to be tested includes any period occurring prior to the Effective Date, the consummation of the Transaction as if the same had occurred on the first day of such period, (x) the assumption, incurrence or issuance of any Indebtedness (other than revolving Indebtedness, except to the extent same is incurred to finance the Transaction or to refinance other outstanding Indebtedness) after the first day of the relevant Calculation Period as if such Indebtedness had been incurred (and the proceeds thereof applied) on the first day of the relevant Calculation Period and (y) the permanent repayment of any Indebtedness (other than revolving Indebtedness unless accompanied by a corresponding commitment reduction) after the first day of the relevant Calculation Period as if such Indebtedness had been retired, redeemed or repurchased on the first day of the relevant Calculation Period, with the following rules to apply in connection therewith: (i) all Indebtedness (x) (other than revolving Indebtedness, except to the extent same is incurred to finance the Transaction or to refinance other outstanding Indebtedness) assumed, incurred or issued after the first day of the relevant Calculation Period (whether incurred to refinance Indebtedness or otherwise) shall be deemed to have been incurred or issued (and the proceeds thereof applied) on the first day of the respective Calculation Period and remain outstanding through the date of determination and (y) (other than revolving Indebtedness unless accompanied by a corresponding commitment reduction) permanently retired or redeemed after the first day of the relevant Calculation Period shall be deemed to have been retired or redeemed on the first day of the respective Calculation Period and remain retired through the date of determination; and (ii) all Indebtedness assumed to be outstanding pursuant to preceding clause (i) shall be deemed to have borne interest at (x) the rate applicable thereto, in the case of fixed rate Indebtedness or (y) the rates which would have been applicable thereto during the respective period when same was deemed outstanding, in the case of floating rate Indebtedness (although interest expense with respect to any Indebtedness for periods while same was actually outstanding during the respec- -93- 100 tive period shall be calculated using the actual rates applicable thereto while same was actually outstanding). "Pro Forma Leverage Ratio" shall mean, at any time for the determination thereof, the Leverage Ratio at such time, with such Pro Forma Leverage Ratio to be determined on a Pro Forma Basis as if the respective Asset Sale (and the incurrence, assumption and/or repayment of any Indebtedness in connection with such Asset Sale), as the case may be, had occurred on the first day of the respective Test Period (and such Indebtedness, if any, had remained outstanding (or had not been outstanding, as the case may be) throughout such Test Period). On the date of an Asset Sale pursuant to which the Pro Forma Leverage Ratio is to be calculated, the Borrower shall deliver to the Agent a certificate of the Borrower's chief financial officer setting forth in reasonable detail the pro forma calculations required to establish the Pro Forma Leverage Ratio (with such pro forma calculations to be made on a Pro Forma Basis). "Projections" shall have the meaning provided in Section 5.16. "Quarterly Payment Date" shall mean the last Business Day of each February, May, August and November. "Qualified PIK Debt Securities" shall mean unsecured junior subordinated notes issued by the Borrower so long as the terms of any such junior subordinated note (i) do not provide any collateral security, (ii) do not provide any guaranty or other support by any Subsidiaries of the Borrower, (iii) do not contain any mandatory put, redemption, repayment, sinking fund or other similar provision occurring before February 28, 2004, (iv) do not require the cash payment of interest before February 28, 2004, (v) do not contain any covenants other than periodic reporting requirements, (vi) do not grant the holders thereof any voting rights except for limited customary voting rights on fundamental matters such as mergers, consolidations, sales of all or substantially all of the assets of the Borrower, or liquidations involving the Borrower, and (vii) are otherwise reasonably satisfactory to the Agent. "Qualified Preferred Stock" shall mean any preferred stock of the Borrower so long as the terms of any such preferred stock (i) do not provide any collateral security, (ii) do not provide any guaranty or other support by the Borrower or any Subsidiaries of the Borrower, (iii) do not contain any mandatory put, redemption, repayment, sinking fund or other similar provision occurring before February 28, 2004, (iv) do not require the cash payment of dividends before February 28, 2004, (v) do not contain any covenants other than periodic reporting requirements, (vi) do not grant the holders thereof any voting rights except for (x) voting rights required to be granted to such holders under applicable law and (y) limited customary voting rights on fundamental matters such as mergers, consolidations, -94- 101 sales of all or substantially all of the assets of the Borrower, or liquidations involving the Borrower, and (vii) are otherwise reasonably satisfactory to the Agent. "Real Property" of any Person shall mean all of the right, title and interest of such Person in and to land, improvements and fixtures, including Leaseholds. "Recapitalization" shall mean (i) the acquisition of 90% of the outstanding capital stock of the Borrower by Cornerstone, its Related Parties and other investors satisfactory to the Agent, (ii) the rollover by Micron Electronics of equity capital in the Borrower such that Micron Electronics owns 10% of the outstanding capital stock of the Borrower after giving effect to the Recapitalization and (iii) the distribution of cash in an aggregate amount equal to $256,000,000 to Micron Electronics (less the amount of equity rolled over by Micron Electronics pursuant to the Equity Financing). "Recapitalization Documents" shall mean the Amended and Restated Recapitalization Agreement, dated February 1, 1998, among the Borrower (formerly known as Micron Custom Manufacturing Services, Inc.), Micron Electronics, Micron Electronics, Inc. and Cornerstone, as amended to the Effective Date, and each other agreement, instrument and document relating to the Recapitalization. "Recovery Event" shall mean the receipt by the Borrower or any of its Subsidiaries of any insurance or condemnation proceeds payable (i) by reason of any theft, physical destruction or damage or any other similar event with respect to any properties or assets of the Borrower or any of its Subsidiaries, (ii) by reason of any condemnation, taking, seizing or similar event with respect to any properties or assets of the Borrower or any of its Subsidiaries and (iii) under any policy of insurance required to be maintained under Section 7.03. "Reduction Discount" shall mean initially zero, provided that during any Applicable Period the Reduction Discount shall be the respective percentage per annum set forth in clause (A), (B) or (C) below if, but only if, as of the Test Date with respect to such Applicable Period the condition set forth in clause (A), (B) or (C) below is met (and to the extent that no such condition is satisfied the Reduction Discount shall be zero): (A) (x) in the case of Loans, .25%, and (y) in the case of Commitment Fees, 0%, if the Leverage Ratio on such Test Date is less than 4.0:1.0 but greater than or equal to 3.5:1.0; (B) (x) in the case of Loans, .50%, and (y) in the case of Commitment Fees, 0%, if the Leverage Ratio on such Test Date is less than 3.5:1.0 but greater than or equal to 3.0:1.0; or -95- 102 (C) (x) in the case of Loans, .75%, and (y) in the case of Commitment Fees, .125%, if the Leverage Ratio on such Test Date is less than 3.0:1.0. Notwithstanding anything to the contrary contained above in this definition, the Reduction Discount shall be zero at any time when an Event of Default shall exist. "Refinancing" shall mean the refinancing by the Borrower, and the termination in full of all commitments and letters of credit in respect of, together with the payment of all loans, accrued interest, premiums, fees, commissions, expenses and other amounts owing in connection with, the Indebtedness to be Refinanced. "Refinancing Documents" shall mean each of the agreements, documents and instruments entered into in connection with the Refinancing. "Register" shall have the meaning provided in Section 7.12. "Regulation D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "Regulation G" shall mean Regulation G of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or any portion thereof establishing margin requirements. "Regulation T" shall mean Regulation T of the Board of Governors of the Federal Reserve System as from to time in effect and any successor to all or any portion thereof establishing margin requirements. "Regulation U" shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements. "Regulation X" shall mean Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or any portion thereof establishing margin requirements. "Related Party" shall mean any Affiliate of Cornerstone on the Effective Date, provided that for purposes of the definition of "Change of Control Event," the term Related Party shall not include (x) any portfolio company of Cornerstone or any Affiliate of Cornerstone or (y) any officer or director of the Borrower or any of its Subsidiaries if such officer or director is not also a partner or stockholder of Cornerstone. -96- 103 "Release" shall mean the disposing, discharging, injecting, spilling, pumping, leaking, leaching, dumping, emitting, escaping, emptying, seeping, placing, pouring and the like, into or upon any land or water or air, or otherwise entering into the environment. "Replaced Bank" shall have the meaning provided in Section 1.13. "Replacement Bank" shall have the meaning provided in Section 1.13. "Reportable Event" shall mean an event described in Section 4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA other than those events as to which the 30-day notice period waived under subsection .22, .23, .25, .27 or .28 of PBGC Regulation 4043. "Required Banks" shall mean Non-Defaulting Banks the sum of whose Revolving Loan Commitments (or, if after the Total Revolving Loan Commitment has been terminated, outstanding Revolving Loans and Percentages of outstanding Swingline Loans and Letter of Credit Outstandings) constitute greater than 50% of the Total Revolving Loan Commitment less the aggregate Revolving Loan Commitments of Defaulting Banks (or, if after the Total Revolving Loan Commitment has been terminated, the total outstanding Revolving Loans of Non-Defaulting Banks and the aggregate Percentages of all Non-Defaulting Banks of the total outstanding Swingline Loans and Letter of Credit Outstandings at such time). "Returns" shall have the meaning provided in Section 6.21. "Revolving Loan" shall have the meaning provided in Section 1.01(a). "Revolving Loan Commitment" shall mean, with respect to each Bank, the amount set forth opposite such Bank's name in Annex I directly below the column entitled "Revolving Loan Commitment," as the same may be reduced from time to time pursuant to Section 3.02 or Section 3.03 and/or otherwise modified pursuant to Section 1.13 and/or Section 12.04(b). "Revolving Note" shall have the meaning provided in Section 1.05(a). "Rollover Amount" shall have the meaning provided in Section 8.08(b). "SEC" shall mean the Securities and Exchange Commission or any successor thereto. -97- 104 "Section 4.04(b)(ii) Certificate" shall have the meaning provided in Section 4.04(b)(ii). "Secured Creditors" shall have the meaning provided in the respective Security Documents. "Security Agreement" shall have the meaning provided in Section 5.10(b). "Security Agreement Collateral" shall mean all "Collateral" as defined in the Security Agreement. "Security Documents" shall mean and include the Security Agreement, the Pledge Agreement, each Mortgage, and each Additional Security Document, if any. "Senior Officer" shall mean the Chairman, the Chief Executive Officer, the President, the Chief Financial Officer, the Treasurer, the Controller or the Secretary or any other senior officer of the Borrower or any of its Subsidiaries with knowledge of, or responsibility for, the financial affairs of such Person. "Series A Subordinated Notes" shall mean the Borrower's 9-3/4% Senior Subordinated Notes due 2008 and Floating Interest Rate Subordinated Term Securities due 2008, as in effect on the Effective Date and as the same may be modified, supplemented or amended from time to time pursuant to the terms hereof and thereof. "Series B Subordinated Notes" shall mean the Borrower's 9-3/4% Series B Senior Subordinated Notes due 2008 and Series B Floating Interest Rate Subordinated Term Securities due 2008, in the forms attached to the Subordinated Note Indenture and as the same may be modified, supplemented or amended from time to time pursuant to the terms hereof and thereof. "Shareholder Subordinated Note" shall mean an unsecured junior subordinated note issued by the Borrower (and not guaranteed or supported in any way by any of the Borrower's Subsidiaries) in the form of Exhibit L (appropriately completed), as amended, modified or supplemented from time to time in accordance with the terms of this Agreement. "Shareholders' Agreements" shall have the meaning provided in Section 5.13(d). "Start Date" shall mean the first day of any Applicable Period. -98- 105 "Stated Amount" of each Letter of Credit shall mean at any time the maximum amount available to be drawn thereunder (regardless of whether any conditions for drawing could then be met). "Subordinated Note Documents" shall mean and include the Subordinated Note Indenture and the Subordinated Notes, as in effect on the Effective Date, and as the same may be modified, supplemented or amended from time to time pursuant to the terms hereof and thereof. "Subordinated Note Indenture" shall mean the Indenture, dated as of February 26, 1998, by and between the Borrower and United States Trust Company of New York, as trustee thereunder, as in effect on the Effective Date, and as the same may be modified, amended or supplemented from time to time in accordance with the terms hereof and thereof. "Subordinated Notes" shall mean the Series A Subordinated Notes and any Series B Subordinated Notes issued in exchange therefor in accordance with the terms of the Subordinated Note Indenture. "Subsidiary" of any Person shall mean and include (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (ii) any partnership, association, joint venture or other entity in which such Person directly or indirectly through Subsidiaries, has more than a 50% equity interest at the time. "Subsidiary Guarantor" shall mean each Subsidiary of the Borrower (other than a Foreign Subsidiary except to the extent otherwise provided in Section 7.13) that is or becomes a party to the Subsidiary Guaranty. "Subsidiary Guaranty" shall have the meaning provided in Section 5.11. "Swingline Expiry Date" shall mean the date which is five Business Days prior to the Final Maturity Date. "Swingline Loan" shall have the meaning provided in Section 1.01(b). "Swingline Note" shall have the meaning provided in Section 1.05(a). -99- 106 "Syndication Date" shall mean that date upon which the Agent determines (and notifies the Borrower and the Banks) that the primary syndication (and resulting addition of Persons as Banks pursuant to Section 12.04(b)) has been completed. "Tax Allocation Agreements" shall have the meaning provided in Section 5.13(g). "Taxes" shall have the meaning provided in Section 4.04. "Test Date" shall mean, with respect to any Applicable Period, the last day of the most recent fiscal quarter or fiscal year, as the case may be, ended immediately prior to the Start Date with respect to such Applicable Period. "Test Period" shall mean the four consecutive fiscal quarters of the Borrower then last ended (taken as one accounting period); provided that, for purposes of calculating compliance with Section 8.10 for (i) the Test Period ending on or about May 31, 1998, Consolidated Interest Expense shall be Consolidated Interest Expense as calculated for the fiscal quarter ending on or about May 31, 1998 multiplied by four, (ii) the Test Period ending on or about August 31, 1998, Consolidated Interest Expense shall be Consolidated Interest Expense as calculated for the two fiscal quarter period ending on or about August 31, 1998 multiplied by two, and (iii) the Test Period ending on or about November 30, 1998, Consolidated Interest Expense shall be Consolidated Interest Expense for the three fiscal quarter period ending on or about November 30, 1998, multiplied by 4/3. "Total Revolving Loan Commitment" shall mean the sum of the Revolving Loan Commitments of each of the Banks. "Total Unutilized Revolving Loan Commitment" shall mean, at any time, (i) the Total Revolving Loan Commitment at such time less (ii) the sum of the aggregate principal amount of all Revolving Loans and Swingline Loans at such time plus the Letter of Credit Outstandings at such time. "Transaction" shall mean, collectively, (i) the Recapitalization, (ii) the Capital Stock Financing, (iii) the Exchangeable Preferred Equity Financing, (iv) the issuance of the Subordinated Notes, (v) the Refinancing, (vi) the occurrence of the Effective Date, (vii) such other transactions as contemplated by the Documents and (viii) the payment of fees and expenses in connection with the foregoing. "Type" shall mean any type of Revolving Loan determined with respect to the interest option applicable thereto, i.e., a Base Rate Loan or a Eurodollar Loan. -100- 107 "UCC" shall mean the Uniform Commercial Code as in effect from time to time in the relevant jurisdiction. "Unfunded Current Liability" of any Plan shall mean the amount, if any, by which the actuarial present value of the accumulated plan benefits under the Plan as of the close of its most recent plan year exceeds the fair market value of the assets allocable thereto, each determined in accordance with Statement of Financial Accounting Standards No. 87, based upon the actuarial assumptions used by the Plan's actuary in the most recent annual valuation of the Plan. "Unpaid Drawing" shall have the meaning provided in Section 2.03(a). "Unutilized Revolving Loan Commitment" with respect to any Bank at any time shall mean such Bank's Revolving Loan Commitment at such time less the sum of (i) the aggregate outstanding principal amount of all Revolving Loans made by such Bank and (ii) such Bank's Percentage of the Letter of Credit Outstandings at such time. "U.S. Dollars" and the sign "$" shall each mean freely transferable lawful money of the United States of America. "Wholly-Owned Domestic Subsidiary" shall mean, as to any Person, any Wholly-Owned Subsidiary of such Person which is a Domestic Subsidiary. "Wholly-Owned Foreign Subsidiary" shall mean, as to any Person, any Wholly-Owned Subsidiary of such Person which is a Foreign Subsidiary. "Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any corporation 100% of whose capital stock (other than director's qualifying shares and/or other nominal amounts of shares required to be held other than by such Person under applicable law) is at the time owned by such Person and/or one or more Wholly-Owned Subsidiaries of such Person and (ii) any partnership, limited liability company, association, joint venture or other entity in which such Person and/or one or more Wholly-Owned Subsidiaries of such Person has a 100% equity interest (other than nominal amounts of equity interest required to be held other than by such Person under applicable law) at such time. "Written," "written" or "in writing" shall mean any form of written communication or a communication by means of telex, facsimile device, telegraph or cable. -101- 108 SECTION 11. The Agent. 11.01 Appointment. Each Bank hereby irrevocably designates and appoints BTCo as Agent of such Bank (such term to include for purposes of this Section 11, BTCo acting as Collateral Agent) to act as specified herein and in the other Credit Documents, and each such Bank hereby irrevocably authorizes BTCo as the Agent to take such action on its behalf under the provisions of this Agreement and the other Credit Documents and to exercise such powers and perform such duties as are expressly delegated to the Agent by the terms of this Agreement and the other Credit Documents, together with such other powers as are reasonably incidental thereto. The Agent agrees to act as such upon the express conditions contained in this Section 11. Notwithstanding any provision to the contrary elsewhere in this Agreement or in any other Credit Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein or in the other Credit Documents, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Agent. The provisions of this Section 11 are solely for the benefit of the Agent and the Banks, and neither the Borrower nor any of its Subsidiaries shall have any rights as a third party beneficiary of any of the provisions hereof. In performing its functions and duties under this Agreement, the Agent shall act solely as agent of the Banks and the Agent does not assume and shall not be deemed to have assumed any obligation or relationship of agency or trust with or for the Borrower or any of its Subsidiaries. 11.02 Delegation of Duties. The Agent may execute any of its duties under this Agreement or any other Credit Document by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care except to the extent otherwise required by Section 11.03. 11.03 Exculpatory Provisions. Neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person in its capacity as Agent under or in connection with this Agreement or the other Credit Documents (except for its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Banks for any recitals, statements, representations or warranties made by the Borrower, any of its Subsidiaries or any of their respective officers contained in this Agreement, any other Credit Document, any other Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Document or for any failure of the Borrower or any of its Subsidiaries or any of their respective officers to perform its obligations hereunder or thereunder. The Agent shall not be under any obligation to any -102- 109 Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or the other Documents, or to inspect the properties, books or records of the Borrower or any of its Subsidiaries. The Agent shall not be responsible to any Bank for the effectiveness, genuineness, validity, enforceability, collectability or sufficiency of this Agreement or any other Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statement or in any financial or other statements, instruments, reports, certificates or any other documents in connection herewith or therewith furnished or made by the Agent to the Banks or by or on behalf of the Borrower or any of its Subsidiaries to the Agent or any Bank or be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained herein or therein or as to the use of the proceeds of the Loans or of the existence or possible existence of any Default or Event of Default. 11.04 Reliance by Agent. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, facsimile, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower or any of its Subsidiaries), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Credit Document unless it shall first receive such advice or concurrence of the Required Banks as it deems appropriate or it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Credit Documents in accordance with a request of the Required Banks (or at all the Banks, to the extent required by this Agreement), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Banks. 11.05 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent has actually received notice from a Bank or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default. In the event that the Agent receives such a notice, the Agent shall give prompt notice thereof to the Banks. The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Banks; provided, that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Banks. -103- 110 11.06 Non-reliance on Agent and Other Banks. Each Bank expressly acknowledges that neither the Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by the Agent hereinafter taken, including any review of the affairs of the Borrower or any of its Subsidiaries, shall be deemed to constitute any representation or warranty by the Agent to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, assets, operations, property, financial and other condition, prospects and creditworthiness of the Borrower and its Subsidiaries and made its own decision to make its Loans hereunder and enter into this Agreement. Each Bank also represents that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement, and to make such investigation as it deems necessary to inform itself as to the business, assets, operations, property, financial and other condition, prospects and creditworthiness of the Borrower and its Subsidiaries. The Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, operations, assets, property, financial and other condition, prospects or creditworthiness of the Borrower or any of its Subsidiaries which may come into the possession of the Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 11.07 Indemnification. The Banks agree to indemnify the Agent in its capacity as such ratably according to their respective "percentages" as used in determining the Required Banks at such time or, if the Total Revolving Loan Commitment has terminated and all Loans have been repaid in full, as determined immediately prior to such termination and repayment (with such "percentages" to be determined as if there are no Defaulting Banks), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, reasonable expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, incurred by or asserted against the Agent in its capacity as such in any way relating to or arising out of this Agreement or any other Credit Document, or any documents contemplated by or referred to herein or the transactions contemplated hereby or any action taken or omitted to be taken by the Agent under or in connection with any of the foregoing, but only to the extent that any of the foregoing is not paid by the Borrower or any of its Subsidiaries; provided, that no Bank shall be liable to the Agent for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting primarily from the gross negligence or willful misconduct of the Agent. If any indemnity furnished to the Agent for any purpose shall, in the opinion of the Agent be insufficient or become impaired (other than as a result of the gross negligence or willful misconduct of the Agent), -104- 111 the Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. The agreements in this Section 11.07 shall survive the payment of all Obligations. 11.08 Agent in its Individual Capacity. The Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower and its Subsidiaries as though the Agent were not the Agent hereunder. With respect to the Loans made by it and all Obligations owing to it, the Agent shall have the same rights and powers under this Agreement as any Bank and may exercise the same as though it were not the Agent and the terms "Bank" and "Banks" shall include the Agent in its individual capacity. The Agent and/or its affiliates may own stock of the Borrower and may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Borrower or any Affiliate of the Borrower as if it were not performing the duties specified herein, and may accept fees and other consideration from any Credit Party for services in connection with this Agreement and otherwise without having to account for the same to the Banks. 11.09 Holders. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Agent. Any request, authority or consent of any Person or entity who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or indorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor. 11.10 Resignation of the Agent; Successor Agent. The Agent may resign as the Agent upon 20 days' notice to the Banks and, unless a Default or an Event of Default of the type referred to in Section 9.05 has occurred and is continuing, to the Borrower. Upon the resignation of the Agent, the Required Banks shall appoint from among the Banks a successor Agent which is a bank or a trust company for the Banks subject, to the extent that no payment Default or Event of Default has occurred and is then continuing, to prior approval by the Borrower (such approval not to be unreasonably withheld), whereupon such successor agent shall succeed to the rights, powers and duties of the Agent, and the term "Agent" shall include such successor agent effective upon its appointment, and the resigning Agent's rights, powers and duties as the Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement. If a successor Agent shall not have been so appointed within such 20 day period after the date such notice of resignation was given by the Agent, the Agent's resignation shall become effective and the Banks shall thereafter perform all duties of the Agent hereunder and/or under any other Credit Documents until such time, if any, as the Required Banks appoint a successor Agent as provided above. After the resignation of the Agent -105- 112 hereunder, the provisions of this Section 11 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. SECTION 12. Miscellaneous. 12.01 Payment of Expenses, etc. The Borrower hereby agrees to: (i) whether or not the transactions herein contemplated are consummated, pay all reasonable out-of-pocket costs and expenses of the Agent (including, without limitation, the reasonable fees and disbursements of White & Case and local counsel) in connection with the negotiation, preparation, execution and delivery of the Credit Documents and the documents and instruments referred to therein and any amendment, waiver or consent relating thereto and in connection with the Agent's syndication efforts with respect to this Agreement; (ii) pay all reasonable out-of-pocket costs and expenses of the Agent and each of the Banks in connection with the enforcement of the Credit Documents and the documents and instruments referred to therein and, after an Event of Default shall have occurred and be continuing, the protection of the rights of the Agent and each of the Banks thereunder (including, without limitation, the reasonable fees and disbursements of counsel (including in-house counsel) for the Agent and for each of the Banks); (iii) pay and hold each of the Banks harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save each of the Banks harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Bank) to pay such taxes; and (iv) indemnify the Agent, the Collateral Agent and each Bank, its officers, directors, trustees, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, (a) any investigation, litigation or other proceeding (whether or not the Agent, the Collateral Agent or any Bank is a party thereto and whether or not any such investigation, litigation or other proceeding is between or among the Agent, the Collateral Agent, any Bank, any Credit Party or any third Person or otherwise) related to the entering into and/or performance of this Agreement or any other Document or the use of the proceeds of any Loans or any Letter of Credit hereunder or the Transaction or the consummation of any other transactions contemplated in any Document (but excluding any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified), or (b) the actual or alleged presence of Hazardous Materials in the air, surface water or groundwater or on the surface or subsurface of any Real Property or any Environmental Claim, in each case, including, without limitation, the reasonable fees and disbursements of counsel and independent consultants incurred in connection with any such investigation, litigation or other proceeding. -106- 113 12.02 Right of Setoff; Collateral Matters. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default, each Bank is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to the Borrower or any of its Subsidiaries or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special) and any other Indebtedness at any time held or owing by such Bank (including, without limitation, by branches and agencies of such Bank wherever located) to or for the credit or the account of the Borrower or any of its Subsidiaries against and on account of the Obligations of the Borrower or any of its Subsidiaries to such Bank under this Agreement or under any of the other Credit Documents, including, without limitation, all interests in Obligations of the Borrower or any of its Subsidiaries purchased by such Bank pursuant to Section 12.06(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether or not such Bank shall have made any demand hereunder and although said Obligations shall be contingent or unmatured. 12.03 Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile or cable communication) and mailed, telegraphed, telexed, telecopied, cabled or delivered, if to any Credit Party, at the address specified opposite its signature below or in the other relevant Credit Documents, as the case may be; if to the Agent, at its Notice Office; if to any Bank, at its address specified for such Bank on Annex II; or, at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall be mailed, telegraphed, telexed, telecopied or cabled or sent by overnight courier, and shall be effective when received. 12.04 Benefit of Agreement. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto; provided, however, no Credit Party may assign or transfer any of its rights, obligations or interest hereunder or under any other Credit Document without the prior written consent of all the Banks and, provided further, that, no Bank may assign or transfer all or any portion of its Total Revolving Loan Commitment and/or its outstanding Loans except as provided in Section 12.04(b) and, provided further, that although any Bank may transfer, assign or grant participations in its rights hereunder in accordance with this Section, such Bank shall remain a "Bank" for all purposes hereunder and such participant shall not constitute a "Bank" hereunder and, provided further, that no Bank shall grant any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) extend the final scheduled maturity of any Loan, Note or Letter of Credit (unless such Letter of Credit is not extended beyond the Final Maturity Date) in which such participant is participating, or reduce the rate or extend the time of payment of -107- 114 interest or Fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Revolving Loan Commitment shall not constitute a change in the terms of such participation, and that an increase in any Revolving Loan Commitment or Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof), (ii) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement or (iii) release all or substantially all of the Collateral under all of the Security Documents (except as expressly provided in the Credit Documents) supporting the Loans hereunder in which such participant is participating. In the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant's rights against such Bank in respect of such participation to be those set forth in the agreement executed by such Bank in favor of the participant relating thereto) and all amounts payable by the Borrower hereunder shall be determined as if such Bank had not sold such participation. (b) Notwithstanding the foregoing, any Bank (or any Bank together with one or more other Banks) may (x) assign all or a portion of its Revolving Loan Commitment (and related outstanding Obligations hereunder) to its parent company and/or any affiliate of such Bank which is at least 50% owned by such Bank or its parent company or to one or more Banks or (y) assign all, or if less than all, a portion equal to at least $4,000,000 in the aggregate for the assigning Bank or assigning Banks, of such Revolving Loan Commitment (and related outstanding Obligations hereunder) to one or more Eligible Transferees, each of which assignees shall become a party to this Agreement as a Bank by execution of an Assignment and Assumption Agreement, provided that (i) at such time Annex I shall be deemed modified to reflect the Revolving Loan Commitments of such new Bank and of the existing Banks, (ii) upon surrender of the old Revolving Notes, new Revolving Notes will be issued, at the Borrower's expense, to such new Bank and to the assigning Bank, such new Revolving Notes to be in conformity with the requirements of Section 1.05 (with appropriate modifications) to the extent needed to reflect the revised Revolving Loan Commitments, (iii) the consent of the Agent shall be required in connection with any such assignment pursuant to clause (y) of this Section 12.04(b) (which consent shall not be unreasonably withheld or delayed) and (iv) the Agent shall receive at the time of each such assignment, from the assigning or assignee Bank, the payment of a non-refundable assignment fee of $3,500 and, provided further, that such transfer or assignment will not be effective until recorded by the Agent on the Register pursuant to Section 7.12. To the extent of any assignment pursuant to this Section 12.04(b), the assigning Bank shall be relieved of its obligations hereunder with respect to its assigned Revolving Loan Commitment. At the time of each assignment pursuant to this Section 12.04(b) to a Person which is not already a Bank hereunder and which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the -108- 115 respective assignee Bank shall provide to the Borrower and the Agent the appropriate Internal Revenue Service Forms (and, if applicable a Section 4.04(b)(ii) Certificate) described in Section 4.04(b). To the extent that an assignment of all or any portion of a Bank's Revolving Loan Commitment and related outstanding Obligations pursuant to Section 1.13 or this Section 12.04(b) would, at the time of such assignment, result in increased costs to the Borrower under Section 1.10, 1.11, 2.05 or 4.04 from those being charged by the respective assigning Bank prior to such assignment, then the Borrower shall not be obligated to pay such increased costs (although the Borrower shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective assignment). (c) Nothing in this Agreement shall prevent or prohibit any Bank from pledging its Loans and Notes hereunder to a Federal Reserve Bank in support of borrowings made by such Bank from such Federal Reserve Bank and, with the consent of the Agent, any Bank which is a fund may pledge all or any portion of its Loans and Notes to its trustee in support of its obligations to the trustee. No pledge pursuant to this clause (c) shall release the transferor Bank from any of its obligations hereunder. 12.05 No Waiver; Remedies Cumulative. No failure or delay on the part of the Agent or any Bank in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between any Credit Party and the Agent or any Bank shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Agent or any Bank would otherwise have. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Agent or the Banks to any other or further action in any circumstances without notice or demand. 12.06 Payments Pro Rata. (a) The Agent agrees that promptly after its receipt of each payment from or on behalf of any Credit Party in respect of any Obligations of such Credit Party, it shall, except as otherwise provided in this Agreement, distribute such payment to the Banks (other than any Bank that has consented in writing to waive its pro rata share of such payment) pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received. (b) Each of the Banks agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise) which is applicable to the payment of the princi- -109- 116 pal of, or interest on, the Loans, Unpaid Drawings or Fees, of a sum which with respect to the related sum or sums received by other Banks is in a greater proportion than the total of such Obligation then owed and due to such Bank bears to the total of such Obligation then owed and due to all of the Banks immediately prior to such receipt, then such Bank receiving such excess payment shall purchase for cash without recourse or warranty from the other Banks an interest in the Obligations of the respective Credit Party to such Banks in such amount as shall result in a proportional participation by all of the Banks in such amount; provided, that if all or any portion of such excess amount is thereafter recovered from such Bank, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest. 12.07 Calculations; Computations. (a) The financial statements to be furnished to the Banks pursuant hereto shall be made and prepared in accordance with GAAP consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrower to the Banks); provided, that (A) except as otherwise specifically provided herein, all computations determining compliance with Sections 3 and 8, including definitions used therein, shall, in each case, utilize accounting principles and policies in effect at the time of the preparation of, and in conformity with those used to prepare, the August 28, 1997 financial statements of the Borrower delivered to the Banks pursuant to Section 6.10(b), but shall not give effect to (without duplication) (i) purchase accounting adjustments required or permitted by APB 16 (including non-cash write-ups and non-cash charges relating to inventory, fixed assets and in-process research and development, in each case arising in connection with the Recapitalization and any Permitted Acquisition) and APB 17 (including non-cash charges relating to intangibles and goodwill arising in connection with the Recapitalization and any Permitted Acquisition) or (ii) the fees paid to Cornerstone Equity Investors, L.L.C. and/or its Related Parties pursuant to Section 8.07(iii) and (B) for purposes of the computations described in preceding (A), any outstanding Shareholder Subordinated Notes and Qualified PIK Debt Securities shall be treated as if same did not exist and as if there were no interest expense applicable thereto. (b) All computations of interest and Fees hereunder shall be made on the actual number of days elapsed over a year of 360 days. 12.08 Governing Law; Submission to Jurisdiction; Venue. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. Any legal action or proceeding with respect to this Agreement or any other Credit Document may be brought in the courts of the State of New York or of the United States for the Southern District of New York, and, by execution and delivery of this Agreement, each Credit Party hereby irrevocably accepts for itself and in -110- 117 respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Credit Party hereby further irrevocably waives any claim that any such courts lack jurisdiction over such Credit Party, and agrees not to plead or claim, in any legal action or proceeding with respect to this Agreement or any other Credit Document brought in any of the aforesaid courts, that any such court lacks jurisdiction over such Credit Party. Each Credit Party irrevocably consents to the service of process in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such Credit Party, at its address for notices pursuant to Section 12.03, such service to become effective 30 days after such mailing. Each Credit Party hereby irrevocably waives any objection to such service of process and further irrevocably waives and agrees not to plead or claim in any action or proceeding commenced hereunder or under any other Credit Document that service of process was in any way invalid or ineffective. Nothing herein shall affect the right of the Agent, any Bank or the holder of any Note to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against any Credit Party in any other jurisdiction. (b) Each Credit Party hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Credit Document brought in the courts referred to in clause (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. 12.09 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Agent. 12.10 Effectiveness. This Agreement shall become effective on the date (the "Effective Date") on which (i) the Borrower, the Agent and each of the Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered the same to the Agent at the Notice Office or, in the case of the Banks, shall have given to the Agent telephonic (confirmed in writing), written, telex or facsimile notice (actually received) at such office that the same has been signed and mailed to it and (ii) the conditions contained in Section 5 are met to the satisfaction of the Agent and the Required Banks. Unless the Agent has received actual notice from any Bank that the conditions described in clause (ii) of the preceding sentence have not been met to its satisfaction, upon the satisfaction of the condition described in clause (i) of the immediately preceding sentence and upon the Agent's good faith determination that the conditions described in clause (ii) of the immediately preceding sentence have been met, then the Effective Date shall be deemed to have occurred, regardless of any subsequent determination that one or -111- 118 more of the conditions thereto had not been met (although the occurrence of the Effective Date shall not release the Borrower from any liability for failure to satisfy one or more of the applicable conditions contained in Section 5). The Agent will give the Borrower and each Bank prompt written notice of the occurrence of the Effective Date. 12.11 Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 12.12 Amendment or Waiver; etc. (a) Neither this Agreement nor any other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the respective Credit Parties party thereto and the Required Banks, provided that no such change, waiver, discharge or termination shall, without the consent of each Bank (other than a Defaulting Bank) (with Obligations being directly affected in the case of following clause (i)), (i) extend the final scheduled maturity of any Loan or Note or extend the stated maturity of any Letter of Credit beyond the Final Maturity Date, or reduce the rate or extend the time of payment of interest or Fees thereon, or reduce the principal amount thereof, (ii) release all or substantially all of the Collateral (except as expressly provided in the Security Documents) under all the Security Documents, (iii) amend, modify or waive any provision of this Section 12.12, (iv) reduce the percentage specified in the definition of Required Banks (it being understood that, with the consent of the Required Banks, additional extensions of credit pursuant to this Agreement may be included in the determination of the Required Banks on substantially the same basis as the extensions of Revolving Loan Commitments are included on the Effective Date) or (v) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement; provided further, that no such change, waiver, discharge or termination shall (1) increase the Revolving Loan Commitments of any Bank over the amount thereof then in effect without the consent of such Bank (it being understood that waivers or modifications of conditions precedent, covenants, Defaults or Events of Default or of a mandatory reduction in the Total Revolving Loan Commitment shall not constitute an increase of the Revolving Loan Commitment of any Bank, and that an increase in the available portion of any Revolving Loan Commitment of any Bank shall not constitute an increase in the Revolving Loan Commitment of such Bank), (2) without the con sent of the Letter of Credit Issuer, amend, modify or waive any provision of Section 2 or alter its rights or obligations with respect to Letters of Credit, (3) without the consent of BTCo, alter its rights or obligations with respect to Swingline Loans, (4) without the consent of the Agent, amend, modify or waive any provision of Section 11 as same applies to the Agent or any other provision as same relates to the rights or obligations of the Agent or (5) without the consent of the Collateral Agent, amend, modify or waive any provision relating to the rights or obligations of the Collateral Agent. -112- 119 (b) If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement as contemplated by clauses (i) through (v), inclusive, of the first proviso to Section 12.12(a), the consent of the Required Banks is obtained but the consent of one or more of such other Banks whose consent is required is not obtained, then the Borrower shall have the right, so long as all non-consenting Banks whose individual consent is required are treated as described in either clause (A) or (B) below, to either (A) replace each such non-consenting Bank or Banks with one or more Replacement Banks pursuant to Section 1.13 so long as at the time of such replacement, each such Replacement Bank consents to the proposed change, waiver, discharge or termination or (B) terminate such non-consenting Bank's Revolving Loan Commitment and repay in full its out standing Revolving Loans in accordance with Sections 3.02(b) and/or 4.01(b), provided that, unless the Revolving Loan Commitment which is terminated and Revolving Loans which are repaid pursuant to preceding clause (B) are immediately replaced in full at such time through the addition of new Banks or the increase of the Revolving Loan Commitments and/or outstanding Revolving Loans of existing Banks (who in each case must specifically consent thereto), then in the case of any action pursuant to preceding clause (B) the Required Banks (determined before giving effect to the proposed action) shall specifically consent thereto, provided further, that the Borrower shall not have the right to replace a Bank solely as a result of the exercise of such Bank's rights (and the withholding of any required consent by such Bank) pursuant to the second proviso to Section 12.12(a). 12.13 Survival. All indemnities set forth herein including, without limitation, in Section 1.10, 1.11, 2.05, 4.04, 11.07 or 12.01, shall survive the execution and delivery of this Agreement and the making and repayment of the Loans. 12.14 Domicile of Loans. Each Bank may transfer and carry its Loans at, to or for the account of any branch office, Subsidiary or affiliate of such Bank; provided, that the Borrower shall not be responsible for costs arising under Section 1.10, 1.11, 2.05 or 4.04 resulting from any such transfer (other than a transfer pursuant to Section 1.12) to the extent such costs would not otherwise be applicable to such Bank in the absence of such transfer. 12.15 Confidentiality. (a) Each of the Banks agrees that it will use its best efforts not to disclose without the prior consent of the Borrower (other than to its employees, auditors, counsel or other professional advisors, to affiliates or to another Bank if the Bank or such Bank's holding or parent company in its sole discretion determines that any such party should have access to such information) any information with respect to the Borrower or any of its Subsidiaries which is furnished pursuant to this Agreement; provided, that any Bank may disclose any such information (a) as has become generally available to the public or has become available to such Bank on a non-confidential basis, (b) as may be required or appropriate in any report, statement or testimony submitted to any municipal, state or Federal regulatory body having or claiming to have jurisdiction over -113- 120 such Bank or to the Federal Reserve Board, the Federal Deposit Insurance Corporation, the NAIC or similar organizations (whether in the United States or elsewhere) or their successors, (c) as may be required or appropriate in response to any summons or subpoena or in connection with any litigation, (d) in order to comply with any law, order, regulation or ruling applicable to such Bank, and (e) to any prospective transferee in connection with any contemplated transfer of any of the Notes or any interest therein by such Bank; provided, that such prospective transferee agrees to be bound by the provisions this Section 12.15 to the same extent as such Bank. (b) The Borrower hereby acknowledges and agrees that each Bank may share with any of its affiliates any information related to the Borrower or any of its Subsidiaries (including, without limitation, any nonpublic customer information regarding the creditworthiness of the Borrower and its Subsidiaries), provided that such Persons shall be subject to the provisions of this Section 12.15 to the same extent as such Bank. 12.16 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. * * * -114- 121 IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Agreement as of the date first above written. Address: 16399 Franklin Road Nampa, Idaho 83687 MCMS, INC. Telephone No.: (208) 898-2600 Facsimile No.: (208) 898-2796 Attention: Chris Anton By: /s/ Chris Anton ---------------------------------- Title: Vice President, Finance, and CFO With a copy to: Cornerstone Equity Investors, L.L.C. 717 Fifth Avenue Suite 1100 New York, New York 10022 Facsimile No.: (212) 826-6798 Telephone No.: (212) 753-0901 Attention: John A. (Tony) Downer Michael Najjar BANKERS TRUST COMPANY, Individually and as Agent By: /s/ Anthony LoGrippo ---------------------------------- Title: Vice President -115- EX-10.5 14 PLEDGE AGREEMENT 1 Exhibit 10.5 EXHIBIT F [Conformed as executed] PLEDGE AGREEMENT PLEDGE AGREEMENT, dated as of February 26, 1998 (as amended, modified or supplemented from time to time, this "Agreement"), made by each of the undersigned pledgors (each, a "Pledgor" and, together with any other entity that becomes a party hereto pursuant to Section 22 hereof, the "Pledgors"), in favor of BANKERS TRUST COMPANY, as Collateral Agent (the "Pledgee"), for the benefit of the Secured Creditors (as defined below). Except as otherwise defined herein, terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined. W I T N E S S E T H : WHEREAS, MCMS, Inc. (the "Borrower"), the financial institutions from time to time party thereto (the "Banks"), and Bankers Trust Company, as Agent (together with any successor agent, the "Agent", and together with the Pledgee and the Banks, the "Bank Creditors"), have entered into a Credit Agreement, dated as of February 26, 1998 (as amended, modified or supplemented from time to time, the "Credit Agreement"), providing for the making of Loans to the Borrower and the issuance of, and participation in, Letters of Credit for the account of the Borrower, all as contemplated therein; WHEREAS, the Borrower may from time to time be party to one or more (i) interest rate agreements, interest rate cap agreements, interest rate collar agreements or other similar agreements or arrangements, (ii) foreign exchange contracts, currency swap agreements or similar agreements or arrangements designed to protect against the fluctuations in currency values and/or (iii) other types of hedging agreements from time to time (each such agreement or arrangement with an Other Creditor (as hereinafter defined), an "Interest Rate Protection Agreement or Other Hedging Agreement"), with a Bank or an affiliate of a Bank (each such Bank or affiliate, even if the respective Bank subsequently ceases to be a Bank under the Credit Agreement for any reason, together with such Bank's or affiliate's successors and assigns, collectively, the "Other Creditors," and together with Bank Creditors, the "Secured Creditors"); WHEREAS, pursuant to the Subsidiary Guaranty when executed, each Pledgor (other than the Borrower) will have jointly and severally guaranteed to the Secured Creditors the payment when due of all obligations and liabilities of the Borrower under or with respect to the Credit Documents and the Interest Rate Protection Agreements or Other Hedging Agreements; 2 EXHIBIT F Page 2 WHEREAS, it is a condition precedent to the making of Loans to the Borrower under the Credit Agreement that each Pledgor shall have executed and delivered to the Pledgee this Agreement; and WHEREAS, each Pledgor desires to execute this Agreement to satisfy the conditions described in the preceding paragraph; NOW, THEREFORE, in consideration of the benefits accruing to each Pledgor, the receipt and sufficiency of which are hereby acknowledged, each Pledgor hereby makes the following representations and warranties to the Pledgee and hereby covenants and agrees with the Pledgee as follows: 1. SECURITY FOR OBLIGATIONS. This Agreement is made by each Pledgor for the benefit of the Secured Creditors to secure: (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations and liabilities (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) of such Pledgor, now existing or hereafter incurred under, arising out of or in connection with any Credit Document to which such Pledgor is a party and the due performance and compliance by such Pledgor with the terms of each such Credit Document (all such obligations and liabilities under this clause (i), except to the extent consisting of obligations or indebtedness with respect to Interest Rate Protection Agreements or Other Hedging Agreements, being herein collectively called the "Credit Document Obligations"); (ii) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of such Pledgor, now existing or hereafter incurred under, arising out of or in connection with any Interest Rate Protection Agreement or Other Hedging Agreement including, in the case of the Pledgors other than the Borrower, all obligations of such Pledgor under the Subsidiary Guaranty in respect of Interest Rate Protection Agreements or Other Hedging Agreements (all such obligations and liabilities under this clause (ii) being herein collectively called the "Other Obligations"); -2- 3 EXHIBIT F Page 3 (iii) any and all sums advanced by the Pledgee in order to preserve the Collateral (as hereinafter defined) or preserve its security interest in the Collateral; (iv) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities referred to in clauses (i), (ii) and (iii) above, after an Event of Default (such term, as used in this Agreement, shall mean any Event of Default under, and as defined in, the Credit Agreement, or any payment default by the Borrower under any Interest Rate Protection Agreement or Other Hedging Agreement and shall in any event include, without limitation, any payment default (after the expiration of any applicable grace period) on any of the Obligations (as hereinafter defined)) shall have occurred and be continuing, the reasonable expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing or realizing on the Collateral, or of any exercise by the Pledgee of its rights hereunder, together with reasonable attorneys' fees and court costs; and (v) all amounts paid by any Secured Creditor as to which such Secured Creditor has the right to reimbursement under Section 11 of this Agreement; all such obligations, liabilities, sums and expenses set forth in clauses (i) through (v) of this Section 1 being herein collectively called the "Obligations". 2. DEFINITION OF STOCK, NOTES, SECURITIES, ETC. As used herein: (i) the term "Stock" shall mean (x) with respect to corporations incorporated under the laws of the United States or any State or territory thereof (each, a "Domestic Corporation"), all of the issued and outstanding shares of capital stock of any Domestic Corporation at any time owned by each Pledgor and (y) with respect to corporations not Domestic Corporations (each, a "Foreign Corporation"), all of the issued and outstanding shares of capital stock at any time directly owned by any Pledgor of any Foreign Corporation, provided that (1) except as provided in the last sentence of this Section 2, such Pledgor shall not be required to pledge hereunder more than 65% of the total combined voting power of all classes of capital stock of any Foreign Corporation entitled to vote and (2) unless and until the Collateral Agent, in its sole discretion, shall determine otherwise, the Borrower shall not be required to pledge any of the capital stock of any Foreign Corporation the capital stock of which is uncertificated (it being understood and agreed that any capital stock not required to be pledged as a result of this proviso shall not constitute "Stock"); (ii) the term "Notes" shall mean (x) all Intercompany Notes at any time issued to each Pledgor and (y) all other promissory notes from time to time issued to, or held by, each Pledgor; provided, that, except as provided in the last sentence of this Section 2, no Pledgor shall be required to pledge hereunder any promissory notes (including Intercompany Notes) issued to such Pledgor by any Subsidiary of such Pledgor which is a -3- 4 EXHIBIT F Page 4 Foreign Corporation (it being understood and agreed that any promissory notes not required to be pledged as a result of this proviso shall not constitute "Notes") and (iii) the term "Securities" shall mean all of the Stock and Notes. Each Pledgor represents and warrants that on the date hereof (i) each Subsidiary of such Pledgor, and the direct ownership thereof, is listed in Annex A hereto; (ii) the Stock held by such Pledgor consists of the number and type of shares of the stock of the corporations as described in Annex B hereto; (iii) such Stock constitutes that percentage of the issued and outstanding capital stock of the issuing corporation as is set forth in Annex B hereto; (iv) the Notes held by such Pledgor consist of the promissory notes described in Annex C hereto where such Pledgor is listed as the lender; and (v) on the date hereof, such Pledgor owns no other Securities. In the circumstances and to the extent provided in Section 7.13 of the Credit Agreement, the 65% limitation set forth in clause (i)(y) and the limitation in the proviso of clause (ii) in each case of this Section 2 and in Section 3.2 hereof shall no longer be applicable and such Pledgor shall duly pledge and deliver to the Pledgee such of the Securities not theretofore required to be pledged hereunder. 3. PLEDGE OF SECURITIES, ETC. 3.1. Pledge. To secure the Obligations and for the purposes set forth in Section 1 hereof, each Pledgor hereby: (i) grants to the Pledgee a security interest in all of the Collateral owned by such Pledgor; (ii) pledges and deposits as security with the Pledgee the Securities owned by such Pledgor on the date hereof, and delivers to the Pledgee certificates or instruments therefor, duly endorsed in blank in the case of Notes and accompanied by undated stock powers duly executed in blank by such Pledgor in the case of Stock, or such other instruments of transfer as are acceptable to the Pledgee; and (iii) assigns, transfers, hypothecates, mortgages, charges and sets over to the Pledgee all of such Pledgor's right, title and interest in and to such Securities (and in and to all certificates or instruments evidencing such Securities), to be held by the Pledgee, upon the terms and conditions set forth in this Agreement. 3.2. Subsequently Acquired Securities. If any Pledgor shall acquire (by purchase, stock dividend or otherwise) any additional Securities at any time or from time to time after the date hereof, such Pledgor will forthwith pledge and deposit such Securities (or certificates or instruments representing such Securities) as security with the Pledgee and deliver to the Pledgee certificates therefor or instruments thereof, duly endorsed in blank in the case of Notes and accompanied by undated stock powers duly executed in blank in the case of Stock, or such other instruments of transfer as are acceptable to the Pledgee, and will promptly thereafter deliver to the Pledgee a certificate executed by any Authorized Officer of such Pledgor describing such Securities and certifying that the same have been duly pledged with the Pledgee hereunder. Subject to the last sentence of Section 2 hereof, -4- 5 EXHIBIT F Page 5 no Pledgor shall be required at any time to pledge hereunder (x) any Stock which is more than 65% of the total combined voting power of all classes of capital stock of any Foreign Corporation entitled to vote or (y) any promissory notes (including Intercompany Notes) issued to such Pledgor by any Subsidiary of such Pledgor which is a Foreign Corporation. 3.3. Uncertificated Securities. Notwithstanding anything to the contrary contained in Sections 3.1 and 3.2 hereof, if any Securities (whether now owned or hereafter acquired) are uncertificated securities, the respective Pledgor shall promptly notify the Pledgee in writing thereof, and, if after such notification, the Pledgee so requests, such Pledgor shall promptly take all actions required to perfect the security interest of the Pledgee under applicable law (including, in any event, under Sections 8-313 and 8-321 of the New York UCC, if applicable). Each Pledgor further agrees to take such actions as the Pledgee deems reasonably necessary or desirable to effect the foregoing and to permit the Pledgee to exercise any of its rights and remedies hereunder, and agrees to provide an opinion of counsel reasonably satisfactory to the Pledgee with respect to any such pledge of uncertificated Securities promptly upon request of the Pledgee. 3.4 Definition of Pledged Stock, Pledged Notes, Pledged Securities and Collateral. All Stock at any time pledged or required to be pledged hereunder is hereinafter called the "Pledged Stock," all Notes at any time pledged or required to be pledged hereunder are hereinafter called the "Pledged Notes," all of the Pledged Stock and Pledged Notes together are hereinafter called the "Pledged Securities," which together with all dividends and interest thereon, as the case may be, and all proceeds thereof, including any securities and moneys received and at the time held by the Pledgee hereunder, is hereinafter called the "Collateral." 4. APPOINTMENT OF SUB-AGENTS; ENDORSEMENTS, ETC. The Pledgee shall have the right to appoint one or more sub-agents for the purpose of retaining physical possession of the Pledged Securities, which may be held (in the discretion of the Pledgee) in the name of such Pledgor, endorsed or assigned in blank or in favor of the Pledgee or any nominee or nominees of the Pledgee or a sub-agent appointed by the Pledgee. The Pledgee agrees to promptly notify the relevant Pledgor after the appointment of any sub-agent; provided, however, that the failure to give such notice shall not affect the validity of such appointment. 5. VOTING, ETC., WHILE NO EVENT OF DEFAULT. Unless and until (i) an Event of Default shall have occurred and be continuing and (ii) written notice thereof has been given by the Pledgee to the relevant Pledgor (provided that if an Event of Default specified in Section 9.05 of the Credit Agreement shall occur, no such notice shall be required), each Pledgor shall be entitled to exercise any and all voting and other consensual -5- 6 EXHIBIT F Page 6 rights pertaining to the Pledged Securities and to give all consents, waivers or ratifications in respect thereof; provided, that no vote shall be cast or any consent, waiver or ratification given or any action taken which would violate or be inconsistent with any of the terms of this Agreement, any other Credit Document or any Interest Rate Protection Agreement or Other Hedging Agreement (collectively, the "Secured Debt Agreements"), or which would have the effect of impairing the position or interests of the Pledgee or any other Secured Creditor, except to the extent such violation, inconsistency or impairment shall be waived in accordance with the terms of Section 20 hereof. All such rights of such Pledgor to vote and to give consents, waivers and ratifications shall cease in case (i) an Event of Default shall occur and be continuing and (ii) written notice thereof has been given by the Pledgee to the relevant Pledgor (provided that if an Event of Default specified in Section 9.05 of the Credit Agreement shall occur, no such notice shall be required), and Section 7 hereof shall become applicable. 6. DIVIDENDS AND OTHER DISTRIBUTIONS. Unless an Event of Default shall have occurred and be continuing, all cash dividends payable in respect of the Pledged Stock and all payments in respect of the Pledged Notes shall be paid to the respective Pledgor; provided, that all cash dividends payable in respect of the Pledged Stock which are determined by the Pledgee to represent in whole or in part an extraordinary, liquidating or other distribution in return of capital shall be paid, to the extent so determined to represent an extraordinary, liquidating or other distribution in return of capital, to the Pledgee and retained by it as part of the Collateral. Subject to the last sentence of Section 3.2 hereof, the Pledgee shall also be entitled to receive directly, and to retain as part of the Collateral: (i) all other or additional stock or other securities or property (other than cash) paid or distributed by way of dividend or otherwise in respect of the Pledged Stock; (ii) all other or additional stock or other securities or property (including cash) paid or distributed in respect of the Pledged Stock by way of stock-split, spin-off, split-up, reclassification, combination of shares or similar rearrangement; and (iii) all other or additional stock or other securities or property (including cash) which may be paid in respect of the Collateral by reason of any consolidation, merger, exchange of stock, conveyance of assets, liquidation or similar corporate reorganization. 7. REMEDIES IN CASE OF EVENT OF DEFAULT. In case an Event of Default shall have occurred and be continuing, the Pledgee shall be entitled to exercise -6- 7 EXHIBIT F Page 7 all of the rights, powers and remedies (whether vested in it by this Agreement or by any other Secured Debt Agreement or by law) for the protection and enforcement of its rights in respect of the Collateral, and the Pledgee shall be entitled, without limitation, to exercise the following rights, which each Pledgor hereby agrees to be commercially reasonable: (i) to receive all amounts payable in respect of the Collateral payable to such Pledgor under Section 6 hereof; (ii) to transfer all or any part of the Pledged Securities into the Pledgee's name or the name of its nominee or nominees (the Pledgee agrees to promptly notify the relevant Pledgor after such transfer; provided, however, that the failure to give such notice shall not affect the validity of such transfer); (iii) to accelerate any Pledged Note which may be accelerated in accordance with its terms, and take any other action to collect upon any Pledged Note (including, without limitation, to make any demand for payment thereon); (iv) subject to Section 5 hereof, to vote all or any part of the Pledged Stock (whether or not transferred into the name of the Pledgee) and give all consents, waivers and ratifications in respect of the Collateral and otherwise act with respect thereto as though it were the outright owner thereof (each Pledgor hereby irrevocably constituting and appointing the Pledgee the proxy and attorney-in-fact of such Pledgor, with full power of substitution to do so); and (v) at any time or from time to time to sell, assign and deliver, or grant options to purchase, all or any part of the Collateral, or any interest therein, at any public or private sale, without demand of performance, advertisement or notice of intention to sell or of the time or place of sale or adjournment thereof or to redeem or otherwise (all of which are hereby waived by each Pledgor), for cash, on credit or for other property, for immediate or future delivery without any assumption of credit risk, and for such price or prices and on such terms as the Pledgee in its absolute discretion may determine; provided, that at least 10 days' written notice of the time and place of any such sale shall be given to such Pledgor. Each Pledgor hereby waives and releases to the fullest extent permitted by law any right or equity of redemption with respect to the Collateral, whether before or after sale hereunder, and all rights, if any, of marshalling the Collateral and any other security for the Obligations or otherwise. At any such sale, unless prohibited by applicable law, the Pledgee on behalf of the Secured Creditors may bid for and purchase all or any part of the Collateral so sold free from any such right or equity of redemption. Neither the Pledgee nor any other Secured Creditor shall be liable for failure to -7- 8 EXHIBIT F Page 8 collect or realize upon any or all of the Collateral or for any delay in so doing nor shall any of them be under any obligation to take any action whatsoever with regard thereto. 8. REMEDIES, ETC., CUMULATIVE. Each right, power and remedy of the Pledgee provided for in this Agreement or any other Secured Debt Agreement or now or hereafter existing at law or in equity or by statute shall be cumulative and concurrent and shall be in addition to every other such right, power or remedy. The exercise or beginning of the exercise by the Pledgee or any other Secured Creditor of any one or more of the rights, powers or remedies provided for in this Agreement or in any other Secured Debt Agreement or now or hereafter existing at law or in equity or by statute or otherwise shall not preclude the simultaneous or later exercise by the Pledgee or any other Secured Creditor of all such other rights, powers or remedies, and no failure or delay on the part of the Pledgee or any other Secured Creditor to exercise any such right, power or remedy shall operate as a waiver thereof. The Secured Creditors agree that this Agreement may be enforced only by the action of the Agent or the Pledgee, in each case acting upon the instructions of the Required Banks (or, after the date on which all Credit Document Obligations have been paid in full, the holders of at least the majority of the outstanding Other Obligations) and that no other Secured Creditor shall have any right individually to seek to enforce or to enforce this Agreement or to realize upon the security to be granted hereby, it being understood and agreed that such rights and remedies may be exercised by the Agent or the Pledgee or the holders of at least a majority of the outstanding Other Obligations, as the case may be, for the benefit of the Secured Creditors in accordance with the terms of this Agreement. 9. APPLICATION OF PROCEEDS. (a) All moneys collected by the Pledgee upon any sale or other disposition of the Collateral pursuant to the terms of this Agreement, together with all other moneys received by the Pledgee hereunder, shall be applied in the manner provided in the Security Agreement. (b) It is understood and agreed that the Pledgors shall remain jointly and severally liable to the extent of any deficiency between the amount of the proceeds of the Collateral hereunder and the aggregate amount of the Obligations. 10. PURCHASERS OF COLLATERAL. Upon any sale of the Collateral by the Pledgee hereunder (whether by virtue of the power of sale herein granted, pursuant to judicial process or otherwise), the receipt of the Pledgee or the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Collateral so sold, and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Pledgee or such officer or be answerable in any way -8- 9 for the misapplication or nonapplication thereof. 11. INDEMNITY. Each Pledgor jointly and severally agrees (i) to indemnify and hold harmless the Pledgee in such capacity and each other Secured Creditor from and against any and all claims, demands, losses, judgments and liabilities of whatsoever kind or nature, and (ii) to reimburse the Pledgee and each other Secured Creditor for all costs and expenses, including reasonable attorneys' fees, growing out of or resulting from this Agreement or the exercise by the Pledgee of any right or remedy granted to it hereunder or under any other Secured Debt Agreement except, with respect to clauses (i) and (ii) above, for those arising from the Pledgee's or such other Secured Creditor's gross negligence or willful misconduct. In no event shall the Pledgee be liable, in the absence of gross negligence or willful misconduct on its part, for any matter or thing in connection with this Agreement other than to account for moneys actually received by it in accordance with the terms hereof. If and to the extent that the obligations of the Pledgors under this Section 11 are unenforceable for any reason, each Pledgor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 12. FURTHER ASSURANCES. Each Pledgor agrees that it will join with the Pledgee in executing and, at such Pledgor's own expense, file and refile under the applicable UCC or appropriate local equivalent, such financing statements, continuation statements and other documents in such offices as the Pledgee may deem reasonably necessary or appropriate and wherever required or permitted by law in order to perfect and preserve the Pledgee's security interest in the Collateral and hereby authorizes the Pledgee to file financing statements and amendments thereto relative to all or any part of the Collateral without the signature of such Pledgor where permitted by law, and agrees to do such further acts and things and to execute and deliver to the Pledgee such additional conveyances, assignments, agreements and instruments as the Pledgee may reasonably require or deem advisable to carry into effect the purposes of this Agreement or to further assure and confirm unto the Pledgee its rights, powers and remedies hereunder. 13. THE PLEDGEE AS AGENT. The Pledgee will hold in accordance with this Agreement all items of the Collateral at any time received under this Agreement. It is expressly understood and agreed that the obligations of the Pledgee as holder of the Collateral and interests therein and with respect to the disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this Agreement. The Pledgee shall act hereunder on the terms and conditions set forth herein and in Section 11 of the Credit Agreement. 14. TRANSFER BY PLEDGORS. Except for sales or dispositions of Col- -9- 10 EXHIBIT F Page 10 lateral permitted pursuant to the Credit Agreement, no Pledgor will sell or otherwise dispose of, grant any option with respect to, or mortgage, pledge or otherwise encumber any of the Collateral or any interest therein (except in accordance with the terms of this Agreement). 15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR. Each Pledgor represents, warrants and covenants that (i) it is the legal, record and beneficial owner of, and has good and marketable title to, all Securities pledged by it hereunder, subject to no pledge, lien, mortgage, hypothecation, security interest, charge, option or other encumbrance whatsoever, except the liens and security interests created by this Agreement and liens permitted under clauses (a) and (e) of Section 8.03 of the Credit Agreement; (ii) it has full power, authority and legal right to pledge all the Securities pledged by it pursuant to this Agreement; (iii) this Agreement has been duly authorized, executed and delivered by such Pledgor and constitutes a legal, valid and binding obligation of such Pledgor enforceable in accordance with its terms, except to the extent that the enforceability hereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by equitable principles (regardless of whether enforcement is sought in equity or at law); (iv) no consent of any other party (including, without limitation, any stockholder or creditor of such Pledgor or any of its Subsidiaries) and no consent, license, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required to be obtained by such Pledgor in connection with the execution, delivery or performance of this Agreement, or in connection with the exercise of its rights and remedies pursuant to this Agreement, except as may be required in connection with the disposition of the Securities by laws affecting the offering and sale of securities generally; (v) the execution, delivery and performance of this Agreement by such Pledgor does not violate any provision of any applicable law or regulation or of any order, judgment, writ, award or decree of any court, arbitrator or governmental authority, domestic or foreign, or of the certificate of incorporation or by-laws of such Pledgor or of any securities issued by such Pledgor or any of its Subsidiaries, or of any mortgage, indenture, deed of trust, loan agreement, credit agreement or any other material agreement or material instrument to which such Pledgor or any of its Subsidiaries is a party or which purports to be binding upon such Pledgor or any of its Subsidiaries or upon any of their respective assets and will not result in the creation or imposition of any lien or encumbrance on any of the assets of such Pledgor or any of its Subsidiaries except as contemplated by this Agreement; (vi) all the shares of Stock of Subsidiaries of the Borrower have been duly and validly issued, are fully paid and nonassessable; (vii) each of the Pledged Notes constituting Intercompany Notes, when executed by the obligor thereof, will be the legal, valid and binding obligation of such obligor, enforceable in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable -10- 11 EXHIBIT F Page 11 bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and by equitable principles (regardless of whether enforcement is sought in equity or at law); and (viii) the pledge and assignment of the Securities pursuant to this Agreement, together with the delivery of the Securities pursuant to this Agreement (which delivery has been made), creates a valid and perfected first security interest in such Securities and the proceeds thereof, subject to no prior lien or encumbrance or to any agreement purporting to grant to any third party a lien or encumbrance on the property or assets of such Pledgor which would include the Securities other than liens permitted under clauses (a) and (e) of Section 8.03 of the Credit Agreement. Each Pledgor covenants and agrees that it will defend the Pledgee's right, title and security interest in and to the Securities and the proceeds thereof against the claims and demands of all persons whomsoever; and such Pledgor covenants and agrees that it will have like title to and right to pledge any other property at any time hereafter pledged to the Pledgee as Collateral hereunder and will likewise defend the right thereto and security interest therein of the Pledgee and the other Secured Creditors. 16. PLEDGORS' OBLIGATIONS ABSOLUTE, ETC. The obligations of each Pledgor under this Agreement shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, suspended, discharged, terminated or otherwise affected by, any circumstance or occurrence whatsoever, including, without limitation: (i) any renewal, extension, amendment or modification of or addition or supplement to or deletion from any Secured Debt Agreement or any other instrument or agreement referred to therein, or any assignment or transfer of any thereof; (ii) any waiver, consent, extension, indulgence or other action or inaction under or in respect of any such agreement or instrument or this Agreement; (iii) any furnishing of any additional security to the Pledgee or its assignee or any acceptance thereof or any release of any security by the Pledgee or its assignee; (iv) any limitation on any party's liability or obligations under any such instrument or agreement or any invalidity or unenforceability, in whole or in part, of any such instrument or agreement or any term thereof; or (v) any bankruptcy, insolvency, reorganization, composition, adjustment, dissolution, liquidation or other like proceeding relating to such Pledgor or any Subsidiary of such Pledgor, or any action taken with respect to this Agreement by any trustee or receiver, or by any court, in any such proceeding, whether or not such Pledgor shall have notice or knowledge of any of the foregoing. 17. REGISTRATION, ETC. (a) If an Event of Default shall have occurred and be continuing and any Pledgor shall have received from the Pledgee a written request or requests that such Pledgor cause any registration, qualification or compliance under any Federal or state securities law or laws to be effected with respect to all or any part of the Pledged Stock, such Pledgor as soon as practicable and at its expense will use -11- 12 its reasonable efforts to cause such registration to be effected (and be kept effective) and will use its reasonable efforts to cause such qualification and compliance to be effected (and be kept effective) as may be so requested and as would permit or facilitate the sale and distribution of such Pledged Stock, including, without limitation, registration under the Securities Act of 1933 as then in effect (or any similar statute then in effect), appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with any other government requirements; provided, that the Pledgee shall furnish to such Pledgor such information regarding the Pledgee as such Pledgor may request in writing and as shall be required in connection with any such registration, qualification or compliance. Such Pledgor will cause the Pledgee to be kept reasonably advised in writing as to the progress of each such registration, qualification or compliance and as to the completion thereof, will furnish to the Pledgee such number of prospectuses, offering circulars or other documents incident thereto as the Pledgee from time to time may reasonably request, and will indemnify the Pledgee, each other Secured Creditor and all others participating in the distribution of the Pledged Stock against all claims, losses, damages and liabilities caused by any untrue statement (or alleged untrue statement) of a material fact contained therein (or in any related registration statement, notification or the like) or by any omission (or alleged omission) to state therein (or in any related registration statement, notification or the like) a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same may have been caused by an untrue statement or omission based upon information furnished in writing to such Pledgor by the Pledgee or such other Secured Creditor expressly for use therein. (b) If at any time when the Pledgee shall determine to exercise its right to sell all or any part of the Pledged Securities pursuant to Section 7 hereof, such Pledged Securities or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act of 1933, as then in effect, the Pledgee may, in its sole and absolute discretion, sell such Pledged Securities or part thereof by private sale in such manner and under such circumstances as the Pledgee may deem necessary or advisable in order that such sale may legally be effected without such registration; provided, that at least 10 days' notice of the time and place of any such sale shall be given to such Pledgor. Without limiting the generality of the foregoing, in any such event the Pledgee, in its sole and absolute discretion: (i) may proceed to make such private sale notwithstanding that a registration statement for the purpose of registering such Pledged Securities or part thereof shall have been filed under such Securities Act; (ii) may approach and negotiate with a single possible purchaser to effect such sale; and (iii) may restrict such sale to a purchaser who will represent and agree that such purchaser is purchasing for its own account, for investment, and not with a view to the distribution or sale of such Pledged Securities or part thereof. In the event of any such sale, the Pledgee shall incur no responsibility or liability for selling all or any part of the Pledged Securities at a price which the Pledgee, in its sole -12- 13 EXHIBIT F Page 13 and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might be realized if the sale were deferred until after registration as aforesaid. 18. TERMINATION, RELEASE. (a) After the Termination Date (as defined below), this Agreement shall terminate (provided that all indemnities set forth herein including, without limitation, in Section 11 hereof shall survive any such termination) and the Pledgee, at the request and expense of the respective Pledgor, will promptly execute and deliver to such Pledgor a proper instrument or instruments acknowledging the satisfaction and termination of this Agreement, and will duly release from the security interest created hereby and assign, transfer and deliver to such Pledgor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of the Pledgee and as has not theretofore been sold or otherwise applied or released pursuant to this Agreement. As used in this Agreement, "Termination Date" shall mean the date upon which the Total Revolving Loan Commitment and all Interest Rate Protection Agreements or Other Hedging Agreements have been terminated, no Note (as defined in the Credit Agreement), Loan or Letter of Credit is outstanding (other than Letters of Credit, together with all Fees that have accrued and will accrue thereon through the stated termination date of such Letters of Credit, which have been supported in a manner satisfactory to the Letter of Credit Issuer in its sole and absolute discretion) and all other Obligations (other than indemnities described in Section 11 hereof and in Section 12.13 of the Credit Agreement and in the other Credit Documents which are not then due and payable) have been paid in full. (b) In the event that any part of the Collateral is sold or otherwise disposed of in connection with a sale or other disposition permitted by Section 8.02 of the Credit Agreement or is otherwise released at the direction of the Required Banks (or all the Banks if required by Section 12.12 of the Credit Agreement), the Pledgee, at the request and expense of such Pledgor will duly release from the security interest created hereby and assign, transfer and deliver to such Pledgor (without recourse and without any representation or warranty) such of the Collateral as is then being (or has been) so sold or released and as may be in possession of the Pledgee and has not theretofore been released pursuant to this Agreement. (c) At any time that a Pledgor desires that Collateral be released as provided in the foregoing Section 18(a) or (b), it shall deliver to the Pledgee a certificate signed by an Authorized Officer of such Pledgor stating that the release of the respective Collateral is permitted pursuant to Section 18(a) or (b). -13- 14 EXHIBIT F Page 14 19. NOTICES, ETC. All notices and other communications hereunder shall be in writing and shall be delivered or mailed by first class mail, postage prepaid, addressed: (a) if to any Pledgor, at its address set forth opposite its signature below; (b) if to the Pledgee, at: Bankers Trust Company One Bankers Trust Plaza New York, New York 10006 Attention: Mary Kay Coyle Telephone No.: (212) 250-9094 Telecopier No.: (212) 250-7218 (c) if to any Bank (other than the Pledgee), at such address as such Bank shall have specified in the Credit Agreement; (d) if to any Other Creditor, at such address as such Other Creditor shall have specified in writing to each Pledgor and the Pledgee; or at such other address as shall have been furnished in writing by any Person described above to the party required to give notice hereunder. 20. WAIVER; AMENDMENT. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by each Pledgor directly affected thereby and the Pledgee (with the written consent of either (x) the Required Banks (or all the Banks if required by Section 12.12 of the Credit Agreement) at all times prior to the time on which all Credit Document Obligations have been paid in full or (y) the holders of at least a majority of the outstanding Other Obligations at all times after the time on which all Credit Document Obligations have been paid in full); provided, that any change, waiver, modification or variance affecting the rights and benefits of a single Class (as defined below) of Secured Creditors (and not all Secured Creditors in a like or similar manner) shall require the written consent of the Requisite Creditors (as defined below) of such Class. For the purpose of this Agreement, the term "Class" shall mean each class of Secured Creditors, i.e., whether (i) the Bank Creditors as holders of the Credit Document Obligations or (ii) the Other Creditors as holders of the Other Obligations. For the purpose of this Agreement, the term "Requisite Creditors" of any Class shall mean each of (i) with respect to the Credit Document Obligations, the Required Banks (or all the Banks if required by Section 12.12 of the Credit -14- 15 EXHIBIT F Page 15 Agreement) and (ii) with respect to the Other Obligations, the holders of at least a majority of all obligations outstanding from time to time under the Interest Rate Protection Agreements or Other Hedging Agreements. 21. MISCELLANEOUS. This Agreement shall be binding upon the successors and assigns of each Pledgor and shall inure to the benefit of and be enforceable by the Pledgee and its successors and assigns; provided that no Pledgor may transfer or assign any or all of its rights and obligations hereunder without the prior written consent of the Pledgee. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. The headings in this Agreement are for purposes of reference only and shall not limit or define the meaning hereof. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which shall constitute one instrument. 22. ADDITIONAL PLEDGORS. It is understood and agreed that any Subsidiary of the Borrower that is required to execute a counterpart of this Agreement after the date hereof pursuant to Sections 7.13 and/or 8.14 of the Credit Agreement shall automatically become a Pledgor hereunder by executing a counterpart hereof and delivering the same to the Pledgee. * * * -15- 16 IN WITNESS WHEREOF, each Pledgor and the Pledgee have caused this Agreement to be executed by their duly elected officers duly authorized as of the date first above written. Address: MCMS, INC., 16399 Franklin Road as a Pledgor Nampa, Idaho 83687 Telephone No.: (208) 898-2600 Facsimile No.: (208) 898-2796 By: /s/ Chris Anton Attention: Chris Anton ----------------------------- Title: Vice President, Finance, and CFO With a copy to: Cornerstone Equity Investors, L.L.C. 717 Fifth Avenue Suite 1100 New York, New York 10022 Facsimile No.: (212) 826-6798 Telephone No.: (212) 753-0901 Attention: John A. (Tony) Downer Michael Najjar BANKERS TRUST COMPANY, the Collateral Agent, as Pledgee By: /s/ Anthony Logrippo ----------------------------- Title: EX-10.6 15 SECURITY AGREEMENT 1 Exhibit 10.6 EXHIBIT G [Conformed as executed] ================================================================================ SECURITY AGREEMENT among MCMS, INC., CERTAIN SUBSIDIARIES OF MCMS, INC. and BANKERS TRUST COMPANY, as Collateral Agent Dated as of February 26, 1998 ================================================================================ 2 TABLE OF CONTENTS Page ---- ARTICLE I SECURITY INTERESTS........................ 2 1.1. Grant of Security Interests............................. 2 1.2. Power of Attorney....................................... 2 ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS........ 3 2.1. Necessary Filings....................................... 3 2.2. No Liens................................................ 3 2.3. Other Financing Statements.............................. 3 2.4. Chief Executive Office; Records......................... 4 2.5. Location of Inventory and Equipment..................... 4 2.6. Recourse................................................ 5 2.7. Trade Names; Change of Name............................. 5 ARTICLE III SPECIAL PROVISIONS CONCERNING RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS............ 5 3.1. Additional Representations and Warranties............... 5 3.2. Maintenance of Records.................................. 6 3.3. Direction to Account Debtors; Contracting Parties; etc.. 6 3.4. Modification of Terms; etc.............................. 6 3.5. Collection.............................................. 7 3.6. Instruments............................................. 7 3.7. Further Actions......................................... 7 ARTICLE IV SPECIAL PROVISIONS CONCERNING TRADEMARKS............. 8 4.1. Additional Representations and Warranties............... 8 4.2. Licenses and Assignments................................ 8 (i) 3 Page ---- 4.3. Infringements........................................... 8 4.4. Preservation of Marks................................... 9 4.5. Maintenance of Registration............................. 9 4.6. Future Registered Marks................................. 9 4.7. Remedies................................................ 9 ARTICLE V SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS AND TRADE SECRETS.............. 10 5.1. Additional Representations and Warranties............... 10 5.2. Licenses and Assignments................................ 11 5.3. Infringements........................................... 11 5.4. Maintenance of Patents.................................. 11 5.5. Prosecution of Patent Application....................... 11 5.6. Other Patents and Copyrights............................ 11 5.7. Remedies................................................ 12 ARTICLE VI PROVISIONS CONCERNING ALL COLLATERAL............... 12 6.1. Protection of Collateral Agent's Security............... 12 6.2. Warehouse Receipts Non-Negotiable....................... 13 6.3. Further Actions......................................... 13 6.4. Financing Statements.................................... 13 ARTICLE VII REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT........... 14 7.1. Remedies; Obtaining the Collateral Upon Default......... 14 7.2. Remedies; Disposition of the Collateral................. 15 7.3. Waiver of Claims........................................ 16 7.4. Application of Proceeds................................. 17 7.5. Remedies Cumulative..................................... 18 7.6. Discontinuance of Proceedings........................... 18 ARTICLE VIII INDEMNITY....................................... 19 8.1. Indemnity............................................... 19 8.2. Indemnity Obligations Secured by Collateral; Survival... 20 ARTICLE IX (ii) 4 Page ---- DEFINITIONS..................................... 20 ARTICLE X MISCELLANEOUS.................................... 25 10.1. Notices................................................ 25 10.2. Waiver; Amendment...................................... 25 10.3. Obligations Absolute................................... 26 10.4. Successors and Assigns................................. 26 10.5. Headings Descriptive................................... 26 10.6. Governing Law.......................................... 26 10.7. Assignor's Duties...................................... 26 10.8. Termination; Release................................... 27 10.9. Counterparts........................................... 27 10.10. The Collateral Agent.................................. 27 10.11. Additional Assignors.................................. 28 ANNEX A Schedule of Chief Executive Offices and other Record Locations ANNEX B Schedule of Inventory and Equipment Locations ANNEX C Trade and Fictitious Names ANNEX D List of Marks ANNEX E List of Patents and Applications ANNEX F List of Copyrights and Applications ANNEX G Grant of Security Interest in United States Trademarks and Patents ANNEX H Grant of Security Interest in United States Copyrights (iii) 5 EXHIBIT G SECURITY AGREEMENT SECURITY AGREEMENT, dated as of February 26, 1998, among each of the undersigned assignors (each, an "Assignor" and, together with any other entity that becomes a party hereto pursuant to Section 10.11 hereof, the "Assignors") and Bankers Trust Company, as Collateral Agent (the "Collateral Agent"), for the benefit of the Secured Creditors (as defined below). Except as otherwise defined herein, terms used herein and defined in the Credit Agreement (as defined below) shall be used herein as therein defined. W I T N E S S E T H : WHEREAS, MCMS, Inc. (the "Borrower"), the financial institutions from time to time party thereto (the "Banks"), and Bankers Trust Company, as Agent (the "Agent," and together with the Collateral Agent and the Banks, the "Bank Creditors"), have entered into a Credit Agreement, dated as of February 26, 1998 (as amended, modified or supplemented from time to time, the "Credit Agreement"), providing for the making of Loans to the Borrower and the issuance of, and participation in, Letters of Credit for the account of the Borrower, all as contemplated therein; WHEREAS, the Borrower may from time to time be party to one or more (i) interest rate agreements, interest rate cap agreements, interest rate collar agreements or other similar agreements or arrangements, (ii) foreign exchange contracts, currency swap agreements or similar agreements or arrangements designed to protect against the fluctuations in currency values and/or (iii) other types of hedging agreements from time to time (each such agreement or arrangement with an Other Creditor (as hereinafter defined), an "Interest Rate Protection Agreement or Other Hedging Agreement"), with a Bank or an affiliate of a Bank (each such Bank or affiliate, even if the respective Bank subsequently ceases to be a Bank under the Credit Agreement for any reason, together with such Bank's or affiliate's successors and assigns, collectively, the "Other Creditors", and together with the Bank Creditors, the "Secured Creditors"); WHEREAS, pursuant to the Subsidiary Guaranty when executed, each Assignor (other than the Borrower) will have jointly and severally guaranteed to the Secured Creditors the payment when due of all obligations and liabilities of the Borrower under or with respect to the Credit Documents and the Interest Rate Protection Agreements or Other Hedging Agreements; 6 EXHIBIT G Page 2 WHEREAS, it is a condition precedent to the making of Loans to the Borrower under the Credit Agreement that each Assignor shall have executed and delivered to the Collateral Agent this Agreement; and WHEREAS, each Assignor desires to execute this Agreement to satisfy the conditions described in the preceding paragraph; NOW, THEREFORE, in consideration of the benefits accruing to each Assignor, the receipt and sufficiency of which are hereby acknowledged, each Assignor hereby makes the following representations and warranties to the Collateral Agent and hereby covenants and agrees with the Collateral Agent as follows: ARTICLE I SECURITY INTERESTS 1.1. Grant of Security Interests. (a) As security for the prompt and complete payment and performance when due of all of its Obligations, each Assignor does hereby assign and transfer unto the Collateral Agent, and does hereby pledge and grant to the Collateral Agent for the benefit of the Secured Creditors, a continuing security interest of first priority (subject to Permitted Liens) in, all of the right, title and interest of such Assignor in, to and under all of the following, whether now existing or hereafter from time to time acquired: (i) each and every Receivable, (ii) all Contracts, together with all Contract Rights arising thereunder (other than Contracts which by their terms cannot be pledged (although the right to receive payments of money thereunder shall not be excluded from the security interest created hereunder)), (iii) all Inventory, (iv) all Equipment, (v) all Marks, together with the registrations and right to all renewals thereof, and the goodwill of the business of such Assignor symbolized by the Marks, (vi) all Patents and Copyrights, (vii) all computer pro grams of such Assignor and all intellectual property rights therein (other than such programs and rights which by their terms cannot be pledged) and all other proprietary information of such Assignor, including, but not limited to, trade secrets, (viii) all other Goods, General Intangibles, Chattel Paper, Documents and Instruments, (ix) the Cash Collateral Account and all monies, securities and instruments deposited or required to be deposited in such Cash Collateral Account, and (x) all Proceeds and products of any and all of the foregoing (all of the above, collectively, the "Collateral"). (b) The security interest of the Collateral Agent under this Agreement extends to all Collateral of the kind which is the subject of this Agreement which any Assignor may acquire at any time during the continuation of this Agreement. 1.2. Power of Attorney. Each Assignor hereby constitutes and appoints the Collateral Agent its true and lawful attorney, irrevocably, with full power after the -2- 7 EXHIBIT G Page 3 occurrence of and during the continuance of an Event of Default (in the name of such Assignor or other wise) to act, require, demand, receive, compound and give acquittance for any and all monies and claims for monies due or to become due to such Assignor under or arising out of the Collateral, to endorse any checks or other instruments or orders in connection therewith and to file any claims or take any action or institute any proceedings which the Collateral Agent may deem to be reasonably necessary or advisable to protect the interests of the Secured Creditors, which appointment as attorney is coupled with an interest. ARTICLE II GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS Each Assignor represents, warrants and covenants, which representations, warranties and covenants shall survive execution and delivery of this Agreement, as follows: 2.1. Necessary Filings. All filings, registrations and recordings necessary or appropriate to create, preserve and perfect the security interest granted by such Assignor to the Collateral Agent hereby in respect of the Collateral have been accomplished (or will have been accomplished on the Business Day immediately following the Effective Date) and the security interest granted to the Collateral Agent pursuant to this Agreement in and to the Collateral creates a perfected security interest therein prior to the rights of all other Persons therein and subject to no other Liens (other than Permitted Liens) and is entitled to all the rights, priorities and benefits afforded by the Uniform Commercial Code or other relevant law as enacted in any relevant jurisdiction to perfected security interests, in each case to the extent that the Collateral consists of the type of property in which a security interest may be perfected by filing a financing statement under the Uniform Commercial Code as enacted in any relevant jurisdiction or in the United States Patent and Trademark Office or United States Copyright Office or, to the extent provided in Section 6.3(b) hereof, in any foreign equivalent office of the United States Patent and Trademark or United States Copyright Office. 2.2. No Liens. Such Assignor is, and as to Collateral acquired by it from time to time after the date hereof such Assignor will be, the owner of, or has rights in, all Collateral free from any Lien, security interest, encumbrance or other right, title or interest of any Person (other than Permitted Liens), and such Assignor shall defend the Collateral to the extent of its rights therein against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Collateral Agent. 2.3. Other Financing Statements. As of the date hereof, there is no financing statement (or similar statement or instrument of registration under the law of any jurisdiction) covering or purporting to cover any interest of any kind in the Collateral (other -3- 8 EXHIBIT G Page 4 than financing statements filed in respect of Permitted Liens), and so long as the Total Revolving Loan Commitment has not been terminated or any Note remains unpaid or any of the Obligations (other than indemnities in the Credit Documents which are not then due and payable) remain unpaid or any Interest Rate Protection Agreement or Other Hedging Agreement or Letter of Credit remains in effect (other than Letters of Credit, together with all Fees that have accrued and will accrue thereon through the stated termination date of such Letters of Credit, which have been supported in a manner satisfactory to the Letter of Credit issuer in its sole and absolute discretion) or any Obligations are owed with respect thereto, such Assignor will not execute or authorize to be filed in any public office any financing statement (or similar statement or instrument of registration under the law of any jurisdiction) or statements relating to the Collateral, except (a) financing statements filed or to be filed in respect of and covering the security interests granted hereby by such Assignor or as permitted by the Credit Agreement and (b) financing statements with respect to Permitted Liens. 2.4. Chief Executive Office; Records. The chief executive office of such Assignor is located at the address or addresses indicated on Annex A hereto for such Assignor. Such Assignor will not move its chief executive office except to such new location as such Assignor may establish in accordance with the last sentence of this Section 2.4. The originals of all documents evidencing all Receivables and Contract Rights of such Assignor and the only original books of account and records of such Assignor relating thereto are, and will continue to be, kept at such chief executive office, at one or more of the locations set forth on Annex A hereto or at such new locations as such Assignor may establish in accordance with the last sentence of this Section 2.4. All Receivables and Contract Rights of such Assignor are, and will continue to be, maintained at, and controlled and directed (including, without limitation, for general accounting purposes) from, the office locations described above or such new location established in accordance with the last sentence of this Section 2.4. No Assignor shall establish new locations for such offices until it shall have given to the Collateral Agent notice of its intention to do so unless (i) such Assignor shall give to the Collateral Agent written notice of any such relocation of its chief executive office within 10 days following such relocation, clearly describing such new location and providing such other information in connection therewith as the Collateral Agent may reasonably request and (ii) with respect to such new location, it shall take all action, reasonably satisfactory to the Collateral Agent, to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. 2.5. Location of Inventory and Equipment. All Inventory and Equipment held on the date hereof by each Assignor is located at one of the locations shown on Annex B hereto for such Assignor (other than (i) immaterial portions of Inventory (x) sold on consignment or held on display for demonstration purposes or (y) transferred to another location in connection with a sale of such Inventory in the ordinary course of business, so long as such sale occurs within 60 days from the date of such transfer, (ii) various spare parts held for maintenance or repair of Equipment and (iii) motor vehicles). Each Assignor -4- 9 EXHIBIT G Page 5 agrees that all Inventory and Equipment now held or subsequently acquired by it shall be kept at (or shall be in transport to) any one of the locations shown on Annex B hereto, or such new location as such Assignor may establish in accordance with the last sentence of this Section 2.5 (other than (i) immaterial portions of Inventory (x) sold on consignment or held on display for demonstration purposes or (y) may be transferred to another location in connection with a sale of such Inventory in the ordinary course of business, so long as such sale occurs within 60 days from the date of such transfer, (ii) various spare parts held for maintenance or repair of Equipment and (iii) motor vehicles). Any Assignor may establish a new location for Inventory and Equipment only if (i) it shall have given to the Collateral Agent written notice within 10 days following any such relocation clearly describing such new location and providing such other information in connection therewith as the Collateral Agent may request and (ii) with respect to such new location, it shall have taken all action reasonably satisfactory to the Collateral Agent to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. 2.6. Recourse. This Agreement is made with full recourse to each Assignor and pursuant to and upon all the warranties, representations, covenants and agreements on the part of such Assignor contained herein, in the other Credit Documents, in the Interest Rate Protection Agreements or Other Hedging Agreements and otherwise in writing in connection herewith or therewith. 2.7. Trade Names; Change of Name. No Assignor has or operates in any jurisdiction under, or in the preceding 12 months has had or has operated in any jurisdiction under, any trade names, fictitious names or other names except its legal name and such other trade or fictitious names as are listed on Annex C hereto. No Assignor shall change its legal name or assume or operate in any jurisdiction under any trade, fictitious or other name except those names listed on Annex C hereto and new names established in accordance with the last sentence of this Section 2.7. No Assignor shall assume or operate in any jurisdiction under any new trade, fictitious or other name unless (i) it shall have given to the Collateral Agent written notice within 10 days following any assumption of, or operation under, such new name clearly describing such new name and the jurisdictions in which such new name shall be used and providing such other information in connection therewith as the Collateral Agent may reasonably request and (ii) with respect to such new name, it shall have taken all action requested by the Collateral Agent, to maintain the security interest of the Collateral Agent in the Collateral intended to be granted hereby at all times fully perfected and in full force and effect. -5- 10 EXHIBIT G Page 6 ARTICLE III SPECIAL PROVISIONS CONCERNING RECEIVABLES; CONTRACT RIGHTS; INSTRUMENTS 3.1. Additional Representations and Warranties. As of the time when each of its Receivables arises, each Assignor shall be deemed to have represented and warranted that such Receivable, and all records, papers and documents relating thereto (if any) are what they purport to be, and that all papers and documents (if any) relating thereto will be the only original writings evidencing and embodying such obligation of the account debtor named therein (other than copies created for general accounting purposes). 3.2. Maintenance of Records. Each Assignor will keep and maintain at its own cost and expense accurate records of its Receivables and Contracts, records of all payments received, all credits granted thereon, all merchandise returned and all other dealings therewith, and such Assignor will make the same available on such Assignor's premises to the Collateral Agent for inspection, at such Assignor's own cost and expense, at any and all reasonable times upon prior notice to an Authorized Officer of such Assignor. Upon the occurrence and during the continuance of an Event of Default and at the request of the Collateral Agent, such Assignor shall, at its own cost and expense, deliver all tangible evidence of its Receivables and Contract Rights (including, without limitation, all documents evidencing the Receivables and all Contracts) and such books and records to the Collateral Agent or to its representatives (copies of which evidence and books and records may be retained by such Assignor). Upon the occurrence and during the continuance of an Event of Default and if the Collateral Agent so directs, such Assignor shall legend, in form and manner reasonably satisfactory to the Collateral Agent, the Receivables and the Contracts, as well as books, records and documents (if any) of such Assignor evidencing or pertaining to such Receivables and Contracts with an appropriate reference to the fact that such Receivables and Contracts have been assigned to the Collateral Agent and that the Collateral Agent has a security interest therein. 3.3. Direction to Account Debtors; Contracting Parties; etc. Upon the occurrence and during the continuance of an Event of Default, and if the Collateral Agent so directs any Assignor, such Assignor agrees (x) to cause all payments on account of the Receivables and Contracts to be made directly to the Cash Collateral Account, (y) that the Collateral Agent may, at its option, directly notify the obligors with respect to any Receivables and/or under any Contracts to make payments with respect thereto as provided in the preceding clause (x) and (z) that the Collateral Agent may enforce collection of any such Receivables and Contracts and may adjust, settle or compromise the amount of payment thereof, in the same manner and to the same extent as such Assignor. Without notice to or assent by any Assignor, the Collateral Agent may apply any or all amounts then in, or thereafter deposited in, the Cash Collateral Account which application shall be effected in the manner provided in Section 7.4 of this Agreement. The costs and expenses (including reasonable attorneys' fees) of collection, whether incurred by the relevant -6- 11 EXHIBIT G Page 7 Assignor or the Collateral Agent, shall be borne by the relevant Assignor. The Collateral Agent shall deliver a copy of each notice referred to in the preceding clause (y) to the relevant Assignor; provided, that the failure by the Collateral Agent to so notify such Assignor shall not affect the effectiveness of such notice or the other rights of the Collateral Agent created by this Section 3.3. 3.4. Modification of Terms; etc. No Assignor shall rescind or cancel any indebtedness evidenced by any Receivable or under any Contract, or modify in any material respect any term thereof or make any material adjustment with respect thereto, or extend or renew the same, or compromise or settle any material dispute, claim, suit or legal proceeding relating thereto, or sell any Receivable or Contract, or interest therein, without the prior written consent of the Collateral Agent, except as permitted by Section 3.5 hereof or in the Credit Agreement. Each Assignor will duly fulfill all obligations on its part to be fulfilled under or in connection with the Receivables and Contracts and will do nothing to impair the rights of the Collateral Agent in the Receivables or Contracts. 3.5. Collection. Each Assignor shall endeavor in accordance with reasonable business practices to cause to be collected from the account debtor named in each of its Receivables or obligor under any Contract, as and when due (including, without limitation, amounts which are delinquent, such amounts to be collected in accordance with generally accepted lawful collection procedures) any and all amounts owing under or on account of such Receivable or Contract, and apply forthwith upon receipt thereof all such amounts as are so collected to the outstanding balance of such Receivable or under such Contract, except that, prior to the occurrence of an Event of Default, any Assignor may allow in the ordinary course of business as adjustments to amounts owing under its Receivables and Contracts (i) an extension or renewal of the time or times of payment, or settlement for less than the total unpaid balance, which such Assignor finds appropriate in accordance with reasonable business judgment and (ii) a refund or credit due as a result of returned or damaged merchandise or improperly performed services or for other reasons which such Assignor finds appropriate in accordance with reasonable business judgment. The reasonable costs and expenses (including, without limitation, attorneys' fees) of collection, whether incurred by an Assignor or the Collateral Agent, shall be borne by the relevant Assignor. 3.6. Instruments. If any Assignor owns or acquires any Instrument constituting Collateral, such Assignor will within 10 Business Days notify the Collateral Agent thereof (to the extent such Collateral remains in the form of an Instrument at such time), and upon request by the Collateral Agent will promptly deliver such Instrument to the Collateral Agent appropriately endorsed to the order of the Collateral Agent as further security hereunder. 3.7. Further Actions. Each Assignor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such vouchers, invoices, schedules, confirmatory assignments, conveyances, financing -7- 12 EXHIBIT G Page 8 statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to its Receivables, Contracts, Instruments and other property or rights covered by the security interest hereby granted, as the Collateral Agent may reasonably require and consistent with the terms of this Agreement. ARTICLE IV SPECIAL PROVISIONS CONCERNING TRADEMARKS 4.1. Additional Representations and Warranties. Each Assignor represents and warrants that it is the true and lawful owner of the registered Marks listed in Annex D hereto for such Assignor and that said listed Marks constitute all the marks and applications for marks registered in the United States Patent and Trademark Office or the equivalent thereof in any foreign country that such Assignor presently owns. Each Assignor represents and warrants that it owns, is licensed to use or otherwise has the right to use all Marks that it uses. Each Assignor further warrants that it has no knowledge of any third party claim that any aspect of such Assignor's present or contemplated business operations infringes or will infringe any trademark, service mark or trade name. Each Assignor represents and warrants that it is the true and lawful owner of all trademark registrations and applications listed in Annex D hereto and that said registrations are valid, subsisting, have not been cancelled and that such Assignor is not aware of any third-party claim that any of said registrations is invalid or unenforceable, or is not aware that there is any reason that any of said registrations is invalid or unenforceable, or is not aware that there is any reason that any of said applications will not pass to registration. Each Assignor represents and warrants that upon the recordation of a Grant of Security Interest in United States Trademarks and Patents in the form of Annex G hereto in the United States Patent and Trademark Office, together with filings on Form UCC-1 pursuant to this Agreement, all filings, registrations and recordings necessary or appropriate to perfect the security interest granted to the Collateral Agent in the United States Marks covered by this Agreement under federal law will have been accomplished. Each Assignor agrees to execute such a Grant of Security Interest in United States Trademark and Patents covering all right, title and interest in each United States Mark, and the associated goodwill, of such Assignor, and to record the same. Each Assignor hereby grants to the Collateral Agent an absolute power of attorney to sign, upon the occurrence and during the continuance of an Event of Default, any document which may be required by the United States Patent and Trademark Office or the equivalent thereof in any foreign country in order to effect an absolute assignment of the Assignor's right, title and interest in each Mark, and record the same. 4.2. Licenses and Assignments. Except as otherwise permitted by the Credit Agreement or this Agreement, each Assignor hereby agrees not to divest itself of any right under any Mark absent prior written approval of the Collateral Agent. -8- 13 EXHIBIT G Page 9 4.3. Infringements. Each Assignor agrees, promptly upon learning thereof, to notify the Collateral Agent in writing of the name and address of, and to furnish such pertinent information that may be available with respect to, any party who such Assignor believes is infringing or diluting or otherwise violating in any material respect any of such Assignor's rights in and to any Mark, or with respect to any party claiming that such Assignor's use of any Mark violates in any material respect any property right of that party. Each Assignor further agrees, unless otherwise agreed by the Collateral Agent, to prosecute any Person infringing any Mark in accordance with commercially reasonable business practices. 4.4. Preservation of Marks. Each Assignor agrees to use its Marks in interstate commerce (or the equivalent thereof in any foreign jurisdiction) during the time in which this Agreement is in effect, sufficiently to preserve such Marks as trademarks or service marks under the laws of the United States or under the laws of the applicable foreign country, as the case may be; provided, that, to the extent permitted by the Credit Agreement, no Assignor shall be obligated to preserve any Mark in the event such Assignor determines, in its reasonable business judgment, that the preservation of such Mark is no longer desirable in the conduct of its business. 4.5. Maintenance of Registration. Each Assignor shall, at its own expense, diligently process all documents required by the Trademark Act of 1946, 15 U.S.C. ss.ss. 1051 et seq. (or the equivalent thereof in any foreign jurisdiction) to maintain trademark registrations, including but not limited to affidavits of use and applications for renewals of registration in the United States Patent and Trademark Office (or the equivalent thereof in any foreign jurisdiction) for all of its registered Marks pursuant to 15 U.S.C. ss.ss. 1058(a), 1059 and 1065 (or the equivalent thereof in any foreign jurisdiction), and shall pay all fees and disbursements in connection therewith and shall not abandon any such filing of affidavit of use or any such application of renewal prior to the exhaustion of all administrative and judicial remedies without prior written consent of the Collateral Agent; provided, that no Assignor shall be obligated to maintain registration of any Mark in the event that such Assignor determines, in its reasonable business judgment, that such maintenance of such Mark is no longer necessary or desirable in the conduct of its business. Each Assignor agrees to notify the Collateral Agent three (3) months prior to the dates on which the affidavits of use or the applications for renewal registration are due with respect to any registered Mark that is being abandoned in accordance with the guidelines set forth above. 4.6. Future Registered Marks. If any registration for a Mark issues hereafter to any Assignor as a result of any application now or hereafter pending before the United States Patent and Trademark Office (or the equivalent thereof in any foreign jurisdiction), within 30 days of receipt of such certificate, such Assignor shall deliver to the Collateral Agent a copy of such certificate, and a grant of security in such Mark, to the Collateral Agent and at the expense of such Assignor, confirming the grant of security in such Mark to the Collateral Agent hereunder, the form of such security to be substantially -9- 14 EXHIBIT G Page 10 the same as the form hereof or in such other form as may be reasonably satisfactory to the Collateral Agent. 4.7. Remedies. If an Event of Default shall occur and be continuing, the Collateral Agent may, by written notice to the relevant Assignor, take any or all of the following actions: (i) declare the entire right, title and interest of such Assignor in and to each of the Marks, together with all trademark rights and rights of protection to the same, vested in the Collateral Agent for the benefit of the Secured Creditors, in which event such rights, title and interest shall immediately vest, in the Collateral Agent for the benefit of the Secured Creditors, and the Collateral Agent shall be entitled to exercise the power of attorney referred to in Section 4.1 hereof to execute, cause to be acknowledged and notarized and record said absolute assignment with the applicable agency; (ii) take and use or sell the Marks and the goodwill of such Assignor's business symbolized by the Marks and the right to carry on the business and use the assets of such Assignor in connection with which the Marks have been used; and (iii) direct such Assignor to refrain, in which event such Assignor shall refrain, from using the Marks in any manner whatsoever, directly or indirectly, and, if requested by the Collateral Agent, change such Assignor's corporate name to eliminate therefrom any use of any Mark and execute such other and further documents that the Collateral Agent may request to further confirm this and to transfer ownership of the Marks and registrations and any pending trademark application in the United States Patent and Trademark Office (or the equivalent thereof in any foreign jurisdiction) to the Collateral Agent. ARTICLE V SPECIAL PROVISIONS CONCERNING PATENTS, COPYRIGHTS AND TRADE SECRETS 5.1. Additional Representations and Warranties. Each Assignor represents and warrants that it is the true and lawful owner of or otherwise has the right to use (i) all material United States and foreign trade secrets and proprietary information necessary to operate the business of the Assignor (the "Trade Secret Rights"), (ii) the Patents listed in Annex E hereto for such Assignor and that said Patents constitute all the patents and applications for patents that such Assignor now owns and (iii) the Copyrights listed in Annex F hereto for such Assignor and that said Copyrights constitute all registrations of copyrights and applications for copyright registrations that such Assignor now owns. Each Assignor further warrants that it has no knowledge of any third party claim that any aspect of such Assignor's present or contemplated business operations infringes or will infringe any patent or any copyright or such Assignor has misappropriated any trade secret or proprietary information. Each Assignor represents and warrants that upon the recordation of a Grant of Security Interest in United States Trademarks and Patents in the form of Annex G hereto in the United States Patent and Trademark Office and the recordation of a Grant of Security Interest in United States Copyrights in the form of Annex H hereto in -10- 15 EXHIBIT G Page 11 the United States Copyright Office, together with filings on Form UCC-1 pursuant to this Agreement, all filings, registrations and recordings necessary or appropriate to perfect the security interest granted to the Collateral Agent in the United States Patents and United States Copyrights covered by this Agreement under federal law will have been accomplished. Each Assignor agrees to execute such a Grant of Security Interest in United States Trademarks and Patents covering all right, title and interest in each United States Patent of such Assignor and to record the same, and to execute such a Grant of Security Interest in United States Copyrights covering all right, title and interest in each United States Copyright of such Assignor and to record the same. Each Assignor hereby grants to the Collateral Agent an absolute power of attorney to sign, upon the occurrence and during the continuance of any Event of Default, any document which may be required by the United States Patent and Trademark Office (or the equivalent thereof in any foreign jurisdiction) or the United States Copyright Office (or the equivalent thereof in any foreign jurisdiction) in order to effect an absolute assignment of all right, title and interest in each Patent and Copyright, and to record the same. 5.2. Licenses and Assignments. Except as otherwise permitted by the Credit Agreement or this Agreement, each Assignor hereby agrees not to divest itself of any right under any Patent or Copyright absent prior written approval of the Collateral Agent. 5.3. Infringements. Each Assignor agrees, promptly upon learning thereof, to furnish the Collateral Agent in writing with all pertinent information available to such Assignor with respect to any infringement, contributing infringement or active inducement to infringe any of such Assignor's rights in and to in any Patent or Copyright or to any claim that such Assignor's practice of any Patent or use of any Copyright violates any property right of a third party, or with respect to any misappropriation of any Trade Secret Right or any claim that such Assignor's practice of any Trade Secret Right violates any property right of a third party. Each Assignor further agrees, absent direction of the Collateral Agent to the contrary, diligently to prosecute any Person infringing any Patent or Copyright or any Person misappropriating any Trade Secret Right in accordance with commercially reasonable business practices. 5.4. Maintenance of Patents. At its own expense, each Assignor shall make timely payment of all post-issuance fees required pursuant to 35 U.S.C. ss. 41 (or the equivalent thereof in any foreign jurisdiction) to maintain in force rights under each Patent, absent prior written consent of the Collateral Agent; provided, that, to the extent permitted by the Credit Agreement, no Assignor shall be obligated to maintain any Patent in the event such Assignor determines, in its reasonable business judgment, that the maintenance of such Patent is no longer necessary or desirable in the conduct of its business. 5.5. Prosecution of Patent Application. At its own expense, each Assignor shall diligently prosecute all applications for Patents listed in Annex E hereto for such Assignor and shall not abandon any such application prior to exhaustion of all -11- 16 EXHIBIT G Page 12 administrative and judicial remedies, absent written consent of the Collateral Agent; provided, that, to the extent permitted by the Credit Agreement, no Assignor shall be obligated to prosecute any application in the event such Assignor determines, in its reasonable business judgment, that the prosecuting of such application is no longer necessary or desirable in the conduct of its business. 5.6. Other Patents and Copyrights. Within 30 days of the acquisition or issuance of a Patent, registration of a Copyright, or acquisition of a registered Copyright, or of filing of an application for a Patent or registration of Copyright, the relevant Assignor shall deliver to the Collateral Agent a copy of said Copyright or certificate or registration of, or application therefor, said Patents, as the case may be, with a grant of security in such Patent or Copyright, as the case may be, to the Collateral Agent and at the expense of such Assignor, confirming the grant of security, the form of such grant of security to be substantially the same as the form hereof or in such other form as may be reasonably satisfactory to the Collateral Agent. 5.7. Remedies. If an Event of Default shall occur and be continuing, the Collateral Agent may by written notice to the relevant Assignor, take any or all of the following actions: (i) declare the entire right, title, and interest of such Assignor in each of the Patents and Copyrights vested in the Collateral Agent for the benefit of the Secured Creditors, in which event such right, title, and interest shall immediately vest in the Collateral Agent for the benefit of the Secured Creditors, in which case the Collateral Agent shall be entitled to exercise the power of attorney referred to in Section 5.1 hereof to execute, cause to be acknowledged and notarized and to record said absolute assignment with the applicable agency; (ii) take and practice or sell the Patents and Copyrights; and (iii) direct such Assignor to refrain, in which event such Assignor shall refrain, from practicing the Patents and using the Copyrights directly or indirectly, and such Assignor shall execute such other and further documents as the Collateral Agent may request further to confirm this and to transfer ownership of the Patents and Copyrights to the Collateral Agent for the benefit of the Secured Creditors. ARTICLE VI PROVISIONS CONCERNING ALL COLLATERAL 6.1. Protection of Collateral Agent's Security. Each Assignor will do nothing to impair the rights of the Collateral Agent in the Collateral. Each Assignor will at all times keep its Inventory and Equipment insured in favor of the Collateral Agent, at such Assignor's own expense to the extent and in the manner provided in the Credit Agreement; all policies or certificates with respect to such insurance (and any other insurance maintained by such Assignor) (i) shall be endorsed to the Collateral Agent's reasonable satisfaction for the benefit of the Collateral Agent (including, without limitation, by naming the Collateral Agent as additional insured and loss payee) and (ii) shall state that -12- 17 EXHIBIT G Page 13 such insurance policies shall not be cancelled or revised without 30 days' prior written notice thereof by the insurer to the Collateral Agent; and certified copies of such policies or certificates shall be deposited with the Collateral Agent. If any Assignor shall fail to insure its Inventory and Equipment in accordance with the preceding sentence, or if any Assignor shall fail to so endorse and deposit all policies or certificates with respect thereto, the Collateral Agent shall have the right (but shall be under no obligation) to procure such insurance and such Assignor agrees to promptly reimburse the Collateral Agent for all costs and expenses of procuring such insurance. Except as otherwise permitted to be retained by the relevant Assignor pursuant to the Credit Agreement, the Collateral Agent hereunder shall, at the time such proceeds of such insurance are distributed to the Secured Creditors hereunder, apply such proceeds in accordance with Section 7.4 hereof. If the Collateral Agent receives proceeds of insurance which are permitted to be retained by the relevant Assignor pursuant to the Credit Agreement, the Collateral Agent will distribute such proceeds to such Assignor. Each Assignor assumes all liability and responsibility in connection with the Collateral acquired by it and the liability of such Assignor to pay the Obligations shall in no way be affected or diminished by reason of the fact that such Collateral may be lost, destroyed, stolen, damaged or for any reason whatsoever unavailable to such Assignor. 6.2. Warehouse Receipts Non-Negotiable. Each Assignor agrees that if any warehouse receipt or receipt in the nature of a warehouse receipt is issued with respect to any of its Inventory, such warehouse receipt or receipt in the nature thereof shall not be "negotiable" (as such term is used in Section 7-104 of the Uniform Commercial Code as in effect in any relevant jurisdiction or under other relevant law) or, if any warehouse receipt or any receipt in the nature of a warehouse receipt is "negotiable" (as such term is used in Section 7-104 of the Uniform Commercial Code as in effect in any relevant jurisdiction or under other relevant law) then the respective Assignor shall promptly take all action as may be required under the relevant jurisdiction to grant a perfected security interest in such Collateral to the Collateral Agent for the benefit of the Secured Creditors. 6.3. Further Actions. (a) Each Assignor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Collateral Agent from time to time such lists, descriptions and designations of its Collateral, warehouse receipts, receipts in the nature of warehouse receipts, bills of lading, documents of title, vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Collateral and other property or rights covered by the security interest hereby granted, which the Collateral Agent deems reasonably appropriate or advisable to perfect, preserve or protect its security interest in the Collateral and consistent with the terms of this Agreement. (b) Each Assignor hereby agrees that it will from time to time, at its own expense and at the request of the Collateral Agent or the Required Banks, take all actions (including making all appropriate filings) as may be necessary or in the reasonable -13- 18 EXHIBIT G Page 14 opinion of the Collateral Agent desirable to perfect (and maintain the perfection of) any security interest in any material foreign Mark, Patent and/or Copyright, and in connection therewith shall deliver one or more opinions of foreign counsel confirming the validity and perfection of the security interest in such foreign Marks, Patents and/or Copyrights. 6.4. Financing Statements. Each Assignor agrees to execute and deliver to the Collateral Agent such financing statements, in form reasonably acceptable to the Collateral Agent, as the Collateral Agent may from time to time reasonably request or as are necessary or desirable in the opinion of the Collateral Agent to establish and maintain a valid, enforce able, first priority (subject to Permitted Liens) perfected security interest in the Collateral as provided herein and the other rights and security contemplated hereby all in accordance with the Uniform Commercial Code as enacted in any and all relevant jurisdictions or any other relevant law. Each Assignor will pay any applicable filing fees, recordation taxes and related expenses relating to its Collateral. Each Assignor hereby authorizes the Collateral Agent to file any such financing statements without the signature of such Assignor where permitted by law. ARTICLE VII REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT 7.1. Remedies; Obtaining the Collateral Upon Default. Each Assignor agrees that, if any Event of Default shall have occurred and be continuing, then and in every such case, the Collateral Agent, in addition to any rights now or hereafter existing under applicable law, shall have all rights as a secured creditor under the Uniform Commercial Code in all relevant jurisdictions and may: (i) personally, or by agents or attorneys, immediately take possession of the Collateral or any part thereof, from such Assignor or any other Person who then has possession of any part thereof with or without notice or process of law, and for that purpose may enter upon such Assignor's premises where any of the Collateral is located and remove the same and use in connection with such removal any and all services, supplies, aids and other facilities of such Assignor; (ii) instruct the obligor or obligors on any agreement, instrument or other obligation (including, without limitation, the Receivables and the Contracts) constituting the Collateral to make any payment required by the terms of such agreement, instrument or other obligation directly to the Collateral Agent; (iii) withdraw all monies, securities and instruments in the Cash Collateral Account for application to the Obligations in accordance with Section 7.4 hereof; -14- 19 EXHIBIT G Page 15 (iv) sell, assign or otherwise liquidate any or all of the Collateral or any part thereof in accordance with Section 7.2 hereof, or direct the relevant Assignor to sell, assign or otherwise liquidate any or all of the Collateral or any part thereof, and, in each case, take possession of the proceeds of any such sale or liquidation; (v) take possession of the Collateral or any part thereof, by directing the relevant Assignor in writing to deliver the same to the Collateral Agent at any place or places designated by the Collateral Agent, in which event such Assignor shall at its own expense: (x) forthwith cause the same to be moved to the place or places so designated by the Collateral Agent and there delivered to the Collateral Agent; (y) store and keep any Collateral so delivered to the Collateral Agent at such place or places pending further action by the Collateral Agent as provided in Section 7.2 hereof; and (z) while the Collateral shall be so stored and kept, provide such guards and maintenance services as shall be necessary to protect the same and to preserve and maintain them in good condition; and (vi) license or sublicense, whether on an exclusive or nonexclusive basis, any Marks, Patents or Copyrights included in the Collateral for such term and on such conditions and in such manner as the Collateral Agent shall in its sole judgment determine (taking into account such provisions as may be necessary to protect and preserve such Marks, Patents and Copyrights); it being understood that each Assignor's obligation so to deliver the Collateral is of the essence of this Agreement and that, accordingly, upon application to a court of equity having jurisdiction, the Collateral Agent shall be entitled to a decree requiring specific performance by such Assignor of said obligation. The Secured Creditors agree that this Agreement may be enforced only by the action of the Agent or the Collateral Agent, in each case acting upon the instructions of the Required Banks (or, after the date on which all Credit Document Obligations have been paid in full, the holders of at least the majority of the outstanding Other Obligations) and that no other Secured Creditor shall have any right individually to seek to enforce or to enforce this Agreement or to realize upon the security to be granted hereby, it being understood and agreed that such rights and remedies may be exercised by the Agent or the Collateral Agent or the holders of at least a majority of the outstanding Other Obligations, as the case may be, for the benefit of the Secured Creditors in accordance with the terms of this Agreement. 7.2. Remedies; Disposition of the Collateral. Any Collateral repossessed by the Collateral Agent under or pursuant to Section 7.1 hereof and any other Collateral -15- 20 EXHIBIT G Page 16 whether or not so repossessed by the Collateral Agent, may be sold, assigned, leased or otherwise disposed of under one or more contracts or as an entirety, and without the necessity of gathering at the place of sale the property to be sold, and in general in such manner, at such time or times, at such place or places and on such terms as the Collateral Agent may, in compliance with any mandatory requirements of applicable law, determine to be commercially reasonable. Any of the Collateral may be sold, leased or otherwise disposed of, in the condition in which the same existed when taken by the Collateral Agent or after any overhaul or repair at the expense of the relevant Assignor which the Collateral Agent shall determine to be commercially reasonable. Any such disposition which shall be a private sale or other private proceedings permitted by such requirements shall be made upon not less than 10 days' written notice to the relevant Assignor specifying the time at which such disposition is to be made and the intended sale price or other consideration therefor, and shall be subject, for the 10 days after the giving of such notice, to the right of the relevant Assignor or any nominee of such Assignor to acquire the Collateral involved at a price or for such other consideration at least equal to the intended sale price or other consideration so specified. Any such disposition which shall be a public sale permitted by such requirements shall be made upon not less than 10 days' written notice to the relevant Assignor specifying the time and place of such sale and, in the absence of applicable requirements of law, shall be by public auction (which may, at the Collateral Agent's option, be subject to reserve), after publication of notice of such auction not less than 10 days prior thereto in two newspapers in general circulation in the City of New York. To the extent permitted by any such requirement of law, the Collateral Agent may bid for and become the purchaser of the Collateral or any item thereof, offered for sale in accordance with this Section without accountability to the relevant Assignor. If, under mandatory requirements of applicable law, the Collateral Agent shall be required to make disposition of the Collateral within a period of time which does not permit the giving of notice to the relevant Assignor as hereinabove specified, the Collateral Agent need give such Assignor only such notice of disposition as shall be reasonably practicable in view of such mandatory requirements of applicable law. 7.3. Waiver of Claims. Except as otherwise provided in this Agreement, EACH ASSIGNOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE COLLATERAL AGENT'S TAKING POSSESSION OR THE COLLATERAL AGENT'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH SUCH ASSIGNOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, and each Assignor hereby further waives, to the extent permitted by law: (i) all damages occasioned by such taking of possession except any damages which are the direct result of the Collateral Agent's gross negligence or willful misconduct; -16- 21 EXHIBIT G Page 17 (ii) all other requirements as to the time, place and terms of sale or other requirements with respect to the enforcement of the Collateral Agent's rights here under; and (iii) all rights of redemption, appraisement, valuation, stay, extension or moratorium now or hereafter in force under any applicable law in order to prevent or delay the enforcement of this Agreement or the absolute sale of the Collateral or any portion thereof, and each Assignor, for itself and all who may claim under it, insofar as it or they now or hereafter lawfully may, hereby waives the benefit of all such laws. Any sale of, or the grant of options to purchase, or any other realization upon, any Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of the relevant Assignor therein and thereto, and shall be a perpetual bar both at law and in equity against such Assignor and against any and all Persons claiming or attempting to claim the Collateral so sold, optioned or realized upon, or any part thereof, from, through and under such Assignor. 7.4. Application of Proceeds. (a) All moneys collected by the Collateral Agent (or, to the extent the Pledge Agreement, the Mortgages or the Additional Security Documents require proceeds of collateral under such Security Documents to be applied in accordance with the provisions of this Agreement, the Pledgee or Mortgagee under such other Security Document) upon any sale or other disposition of the Collateral, together with all other moneys received by the Collateral Agent hereunder, shall be applied as follows: (i) first, to the payment of all Obligations owing the Collateral Agent of the type provided in clauses (iii) and (iv) of the definition of Obligations; (ii) second, to the extent proceeds remain after the application pursuant to the preceding clause (i), an amount equal to the outstanding Obligations shall be paid to the Secured Creditors as provided in Section 7.4(c) hereof with each Secured Creditor receiving an amount equal to its outstanding Obligations or, if the proceeds are insufficient to pay in full all such Obligations, its Pro Rata Share (as defined below) of the amount remaining to be distributed; and (iii) third, to the extent proceeds remain after the application pursuant to the preceding clauses (i) and (ii) and following the termination of this Agreement pursuant to Section 10.8 hereof, to the relevant Assignor or, to the extent directed by such Assignor or a court of competent jurisdiction, to whomever may be lawfully entitled to receive such surplus. (b) For purposes of this Agreement, "Pro Rata Share" shall mean, when calculating a Secured Creditor's portion of any distribution or amount, that amount (expressed as a percentage) equal to a fraction the numerator of which is the then unpaid -17- 22 EXHIBIT G Page 18 amount of such Secured Creditor's Obligations and the denominator of which is the then outstanding amount of all Obligations. (c) All payments required to be made to the Bank Creditors hereunder shall be made to the Agent under the Credit Agreement for the account of the Bank Creditors and all payments required to be made to the Other Creditors hereunder shall be made directly to the respective Other Creditor. (d) For purposes of applying payments received in accordance with this Section 7.4, the Collateral Agent shall be entitled to rely upon (i) the Agent under the Credit Agreement and (ii) the Other Creditors for a determination (which the Agent, each Other Creditor and the Secured Creditors agree to provide upon request of the Collateral Agent) of the outstanding Obligations owed to the Bank Creditors or the Other Creditors, as the case may be. Unless it has actual knowledge (including by way of written notice from a Bank Creditor or an Other Creditor) to the contrary, the Agent under the Credit Agreement, in furnishing information pursuant to the preceding sentence, and the Collateral Agent, in acting hereunder, shall be entitled to assume that (x) no Credit Document Obligations other than principal, interest and regularly accruing fees are owing to any Bank Creditor and (y) no Interest Rate Protection Agreement or Other Hedging Agreement, or Other Obligations in respect thereof, are in existence. (e) It is understood that each Assignor shall remain jointly and severally liable to the extent of any deficiency between the amount of the proceeds of the Collateral and the aggregate amount of the sums referred to in clause (a) of this Section 7.4 with respect to the relevant Assignor. 7.5. Remedies Cumulative. Each and every right, power and remedy hereby specifically given to the Collateral Agent shall be in addition to every other right, power and remedy specifically given under this Agreement, the Interest Rate Protection Agreements or Other Hedging Agreements, the other Credit Documents or now or hereafter existing at law, in equity or by statute and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time or simultaneously and as often and in such order as may be deemed expedient by the Collateral Agent. All such rights, powers and remedies shall be cumulative and the exercise or the beginning of the exercise of one shall not be deemed a waiver of the right to exercise any other or others. No delay or omission of the Collateral Agent in the exercise of any such right, power or remedy and no renewal or extension of any of the Obligations shall impair any such right, power or remedy or shall be construed to be a waiver of any Default or Event of Default or an acquiescence therein. No notice to or demand on any Assignor in any case shall entitle it to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Collateral Agent to any other or further action in any circumstances without notice or demand. In the event that the Collateral Agent shall bring any suit to enforce any of its rights hereunder and shall be entitled to judgment, then in such suit the Collateral Agent may recover reasonable -18- 23 EXHIBIT G Page 19 expenses, including attorneys' fees, and the amounts thereof shall be included in such judgment. 7.6. Discontinuance of Proceedings. In case the Collateral Agent shall have instituted any proceeding to enforce any right, power or remedy under this Agreement by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Collateral Agent, then and in every such case the relevant Assignor, the Collateral Agent and each holder of any of the Obligations shall be restored to their former positions and rights hereunder with respect to the Collateral subject to the security interest created under this Agreement, and all rights, remedies and powers of the Collateral Agent shall continue as if no such proceeding had been instituted. ARTICLE VIII INDEMNITY 8.1. Indemnity. (a) Each Assignor jointly and severally agrees to indemnify, reimburse and hold the Collateral Agent, each other Secured Creditor and their respective successors, permitted assigns, employees and agents (hereinafter in this Section 8.1 referred to individually as "Indemnitee," and collectively as "Indemnitees") harmless from any and all liabilities, obligations, damages, injuries, penalties, claims, demands, actions, suits, judgments and any and all costs, expenses or disbursements (including reasonable attorneys' fees and expenses) (for the purposes of this Section 8.1 the foregoing are collectively called "expenses") of whatsoever kind and nature imposed on, asserted against or incurred by any of the Indemnitees in any way relating to or arising out of this Agreement, any Interest Rate Protection Agreement or Other Hedging Agreement, any other Credit Document or any other document executed in connection herewith or therewith or in any other way connected with the administration of the transactions contemplated hereby or thereby or the enforcement of any of the terms of, or the preservation of any rights under any thereof, or in any way relating to or arising out of the manufacture, ownership, ordering, purchase, delivery, control, acceptance, lease, financing, possession, operation, condition, sale, return or other disposition, or use of the Collateral (including, without limitation, latent or other defects, whether or not discoverable), the violation of the laws of any country, state or other govern mental body or unit, any tort (including, without limitation, claims arising or imposed under the doctrine of strict liability, or for or on account of injury to or the death of any Person (including any Indemnitee), or property damage), or contract claim; provided that no Indemnitee shall be indemnified pursuant to this Section 8.1(a) for losses, injuries, penalties, claims, expenses, damages or liabilities to the extent caused by the gross negligence or willful misconduct of such Indemnitee. Each Assignor agrees that upon written notice by any Indemnitee of the assertion of such a liability, obligation, damage, injury, penalty, claim, demand, action, suit or judgment, the relevant Assignor shall assume full responsibility for the defense thereof. Each Indem- -19- 24 EXHIBIT G Page 20 nitee agrees to use its best efforts to promptly notify the relevant Assignor of any such assertion of which such Indemnitee has knowledge. (b) Without limiting the application of Section 8.1(a) hereof, each Assignor agrees, jointly and severally, to pay, or reimburse the Collateral Agent for any and all reasonable fees, costs and expenses of whatever kind or nature incurred in connection with the creation, preservation or protection of the Collateral Agent's Liens on, and security interest in, the Collateral, including, without limitation, all fees and taxes in connection with the recording or filing of instruments and documents in public offices, payment or discharge of any taxes or Liens upon or in respect of the Collateral, premiums for insurance with respect to the Collateral and all other fees, costs and expenses in connection with protecting, maintaining or preserving the Collateral and the Collateral Agent's interest therein, whether through judicial proceedings or otherwise, or in defending or prosecuting any actions, suits or proceedings arising out of or relating to the Collateral. (c) Without limiting the application of Section 8.1(a) or (b) hereof, each Assignor agrees, jointly and severally, to pay, indemnify and hold each Indemnitee harmless from and against any loss, costs, damages and expenses which such Indemnitee may suffer, expend or incur in consequence of or growing out of any misrepresentation by any Assignor in this Agreement, any Interest Rate Protection Agreement or Other Hedging Agreement, any other Credit Document or in any writing contemplated by or made or delivered pursuant to or in connection with this Agreement, any Interest Rate Protection Agreement or Other Hedging Agreement or any other Credit Document. (d) If and to the extent that the obligations of any Assignor under this Section 8.1 are unenforceable for any reason, such Assignor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 8.2. Indemnity Obligations Secured by Collateral; Survival. Any amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement shall constitute Obligations secured by the Collateral. The indemnity obligations of each Assignor contained in this Article VIII shall continue in full force and effect notwithstanding the full payment of all the Notes issued under the Credit Agreement, the termination of all Interest Rate Protection Agreements or Other Hedging Agreements and the payment of all other Obligations and notwithstanding the discharge thereof. ARTICLE IX DEFINITIONS The following terms shall have the meanings herein specified. Such definitions shall be equally applicable to the singular and plural forms of the terms defined. -20- 25 EXHIBIT G Page 21 "Agent" shall have the meaning provided in the recitals to this Agreement. "Agreement" shall mean this Security Agreement as the same may be modified, supplemented or amended from time to time in accordance with its terms. "Assignor" shall have the meaning provided in the first paragraph of this Agreement. "Bank Creditors" shall have the meaning provided in the recitals to this Agreement. "Banks" shall have the meaning provided in the recitals to this Agreement. "Borrower" shall have the meaning provided in the recitals to this Agreement. "Cash Collateral Account" shall mean a cash collateral account maintained with, and in the sole dominion and control of, the Collateral Agent for the benefit of the Secured Creditors. "Chattel Paper" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Class" shall have the meaning provided in Section 10.2 of this Agreement. "Collateral" shall have the meaning provided in Section 1.1(a) of this Agreement. "Collateral Agent" shall have the meaning provided in the first paragraph of this Agreement. "Contract Rights" shall mean all rights of any Assignor (including, without limitation, all rights to payment) under each Contract. "Contracts" shall mean all contracts between any Assignor and one or more additional parties (including, without limitation, any Interest Rate Protection Agreements or Other Hedging Agreements). "Copyrights" shall mean any United States or foreign copyright owned by any Assignor, including any registrations of any Copyrights, in the United States Copyright Office or the equivalent thereof in any foreign country, as well as any application for a United States or foreign copyright registration now or hereafter made with the United States Copy right Office or the equivalent thereof in any foreign country by any Assignor, other -21- 26 EXHIBIT G Page 22 than those countries outside the United States where the grant of a security interest would invalidate such Copyrights. "Credit Agreement" shall have the meaning provided in the recitals to this Agreement. "Credit Document Obligations" shall have the meaning provided in the definition of "Obligations" in this Article IX. "Default" shall mean any event which, with notice or lapse of time, or both, would constitute an Event of Default. "Documents" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Equipment" shall mean any "equipment," as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York, now or hereafter owned by any Assignor and, in any event, shall include, but shall not be limited to, all machinery, equipment, furnishings, movable trade fixtures and vehicles now or hereafter owned by any Assignor and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "Event of Default" shall mean any Event of Default under, and as defined in, the Credit Agreement and shall in any event, without limitation, include any payment default on any of the Obligations after the expiration of any applicable grace period. "General Intangibles" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Goods" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Indemnitee" shall have the meaning provided in Section 8.1 of this Agreement. "Instrument" shall have the meaning provided in the Uniform Commercial Code as in effect on the date hereof in the State of New York. "Interest Rate Protection Agreements or Other Hedging Agreements" shall have the meaning provided in the recitals to this Agreement. "Inventory" shall mean merchandise, inventory and goods, and all additions, substitutions and replacements thereof, wherever located, together with all goods, supplies, -22- 27 EXHIBIT G Page 23 incidentals, packaging materials, labels, materials and any other items used or usable in manufacturing, processing, packaging or shipping same; in all stages of production -- from raw materials through work-in-process to finished goods -- and all products and proceeds of whatever sort and wherever located and any portion thereof which may be returned, rejected, reclaimed or repossessed by the Collateral Agent from any Assignor's customers, and shall specifically include all "inventory" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York, now or hereafter owned by any Assignor. "Liens" shall mean any security interest, mortgage, pledge, lien, claim, charge, encumbrance, title retention agreement, lessor's interest in a financing lease or analogous instrument, in, of, or on any Assignor's property. "Marks" shall mean all right, title and interest in and to any United States or foreign trademarks, service marks and trade names now held or hereafter acquired by any Assignor, including any registration of any trademarks and service marks in the United States Patent and Trademark Office, or the equivalent thereof in any foreign country, other than those countries outside the United States, where the grant of a security interest would invalidate such trademarks, service marks and trade names, and any trade dress including logos and/or designs used by any Assignor in the United States or any foreign country. "Obligations" shall mean (i) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of each Assignor, now existing or hereafter incurred under, arising out of or in connection with any Credit Document to which such Assignor is a party and the due performance and compliance by each Assignor with the terms of each such Credit Document (all such obligations and liabilities under this clause (i), except to the extent consisting of obligations or indebtedness with respect to Interest Rate Protection Agreements or Other Hedging Agreements, being herein collectively called the "Credit Document Obligations"); (ii) the full and prompt payment when due (whether at the stated maturity, by acceleration or otherwise) of all obligations (including obligations which, but for the automatic stay under Section 362(a) of the Bankruptcy Code, would become due) and liabilities of each Assignor now existing or hereafter incurred under, arising out of or in connection with any Interest Rate Protection Agreement or Other Hedging Agreement including, in the case of the Assignors other than the Borrower, all obligations of such Assignor under the Subsidiary Guaranty in respect of Interest Rate Protection Agreements or Other Hedging Agreements (all such obligations and liabilities under this clause (ii) being herein collectively called the "Other Obligations"); (iii) any and all sums advanced by the Collateral Agent in order to preserve the Collateral or preserve its security interest in the Col lateral; (iv) in the event of any proceeding for the collection or enforcement of any indebtedness, obligations, or liabilities of each Assignor referred to in clauses (i) and (ii), after an Event of Default shall have occurred and be continuing, the reasonable expenses of re-taking, holding, preparing for sale or lease, selling or otherwise disposing of or -23- 28 EXHIBIT G Page 24 realizing on the Collateral, or of any exercise by the Collateral Agent of its rights hereunder, together with reasonable attorneys' fees and court costs; and (v) all amounts paid by any Indemnitee as to which such Indemnitee has the right to reimbursement under Section 8.1 of this Agreement. "Other Creditors" shall have the meaning provided in the recitals to this Agreement. "Other Obligations" shall have the meaning provided in the definition of "Obligations" in this Article IX. "Patents" shall mean any United States or foreign patent to which any Assignor now or hereafter has title and any divisions or continuations thereof, as well as any application for a United States or foreign patent now or hereafter made by any Assignor, except those patents or patent applications in those countries outside the United States where the granting of a security interest in such patents is not permissible under the laws of that country. "Proceeds" shall have the meaning provided in the Uniform Commercial Code as in effect in the State of New York on the date hereof or under other relevant law and, in any event, shall include, but not be limited to, (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Collateral Agent or any Assignor from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to any Assignor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental authority (or any person acting under color of governmental authority) and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "Pro Rata Share" shall have the meaning provided in Section 7.4(b) of this Agreement. "Receivables" shall mean any "account" as such term is defined in the Uniform Commercial Code as in effect on the date hereof in the State of New York, now or hereafter owned by any Assignor and, in any event, shall include, but shall not be limited to, all of such Assignor's rights to payment for goods sold or leased or services performed by such Assignor, whether now in existence or arising from time to time hereafter, including, without limitation, rights evidenced by an account, note, contract, security agreement, chattel paper, or other evidence of indebtedness or security, together with (a) all security pledged, assigned, hypothecated or granted to or held by such Assignor to secure the foregoing, (b) all of any Assignor's right, title and interest in and to any goods, the sale of which gave rise thereto, (c) all guarantees, endorsements and indemnifications on, or of, any of the foregoing, (d) all powers of attorney for the execution of any evidence of indebtedness or security or other writing in connection therewith, (e) all books, records, -24- 29 EXHIBIT G Page 25 ledger cards, and invoices relating thereto, (f) all evidences of the filing of financing statements and other statements and the registration of other instruments in connection therewith and amendments thereto, notices to other creditors or secured parties, and certificates from filing or other registration officers, (g) all credit information, reports and memoranda relating thereto and (h) all other writings related in any way to the foregoing. "Requisite Creditors" shall have the meaning provided in Section 10.2 of this Agreement. "Secured Creditors" shall have the meaning provided in the recitals to this Agreement. "Termination Date" shall have the meaning provided in Section 10.8 of this Agreement. "Trade Secret Rights" shall have the meaning provided in Section 5.1 of this Agreement. ARTICLE X MISCELLANEOUS 10.1. Notices. Except as otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been duly given or made when delivered to the party to which such notice, request, demand or other communication is required or permitted to be given or made under this Agreement, addressed: (a) if to any Assignor, at its address set forth opposite its signature below; (b) if to the Collateral Agent: Bankers Trust Company One Bankers Trust Plaza New York, New York 10006 Attention: Mary Kay Coyle Telephone No.: (212) 250-9094 Facsimile No.: (212) 250-9218 (c) if to any Bank Creditor (other than the Collateral Agent), at such address as such Bank Creditor shall have specified in the Credit Agreement; -25- 30 EXHIBIT G Page 26 (d) if to any Other Creditor, at such address as such Other Creditor shall have specified in writing to each Assignor and the Collateral Agent; or at such other address as shall have been furnished in writing by any Person described above to the party required to give notice hereunder. 10.2. Waiver; Amendment. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by each Assignor directly affected thereby and the Collateral Agent (with the consent of (x) either the Required Banks (or, to the extent required by Section 12.12 of the Credit Agreement, all of the Banks) at all times prior to the time on which all Credit Document Obligations have been paid in full or (y) the holders of at least a majority of the outstanding Other Obligations at all times after the time on which all Credit Document Obligations have been paid in full); provided, that any change, waiver, modification or variance affecting the rights and benefits of a single Class of Secured Creditors (and not all Secured Creditors in a like or similar manner) shall require the written consent of the Requisite Creditors of such Class of Secured Creditors. For the purpose of this Agreement the term "Class" shall mean each class of Secured Creditors, i.e., whether (x) the Bank Creditors as holders of the Credit Document Obligations or (y) the Other Creditors as the holders of the Other Obligations. For the purpose of this Agreement, the term "Requisite Creditors" of any Class shall mean each of (x) with respect to the Credit Document Obligations, the Required Banks (or all the Banks if required by Section 12.12 of the Credit Agreement) and (y) with respect to the Other Obligations, the holders of at least a majority of all obligations outstanding from time to time under the Interest Rate Protection Agreements or Other Hedging Agreements. 10.3. Obligations Absolute. The obligations of each Assignor hereunder shall remain in full force and effect without regard to, and shall not be impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of such Assignor; (b) any exercise or non-exercise, or any waiver of, any right, remedy, power or privilege under or in respect of this Agreement, any other Credit Document or any Interest Rate Protection Agreement or Other Hedging Agreement; or (c) any amendment to or modification of any Credit Document or any Interest Rate Protection Agreement or Other Hedging Agreement or any security for any of the Obligations; whether or not any Assignor shall have notice or knowledge of any of the foregoing. 10.4. Successors and Assigns. This Agreement shall be binding upon each Assignor and its successors and assigns and shall inure to the benefit of the Collateral Agent and its successors and assigns; provided, that no Assignor may transfer or assign any or all of its rights or obligations hereunder without the prior written consent of the Collateral Agent. All agreements, statements, representations and warranties made by each Assignor herein or in any certificate or other instrument delivered by such Assignor or on its behalf under this Agreement shall be considered to have been relied upon by the Secured Creditors and shall survive the execution and delivery of this Agreement, the other Credit Documents -26- 31 EXHIBIT G Page 27 and the Interest Rate Protection Agreements or Other Hedging Agreements regardless of any investigation made by the Secured Creditors or on their behalf. 10.5. Headings Descriptive. The headings of the several sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 10.6. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 10.7. Assignor's Duties. It is expressly agreed, anything herein contained to the contrary notwithstanding, that each Assignor shall remain liable to perform all of the obligations, if any, assumed by it with respect to the Collateral and the Collateral Agent shall not have any obligations or liabilities with respect to any Collateral by reason of or arising out of this Agreement, nor shall the Collateral Agent be required or obligated in any manner to perform or fulfill any of the obligations of each Assignor under or with respect to any Collateral. 10.8. Termination; Release. (a) After the Termination Date, this Agreement shall terminate (provided that all indemnities set forth herein including, without limitation, in Section 8.1 hereof shall survive such termination) and the Collateral Agent, at the request and expense of the respective Assignor, will promptly execute and deliver to such Assignor a proper instrument or instruments (including Uniform Commercial Code termination statements on form UCC-3) acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to such Assignor (without recourse and without any representation or warranty) such of the Collateral as may be in the possession of the Collateral Agent and as has not theretofore been sold or otherwise applied or released pursuant to this Agreement. As used in this Agreement, "Termination Date" shall mean the date upon which the Total Revolving Loan Commitment and all Interest Rate Protection Agreements or Other Hedging Agreements have been terminated, no Note, Loan or Letter of Credit is outstanding (other than Letters of Credit, together with all Fees that have accrued and will accrue thereon through the stated termination date of such Letters of Credit, which have been supported in a manner satisfactory to the Letter of Credit Issuer in its sole and absolute discretion) and all other Obligations (other than any indemnities described in Section 8.1 hereof, in the other Credit Documents and in Section 12.13 of the Credit Agreement which are not then due and payable) have been paid in full. (b) In the event that any part of the Collateral is sold or otherwise disposed of in connection with a sale or other disposition permitted by Section 8.02 of the Credit Agreement or is otherwise released at the direction of the Required Banks (or all the Banks if required by Section 12.12 of the Credit Agreement), the Collateral Agent, at the request and expense of such Assignor, will duly release from the security interest created hereby -27- 32 EXHIBIT G Page 28 and assign, transfer and deliver to such Assignor (without recourse and without any representation or warranty) such of the Collateral as is then being (or has been) so sold or released and as may be in the possession of the Collateral Agent and has not theretofore been released pursuant to this Agreement. (c) At any time that the respective Assignor desires that Collateral be released as provided in the foregoing Section 10.8(a) or (b), it shall deliver to the Collateral Agent a certificate signed by an Authorized Officer of such Assignor stating that the release of the respective Collateral is permitted pursuant to Section 10.8(a) or (b) hereof. 10.9. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Collateral Agent. 10.10. The Collateral Agent. The Collateral Agent will hold in accordance with this Agreement all items of the Collateral at any time received under this Agreement. It is expressly understood and agreed that the obligations of the Collateral Agent as holder of the Collateral and interests therein and with respect to the disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this Agreement and as provided in the Uniform Commercial Code in the State of New York. The Collateral Agent shall act hereunder on the terms and conditions set forth in Section 11 of the Credit Agreement. 10.11. Additional Assignors. It is understood and agreed that any Subsidiary of the Borrower that is required to execute a counterpart of this Agreement after the date hereof pursuant to Sections 7.13 and/or 8.14 of the Credit Agreement shall automatically become an Assignor hereunder by executing a counterpart hereof and delivering the same to the Collateral Agent. * * * -28- 33 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. Address: 16399 Franklin Road Nampa, Idaho 83687 MCMS, INC. Telephone No.: (208) 898-2600 as an Assignor Facsimile No.: (208) 898-2796 Attention: Chris Anton By: /s/ Chris Anton ---------------------------------- Title: Vice President, Finance, and CFO With a copy to: Cornerstone Equity Investors, L.L.C. 717 Fifth Avenue Suite 1100 New York, New York 10022 Facsimile No.: (212) 826-6798 Telephone No.: (212) 753-0901 Attention: John A. (Tony) Downer Michael Najjar BANKERS TRUST COMPANY, as Collateral Agent By: /s/ Anthony LoGrippo ---------------------------------- Title: Vice President EX-10.7 16 EMPLOYMENT AGREEMENT 1 Exhibit 10.7 MICRON CUSTOM MANUFACTURING SERVICES, INC. 16399 FRANKLIN ROAD NAMPA, IDAHO 83687 January 23, 1998 Robert F. Subia c/o Micron Custom Manufacturing Services, Inc. 16399 Franklin Road Nampa, Idaho 83687 This letter agreement sets forth the terms of your ("Executive") employment with Micron Custom Manufacturing Services, Inc. (the "Company") as follows: 1. Employment. The Company shall employ Executive, and Executive hereby accepts employment with the Company to serve as the President and CEO, upon the terms and conditions as set forth in this letter agreement for the period beginning as of immediately after the Closing (as herein defined) and ending as provided in paragraph 4 hereof (the "Employment Period"). 2. Position and Duties. (a) During the Employment Period, Executive shall serve as the President and Chief Executive Officer of the Company and shall have the normal duties, responsibilities and authority of the President and Chief Executive Officer, subject to the power of the Board of Directors of the Company (the "Board") to expand or limit such duties, responsibilities and authority within the confines of the ordinary duties, responsibilities and authority of a President and Chief Executive Officer and to override actions of the President and Chief Executive Officer. (b) Executive shall report to the Board, and Executive shall devote his best efforts and his full business time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity) to the business and affairs of the Company and its subsidiaries. Executive shall perform his duties and responsibilities to the best of his abilities in a diligent, trustworthy, businesslike and efficient manner. The foregoing shall not preclude Executive from devoting reasonable time to the supervision of his personal investments, civic and charitable affairs and, at any time after the date six months after the Closing, serving on a maximum of two boards other than the Company's or any of its subsidiaries' board of directors, provided that such activities do not interfere with the performance of his duties hereunder. (c) Location. Subject to customary business travel, Executive shall be required to perform the services and duties provided for in this paragraph 2 only at the location of the 2 principal executive offices of the Company, which shall be located in the Boise, Idaho Standard Metropolitan Statistical Area or such other location as the parties may mutually agree upon (the "Geographical Employment Area"). 3. Base Salary and Benefits. (a) During the Employment Period, Executive's base salary shall be in an amount set by the Board or a Committee of the Board (the "Compensation Committee"), but under no circumstances will be less than $250,000 per annum (the "Base Salary"), which salary shall be payable in regular installments in accordance with the Company's general payroll practices and shall be subject to customary withholding. In addition, during the Employment Period, Executive shall be entitled to participate in all of the Company's employee benefit programs for which senior executive employees of the Company and its subsidiaries are generally eligible including the Company's Senior Management Bonus Plan and the 1998 Stock Option Plan, with any awards under such Plans to be set by the Board or the Compensation Committee. (b) The Company shall reimburse Executive for all reasonable expenses incurred by him in the course of performing his duties under this letter agreement which are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company's requirements with respect to reporting and documentation of such expenses. 4. Term. (a) Unless renewed by the mutual agreement of the Company and Executive, the Employment Period shall end on the third anniversary of the Closing; provided that (i) the Employment Period shall terminate prior to such date upon Executive's resignation (other than if the Company Constructively Terminates Executive), death or permanent disability or incapacity (as determined by the Board in its good faith judgment or as provided in paragraph 4(f) hereof), (ii) the Employment Period may be terminated by the Company at any time prior to such date for Cause (as defined below) or without Cause and (iii) the Employment Period shall terminate prior to such date upon Executive's resignation if the Company Constructively Terminates Executive. (b) If the Employment Period is terminated by the Company without Cause or the Company Constructively Terminates Executive, Executive shall be entitled to receive his Base Salary plus all fringe benefits which Executive is receiving on the termination date (but no bonuses) for eighteen (18) months after the date of such termination, if and only if, Executive has not breached the provisions of paragraph 5, 6, and 7 hereof. (c) If the Employment Period is terminated by the Company for Cause or is terminated pursuant to clause (a)(i) above, Executive shall be entitled to receive his Base Salary through the date of termination. (d) Except as provided in paragraph 4(b) above, all of the Executive's rights to fringe benefits and bonuses hereunder (if any) which accrue after the termination of the Employment 2 3 Period shall cease upon such termination. The Company may offset any amount Executive owes it or its subsidiaries against any amounts it owes Executive hereunder. (e) For purposes of this letter, "Cause" shall mean (i) the commission of a felony or a crime involving moral turpitude or the commission of any other act or omission involving dishonesty, disloyalty or fraud with respect to the Company or any of its subsidiaries, or any of their customers or suppliers, (ii) conduct tending to bring the Company or any of its subsidiaries into substantial public disgrace or disrepute, (iii) substantial and repeated failure to perform duties as reasonably directed by the Board, provided that such failure has continued for more than 15 days after the Company has given written notice to Executive of such failure and of the Company's intention to terminate Executive's employment because of such failure, (iv) gross negligence or willful misconduct with respect to the Company or any of its subsidiaries or (v) any other material breach of this letter agreement which is not cured within 15 days after written notice thereof to Executive. (f) Death or Disability. In the event of Executive's death or disability during the Employment Period, the Company shall continue to pay to Executive (or his spouse or other designated beneficiary) the Base Salary Executive was receiving immediately prior to his death or disability for twelve (12) months following his death or disability. Executive's employment shall be deemed terminated because of his disability if Executive becomes entitled to benefits under the Company's long-term disability insurance plan, and the periodic benefits payable under that plan shall reduce, on a dollar-for-dollar basis, the payments to Executive required under this paragraph 4(f). (g) For purposes of this letter agreement, "Constructive Termination" shall mean, without Executive's express written consent: (i) the Company materially reduces the nature, scope, level or extent of Executive's responsibilities from the nature, scope, level or extent of such responsibilities as of the effectiveness of this Agreement, or fails to provide Executive with adequate office facilities and support services to perform such responsibilities; (ii) the Company requires Executive to relocate the Executive's principal business office or his principal place of residence outside the Geographical Employment Area, or assigns to the Executive duties that would reasonably require such relocation; or (iii) the Company requires Executive, or assigns duties to Executive that would reasonably require Executive, to spend more than one hundred (100) normal working days away from the Geographical Employment Area during any consecutive twelve-month period. 5. Confidential Information. Executive acknowledges that the information, observations and data obtained by him while employed by the Company and its subsidiaries concerning the business or affairs of the Company or any of its subsidiaries ("Confidential Information") are the property of the Company or such subsidiary. Therefore, Executive agrees that he shall not disclose to any unauthorized person or use for his own purposes any Confidential Information without the prior written consent of the Board, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of the Executive's acts or omissions. Executive shall deliver to the Company at the termination of the Employment Period, or at any other time the Company may request, all memoranda, notes, plans, records, reports, 3 4 computer tapes, printouts and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product (as defined below) or the business of the Company or any subsidiary which he may then possess or have under his control. 6. Inventions and Patents. Executive acknowledges that all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports and all similar or related information (whether or not patentable) which related to the Company's or any of its subsidiaries' actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Executive while employed by the Company and its subsidiaries ("Work Product") belong to the Company or such subsidiary. 7. Non-Compete, Non-Solicitation. (a) In further consideration of the compensation to be paid to Executive hereunder, Executive acknowledges that in the course of his employment with the Company he shall become familiar with the Company's trade secrets and with other Confidential Information concerning the Company and its subsidiaries and that his services shall be of special, unique and extraordinary value to the Company and its subsidiaries. Therefore, Executive agrees that, during the Employment Period and for eighteen (18) months thereafter (the "Noncompete Period"), he shall not directly or indirectly own any interest in, manage, control, participate in, consult with, render services for, or in any manner engage in any business competing with the business of the Company or any of its subsidiaries, as such businesses exist or are in process at any time during the period beginning on the date hereof and ending on the date of the termination of Executive's employment, within any geographical area in which the Company or its subsidiaries engage in such businesses. The foregoing shall not prohibit Executive from owning directly or indirectly capital stock or similar securities that are listed on a securities exchange or quoted on the National Association of Securities Dealers Automated Quotation System which do not represent more than two percent (2%) of the outstanding capital stock of any business competing with the business of the Company. (b) During the Noncompete Period, Executive shall not directly or indirectly through another entity (i) induce or attempt to induce any employee of the Company or of any of its subsidiaries to leave the employ of the Company or any such subsidiary, or in any way interfere with the relationship between the Company or any of its subsidiaries and any employee thereof, (ii) hire any person who was an employee of the Company or any of its subsidiaries during the Employment Period, (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any of its subsidiaries to cease doing business with the Company or any such subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any such subsidiary. (c) If, at the time of enforcement of this paragraph 7, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise 4 5 the restrictions contained herein to cover the maximum period, scope and area permitted by law. Executive agrees that the restrictions contained in paragraph 7 are reasonable. (d) In the event of the breach or threatened breach by Executive of any of the provisions of this paragraph 7, the Company, in addition and supplementary to other rights and remedies existing in its favor, may apply to the court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof. 8. Effectiveness. Notwithstanding anything to the contrary contained herein, this letter agreement shall be effective only upon the closing (the "Closing") of the transactions (the "Recapitalization") contemplated by the Recapitalization Agreement dated as of December 21, 1997 by and among Micron Electronics, Inc. ("MEI"), the Company and Cornerstone Equity Investors IV, L.P. Upon the effectiveness of this letter agreement all prior agreements relating to Executive's employment with the Company and/or its subsidiaries and/or any of their respective affiliates (including MEI) shall be deemed terminated and of no further force and effect. 9. Choice of Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this letter agreement shall be governed by, and construed in accordance with, the laws of the State of Idaho, without giving effect to any choice of law or conflict of law rules or provisions that could cause the applications of the laws of any jurisdiction other than the State of Idaho. 10. Mitigation and Set-Off. Executive shall not be required to mitigate Executive's damages by seeking other employment or otherwise. The Company's obligations under this letter agreement shall not be reduced in any way by reason of any compensation or benefits received (or foregone) by Executive from sources other than the Company after the termination of the Employment Period or any amounts that might have been received by Executive in other employment had Executive sought such other employment. Executive's entitlement to benefits and coverage under this letter agreement shall continue after, and shall not be affected by, Executive's obtaining other employment after the termination of the Employment Period, provided that any such benefit or coverage shall not be furnished if Executive expressly waives the specific benefit or coverage by giving written notice of waiver to the Company. 11. Litigation Expenses. The Company shall pay to Executive all out-of-pocket expenses, including attorney's fees, incurred by Executive in the event Executive successfully enforces any provision of this letter agreement in any action, arbitration or lawsuit. 12. Indemnification. The Company will indemnify and hold harmless Executive from and against any and all costs, liability and expenses from any claim by any person with respect to, or in any way related to, Executive's employment with the Company as contemplated by this letter agreement (including reasonable attorney's fees) (collectively, "Claims") resulting from any act or omission of Executive that relate to Executive's employment with the Company, to the maximum extent permitted by law other than for Claims which shall be proven to be the result of gross negligence, bad faith or willful misconduct by Executive. Notwithstanding this Agreement or any 5 6 termination of his employment by the Company pursuant to this Agreement or otherwise, the Executive shall be entitled to coverage under the directors' and officers' liability coverage maintained by the Company, as in effect from time to time, to the same extent as other officers and directors of the Company. 13. Amendment or Termination. This Agreement may be amended at any time by written agreement between the Company and Executive. 14. Counterparts. This Agreement may be executed in one or more counterparts, all of which together shall constitute but one Agreement. 15. No Waiver. No failure or delay on the part of the Company or Executive in enforcing or exercising any right or remedy hereunder shall operate as a waiver thereof. 6 7 IN WITNESS WHEREOF, the parties hereto have executed this letter agreement as of the date first written above. MICRON CUSTOM MANUFACTURING SERVICES, INC. /s/ Chris Anton -------------------------------------- Name: Chris Anton Title: Vice President of Finance & CFO /s/ Robert F. Subia -------------------------------------- Robert F. Subia 7 EX-10.8 17 EMPLOYMENT AGREEMENT 1 Exhibit 10.8 MICRON CUSTOM MANUFACTURING SERVICES, INC. 16399 FRANKLIN ROAD NAMPA, IDAHO 83687 January 23, 1998 Chris Anton c/o Micron Custom Manufacturing Services, Inc. 16399 Franklin Road Nampa, Idaho 83687 This letter agreement sets forth the terms of your ("Executive") employment with Micron Custom Manufacturing Services, Inc. (the "Company") as follows: 1. Employment. The Company shall employ Executive, and Executive hereby accepts employment with the Company to serve as the Chief Financial Officer, upon the terms and conditions as set forth in this letter agreement for the period beginning as of immediately after the Closing (as herein defined) and ending as provided in paragraph 4 hereof (the "Employment Period"). 2. Position and Duties. (a) During the Employment Period, Executive shall serve as the Chief Financial Officer of the Company and shall have the normal duties, responsibilities and authority of the Chief Financial Officer, subject to the power of the Chief Executive Officer of the Company (the "CEO") to expand or limit such duties, responsibilities and authority within the confines of the ordinary duties, responsibilities and authority of a Chief Financial Officer and to override actions of the Chief Financial Officer. (b) Executive shall report to the CEO, and Executive shall devote his best efforts and his full business time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity) to the business and affairs of the Company and its subsidiaries. Executive shall perform his duties and responsibilities to the best of his abilities in a diligent, trustworthy, businesslike and efficient manner. The foregoing shall not preclude Executive from devoting reasonable time to the supervision of his personal investments, civic and charitable affairs and, at any time after the date six months after the Closing, serving on a maximum of two boards other than the Company's or any of its subsidiaries' board of directors, provided that such activities do not interfere with the performance of his duties hereunder. 2 (c) Location. Subject to customary business travel, Executive shall be required to perform the services and duties provided for in this paragraph 2 only at the location of the principal executive offices of the Company, which shall be located in the Boise, Idaho Standard Metropolitan Statistical Area or such other location as the parties may mutually agree upon (the "Geographical Employment Area"). 3. Base Salary and Benefits. (a) During the Employment Period, Executive's base salary shall be in an amount set by the Board of Directors of the Company (the "Board") or a Committee of the Board (the "Compensation Committee"), but under no circumstances will be less than $150,000 per annum (the "Base Salary"), which salary shall be payable in regular installments in accordance with the Company's general payroll practices and shall be subject to customary withholding. In addition, during the Employment Period, Executive shall be entitled to participate in all of the Company's employee benefit programs for which senior executive employees of the Company and its subsidiaries are generally eligible including the Company's Senior Management Bonus Plan and the 1998 Stock Option Plan, with any awards under such Plans to be set by the Board or the Compensation Committee. (b) The Company shall reimburse Executive for all reasonable expenses incurred by him in the course of performing his duties under this letter agreement which are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company's requirements with respect to reporting and documentation of such expenses. 4. Term. (a) Unless renewed by the mutual agreement of the Company and Executive, the Employment Period shall end on the third anniversary of the Closing; provided that (i) the Employment Period shall terminate prior to such date upon Executive's resignation (other than if the Company Constructively Terminates Executive), death or permanent disability or incapacity (as determined by the Board in its good faith judgment or as provided in paragraph 4(f) hereof), (ii) the Employment Period may be terminated by the Company at any time prior to such date for Cause (as defined below) or without Cause and (iii) the Employment Period shall terminate prior to such date upon Executive's resignation if the Company Constructively Terminates Executive. (b) If the Employment Period is terminated by the Company without Cause or the Company Constructively Terminates Executive, Executive shall be entitled to receive his Base Salary plus all fringe benefits which Executive is receiving on the termination date (but no bonuses) for twelve (12) months after the date of such termination, if and only if, Executive has not breached the provisions of paragraph 5, 6, and 7 hereof. 2 3 (c) If the Employment Period is terminated by the Company for Cause or is terminated pursuant to clause (a)(i) above, Executive shall be entitled to receive his Base Salary through the date of termination. (d) Except as provided in paragraph 4(b) above, all of the Executive's rights to fringe benefits and bonuses hereunder (if any) which accrue after the termination of the Employment Period shall cease upon such termination. The Company may offset any amount Executive owes it or its subsidiaries against any amounts it owes Executive hereunder. (e) For purposes of this letter, "Cause" shall mean (i) the commission of a felony or a crime involving moral turpitude or the commission of any other act or omission involving dishonesty, disloyalty or fraud with respect to the Company or any of its subsidiaries, or any of their customers or suppliers, (ii) conduct tending to bring the Company or any of its subsidiaries into substantial public disgrace or disrepute, (iii) substantial and repeated failure to perform duties as reasonably directed by the Board, provided that such failure has continued for more than 15 days after the Company has given written notice to Executive of such failure and of the Company's intention to terminate Executive's employment because of such failure, (iv) gross negligence or willful misconduct with respect to the Company or any of its subsidiaries or (v) any other material breach of this letter agreement which is not cured within 15 days after written notice thereof to Executive. (f) Death or Disability. In the event of Executive's death or disability during the Employment Period, the Company shall continue to pay to Executive (or his spouse or other designated beneficiary) the Base Salary Executive was receiving immediately prior to his death or disability for twelve (12) months following his death or disability. Executive's employment shall be deemed terminated because of his disability if Executive becomes entitled to benefits under the Company's long-term disability insurance plan, and the periodic benefits payable under that plan shall reduce, on a dollar-for-dollar basis, the payments to Executive required under this paragraph 4(f). (g) For purposes of this letter agreement, "Constructive Termination" shall mean, without Executive's express written consent: (i) the Company materially reduces the nature, scope, level or extent of Executive's responsibilities from the nature, scope, level or extent of such responsibilities as of the effectiveness of this Agreement, or fails to provide Executive with adequate office facilities and support services to perform such responsibilities; (ii) the Company requires Executive to relocate the Executive's principal business office or his principal place of residence outside the Geographical Employment Area, or assigns to the Executive duties that would reasonably require such relocation; or (iii) the Company requires Executive, or assigns duties to Executive that would reasonably require Executive, to spend more than one hundred (100) normal working days away from the Geographical Employment Area during any consecutive twelve-month period. 5. Confidential Information. Executive acknowledges that the information, observations and data obtained by him while employed by the Company and its subsidiaries concerning the business or affairs of the Company or any of its subsidiaries ("Confidential Information") are the 3 4 property of the Company or such subsidiary. Therefore, Executive agrees that he shall not disclose to any unauthorized person or use for his own purposes any Confidential Information without the prior written consent of the Board, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of the Executive's acts or omissions. Executive shall deliver to the Company at the termination of the Employment Period, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product (as defined below) or the business of the Company or any subsidiary which he may then possess or have under his control. 6. Inventions and Patents. Executive acknowledges that all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports and all similar or related information (whether or not patentable) which related to the Company's or any of its subsidiaries' actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Executive while employed by the Company and its subsidiaries ("Work Product") belong to the Company or such subsidiary. 7. Non-Compete, Non-Solicitation. (a) In further consideration of the compensation to be paid to Executive hereunder, Executive acknowledges that in the course of his employment with the Company he shall become familiar with the Company's trade secrets and with other Confidential Information concerning the Company and its subsidiaries and that his services shall be of special, unique and extraordinary value to the Company and its subsidiaries. Therefore, Executive agrees that, during the Employment Period and for twelve (12) months thereafter (the "Noncompete Period"), he shall not directly or indirectly own any interest in, manage, control, participate in, consult with, render services for, or in any manner engage in any business competing with the business of the Company or any of its subsidiaries, as such businesses exist or are in process at any time during the period beginning on the date hereof and ending on the date of the termination of Executive's employment, within any geographical area in which the Company or its subsidiaries engage in such businesses. The foregoing shall not prohibit Executive from owning directly or indirectly capital stock or similar securities that are listed on a securities exchange or quoted on the National Association of Securities Dealers Automated Quotation System which do not represent more than two percent (2%) of the outstanding capital stock of any business competing with the business of the Company. (b) During the Noncompete Period, Executive shall not directly or indirectly through another entity (i) induce or attempt to induce any employee of the Company or of any of its subsidiaries to leave the employ of the Company or any such subsidiary, or in any way interfere with the relationship between the Company or any of its subsidiaries and any employee thereof, (ii) hire any person who was an employee of the Company or any of its subsidiaries during the Employment Period, (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any of its subsidiaries to cease doing business with the Company or any such subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any such subsidiary. 4 5 (c) If, at the time of enforcement of this paragraph 7, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. Executive agrees that the restrictions contained in paragraph 7 are reasonable. (d) In the event of the breach or threatened breach by Executive of any of the provisions of this paragraph 7, the Company, in addition and supplementary to other rights and remedies existing in its favor, may apply to the court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof. 8. Effectiveness. Notwithstanding anything to the contrary contained herein, this letter agreement shall be effective only upon the closing (the "Closing") of the transactions (the "Recapitalization") contemplated by the Recapitalization Agreement dated as of December 21, 1997 by and among Micron Electronics, Inc. ("MEI"), the Company and Cornerstone Equity Investors IV, L.P. Upon the effectiveness of this letter agreement all prior agreements relating to Executive's employment with the Company and/or its subsidiaries and/or any of their respective affiliates (including MEI) shall be deemed terminated and of no further force and effect. 9. Choice of Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this letter agreement shall be governed by, and construed in accordance with, the laws of the State of Idaho, without giving effect to any choice of law or conflict of law rules or provisions that could cause the applications of the laws of any jurisdiction other than the State of Idaho. 10. Mitigation and Set-Off. Executive shall not be required to mitigate Executive's damages by seeking other employment or otherwise. The Company's obligations under this letter agreement shall not be reduced in any way by reason of any compensation or benefits received (or foregone) by Executive from sources other than the Company after the termination of the Employment Period or any amounts that might have been received by Executive in other employment had Executive sought such other employment. Executive's entitlement to benefits and coverage under this letter agreement shall continue after, and shall not be affected by, Executive's obtaining other employment after the termination of the Employment Period, provided that any such benefit or coverage shall not be furnished if Executive expressly waives the specific benefit or coverage by giving written notice of waiver to the Company. 11. Litigation Expenses. The Company shall pay to Executive all out-of-pocket expenses, including attorney's fees, incurred by Executive in the event Executive successfully enforces any provision of this letter agreement in any action, arbitration or lawsuit. 12. Indemnification. The Company will indemnify and hold harmless Executive from and against any and all costs, liability and expenses from any claim by any person with respect to, or in 5 6 any way related to, Executive's employment with the Company as contemplated by this letter agreement (including reasonable attorney's fees) (collectively, "Claims") resulting from any act or omission of Executive that relate to Executive's employment with the Company, to the maximum extent permitted by law other than for Claims which shall be proven to be the result of gross negligence, bad faith or willful misconduct by Executive. Notwithstanding this Agreement or any termination of his employment by the Company pursuant to this Agreement or otherwise, the Executive shall be entitled to coverage under the directors' and officers' liability coverage maintained by the Company, as in effect from time to time, to the same extent as other officers and directors of the Company. 13. Amendment or Termination. This Agreement may be amended at any time by written agreement between the Company and Executive. 14. Counterparts. This Agreement may be executed in one or more counterparts, all of which together shall constitute but one Agreement. 15. No Waiver. No failure or delay on the part of the Company or Executive in enforcing or exercising any right or remedy hereunder shall operate as a waiver thereof. * * * * * * 6 7 IN WITNESS WHEREOF, the parties hereto have executed this letter agreement as of the date first written above. MICRON CUSTOM MANUFACTURING SERVICES, INC. /s/ Robert F. Subia -------------------------------------- Name: Robert F. Subia Title: President & CEO /s/ Chris Anton -------------------------------------- Chris Anton 7 EX-10.9 18 EMPLOYMENT AGREEMENT 1 Exhibit 10.9 MICRON CUSTOM MANUFACTURING SERVICES, INC. 16399 FRANKLIN ROAD NAMPA, IDAHO 83687 January 23, 1998 Jess Asla c/o Micron Custom Manufacturing Services, Inc. 16399 Franklin Road Nampa, Idaho 83687 This letter agreement sets forth the terms of your ("Executive") employment with Micron Custom Manufacturing Services, Inc. (the "Company") as follows: 1. Employment. The Company shall employ Executive, and Executive hereby accepts employment with the Company to serve as the Vice President/Operations, upon the terms and conditions as set forth in this letter agreement for the period beginning as of immediately after the Closing (as herein defined) and ending as provided in paragraph 4 hereof (the "Employment Period"). 2. Position and Duties. (a) During the Employment Period, Executive shall serve as the Vice President/Operations of the Company and shall have the normal duties, responsibilities and authority of the Vice President/Operations, subject to the power of the Chief Executive Officer of the Company (the "CEO") to expand or limit such duties, responsibilities and authority within the confines of the ordinary duties, responsibilities and authority of a Vice President/Operations and to override actions of the Vice President/Operations. (b) Executive shall report to the CEO, and Executive shall devote his best efforts and his full business time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity) to the business and affairs of the Company and its subsidiaries. Executive shall perform his duties and responsibilities to the best of his abilities in a diligent, trustworthy, businesslike and efficient manner. The foregoing shall not preclude Executive from devoting reasonable time to the supervision of his personal investments, civic and charitable affairs and, at any time after the date six months after the Closing, serving on a maximum of two boards other than the Company's or any of its subsidiaries' board of directors, provided that such activities do not interfere with the performance of his duties hereunder. 2 (c) Location. Subject to customary business travel, Executive shall be required to perform the services and duties provided for in this paragraph 2 only at the location of the principal executive offices of the Company, which shall be located in the Boise, Idaho Standard Metropolitan Statistical Area or such other location as the parties may mutually agree upon (the "Geographical Employment Area"). 3. Base Salary and Benefits. (a) During the Employment Period, Executive's base salary shall be in an amount set by the Board of Directors of the Company (the "Board") or a Committee of the Board (the "Compensation Committee"), but under no circumstances will be less than $175,000 per annum (the "Base Salary"), which salary shall be payable in regular installments in accordance with the Company's general payroll practices and shall be subject to customary withholding. In addition, during the Employment Period, Executive shall be entitled to participate in all of the Company's employee benefit programs for which senior executive employees of the Company and its subsidiaries are generally eligible including the Company's Senior Management Bonus Plan and the 1998 Stock Option Plan, with any awards under such Plans to be set by the Board or the Compensation Committee. (b) The Company shall reimburse Executive for all reasonable expenses incurred by him in the course of performing his duties under this letter agreement which are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company's requirements with respect to reporting and documentation of such expenses. 4. Term. (a) Unless renewed by the mutual agreement of the Company and Executive, the Employment Period shall end on the third anniversary of the Closing; provided that (i) the Employment Period shall terminate prior to such date upon Executive's resignation (other than if the Company Constructively Terminates Executive), death or permanent disability or incapacity (as determined by the Board in its good faith judgment or as provided in paragraph 4(f) hereof), (ii) the Employment Period may be terminated by the Company at any time prior to such date for Cause (as defined below) or without Cause and (iii) the Employment Period shall terminate prior to such date upon Executive's resignation if the Company Constructively Terminates Executive. (b) If the Employment Period is terminated by the Company without Cause or the Company Constructively Terminates Executive, Executive shall be entitled to receive his Base Salary plus all fringe benefits which Executive is receiving on the termination date (but no bonuses) for twelve (12) months after the date of such termination, if and only if, Executive has not breached the provisions of paragraph 5, 6, and 7 hereof. 2 3 (c) If the Employment Period is terminated by the Company for Cause or is terminated pursuant to clause (a)(i) above, Executive shall be entitled to receive his Base Salary through the date of termination. (d) Except as provided in paragraph 4(b) above, all of the Executive's rights to fringe benefits and bonuses hereunder (if any) which accrue after the termination of the Employment Period shall cease upon such termination. The Company may offset any amount Executive owes it or its subsidiaries against any amounts it owes Executive hereunder. (e) For purposes of this letter, "Cause" shall mean (i) the commission of a felony or a crime involving moral turpitude or the commission of any other act or omission involving dishonesty, disloyalty or fraud with respect to the Company or any of its subsidiaries, or any of their customers or suppliers, (ii) conduct tending to bring the Company or any of its subsidiaries into substantial public disgrace or disrepute, (iii) substantial and repeated failure to perform duties as reasonably directed by the Board, provided that such failure has continued for more than 15 days after the Company has given written notice to Executive of such failure and of the Company's intention to terminate Executive's employment because of such failure, (iv) gross negligence or willful misconduct with respect to the Company or any of its subsidiaries or (v) any other material breach of this letter agreement which is not cured within 15 days after written notice thereof to Executive. (f) Death or Disability. In the event of Executive's death or disability during the Employment Period, the Company shall continue to pay to Executive (or his spouse or other designated beneficiary) the Base Salary Executive was receiving immediately prior to his death or disability for twelve (12) months following his death or disability. Executive's employment shall be deemed terminated because of his disability if Executive becomes entitled to benefits under the Company's long-term disability insurance plan, and the periodic benefits payable under that plan shall reduce, on a dollar-for-dollar basis, the payments to Executive required under this paragraph 4(f). (g) For purposes of this letter agreement, "Constructive Termination" shall mean, without Executive's express written consent: (i) the Company materially reduces the nature, scope, level or extent of Executive's responsibilities from the nature, scope, level or extent of such responsibilities as of the effectiveness of this Agreement, or fails to provide Executive with adequate office facilities and support services to perform such responsibilities; (ii) the Company requires Executive to relocate the Executive's principal business office or his principal place of residence outside the Geographical Employment Area, or assigns to the Executive duties that would reasonably require such relocation; or (iii) the Company requires Executive, or assigns duties to Executive that would reasonably require Executive, to spend more than one hundred (100) normal working days away from the Geographical Employment Area during any consecutive twelve-month period. 5. Confidential Information. Executive acknowledges that the information, observations and data obtained by him while employed by the Company and its subsidiaries concerning the business or affairs of the Company or any of its subsidiaries ("Confidential Information") are the 3 4 property of the Company or such subsidiary. Therefore, Executive agrees that he shall not disclose to any unauthorized person or use for his own purposes any Confidential Information without the prior written consent of the Board, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of the Executive's acts or omissions. Executive shall deliver to the Company at the termination of the Employment Period, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product (as defined below) or the business of the Company or any subsidiary which he may then possess or have under his control. 6. Inventions and Patents. Executive acknowledges that all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports and all similar or related information (whether or not patentable) which related to the Company's or any of its subsidiaries' actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Executive while employed by the Company and its subsidiaries ("Work Product") belong to the Company or such subsidiary. 7. Non-Compete, Non-Solicitation. (a) In further consideration of the compensation to be paid to Executive hereunder, Executive acknowledges that in the course of his employment with the Company he shall become familiar with the Company's trade secrets and with other Confidential Information concerning the Company and its subsidiaries and that his services shall be of special, unique and extraordinary value to the Company and its subsidiaries. Therefore, Executive agrees that, during the Employment Period and for twelve (12) months thereafter (the "Noncompete Period"), he shall not directly or indirectly own any interest in, manage, control, participate in, consult with, render services for, or in any manner engage in any business competing with the business of the Company or any of its subsidiaries, as such businesses exist or are in process at any time during the period beginning on the date hereof and ending on the date of the termination of Executive's employment, within any geographical area in which the Company or its subsidiaries engage in such businesses. The foregoing shall not prohibit Executive from owning directly or indirectly capital stock or similar securities that are listed on a securities exchange or quoted on the National Association of Securities Dealers Automated Quotation System which do not represent more than two percent (2%) of the outstanding capital stock of any business competing with the business of the Company. (b) During the Noncompete Period, Executive shall not directly or indirectly through another entity (i) induce or attempt to induce any employee of the Company or of any of its subsidiaries to leave the employ of the Company or any such subsidiary, or in any way interfere with the relationship between the Company or any of its subsidiaries and any employee thereof, (ii) hire any person who was an employee of the Company or any of its subsidiaries during the Employment Period, (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any of its subsidiaries to cease doing business with the Company or any such subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any such subsidiary. 4 5 (c) If, at the time of enforcement of this paragraph 7, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. Executive agrees that the restrictions contained in paragraph 7 are reasonable. (d) In the event of the breach or threatened breach by Executive of any of the provisions of this paragraph 7, the Company, in addition and supplementary to other rights and remedies existing in its favor, may apply to the court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof. 8. Effectiveness. Notwithstanding anything to the contrary contained herein, this letter agreement shall be effective only upon the closing (the "Closing") of the transactions (the "Recapitalization") contemplated by the Recapitalization Agreement dated as of December 21, 1997 by and among Micron Electronics, Inc. ("MEI"), the Company and Cornerstone Equity Investors IV, L.P. Upon the effectiveness of this letter agreement all prior agreements relating to Executive's employment with the Company and/or its subsidiaries and/or any of their respective affiliates (including MEI) shall be deemed terminated and of no further force and effect. 9. Choice of Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this letter agreement shall be governed by, and construed in accordance with, the laws of the State of Idaho, without giving effect to any choice of law or conflict of law rules or provisions that could cause the applications of the laws of any jurisdiction other than the State of Idaho. 10. Mitigation and Set-Off. Executive shall not be required to mitigate Executive's damages by seeking other employment or otherwise. The Company's obligations under this letter agreement shall not be reduced in any way by reason of any compensation or benefits received (or foregone) by Executive from sources other than the Company after the termination of the Employment Period or any amounts that might have been received by Executive in other employment had Executive sought such other employment. Executive's entitlement to benefits and coverage under this letter agreement shall continue after, and shall not be affected by, Executive's obtaining other employment after the termination of the Employment Period, provided that any such benefit or coverage shall not be furnished if Executive expressly waives the specific benefit or coverage by giving written notice of waiver to the Company. 11. Litigation Expenses. The Company shall pay to Executive all out-of-pocket expenses, including attorney's fees, incurred by Executive in the event Executive successfully enforces any provision of this letter agreement in any action, arbitration or lawsuit. 12. Indemnification. The Company will indemnify and hold harmless Executive from and against any and all costs, liability and expenses from any claim by any person with respect to, or in 5 6 any way related to, Executive's employment with the Company as contemplated by this letter agreement (including reasonable attorney's fees) (collectively, "Claims") resulting from any act or omission of Executive that relate to Executive's employment with the Company, to the maximum extent permitted by law other than for Claims which shall be proven to be the result of gross negligence, bad faith or willful misconduct by Executive. Notwithstanding this Agreement or any termination of his employment by the Company pursuant to this Agreement or otherwise, the Executive shall be entitled to coverage under the directors' and officers' liability coverage maintained by the Company, as in effect from time to time, to the same extent as other officers and directors of the Company. 13. Amendment or Termination. This Agreement may be amended at any time by written agreement between the Company and Executive. 14. Counterparts. This Agreement may be executed in one or more counterparts, all of which together shall constitute but one Agreement. 15. No Waiver. No failure or delay on the part of the Company or Executive in enforcing or exercising any right or remedy hereunder shall operate as a waiver thereof. * * * * * * 6 7 IN WITNESS WHEREOF, the parties hereto have executed this letter agreement as of the date first written above. MICRON CUSTOM MANUFACTURING SERVICES, INC. /s/ Robert F. Subia -------------------------------------- Name: Robert F. Subia Title: President & CEO /s/ Jess Asla -------------------------------------- Jess Asla 7 EX-10.10 19 EMPLOYMENT AGREEMENT 1 Exhibit 10.10 MICRON CUSTOM MANUFACTURING SERVICES, INC. 16399 FRANKLIN ROAD NAMPA, IDAHO 83687 January 23, 1998 John McCarvel c/o Micron Custom Manufacturing Services, Inc. 16399 Franklin Road Nampa, Idaho 83687 This letter agreement sets forth the terms of your ("Executive") employment with Micron Custom Manufacturing Services, Inc. (the "Company") as follows: 1. Employment. The Company shall employ Executive, and Executive hereby accepts employment with the Company to serve as the Vice President/Strategic Business Development, upon the terms and conditions as set forth in this letter for the period beginning on the date hereof and ending as provided in paragraph 4 hereof (the "Employment Period"). 2. Position and Duties. (a) During the Employment Period, Executive shall serve as the Vice President/Strategic Business Development of the Company and shall have the normal duties, responsibilities and authority of the Vice President/Strategic Business Development, subject to the power of the Chief Executive Officer of the Company (the "CEO") to expand or limit such duties, responsibilities and authority within the confines of the ordinary duties, responsibilities and authority of a Vice President/Strategic Business Development and to override actions of the Vice President/Strategic Business Development. (b) Executive shall report to the CEO, and Executive shall devote his best efforts and his full business time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity) to the business and affairs of the Company and its subsidiaries. Executive shall perform his duties and responsibilities to the best of his abilities in a diligent, trustworthy, businesslike and efficient manner. The foregoing shall not preclude Executive from devoting reasonable time to the supervision of his personal investments, civic and charitable affairs and, at any time after the date six months after the Closing, serving on a maximum of two boards other than the Company's or any of its subsidiaries' board of directors, provided that such activities do not interfere with the performance of his duties hereunder. 2 (c) Location. Subject to customary business travel, Executive shall be required to perform the services and duties provided for in this paragraph 2 only at the location of the principal executive offices of the Company, which shall be located in the Boise, Idaho Standard Metropolitan Statistical Area or such other location as the parties may mutually agree upon (the "Geographical Employment Area"). 3. Base Salary and Benefits. (a) During the Employment Period, Executive's base salary shall be in an amount set by the Board of Directors of the Company (the "Board") or a Committee of the Board (the "Compensation Committee"), but under no circumstances will be less than $150,000 per annum (the "Base Salary"), which salary shall be payable in regular installments in accordance with the Company's general payroll practices and shall be subject to customary withholding. In addition, during the Employment Period, Executive shall be entitled to participate in all of the Company's employee benefit programs for which senior executive employees of the Company and its subsidiaries are generally eligible including the Company's Senior Management Bonus Plan and the 1998 Stock Option Plan, with any awards under such Plans to be set by the Board or the Compensation Committee. (b) The Company shall reimburse Executive for all reasonable expenses incurred by him in the course of performing his duties under this letter agreement which are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company's requirements with respect to reporting and documentation of such expenses. 4. Term. (a) Unless renewed by the mutual agreement of the Company and Executive, the Employment Period shall end on the third anniversary of the Closing; provided that (i) the Employment Period shall terminate prior to such date upon Executive's resignation (other than if the Company Constructively Terminates Executive), death or permanent disability or incapacity (as determined by the Board in its good faith judgment or as provided in paragraph 4(f) hereof), (ii) the Employment Period may be terminated by the Company at any time prior to such date for Cause (as defined below) or without Cause and (iii) the Employment Period shall terminate prior to such date upon Executive's resignation if the Company Constructively Terminates Executive. (b) If the Employment Period is terminated by the Company without Cause or the Company Constructively Terminates Executive, Executive shall be entitled to receive his Base Salary plus all fringe benefits which Executive is receiving on the termination date (but no bonuses) for twelve (12) months after the date of such termination, if and only if, Executive has not breached the provisions of paragraph 5, 6, and 7 hereof. 2 3 (c) If the Employment Period is terminated by the Company for Cause or is terminated pursuant to clause (a)(i) above, Executive shall be entitled to receive his Base Salary through the date of termination. (d) Except as provided in paragraph 4(b) above, all of the Executive's rights to fringe benefits and bonuses hereunder (if any) which accrue after the termination of the Employment Period shall cease upon such termination. The Company may offset any amount Executive owes it or its subsidiaries against any amounts it owes Executive hereunder. (e) For purposes of this letter, "Cause" shall mean (i) the commission of a felony or a crime involving moral turpitude or the commission of any other act or omission involving dishonesty, disloyalty or fraud with respect to the Company or any of its subsidiaries, or any of their customers or suppliers, (ii) conduct tending to bring the Company or any of its subsidiaries into substantial public disgrace or disrepute, (iii) substantial and repeated failure to perform duties as reasonably directed by the Board, provided that such failure has continued for more than 15 days after the Company has given written notice to Executive of such failure and of the Company's intention to terminate Executive's employment because of such failure, (iv) gross negligence or willful misconduct with respect to the Company or any of its subsidiaries or (v) any other material breach of this letter agreement which is not cured within 15 days after written notice thereof to Executive. (f) Death or Disability. In the event of Executive's death or disability during the Employment Period, the Company shall continue to pay to Executive (or his spouse or other designated beneficiary) the Base Salary Executive was receiving immediately prior to his death or disability for twelve (12) months following his death or disability. Executive's employment shall be deemed terminated because of his disability if Executive becomes entitled to benefits under the Company's long-term disability insurance plan, and the periodic benefits payable under that plan shall reduce, on a dollar-for-dollar basis, the payments to Executive required under this paragraph 4(f). (g) For purposes of this letter agreement, "Constructive Termination" shall mean, without Executive's express written consent: (i) the Company materially reduces the nature, scope, level or extent of Executive's responsibilities from the nature, scope, level or extent of such responsibilities as of the effectiveness of this Agreement, or fails to provide Executive with adequate office facilities and support services to perform such responsibilities; (ii) the Company requires Executive to relocate the Executive's principal business office or his principal place of residence outside the Geographical Employment Area, or assigns to the Executive duties that would reasonably require such relocation; or (iii) the Company requires Executive, or assigns duties to Executive that would reasonably require Executive, to spend more than one hundred (100) normal working days away from the Geographical Employment Area during any consecutive twelve-month period. 5. Confidential Information. Executive acknowledges that the information, observations and data obtained by him while employed by the Company and its subsidiaries concerning the business or affairs of the Company or any of its subsidiaries ("Confidential Information") are the 3 4 property of the Company or such subsidiary. Therefore, Executive agrees that he shall not disclose to any unauthorized person or use for his own purposes any Confidential Information without the prior written consent of the Board, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of the Executive's acts or omissions. Executive shall deliver to the Company at the termination of the Employment Period, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product (as defined below) or the business of the Company or any subsidiary which he may then possess or have under his control. 6. Inventions and Patents. Executive acknowledges that all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports and all similar or related information (whether or not patentable) which related to the Company's or any of its subsidiaries' actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by Executive while employed by the Company and its subsidiaries ("Work Product") belong to the Company or such subsidiary. 7. Non-Compete, Non-Solicitation. (a) In further consideration of the compensation to be paid to Executive hereunder, Executive acknowledges that in the course of his employment with the Company he shall become familiar with the Company's trade secrets and with other Confidential Information concerning the Company and its subsidiaries and that his services shall be of special, unique and extraordinary value to the Company and its subsidiaries. Therefore, Executive agrees that, during the Employment Period and for twelve (12) months thereafter (the "Noncompete Period"), he shall not directly or indirectly own any interest in, manage, control, participate in, consult with, render services for, or in any manner engage in any business competing with the business of the Company or any of its subsidiaries, as such businesses exist or are in process at any time during the period beginning on the date hereof and ending on the date of the termination of Executive's employment, within any geographical area in which the Company or its subsidiaries engage in such businesses. The foregoing shall not prohibit Executive from owning directly or indirectly capital stock or similar securities that are listed on a securities exchange or quoted on the National Association of Securities Dealers Automated Quotation System which do not represent more than two percent (2%) of the outstanding capital stock of any business competing with the business of the Company. (b) During the Noncompete Period, Executive shall not directly or indirectly through another entity (i) induce or attempt to induce any employee of the Company or of any of its subsidiaries to leave the employ of the Company or any such subsidiary, or in any way interfere with the relationship between the Company or any of its subsidiaries and any employee thereof, (ii) hire any person who was an employee of the Company or any of its subsidiaries during the Employment Period, (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee or other business relation of the Company or any of its subsidiaries to cease doing business with the Company or any such subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any such subsidiary. 4 5 (c) If, at the time of enforcement of this paragraph 7, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. Executive agrees that the restrictions contained in paragraph 7 are reasonable. (d) In the event of the breach or threatened breach by Executive of any of the provisions of this paragraph 7, the Company, in addition and supplementary to other rights and remedies existing in its favor, may apply to the court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof. 8. Effectiveness. Notwithstanding anything to the contrary contained herein, this letter agreement shall be effective only upon the closing (the "Closing") of the transactions (the "Recapitalization") contemplated by the Recapitalization Agreement dated as of December 21, 1997 by and among Micron Electronics, Inc. ("MEI"), the Company and Cornerstone Equity Investors IV, L.P. Upon the effectiveness of this letter agreement all prior agreements relating to Executive's employment with the Company and/or its subsidiaries and/or any of their respective affiliates (including MEI) shall be deemed terminated and of no further force and effect. 9. Choice of Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this letter agreement shall be governed by, and construed in accordance with, the laws of the State of Idaho, without giving effect to any choice of law or conflict of law rules or provisions that could cause the applications of the laws of any jurisdiction other than the State of Idaho. 10. Mitigation and Set-Off. Executive shall not be required to mitigate Executive's damages by seeking other employment or otherwise. The Company's obligations under this letter agreement shall not be reduced in any way by reason of any compensation or benefits received (or foregone) by Executive from sources other than the Company after the termination of the Employment Period or any amounts that might have been received by Executive in other employment had Executive sought such other employment. Executive's entitlement to benefits and coverage under this letter agreement shall continue after, and shall not be affected by, Executive's obtaining other employment after the termination of the Employment Period, provided that any such benefit or coverage shall not be furnished if Executive expressly waives the specific benefit or coverage by giving written notice of waiver to the Company. 11. Litigation Expenses. The Company shall pay to Executive all out-of-pocket expenses, including attorney's fees, incurred by Executive in the event Executive successfully enforces any provision of this letter agreement in any action, arbitration or lawsuit. 12. Indemnification. The Company will indemnify and hold harmless Executive from and against any and all costs, liability and expenses from any claim by any person with respect to, or in 5 6 any way related to, Executive's employment with the Company as contemplated by this letter agreement (including reasonable attorney's fees) (collectively, "Claims") resulting from any act or omission of Executive that relate to Executive's employment with the Company, to the maximum extent permitted by law other than for Claims which shall be proven to be the result of gross negligence, bad faith or willful misconduct by Executive. Notwithstanding this Agreement or any termination of his employment by the Company pursuant to this Agreement or otherwise, the Executive shall be entitled to coverage under the directors' and officers' liability coverage maintained by the Company, as in effect from time to time, to the same extent as other officers and directors of the Company. 13. Amendment or Termination. This Agreement may be amended at any time by written agreement between the Company and Executive. 14. Counterparts. This Agreement may be executed in one or more counterparts, all of which together shall constitute but one Agreement. 15. No Waiver. No failure or delay on the part of the Company or Executive in enforcing or exercising any right or remedy hereunder shall operate as a waiver thereof. * * * * * * 6 7 IN WITNESS WHEREOF, the parties hereto have executed this letter agreement as of the date first written above. MICRON CUSTOM MANUFACTURING SERVICES, INC. /s/ Robert F. Subia -------------------------------- Name: Robert F. Subia Title: President & CEO /s/ John McCarvel -------------------------------- John McCarvel 7 EX-10.11 20 SHAREHOLDERS AGREEMENT 1 Exhibit 10.11 EXECUTION COPY SHAREHOLDERS AGREEMENT This SHAREHOLDERS AGREEMENT is dated as of February 26, 1998, by and among MCMS, Inc., an Idaho corporation and f/k/a Micron Custom Manufacturing Services, Inc. (the "Company"); Cornerstone Equity Investors IV, L.P. ("Cornerstone"); MEI California, Inc. ("MEIC"); Randolph Street Partners II ("Randolph"); BT Investment Partners, Inc. ("BT"); and the other investors listed in Appendix A hereto (the "Co-Investors"). As of the date hereof, Cornerstone, MEIC, Randolph, BT and the Other Investors each own a number of shares of the Company's Common Stock and Convertible Preferred Stock. The Company and the Stockholders (as defined below) desire to enter into this Agreement for the purposes, among others, of (i) establishing the composition of the Board (as defined below), (ii) assuring continuity in the management and ownership of the Company and (iii) limiting the manner and terms by which the Stockholder Shares (as defined below) may be transferred. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Definitions. As used herein, the following terms shall have the following meanings: "Affiliate" means, when used with reference to a specified Person, any Person that directly or indirectly controls or is controlled by or is under common control with the specified Person. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise). With respect to any Person who is an individual, "Affiliates" shall also include, without limitation, any member of such individual's Family Group. "Board" means the Company's board of directors. "BT Investor" means any of BT or any of its Permitted Transferees. "BT Shares" means all Stockholder Shares issued or issuable to any BT Investor. "Class A Common" means the Company's Class A Common Stock, par value $.001 per share. 2 "Class B Common" means the Company's Class B Common Stock, par value $.001 per share. "Class C Common" means the Company's Class C Common Stock, par value $.001 per share. "Common Stock" means collectively Class A Common, Class B Common, Class C Common and any other common stock authorized by the Company. "Convertible Preferred Stock" means collectively Series A Convertible Preferred, Series B Convertible Preferred and Series C Convertible Preferred. "Cornerstone Investor" means any of Cornerstone or any of its Permitted Transferees. "Cornerstone Shares" means all Stockholder Shares issued or issuable to any Cornerstone Investor. "Family Group" means, with respect to any Person who is an individual, (i) such Person's spouse, former spouse, ancestors and descendants (whether natural or adopted), parents and their descendants and any spouse of the foregoing persons (collectively, "relatives") or (ii) the trustee, fiduciary or personal representative of such Person and any trust solely for the benefit of such Person and/or such Person's relatives. "Investor" means any of the Investors. "Investors" means collectively the Cornerstone Investors, the BT Investors, the Randolph Investors and the Other Investors. "Investor Shares" means all Stockholder Shares issued or issuable to any Investor. "MEIC Holder" means any of MEIC or any of its Permitted Transferees. "MEIC Shares" means all Stockholder Shares issued or issuable to any MEIC Holder. "Other Investors" means any of the Co-Investors or any of its Permitted Transferees. "Other Investor Shares" means all Stockholder Shares issued or issuable to any Other Investor. "Permitted Transferee" has the meaning set forth in Section 4(d)(ii) hereof. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a governmental entity or any department, agency or political subdivision thereof or any other entity or organization. "Public Offering" means an underwritten public offering and sale of the Common Stock pursuant to an effective registration statement under the Securities Act; provided that a Public - 2 - 3 Offering shall not include an offering made in connection with a business acquisition or combination pursuant to a registration statement on Form S-4 or any similar form, or an employee benefit plan pursuant to a registration statement on Form S-8 or any similar form. "Public Sale" means any sale of Stockholder Shares to the public pursuant to an offering registered under the Securities Act or to the public pursuant to the provisions of Rule 144 (or any similar rule or rules then in effect) under the Securities Act. "Qualified Public Offering" means any offering by the Corporation of its common equity securities to the public pursuant to an effective registration statement under the Securities Act of 1933, as then in effect, or any comparable statement under any similar federal statute then in force pursuant to which the public offering price per share of which is not less than $14.00 (adjusted to reflect stock dividends, stock splits or recapitalizations) after the date hereof and results in aggregate cash proceeds to the Corporation of at least $30,000,000 (before deduction of underwriting discounts and expenses). "Randolph Investor" means any of Randolph or any of its Permitted Transferees. "Randolph Shares" means all Stockholder Shares issued or issuable to any Randolph Investor. "Regulatory Problem" shall mean, with respect to any holder of Stockholder Shares, any set of facts, events or circumstances the existence of which would cause such holder of Stockholder Shares to believe that there is a substantial risk of assertion by a governmental entity (which belief shall be reasonable in light of the prevailing regulatory environment) that such holder of Stockholder Shares is or would be in violation of any law, regulation, rule or other requirement of any governmental authority (including without limitation, the Bank Holding Company Act of 1956, as amended and the rules and regulations promulgated thereunder). "Regulated Stockholder" shall mean any stockholder (i) that is subject to the provisions of the Bank Holding Company Act and (ii) that holds shares of Stockholder Shares of the Company. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Series A Convertible Preferred" means the Company's Series A Convertible Preferred Stock, par value $.001 per share. "Series B Convertible Preferred" means the Company's Series B Convertible Preferred Stock, par value $.001 per share. "Series C Convertible Preferred" means the Company's Series C Convertible Preferred Stock, par value $.001 per share. - 3 - 4 "Stockholder Shares" means (i) all shares of Common Stock held, directly or indirectly, by the Stockholders, (ii) all shares of Convertible Preferred Stock held, directly or indirectly, by the Stockholders, and (iii) all equity securities issued or issuable directly or indirectly with respect to any Common Stock referred to in clause (i) above or with respect to any Convertible Preferred Stock referred to in clause (ii) above, in each case, by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular shares constituting Stockholder Shares, such shares will cease to be Stockholder Shares when they have been Transferred in a Public Sale. "Stockholders" means collectively the Investors and the MEIC Holders. "Subsidiary" means, with respect to any Person, any corporation, partnership, limited liability company, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, limited liability company, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a partnership, limited liability company, association or other business entity if such Person or Persons shall be allocated a majority of partnership, limited liability company, association or other business entity gains or losses or shall be or control the managing director, managing member, manager or a general partner of such partnership, limited liability company, association or other business entity. "Transfer" means any voluntary or involuntary, direct or indirect sale, transfer, conveyance, assignment, pledge, hypothecation, gift, delivery or other disposition. Notwithstanding the foregoing, the conversion by any Stockholder of any shares of any class of Common Stock or Convertible Preferred Stock into any other class of Common Stock or Convertible Preferred Stock shall not be deemed a "Transfer" for purposes of this Agreement, provided that such Stockholder continues to own such converted shares immediately after such conversion. "Unaffiliated Third Party" means any Person who, immediately prior to the contemplated transaction, (i) is not a Person who directly or indirectly owns in excess of 5% of the outstanding shares of Common Stock on a fully-diluted basis (a "5% Owner"), (ii) is not controlling, controlled by or under common control with any such 5% Owner and (iii) is not the spouse or descendent (by birth or adoption) of any such 5% Owner or a trust for the benefit of such 5% Owner and/or such other Persons. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to significantly direct management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise). - 4 - 5 2. Board of Directors. (a) To the extent permitted by law, each Stockholder shall vote all voting securities of the Company over which such Stockholder has voting control, and shall take all other reasonably necessary or desirable actions within such Stockholder's control (whether in such Stockholder's capacity as a stockholder, director, member of a board committee or officer of the Company or otherwise, and including, without limitation, attendance at meetings in person or by proxy for purposes of obtaining a quorum and execution of written consents in lieu of meetings), and the Company shall take all necessary and desirable actions within its control (including, without limitation, calling special board and shareholder meetings), so that: (i) the authorized number of directors of the Board shall be seven; (ii) holders of record of a majority of the Cornerstone Shares entitled to vote for directors of the Board will designate three of the seven total directors of the Board (each a "Cornerstone Director") (the three Cornerstone Directors shall initially be John A. Downer, Michael E. Najjar and Mark Rossi); (iii) any director designated pursuant to clause (ii) above shall be removed from the Board or any committee thereof (with or without cause) at the written request of the Stockholder or Stockholders which have the right to designate such director hereunder, but only upon such written request and under no other circumstances (in each case, determined on the basis specified in clause (ii) above); (iv) in the event that any director designated hereunder for any reason ceases to serve as a member of the Board or any committee thereof during such director's term of office, the resulting vacancy on the Board or committee shall be filled by a director designated by the Stockholders referred to in clause (ii) above; and (v) at the Board's election, the composition of the board of directors (or any similar governing body) of any of the Company's Subsidiaries shall be the same as the Board; and (vi) the Stockholders will agree to expand the size of the Board to the extent necessary to fulfill the Company's obligations to any holder of its preferred stock under the Company's certificate of incorporation. (b) BT Observer. Prior to the consummation of a Qualified Public Offering, so long as BT and its Affiliates (and not any of their respective assigns) own at least 5% of the outstanding shares of Common Stock, BT and its Affiliates who own Stockholder Shares (and not any of their respective assigns) shall appoint a representative, which representative must be reasonably acceptable to Cornerstone (the "BT Observer") (the initial BT Observer shall be Cathy Madigan). BT and its Affiliates who own Stockholder Shares (and not any of their respective assigns) may remove any such representative or appoint a new representative if a vacancy in such position occurs for any reason by delivery of a written notice to the Secretary of the Company; provided that any such new representative must be reasonably acceptable to Cornerstone. The Company or the applicable members of the Board will give the BT Observer oral or written notice - 5 - 6 of each meeting of the Board (whether annual or special) at the same time and in the same manner as oral or written notice is given to the applicable members of the Board (which notice may be waived by the BT Observer). Notwithstanding the foregoing, if the BT Observer attends (or, in the case of a telephonic meeting, listens by telephone to) any such meeting of the Board, then the BT Observer shall be deemed to have had proper notice of such meeting. Notwithstanding anything contained herein to the contrary, the failure of the BT Observer to be given notice of a meeting of the Board pursuant to the immediately preceding sentence or to attend such meeting shall not in any way affect the authority of the Board to have or to adopt resolutions at such meeting or the legitimacy of any actions taken by the Board at such meeting. Subject to the foregoing, the Company will permit the BT Observer to attend (or, in the case of a telephonic meeting, to listen by telephone to) each meeting of the Board as a non-voting observer. The Company shall provide the BT Observer all written materials and other information (including copies of meeting minutes) given to the members of the Board in connection with any such meeting at the same time as such information is delivered to the members of the Board and, if the BT Observer does not attend (or, in the case of a telephonic meeting, does not listen by telephone to) a meeting of the Board, the BT Observer will be entitled, upon request, to receive a written or oral summary of the meeting from the Secretary of the Company. If the Company takes any action by written consent in lieu of a meeting of the Board, then the Company shall give prompt written notice of such action to the BT Observer. (c) The Company shall reimburse the directors of the Board for all reasonable out-of-pocket expenses borne by such directors in connection with the performance of their duties as directors of the Company and the BT Observer in connection with attendance in any meeting of the Board. (d) If any party fails to designate in writing a representative to fill a director position pursuant to the terms of this Section 2, the election of a Person to such director position shall be accomplished in accordance with the Company's Articles of Incorporation and by-laws and applicable law. In the event that, at any time, any provision of the Company's Articles of Incorporation or by-laws is inconsistent with the requirements of any provision of this Section 2, the Stockholders shall take such action as may be necessary to amend any such provision in the Company's Articles of Incorporation or by-laws, as the case may be, to conform with such requirements. 3. Conflicting Agreements. Each Stockholder represents that such Stockholder has not granted and is not a party to any proxy, voting trust or other agreement which is inconsistent with or conflicts with the provisions of this Agreement, and no holder of Stockholder Shares shall grant any proxy or become party to any voting trust or other agreement which is inconsistent with or conflicts with the provisions of this Agreement. 4. Restrictions on Transfer of Stockholder Shares. (a) General Restrictions. (i) Prior to the earlier of (x) the second anniversary of the date hereof and (y) the first day after the period commencing on the date hereof and ending on the day the Company's financial statements are filed with the SEC for the first full fiscal quarter after - 6 - 7 the Company consummates an initial Public Offering, subject to Section 7 hereof, an MEIC Holder may Transfer Stockholder Shares only (A) if such MEIC Holder is exercising a tag-along right granted to such MEIC Holder pursuant to Section 4(c), then to any Person, provided, that such Person shall have complied with the requirements of Section 4(d)(ii), or (B) pursuant to the terms of Section 5. (ii) On or after the earlier of (x) the second anniversary of the date hereof and (y) the first day after the period commencing on the date hereof and ending on the day the Company's financial statements are filed with the SEC for the first full fiscal quarter after the Company consummates an initial Public Offering, subject to Section 7 hereof, an MEIC Holder may Transfer Stockholder Shares only (A) in Public Sales, (B) if such MEIC Holder has complied with the terms and requirements of Section 4(b) or if such MEIC Holder is exercising a tag-along right granted to such MEIC Holder pursuant to Section 4(c), then to any Person, provided, that such Person shall have complied with the requirements of Section 4(d)(ii), or (C) pursuant to the terms of Section 5. (iii) Subject to Section 7 hereof, an Investor may Transfer Stockholder Shares only (A) in Public Sales, (B) if such Investor has complied with the terms and requirements of Sections 4(b) and 4(c), to the extent applicable, or if such Investor is exercising a tag-along right granted to such Investor pursuant to Section 4(c), then to any Person, provided, that such Person shall have complied with the requirements of Section 4(d)(ii), or (C) pursuant to the terms of Section 5. (iv) Notwithstanding any other provision of this Agreement to the contrary, in the event that a Regulated Stockholder shall reasonably and in good faith determine that if such Regulated Stockholder shall continue to hold some or all of the Stockholder Shares held by such Regulated Stockholder, there is a material risk that such ownership will result in a Regulatory Problem and such Regulatory Problem cannot be remedied by converting such Stockholder Shares into another class of Stockholder Shares, then, subject to Section 7 hereof, such Regulated Stockholder, may Transfer all Stockholder Shares necessary to prevent such Regulatory Problem to any Person without complying with the terms and requirements of Sections 4(b) and 4(c); provided, that (w) such Regulated Stockholder shall have delivered a written notice to the Company describing in reasonable detail the nature of the Regulatory Problem, the amount, type and class of Stockholder Shares to be Transferred and the identity of such Person, (x) such Person is not a direct competitor of the Company or any of its Subsidiaries, (y) such Person is reasonably acceptable to Cornerstone and the Board, and (z) such Person shall have complied with the requirements of Section 4(d)(ii). Without limiting the foregoing, at the request of such Regulated Stockholder, the Company shall provide (and authorize such Regulated Stockholder, to provide) financial and other information concerning the Company to any prospective purchaser of such securities owned by such Regulated Stockholder. The Company shall not be required to provide any such information unless the recipient thereof signs a confidentiality agreement reasonably satisfactory to the Company. (b) Right of First Refusal granted to the Company and the Cornerstone Investors. Subject to Section 4(d)(i) (all terms defined in this Section 4(b) shall be for purposes of this Section 4(b) only): - 7 - 8 (i) If at any time any MEIC Holder, any Randolph Investor, any BT Investor or any Other Investors (a "Selling Holder") proposes to Transfer any Stockholder Shares (other than pursuant to a Public Sale, pursuant to the terms of Section 5, or if such Selling Holder is exercising a tag-along right granted to such Selling Holder pursuant to Section 4(c)), then such Selling Holder will, not fewer than twenty-five (25) business days prior to making such Transfer, give notice (the "Transfer Notice") to the Cornerstone Investors and to the Company specifying (x) the Stockholder Shares proposed to be Transferred (the "Offered Shares"), (y) the price (the "Offered Price") and the other terms and conditions upon which such Selling Holder proposes to Transfer such Offered Shares, and (z) the proposed Transferee(s). Notwithstanding the foregoing, each potential Selling Holder agrees to use its best efforts to notify the Cornerstone Investors and the Company within a reasonable time of the occurrence of any discussions with any potential proposed Transferee which have a reasonable likelihood of giving rise to such potential Selling Holder having an obligation to deliver a Transfer Notice pursuant to this Section 4(b). (ii) The Transfer Notice will constitute an irrevocable offer (for the time periods set forth in items (iii) and (iv) below) to Transfer any of the Offered Shares to the Company and the Cornerstone Investors at the Offered Price and on the terms specified in the Transfer Notice (the "Offer to Sell"), except that if the proposed Transfer is to be wholly or partly for consideration other than cash, then the Offer to Sell will constitute an offer to Transfer the Offered Shares to the Company and the Cornerstone Investors for a cash purchase price equal to the amount of cash (if any) specified in the Transfer Notice, plus the fair market value determined in the good faith judgement of the Board, at the date of the Transfer Notice, of such non-cash consideration. (iii) The Company will have fifteen (15) business days after its receipt of the Transfer Notice (the "Company Exercise Period") during which to notify the Selling Holder and the Cornerstone Investors in writing of its election to purchase all or any portion of the Offered Shares (an "Acceptance Notice"). (iv) If the Company has not elected to purchase all of the Offered Shares, each Cornerstone Investor will have twenty (20) business days after its receipt of the Transfer Notice (the "Cornerstone Exercise Period") during which to notify the Selling Holder and the Company in writing of its election to purchase all but not less than all of the Offered Shares which the Company has not elected to purchase (such shares, the "Cornerstone Offered Shares") (such written notice, also an "Acceptance Notice"). Any Cornerstone Investor who delivers an Acceptance Notice shall be referred to herein as a "Purchasing Cornerstone Investor". If the Purchasing Cornerstone Investors elect to purchase in the aggregate more than the Cornerstone Offered Shares, then the Cornerstone Offered Shares shall be sold among the Purchasing Cornerstone Investors pro rata based upon the number of Stockholder Shares then owned by such Purchasing Cornerstone Investors or in such other manner as the Purchasing Cornerstone Investors may agree. (v) Upon the delivery of the Acceptance Notice(s), the Company and/or the Purchasing Cornerstone Investor(s), as the case may be, and the Selling Holder shall be firmly bound to consummate the purchase and sale of the applicable Offered Shares in accordance with the Transfer Notice, the Acceptance Notice(s) and the terms hereof. Subject - 8 - 9 to the provisions hereof, within ninety (90) days after the Selling Holder's receipt of the last Acceptance Notice, the Company and/or the Purchasing Cornerstone Investor(s), as the case may be, shall purchase and the Selling Holder shall sell the applicable Offered Shares at a mutually agreeable time and place (the "Offered Shares Closing"). (vi) At the Offered Shares Closing, the Selling Holder shall deliver to the Company and/or the Purchasing Cornerstone Investor(s), as the case may be, certificates representing the Offered Shares (which Offered Shares shall be free and clear of any liens or encumbrances) to be purchased by the Company and/or the Purchasing Cornerstone Investor(s), as the case may be, and the Company and/or the Purchasing Cornerstone Investor(s), as the case may be, shall deliver to the Selling Holder the applicable purchase price for such Offered Shares by wire transfer of immediately available funds to an account(s) designated by such Selling Holder. (vii) If the Company and the Cornerstone Investors collectively do not elect to purchase any or all of the Offered Shares in accordance with Section 4(b)(iii) and 4(b)(iv), then, provided the Selling Holder has also complied with the provisions of Section 4(c), if applicable, and no Transferee is an Affiliate of the Selling Holder, the Selling Holder may Transfer any or all of such Offered Shares (unless reduced pursuant to the exercise of rights granted to other Stockholders in Section 4(c)), at a price which is not less than the price specified in the Transfer Notice and on other terms and conditions which are not materially more favorable in the aggregate to any Transferee thereof than those specified in the Transfer Notice, to any Person(s), but only to the extent that a binding purchase and sale agreement has been executed between such Selling Holder and such Transferee within 120 days after expiration of the Cornerstone Exercise Period. Any Stockholder Shares not Transferred pursuant to such an agreement within such 120-day period will be subject to the provisions of this Section 4(b) upon subsequent Transfer. (viii) The provisions of this Section 4(b) shall terminate upon the consummation of a Qualified Public Offering; provided, that with respect to any MEIC Holder, the provisions of this Section 4(b) shall terminate upon the consummation of an initial Public Offering. (c) Tag Along Rights. (i) Tag Along Rights in the event of certain Transfers by the Cornerstone Investors. Subject to Section 4(d)(i), at least 10 business days prior to the Transfer by any of the Cornerstone Investors (collectively, the "Cornerstone Transferring Stockholder") of any Cornerstone Shares to a Person that is not an Affiliate of any Cornerstone Investor (other than pursuant to a Public Sale, or pursuant to the terms of Section 5), the Cornerstone Transferring Stockholder shall deliver a written notice (the "Cornerstone Sale Notice") to the BT Investors, the Randolph Investors and the Other Investors (collectively, the "Tagging Investors") and to the Company, specifying in reasonable detail the identity of the prospective transferee(s), the class and the number of the Stockholder Shares to be Transferred, and the other material terms and conditions of such contemplated Transfer. Any of the Tagging Investors may elect to participate in such contemplated Transfer by delivering written notice to the Cornerstone Transferring Stockholder within 5 business days - 9 - 10 after its receipt of the Cornerstone Sale Notice. If any of the Tagging Investors elects to participate in such Transfer, each of the Tagging Investors shall be entitled to sell in such contemplated Transfer, at the same price and on the same terms, up to a number of each class of Stockholder Shares to be Transferred equal to the product of (I) a fraction, the numerator of which is the number of Stockholder Shares to be sold by the Cornerstone Transferring Stockholder (after giving effect to any reduction in the number of Stockholder Shares to be sold by such Cornerstone Transferring Stockholder as a result of the inclusion of such Stockholder Shares owned by such Other Investors) and the denominator of which is the aggregate number of Stockholder Shares owned by the Cornerstone Transferring Stockholder immediately prior to such Transfer, multiplied by (II) the total number of Stockholder Shares owned by such Other Investor immediately prior to such Transfer. Each Stockholder Transferring Stockholder Shares pursuant to this Section 4(c)(i) shall pay its pro rata share (based on the number of Stockholder Shares to be sold) of the expenses incurred by the Stockholders in connection with such Transfer and shall take all necessary and desirable actions as reasonably directed by the Cornerstone Transferring Stockholder in connection with the consummation of such Transfer, including without limitation executing the applicable purchase agreement. The Cornerstone Transferring Stockholder shall cause all applicable transferee(s) to execute a joinder to this Agreement with respect to all Stockholder Shares Transferred pursuant to this Section 4(c)(i). Any Transfer made by a Cornerstone Transferring Stockholder pursuant to this Section 4(c)(i) or pursuant to Section 4(c)(ii) shall satisfy the following conditions, (i) upon the consummation of such Transfer, each Stockholder participating in such Transfer will be entitled to receive (x) the same form and amount (on a share-for-share basis) of consideration, with respect to each share of Common Stock sold in such Transfer and (y) the same form and amount (on a share-for share basis) of consideration, with respect to each shares of Convertible Preferred Stock in such Transfer and (ii) if any holder of a Common Stock or Convertible Preferred Stock is given the option as to the form and amount of consideration to be received in connection with such Transfer (other than to remedy a Regulatory Problem for such holder), then each holder of Common Stock or Convertible Preferred Stock, as the case may be, shall have given the same option. In connection with any Transfer made pursuant to this Section 4(c) each Other Investor shall be entitled to receive, and the Company and/or the Cornerstone Transferring Stockholder shall deliver all information relating to the Company and its Subsidiaries as such Other Investor shall reasonably request. The Cornerstone Transferring Stockholder shall deliver to each Other Investor a copy of the acquisition agreement (and related documents) relating to any Transfer subject to this Section 4(c) in a reasonably timely manner to allow for adequate review by each of the Other Investors and shall include in the disclosure schedules attached thereto any information reasonably requested to be included therein by such Other Investor. The right of the BT Investors to participate in a Transfer pursuant to this Section 4(c) shall not be contingent upon such BT Investor providing any indemnity in connection with any such Transfer, unless the Cornerstone Transferring Stockholder and all other sellers provide such an indemnity, and in the event that all sellers are required to provide an indemnity in connection with such Transfer, all parties hereto agree to enter into a contribution agreement among themselves which provides that no Investor shall be liable for more than the lesser of (A) its pro rata shares of any such indemnification payments (based upon the total consideration received by such Investor divided by the total consideration received by all sellers in such Transfer) and (B) the net - 10 - 11 proceeds actually received by such Investor as consideration for its shares of Common Stock in such Transfer. (ii) Tag Along Rights granted to MEIC. Subject to Section 4(d)(i), at least 10 business days prior to any Transfer after the date six months after the date hereof by any of the Investors (the "Transferring Stockholder") of any voting Stockholder Shares to a Person that is not an Affiliate of any Transferring Stockholder, and is not a Stockholder or the Company (other than pursuant to a Public Sale, pursuant to the terms of Section 5, a Transfer to the Company or any Cornerstone Investor pursuant to the terms of Section 4(b), or if such Transferring Stockholder is exercising a tag-along right granted to such Transferring Stockholder pursuant to this Section 4(c)), the Transferring Stockholder shall deliver a written notice (the "Sale Notice") to MEIC or any of its Affiliates (and not any of their respective assigns) and to the Company, specifying in reasonable detail the identity of the prospective transferee(s), the class and the number of the voting Stockholder Shares to be Transferred, and the other material terms and conditions of such contemplated Transfer. MEIC or any of its Affiliates (and not any of their respective assigns) may elect to participate in such contemplated Transfer by delivering written notice to the Transferring Stockholder within 7 business days after its receipt of the Sale Notice. If MEIC or any of its Affiliates (and not any of their respective assigns) elects to participate in such Transfer, MEIC or any of its Affiliates (and not any of their respective assigns) shall be entitled to sell in such contemplated Transfer, at the same price and on the same terms, a number of each class of voting Stockholder Shares to be Transferred equal to the product of (x) the quotient determined by dividing the percentage of such class of Stockholder Shares owned by MEIC or any of its Affiliates (and not any of their respective assigns) (calculated on a fully diluted basis) by the aggregate percentage of such class of Stockholder Shares owned collectively by the Stockholders (calculated on a fully diluted basis) and (y) the aggregate number of voting Stockholder Shares of such class to be sold in such contemplated Transfer. If MEIC or any of its Affiliates (and not any of their respective assigns) does not elect to participate in such Transfer, then the Transferring Stockholder may Transfer any or all of the voting Stockholder Shares described in the applicable Sale Notice, at a price which is not more than the price specified in the applicable Sale Notice and on other terms and conditions which are not materially more favorable in the aggregate to the Transferring Stockholder than those specified in the applicable Sale Notice, to the prospective transferee(s) specified in the applicable Sale Notice, but only to the extent that a binding purchase and sale agreement has been executed between such Transferring Stockholder and any such prospective transferee(s) within 130 days after the Transferring Stockholder delivered the applicable Sale Notice to MEIC. Any Stockholder Shares not Transferred pursuant to such an agreement within such 130-day period will be subject to the provisions of this Section 4(c)(ii) upon subsequent Transfer. Each Stockholder Transferring voting Stockholder Shares pursuant to this Section 4(c)(ii) shall pay its pro rata share (based on the number of voting Stockholder Shares to be sold) of the expenses incurred by the Stockholders in connection with such Transfer and shall take all necessary and desirable actions as reasonably directed by the Transferring Stockholder in connection with the consummation of such Transfer, including without limitation executing any applicable purchase agreement. The Transferring Stockholder shall cause all applicable transferee(s) to execute a joinder to this Agreement with respect to all Stockholder Shares Transferred pursuant to this Section 4(c)(ii). - 11 - 12 (iii) For purposes of this Section 4(c), (a) Class A Common, Class B Common and Class C Common shall be deemed to be the same class of Stockholders Shares, (b) Series A Convertible Preferred, Series B Convertible Preferred and Series C Convertible Preferred shall be deemed to be the same class of Stockholder Shares, and (c) Convertible Preferred and Common Stock shall be deemed to be different classes of Stockholder Shares; provided, however, that, notwithstanding the foregoing, Class B Common and Series B Convertible Preferred shall not be deemed voting Stockholder Shares for purposes of subparagraph (ii) above. (iv) The provisions of Sections 4(c)(i) shall terminate upon the consummation of a Qualified Public Offering. The provisions of Section 4(c)(ii) shall terminate upon the earlier of (x) the consummation of an initial Public Offering and (y) the date MEIC or any of its Affiliates (and not any of their respective assigns) cease to own any Stockholder Shares. (d) Permitted Transfers. (i) The restrictions contained in Sections 4(a), 4(b) and 4(c) shall not apply with respect to any Transfer of Stockholder Shares by any Stockholder (A) in the case of an individual Stockholder, pursuant to applicable laws of descent and distribution or to any member of such Stockholder's Family Group, (B) in the case of a non-individual Stockholder, to its employees or Affiliates, (C) in the case of Cornerstone, to its partners in connection with a distribution by Cornerstone of Stockholder Shares held by Cornerstone; provided, in each case, that any such transferee shall have complied with the requirements of Section 4(d)(ii). (ii) Prior to any proposed transferee's acquisition of Stockholder Shares pursuant to a Transfer permitted by Section 4(a)(i)(A), 4(a)(ii)(B) or 4(a)(iii)(B) or Section 4(d)(i), such proposed transferee must agree to take such Stockholder Shares subject to and to be fully bound by the terms of this Agreement applicable to such Stockholder Shares by executing a joinder to this Agreement substantially in the form attached hereto as Exhibit A and delivering such executed joinder to the Secretary of the Company prior to the effectiveness of such Transfer (unless such Transfer is pursuant to applicable laws of descent and distribution, in which case, such executed joinder shall be delivered to the Secretary of the Company as soon as reasonably possible after such Transfer). All transferees acquiring Stockholder Shares and executing a joinder in compliance with this Section 4(d)(ii) are collectively referred to herein as "Permitted Transferees". (e) If (i) any event occurs pursuant to which Micron Electronics, Inc. ceases to directly or indirectly own the MEIC Shares, (ii) any Transfer of a majority interest in the residual equity securities of a Stockholder owning Stockholder Shares occurs other than a Transfer to an Affiliate of Micron Electronics, Inc., or (iii) any Stockholder Transfers Stockholder Shares to an Affiliate and an event occurs which causes such Affiliate to cease to be an Affiliate of such Stockholder, such event or Transfer shall be deemed a Transfer of Stockholder Shares subject to all of the restrictions on Transfers of Stockholder Shares set forth in this Agreement, including without limitation, this Section 4. - 12 - 13 5. Approved Sale. (a) If the holders of a majority of the shares of voting Stockholder Shares then outstanding, voting together as if a single class, (the "Approving Stockholders") approve a sale of all or substantially all of the Company's assets determined on a consolidated basis or a sale of all (or, for accounting, tax or other reasons, substantially all) of the Company's outstanding capital stock (other than capital stock which is not Common Stock or convertible into Common Stock) (whether by merger, recapitalization, consolidation, reorganization, combination or otherwise) to an Unaffiliated Third Party or group of Unaffiliated Third Parties (each such sale, an "Approved Sale"), then each holder of Stockholder Shares will vote for, consent to and raise no objections against such Approved Sale subject to the terms set forth below. In connection with any Stockholders exercising their rights under this Section 5(a), such Stockholders shall send a written notice at least ten (10) business days prior to any Approved Sale to all other Stockholders setting forth the principal terms of the proposed Approved Sale. If the Approved Sale is structured as (i) a merger or consolidation, each holder of Stockholder Shares will waive any dissenters' rights, appraisal rights or similar rights in connection with such merger or consolidation or (ii) a sale of stock, each holder of Stockholder Shares will agree to sell all of its Stockholder Shares and rights to acquire Stockholder Shares on the same terms and conditions as applicable to all of the Stockholder Shares held by the Approving Stockholders. Each holder of Stockholder Shares will take all reasonably necessary or desirable actions in connection with the consummation of the Approved Sale as reasonably requested by the Investors approving such Approved Sale including without limitation (but subject to Section 5(c)) executing any applicable purchase agreement. (b) Each Stockholder will bear their pro-rata share (based upon the number of shares sold) of the costs of any sale of Stockholder Shares pursuant to an Approved Sale to the extent such costs are incurred for the benefit of all holders of Stockholder Shares and are not otherwise paid by the Company or the acquiring party. Costs incurred by any Stockholder on their own behalf will not be considered costs of the transaction hereunder. (c) The obligations of the Stockholders with respect to any Approved Sale are subject to the satisfaction of the following conditions: (i) in connection with the consummation of such Approved Sale, each Stockholder will be entitled to receive (x) the same form and amount (on a share-for-share basis) of consideration, with respect to each share of Common Stock sold in such Approved Sale and (y) the same form and amount (on a share-for-share basis) of consideration, with respect to each share of Convertible Preferred Stock sold in such Approved Sale, (ii) if any holder of Common Stock or Convertible Preferred Stock is given the option as to the form and amount of consideration to be received in connection with such Approved Sale (other than to remedy a Regulatory Problem for such holder), then each holder of Common Stock or Convertible Preferred Stock, as the case may be, shall be given the same option, (iii) if Cornerstone or any Affiliate of Cornerstone owns directly or indirectly more than 5% of any class of capital stock of any of the Unaffiliated Third Parties, then such Approved Sale shall have been approved by at least five of the seven members of the Board (each such number to be reduced by any member of the Board who is not eligible to vote on such Approved Sale) and the Board shall have received a fairness opinion from a nationally recognized investment banking firm with respect to the terms of such Approved Sale. No holder of BT Shares shall be required to participate in an Approved Sale unless such holder receives consideration that does not cause a Regulatory Problem for such holder or any of its Affiliates, and (iv) no Investor shall be required to provide an indemnity in connection with any - 13 - 14 Approved Sale, unless all sellers in such Approved Sale provide such an indemnity, and in the event that all sellers are required to provide an indemnity in connection with the Approved Sale, all parties hereto agree to enter into a contribution agreement among themselves which provides that no Investor shall be liable for more than the less of (A) its pro rata share of such indemnification payments (based upon the total consideration received by such holder divided by the total consideration received by all seller sin such Approved Sale) and (B) the net proceeds actually received by such holder as consideration for its shares of proceeds actually received by such holder as a consideration for its shares of capital stock of the Company in such Approved Sale. In connection with any Approved Sale, each Investor shall be entitled to receive, and the Company shall deliver all information relating to the Company and its Subsidiaries as such Investor shall reasonably request. The Company shall deliver to each Investor a copy of the acquisition agreement (and related documents) relating to any Approved Sale in a reasonably timely manner to allow for adequate review by the Investors and shall include in the disclosure schedules attached thereto any information reasonably requested to be included therein by such Investor. Notwithstanding anything contained herein to the contrary, the term "consideration" as used in this subsection (c) shall not include any management, advisory, closing, legal or similar fees received by any Stockholder or any Affiliate of any Stockholder in connection with an Approved Sale. (d) The provisions of this Section 5 will terminate upon the occurrence of the earlier of (i) the consummation of a Qualified Public Offering and (ii) the date on which Cornerstone and its Affiliates no longer own at least 25% of the then outstanding shares of Common Stock. 6. Financial Statements and Access to Information. (a) Financial Statements. The Company shall deliver to each Stockholder who holds more than 5% of the then outstanding shares of Common Stock: (i) within 60 days after the end of each quarterly accounting period in each fiscal year of the Company, unaudited consolidated statements of income and cash flows of the Company and its Subsidiaries for such quarterly period and unaudited consolidated balance sheets of the Company and its Subsidiaries as of the end of such quarterly period. Such financial statements shall be prepared in accordance with generally accepted accounting principles, consistently applied, subject to the absence of footnote disclosures and to normal year-end adjustments; and (ii) within 120 days after the end of each fiscal year of the Company, audited consolidated statements of income and cash flows of the Company and its Subsidiaries for such fiscal year, and audited consolidated balance sheets of the Company and its Subsidiaries as of the end of such fiscal year. Such financial statement shall be prepared in accordance with generally accepted accounting principles, consistently applied. (b) Access to Information. The Company shall permit any Stockholder who holds more than 10% of the then outstanding shares of Common Stock and its representatives (including, without limitation, its legal counsel, accountants and governmental authorities to which it is subject), during normal business hours and such other times as any such holder may reasonably request, to (i) visit and inspect any of the properties of the Company and its Subsidiaries, (ii) examine the corporate and financial records of the Company and its Subsidiaries and make - 14 - 15 copies thereof or extracts therefrom and (iii) discuss the affairs, finances and accounts of any such entities with any of the executive officers of the Company. (c) Other Information. Prior to the consummation of a Qualified Public Offering, so long as any BT Investor owns at least 5% of the outstanding shares of Common Stock, the Company shall, with reasonable promptness, deliver to such BT Investor who own Stockholder Shares (and not any of their respective assigns) copies of any previously prepared financial data or other previously prepared written information concerning the Company and its Subsidiaries that such BT Investor (and not any of its assigns) may reasonably request. 7. Legend; Additional Restriction on Transfer. (a) Each certificate or instrument evidencing Stockholder Shares and each certificate or instrument issued in exchange for or upon the Transfer of any Stockholder Shares (if such securities remain Stockholder Shares (as defined herein) after such Transfer) shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO A SHAREHOLDERS AGREEMENT DATED AS OF FEBRUARY 26, 1998, AS MAY BE AMENDED FROM TIME TO TIME, BY AND AMONG THE ISSUER AND CERTAIN OF THE ISSUER'S STOCKHOLDERS. A COPY OF SUCH SHAREHOLDERS AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN REQUEST." The legend set forth above regarding the Shareholders Agreement shall be removed from the certificates evidencing any securities which cease to be Stockholder Shares. Upon the request of any holder of Stockholder Shares, the Company shall remove the Securities Act legend set forth above from the certificate or certificates for such Stockholder Shares; provided, that such Stockholder Shares are eligible for sale pursuant to Rule 144(k) (or any similar rule or rules then in effect) under the Securities Act. (b) Unless waived by the Company, no Stockholder may Transfer any Stockholder Shares (except pursuant to an effective registration statement under the Securities Act) without first delivering to the Company an opinion of counsel reasonably acceptable in form and substance to the Company (which counsel will be reasonably acceptable to the Company) that registration under the Securities Act is not required in connection with such Transfer. If such - 15 - 16 opinion of counsel reasonably acceptable in form and substance to the Company further states that no subsequent Transfer of such Stockholder Shares will require registration under the Securities Act, the Company will promptly upon such Transfer deliver new certificates for such securities which do not bear the Securities Act legend set forth in Section 7(a). 8. Transfers in Violation of Agreement. Any Transfer or attempted Transfer of any Stockholder Shares in violation of any provision of this Agreement shall be null and void, and the Company shall not record such Transfer on its books or treat any purported transferee of such Stockholder Shares as the owner of such securities for any purpose. 9. Preemptive Rights. (a) If at any time prior to the consummation of a Qualified Public Offering the Company wishes to issue any Common Stock or any options, warrants or other rights to acquire Common Stock or any notes or other securities convertible or exchangeable into Common Stock (all such Common Stock and other rights and securities, collectively, the "Equity Equivalents") to any Person or Persons, the Company shall promptly deliver a notice of intention to sell (the "Company's Notice of Intention to Sell") to each Investor setting forth a description and the number of the Equity Equivalents proposed to be issued and the proposed purchase price and terms of sale. Upon receipt of the Company's Notice of Intention to Sell, each Investor shall have the right to elect to purchase, at the price and on the terms stated in the Company's Notice of Intention to Sell, a number of the Equity Equivalents equal to the product of (i) such Investor's proportionate ownership of the outstanding shares of Common Stock (calculated on a fully-diluted basis assuming all holders of then outstanding warrants, options and convertible securities of the Company which are in the money had converted such convertible securities or exercised such warrants or options immediately prior to the taking of the record of the holders of Common Stock for the purpose of determining whether they are entitled to receive such offer) held by all Persons multiplied by (ii) the number of Equity Equivalents proposed to be issued (as described in the applicable Company's Notice of Intention to Sell). Such election shall be made by the electing Investor by written notice to the Company within fifteen (15) business days after receipt by such Investor of the Company's Notice of Intention to Sell (the "Acceptance Period"). In the event that any Equity Equivalents proposed to be issued at any time as contemplated by this Section 9 are either voting securities or securities which are convertible, exercisable or exchangeable for voting securities and for any reason one or more of the Investors determines in its sole discretion that it would be detrimental to such Investor or its Affiliates to purchase such Equity Equivalents as provided hereby, then the Company shall make available to any such Investor an amount of alternative securities equal to the amount of such Equity Equivalents as such Investor has elected to purchase pursuant to the terms hereof which are identical to such Equity Equivalents in all respects except for the fact that such alternate securities shall be non-voting securities or convertible, exercisable or otherwise exchangeable for non-voting securities (the "Alternative Securities") upon such terms and conditions as such Investor may request. (b) To the extent an effective election to purchase has not been received from an Investor pursuant to subsection (a) above in respect of the Equity Equivalents proposed to be issued pursuant to the applicable Company's Notice of Intention to Sell, the Company may, at its election, during a period of one hundred and twenty (120) days following the expiration of the applicable Acceptance Period, issue and sell the remaining Equity Equivalents to be issued and sold - 16 - 17 to any Person at a price and upon terms not more favorable to such Person than those stated in the applicable Company's Notice of Intention to Sell; provided, however, that failure by an Investor to exercise its option to purchase with respect to one issuance and sale of Equity Equivalents shall not affect its option to purchase Equity Equivalents in any subsequent offering, sale and purchase. In the event the Company has not sold any Equity Equivalents covered by a Company's Notice of Intention to Sell, or entered into a binding agreement to sell such Equity Equivalents, within such one hundred and twenty (120) day period, the Company shall not thereafter issue or sell such Equity Equivalents, without first offering such Equity Equivalents to each Investor in the manner provided in this Section 9. (c) If an Investor gives the Company notice, pursuant to the provisions of this Section 9, that such Investor desires to purchase any Equity Equivalents or Alternative Securities, payment therefor shall be by check or wire transfer of immediately available funds, against delivery of the securities (which securities shall be issued free and clear of any liens or encumbrances) at the executive offices of the Company at the closing dated fixed by the Company for the sale of all such Equity Equivalents. In the event that any proposed sale is for a consideration other than cash, such Investors may pay cash in lieu of all (but not part) of such other consideration, in the amount determined reasonably and in good faith by the Board to represent the fair value of such consideration other than cash. (d) The preemptive rights contained in this Section 9 shall not apply to (i) the issuance of shares or units of Equity Equivalents as a stock dividend or upon any subdivision, split or combination of the outstanding shares of Common Stock; (ii) the issuance of Equity Equivalents upon conversion, exchange or redemption of any outstanding convertible or exchangeable securities; (iii) the issuance of Equity Equivalents upon exercise of any outstanding options or warrants; or (iv) the issuance of Equity Equivalents to any employee or director of the Company or any of its subsidiaries. (e) The provisions of this Section 9 shall terminate upon the consummation of a Qualified Public Offering. 10. Amendment and Waiver. No modification, amendment or waiver of any provision of this Agreement shall be effective against the Company or the Stockholders unless such modification, amendment or waiver is approved in writing by, respectively, the Company or the holders of 75% of the Stockholder Shares; provided, that no amendment shall be effective without the consent of a Stockholder to the extent that such amendment would adversely affect the rights or obligations of such Stockholder hereunder in any material respect. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. Each Stockholder shall remain a party to this Agreement only so long as such person is the holder of record of Stockholder Shares. 11. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced - 17 - 18 in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 12. Entire Agreement. Except as otherwise expressly set forth herein, this document embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. 13. Termination. This Agreement will automatically terminate and be of no further force or effect immediately after the consummation of an Approved Sale. 14. Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and the Stockholders and any subsequent holders of Stockholder Shares and the respective successors, heirs and assigns of each of them, so long as they hold Stockholder Shares. 15. Counterparts. This Agreement may be executed in separate counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement. 16. Remedies. The parties hereto shall be entitled to enforce their rights under this Agreement specifically to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that the Company and any Stockholder may in his, hers, or its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief (without posting a bond or other security) in order to enforce or prevent any violation of the provisions of this Agreement. 17. Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when delivered if delivered personally, sent via a nationally recognized overnight courier, or sent via facsimile to the recipient, or if sent by certified or registered mail, return receipt requested, will be deemed to have been given two business days thereafter. Such notices, demands and other communications will be sent to the address indicated below: To the Company: MCMS, Inc. 16399 Franklin Road Nampa, Idaho 83687 Attention: President Telecopy No.: (208) 893-8711 - 18 - 19 With a copy, which shall not constitute notice, to: Cornerstone Equity Investors, LLC 717 Fifth Avenue, Suite 1100 New York, NY 10022 Attention: Tony Downer Michael E. Najjar Telecopy No.: (212) 826-6798 Kirkland & Ellis Citicorp Center 153 East 53rd Street New York, New York 10022 Attention: Frederick Tanne, Esq. Telecopy No.: (212) 446-4900 To MEIC: MEI California, Inc. c/o Micron Electronics, Inc. 900 East Karcher Road Nampa, Idaho 83687 Attention: General Counsel Telecopy No: (208) 898-7411 With a copy, which shall not constitute notice, to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Barry A. Bryer Telecopy No: (212) 403-2000 To Cornerstone: Cornerstone Equity Investors, LLC 717 Fifth Avenue, Suite 1100 New York, NY 10022 Attention: Tony Downer Michael E. Najjar Telecopy No.: (212) 826-6798 - 19 - 20 With a copy, which shall not constitute notice, to: Kirkland & Ellis Citicorp Center 153 East 53rd Street New York, New York 10022 Attention: Frederick Tanne, Esq. Telecopy No.: (212) 446-4900 To BT: BT Investment Partners, Inc. 130 Liberty Street New York, New York 10006 Attention: Joseph Wood Telecopy No.: (212) 250-8375 With a copy, which shall not constitute notice, to: White & Case LLP 1155 Avenue of the Americas New York, New York 10036 Attention: John M. Reiss Telecopy No.: (212) 354-8113 To Randolph: Kirkland & Ellis Citicorp Center 153 East 53rd Street New York, New York 10022 Attention: Frederick Tanne, Esq. Telecopy No.: (212) 446-4900 To Chris Anton: c/o MCMS, Inc. 16399 Franklin Road Nampa, Idaho 83687 Telecopy No.: (208) 898-2796 To Jess Asla: c/o MCMS, Inc. 16399 Franklin Road Nampa, Idaho 83687 Telecopy No.: (208) 898-2796 - 20 - 21 To John McCarvel: c/o MCMS, Inc. 16399 Franklin Road Nampa, Idaho 83687 Telecopy No.: (208) 898-2796 To Robert F. Subia: c/o MCMS, Inc. 16399 Franklin Road Nampa, Idaho 83687 Telecopy No.: (208) 898-2796 To R. Stephen Cheheyl: 130 Lane's End Concord, Massachussets 01742 Telecopy No.: (978) 369-4607 To Finis Connor: The Connor Group San Carlos and Fourth Street Unit No. 2 Carmel, CA 93921 Telecopy No.: (408) 625-8613 To Nicholas Keating: 2477 Jackson Street San Francisco, CA 94115 Telephone No.: (650) 771-2989 To Oak Investment Partners VII, Limited Partnership: Oak Investment Partners 525 University Avenue, Suite 1300 Palo Alto, CA 94301 Attention: Fredric W. Harman Telecopy No.: (650) 328-6345 - 21 - 22 To Oak VII Affiliate Fund, Limited Partnership: Oak Investment Partners 525 University Avenue, Suite 1300 Palo Alto, CA 94301 Attention: Fredric W. Harman Telecopy No.: (650) 328-6345 To Norman Nie: c/o Oak Investment Partners 525 University Avenue, Suite 1300 Palo Alto, CA 94301 Attention: Fredric W. Harman Telecopy No.: (650) 328-6345 To August Capital, L.P. for itself and as nominee for August Capital Strategic Partners, L.P. and August Capital Associates, L.P.: August Capital Management, L.L.C. 2480 Sandy Hill, Suite 101 Menlo Park, CA 94025 Attention: Mark G. Wilson Telecopy No.: (650) 234-9910 or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. 18. Governing Law. The corporate law of the State of Idaho will govern all questions concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity and interpretation of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. 19. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. * * * * * - 22 - 23 IN WITNESS WHEREOF, the parties hereto have executed this Shareholders Agreement as of the date first above written. MCMS, INC. By: /s/ Robert F. Subia ------------------------------------ Name: Robert F. Subia Title: President and CEO CORNERSTONE EQUITY INVESTORS IV, L.P. By: Cornerstone IV, L.L.C., as General Partner By: /s/ Michael E. Najjor ------------------------------------ Name: Michael E. Najjor Title: Managing Director MEI CALIFORNIA, INC. By: ------------------------------------ Name: Title: RANDOLPH STREET PARTNERS II By: ------------------------------------ A General Partner 24 IN WITNESS WHEREOF, the parties hereto have executed this Shareholders Agreement as of the date first above written. MCMS, INC. By: ------------------------------------ Name: Title: CORNERSTONE EQUITY INVESTORS IV, L.P. By: Cornerstone IV, L.L.C., as General Partner By: ------------------------------------ Name: Title: MEI CALIFORNIA, INC. By: /s/ T. Erik Oaas ------------------------------------ Name: T. Erik Oaas Title: Executive Vice-President RANDOLPH STREET PARTNERS II By: ------------------------------------ A General Partner 25 IN WITNESS WHEREOF, the parties hereto have executed this Shareholders Agreement as of the date first above written. MCMS, INC. By: ------------------------------------ Name: Title: CORNERSTONE EQUITY INVESTORS IV, L.P. By: Cornerstone IV, L.L.C., as General Partner By: ------------------------------------ Name: Title: MEI CALIFORNIA, INC. By: ------------------------------------ Name: Title: RANDOLPH STREET PARTNERS II By: /s/ [Illegible] ------------------------------------ A General Partner 26 CONTINUATION OF SIGNATURES FOR THIS SHAREHOLDERS AGREEMENT: BT INVESTMENT PARTNERS, INC. By: /s/ Joseph G. Wood ---------------------------------- Name: JOSEPH G. WOOD Title: M. D. CO-INVESTORS ------------------------------------ Chris Anton ------------------------------------ Jess Asla ------------------------------------ John McCarvel ------------------------------------ Robert F. Subia ------------------------------------ R. Stephen Cheheyl ------------------------------------ Finis Connor ------------------------------------ Nicholas Keating 27 CONTINUATION OF SIGNATURES FOR THIS SHAREHOLDERS AGREEMENT: BT INVESTMENT PARTNERS, INC. By: ---------------------------------- Name: Title: CO-INVESTORS /s/ Chris Anton ------------------------------------ Chris Anton ------------------------------------ Jess Asla ------------------------------------ John McCarvel ------------------------------------ Robert F. Subia ------------------------------------ R. Stephen Cheheyl ------------------------------------ Finis Connor ------------------------------------ Nicholas Keating 28 CONTINUATION OF SIGNATURES FOR THIS SHAREHOLDERS AGREEMENT: BT INVESTMENT PARTNERS, INC. By: ---------------------------------- Name: Title: CO-INVESTORS ------------------------------------ Chris Anton /s/ Jess Asla ------------------------------------ Jess Asla ------------------------------------ John McCarvel ------------------------------------ Robert F. Subia ------------------------------------ R. Stephen Cheheyl ------------------------------------ Finis Connor ------------------------------------ Nicholas Keating 29 CONTINUATION OF SIGNATURES FOR THIS SHAREHOLDERS AGREEMENT: BT INVESTMENT PARTNERS, INC. By: ---------------------------------- Name: Title: CO-INVESTORS ------------------------------------ Chris Anton ------------------------------------ Jess Asla /s/ John McCarvel ------------------------------------ John McCarvel ------------------------------------ Robert F. Subia ------------------------------------ R. Stephen Cheheyl ------------------------------------ Finis Connor ------------------------------------ Nicholas Keating 30 CONTINUATION OF SIGNATURES FOR THIS SHAREHOLDERS AGREEMENT: BT INVESTMENT PARTNERS, INC. By: ---------------------------------- Name: Title: CO-INVESTORS ------------------------------------ Chris Anton ------------------------------------ Jess Asla ------------------------------------ John McCarvel /s/ Robert F. Subia ------------------------------------ Robert F. Subia ------------------------------------ R. Stephen Cheheyl ------------------------------------ Finis Connor ------------------------------------ Nicholas Keating 31 CONTINUATION OF SIGNATURES FOR THIS SHAREHOLDERS AGREEMENT: BT INVESTMENT PARTNERS, INC. By: ---------------------------------- Name: Title: CO-INVESTORS ------------------------------------ Chris Anton ------------------------------------ Jess Asla ------------------------------------ John McCarvel ------------------------------------ Robert F. Subia /s/ R. Stephen Cheheyl ------------------------------------ R. Stephen Cheheyl ------------------------------------ Finis Connor ------------------------------------ Nicholas Keating 32 CONTINUATION OF SIGNATURES FOR THIS SHAREHOLDERS AGREEMENT: BT INVESTMENT PARTNERS, INC. By: ---------------------------------- Name: Title: CO-INVESTORS ------------------------------------ Chris Anton ------------------------------------ Jess Asla ------------------------------------ John McCarvel ------------------------------------ Robert F. Subia ------------------------------------ R. Stephen Cheheyl /s/ Finis Connor ------------------------------------ Finis Connor ------------------------------------ Nicholas Keating 33 CONTINUATION OF SIGNATURES FOR THIS SHAREHOLDERS AGREEMENT: BT INVESTMENT PARTNERS, INC. By: ---------------------------------- Name: Title: CO-INVESTORS ------------------------------------ Chris Anton ------------------------------------ Jess Asla ------------------------------------ John McCarvel ------------------------------------ Robert F. Subia ------------------------------------ R. Stephen Cheheyl ------------------------------------ Finis Connor /s/ Charles Nicholas Keating /s/ Carleen B. Keating ------------------------------------ Charles Nicholas Keating, Jr AND Carleen B. Keating, JT/WROS 34 OAK INVESTMENT PARTNERS VII, LIMITED PARTNERSHIP By: Oak Associates VII, LLC By: /s/ Fredric W. Harman --------------------------------------- Name: Fredric W. Harman Title: Managing Member OAK VII AFFILIATE FUND, LIMITED PARTNERSHIP By: Oak VII Affiliates, LLC By: /s/ Fredric W. Harman --------------------------------------- Name: Fredric W. Harman Title: Managing Member -------------------------------------------- Norman Nie AUGUST CAPITAL, L.P. for itself and as nominee for August Capital Strategic Partners, L.P. and August Capital Associates, L.P. By: August Capital Management, L.L.C., its general partner By: --------------------------------------- Name: Mark G. Wilson Title: Member 35 OAK INVESTMENT PARTNERS VII, LIMITED PARTNERSHIP By: Oak Associates VII, LLC By: --------------------------------------- Name: Fredric W. Harman Title: Managing Member OAK VII AFFILIATE FUND, LIMITED PARTNERSHIP By: Oak VII Affiliates, LLC By: --------------------------------------- Name: Fredric W. Harman Title: Managing Member /s/ Norman Nie -------------------------------------------- Norman Nie AUGUST CAPITAL, L.P. for itself and as nominee for August Capital Strategic Partners, L.P. and August Capital Associates, L.P. By: August Capital Management, L.L.C., its general partner By: --------------------------------------- Name: Mark G. Wilson Title: Member 36 OAK INVESTMENT PARTNERS VII, LIMITED PARTNERSHIP By: Oak Associates VII, LLC By: --------------------------------------- Name: Fredric W. Harman Title: Managing Member OAK VII AFFILIATE FUND, LIMITED PARTNERSHIP By: Oak VII Affiliates, LLC By: --------------------------------------- Name: Fredric W. Harman Title: Managing Member -------------------------------------------- Norman Nie AUGUST CAPITAL, L.P. for itself and as nominee for August Capital Strategic Partners, L.P. and August Capital Associates, L.P. By: August Capital Management, L.L.C., its general partner By: /s/ Mark G. Wilson --------------------------------------- Name: Mark G. Wilson Title: Member 37 APPENDIX A Chris Anton Jess Asla August Capital, L.P. for itself and as nominee for August Capital Strategic Partners, L.P. and August Capital Associates, L.P. R. Stephen Cheheyl Finis Connor Nicholas Keating John McCarvel Norman Nie Oak VII Affiliate Fund, Limited Partnership Oak Investment Partners VII, Limited Partnership Robert F. Subia 38 EXHIBIT A FORM OF JOINDER TO SHAREHOLDERS AGREEMENT THIS JOINDER to the Shareholders Agreement dated as of February 26, 1998 by and among MCMS, Inc., an Idaho corporation (the "Company"), and certain stockholders of the Company (the "Agreement"), is made and entered into as of _________ by and between the Company and _________________ ("Holder"). Capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Agreement. WHEREAS, Holder has acquired certain Stockholder Shares and the Agreement and the Company require Holder, as a holder of such Stockholder Shares, to become a party to the Agreement, and Holder agrees to do so in accordance with the terms hereof. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Joinder hereby agree as follows: 1. Agreement to be Bound. Holder hereby agrees that upon execution of this Joinder, it shall become a party to the Agreement and shall be fully bound by, and subject to, all of the covenants, terms and conditions of the Agreement as though an original party thereto and shall be deemed a [Cornerstone Investor/BT Investor/Randolph Investor/Other Investors/MEIC Holder] and a Stockholder for all purposes thereof. In addition, Holder hereby agrees that all Common Stock held by Holder shall be deemed [Cornerstone/BT/Randolph/Other Investors/MEIC] Shares and Stockholder Shares for all purposes of the Agreement. 2. Successors and Assigns. Except as otherwise provided herein, this Joinder shall bind and inure to the benefit of and be enforceable by the Company and its successors, heirs and assigns and Holder and any subsequent holders of Stockholder Shares and the respective successors, heirs and assigns of each of them, so long as they hold any Stockholder Shares. 3. Counterparts. This Joinder may be executed in separate counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement. 4. Notices. For purposes of Section 16 of the Agreement, all notices, demands or other communications to the Holder shall be directed to: [Name] [Address] [Facsimile Number] 5. Governing Law. The corporate law of Idaho shall govern all issues concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity and interpretation of this Joinder shall be governed by 39 and construed in accordance with the domestic laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. 6. Descriptive Headings. The descriptive headings of this Joinder are inserted for convenience only and do not constitute a part of this Joinder. * * * * * - 2 - 40 IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of the date first above written. MCMS, INC. By: ---------------------------------- Name: Title: [HOLDER] By: ---------------------------------- Name: Title: - 3 - EX-10.12 21 REGISTRATION RIGHTS AGREEMENT 1 Exhibit 10.12 EXECUTION COPY REGISTRATION RIGHTS AGREEMENT This REGISTRATION RIGHTS AGREEMENT is dated as of February 26, 1998 by and among MCMS, Inc., an Idaho corporation and f/k/a Micron Custom Manufacturing Services, Inc. (the "Company"); Cornerstone Equity Investors IV, L.P. ("Cornerstone"); MEI California, Inc. ("MEIC"); Randolph Street Partners II ("Randolph"); BT Investment Partners, Inc. ("BT") and the Investors listed on Appendix A hereto ("the Other Investors"). As of the date hereof, Cornerstone, MEIC, Randolph, BT and the Other Investors each own a number of shares of the Company's Common Stock and Convertible Preferred Stock. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: 1. Definitions. As used herein, the following terms shall have the following meanings. "Affiliate" means, when used with reference to a specified Person, any Person that directly or indirectly controls or is controlled by or is under common control with the specified Person. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise). With respect to any Person who is an individual, "Affiliates" shall also include, without limitation, any member of such individual's Family Group. "BT Registrable Securities" means (i) all Common Stock acquired by, or issued or issuable to, BT or any of its Affiliates on or after the date hereof and (ii) all equity securities issued or issuable directly or indirectly with respect to any Common Stock described in clause (i) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular BT Registrable Securities, such securities shall cease to be BT Registrable Securities when they have been distributed to the public pursuant to an offering registered under the Securities Act or sold to the public in compliance with Rule 144. For purposes of this Agreement, a Person will be deemed to be a holder of BT Registrable Securities whenever such Person has the right to acquire directly or indirectly such BT Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected. "Class A Common" means the Company's Class A Common Stock, par value $.001 per share. "Class B Common" means the Company's Class B Common Stock, par value $.001 per share. 2 "Class C Common" means the Company's Class C Common Stock, par value $.001 per share. "Common Stock" means, collectively, Class A Common, Class B Common, Class C Common and any other common stock authorized by the Company. "Cornerstone Investors" means Cornerstone and Randolph. "Cornerstone Investors Registrable Securities" means (i) all Common Stock acquired by, or issued or issuable to, any of the Cornerstone Investors or any of their respective Affiliates on or after the date hereof and (ii) all equity securities issued or issuable directly or indirectly with respect to any Common Stock described in clause (i) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Cornerstone Investors Registrable Securities, such securities shall cease to be Cornerstone Investors Registrable Securities when they have been distributed to the public pursuant to an offering registered under the Securities Act or sold to the public in compliance with Rule 144. For purposes of this Agreement, a Person will be deemed to be a holder of Cornerstone Investors Registrable Securities whenever such Person has the right to acquire directly or indirectly such Cornerstone Investors Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. "Family Group" means, with respect to any Person who is an individual, (i) such Person's spouse, former spouse and descendants (whether natural or adopted), parents and their descendants and any spouse of the foregoing persons (collectively, "relatives") or (ii) the trustee, fiduciary or personal representative of such Person and any trust solely for the benefit of such Person and/or such Person's relatives. "MEIC Registrable Securities" means (i) all Common Stock acquired by, or issued or issuable to, MEIC or any of its Affiliates on or after the date hereof and (ii) all equity securities issued or issuable directly or indirectly with respect to any Common Stock described in clause (i) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular MEIC Registrable Securities, such securities shall cease to be MEIC Registrable Securities when they have been distributed to the public pursuant to an offering registered under the Securities Act or sold to the public in compliance with Rule 144. For purposes of this Agreement, a Person will be deemed to be a holder of MEIC Registrable Securities whenever such Person has the right to acquire directly or indirectly such MEIC Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected. "Other Investors Registrable Securities" means (i) all Common Stock acquired by, or issued or issuable to, any of the Other Investors or any of their respective Affiliates on or after - 2 - 3 the date hereof and (ii) all equity securities issued or issuable directly or indirectly with respect to any Common Stock described in clause (i) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular Other Investors Registrable Securities, such securities shall cease to be Other Investors Registrable Securities when they have been distributed to the public pursuant to an offering registered under the Securities Act or sold to the public in compliance with Rule 144. For purposes of this Agreement, a Person will be deemed to be a holder of Other Investors Registrable Securities whenever such Person has the right to acquire directly or indirectly such Other Investors Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization, a bank, a trust company, a land trust, a business trust, a governmental entity or any department, agency or political subdivision thereof or any other entity or organization, whether or not it is a legal entity. "Public Offering" means an underwritten public offering and sale of the Common Stock pursuant to an effective registration statement under the Securities Act; provided that a Public Offering shall not include an offering made in connection with a business acquisition or combination pursuant to a registration statement on Form S-4 or any similar form, or an employee benefit plan pursuant to a registration statement on Form S-8 or any similar form. "Registrable Securities" means, collectively, the Cornerstone Investors Registrable Securities, the MEIC Registrable Securities, the BT Registrable Securities and the Other Investors Registrable Securities. "Registration Expenses" means all expenses incident to the Company's performance of or compliance with this Agreement, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing and distributing expenses, messenger and delivery expenses, fees and expenses of custodians, internal expenses (including all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed or on the NASD automated quotation system, and fees and disbursements of counsel for the Company and all independent certified public accountants, underwriters (excluding discounts and commissions) and other Persons retained by the Company. "Rule 144" means Rule 144 under the Securities Act (or any similar rule then in force). "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. - 3 - 4 "Subsidiary" means, with respect to any Person, any corporation, partnership, limited liability company, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, limited liability company, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a partnership, limited liability company, association or other business entity if such Person or Persons shall be allocated a majority of partnership, limited liability company, association or other business entity gains or losses or shall be or control the managing director, managing member, manager or a general partner of such partnership, limited liability company, association or other business entity. 2. Demand Registrations. (a) Requests for Registration. At any time after the date hereof, the holder(s) of a majority of the Cornerstone Investors Registrable Securities may request registration under the Securities Act of all or any portion of their Registrable Securities on Form S-1 or any similar long-form registration (a "Long-Form Registration"), or on Form S-2 or S-3 or any similar short-form registration (a "Short-Form Registration") if such a short form is available. At any time after the date two years after the consummation of an initial Public Offering, if BT and its Affiliates (and not any of their respective assigns) own greater than 5% of the then outstanding shares of Common Stock (on a fully diluted basis), then BT and/or its Affiliates (and not any of their respective assigns) may request registration under the Securities Act of all or any portion of its or their Registrable Securities on Form S-1 or any similar long-form registration (also, a "Long-Form Registration"), or on Form S-2 or S-3 or any similar short-form registration (also, a "Short-Form Registration") if such short form is available. All registrations requested pursuant to this Section 2(a) are referred to herein as "Demand Registrations". Each request for a Demand Registration (a "Demand Request") shall specify the approximate number of Registrable Securities requested to be registered, the anticipated method or methods of distribution and the anticipated per share price range for such offering. Within ten days after receipt of any such Demand Request, the Company will give written notice of such requested registration (which shall specify the intended method of disposition of such Registrable Securities) to all other holders of Registrable Securities (a "Company Notice") and the Company will include (subject to the provisions of this Agreement) in such registration, all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 20 days after the delivery of such Company Notice; provided that any such other holder may withdraw its request for inclusion at any time prior to executing the underwriting agreement or, if none, prior to the applicable registration statement becoming effective. (b) Long-Form Registrations. (i) The holders of Cornerstone Investors Registrable Securities will be entitled to three Long-Form Registrations. A registration will not count as one of the permitted Long-Form Registrations for purposes of the preceding sentence unless and until it has become effective and no Long-Form Registration will count as a Long-Form Registration for purposes of - 4 - 5 the preceding sentence unless the applicable holders of Cornerstone Investors Registrable Securities sell at least 75% of the Registrable Securities requested to be included by them in such registration. (ii) Subject to the conditions contained in Section 2(a), BT and its Affiliates (and not any of their respective assigns) will be entitled to two Long-Form Registration which shall include the registration of Registrable Securities which yield at least $5,000,000 of net proceeds to the sellers of such Registrable Securities. A registration will not count as one of the permitted Long-Form Registrations for purposes of the preceding sentence unless and until it has become effective and no Long-Form Registration will count as a Long-Form Registration for purposes of the preceding sentence unless BT and its Affiliates (and not any of their respective assigns) are able to register and sell at least 75% of the Registrable Securities requested to be included by them in such registration. (iii) The Company will pay all Registration Expenses in connection with any registration initiated as a Long-Form Registration whether or not it has become effective. (c) Short-Form Registrations. (i) The holders of Cornerstone Investors Registrable Securities will be entitled to unlimited Short-Form Registrations. Demand Registrations by holders of Cornerstone Investors Registrable Securities will be Short-Form Registrations whenever the Company is permitted to use any applicable short form. After the Company has become subject to the reporting requirements of the Exchange Act, the Company will use its best efforts to make Short-Form Registrations on Form S-3 available for the sale of Cornerstone Investors Registrable Securities. (ii) Subject to the conditions contained in Section 2(a), BT and its Affiliates (and not any of their respective assigns) will be entitled to three Short-Form Registration which shall include the registration of Registrable Securities which yield at least $5,000,000 of net proceeds to the sellers of such Registrable Securities. A registration will not count as one of the permitted Short-Form Registrations for purposes of the preceding sentence unless and until it has become effective and no Short-Form Registration will count as a Short-Form Registration for purposes of the preceding sentence unless BT and its Affiliates (and not any of their respective assigns) are able to register and sell at least 75% of the Registrable Securities requested to be included by them in such registration. (iii) The Company will pay all Registration Expenses in connection with any registration initiated as a Short-Form Registration whether or not it has become effective. (d) Priority on Demand Registrations. (i) The Company will not include in any Demand Registration any securities which are not Registrable Securities unless holder(s) of a majority of the Registrable Securities initiating such Demand Registration pursuant to Section 2(a) otherwise consent. (ii) If a Demand Registration is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Registrable Securities and, if permitted hereunder, other securities, requested to be included in such offering - 5 - 6 exceeds the number of Registrable Securities and other securities, if any, which can be sold in an orderly manner in such offering within a price range acceptable to holder(s) of a majority of the Registrable Securities initiating such Demand Registration pursuant to Section 2(a) and without adversely affecting the marketability of the offering, then the Company will include in such Demand Registration (A) first, the number of Registrable Securities requested to be included in such Demand Registration, pro rata from among the holders of such Registrable Securities according to the number of Registrable Securities requested by them to be so included, and (B) second, any other securities of the Company requested to be included in such registration, in such manner as the Company may determine. (e) Restrictions on Demand Registrations. (i) The Company will not be obligated to file any registration statement with respect to any Long-Form Registration within 180 days after the effective date of a previous Long-Form Registration or a previous registration in which the holders of Registrable Securities were given piggyback rights pursuant to Section 3 and in which there were included not less than 80% of the number of Registrable Securities requested to be included. (ii) The Company may postpone for up to 90 days the filing or the effectiveness of a registration statement for a Demand Registration if the Company determines that such Demand Registration would reasonably be expected to have a material adverse effect on any proposal or plan by the Company or any of its Subsidiaries to engage in any acquisition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer, reorganization or similar transaction; provided that in such event the holders of Registrable Securities initiating such Demand Registration pursuant to Section 2(a) will be entitled to withdraw such request and, if such request is withdrawn, such Demand Registration will not count as one of the permitted Demand Registrations hereunder and the Company will pay all Registration Expenses in connection with such requested registration. The Company may use the provisions of this clause (ii) to delay a Demand Registration initiated by holders of Cornerstone Investors Registrable Securities only once during any twelve-month period. The Company may use the provisions of this clause (ii) to delay a Demand Registration initiated by BT and/or any of its Affiliates only once during any twelve-month period. (f) Selection of Underwriters. In the case of a Demand Registration for an underwritten offering initiated by holders of Cornerstone Investors Registrable Securities, the holders of a majority of the Cornerstone Investors Registrable Securities to be included in such Demand Registration will have the right to select the investment banker(s) and manager(s) to administer the offering (which investment banker(s) and manager(s) will be nationally recognized) subject to the Company's approval, which will not be unreasonably withheld. In the case of any other Demand Registration for an underwritten offering, the Company will have the right to select the investment banker(s) and manager(s) to administer the offering (which investment banker(s) and manager(s) will be nationally recognized). (g) Other Registration Rights. Except as provided in this Agreement, after the date hereof, the Company (i) will not grant to any Persons the right to request the Company to register any equity or similar securities of the Company, or any securities convertible or exchangeable into or exercisable for such securities, without the prior written consent of the holders - 6 - 7 of a majority of the Cornerstone Investors Registrable Securities and (ii) will not grant to any Persons any such rights to the extent such rights conflict with, or are adverse to, the rights of the holders of Registrable Securities without the consent of holders of at least two-thirds of the Registrable Securities (other than the Cornerstone Investors Registrable Securities) and a majority of the holders of the Cornerstone Investors Registrable Securities. 3. Piggyback Registrations. (a) Right to Piggyback. Whenever the Company proposes to register any of its Common Stock under the Securities Act for its own account or for the account of any holder of Common Stock (other than pursuant to a Demand Registration, and other than pursuant to a registration statement on Form S-8 or S-4 or any similar or successor form) (a "Piggyback Registration"), the Company will give prompt written notice to all holders of Registrable Securities of its intention to effect such a registration and of such holders' rights under this Section 3(a). Upon the written request of any holder of Registrable Securities (which request shall specify the Registrable Securities intended to be disposed of by such holder and the intended method of disposition thereof), the Company shall include in such registration (subject to the provisions of this Agreement) all Registrable Securities requested to be registered pursuant to this Section 3(a), subject to Section 3(b) below, with respect to which the Company has received written requests for inclusion therein within 20 days after the receipt of the Company's notice; provided that any such other holder may withdraw its request for inclusion at any time prior to executing the underwriting agreement or, if none, prior to the applicable registration statement becoming effective. (b) Priority on Primary Registrations. If a Piggyback Registration is in part an underwritten primary registration on behalf of the Company and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the Company and without adversely affecting the marketability of the offering, then the Company will include in such registration (i) first, the securities the Company proposes to sell, (ii) second, the Registrable Securities requested to be included in such registration, pro rata from among the holders of such Registrable Securities according to the number of Registrable Securities requested by them to be so included, and (iii) third, any other securities requested to be included in such registration, in such manner as the Company may determine. (c) Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Company's securities, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the holders initially requesting such registration and without adversely affecting the marketability of the offering, then the Company will include in such registration (i) first, the securities requested to be included therein by the holders requesting such registration and the Registrable Securities requested to be included in such registration, pro rata from among such holders and the holders of such Registrable Securities according to the number of Registrable Securities requested by them to be so included, and (ii) second, any other securities requested to be included in such registration, in such manner as the Company may determine. - 7 - 8 (d) Other Registrations. If the Company has previously filed a registration statement with respect to Registrable Securities pursuant to Section 2 or pursuant to this Section 3, and if such previous registration has not been withdrawn or abandoned, then all the parties hereto agree that the Company shall not be required to effect any other registration of any of its equity or similar securities or securities convertible or exchangeable into or exercisable for its equity or similar securities under the Securities Act (except on Forms S-4 or S-8 or any successor or similar form or in connection with a Demand Registration), whether on its own behalf or at the request of any holder or holders of such securities, until a period of at least 180 days has elapsed from the effective date of such previous registration. (e) Registration Expenses. The Company will pay all Registration Expenses in connection with any Piggyback Registration whether or not such Piggyback Registration has become effective. 4. Holdback Agreements. (a) Each holder of Registrable Securities hereby agrees not to effect any sale or distribution of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and the 180-day period beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration), unless the underwriters managing such underwritten registration otherwise agree (which agreement shall be equally applicable to all holders of Registrable Securities). (b) The Company (i) will not effect any sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and during the 180-day period beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or pursuant to registrations on Forms S-4 or S-8 or any successor or similar form), unless the underwriters managing such underwritten registration otherwise agree (which agreement shall be equally applicable to all holders of Registrable Securities), and (ii) will cause each holder of at least 2% (on a fully diluted basis) of Common Stock and all members of its management holding Common Stock, or any securities convertible into or exchangeable or exercisable for Common Stock, purchased from the Company at any time after the date of this Agreement (other than in a registered public offering) to agree not to effect any sale or distribution of any such securities during such period (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing such underwritten registration otherwise agree. 5. Registration Procedures. Whenever the holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement, the Company will use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company will as expeditiously as 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 - 8 - 9 effective (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company will furnish to the counsel selected pursuant to Section 6(b) below copies of all such documents proposed to be filed, which documents will be subject to the prompt review and reasonable comment of such counsel), and upon filing such documents, the Company shall promptly notify in writing such counsel of the receipt by the Company of any written comments by the SEC with respect to such registration statement or prospectus or any amendment or supplement thereto or any written request by the SEC for the amending or supplementing thereof or for additional information with respect thereto; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 180 days and comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement and cause the prospectus to be supplemented by any required prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act; (c) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (d) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subsection, (ii) subject itself to taxation in any such jurisdiction in any jurisdiction where it is not so subject or (iii) consent to general service of process (i.e., service of process which is not limited solely to securities law violations) in any such jurisdiction in any jurisdiction where it is not so subject); (e) promptly notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the discovery of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading in light of the circumstances under which they were made, and, at the request of any such seller, the Company will, as soon as reasonably practicable, file and furnish to all sellers a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading in light of the circumstances under which they were made; (f) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if not so listed, to be listed - 9 - 10 on the Nasdaq National Market System ("Nasdaq Market") and, if listed on the Nasdaq Market, use its best efforts to secure designation of all such Registrable Securities covered by such registration statement as a Nasdaq "National Market System security" within the meaning of Rule 11Aa2-1 under the Exchange Act or, failing that, to secure Nasdaq Market authorization for such Registrable Securities and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Securities with the National Association of Securities Dealers; (g) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement; (h) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including, without limitation, effecting a split or a combination of stock or units); provided that no holder of Registrable Securities shall have any indemnification or contribution obligations inconsistent with Section 7 hereof; (i) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees and independent accountants to supply all information and participate in due diligence sessions reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; (j) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Company's first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder; (k) use reasonable best efforts to prevent the issuance of any stop order ("Stop Order") suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any securities included in such registration statement for sale in any jurisdiction, and, in the event of such issuance, the Company shall immediately notify the holders of Registrable Securities included in such registration statement of the receipt by the Company of such notification and shall use its best efforts promptly to obtain the withdrawal of such order; (l) use its best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the sellers thereof to consummate the disposition of such Registrable Securities, and cooperate and assist with any filings to be made with the NASD; - 10 - 11 (m) obtain one or more "cold comfort" letters, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), signed by the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters as the holders of a majority of the Registrable Securities being sold reasonably request; (n) provide a legal opinion of the Company's outside counsel, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), with respect to the registration statement, each amendment and supplement thereto, the prospectus included therein (including the preliminary prospectus) and such other documents relating thereto in customary form and covering such matters of the type customarily covered by legal opinions of such nature; and (o) use its best efforts to cause its officers to support the marketing of the Registrable Securities being sold (including, without limitation, their participation in "road shows" as may be reasonably requested by the underwriters administering the offering and sale of such Registrable Securities) to the extent reasonably possible taking into account such officers' responsibilities to manage the Company's business. If any such registration or comparable statement refers to any holder by name or otherwise as the holder of any securities of the Company and if in such holder's sole and exclusive judgment, such holder is or might be deemed to be an underwriter or a controlling person of the Company, such holder shall have the right to require (i) the insertion therein of language, in form and substance satisfactory to such holder and presented to the Company in writing, to the effect that the holding by such holder of such securities is not to be construed as a recommendation by such holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such holder by name or otherwise is not required by the Securities Act or any similar Federal statute then in force, the deletion of the reference to such holder; provided, that with respect to this clause (ii), if requested by the Company, such holder shall furnish to the Company an opinion of counsel to such effect, which opinion and counsel shall be reasonably satisfactory to the Company. 6. Registration Expenses. (a) All expenses incident to the Company's performance of or compliance with this Agreement, including without limitation all Registration Expenses, will be borne by the Company. (b) In connection with each Demand Registration and each Piggyback Registration, the Company will reimburse the holders of Registrable Securities included in such registration for the reasonable fees and disbursements of one counsel chosen by the holders of a majority of the Registrable Securities initially requesting such registration (which counsel shall be retained to represent all such holders). - 11 - 12 7. Indemnification. (a) By the Company. The Company agrees to, and will cause each of its Subsidiaries to agree to, indemnify, to the fullest extent permitted by law, each holder of Registrable Securities, its officers, directors, members, employees, agents, stockholders and general and limited partners and each Person who controls such holder (within the meaning of the Securities Act and Exchange Act) against any and all losses, claims, damages, liabilities and expenses (or actions or proceedings, whether commenced or threatened, in respect thereof), joint or several, arising out of or based upon any untrue or alleged untrue statement of material fact contained in any registration statement, reports required and other documents filed under the Exchange Act, prospectus or preliminary prospectus or any amendment thereof or supplement thereto, together with any documents incorporated therein by reference, or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation or alleged violation by the Company or any of its Subsidiaries of any federal, state, foreign or common law rule or regulation and relating to action or inaction in connection with any such registration, disclosure document or other document and shall reimburse such holder, officer, director, member, employee, agent, stockholder, partner or controlling Person for any legal or other expenses, including any amounts paid in any settlement effected with the consent of the Company, which consent will not be unreasonably withheld or delayed, incurred by such holder, officer, director, member, employee, agent, stockholder, partner or controlling Person in connection with the investigation or defense of such loss, claim, damage, liability or expense, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein. In connection with an underwritten offering, the Company will indemnify such underwriters, their officers, directors, agents and employees and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of Registrable Securities. (b) By the Holders. In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder will furnish to the Company in writing such information and affidavits about such holder as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, will indemnify the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act) and the other holders of Registrable Securities against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such holder which authorizes its use in the applicable document; provided, that the obligation to indemnify will be individual, not joint and several, for each holder and will be limited to the net amount of proceeds received by such holder from the sale of Registrable Securities pursuant to such registration statement. (c) Claim Procedures. Any Person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice will not impair any Person's right to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party) - 12 - 13 and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit the indemnifying party to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent it may wish, with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld or delayed) and the indemnifying party shall not, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof, a release from all liability in respect of such claim or litigation provided by the claimant or plaintiff to such indemnified party. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay (i) the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim or (ii) any settlement made by any indemnified party without such indemnifying party's consent (but such consent will not be unreasonably withheld). (d) Survival; Contribution. The indemnification provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, agent or employee and each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such indemnified party (within the meaning of the Securities Act), and will survive the transfer of securities. The Company also agrees to make such provisions, as are reasonably requested by any indemnified party, for contribution to such party in the event the Company's indemnification is unavailable for any reason. 8. Participation in Underwritten Registrations. No Person may participate in any registration hereunder which is underwritten unless such Person (a) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements (including, without limitation, pursuant to the terms of any over-allotment or "green shoe" option requested by the managing underwriter(s), provided that no holder of Registrable Securities will be required to sell more than the number of Registrable Securities that such holder has requested the Company to include in any registration) and (b) completes and executes all customary questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided, that no holder of Registrable Securities included in any underwritten registration shall be required to make any representations or warranties to the Company or the underwriters (other than representations and warranties regarding such holder and such holder's intended method of distribution) or to undertake any indemnification or contribution obligations to the Company or the underwriters with respect thereto, except as otherwise provided in Section 7. - 13 - 14 9. Rule 144 Reporting. With a view to making available to the holders of Registrable Securities the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees at its expense to use its best efforts to: (a) make and keep current public information available, within the meaning of Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times after it has become subject to the reporting requirements of the Exchange Act; (b) file with the SEC, in a timely manner, all reports and other documents required of the Company under the Securities Act and Exchange Act (after it has become subject to such reporting requirements); and (c) so long as any party hereto owns any Registrable Securities, furnish to such Person forthwith upon request, a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time commencing 90 days after the effective date of the first registration filed by the Company for an offering of its securities to the general public), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); a copy of the most recent annual or quarterly report of the Company; and such other reports and documents as such Person may reasonably request in availing itself of any rule or regulation of the SEC allowing it to sell any such securities without registration. 10. Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when delivered if delivered personally, sent via a nationally recognized overnight courier, or sent via facsimile to the recipient, or if sent by certified or registered mail, return receipt requested, will be deemed to have been given two business days thereafter. Such notices, demands and other communications will be sent to the address indicated below: To the Company: MCMS, Inc. 16399 Franklin Road Nampa, Idaho 83687 Attention: President Telecopy No.: (208) 893-8711 - 14 - 15 With a copy, which shall not constitute notice, to: Cornerstone Equity Investors, LLC 717 Fifth Avenue, Suite 1100 New York, NY 10022 Attention: Tony Downer Michael E. Najjar Telecopy No.: (212) 826-6798 Kirkland & Ellis Citicorp Center 153 East 53rd Street New York, New York 10022 Attention: Frederick Tanne, Esq. Telecopy No.: (212) 446-4900 To any Cornerstone Investor: Cornerstone Equity Investors, LLC 717 Fifth Avenue, Suite 1100 New York, NY 10022 Attention: Tony Downer Michael E. Najjar Telecopy No.: (212) 826-6798 With a copy, which shall not constitute notice, to: Kirkland & Ellis Citicorp Center 153 East 53rd Street New York, New York 10022 Attention: Frederick Tanne, Esq. Telecopy No.: (212) 446-4900 To Randolph: Kirkland & Ellis Citicorp Center 153 East 53rd Street New York, New York 10022 Attention: Frederick Tanne, Esq. Telecopy No.: (212) 446-4900 - 15 - 16 To MEIC: MEI California, Inc. c/o Micron Electronics, Inc. 900 East Karcher Road Nampa, Idaho 83687 Attention: General Counsel Telecopy No.: (208) 898-7411 With a copy, which shall not constitute notice, to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Barry A. Bryer Telecopy No.: (212) 403-2000 To BT: BT Investment Partners, Inc. 130 Liberty Street New York, New York 10006 Attention: Joseph Wood Telecopy No.: (212) 250-8375 With a copy, which shall not constitute notice, to: White & Case LLP 1155 Avenue of the Americas New York, New York 10036 Attention: John M. Reiss, Esq. Telecopy No.: (212) 354-8113 To Chris Anton: c/o MCMS, Inc. 16399 Franklin Road Nampa, Idaho 83687 Telecopy No.: (208) 898-2796 To Jess Asla: c/o MCMS, Inc. 16399 Franklin Road Nampa, Idaho 83687 Telecopy No.: (208) 898-2796 - 16 - 17 To John McCarvel: c/o MCMS, Inc. 16399 Franklin Road Nampa, Idaho 83687 Telecopy No.: (208) 898-2796 To Robert F. Subia: c/o MCMS, Inc. 16399 Franklin Road Nampa, Idaho 83687 Telecopy No.: (208) 898-2796 To R. Stephen Cheheyl: 130 Lane's End Concord, Massachussets 01742 Telecopy No.: (978) 369-4607 To Finis Connor: The Connor Group San Carlos and Fourth Street Unit No. 2 Carmel, CA 93921 Telecopy No.: (408) 625-8613 To Nicholas Keating: 2477 Jackson Street San Francisco, CA 94115 Telephone No.: (650) 771-2989 To Oak Investment Partners VII, Limited Partnership: Oak Investment Partners 525 University Avenue, Suite 1300 Palo Alto, CA 94301 Attention: Fredric W. Harman Telecopy No.: (650) 328-6345 - 17 - 18 To Oak VII Affiliate Fund, Limited Partnership: Oak Investment Partners 525 University Avenue, Suite 1300 Palo Alto, CA 94301 Attention: FredricW. Harman Telecopy No.: (650) 328-6345 To Norman Nie: c/o Oak Investment Partners 525 University Avenue, Suite 1300 Palo Alto, CA 94301 Attention: FredricW. Harman Telecopy No.: (650) 328-6345 To August Capital, L.P. for itself and as nominee for August Capital Strategic Partners, L.P. and August Capital Associates, L.P.: August Capital Management, L.L.C. 2480 Sandy Hill, Suite 101 Menlo Park, CA 94025 Attention: Mark G. Wilson Telecopy No.: (650) 234-9910 or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. 11. Miscellaneous. (a) No Inconsistent Agreements. The Company represents and warrants to the holders of Registrable Securities that the registration rights granted to the holders of such securities hereby do not conflict with any other registration rights granted by the Company. The Company will not enter into any agreement which is inconsistent with or violates the rights granted to the holders of Registrable Securities in this Agreement. (b) Remedies. Any Person having rights under any provision of this Agreement will be entitled to enforce such rights specifically to recover damages caused by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or other security) for specific performance and for other injunctive relief in order to enforce or prevent violation of the provisions of this Agreement. (c) Amendments and Waivers. The provisions of this Agreement may be amended or waived only upon the prior written consent of the Company and holders of at least 75% - 18 - 19 of the Registrable Securities; provided, that no amendment shall be effective without the consent of a holder of Registrable Securities to the extent that such amendment would adversely affect the rights or obligations of such holder of Registrable Securities hereunder in any material respect, and any amendment to which such written consent is obtained will be binding upon the Company and all holders of Registrable Securities. (d) Successors and Assigns. All covenants and agreements in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. In addition, whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit of purchasers or holders of Registrable Securities are also for the benefit of, and enforceable by, any subsequent holder of Registrable Securities. (e) Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. (f) Counterparts. This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same Agreement. (g) Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. (h) Governing Law. The corporate law of the State of Idaho will govern all questions concerning the relative rights of the Company and its stockholders. All other questions concerning the construction, validity and interpretation of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. * * * * * - 19 - 20 IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date first above written. MCMS, INC. By: /s/ Robert F. Subia ------------------------------------ Name: Robert F. Subia Title: President and CEO CORNERSTONE EQUITY INVESTORS IV, L.P. By: Cornerstone IV, L.L.C., as General Partner By: /s/ Michael E. Najjor ------------------------------------ Name: Michael E. Najjor Title: Managing Director MEI CALIFORNIA, INC. By: ------------------------------------ Name: Title: RANDOLPH STREET PARTNERS II By: ------------------------------------ A General Partner 21 IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date first above written. MCMS, INC. By: ------------------------------------ Name: Title: CORNERSTONE EQUITY INVESTORS IV, L.P. By: Cornerstone IV, L.L.C., as General Partner By: ------------------------------------ Name: Title: MEI CALIFORNIA, INC. By: /s/ T. Erik Oaas ------------------------------------ Name: T. Erik Oaas Title: Executive Vice-President RANDOLPH STREET PARTNERS II By: ------------------------------------ A General Partner 22 IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date first above written. MCMS, INC. By: ------------------------------------ Name: Title: CORNERSTONE EQUITY INVESTORS IV, L.P. By: Cornerstone IV, L.L.C., as General Partner By: ------------------------------------ Name: Title: MEI CALIFORNIA, INC. By: ------------------------------------ Name: Title: RANDOLPH STREET PARTNERS II By: /s/ [Illegible] ------------------------------------ A General Partner 23 CONTINUATION OF SIGNATURES FOR THIS REGISTRATION RIGHTS AGREEMENT: BT INVESTMENT PARTNERS, INC. By: /s/ Joseph G. Wood ---------------------------------- Name: JOSEPH G. WOOD Title: M. D. OTHER INVESTORS ------------------------------------ Chris Anton ------------------------------------ Jess Asla ------------------------------------ John McCarvel ------------------------------------ Robert F. Subia ------------------------------------ R. Stephen Cheheyl ------------------------------------ Finis Connor ------------------------------------ Nicholas Keating 24 CONTINUATION OF SIGNATURES FOR THIS REGISTRATION RIGHTS AGREEMENT: BT INVESTMENT PARTNERS, INC. By: ---------------------------------- Name: Title: OTHER INVESTORS /s/ Chris Anton ------------------------------------ Chris Anton ------------------------------------ Jess Asla ------------------------------------ John McCarvel ------------------------------------ Robert F. Subia ------------------------------------ R. Stephen Cheheyl ------------------------------------ Finis Connor ------------------------------------ Nicholas Keating 25 CONTINUATION OF SIGNATURES FOR THIS REGISTRATION RIGHTS AGREEMENT: BT INVESTMENT PARTNERS, INC. By: ---------------------------------- Name: Title: OTHER INVESTORS ------------------------------------ Chris Anton /s/ Jess Asla ------------------------------------ Jess Asla ------------------------------------ John McCarvel ------------------------------------ Robert F. Subia ------------------------------------ R. Stephen Cheheyl ------------------------------------ Finis Connor ------------------------------------ Nicholas Keating 26 CONTINUATION OF SIGNATURES FOR THIS REGISTRATION RIGHTS AGREEMENT: BT INVESTMENT PARTNERS, INC. By: ---------------------------------- Name: Title: OTHER INVESTORS ------------------------------------ Chris Anton ------------------------------------ Jess Asla /s/ John McCarvel ------------------------------------ John McCarvel ------------------------------------ Robert F. Subia ------------------------------------ R. Stephen Cheheyl ------------------------------------ Finis Connor ------------------------------------ Nicholas Keating 27 CONTINUATION OF SIGNATURES FOR THIS REGISTRATION RIGHTS AGREEMENT: BT INVESTMENT PARTNERS, INC. By: ---------------------------------- Name: Title: OTHER INVESTORS ------------------------------------ Chris Anton ------------------------------------ Jess Asla ------------------------------------ John McCarvel /s/ Robert F. Subia ------------------------------------ Robert F. Subia ------------------------------------ R. Stephen Cheheyl ------------------------------------ Finis Connor ------------------------------------ Nicholas Keating 28 CONTINUATION OF SIGNATURES FOR THIS REGISTRATION RIGHTS AGREEMENT: BT INVESTMENT PARTNERS, INC. By: ---------------------------------- Name: Title: OTHER INVESTORS ------------------------------------ Chris Anton ------------------------------------ Jess Asla ------------------------------------ John McCarvel ------------------------------------ Robert F. Subia /s/ R. Stephen Cheheyl ------------------------------------ R. Stephen Cheheyl ------------------------------------ Finis Connor ------------------------------------ Nicholas Keating 29 CONTINUATION OF SIGNATURES FOR THIS REGISTRATION RIGHTS AGREEMENT: BT INVESTMENT PARTNERS, INC. By: ---------------------------------- Name: Title: OTHER INVESTORS ------------------------------------ Chris Anton ------------------------------------ Jess Asla ------------------------------------ John McCarvel ------------------------------------ Robert F. Subia ------------------------------------ R. Stephen Cheheyl /s/ Finis Connor ------------------------------------ Finis Connor ------------------------------------ Nicholas Keating 30 CONTINUATION OF SIGNATURES FOR THIS REGISTRATION RIGHTS AGREEMENT: BT INVESTMENT PARTNERS, INC. By: ---------------------------------- Name: Title: OTHER INVESTORS ------------------------------------ Chris Anton ------------------------------------ Jess Asla ------------------------------------ John McCarvel ------------------------------------ Robert F. Subia ------------------------------------ R. Stephen Cheheyl ------------------------------------ Finis Connor /s/ Charles Nicholas Keating /s/ Carleen B. Keating ------------------------------------ Charles Nicholas Keating, Jr AND Carleen B. Keating, JT/WROS 31 OAK INVESTMENT PARTNERS VII, LIMITED PARTNERSHIP By: Oak Associates VII, LLC By: /s/ Fredric W. Harman --------------------------------------- Name: Fredric W. Harman Title: Managing Member OAK VII AFFILIATE FUND, LIMITED PARTNERSHIP By: Oak VII Affiliates, LLC By: /s/ Fredric W. Harman --------------------------------------- Name: Fredric W. Harman Title: Managing Member -------------------------------------------- Norman Nie AUGUST CAPITAL, L.P. for itself and as nominee for August Capital Strategic Partners, L.P. and August Capital Associates, L.P. By: August Capital Management, L.L.C., its general partner By: --------------------------------------- Name: Mark G. Wilson Title: Member - 22 - 32 OAK INVESTMENT PARTNERS VII, LIMITED PARTNERSHIP By: Oak Associates VII, LLC By: --------------------------------------- Name: Fredric W. Harman Title: Managing Member OAK VII AFFILIATE FUND, LIMITED PARTNERSHIP By: Oak VII Affiliates, LLC By: --------------------------------------- Name: Fredric W. Harman Title: Managing Member /s/ Norman Nie -------------------------------------------- Norman Nie AUGUST CAPITAL, L.P. for itself and as nominee for August Capital Strategic Partners, L.P. and August Capital Associates, L.P. By: August Capital Management, L.L.C., its general partner By: --------------------------------------- Name: Mark G. Wilson Title: Member - 22 - 33 OAK INVESTMENT PARTNERS VII, LIMITED PARTNERSHIP By: Oak Associates VII, LLC By: --------------------------------------- Name: Fredric W. Harman Title: Managing Member OAK VII AFFILIATE FUND, LIMITED PARTNERSHIP By: Oak VII Affiliates, LLC By: --------------------------------------- Name: Fredric W. Harman Title: Managing Member -------------------------------------------- Norman Nie AUGUST CAPITAL, L.P. for itself and as nominee for August Capital Strategic Partners, L.P. and August Capital Associates, L.P. By: August Capital Management, L.L.C., its general partner By: /s/ Mark G. Wilson --------------------------------------- Name: Mark G. Wilson Title: Member - 22 - 34 APPENDIX A Chris Anton Jess Asla August Capital, L.P. for itself and as nominee for August Capital Strategic Partners, L.P. and August Capital Associates, L.P. R. Stephen Cheheyl Finis Connor Nicholas Keating John McCarvel Norman Nie Oak VII Affiliate Fund, Limited Partnership Oak Investment Partners VII, Limited Partnership Robert F. Subia EX-10.13 22 MCMS AGREEMENT 1 Exhibit 10.13 MCMS AGREEMENT This Agreement is entered into effective as of the date set forth in Section 8 below (the "Effective Date"), by and between Micron Technology, Inc., a Delaware corporation located at 8000 South Federal Way, Boise, Idaho 83707 ("MTI"), and Micron Custom Manufacturing Services, Inc., 16399 Franklin Road, Nampa, Idaho 83687 ("MCMS"). WHEREAS, MTI is engaged in the business of developing and manufacturing semiconductor memory devices and operates a division known as Systems Integration Group ("SIG") that manufactures memory modules; WHEREAS, MCMS is engaged in the business of designing, manufacturing, and testing custom printed circuit boards and memory modules; and WHEREAS, MCMS desires to provide services to MTI including the assembly and testing of memory modules and desires to manufacture at least 50% of MTI's total requirements with respect to memory modules; NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Definitions. As used in this Agreement, the following terms have the following meanings: (a) "Equivalent Unit" is used herein as a unit of measure for a memory module where each such unit is equivalent to the time taken to place all components on one 8D132 memory module or as otherwise agreed upon in writing between the parties. For example, it takes three times (3) longer to place all components on a memory module defined as representing three (3) Equivalent Units than on an 8D132 memory module. (b) "Industry Standard Memory Module" ("ISMM") means a device incorporating memory components, capacitors and resistors on a printed circuit board, and recognized as a standard memory configuration as defined by the JEDEC committee, and/or utilized as a standard memory configuration in personal computers or other electronic systems regardless of the discrete components utilized on the module. (c) "MCMS Volume" means the percentage of all MTI ISMMs manufactured by MCMS on a monthly basis. MCMS Volume includes all ISMMs manufactured by MCMS for any of MTI's wholly-owned subsidiaries. (d) "Most Favorable Pricing" means the lower of either: (i) the lowest price charged by MCMS to other customers for equivalent product under similar circumstances, 2 including factors such as quality and level of service, but regardless of volume, or (ii) the average price quoted by other manufacturers (excluding MTI/SIG) for equivalent product under similar circumstances, including factors such as quality and level of service, but regardless of volume. 2. Volume; Non-Compete. During the term of this Agreement, MTI agrees that MCMS Volume shall not fall below fifty percent (50%) of MTI's ISMM manufacturing requirements, up to a maximum of 600,000 Equivalent Units (50% of 1,200,000 Equivalent Units) per week, and MCMS agrees to make available to MTI manufacturing capacity of up to 600,000 Equivalent Units per week. For a period of one (1) year from the Effective Date MTI shall not engage in a business, the primary purpose of which is to provide contract manufacturing services for the assembly of custom printed circuit assemblies ("PCAs"), including but not limited to custom memory intensive PCAs, for OEMs or third parties without the written consent of MCMS, such consent not to be unreasonably withheld. Notwithstanding the foregoing, MTI shall not be deemed to be in violation of the foregoing restrictions by: (i) engaging in any current MTI business, including but not limited to the business ofthe business of manufacturing motherboards, (ii) engaging in the manufacture and sale of other PCAs where the primary purpose of such activity is to sell MTI memory components, or (iii) acquiring a business, the primary purpose of which is other than to provide contract manufacturing services. 3. Pricing. During such time as MTI is in compliance with Section 2 above, MCMS will charge MTI at rates no higher than the Most Favorable Pricing level. During any four (4) week period, commencing with the four (4) week period starting on the Effective Date, that the average weekly MCMS Volume does not meet the requirements of Section 2 above, MCMS will charge MTI at the Most Favorable Pricing level for modules assembled, plus a reasonable charge to compensate MCMS for any lost revenue resulting from such noncompliance; provided that MCMS shall use commercially reasonable best efforts to mitigate such lost revenue. Such charge shall be MCMS's exclusive remedy for MTI's failure to comply with Section 2. 4. Forecasts; Purchase Orders; Invoicing. MTI will continue to provide nonbinding forecasts of upcoming requirements for a thirteen (13) week rolling period, and continue with current blanket purchase order methodology. Purchase Orders shall set forth, at a minimum, product quantity and desired delivery date. Invoicing will continue to be done via invoice only to MTI, which invoicing shall occur not more frequently than weekly after product manufactured hereunder has been placed by MCMS in finished goods inventory. MTI shall pay all invoices within forty-five (45) days of the date thereof. 5. Raw Materials; Work in Process; Finished Good Inventory; Cancellation. MTI will continue to consign all raw materials to MCMS in a timely manner, the quantities of which shall be sufficient to support MTI module requirements plus mutually agreed to permissible shrinkage amounts; shrinkage amounts being the quantity of raw materials that is scrapped or otherwise wasted by MCMS in the manufacturing process. MCMS shall be liable for shrinkage amounts exceeding those mutually agreed to. 2 3 Title to all raw materials provided to MCMS hereunder shall at all times remain with MTI and MCMS shall act as bailee with respect to such material. Title to finished product, excluding raw material provided by MTI to MCMS hereunder, shall pass to MTI upon delivery to MTI's designated finished goods location at MCMS's facility and MCMS shall act as bailee with respect to such finished product. MTI shall bear all risk of loss or damage to the raw materials and finished product at all times, provided that MCMS shall, from the time the raw materials are delivered to MCMS's facilities until the time MCMS delivers the finished product and any remaining or damaged raw materials to the carrier, insure all such raw materials and finished product under insurance policy(ies) in form, substance, amounts and with deductibles acceptable to MTI. If there is a loss covered under such policy(ies), MCMS shall reimburse MTI for any deductibles required under such policy(ies). MCMS shall deliver to MTI a certificate of insurance evidencing coverage required hereunder in form and amounts that are satisfactory to MTI and naming MTI as loss payee. MTI may cancel purchase orders at any time; provided that MTI shall be obligated to pay assembly fees for all work-in-process as of the effective date of any cancellation thereof based upon the percentage of completion multiplied by applicable unit prices. Such fee shall not exceed the total unit price for a completed assembly. MTI may request MCMS to complete and deliver all work-in-process inventory at the unit prices set forth in applicable purchase orders. 6. Quarterly Meetings. MTI and MCMS shall meet at least quarterly for a business review to address volume, quality, price, on time delivery, new product direction, and forecasts. 7. Transportation. MTI shall be obligated to pay for all transportation costs relating to product or materials delivered hereunder and shall bear all risk of loss to product or materials while in transit to or from MCMS. Any agreement to the contrary must be expressly set forth in an MTI purchase order that has been expressly accepted by MCMS in writing. MCMS shall use MTI designated carriers for the transportation of MCMS manufactured product to MTI or its customers. 8. Term of Agreement. The term of this Agreement shall be two (2) years, commencing only on the effective date of the closing of the Recapitalization Agreement, dated as of December 2120, 1997, by and amongst Micron Electronics, Inc., MCMS, and Cornerstone Equity Investors IV, L.P. (the "Recapitalization Agreement"); provided, however, that if such transaction closes after June 30, 1998, this Agreement shall be null and void. This Agreement will be automatically renewed at the conclusion of the initial two (2) year period for successive one (1) year periods unless one of the parties indicates otherwise by written notice not less than thirty (30) days prior to the end of the initial two (2) year period or any successive one (1) year period. Notwithstanding the above, this Agreement (i) may be terminated at any time upon the mutual written agreement of the parties; (ii) may be terminated by MTI at any time, without any cost, loss or liability 3 4 whatsoever, effective upon thirty (30) days prior written notice to MCMS, if MCMS fails to adhere to the quality, on-time delivery or process requirements set forth in this Agreement or in MTI's purchase orders issued hereunder (that are accepted in writing by MCMS) or otherwise breaches any material term of this Agreement and fails to cure any such failure or breach (if such failure or breach is capable of being cured) within thirty (30) days of MTI's written notice of breach; (iii) may be terminated by MCMS at any time, without any cost, loss or liability whatsoever, effective upon thirty (30) days prior written notice to MTI, if MTI breaches any material term of this Agreement and fails to cure any such breach (if such breach is capable of being cured) within thirty (30) days of MCMS' written notice of breach; (iv) may be terminated for convenience by either party without any cost, loss or liability whatsoever after the initial two (2) year period upon thirty (30) days prior notice to the other party; and (v) shall remain in full force and effect and shall be applicable to any orders issued by MTI and accepted by MCMS during the term of this Agreement and until any and all obligations of the parties under such orders have been fulfilled. 9. Warranty. MCMS warrants for a period commensurate with such period that MTI warrants product to MTI's end customer purchasing finished product produced hereunder, as the case may be, that all services performed and materials supplied (other than materials consigned to MCMS by MTI) in connection with its performance hereunder: (i) comply with the specifications and other descriptions indicated on the purchase order and with such written quality standards as the parties may agree to from time to time at the quarterly meetings outlined in Section 6 above or elsewhere; (ii) are free from defects in material and workmanship and are of a quality of workmanship that is required by the general industry standards in similar manufacturing industries; and (iii) subject to Section 12 hereof, are free from any encumbrances, liens, security interests or other defects in title. In the event that any product manufactured by MCMS is not in conformity with the foregoing warranties, MCMS shall either (i) credit MTI for any such non-conformity the purchase price paid by MTI for such product, or (ii) at MCMS' expense, replace, repair or correct such non-conforming product; provided that either party may elect refund in lieu of credit, replacement or repair if credit, replacement or repair are not available or reasonable under the circumstances at such time; and provided further that, if such product is not repaired, replaced or corrected within thirty (30) days after MCMS is notified of any nonconformity, MCMS shall credit or refund, MTI the purchase price paid by MTI for such non-conforming product. THE FOREGOING CONSTITUTES MTI'S SOLE REMEDIES AGAINST MCMS FOR BREACH OF WARRANTY CLAIMS. EXCEPT AS PROVIDED IN THIS AGREEMENT, MCMS MAKES NO WARRANTIES WITH RESPECT TO PRODUCT MANUFACTURED BY MCMS, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES RESPECTING MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING FROM A COURSE OF PERFORMANCE, A COURSE OF DEALING, TRADE USAGE, OR OTHERWISE. 10. Confidentiality. Each party acknowledges that it will have access to certain information and materials concerning the business, plans, technology, and products of the 4 5 other pertaining to the subject matter of this Agreement that are confidential and of substantial value to the other party. Each party agrees that it will treat such confidential information in accordance with that certain Mutual Confidentiality Agreement dated June 24, 1996, entered into among MTI, MCMS and other affiliated entities. 11. Limitation of Liability. MCMS SHALL NOT BE LIABLE FOR DEFECTS ARISING FROM MALFUNCTIONS OR FAILURES RESULTING FROM MISUSE, ABUSE, NEGLECT, ALTERATION, MODIFICATION, OR IMPROPER INSTALLATION, OR REPAIRS BY ANYONE OTHER THAN MCMS OR ITS AUTHORIZED REPRESENTATIVES. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES RESULTING FROM ITS PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT, OR THE FURNISHING, PERFORMANCE OR USE OF ANY GOODS OR SERVICES SOLD PURSUANT HERETO, WHETHER DUE TO A BREACH OF CONTRACT, BREACH OF WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE. 12. Indemnification. (a) General. Each party agrees to indemnify, defend and hold harmless the other party, including its directors, officers and employees, from and against any and all claims, losses, demands, costs or liabilities, including attorneys' fees (collectively, "Claims"), resulting from or in connection with such party's breach of this Agreement, negligence or misconduct. (b) Patent Indemnity. MCMS shall indemnify, defend and hold harmless MTI and its directors, officers, employees, agents and customers from and against any and all Claims that the use or sale of the finished product infringes upon any patent, trademark, trade secret, copyright, mask work or application therefor, or other intellectual property rights of a third party ("Intellectual Property Infringement Claim(s)") to the extent infringement liability is based on or otherwise arises out of the process by which MCMS manufactures, tests or assembles such finished product, including infringement liability based on product by process claims; provided that the foregoing indemnity and defense obligation is conditioned on each of the following: (a) MTI shall provide written notice to MCMS of any Intellectual Property Infringement Claim not later than ten (10) days after such Intellectual Property Infringement Claim is served on MTI or not later than thirty (30) days after first learning that such third party has asserted such Claim, whichever occurs first; (b) MCMS shall have complete control of the defense and/or settlement of such Intellectual Property Infringement Claims, in litigation or otherwise, provided that MTI shall not be required to take any action, or refrain from acting, with respect to any settlement reached by MCMS unless MTI consents in writing to such action, such consent not to be unreasonably withheld; and (c) MTI shall provide reasonable assistance and cooperation in the defense of any such Intellectual Property Infringement Claim. MCMS will defend such action at its sole expense and will pay any related costs and damages. If any injunction shall be obtained against MTI's use of the finished products, or any component thereof (other than 5 6 the materials provided by MTI), by reason of infringement, MCMS shall, at its option and expense, as promptly as is reasonably feasible, either procure for MTI the right to continue using the finished products or replace or modify the same to become non-infringing but equivalent in form, fit and function. MCMS shall have no obligation under this Agreement whatsoever: (a) for or with respect to Intellectual Property Infringement Claims alleging infringement that results from the combination of the finished products with any hardware, text, graphics, software or other device supplied by MTI or a third party; (b) for or with respect to Intellectual Property Infringement Claims alleging infringement that results from the modification of the finished products by any party other than MCMS; or (c) for any settlement entered into by MTI without MCMS's prior written consent. MTI shall indemnify, defend and hold harmless MCMS and its directors, officers, agents and employees from and against any and all Intellectual Property Infringement Claims to the extent infringement liability arises out of (i) the manufacture, use, sale or offer to sell of the raw materials consigned to MCMS by MTI hereunder or (ii) the use, sale or offer to sell of finished product manufactured in accordance with MTI's specifications except to the extent MCMS has an indemnity obligation pursuant to the first paragraph of this Section 12(b); provided that the foregoing indemnity and defense obligation is conditioned on each of the following: (a) MCMS shall provide written notice to MTI of any Intellectual Property Infringement Claim not later than ten (10) days after such Intellectual Property Infringement Claim is served on MCMS or not later than thirty (30) days after first learning that such third party has asserted such claim, whichever occurs first; (b) MTI shall have complete control of the defense and/or settlement of such Intellectual Property Infringement Claim, in litigation or otherwise, provided that MCMS shall not be required to take any action, or refrain from acting, with respect to any settlement reached by MTI unless MCMS consents in writing to such action, such consent not to be unreasonably withheld; and (c) MCMS shall provide reasonable assistance and cooperation in the defense of any such Intellectual Property Infringement Claim. MTI will defend such action at its sole expense and will pay any related costs and damages. MTI shall have no obligation under this Agreement whatsoever: (a) for or with respect to Intellectual Property Infringement Claims alleging infringement which results from the combination of the raw materials consigned to MCMS by MTI hereunder with any hardware, text, graphics, software or other device supplied by MCMS or a third party unless such combination could not be avoided by compliance with MTI's specifications; (b) for or with respect to Intellectual Property Infringement Claims alleging infringement which result from the modification of the raw materials consigned to MCMS by MTI hereunder by any party other than MTI and other than in accordance with the specifications provided by MTI; or (c) for any settlement entered into by MCMS without MTI's prior written consent. 13. General Provisions. (a) Governing Law. This Agreement shall be governed by and construed under the laws of the State of Idaho. The federal and state courts within the State of Idaho shall have the sole and exclusive jurisdiction to adjudicate any dispute arising out of this Agreement. 6 7 (b) Entire Agreement. This Agreement, together with MTI's purchase orders issued hereunder, sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them; provided that if there is any conflict between such purchase order and the terms of this Agreement, the terms of this Agreement shall control. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by authorized representatives of both parties. (c) Notices. Any notice required or permitted by this Agreement shall be in writing and shall be sent by prepaid registered or certified mail, return receipt requested, addressed to the other party at the address shown at the beginning of this Agreement or at such other address for which such party give notice hereunder. Such notice shall be deemed to have been given three (3) days after deposit in the mail. (d) Force Majeure. Nonperformance of either party shall be excused to the extent that performance is rendered impossible by strike, fire, flood, governmental acts or orders or restrictions, or any other reason where failure to perform is beyond the control and not caused by the negligence of the nonperforming party. (e) Assignability and Binding Effect. The rights and obligations of each party hereunder may not be assigned or transferred directly or indirectly without the prior written consent of the other party, which consent shall not be unreasonably withheld. Provided, however, that MCMS, without forfeiting its rights under this Agreement, may assign or transfer its rights and obligations arising out of this Agreement to one or more of its subsidiaries or affiliated companies. Change of ownership or control of MCMS or MTI or any assignee permitted under this Section shall constitute an assignment or transfer under this Section requiring a written consent of the other party as required above; provided, however, that the change of control of MCMS pursuant to the Recapitalization Agreement shall not constitute an assignment and is expressly consented to by MTI. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns. (f) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (g) Non-Waiver. Failure by either party to exercise any right granted in this Agreement shall not be deemed a waiver of such right. (h) Severability. If it is determined by a court of competent jurisdiction as part of a final nonappealable ruling, government action or binding arbitration, that any provision of this Agreement (or part thereof) is invalid, illegal, or otherwise unenforceable in any jurisdiction, such provision shall be enforced in such jurisdiction as nearly as possible in accordance with the stated intention of the parties, while the remainder of this Agreement 7 8 shall remain in full force and effect and bind the parties according to its terms, and any such determination shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent any provision (or part thereof) cannot be enforced in accordance with the stated intentions of the parties, such provision (or part thereof) shall be deemed not to be a part of this Agreement; provided that in such event the parties shall use their best efforts to negotiate, in good faith, a substitute, valid and enforceable provision which most nearly effects the parties' intent in entering into this Agreement. (i) Survival. Any obligations and duties which by their nature extend beyond the expiration or earlier termination of this Agreement, including without limitation Sections 1, 9, 10, 11, 12 and 13, shall survive any such expiration or termination and remain in effect. (j) Attorneys' Fees and Costs. The prevailing party to any litigation or other proceedings arising out of this Agreement shall be entitled to recover its reasonable attorneys' fees and costs from the other party. (k) Headings. All section headings herein are for convenience only and are in no way to be construed as part of this Agreement or as a limitation of the scope of the particular sections to which they refer. MICRON TECHNOLOGY, INC. MICRON CUSTOM MANUFACTURING SERVICES, INC. By /s/ [Illegible] By /s/ Robert F. Subia -------------------------- ---------------------------- Title V.P. Operations Title President & CEO Date 12-21-97 Date 12-21-97 8 EX-10.14 23 TRANSITION SERVICES AGREEMENT 1 Exhibit 10.14 TRANSITION SERVICES AGREEMENT THIS TRANSITION SERVICES AGREEMENT (the "Agreement"), entered into and effective as of February 26, 1998 ("Effective Date"), is by and among Micron Technology, Inc., a Delaware corporation ("MTI"), Micron Electronics, Inc., a Minnesota corporation ("MEI"), and MCMS, Inc. (f/k/a Micron Custom Manufacturing Services, Inc.), an Idaho corporation (the "Company"). WHEREAS, this Agreement is made pursuant to that certain Amended and Restated Recapitalization Agreement dated as of February 1, 1998 by and among MEI, MEI California, Inc. (a wholly-owned subsidiary of MEI), the Company and Cornerstone Equity Investors IV, L.P. ("Investor") (the "Recapitalization Agreement"); WHEREAS, in connection with the transactions contemplated by the Recapitalization Agreement, the parties have each agreed to provide certain services on a transitional basis pursuant to the terms and conditions hereof; WHEREAS, the execution and delivery of this Agreement are conditions to the obligations of MEI and Investor under the Recapitalization Agreement; and WHEREAS, capitalized terms used and not otherwise defined herein shall have the meaning ascribed to those terms in the Recapitalization Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree and declare as follows: ARTICLE 1 PROVISION OF SERVICES 1.1 Scope of Services. MTI shall provide, or cause its Affiliates (other than MEI and its Affiliates) to provide, to the Company and its Affiliates the services described in items A through I of Attachment A. MEI shall provide, or cause its Continuing Affiliates to provide, to the Company and its Affiliates the services described in items J through P of Attachment A. The Company shall provide, or cause its Affiliates to provide, to MEI the services described in items Q through S of Attachment A. Each of the foregoing services shall be collectively referred to herein as the "Services". Each of the parties will perform their respective Services, or will ensure that their respective Services are performed, in a manner which is consistent with the scope of Services described herein or in Attachments A or B or, if not so described, which is substantially similar in scope, nature, quality and timeliness as those that the party has provided to the recipient in past practice. 1.1.1 The Services to be provided by MTI in accordance with item D(1) of Attachment A (Payroll) shall be: (i) the wiring of money to employee accounts, (ii) mailing checks, 2 and (iii) making deductions for taxes, the 401(k) savings plan, stock plan and other employee benefits, if any. 1.1.2 The Services to be provided by MTI in accordance with item A(1) of Attachment A (Financial Accounting Services) shall include administrative services such as, but not limited to: (i) printing of invoices, and (ii) general accounting for accounts receivables. 1.1.3 The Services to be provided by MTI in accordance with item B(1) of Attachment A (Personnel) shall include administrative services such as relocation, service awards, drug testing, PDS administration, suggestion program and consulting. 1.1.4 The Services to be provided by MTI in accordance with item F(1) of Attachment A (Benefits) shall be: (i) administrative services in connection with general employee benefits and personnel, (ii) the administration of COBRA benefits for employees of the Company, (iii) administrative services in connection with processing worker's compensation claims and administrative support in transitioning pension and welfare benefits and 401(k) plans to new programs or providers, including administrative support of MEI's 401(k) plan as a multiple employer plan (the "Multiple Employer Plan") as a result of the Recapitalization, and (iv) administration of the Company's short-term disability plan. 1.1.5 The Services to be provided by MEI in accordance with item L of Attachment A (Treasury) shall be reasonable assistance to effect the transition of cash management, and any training or other Special Projects to be billed at the appropriate hourly rate. 1.1.6 The Services to be provided by MTI and MEI in accordance with items C and N, respectively, of Attachment A (Tax) shall be administrative support involving issues in the following areas: sales tax, property tax, federal income tax, state income tax, international tax returns and, with respect to MEI only, personal income tax returns for ex-patriots in Malaysia and Belgium. 1.1.7 Notwithstanding anything in this Agreement, with respect to Personnel Services, Payroll Services and Benefits (as referred to herein and in Attachment A), the Company shall not require, and MTI shall not be under an obligation to provide to the Company, any practice, policy, interpretation, procedure or plan provision which deviates from MTI's practices, policies, interpretations, procedures or plan provisions with respect to such areas as of the Effective Date; provided, however, that MTI shall be required to continue to administer any such deviations by the Company from the foregoing practices, policies, interpretations, procedures or plan provisions which are administered by MTI as of the Effective Date. Further, the Company agrees to "mirror" any changes that MTI may make during the Term, in MTI's sole discretion, to the foregoing practices, policies, interpretations, procedures or plan provisions in such areas. 1.2 Access to Employees. At the Company's request and upon reasonable notice, MTI and MEI shall allow the Company reasonable access during business hours to their employees or their Affiliates' employees for the purpose of facilitating the Company's use of the Services; -2- 3 provided, however, that such access does not interfere with the business operations of MTI, MEI or their respective Affiliates, as applicable. 1.3 Existing Contracts. All existing contractual arrangements regarding the provision of Services between the Company and MTI or MEI or any of their Affiliates are hereby terminated or superseded, as appropriate, by this Agreement. 1.4 Proprietary Software. The parties' respective rights and obligations with respect to certain of the proprietary software of MTI and MEI are set forth in the "MTI Proprietary Software License Agreement" attached hereto as Attachment C and the "MEI Proprietary Software License Agreement" attached hereto as Attachment D. 1.5 Information Technology. MEI and MTI, respectively, will provide the Company with reasonable access to and support for their Internet Server, IntrAnet, Wide Area Network and use of their current PBX or, in MEI's and MTI's sole discretion, shall provide the Company with reasonable assistance to transition the Company to its own Internet Server, IntrAnet, Wide Area Network and PBX. MEI and the Company will implement and abide by the MEI/MCMS Technical Transition Plan set forth in Attachment A. 1.6 Transfer of Third Party Agreements. 1.6.1 Upon the request of the Company, MEI and MTI shall provide reasonable assistance to the Company to obtain the following third party software licenses and hardware maintenance agreements: a. Ross b. Digital Contract c. PDS d. Microsoft Select e. other software licenses reasonably required by the Company to be able to operate as a stand-alone entity 1.6.2 Upon the request of the Company, MEI and MTI shall provide reasonable assistance to the Company in obtaining agreements with the following vendors: a. Federal Express/UPS/DHL b. MCI/AT&T/US West c. Pagenet 1.6.3 MEI and MTI make no representations or warranties as to whether any of the foregoing third party software licenses or other agreements may be transferable to or obtainable by the Company on terms acceptable to the Company. 1.7 Baan Software. At the request of MTI, the Company shall provide reasonable assistance to help MTI obtain a license to the Baan software. The Company makes no representation -3- 4 or warranty as to whether any such software license may actually be obtained on terms acceptable to MTI. ARTICLE 2 CHARGE FOR SERVICES 2.1 Monthly Service Fee. Except as set forth in Sections 2.2 and 2.3, the monthly fees to be paid by the parties as of the Effective Date for each of the Services are set forth on Attachment A beside each Service (collectively, the "Monthly Service Fees"). For the time period between January 1, 1998 and the Effective Date, the Company shall pay MEI's and MTI's corporate allocations for those services that have been administered from MTI and MEI to the Company during that time period; provided, however, that MEI's corporate allocation to the Company for that time period shall not exceed $105,538 per any four-week fiscal month and $131,923 per any five-week fiscal month. The Company shall also pay for all Special Projects undertaken by MTI or MEI between January 1, 1998 and the Effective Date in connection with transitioning the Company to operate as a stand alone entity. In addition, the Company shall pay all fees and expenses (i) associated with MEI's conversion of its 401(k) plan to the Multiple Employer Plan, including determination letter costs and (ii) generated as a direct result of the Company's participation in the Multiple Employer Plan. The Company shall further pay its proportional share (based on the number of participants from the Company relative to the total number of participants) of the costs of administering the Multiple Employer Plan, including user fees (each of the foregoing with respect to the Multiple Employer Plan, the "MEP Fees"). 2.2 Special Projects/Hourly Rate Services. The items listed on Attachment A hereto as Special Projects and Hourly Rate Services (other than Special Projects commenced between January 1, 1998 and the Effective Date) shall be provided by MTI, MEI or the Company, as applicable, only upon the prior request of the receiving party. In advance of performing any such Special Project and/or Hourly Rate Services, the parties shall agree upon (i) the scope of the services to be provided, (ii) the number of hours and the personnel necessary to conduct such services, and (iii) the hourly rate to be charged for such services (unless such hourly rate has been specified on Attachment A hereto). If, during the course of performing any such Special Projects or Hourly Rate Services, the providing party determines that the work to be performed cannot be completed within the number of hours or using the same personnel as had been previously agreed to, the providing party shall promptly notify the receiving party thereof. The receiving party shall then have the right to approve additional expenditures or modifications of the project and/or services or cancel, by written notice, the project or services in their entirety. In the event the project and/or services are cancelled pursuant to this Section 2.2, the receiving party shall be obligated to pay, and the providing party shall be entitled to receive, the agreed upon remuneration for all hours expended on such project and/or services prior to receipt of written notice of cancellation. 2.3 Information Services Special Projects. The Company shall pay one hundred percent (100%) of the Monthly Service Fees with respect to Information Services Special Projects (as set forth in item H(2) of Attachment A and more fully described in Attachment B) ("ISSP Monthly Service Fees") until the total of such ISSP Monthly Service Fees equals $310,000. If the total of the -4- 5 ISSP Monthly Service Fees exceeds $310,000, the Company shall pay seventy five percent (75%) and MEI shall pay twenty five percent (25%) of such total ISSP Monthly Service Fees in excess of $310,000, until such total equals $410,000. If the total of the ISSP Monthly Service Fees exceeds $410,000, the Company and MEI shall each pay fifty percent (50%) of such total ISSP Monthly Service Fees in excess of $410,000. 2.4 Payment. After the Effective Date, the applicable service provider indicated on Attachment A shall provide invoices on or about the first day of every calendar month with respect to those Services it provided during the previous month. The parties shall also provide invoices for Special Projects and MEP Fees incurred beginning as of January 1, 1998. MTI and MEI shall further provide the Company with invoices for those corporate allocations charged to the Company between January 1, 1998 and the Effective Date. Invoices shall be payable within thirty (30) days after the date of such invoice. A per diem adjustment shall be made for any Service rendered for less than a full month on the basis of actual calendar days. 2.5 MTI Software Maintenance and Support. During the Term, MEI shall pay to MTI all charges assessed by MTI for software maintenance and support for the Company pursuant to item H of Attachment A, provided that the level of such maintenance and support does not exceed the Company's historical demand therefor and further provided that if the Company fails to meet the implementation dates set forth in Attachment B, the Company shall pay to MTI fifty percent (50%) of the charges assessed by MTI for the maintenance and support of the software for that period following the applicable implementation dates set forth on Attachment B. Notwithstanding the foregoing, MEI shall not pay for any software maintenance or support following the Term. ARTICLE 3 TERM AND TERMINATION OF SERVICES 3.1 Term. The term of this Agreement (the "Term") shall commence on the Effective Date, and unless terminated earlier pursuant to Sections 3.2 or 3.3, shall expire six (6) months thereafter, except that with respect to those Services that constitute maintenance and support for MIMS only, this Agreement shall continue for a period of twelve (12) months after the Effective Date. Notwithstanding the foregoing, the terms of the proprietary software licenses granted in connection herewith shall be as set forth in the MTI Proprietary Software License Agreement and the MEI Proprietary Software License Agreement (Attachments C and D, respectively). 3.2 Termination. The Company shall have the right at any time to terminate its receipt of any or all Services under this Agreement early by written notice to MEI or MTI, as applicable, specifying which Service or Services are to be terminated and the requested date of termination ("Termination Date"); provided, however, such notice must be given thirty (30) days in advance of the Termination Date. Upon the termination of some, but not all of the Services, the Monthly Service Fee shall be reduced by the amount set forth on Attachment A for such terminated Services. 3.3 Nonpayment. In the event any party does not make timely payment for Services in accordance with Section 2.4, the provider of such Services shall, in its sole discretion, have the right -5- 6 to either (i) charge interest on such unpaid amounts at the rate of 1.5% per month, or (ii) discontinue providing those Services relating to such nonpayment without further liability hereunder with respect to such Services. ARTICLE 4 INDEMNIFICATION; LIMITATION OF LIABILITY 4.1 Indemnity by MTI. Subject to the limitations set forth in Section 4.5, MTI shall indemnify, defend and hold the Company and its officers, directors and Affiliates harmless from and against any and all claims, liabilities, damages, losses, costs, expenses (including but not limited to settlements, judgments, court costs and reasonable attorneys' fees), fines and penalties (collectively, "Losses") due to or relating to MTI's provision of or failure to provide the Services only to the extent that such Losses result from the gross negligence or reckless or willful misconduct of MTI and/or any contractors or agents who are managed or directed by MTI, but in no event for Losses due to the Company's negligence or reckless or willful misconduct. 4.2 Indemnity by MEI. Subject to the limitations set forth in Section 4.5, MEI shall indemnify, defend and hold the Company and its officers, directors and Affiliates harmless from and against any and all Losses due to or relating to MEI's provision of or failure to provide the Services only to the extent that such Losses result from the gross negligence or reckless or willful misconduct of MEI and/or any contractors or agents who are managed or directed by MEI. 4.3 Indemnity by the Company. Subject to the provisions of the Recapitalization Agreement and the limitations set forth in Section 4.5 hereof, the Company shall indemnify, defend and hold MTI and MEI and their officers, directors and Affiliates harmless from and against any and all Losses (i) due to or relating to the operations and activities of the Company, except to the extent that such Losses are the direct result of the gross negligence or willful misconduct of MTI or MEI and/or any contractors or agents who are managed or directed by MTI or MEI, and (ii) relating to establishment and administration of a Multiple Employer Plan. 4.4 Term of Indemnity. The indemnities contained in this Article shall survive for a period of twelve (12) months after the termination or expiration of this Agreement. 4.5 Limitation of Liability. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, AT LAW OR IN EQUITY, IN NO EVENT SHALL ANY PARTY BE LIABLE FOR PUNITIVE, SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS OR BUSINESS INTERRUPTION) ARISING FROM OR RELATING TO ANY CLAIM MADE UNDER THIS AGREEMENT OR REGARDING THE PROVISION OF OR THE FAILURE TO PROVIDE THE SERVICES. -6- 7 ARTICLE 5 MISCELLANEOUS PROVISIONS 5.1 Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, this Agreement shall not be assignable or delegable by any party without the prior written consent of the other parties, which consent shall not be withheld unreasonably. 5.2 Third Persons. This Agreement is not intended to, and shall not, create any right in or confer any rights upon persons other than the parties hereto and, where applicable, their Affiliates. 5.3 Amendment and Waiver. No modification of or amendment to this Agreement shall be valid unless in writing and signed by each of the parties hereto referring specifically to this Agreement and stating the parties' intention to modify or amend the same. Any waiver of any term or condition of this Agreement must be in writing and signed by the party hereto sought to be charged with such waiver referring specifically to the term or condition to be waived, and no such waiver shall be deemed to constitute the waiver of any other breach of the same or of any other term or condition of this Agreement. 5.4 Status. The parties hereto shall perform all of the services hereunder as independent contractors and nothing contained herein shall be construed as constituting any of the parties as an agent or legal representative of any other party. None of the parties hereto shall have any responsibility with respect to the employees of any of the other parties. 5.5 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Idaho without reference to the choice of law principles thereof. 5.6 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall, subject to Section 5.12, become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. Copies of executed counterparts transmitted by telecopy, telefax or other electronic transmission service shall be considered original executed counterparts for purposes of this Section 5.6, provided receipt of copies of such counterparts is confirmed. 5.7 Choice of Forum. Each of the parties hereto agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than a federal court sitting in the State of Idaho or an Idaho state court. 5.8 Confidentiality. Each party recognizes that in the performance of this Agreement, confidential and/or proprietary information belonging to the other parties may be disclosed or become known to that party or its Affiliates ("Confidential Information"). Each party receiving Confidential Information shall instruct its employees and agents that Confidential Information shall be protected from unauthorized use or disclosure as if such information were Confidential Information of the receiving party, and shall ensure that an employee or agent who engages in the unauthorized use or disclosure shall be subject to the same consequences as would arise in the case -7- 8 of unauthorized use or disclosure of Confidential Information of the receiving party. This provision is in addition to and shall not supersede or modify any confidentiality, nondisclosure or other agreements containing obligations of confidentiality (including the Recapitalization Agreement) which were entered into by the parties prior to the Effective Date. 5.9 Notices. All notices and other communications hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, by telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below or to such other address or to the attention of such other person as one party may designate by written notice to the other parties hereto. Notice to MTI shall be addressed to: Micron Technology, Inc. 8000 South Federal Way Boise, ID 83707 Attention: General Counsel Telecopy: (208) 368-4540 Notice to MEI shall be addressed to: Micron Electronics, Inc. 900 East Karcher Road Nampa, Idaho 83687 Attention: General Counsel Telecopy: (208) 893-8711 with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Barry A. Bryer Telecopy: (212) 403-2000 Notice to the Company shall be addressed to: MCMS, Inc. 16399 Franklin Road Nampa, Idaho 83687 Attention: General Counsel Telecopy: (208) 893-8711 -8- 9 with a copy to: Cornerstone Equity Investors, L.L.C. 717 Fifth Avenue Suite 1100 New York, New York 10022 Attention: Tony Downer Michael E. Najjar Telecopy: (212) 826-6798 and Kirkland & Ellis 153 East 53rd Street New York, New York 10022 Attention: Frederick Tanne Telecopy: (212) 446-4900 5.10 Entire Agreement. This Agreement, including its Attachments, and the Recapitalization Agreement, including the schedules and exhibits attached thereto, embody the entire agreement of the parties with regard to the Services and supersede any prior communications, commitments, representations or warranties, both written and oral, relating to the Services. The foregoing to the contrary notwithstanding, nothing in this Agreement shall be deemed to bind MTI to the terms and provisions of the Recapitalization Agreement or the schedules and exhibits attached thereto. 5.11 Survival. The provisions of Sections 1.4, 5.5, 5.7, 5.8 and 5.9 and Article 4 shall survive expiration or termination of this Agreement. 5.12 Effectiveness. The parties' obligations under this Agreement are conditional upon the Closing, the occurrence of which is subject to various conditions set forth in the Recapitalization Agreement. This Agreement shall become operative if and when the Closing occurs and shall be null and void if the Closing does not occur for any reason. Nothing in this Agreement shall constitute a representation or promise that any party hereto shall proceed with the Closing or obligate any party to do so. 5.13 Specific Performance. Each of the parties agree that the Services to be provided under this Agreement are unique and that any breach on their part of this Agreement will be remediable by an order of specific performance. 5.14 Severability. Any provision of this Agreement which is invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability, without affecting in any way the remaining provisions hereof. -9- 10 5.15 Force Majeure. If any party is prevented from complying, either totally or in part, with any of the terms or provisions of this Agreement by reason of force majeure (including but not limited to fire, flood, earthquake, explosion, storm, strike, lockout or other labor trouble, riot, war, rebellion and/or acts of God), upon written notice by the party prevented from complying, the requirements of this Agreement, or such of its provisions as may be affected, shall be suspended during the period of such disability; provided that the party prevented from complying shall use its commercially reasonable efforts to remove such disability and shall continue performance with the utmost dispatch whenever such causes are removed. * * * * * -10- 11 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective authorized officers as of the date first written above. MICRON TECHNOLOGY, INC. By: /s/ W. G. Stover, Jr. --------------------------------- Name: W. G. STOVER, JR. Title: V. P. FINANCE, CFO MICRON ELECTRONICS, INC. By: --------------------------------- Name: Title: MCMS, INC. By: --------------------------------- Name: Title: 12 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective authorized officers as of the date first written above. MICRON TECHNOLOGY, INC. By: --------------------------------- Name: Title: MICRON ELECTRONICS, INC. By: /s/ T. Erik Oaas --------------------------------- Name: T. Erik Oaas Title: Executive Vice President MCMS, INC. By: --------------------------------- Name: Title: 13 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective authorized officers as of the date first written above. MICRON TECHNOLOGY, INC. By: --------------------------------- Name: Title: MICRON ELECTRONICS, INC. By: --------------------------------- Name: Title: MCMS, INC. By: /s/ Robert F. Subia --------------------------------- Name: Robert F. Subia Title: President and CEO 14 ATTACHMENT A
4-Week Month 5-Week Month ------------ ------------ Micron Technology, Inc. services provided to MCMS, Inc. A. FINANCIAL ACCOUNTING SERVICES 1. Ongoing $216 $270 2. Special Projects Hourly Rate Hourly Rate B. PERSONNEL SERVICES 1. Ongoing $408 $510 2. Special Projects Hourly Rate Hourly Rate C. TAX SERVICES Hourly Rate Hourly Rate D. PAYROLL SERVICES 1. Ongoing $3,033 $3,791 2. Special Projects Hourly Rate Hourly Rate E. RISK MANAGEMENT SERVICES Hourly Rate Hourly Rate F. BENEFITS 1. Ongoing $3,000 $3,750 2. Short Term Disability Actual UNUM Actual UNUM Charges Charges 3. Special Projects Hourly Rate Hourly Rate G. HEALTH SERVICES 1. Ongoing $1,360 $1,700 2. Special Projects Hourly Rate Hourly Rate H. INFORMATION SERVICES 1. Hardware Utilization/Software Maintenance and Support $9,220 $11,525 (including MIMS) 2. Special Projects Hourly Rate Hourly Rate I. HOURLY RATE SERVICES AND SPECIAL PROJECTS Other services and special projects will be provided at the following hourly rates: 1. Clerical $50/hour $50/hour 2. Professional, Manager, Director $100/hour $100/hour
-A-1- 15 ATTACHMENT A (cont'd)
4-Week Month 5-Week Month ------------ ------------ Micron Electronics, Inc. services provided to MCMS, Inc. J. CORPORATE ADMINISTRATION 1. Special Projects related to: Hourly Rate Hourly Rate Compensation Travel Health Services Risk Management Payroll Assistance Employee Benefits and Welfare K. ACCOUNTING Hourly Rate Hourly Rate L. TREASURY $2,767 $3,500 1. Special Projects Hourly Rate Hourly Rate M. [INTENTIONALLY OMITTED] N. TAX Hourly Rate Hourly Rate O. NETWORKING AND TELECOMMUNICATIONS 1. Ongoing a. Access to local and long distance, per phone line $6.00 $7.50 b. Long distance service Actual Actual c. Equipment (including switch), per phone line $13.68 $17.10 d. New phone installation with equipment $1,100 $1,100 (per installation) (per installation) e. Dedicated data line: Malaysia $9,100 $11,300 Durham $3,800 $4,800 f. Telecom installation, maintenance and troubleshooting Hourly Rate Hourly Rate g. Pager service: Local $8.00 each $8.00 each Nationwide $27.00 each $27.00 each 2. Incidentals Actual Actual 3. Special Projects Hourly Rate Hourly Rate
-A-2- 16 ATTACHMENT A (cont'd)
4-Week Month 5-Week Month ------------ ------------ P. HOURLY RATE SERVICES AND SPECIAL PROJECTS Other services and special projects will be provided at the following hourly rates: 1. Clerical, Supervisory $50/hour $50/hour 2. Professional, Manager, Director $100/hour $100/hour MCMS, Inc. services provided to Micron Electronics, Inc. Q. SpecTek Accounting 1. Ongoing $1,600 $1,995 2. Special Projects Hourly Rate Hourly Rate R. Cincom Software Support No Charge No Charge S. HOURLY RATE SERVICES AND SPECIAL PROJECTS Other services and special projects will be provided at the following hourly rates: 1. Clerical, Supervisory $50/hour $50/hour 2. Professional, Manager, Director $100/hour $100/hour
-A-3- 17 ATTACHMENT A (cont'd) MEI/MCMS TECHNICAL TRANSITION PLAN ATTACHED HERETO -A-4- 18 MEI/MCMS Technical Transition Plan SCOPE This plan describes the transition of network, telephony and Internet functions to ensure that MCMS, Inc. and Micron Electronics, Inc. ("MEI") can operate effectively in a stand alone fashion. This plan addresses the following areas: Network Equipment Telephony Equipment Connectivity, Numbering, & Addressing Internet MEI Equipment @ MCMS Facility NETWORK EQUIPMENT The attached spreadsheet entitled Network Equipment describes network equipment that was originally purchased to support the MCMS integration into the Nampa campus of MEI. It includes router equipment, router upgrade and data switch hardware. This equipment was purchased under the MCMS facility construction budget and all costs were allocated to MCMS. The router identified by Asset #201740 will be returned to MCMS in its entirety; the rest of the equipment will be retained by MEI and MEI will pay MCMS for the equipment as indicated.
Network Assets Transferred from MCMS to MEI $0 Network Assets Transferred to MEI from MCMS $65,000 - ------------------------------------------------------- NET Network Asset Transfer to MCMS ($65,000)
TELEPHONY EQUIPMENT The attached spreadsheet entitled Telephony Equipment describes telephony equipment that was originally purchased to support the MCMS integration into the Nampa campus of MEI. It includes cabinets, hand sets, and circuit packs. This equipment was purchased under the MCMS facility construction budget and all costs were allocated to MCMS. It also contains hands sets and circuit packs purchased by MEI to support general growth at MCMS. It also contains a proposed asset transfer of a telephone switch to allow MCMS to operate a stand alone PBX. MCMS must pay for all telephone handsets it purchases between the time of this report and the completion of the transition. The parties shall pay for the equipment transferred as indicated on the spreadsheet and as summarized below.
Telephony Assets Transferred to MCMS from MEI $46,395 Telephony Assets Transferred to MEI from MCMS $18,340 - ------------------------------------------------------- NET Telephony Asset Transfer to MCMS $28,055 TOTAL ASSETS TRANSFERRED - ------------------------ A total of all assets transferred to MCMS is as follows: Network Assets Transferred to MCMS: ($65,000) Telephony Assets Transferred to MCMS: $28,055 - ------------------------------------------------------- Total Assets Transferred to MCMS: ($36,945)
1 19 CONNECTIVITY, NUMBERING, & ADDRESSING Unless otherwise agreed to by the parties by amendment as provided for in the Transitional Services Agreement: 1. LAN: All LAN connections between MCMS and MEI shall be disconnected 90 days after closing. 2. WAN: All WAN connections supporting MCMS that are currently terminated in the MEI facility (e.g. Durham, Malaysia) shall be moved to the MCMS facility within 90 days of closing. MEI shall retain all CSU/DSU equipment located within MEI facilities. 3. NUMBERING: MCMS will retain use of DID ranges 898-2600 thru 2899 and 898-1000 thru 1289. Any numbers beyond these range required by MCMS must be obtained through MCMS's service provider. 4. IP Addressing: MCMS may retain use of internal IP addresses currently used by MCMS. Any external IP addresses shall be provided by MCMS. Existing external IP addresses currently being utilized by MCMS shall be retained by MEI. 5. FAX: MEI will cease providing FAX server services to MCMS 90 days after closing. 6. DIAL UP CONNECTIONS: MEI dial in connections (RAS) will no longer be available for use by MCMS 90 days after closing. 7. EMAIL: MEI will cease providing EMAIL services to MCMS 90 days after closing. 8. PAGING: MEI will cease to provide MCMS paging services 90 days after closing. INTERNET/INTRANET INTERNET MEI will cease providing external internet connectivity, web hosting services, and firewall services 90 days after closing. INTRANET All intranet files unique to MCMS will be transferred to MCMS via network connections or tape drives, whichever is in place at time of transfer. Transfer of the files is contingent on MCMS ability to provide intranet services. All files will be transferred within 90 days of closing. All "hot links" from MCMS Infonet pages to MEI Infonet pages will be removed at closing and all MCMS browsers will default to the MCMS home page. MCMS access to the MEI Infonet will be blocked as soon as the MCMS intranet is operational (expected by mid-March 1998). MEI PRESENCE AT MCMS The following equipment will be located at the MCMS facility as long as the MEI call center is located in the MCMS facility. This equipment will be dedicated to the sole use of MEI and will be operated and maintained by MEI personnel. MEI will retain title to the equipment. MEI will also require full access to the equipment on 7X24 basis with an MCMS IT escort. 2 20
COM1 M13SLSSWH1 172.30.20.254 M13SLSSWH2 172.30.20.234 COM4 M13COM4H1 172.30.20.253 M13COM4H2 172.30.20.252 M13COM4H3 172.30.20.243 M13COM4H4 172.30.20.242 M13COM4H5 172.30.20.241 M13COM4H6 172.30.20.237 M13COM4H7 172.30.20.236 M13COM4H8 172.30.20.235 Labeled as "Sales Net" M13COM4H10 172.30.20.232 Labeled as "Sales Net" M13COM4H11 172.30.20.231 Labeled as "Sales Net" M13COM4H12 172.30.20.230 M13COM4H13 172.30.20.228 Labeled as "Sales Net" Telephone Cabinet COM5 M13COM5H1 172.30.20.251 M13COM5H2 172.30.20.249 M13COM5H3 172.30.20.247 M13COM5H4 172.30.20.246 M13COM5H5 172.30.20.245 M13COM5H6 172.30.20.244 M13COM5H7 172.30.20.240 M13COM5H8 172.30.20.239 M13COM5H9 172.30.20.238 M13COM5H10 172.30.20.229 CMS Server Room M13MEICDDI1 172.30.20.248 _MEI13BDC1 172.30.20.1 CMS Conference Room 16 Video Conferencing Unit
3 21 Network Eqpt.
- --------------------------------------------------------------------------------------------------------------------------- ASSET # DESCRIPTION STATUS TRANSFER INFORMATION Fair Market AMOUNT AMOUNT Value TRANSFERRED TRANSFERRED TO MEI TO MCMS =========================================================================================================================== 201740 Router Resides at MEI Hardware can be moved to N/A N/A N/A Karcher facility. MCMS Supports only MCMS. - --------------------------------------------------------------------------------------------------------------------------- 201741 Router Resides at MEI Hardware cannot be moved $30,000.00 $30,000.00 N/A Karcher facility. to MCMS. Transfer must be Shared between MEI dollars only. & MCMS. - --------------------------------------------------------------------------------------------------------------------------- 201742 Switch Resides at MEI Hardware cannot be moved $10,000.00 $10,000.00 N/A Karcher facility. to MCMS. Transfer must be Shared between MEI dollars only. & MCMS. - --------------------------------------------------------------------------------------------------------------------------- 201743 Switch Resides at MEI Hardware cannot be moved $10,000.00 $10,000.00 N/A Karcher facility. to MCMS. Transfer must be Shared between MEI dollars only. & MCMS. Purchase Price - $16.5K. - --------------------------------------------------------------------------------------------------------------------------- 201745 Router Upgrade Resides at MEI WAN Hardware cannot be moved $15,000.00 $15,000.00 N/A router located at the to MCMS. Transfer must be Karcher facility. dollars only. Shared between MEI & MCMS. Purchase Price - $25K. =========================================================================================================================== Total $65,000.00 - ---------------------------------------------------------------------------------------------------------------------------
Micron Electronics, Inc. Confidential Network Eqpt. Page 1 22 Telephony Equipment
- --------------------------------------------------------------------------------------------------------------------------- P.O. # DESCRIPTION STATUS TRANSFER Fair Market AMOUNT AMOUNT INFORMATION Value TRANSFERRED TRANSFERRED TO MEI TO MCMS =========================================================================================================================== A35335 EPN Cabinet Resides at MCMS Assets can be retained N/A N/A facility. Used by MCMS solely by MCMS. Purchase price - $19K. Purchased under MCMS construction budget. - --------------------------------------------------------------------------------------------------------------------------- A35335 EPN Cabinet Resides in new MEI Must be retained $ 18,340.00 $ 18,340.00 N/A manufacturing facility. by MEI Purchase price - $19K. Purchased under MCMS construction budget. - --------------------------------------------------------------------------------------------------------------------------- A35335 Phone Sets Reside in MCMS Assets can be retained N/A N/A facility. Solely used by MCMS by MCMS. Purchase price - $82.5K. Purchased under MCMS construction budget. - --------------------------------------------------------------------------------------------------------------------------- A35335 20 Circuit Packs Reside in MCMS Assets can be retained N/A N/A ($2350 ea.) facility. Solely used by MCMS by MCMS. Purchase price - $47.1K. Purchased under MCMS construction budget. - --------------------------------------------------------------------------------------------------------------------------- Various 3 Circuit Packs Reside in MCMS Assets can be retained facility. Solely used by MCMS by MCMS. Purchased by MEI from telecom growth budget. - --------------------------------------------------------------------------------------------------------------------------- 220173-0000 ANALOG CARDS, 16-PORT (3 EA) $ 5,700.00 N/A $ 5,700.00 - --------------------------------------------------------------------------------------------------------------------------- Various 4 Circuit Packs Reside in MCMS Assets can be retained ($4100 ea.) facility. Solely used by MCMS by MCMS. Purchased by MEI from telecom growth budget. - --------------------------------------------------------------------------------------------------------------------------- NO Asset # TN2224 (4 each) $ 16,400.00 N/A $ 16,400.00 - ---------------------------------------------------------------------------------------------------------------------------
Micron Electronics, Inc. Confidential 2/16/98 Page 1 23 Telephony Equipment
- --------------------------------------------------------------------------------------------------------------------------- P.O. # DESCRIPTION STATUS TRANSFER Fair Market AMOUNT AMOUNT INFORMATION Value TRANSFERRED TRANSFERRED TO MEI TO MCMS =========================================================================================================================== Various 2 Phone sets Reside in MCMS Asset can be retained ($695 ea.) facility. Solely used by MCMS by MCMS. Purchased by MEI from telecom growth budget. - --------------------------------------------------------------------------------------------------------------------------- 220137-0000 8434 PHONE SETS (2 EA) $ 1,390.00 N/A $ 1,390.00 - --------------------------------------------------------------------------------------------------------------------------- Various 23 Phone sets Reside in MCMS Asset can be retained ($375 ea.) facility. Solely used by MCMS by MCMS. Purchased by MEI from telecom growth budget. - --------------------------------------------------------------------------------------------------------------------------- 220101-0000 8410 PHONE SETS (23 EA) $ 8,625.00 N/A $ 8,625.00 - --------------------------------------------------------------------------------------------------------------------------- Various 24 Phone sets Reside in MCMS Asset can be retained ($595 ea.) facility. Solely used by MCMS by MCMS. Purchased by MEI from telecom growth budget. - --------------------------------------------------------------------------------------------------------------------------- 220138-0000 8411 PHONE SETS (20) $ 11,900.00 N/A $ 11,900.00 220136-0000 8412 PHONE SETS (4) $ 2,380.00 N/A $ 2,380.00 - --------------------------------------------------------------------------------------------------------------------------- Total $ 18,340.00 $ 46,395.00 - ---------------------------------------------------------------------------------------------------------------------------
Micron Electronics, Inc. Confidential 2/16/98 Page 2 24 ATTACHMENT B IT Transition Requirements Between MTI and MCMS
Migration Testing/Implementation Total --------- ---------------------- ----- Payroll 800 400 1,200 MIMS 600 200 800 System Utilities 500 500 Ross GL/FA 200 100 300 Manufacturing 150 100 250 Network 50 50 Total 2,250 850 3,100
PAYROLL 1. Jan 1 -- MCMS begins selection process for 3rd party provider for payroll and benefit services. (MTI provides limited service) It is the expectation of MCMS to select benefit providers that mirror the current MTI benefits. Limited amount of development will be necessary. 2. Feb -- MCMS meets with AON to define project plan for 3rd party payroll processing services 3. Feb -- MTI provides resources to define and enter data necessary to provide payroll services for MCMS employees on their new benefit plan. 4. Apr-May-June -- MTI, CMS and 3rd party provider define and develop system migration requirements and develop and implement strategy. MTI dedicates 2 FTE people to the project for two months. These estimated hours spent by MTI is 800 hours. 5. July-Aug -- Testing, Training and Parallel process occurs. MTI provides personnel for approximately 400 hours to provide test/conversion support 6. Sept -- Live on 3rd party payroll, MTI drops processing of MCMS payroll. Supporting applications for benefits, personnel (time Sheet, PCR, and TimeOff). The 3rd party provider should have their own application software to provide input for these systems. However, if they do not, MCMS would acquire from MTI the application code for the software. IT would be the responsibility of MCMS to integrate the applications with the third party provider of the payroll systems. Determination for the actual usage of the software will be done as part of the 3rd party selection process. Training has been converted by MTI. MCMS will utilize these systems in a standalone mode. Implementation of this, it is expected to implement by 1 April. Applicant Tracking -- Used heavily by MCMS personnel department. A project would be established for the migration of CMS data. Associated hours are included in the 800 hour payroll migration estimate. However, because of the tight integration with the MTI payroll system (PDS) it is not a functional product until the separation from MTI is completed. -B-1- 25 Other associated applications (Time Sheet, Time off, Personnel Change Request, New Employee) will be evaluated for use with the new 3rd party software. There is no requirement except to provide the source code and data structures by MTI. MIMS Effort for MIMS is composed of 4 month effort. There will also be 12 months of phone support provided by MTI after the Closing. It is expected that the conversion process will take 600 hours of direct support on the MIMS Systems, and an additional 500 hours for related peripheral systems such as Mail, Paging, and runtime routines. Following conversion there will be an additional effort of 200 hours for testing and parallel processing before final implementation. 1. Jan -- begin project planning, review hardware planning, install MIMS and related software. 2. Jan-Feb -- data migration begins 3. Mar-April -- testing and implementation 4. April 6th is the current scheduled date the MTI will convert data and MCMS will begin final testing. 5. May 1 -- scheduled completion of the project for MCMS. ROSS - GENERAL LEDGER AND FA 300 hours -- Project is composed of 200 hours for data conversion and 100 hours for support after implementation. Project time line: 1. Jan-Feb -- Meeting with Ross System and acquire licenses as necessary. 2. Feb-Mar -- Define design and develop data conversion effort 3. Apr-May -- Parallel testing effort and implementation for GI, Fixed Asset, and Currency Management MANUFACTURING 150 hours porting data; 100 hours following migration. Manufacturing is composed of several smaller programs that are being replaced currently by other methods, but still may be needed for a period of time. The applications are to be transferred to MCMS as they are now composed. If data cleanup is found to be necessary then it is expected to be limited in scope and estimated at 150 hours. After migration, it is expected there would be 100 hours of additional support that may be necessary. Project Time line -B-2- 26 1. Jan/Feb Meet with MCMS management team to define the actual requirements for migration. Design and develop required migration plans for the following applications: ECN -- Engineering Change Notice SPEC -- Specifications (process is currently migrating to Network based specs) OperCert - Operator Certification 2. Mar/Apr -- MCMS will test applications as needed. 3. May 1 is scheduled date for implementation of applications. -B-3- 27 ATTACHMENT C MTI PROPRIETARY SOFTWARE LICENSE AGREEMENT This MTI PROPRIETARY SOFTWARE LICENSE AGREEMENT ("Agreement"), entered into and effective as of February __, 1998 ("Effective Date"), is by and between Micron Technology, Inc., a Delaware corporation ("Licensor") and MCMS, Inc. (f/k/a Micron Custom Manufacturing Services, Inc.), an Idaho corporation ("Licensee"). WHEREAS, this Agreement is made pursuant to that certain Amended and Restated Recapitalization Agreement dated as of February 1, 1998, by and among Licensee, Micron Electronics, Inc., a majority-owned subsidiary of Licensor ("MEI"), MEI California, Inc. (a wholly-owned subsidiary of MEI) and Cornerstone Equity Investors IV, L.P. ("Investor") (the "Recapitalization Agreement"), and more particularly Exhibit A (Transitional Service Agreement Term Sheet) attached thereto; WHEREAS, in connection with the transactions contemplated by the Recapitalization Agreement, Licensee desires to obtain from Licensor, and Licensor has agreed to grant to Licensee, a license in perpetuity to use the Software (as defined herein) upon the terms and conditions set forth below; and WHEREAS, the execution and delivery of this Agreement are conditions to the obligations of MEI and Investor under the Recapitalization Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree and declare as follows: 1. DEFINITIONS. The following terms when used herein with initial capital letters (whether used in the singular or plural form) shall have the meaning set forth in this Section 1. All other capitalized terms used by not otherwise defined herein shall have the respective meanings assigned to them in the Recapitalization Agreement. (a) Affiliate. The term "Affiliate" shall mean any person, and any corporation, partnership or other entity, that directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with the party specified. (b) Derivative Work. The term "Derivative Work" shall mean a work which is based upon one or more preexisting works, such as a modification, revision, enhancement, translation, condensation, expansion, or any other form in which such preexisting work may be recast, transformed, or adapted. For purposes hereof, a Derivative Work shall include any compilation that incorporates a preexisting work. 28 (c) MCMS Business. The term "MCMS Business" shall mean the design, assembly and testing of custom complex printed circuit boards, memory intensive products and system level assemblies for third party electronics original equipment manufacturers. (d) Software. The term "Software" shall mean Licensor's proprietary software programs that fall within the categories listed on Schedule A attached hereto and Licensor's customized applications of the software programs listed on Schedule B, in both object code and source code format, and any related specifications, instructions and documentation (including by way of example, user manuals and schematics), and further including any of Licensor's upgrades of such software programs (in object code and source code format) and the documentation related thereto to the extent Licensor upgrades such programs and documentation for its own use during the term of this Agreement. 2. LICENSE. (a) Grant of License. Licensor hereby grants to Licensee, and Licensee hereby accepts, a worldwide, perpetual, paid-up, royalty-free, nonexclusive, nontransferable right and license to use the Software in the conduct of the MCMS Business and the right to prepare and have prepared Derivative Works of the Software for use in the conduct of the MCMS Business. The foregoing rights and licenses granted hereunder shall extend to the benefit of Licensee's Affiliates provided that such Affiliates agree in writing to assume and abide by the obligations and restrictions established hereunder. (b) License Restrictions. The foregoing license is subject to the following restrictions: (i) Licensee may not copy the Software without the prior written consent of Licensor except (1) to make a copy of any part of the Software to the extent such copying is required in the utilization of the Software in the MCMS Business or (2) to create a Derivative Work. Licensee may copy the system documentation provided by Licensor in connection with Licensee's permitted use of the Software. (ii) Licensee may not sell, sublicense, convey, transfer, assign (other than in accordance with Section 7(a) hereof), make available for time-sharing or service bureau purposes or otherwise provide the Software to any third party without Licensor's prior written approval. (iii) Licensee may not publish or otherwise disclose to third parties, or permit its employees or agents or anyone else to publish or disclose to third parties, the Software for purposes other than those contemplated by this Agreement without Licensor's prior written approval. (c) Reservation of Rights. No rights are granted under the Software except as expressly set forth in this Article 2, and all rights not expressly granted are reserved. -2- 29 (d) Delivery. Within thirty (30) days after the Effective Date of this Agreement, Licensor shall deliver to Licensee two (2) copies of magnetic or optical (i.e., CD-ROM) media containing both source code and object code which embody the Software, and any related documentation. (e) Maintenance and Upgrades. For a period of six (6) months following the Effective Date, Licensor shall provide Licensee with the benefit of all upgrades, modifications and enhancements to, and maintenance of, the Software to the same extent that Licensor upgrades, modifies, enhances and maintains the Software for its own use; provided, however, that with respect to the software listed on Schedule A under the heading "MIMS," the foregoing obligations shall continue for a period of twelve (12) months following the Effective Date. (f) Archival Copies. For a period of six (6) years following the Effective Date, Licensor shall make reasonably available to Licensee archival copies of the Software that fall within categories I and II of Exhibit A attached hereto and the data associated therewith. 3. LIMITATION OF LIABILITY. ANY PROVISION IN THE TRANSITION SERVICES AGREEMENT NOTWITHSTANDING THE SOFTWARE IS LICENSED ON AN "AS IS" BASIS WITHOUT ANY WARRANTY. ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, FUNCTIONALITY, ABILITY TO INTERFACE WITH OTHER SOFTWARE AND NONINFRINGEMENT, ARE HEREBY DISCLAIMED. IN NO EVENT SHALL LICENSOR BE LIABLE FOR LOSS OF PROFITS, LOSS OR INTERRUPTION OF BUSINESS, INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR OTHER DAMAGES ARISING OUT OF OR RELATING TO LICENSEE'S USE OF THE SOFTWARE, EVEN IF LICENSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 4. PROPRIETARY RIGHTS. (a) Software. As between Licensor and Licensee, title to the Software and all intellectual property rights therein, including without limitation any copyright, trade secret, patent and other proprietary rights, any registrations of and the right to register any of the foregoing, and any and all renewals and extensions of any such copyright or patent, are and shall at all times remain the property of Licensor. Copyright registrations or other intellectual property right protection for the Software shall only be obtained and maintained by Licensor in its name and at its expense and discretion. All authorized copies of the Software and related documentation shall reproduce Licensor's copyright and confidentiality notices or shall otherwise bear a notice as reasonably specified by Licensor from time to time. (b) Derivative Works. As between Licensor and Licensee, title to any authorized Derivative Work of the Software prepared by or for Licensee and all intellectual property rights therein, including without limitation any copyright, trade secret, patent and other proprietary rights, and registrations of and the right to register any of the foregoing, and any and all renewals -3- 30 and extensions of any such copyright or patent, shall be the property of Licensor. Copyright registrations or other intellectual property right protection for any Derivative Work prepared by or for Licensee shall only be obtained and maintained by Licensor in its name and at its expense and discretion. Licensee shall be licensed to use such Derivative Works on the same terms and conditions as set forth herein respecting Software. 5. CONFIDENTIALITY AND NONDISCLOSURE. Licensee shall keep the Software in confidence by using at least the same physical and other security measures as Licensee uses for its own confidential technical information and documentation. Licensee shall not disclose and, except as otherwise provided in this Agreement, shall not make or permit others to make copies or reproductions of the Software, or any aspect thereof, to anyone other than those of its employees, agents or independent contractors (including, without limitation, software developers, systems integration companies, technical support consultants, and outsourcing companies) who have a need to know and are bound to protect such information against any other use or disclosure. The foregoing shall not prohibit or limit Licensee's use of information (i) independently developed by Licensee without reference to the Software; (ii) acquired by it from a third party without continuing restriction on use; or (iii) which is, or becomes, publicly available through no breach by Licensee of this Agreement. 6. TERMINATION. (a) By Licensee. Licensee may terminate this Agreement with respect to any or all of the Software at any time upon thirty (30) days prior written notice to Licensor. (b) By Licensor. Licensor may terminate this Agreement upon forty-five (45) days' written notice to Licensee if Licensee is in material breach or default of any term or condition of this Agreement, provided that such material breach or default is not cured within said forty-five (45) day period. (c) Events Upon Termination. Upon termination of this Agreement for any reason, the following provisions shall have effect: (i) All rights and licenses granted to Licensee hereunder shall immediately cease and all rights in the Software shall revert to Licensor. (ii) Licensee shall promptly cease all use of the Software but, in any event, shall cease such use within thirty (30) days of termination of this Agreement. (iii) Licensee shall promptly return to Licensor the Software, all disks, tapes and other tangible items embodying the Software and all copies of related documentation, or shall certify to Licensor in writing that the foregoing have been destroyed. (iv) Termination of this Agreement shall not affect the continued enforceability of Article 5. -4- 31 (d) Indemnification. Licensee shall indemnify, defend and hold Licensor harmless from any and all claims, suits or judgments to which Licensor may be or is exposed arising out of any breach of the provisions herein by Licensee. 7. MISCELLANEOUS. (a) Successors and Assigns. This Agreement and Licensor's rights and obligations hereunder shall be freely assignable and transferable by Licensor; provided, however, that as a condition to the effectiveness of such assignment, such assignee shall affirm in writing its agreement to be bound by all of the obligations of Licensor hereunder. Licensee may not assign, delegate or transfer this Agreement or any of its rights, interests or obligations hereunder to anyone without the prior written consent of Licensor. For purposes of this Section 7(a), any merger, consolidation, sale of substantially all of Licensee's assets or transfer of a controlling interest in Licensee ("Transaction") shall be deemed to be an attempted assignment, delegation or transfer of the rights and obligations under this Agreement and shall require the prior written consent of Licensor. In the absence of obtaining such prior written consent, this Agreement shall be deemed terminated as of the day immediately preceding the effective date of such Transaction. (b) Waivers and Amendments. No modification of or amendment to this Agreement shall be valid unless in a writing signed by the parties hereto referring specifically to this Agreement and stating the parties' intention to modify or amend the same. Any waiver of any term or condition of this Agreement must be in a writing signed by the party hereto sought to be charged with such waiver referring specifically to the term or condition to be waived, and no such waiver shall be deemed to constitute the waiver of any other breach of the same or of any other term or condition of this Agreement. (c) Notices. All notices and other communications hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below or to such other address or to the attention of such other person as one party may designate by written notice to the other party hereto. Notices to Licensor shall be addressed to: Micron Technology, Inc. 8000 South Federal Way Boise, Idaho 83707 Attention: General Counsel Telecopy No: (208) 368-4540 -5- 32 Notices to Licensee shall be addressed to: MCMS, Inc. 16399 Franklin Road Nampa, Idaho 83687 Attention: General Counsel Telecopy No: (208) 893-8711 (d) Interpretation. The headings and captions contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. The use of the word "including" herein shall mean "including without limitation." (e) No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any person. (f) Entire Agreement. This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, whether written or oral, relating to such subject matter. (g) Severability. Any provision of this Agreement which is invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability without affecting in any way the remaining provisions hereof. (h) Relationship of Parties. Except as specifically provided herein, neither Licensor nor Licensee shall act or represent or hold itself out as having authority to act as an agent or partner of the other party, or in any way bind or commit the other party to any obligations. The rights, duties, obligations and liabilities of the parties shall be several and not joint or collective, and nothing contained in this Agreement shall be construed as creating a partnership, joint venture, agency, trust or other association of any kind, each party being individually responsible only for its obligations as set forth in this Agreement. (i) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Idaho without reference to the choice of law principles thereof. (j) Choice of Forum. Each of the parties hereto agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than a federal court sitting in the State of Idaho or an Idaho state court. -6- 33 (k) Counterparts. This Agreement may be executed in one or more counterparts (including by means of telecopied signature pages), all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other party. * * * * * -7- 34 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. MICRON TECHNOLOGY, INC. MCMS, INC. By:_________________________ By:___________________________ Name: ______________________ Name:_________________________ Title:______________________ Title:________________________ 35 SCHEDULE A Categories of MTI Proprietary Software I. Payroll II. MIMS A. Sales B. Finished Goods C. Shipping D. Export License E. Accounts Receivable F. Credit G. Return Material H. EDI with Sales/Accounts I. MTI Shipping Agent J. Any other modules necessary or useful for the complete effective implementation or utilization of MIMS III. General Employee Benefits IV. Personnel V. Training VI. Applicant Tracking 36 SCHEDULE B Customized Applications SPECS ECN Manufacturing Part Lookup Operator Certification Accident Reporting Hazardous Material Tracking 37 ATTACHMENT D MEI PROPRIETARY SOFTWARE LICENSE AGREEMENT This MEI PROPRIETARY SOFTWARE LICENSE AGREEMENT ("Agreement"), entered into and effective as of February __, 1998 ("Effective Date"), is by and between Micron Electronics, Inc., a Minnesota corporation ("Licensor") and MCMS, Inc. (f/k/a Micron Custom Manufacturing Services, Inc.), an Idaho corporation, and its wholly-owned subsidiaries (collectively, "Licensee"). WHEREAS, this Agreement is made pursuant to that certain Amended and Restated Recapitalization Agreement dated as of February 1, 1998, by and among Licensee, Licensor, MEI California, Inc. (a wholly-owned subsidiary of Licensor) and Cornerstone Equity Investors IV, L.P. ("Investor") (the "Recapitalization Agreement"), and more particularly Exhibit A (Transitional Service Agreement Term Sheet) attached thereto; WHEREAS, in connection with the transactions contemplated by the Recapitalization Agreement, Licensee desires to obtain from Licensor, and Licensor has agreed to grant to Licensee, a license in perpetuity to use the Software (as defined herein) upon the terms and conditions set forth below; and WHEREAS, the execution and delivery of this Agreement are conditions to the obligations of Licensor and Investor under the Recapitalization Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree and declare as follows: 1. DEFINITIONS. The following terms when used herein with initial capital letters (whether used in the singular or plural form) shall have the meaning set forth in this Section 1. All other capitalized terms used by not otherwise defined herein shall have the respective meanings assigned to then in the Recapitalization Agreement. (a) Derivative Work. The term "Derivative Work" shall mean a work which is based upon one or more preexisting works, such as a modification, revision, enhancement, translation, condensation, expansion, or any other form in which such preexisting work max be recast, transformed, or adapted. For purposes hereof, a Derivative Work shall include any compilation that incorporates a preexisting work. (b) MCMS Business. The term "MCMS Business" shall mean the design, assembly and testing of custom complex printed circuit boards, memory intensive products and system level assemblies for third party electronics original equipment manufacturers. 38 (c) Software. The term "Software" shall mean any version of Licensor's proprietary Legal Department Docket software program, in both object code and source code format, and any related specifications, instructions and documentation (including by way of example, user manuals and schematics) and further including any of Licensor's upgrades of such software programs (in object code and source code format) and the documentation related thereto to the extent Licensor upgrades such programs and documentation for its own use during the term of this Agreement. 2. LICENSE. (a) Grant of License. Licensor hereby grants to Licensee, and Licensee hereby accepts, a worldwide, perpetual, paid-up, royalty-free, non-exclusive, nontransferable right and license to use the Software in the conduct of the MCMS Business and the right to prepare and have prepared Derivative Works of the Software for use in the conduct of the MCMS Business. (b) License Restrictions. The foregoing license is subject to the following restrictions: (i) Licensee may not copy the Software without the prior written consent of Licensor except (1) to make a copy of any part of the Software to the extent such copying is required in the utilization of the Software in the MCMS Business, (2) to make an archival or back-up copy of the Software and related documentation or (3) to create a Derivative Work. Licensee may copy the system documentation provided by Licensor in connection with Licensee's permitted use of the Software. (ii) Licensee may not sell, sublicense, convey, transfer, assign (other than in accordance with Section 7(a) hereof), make available for time-sharing or service bureau purposes or otherwise provide the Software to any third party without Licensor's prior written approval. (iii) Licensee may not publish or otherwise disclose to third parties, or permit its employees or agents or anyone else to publish or disclose to third parties, the Software for purposes other than those contemplated by this Agreement without Licensor's prior written approval. (c) Reservation of Rights. No rights are granted under the Software except as expressly set forth in this Article 2, and all rights not expressly granted are reserved. (d) Delivery. Within thirty (30) days after the Effective Date of this Agreement, Licensor shall deliver to Licensee two (2) copies of magnetic or optical (i.e., CD-ROM) media containing both source code and object code which embody the Software, and any related documentation. -2- 39 3. LIMITATION OF LIABILITY. ANY PROVISION IN THE TRANSITION SERVICES AGREEMENT NOTWITHSTANDING, THE SOFTWARE IS LICENSED ON AN "AS IS" BASIS WITHOUT ANY WARRANTY OTHER THAN ANY WARRANTIES SET FORTH IN THE RECAPITALIZATION AGREEMENT. ALL OTHER WARRANTIES EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, FUNCTIONALITY, ABILITY TO INTERFACE WITH OTHER SOFTWARE AND NON-INFRINGEMENT, ARE HEREBY DISCLAIMED. IN NO EVENT SHALL LICENSOR BE LIABLE FOR LOSS OF PROFITS, LOSS OR INTERRUPTION OF BUSINESS, INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR OTHER DAMAGES ARISING OUT OF OR RELATING TO LICENSEE'S USE OF THE SOFTWARE, EVEN IF LICENSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 4. PROPRIETARY RIGHTS. (a) Software. As between Licensor and Licensee, title to the Software and all intellectual property rights therein, including without limitation any copyright, trade secret, patent and other proprietary rights, any registrations of and the right to register any of the foregoing, and any and all renewals and extensions of any such copyright or patent, are and shall at all times remain the property of Licensor. Copyright registrations or other intellectual property right protection for the Software shall only be obtained and maintained by Licensor in its name and at its expense and discretion. All authorized copies of the Software and related documentation shall reproduce Licensor's copyright and confidentiality notices or shall otherwise bear a notice as reasonably specified by Licensor from time to time. (b) Derivative Works. As between Licensor and Licensee, title to any authorized Derivative Work of the Software prepared by or for Licensee and all intellectual property rights therein, including without limitation any copyright, trade secret, patent and other proprietary rights, and registrations of and the right to register any of the foregoing, and any and all renewals and extensions of any such copyright or patent, shall be the property of Licensor. Copyright registrations or other intellectual property right protection for any Derivative Work prepared by or for Licensee shall only be obtained and maintained by Licensor in its name and at its expense and discretion. Licensee shall be licensed to use such Derivative Works on the same terms and conditions as set forth herein respecting Software. 5. CONFIDENTIALITY AND NONDISCLOSURE. Licensee shall keep the Software in confidence by using at least the same physical and other security measures as Licensee uses for its own confidential technical information and documentation. Licensee shall not disclose and, except as otherwise provided in this Agreement, shall not make or permit others to make copies or reproductions of the Software, or any aspect thereof, to anyone other than those of its employees, agents or independent contractors (including, without limitation, software developers, systems integration companies, technical support -3- 40 consultants, and outsourcing companies) who have a need to know and are bound to protect such information against any other use or disclosure. The foregoing shall not prohibit or limit Licensee's use of information (i) independently developed by Licensee without reference to the Software; (ii) acquired by it from a third party without continuing restriction on use; or (iii) which is, or becomes, publicly available through no breach by Licensee of this Agreement. 6. TERMINATION. (a) By Licensee. Licensee may terminate this Agreement at any time upon thirty (30) days prior written notice to Licensor. (b) By Licensor. Licensor may terminate this Agreement upon ninety (90) days' written notice to Licensee if Licensee is in material breach or default of any term or condition of this Agreement, provided that such material breach or default is not cured within said ninety (90) day period. (c) Events Upon Termination. Upon termination of this Agreement for any reason, the following provisions shall have effect: (i) All rights and licenses granted to Licensee hereunder shall immediately cease and all rights in the Software shall revert to Licensor. (ii) Licensee shall promptly cease all use of the Software but, in any event, shall cease such use within thirty (30) days of termination of this Agreement. (iii) Licensee shall promptly return to Licensor the Software, all disks, tapes and other tangible items embodying the Software and all copies of related documentation, or shall certify to Licensor in writing that the foregoing have been destroyed. (iv) Termination of this Agreement shall not affect the continued enforceability of Article 5. (d) Indemnification. Licensee shall indemnify, defend and hold Licensor harmless from any and all claims, suits or judgments to which Licensor may be or is exposed arising out of any breach of the provisions herein by Licensee. 7. MISCELLANEOUS. (a) Successors and Assigns. This Agreement and Licensor's rights and obligations hereunder shall be freely assignable and transferable by Licensor; provided, however, that as a condition to the effectiveness of such assignment, such assignee shall affirm in writing its agreement to be bound by all of the obligations of Licensor hereunder. Licensee may not assign, delegate or transfer this Agreement or any of its rights, interests or obligations hereunder without the prior written consent of Licensor; provided, however, that Licensee may assign its rights and -4- 41 obligations under this Agreement to a successor in interest to the MCMS Business that assumes in writing all of Licensee's obligations hereunder. (b) Waivers and Amendments. No modification of or amendment to this Agreement shall be valid unless in a writing signed by the parties hereto referring specifically to this Agreement and stating the parties' intention to modify or amend the same. Any waiver of any term or condition of this Agreement must be in a writing signed by the party hereto sought to be charged with such waiver referring specifically to the term or condition to be waived, and no such waiver shall be deemed to constitute the waiver of any other breach of the same or of any other term or condition of this Agreement. (c) Notices. All notices and other communications hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered personally, sent by documented overnight delivery service or, to the extent receipt is confirmed, telecopy, telefax or other electronic transmission service to the appropriate address or number as set forth below or to such other address or to the attention of such other person as one party may designate by written notice to the other party hereto. Notices to Licensor shall be addressed to: Micron Electronics, Inc. 900 East Karcher Road Nampa, Idaho 83687 Attention: General Counsel Telecopy No: (208) 898-7411 Notices to Licensee shall be addressed to: MCMS, Inc. 16399 Franklin Road Nampa, Idaho 83687 Attention: General Counsel Telecopy No: (208) 893-8711 (d) Interpretation. The headings and captions contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. The use of the word "including" herein shall mean "including without limitation." (e) No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any person. (f) Entire Agreement. This Agreement and the Recapitalization Agreement contain the entire agreement and understanding between the parties hereto with respect to the subject -5- 42 matter hereof and supersede all prior agreement and understandings, whether written or oral, relating to such subject matter. (g) Severability. Any provision of this Agreement which is invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability, without affecting in any way the remaining provisions hereof. (h) Relationship of Parties. Except as specifically provided herein, neither Licensor nor Licensee shall act or represent or hold itself out as having authority to act as an agent or partner of the other party, or in any way bind or commit the other party to any obligations. The rights, duties, obligations and liabilities of the parties shall be several and not joint or collective, and nothing contained in this Agreement shall be construed as creating a partnership, joint venture, agency, trust or other association of any kind, each party being individually responsible only for its obligations as set forth in this Agreement. (i) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Idaho without reference to the choice of law principles thereof. (j) Consent to Jurisdiction. Each of the parties hereto agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than a federal court sitting in the State of Idaho or an Idaho state court. (k) Counterparts. This Agreement may be executed in one or more counterparts (including by means of telecopied signature pages), all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the parties and delivered to the other party. * * * * * -6- 43 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. MICRON TECHNOLOGY, INC. MCMS, INC. By:_________________________ By:___________________________ Name: ______________________ Name:_________________________ Title:______________________ Title:________________________ EX-10.15 24 INTERIM AGREEMENT 1 Exhibit 10.15 INTERIM AGREEMENT TO PROVIDE ELECTRIC SERVICE THIS AGREEMENT, dated February 25, 1998, is by and between MICRON ELECTRONICS, INC., 900 East Karcher Road, Nampa, Idaho 83687 ("MEI"), Idaho Power Company, P.O. Box 70, Boise, Idaho ("Idaho Power") and MCMS, INC., 16399 Franklin Road, Nampa, Idaho 83687 ("MCMS"). MCMS, MEI and Idaho Power may also be referred to hereinafter individually as "Party" or collectively as the "Parties." R E C I T A L S : A. MCMS is a wholly owned subsidiary of MEI California, Inc. ("MEIC"), which is a wholly owned subsidiary of MEI. Pursuant to a recapitalization agreement, MEIC will own 10% of the outstanding capital stock of MCMS upon the consummation thereof (the "Recapitalization"). The assets of MCMS include a manufacturing facility ("the MCMS Facility") located adjacent to MEI's computer manufacturing facility located on East Karcher Road, Nampa, Idaho ("the MEI Facility"). B. Idaho Power and MEI are parties to the Agreement for Installation of the KRCH Substation dated September 1, 1997 ("Substation Agreement"). Under the Substation Agreement, with MEI's consent Idaho Power can utilize reserved substation capacity in the KRCH Substation to serve third party power needs, including the MCMS loads. C. The MCMS Facility currently receives electric service over electric distribution facilities reserved for use by MEI and as part of the electric service Idaho Power provides to MEI under Idaho Power's Schedule 19. 2 D. MCMS has requested that Idaho Power provide electric service to MCMS through the KRCH Substation following the Recapitalization. MCMS will be served as a new customer, separate and distinct from MEI. Providing separate service to MCMS as a new customer will require that Idaho Power install additional distribution facilities ("Interconnection Facilities"). E. MEI and MCMS desire to consummate the Recapitalization before Idaho Power can install the Interconnection Facilities to provide separate electric service to the MCMS Facility. NOW, THEREFORE, in consideration of the mutual obligations and undertakings set froth herein, the parties hereby agree as follows: 1. Installation of Facilities. 1.1 Idaho Power will install the necessary Interconnection Facilities to allow the MCMS Facility to be connected to Idaho Power's existing electrical transmission/distribution system through the KRCH Substation. 1.2 Idaho Power will not commence installation of the Interconnection Facilities until after: (1) Idaho Power has received payment as required in Paragraph 3.2; and (2) all required easements and rights of way from MEI and MCMS, as applicable, are obtained. 1.3 Idaho Power will use its best efforts to complete the installation of the Interconnection Facilities by September 1, 1998. However, MCMS and MEI, as applicable, recognize that Idaho Power's ability to complete installation on or before that date is subject to Page 2 3 MCMS's and MEI's timely compliance with the requirements set out in Paragraph 1.2 and Idaho Power's ability to obtain required labor, materials, equipment, easements, and comply with governmental regulations. 2. Land and Right of Way. MCMS and MEI agree to provide and/or grant to Idaho Power such easements or rights of way as are reasonably required for installing the Interconnection Facilities and to accomplish the work to be performed by Idaho Power under this Agreement. All such easements and the rights of way will be in a form reasonably satisfactory to Idaho Power and will be provided to Idaho Power at no cost. Idaho Power will be responsible for the acquisition of any and all permits, rights of way and/or regulatory approvals required by public agencies for performance of this Agreement and for payment of any and all permit fees and/or taxes required for or associated with such permits, rights of way and regulatory approvals. Idaho Power will use its best efforts to identify its requirements for easements and rights of way as described in this paragraph as soon as reasonably practicable. Once Idaho Power's easement and rights of way requirements are made known to MEI and MCMS, MEI and MCMS covenant and agree to grant such easements and rights of way to Idaho Power as soon as reasonably practicable, using such form of easement and right of way as Idaho Power may reasonably require. Page 3 4 3. Cost of Providing Facilities. 3.1 Installation of the Interconnection Facilities will be in accordance with (1) Rule H, Idaho Power's tariff governing line installations, including any revisions to that rule, or any successor rule(s) or schedule(s), and (2) the provisions governing distribution facilities beyond the point of delivery contained in Schedules 9 and/or 19. Subsequent to the execution of this Agreement, MCMS and Idaho Power will finalize the design and budget for the Interconnection Facilities. 3.2 In addition to any cash contributions required by Rule H and Schedules 9 and/or 19, MCMS will pay Idaho Power Three Hundred Thousand Dollars ($300,000) for acquiring 6,000 kW of capacity in the KRCH Substation from MEI under the terms of the Substation Agreement. MCMS' payment of the Three Hundred Thousand Dollar ($300,000) amount shall not give MCMS any ownership rights in the KRCH Substation facilities, but it will reserve for MCMS use of 6,000 kW of capacity in the KRCH Substation without payment of additional costs for substation facilities. Ownership of the KRCH Substation facilities shall remain with Idaho Power. 3.3 In accordance with the provisions of Article VIII of the Substation Agreement, MEI agrees to release 6,000 KW of "transferrable capacity" to Idaho Power for use by MCMS. Upon commencement of construction of the Interconnection Facilities, Idaho Power will pay MEI the Three Hundred Thousand Dollars ($300,000) received from MCMS. Page 4 5 4. Interim Service to MCMS Facility. 4.1 Because the MCMS Facility electrical load is currently included in the total MEI Facility electrical load, electric service is provided to the MCMS Facility by means of a distribution line currently serving by MEI. Consistent with MEI's and MCMS' mutual desire to continue the operation of the MCMS Facility while Idaho Power is installing the Interconnection Facilities, Idaho Power has agreed to temporarily permit MCMS to receive electric service from Idaho Power over the distribution lines owned by MEI. MEI and MCMS agree that Idaho Power will continue to meter and bill MEI for the combined electric loads at both the MEI Facility and the MCMS Facility. MEI will continue to be responsible for paying the total billing from Idaho Power for the MEI Facility and the MCMS Facility. MCMS and MEI will allocate the Idaho Power billings paid by MEI between themselves consistent with past practices, and Idaho Power will have no obligation to seek payment for any portion of the MEI billing from MCMS. 4.2 The Parties recognize that the above-described billing and metering arrangement is only an interim arrangement until the Interconnection Facilities are installed. 4.3 When the Interconnection Facilities are installed, MCMS will be separately metered and billed for its electric service and MCMS' right to receive electric service through MEI pursuant to Paragraph 4.1 of this Agreement will be terminated. If the Interconnection Facilities are not installed on or before September 1, 1998, due to MCMS' or MEI's failure to comply with the terms of this Agreement, Idaho Power will deliver written notice to MCMS and MEI of either MCI's or MCMS' failure to comply with the terms of this Page 5 6 Agreement. Unless the failure to comply is cured prior to the 180th day after such delivery of written notice, Idaho Power may enter onto MCMS and/or MEI property and install or remove equipment to discontinue electric service to the MCMS Facility, or take such other steps as Idaho Power may reasonably deem appropriate, including, but not limited to, the filing of a complaint against MEI and/or MCMS at the Commission. 4.4 MEI agrees to use its reasonable best efforts to continue the supply of electrical service to MCMS until the Interconnection Facilities are installed. 4.5 On completion of the Interconnection Facilities and the connection of MCMS as a separate customer of Idaho Power to the KRCH Substation, Idaho Power will enter into an agreement with MCMS, subject to IPUC confirmation if necessary, reserving 6,000 kilowatts of substation capacity in the KRCH Substation for MCMS' use until December 1, 2012. 4.6 Within two (2) weeks after closing of the Recapitalization, MEI will reimburse to MCMS an amount equal to $35,635, representing the amount previously paid by MCMS to MEI for charges and expenses relating to the KRCH Substation. 4.7 Upon completion and energizing of the Interconnection Facilities and MCMS' receipt of electrical power through such facilities, MCMS shall have no further obligation to pay MEI for any further charges or expenses relating to the power lines connecting MEI to the KRCH Substation or the KRCH Substation. Page 6 7 5. Miscellaneous Provisions. 5.1 This Agreement is subject to valid laws and to the regulatory authority and orders, rules and regulations of the Idaho Power Utilities Commission and such other administrative bodies having jurisdiction, as well as Idaho Power Company's Rules and Regulations as now or may be hereafter modified and approved by the Idaho Public Utilities Commission. 5.2 This Agreement shall be governed by and construed in accordance with the laws of the State of Idaho, and venue for any court proceeding arising out of this Agreement shall be in Boise, Idaho. 5.3 This Agreement may only be amended or modified by a writing signed by the duly authorized representatives of all three Parties. This Agreement may be executed in counterparts, each of which, when so executed and delivered, shall be deemed to be an original and all of which, taken together, shall constitute one and the same Agreement. 5.4 The waiver by either party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 5.5 This Agreement constitutes the entire agreement between the parties with respect to Idaho Power providing interim separate electrical service to MCMS. This Agreement supersedes any and all other agreements, whether or not in writing, between the parties with respect to Idaho Power providing interim separate electrical service to MCMS. Page 7 8 5.6 MEI and MCMS each agrees to indemnify and hold the other harmless from and against any and all claims, damages and liabilities (including reasonable attorneys' fees and costs) resulting directly from any breach by the indemnifying parties of this agreement. IN WITNESS WHEREOF, the Parties have entered into this Agreement effective as of the day and year first hereinabove written. MEI By /s/ [Illegible] -------------------------------- Title ------------------------------ IDAHO POWER COMPANY By /s/ [Illegible] -------------------------------- Title: Vice President - Delivery MCMS By /s/ Robert F. Subia -------------------------------- Title Chief Executive Officer and President Page 8 EX-10.16 25 OFFICE LEASE 1 Exhibit 10.16 EXECUTION COPY OFFICE LEASE between MICRON CUSTOM MANUFACTURING SERVICES, INC. (Landlord) ---------- and MICRON ELECTRONICS, INC. ---------- (Tenant) 2 Page 2 TABLE OF CONTENTS Section Page ---- 1. Lease 1 2. Term 1 3. Rent 1 4. Use and Condition of Premises 2 5. Services 3 6. Alterations and Liens 3 7. Insurance 4 8. Fire or Casualty and Condemnation 4 9. Indemnification 5 10. Waiver 5 11. Assignment and Subletting 6 12. Rules and Regulations 6 13. Default and Remedies 6 14. Covenant of Quiet Enjoyment 6 15. Miscellaneous 7 EXHIBIT "A" DRAWING OF PREMISES A-1 3 Page 3 OFFICE LEASE THIS OFFICE LEASE (this "Lease") is made as of this 1st day of November, 1996, between MICRON CUSTOM MANUFACTURING SERVICES, INC., an Idaho corporation ("Landlord"), and MICRON ELECTRONICS, INC., a Minnesota corporation ("Tenant"). RECITALS A. Landlord owns the Premises (as hereinafter defined) for use in its general corporation operations. B. Landlord is willing to lease the Premises to Tenant, and Tenant is willing to lease the Premises from Landlord, upon the terms and conditions set forth in this Lease. LEASE OF PREMISES In exchange for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: 1. Lease. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, on the terms and conditions hereinafter set forth, those premises (the "Premises") containing approximately 31,975 square feet of rentable area and depicted on the floor plan attached hereto as Exhibit "A" of the building located at 16399 Franklin Road, Nampa, Idaho 83687 (the "Building"). The Building, the land upon which it is located, and all other improvements and facilities located on such land, are hereinafter called the "Property." 2. Term The term of this Lease (the "Term") shall be for three (3) years, commencing on November 1, 1996. Either party may elect to terminate this Lease, in whole or in part, at any time after the first year for any reason by giving the other party written notice of such election not less than ninety (90) days before the date the termination is to become effective, or such notice as shall be mutually agreeable to the parties. 3. Rent. Tenant shall pay Landlord, upon execution of this Lease, the sum of $480,000.00 in payment of rent for the first year of the Term of this Lease. During the second and third year of the Term, Tenant shall pay rent for the Premises in the amount of $40,000.00 per month. Rent for the second and third year of this Lease shall be payable on a monthly basis, in advance, and shall be due on the first day of 4 Page 4 each month during the Term, without notice or demand. 4. Use and Condition of Premises. Tenant shall use and occupy the Premises solely for administrative business purposes. Tenant hereby accepts the Premises in their current physical condition (i.e., "AS-IS" condition). At the expiration or other termination of this Lease, Tenant shall leave the Premises, and during the Term will keep the same, in good order and condition, ordinary wear and tear and damage by fire or other casualty excepted (other than fire or other casualty occurring through the negligence or willful act or omission of Tenant or Tenant's agents, employees, contractors or invitees); and for that purpose, Tenant shall make all necessary repairs and replacements. At the expiration or termination of this Lease, Tenant shall remove from the Premises all furniture, trade fixtures, office equipment and all other items of personal property owned and purchased by Tenant. All such items not removed from the Premises shall conclusively be deemed to have been abandoned and may be appropriated, sold, stored, destroyed or otherwise disposed of by Landlord without notice to Tenant or any other party and without any obligation to account therefor. Tenant shall pay Landlord all expenses incurred in connection with the disposition of such property. Tenant shall comply with all laws, rules, orders, ordinances and regulations applicable to Tenant or to the use or occupancy of the Premises. During its occupation of the Premises under this Lease, Tenant's employees working on the Premises shall also be entitled to use of the parking lot, cafeteria, conference rooms adjacent to the Premises and all other common areas. Tenant shall not bring or permit to remain in the Premises any Hazardous Substances, except ordinary office supply products used and stored in usual quantities and manner. As used in the preceding sentence, the term "Hazardous Substances" means any hazardous or toxic substances, materials or wastes, including, but not limited to, those substances, materials, and wastes listed in the United States Department of Transportation Hazardous Materials Table (49 CFR ss. 172.101) or by the Environmental Protection Agency as hazardous substances (40 CFR Part 302) and amendments thereto, or such substances, materials and wastes which are or become regulated under any applicable local, state or federal law including, without limitation, any material, waste or substance which is (i) designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. ss. 1251, et seq. (33 U.S.C. ss. 1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. ss. 1317), (ii) defined as a "hazardous waste" pursuant to Section 1004 of the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901, et seq. (42 U.S.C. ss. 6903) or (iii) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. ss. 9601). Tenant shall, upon demand, pay to Landlord all costs incurred by Landlord to 5 Page 5 repair damage to the Property caused by Tenant, its agents, employees, contractors or invitees. Tenant shall not do or commit, or suffer or permit to be done or committed, any act or thing as a result of which any policy of insurance of any kind on or in connection with the Property shall become void or suspended, or any insurance risk on or in connection with the Building or any other portion of the Property shall (in the opinion of the insurer or any insurance organization) be rendered more hazardous or require payment of a greater premium. Without limiting other rights and remedies of Landlord, Tenant shall pay as additional rent the amount of any increase of premiums for such insurance resulting from any breach of this provision. 5. Services. So long as Tenant is not in default hereunder, Landlord shall, subject to the terms and conditions hereinafter set forth, furnish or provide to the Premises (i) air conditioning, heat, and lighting twenty-four (24) hours per day, seven days per week, in such quantity and of such quality as Landlord determines is reasonably necessary for Tenant's comfortable use and enjoyment of the Premises for its purposes; (ii) water for lavatory and drinking purposes at all times when the Premises are occupied; (iii) routine janitorial services, (iv) maintenance of the common areas of the Building and (v) security services similar to those provided to other parts of the Building. Electricity service and costs, real property taxes and real property insurance relating to the Premises are the obligations and expense of Landlord. Tenant's phone charges, supply costs and taxes (other than real property taxes) relating to the Premises are the obligations and expense of Tenant. Landlord shall not be liable for damages (by abatement of rent or otherwise) for failure to furnish or delay in furnishing any utility or service, or for any diminution in the quality or quantity thereof, where such failure or delay or diminution is occasioned, in whole or in part, by repairs or improvements; by any strike, lockout or other labor trouble; by inability to secure fuel; by governmental laws, regulations or orders; by Landlord's compliance, in whole or in part, with any government promulgated mandatory program for conservation of energy; by act or default of Tenant or other parties; or by any cause beyond Landlord's reasonable control; and such failures or delays or diminution shall not be deemed to constitute an eviction or disturbance of Tenant's use and possession of the Premises or excuse Tenant from paying rent or performing any of its obligations under this Lease. Landlord's obligation to furnish services shall also be further conditioned upon the availability of adequate energy and other utility sources from the public utility companies then servicing the area. 6. Alterations and Liens. Tenant shall not, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, make any material alterations, improvements or additions to the Premises. If Landlord consents to any material alterations, improvements or additions, it may impose such conditions with respect thereto as Landlord reasonably deems appropriate, including, without 6 Page 6 limitation, Landlord's approval of plans and specifications and insurance and use of Landlord's approved contractors. All alterations, additions or improvements made by Tenant and all fixtures attached to the Premises shall become the property of Landlord and remain at the Premises or, at Landlord's option, any or all of the foregoing shall be removed at the cost of Tenant before the expiration or sooner termination of this Lease and in such event Tenant shall repair all damage to the Premises caused by the installation and/or removal thereof. Tenant shall not cause or permit any signs, advertisements or notices to be displayed, inscribed upon or affixed on any part of the outside or inside of the Building, other than on the Premises, if the Landlord reasonably disapproves such signs, advertisements or notices. Landlord shall have the right to remove disapproved signs, advertisements or notices at Tenant's expense. Tenant hereby agrees to keep the Property free from any liens arising out of any work performed, materials furnished or obligations incurred by or on behalf of Tenant and to promptly notify Landlord if it learns of any such liens. 7. Insurance. Tenant shall carry and maintain, at its sole cost and expense, a broad form comprehensive coverage policy of public liability insurance covering the Premises in an amount of not less than $1,000,000.00 per occurrence. Such policy shall be with an insurance company reasonably satisfactory and acceptable to Landlord. Upon request, Tenant shall provide Landlord with a certificate of insurance issued by the insurance company issuing such policy. Tenant may satisfy its insurance obligations hereunder by carrying such insurance under a so-called blanket policy or policies of insurance. 8. Fire or Casualty and Condemnation. If the Premises, the Property or the Building shall be damaged by fire or other casualty and if neither party terminates this Lease, Landlord shall restore the same with reasonable promptness, subject to reasonable delays for insurance adjustments and delays caused by matters beyond Landlord's reasonable control. Landlord shall have no liability to Tenant as a result of such damage or the inability of Tenant to occupy or use the portions of the Premises so damaged. Rent, however, shall abate on those portions of the Premises as are, from time to time, untenantable as a result of such damage; provided, rent shall not abate if such damage was caused, in whole or in part, by the negligence or willful act or omission of Tenant or Tenant's agents, employees, contractors or invitees. Landlord shall have no duty to repair or restore any alterations, additions, improvements, decorations, furnishings or fixtures, except to the extent, if any, the same were provided by Landlord at the beginning of the Term. If the entire Premises is condemned or taken for a public or quasi-public use, this Lease shall terminate as of the date possession is to be surrendered to the condemnor. In the event of any taking or condemnation of all or any part of the Premises or the Property, Tenant shall not have any right to any portion of the amount that may be awarded as damages or paid as a result of such taking or condemnation; 7 Page 7 and all rights of Tenant to damages therefor are hereby assigned by Tenant to Landlord and Tenant shall have no claim against Landlord or the condemnor for the value of the unexpired Term of this Lease. 9. Indemnification. Tenant shall indemnify and hold Landlord, the Premises and the Property harmless from and against any and all claims, losses, damages, expenses and costs (including attorneys' fees) arising from Tenant's use of the Premises or the conduct of its business or from any activity, work or thing done, permitted or suffered by Tenant in or about the Premises or the Building, and shall further indemnify and hold Landlord, the Property and the Premises harmless from and against any and all claims, losses, damages, expenses and costs (including attorneys' fees) arising from any breach or default in the performance of any obligation of Tenant hereunder, or arising from any negligence, act or omission of Tenant, or any of its agents, employees, invitees or licensees. In case any action or proceeding is brought against Landlord or the Premises by reason of any such claim, Tenant shall have the option to defend same at Tenant's expense with counsel reasonably satisfactory to Landlord. Landlord shall indemnify and hold Tenant harmless from and against any and all claims, losses, damages, expenses and costs (including attorneys' fees) arising from Landlord's use of the Premises or the conduct of its business or from any activity, work or thing done, permitted or suffered by Landlord in or about the Premises or the Building, and shall further indemnify and hold Tenant harmless from and against any and all claims, losses, damages, expenses and costs (including attorneys' fees) arising from any breach or default in the performance of any obligation of Landlord hereunder, or arising from any negligence, act or omission of Landlord, or any of its agents, employees, invitees or licensees. In case any action or proceeding is brought against Tenant or the Premises by reason of any such claim, Landlord shall have the option to defend same at Landlord's expense with counsel reasonably satisfactory to Tenant. 10. Waiver. No waiver by Landlord of any provision of this Lease shall be deemed to be a waiver of any other provision hereof or of any subsequent breach by Tenant of the same or any other provision. No delay on the part of Landlord in exercising any of its rights hereunder shall operate as a waiver of such rights or of any other right of Landlord, nor shall any delay, omission or waiver on any one occasion be deemed a waiver of the same or any other right on any other occasion, nor shall Landlord's receipt from Tenant of any sum with knowledge of any breach by Tenant of any of its covenants hereunder be deemed to be a waiver of such breach. Neither Landlord's failure to bill Tenant for any rent or other sum payable hereunder as it becomes due hereunder, nor its error in such billing or failure to provide any other documentation in connection therewith, shall operate as a waiver of Landlord's right to collect any such rent or other sum payable hereunder which may have at any time become due hereunder in the full amount to which Landlord is entitled pursuant to the 8 Page 8 terms and provisions hereof. Landlord's consent to or approval of any act by Tenant requiring Landlord's consent or approval shall not be deemed to render unnecessary the obtaining of Landlord's consent to or approval of any subsequent act of Tenant whether or not similar to the act so consented to or approved. 11. Assignment and Subletting. Tenant shall not assign or convey this Lease or any interest hereunder or sublet the Premises or any part thereof without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Any such action shall be void and of no effect. 12. Rules and Regulations. Tenant shall observe and comply with the then current rules and regulations of Landlord relating to the Property and Premises. Such rules and regulations may be deleted, amended or supplemented by Landlord from time to time with such other rules and regulations as Landlord may reasonably adopt for the safety, care, and cleanliness of the Building and the Property and the facilities thereof, or the preservation of good order therein. 13. Default and Remedies. If Tenant fails to pay when due any rent or other sum payable by Tenant under this Lease, or if Tenant fails to observe or perform any of the other covenants or conditions in this Lease and such failure continues for more than thirty (30) days after Landlord provides written notice to Tenant thereof, or if the interest of Tenant in this Lease shall be levied on under execution or other legal process, Landlord may treat the same as a breach of this Lease, and thereupon at its option may, without notice or demand of any kind to Tenant or any other person, have any one or more of the following described remedies in addition to all other rights and remedies provided at law or in equity or elsewhere herein: (a) Landlord may terminate this Lease and the Term, in which event Landlord may immediately repossess the Premises by legal proceedings and Landlord shall be entitled to recover from Tenant all rent and other sums payable hereunder, all costs incurred by Landlord to recover the Premises and all other costs, expenses and damages suffered or incurred by Landlord by reason of Tenant's default together with interest on all of the foregoing amounts at the rate of 15 percent per annum from the date such amounts first became due until paid; or (b) Landlord may (but shall not be obligated to) cure such default on behalf of Tenant, and Tenant shall reimburse Landlord upon demand for any sums paid or costs incurred by Landlord in curing such default, including reasonable attorneys' fees and court costs, together with interest at 15 percent per annum from the dates of Landlord's incurring of such costs or expenses until paid. All remedies available to Landlord hereunder and otherwise available at law or in equity shall be cumulative and concurrent. The failure of Landlord to insist upon strict performance of the covenants and conditions of this Lease shall not be construed as a waiver of Landlord's right to thereafter enforce the same strictly according to the tenor thereof in the event of a continuing or subsequent default. In the event of any 9 Page 9 litigation between Landlord or Tenant arising out of or in connection with this Lease, the prevailing party shall be entitled to recover its reasonable attorneys' fees and costs from the other party. 14. Covenant of Quiet Enjoyment. Upon Tenant paying the rent and performing all of Tenant's obligations under this Lease, Tenant may peacefully and quietly enjoy the Premises during the Term as against all persons or entities lawfully claiming by or through Landlord, subject, however, to the provisions of this Lease and to any mortgages encumbering the Property. 15. Miscellaneous. (a) Headings and Definitions. The Section headings contained in this Lease are for convenience of reference only and do not in any way govern the construction thereof. The terms "Landlord" and "Tenant" as used herein shall include the plural as well as the singular, and the neuter shall include the masculine and feminine genders. The words "person" and "persons" whenever used shall include individuals, firms, associations and corporations. (b) Covenants and Agreements - Time of the Essence. Each of Tenant's covenants and agreements herein contained are independent and not dependent on Landlord's performance of its obligations hereunder, and the time of the performance of each is of the essence of this Lease. (c) Entire Agreement: Amendments. This Lease and the exhibits attached hereto constitute the entire agreement between the parties hereto with respect to the subject matter hereof, and no prior agreement or understanding pertaining to any such matter shall be effective for any purpose. No provision of this Lease may be amended or supplemented except by an agreement in writing signed by the party or parties to be bound thereby. (d) Governing Law; Partial Invalidity. This Lease shall be governed and construed in accordance with the laws of the State of Idaho, without regard to its conflict of laws provisions. If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease (or the application of such term, provision or condition to persons or circumstances other than those in respect of which it is invalid or unenforceable) shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law. (e) Notices. All notices to be given under this Lease shall be in writing and delivered personally or deposited in the United States mail, certified or registered mail with return receipt requested, postage prepaid, addressed as follows, or to such other address as the party to whom such notice is to be given has specified to the 10 Page 10 other party by notice given in the manner provided for in this subsection (e): If to Landlord: MICRON CUSTOM MANUFACTURING SERVICES, INC. 16399 Franklin Road Nampa, Idaho 83687 Attn: Chief Financial Officer If to Tenant: MICRON ELECTRONICS, INC. 900 East Karcher Road Nampa, Idaho 83687 Attn: General Counsel A notice required or permitted to be given pursuant to this subsection (e) shall be deemed effective either upon personal delivery, or receipt thereof when deposited in the United States mail. A copy of all notices to be given to Landlord hereunder shall be concurrently transmitted by Tenant to any additional party hereafter designated by a notice from Landlord to Tenant. Notwithstanding the foregoing, if either party refuses to accept or sign the return receipt for any notice tendered to it pursuant to this subsection (e), such notice shall be deemed effective when tendered for delivery. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the date first above written. LANDLORD: TENANT: 11 EXECUTION COPY AMENDMENT TO OFFICE LEASE between MCMS, INC. (Landlord) and MICRON ELECTRONICS, INC. (Tenant) 12 AMENDMENT TO OFFICE LEASE THIS AMENDMENT TO OFFICE LEASE (this "Amendment") is made as of this 26 day of February, 1998, between MCMS, INC., an Idaho corporation ("Landlord"), and MICRON ELECTRONICS, INC., a Minnesota corporation ("Tenant"). RECITALS A. Landlord and Tenant are parties to that certain Office Lease dated as of November 1, 1996 (the "Lease") covering the Premises. B. Landlord and Tenant desire to amend, pursuant to this Amendment, certain terms and conditions set forth in the Lease. C. All of the capitalized terms used herein but not defined shall have the meaning ascribed to them in the Lease. In exchange for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree to amend the Lease as follows: 1. Term. The Term of the Lease, originally scheduled to expire on October 31, 1999, shall hereafter be amended such that Tenant shall have the right to remain in possession of the Premises until December 31, 1998, subject to paragraph 2 hereof. 2. Early Termination. Tenant shall have the right, upon thirty (30) days' written notice to the Landlord, to terminate the Lease prior to the scheduled termination date of December 31, 1998. 3. Bullpen Area. Upon ninety (90) days' written notice by the Landlord, Tenant agrees to vacate the space it currently occupies in the bullpen area of Landlord's accounting area (approximately 3,625 square feet noted on Exhibit A to the Lease as cross-hatched areas marked "520 sq. ft." and "3105 sq. ft.") in the Premises. 4. Rent. During the Term, Tenant shall continue to pay rent for the Premises in the amount of $40,000.00 per month. Rent shall be payable on a monthly basis, in advance, and shall be due on the first day of each month during the Term, without notice or demand. 5. Shilo Property. a. At any time after March 31, 1998, and upon sixty (60) days' written notice to Tenant, Landlord shall be entitled to occupy (upon the execution of a sublease agreement between Tenant and Landlord (the "Sublease") with customary terms and conditions consistent with the terms and conditions of the Office/Warehouse Lease between Tenant and Ronald W. Van Auker, dated as of May 1, 1996, covering certain real property located at 1400 Shilo Drive, Nampa, Idaho (the "Shilo Property")) approximately 24,000 square feet of space currently leased by Tenant at the Shilo Property, 13 with respect to which Tenant warrants its ability to sublease to Landlord. b. Landlord must give Tenant thirty (30) days' written notice of its intent to terminate the Sublease. c. Landlord shall pay all fees, expenses and rent associated with its occupancy of the Shilo Property (which fees, expenses and rent shall be no greater than the amounts Tenant, as of February 1, 1998, was obligated to pay under its lease of the Shilo Property). d. Tenant shall be obligated to pay up to $35,000.00 in start-up/upfit and relocation expenses (whether to or from the Shilo Property) associated with the Landlord's occupancy of the Shilo Property. 6. Additional Space. a. After receiving a written request from Landlord and prior to Tenant vacating the Premises, Tenant will use its reasonable best efforts to assist the Landlord in locating up to 12,000 additional square feet (at Landlord's discretion) of space in Nampa, Idaho (the "Additional Space"). b. Landlord shall pay all fees, expenses and rent of any kind associated with its occupancy of the Additional Space. 7. Full Force and Effect. All other terms and conditions of the Lease shall remain in full force and effect. (remainder of page left intentionally blank) -2- 14 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above. LANDLORD: TENANT: MCMS, Inc. Micron Electronics, Inc. By: /s/ Robert F. Subia By: ----------------------------- -------------------------- Name: Robert F. Subia Name: Title: President & CEO Title: -3- 15 IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above. LANDLORD: TENANT: Micron Custom Manufacturing Services, Inc. Micron Electronics, Inc. By: By: /s/ [Illegible] ----------------------------- -------------------------- Name: Name: Title: Title: -3- EX-10.17 26 TENANCY AGREEMENT 1 Exhibit 10.17 [Letterhead of Micron Custom Manufacturing Services] July 31st 1997 R.S. Roadstar Electronics Sdn. Bhd. No. 37, 104000 Anson Road Penang, Malaysia Attn: Mr. KK Leong: Re: Tenancy Agreement, dated October 1, 1996, between R.S. Roadstar Electronics Sdn. Bhd. and M.C.M.S. Sdn. Bhd. (the "Tenancy Agreement") Dear Mr. Leong: I write this letter on behalf of M.C.M.S. Sdn. Bhd. (the "Company") to exercise the Company's option set forth in Section 5(c) of the Tenancy Agreement to extend the term of the Company's tenancy for an additional one year term. Such additional one year term shall be governed by the covenants and provisions set forth in the Tenancy Agreement (other than Section 5(c)); provided, however, that, notwithstanding anything to the contrary in the Tenancy Agreement, the Company shall have the right to terminate its tenancy at any time during such additional one year term for convenience and without penalty upon providing Ninety (90) days prior written notice to R.S. Roadstar Electronics Sdn. Bhd. Please acknowledge your receipt and acceptance of this letter by signing below on the space provided. Monthly rent shall be increased Very truly yours, By 5% per maximum allowable Increased as stated in the Lease Agreement. 5% increase to /s/ Ron Gines start in October 1, 1997. Rent to -------------------------- increase From RM36,000 to RM37,800 Ron Gines Managing Director Acknowledged and agreed to by: R.S. Roadstar Electronics Sdn. Bhd. /s/ [ILLEGIBLE] - ------------------------- Name: Title COPY 2 COPY TENANCY AGREEMENT THIS AGREEMENT is made 1st day of October _ 1996, between R.S. ROADSTAR ELECTRONICS (M) SDN. BHD., (Company No. ) a company incorporated in Malaysia and having its registered office at No. 37, 10400 Anson Road, Penang (hereinafter called "the Landlord") of the one part and M.C.M.S. SDN. BHD., (Company No.399136--M) (formerly known as Courageous Expedition Sdn. Bhd.,) a company incorporated in Malaysia and having its registered office at 4th Floor (Room 4--01) Wisna Penang Garden, Jalam Sultan Ahmad Shan, Penang (hereinafter called "the Tenant") of the other part. WHEREAS the Landlord is the registered proprietor of all that piece of land and hereditament held under Plots 12 & 13 Free Trade Zone, Phase 4, Bayan Lepas, Penang together with the factory building erected thereon (hereinafter called "the said premises"). AND WHEREAS the Landlord is desirous of letting and the Tenant is desirous of taking the whole of the said premises upon the rental and subject to the terms and conditions contained herein. NOW IT IS HEREBY AGREED as follows :- 1. In consideration of the rent, covenants and hereinafter reserved and contained and on the part of the Tenant to be paid, observed and performed, the Landlord hereby lets unto the Tenant the said premises, and to hold the same unto the Tenant for a term of one (1) year commencing from 1st day of October 1996 to 30th day of September 1997 (hereinafter called "the term created") subject to the covenants and conditions hereinafter contained and the Tenant paying Landlord :- i) the monthly rent of Ringgit Malaysia Thirty Six Thousand (RM36,000) per month for the term herein created (i.e. from 1st October 1996 to September 1997). ii) the monthly rentals shall be paid monthly in advance. The first rental shall be paid on the 1st October 1996 and all subsequent monthly rentals shall be paid on or before the 1st day of each and every succeeding calendar month. COPY 3 -2- Notwithstanding, for all purposes under this Agreement, rentals paid within seven (7) of being due shall be considered to be paid in a timely manner. iii) on or before the execution of this Agreement the Tenant shall pay the Landlord a deposit in the sum of Ringgit Malaysia Thirty Six Thousand (RM36,000.00) being equivalent to the rental for one (1) month (hereinafter called "said Deposit") as security for the due performance and observations of the terms and conditions herein by the Tenant. This said deposit shall be increased upon any subsequent increase of rental and shall be applied in the manner as stated in Clause 2 hereof. 2. The said Deposit shall be applied as follows : (a) If at any time during the tern herein created or any extension or renewal thereof, any of the reserved rent or any other obligations shall be overdue, the Landlord may in its absolute discretion appropriate and apply any portion of the said Deposit to the payment of any such overdue rent reserved or other sums due to the Landlord. (b) Subject to paragraph 2 (a) above, in the event of the failure of the Tenant to perform any other conditions of this Agreement, the Landlord may appropriate so much of the said deposit as may be necessary to compensate the Landlord due to a breach on part of the Tenant. Any such apportionment by the Landlord of the deposit or any part thereof hereunder shall not be deemed and shall not operate to waive the Tenant's breach or default. (c) Should the Deposit or any portion thereof be appropriated by the Landlord as aforesaid then the Tenant shall upon demand by the Landlord within seven (7) days from the date thereof pay to the Landlord the amount of the sum so appropriated and it is hereby agreed that the said Deposit shall not without the prior consent in writing of the Landlord be deemed to be treated as payment of rent and on the expiration or sooner termination of the term hereby created and upon the Tenant 4 -3- vacating the said premises the Landlord shall return the said Deposit to the Tenant forthwith free of interest cost or compensation less such sum or sums as may then be owing to the Landlord or in respect of any such sums for payment of water and electricity, telephone and the likes to the Appropriate Authority. 3. The Tenant hereby covenants with the Landlord as follows: (a) To pay the said rents at the times and in the manner aforesaid; (b) To pay the said Deposit in accordance with Clause 1 (iii); (c) To pay the deposits and all charges for the supply of water and electricity, telephone, trade refuse and other utilities in respect of the said premises during the term herein created and to keep the Landlord indemnified for any loss expenses or damage arising from any defaults or breach thereof, or non-payment; (d) Not to assign underlet or part with the possession of the said premises or any part thereof during the term herein created without the prior written consent of the Landlord whose consent shall not be unreasonably withheld; (e) Not to carry out any material alterations , renovations or to carry out any extension to the said premises except as approved by the Landlord and subject to any necessary planning permission being granted by the relevant Authorities. (f) The Tenant's fixtures and fittings (if any) shall be specified in the Schedule to be annexed hereto and shall be removed by the Tenant at its expense and costs and the Tenant shall restore the said premises to its original state and condition less ordinary wear and tear as at the commencement of the term herein created upon the expiration or other sooner termination of this Agreement, PROVIDED however, that the Landlord shall deal with the fixtures and fittings as the Landlord shall deem fit without being liable to the Tenant 5 -4- in the event the Tenant does not remove the Tenant's fixtures and fittings within thirty (30) days from the date of termination of this Agreement. (g) To maintain and keep the said premises including but not limited to the walls, floors, toilets, sanitary pipes, electrical wiring and other installations therein in good and tenantable repair and condition throughout the term herein created; (h) Not to do or permit or suffer to be done anything whereby the said premises may be damaged, and any damage done or caused by the Tenant, its agent, employee, or licensee shall be made good by the Tenant at the expense of the Tenant; (i) Not to store or bring upon the said premises any articles of a combustible or dangerous nature. (j) Not to use the said premises for any unlawful or immoral purposes. (k) To apply for all the necessary approvals and licences from all the relevant authorities and in all respects to comply with all the legal provisions, either Federal or local, in regard to the tenancy of the said premises and the carrying of the trade or business for the time being carried out upon the said premises. (l) Not to do or permit to be done anything which will or may infringe any laws by-laws or regulations made by the Government or any other competent authority in respect of or affecting the said premises and the business being carried out by the Tenant upon the said premises and to indemnify the Landlord against all claims, actions and demands in respect thereof. (m) To permit the Landlord and its authorised agents at all reasonable times in the day but with three (3) days prior notice to enter upon and examine the condition of the said premises. (n) To use the said premises for the purpose of the Tenant's electronics business or and for purposes ancillary thereto and not to use the said premises or suffer or permit the same to be used for any 6 -5- other purpose whatsoever except with previous written consent of the Landlord which consent shall not be unreasonably withheld. (o) Upon the expiration or sooner termination of the term herein created to deliver up peaceably the possession of the said premises to the Landlord or its authorised agent or to any person lawfully claiming under it in accordance with the conditions herein contained. (p) Not to use the said premises or suffer or permit the same to be used for any offensive noisy or dangerous trade business performance or occupation or for any purpose or in any manner which may be a nuisance to the Landlord or the owners of or occupiers of neighbouring or adjacent premises. On written notice being served on the said premises by the Landlord or by its surveyor requiring the Tenant to abate any nuisance caused by vibration noise or offensive smell or by any undue emission of smoke vapour or dust, with all reasonable despatch after the service of such notice, to abate such nuisance accordingly. (q) To take such measures as may be necessary to ensure that any effluent discharged into the drains or sewers which belongs to or are used for the said premises will not be corrosive or anyway harmful or cause any destruction or deposit therein and to comply with all the regulations of the Department of Environment. (r) Not to do or permit or suffer to be done anything whereof the Policy of Insurance on the said premises or any adjoining or neighbouring premises against damage by fire or tempest may become void or voidable or whereof the rates of premium thereon may be increased and to repay to the Landlord all sums paid by way of increased premiums and all expenses incurred by them in or about the renewal of such policy or policies rendered necessary by a breach of this contract and all such payments shall be made immediately on demand. 4. The Landlord hereby covenants with the Tenant as follows :- (a) To pay the quit rent and assessment payable to the local authority in respect of the said premises; 7 -6- (b) To permit the Tenant if it punctually pays the rent hereby reserved and observes the stipulations and covenants on its part herein contained to enjoy the said premises without any disturbances by the Landlord or any person lawfully claiming under or in trust for the Landlord. (c) To insure the said premises (but not the contents thereof) against loss or damage by fire or tempest and to cause all money received by virtue of such insurance to be laid out forthwith in rebuilding and reinstating the said premises and to make up any deficiency out of their own way provided that the Landlord's obligations under this covenant still cease if the insurance shall be rendered void by reason of any act or default of the Tenant. In case the said premises or any part thereof shall at any time be unfit for substantial occupation or use and the policy or policies effected by the Landlord shall not have been invalidated or payment of policy moneys refused in consequence of some act or default of the tenant, the rents hereby reserved or a just and fair proportion thereof according to the nature and extent of the actual damage done (and as reasonably certified by the Landlord's surveyor) shall be suspended as from the happening of the said fire or tempest until the said premises shall be again rendered fit for occupation and use but the tenancy shall in no way be invalidated. 5. PROVIDED ALWAYS AND IT IS HEREBY AGREED as follows :- (a) If the rent hereby reserved or any part thereof shall be in arrears and unpaid for (7) days after becoming due and payable (whether formally demanded or not) or if any of the covenants stipulations or agreement on the part of the Tenant herein contained shall not be observed or performed and the Tenant has failed to cure such non-observance or non-performance within fifteen (15) days after receiving notice thereof or if the Tenant or its successors shall permit or suffer any distress of attachment of execution to be levied on the said premises then and in any of the said cases it shall be lawful for the Landlord at any time thereafter to re-enter upon the said premises or any part thereof and thereupon this 8 -7- tenancy shall absolutely determine but without prejudice to the Landlord's right of action in respect of any antecedent breach of the Tenant's covenants herein contained. (b) Except as otherwise provided herein the Tenant agrees to occupy use and keep the said premises at the risk of the Tenant and hereby releases to the full extent permitted by law the Landlord and its servants and agents from all claims summonses actions proceedings and demands which may be brought levied or made against it and from all liability which may arise in respect of any person of whatsoever nature or kind in or near the said premises, in all cases arising out of the Tenant's wrongful acts or breach of this Agreement. (c) The Landlord will at the written request of the Tenant made two calendar months before the expiration of the term herein created and if there shall not at the time of such request be any existing breach or non observance of any of the covenants on the part of the Tenant to be performed and herein contained, at the expense of the Tenant, to grant to him a tenancy of the said premises for a further term of one (1) year from the expiration of the term herein created containing the like covenants and provisions as are herein contained (except this covenant for renewal) and at a rent to be mutually agreed (but which rental rate shall in no case exceed a 5% increase over the rental under this Agreement). (d) Any notice required to be given hereunder shall be in writing and shall be sufficiently served on the Tenant by sending the same by registered post addressed to the Tenant at the said premises and for the Landlord by sending the same by registered post addressed to the Landlord at its address stated herein and shall be deemed to have been received by the addressee in the ordinary course of post. (e) The parties shall bear equally the Solicitor's fees with regard to this Agreement but the Stamp duty shall be borne by the Tenant. (f) This Tenancy Agreement shall be binding upon the successors in title and all assigns of the parties hereto respectively. 9 -8- (g) Time wherever mentioned shall be the essence of this Agreement. 6. In this Agreement where the context so admits; (a) the expression "the Landlord" and "the Tenant" include the respective successors and assigns of the Landlord and the Tenant and where two or more persons are included in either expression this Agreement shall bind such persons jointly and/or severally. (b) words importing and masculine gender only include the feminine and neuter gender. (c) words importing the singular number only include the plural number and vice versa. (d) words applicable to natural persons include any company or corporation. IN WITNESS WHEREOF the parties hereto have hereunto set their hands on the day and year first above written. Signed by ) for and on behalf of ) R.S. ROADSTAR ELECTRONICS ) /s/ [ILLEGIBLE] (M) SDN. BHD., (Co. No. ) ) in the presence of :- ) /s/ Lim Kah Cheng LIM KAH CHENG Advocate & Solicitor Penang Signed by ) for and on behalf of ) /s/ [ILLEGIBLE] M.C.M.S. SDN. BHD., (Co. No. )) in the presence of :- ) /s/ [ILLEGIBLE] 10 [Letterhead of Micron Custom Manufacturing Services] July 31st 1997 R.S. Roadstar Electronics Sdn. Bhd. No. 37, 104000 Anson Road Penang, Malaysia Attn: Mr. KK Leong Re: Tenancy Agreement, dated October 1, 1996, between R.S. Roadstar Electronics Sdn. Bhd. and M.C.M.S. Sdn. Bhd. (the "Tenancy Agreement") Dear Mr. Leong: I write this letter on behalf of M.C.M.S. Sdn. Bhd. (the "Company") to exercise the Company's option set forth in Section 5(c) of the Tenancy Agreement to extend the term of the Company's tenancy for an additional one year term. Such additional one year term shall be governed by the covenants and provisions set forth in the Tenancy Agreement (other than Section 5(c)); provider, however, that, notwithstanding anything to the contrary in the Tenancy Agreement, the Company shall have the right to terminate its tenancy at any time during such additional one year term for convenience and without penalty upon providing ninety (90) days prior written notice to R.S. Roadstar Electronics Sdn. Bhd. Please acknowledge your receipt and acceptance of this letter by signing below on the space provided. Monthly rent shall be increased Very truly yours, By 5% per maximum allowable Increased as stated in the Lease Agreement. 5% increase to /s/ Ron Gines start in October 1, 1997. Rent to ----------------------- increase From RM36,000 to RM37,800 Ron Gines Managing Director Acknowledged and agreed to by: R.S. Roadstar Electronics Sdn. Bhd. /s/ [ILLEGIBLE] - --------------------------------- Name: Title EX-10.18 27 LEASE 1 Exhibit 10.18 This Lease is made this __ day of December, 1994, between TRI-CENTER SOUTH LIMITED PARTNERSHIP ("Landlord"), a Delaware Limited Partnership, whose address is c/o Craig Davis Properties, Inc., Suite 435 UCB Plaza, 3605 Glenwood Avenue, Raleigh, North Carolina 27612, and MICRON ELECTRONICS OF NORTH CAROLINA, INC. ("Tenant"), an Idaho corporation, whose address is Mailstop 702, 8455 Westpark Street, Boise, Idaho 83704-8366. I. GENERAL. 1.1 Consideration. Landlord enters into this Lease in consideration of the payment by Tenant of the rents herein reserved and the keeping, observance and performance by Tenant of the covenants and agreements herein contained, and the Guaranty as provided in Section 14.19. 1.2 Exhibits and Addenda to Lease. The Exhibits and Addenda listed below shall be attached to this Lease and be deemed incorporated in this Lease by this reference. In the event of any inconsistency between such Exhibits and Addenda and the terms and provisions of this Lease, the terms and provisions of the Exhibits and Addenda shall control. The Exhibits and Addenda to this Lease are: Exhibit A - Land Description Exhibit B - Space Plan for Demised Premises Exhibit C - Sign Criteria Exhibit D - Environmental Rider Exhibit E - Site Plan for Building, Land and Parking Exhibit F - Site Plan for Tri-Center South Addendum 1 - Tenant Upfit and Termination Rights Addendum 2 - Tenant's Right of First Offer for Additional Space Addendum 3 - Rent Schedule Addendum 4 - Guaranty II. DEMISE OF PREMISES. 2.1 Demise. Subject to the provisions, covenants and agreements herein contained, Landlord hereby leases and demises to Tenant, and Tenant hereby leases from Landlord, the Premises as hereinafter defined, together with the exclusive right to use the Parking Area, as hereinafter defined, for the Lease Term as hereinafter defined, subject to existing covenants, restrictions, easements and encumbrances affecting the same. 2.2 Premises. The "Premises" shall mean the space to be occupied by Tenant as depicted on Exhibit B attached hereto. The Premises are within the Building which is located on the Land, as the terms Building and Land are hereinafter defined. 2.3 Square Footage and Address. The Premises contain 28,474 +/- rentable square feet. The address of the Premises is, or is expected to be: 2500 South Tri-Center Boulevard, Durham, North Carolina 27713. 2 2.4 Land. "Land" shall mean the parcel of real property more particularly described in Exhibit A attached hereto, containing approximately 494,707.16 square feet of land. 2.5 Building. "Building" shall mean the Building known as Tri-Center South 1, Phase 2, constructed or to be constructed on the Land, containing approximately 170,324 rentable square feet. 2.6 Improvements. "Improvements" shall mean the Building, the Parking Area (as shown on Exhibit E), and all other improvements on the Land, including landscaping thereon. 2.7 Property. "Property" shall mean the Land, the Building and the Improvements and any fixtures and personal property used in operation and maintenance of the Land, Building and Improvements, other than fixtures and personal property of Tenant and other users of space in the Building. 2.8 Common Facilities. "Common Facilities" shall mean all of the Property except the Premises and other space in the Building leased or held for lease to other Tenants. Common Facilities shall include the Parking Area and any walks, driveways, lobby areas, halls, stairs and restrooms designated for common use by Tenant and other users of space in the Building. 2.9 Parking Area. "Parking Area" shall mean that portion of the Land specifically designated on Exhibit E for Tenant's use in the parking of motor vehicles. The Parking Area so designated shall be for Tenant's use only, and Tenant shall not park, nor shall it permit its employees to park, in other parking areas on the Land. Landlord will not grant other tenants the right to use such Parking Area. 2.10 Park. The Property is located in and is part of Landlord's development commonly known as Tri-Center South (the "Park"). A site plan of the Park is attached hereto as Exhibit F. 2.11 Use of Common Facilities. Tenant is hereby granted the non-exclusive right to use, in common with other users of space in the Building, so much of the Common Facilities as are needed for the use of the Premises. 2.12 Covenant of Quiet Enjoyment. Provided Tenant is not in default and keeps, observes and performs the covenants and agreements of Tenant contained in this Lease, Landlord covenants and agrees that Tenant shall have quiet and peaceable possession of the Premises. 2.13 Condition of Premises. Tenant covenants and agrees that, upon taking possession of the Premises, it will have accepted the Premises "as-is" except for any punch list delivered to Landlord at such time (which Landlord agrees to address promptly). Tenant acknowledges that neither Landlord nor Landlord's agent has made any representation or warranty as to suitability of the Premises for the conduct of Tenant's business. III. TERM OF LEASE. 3.1 Lease Term. "Lease Term" shall mean the period commencing on the 1st day of March, 1995, and expiring on the last day of February, 2005; provided that Tenant may occupy the Premises during the month of February, 1995 with all provisions of this Lease to become effective as of date of Tenant's occupancy except for payment of Rent and Rent shall commence on the earlier of the date on or after March 1, 1995 that the Landlord has the Premises ready for occupancy by Tenant, or the date that Landlord could have had them ready had Landlord not been delayed in getting them ready by acts attributable to Tenant. Tenant shall have an option to renew this Lease, upon the same terms at the Rents set forth on Addendum #3 for an additional period of five years. The option is to be exercised in writing by Tenant no later than 60 days prior to the expiration of the Original Lease Term. 2 3 IV. RENT AND OTHER AMOUNTS PAYABLE. 4.1 Basic Rent. Tenant covenants and agrees to pay to Landlord, without prior demand and without offset, deduction or abatement, monthly rent in the amounts set forth in Addendum #3 to this Lease. ("Basic Rent"). Basic Rent shall be payable monthly in advance, in the amounts set forth in Addendum #3 commencing on the first day of the first month of the Lease Term and continuing on the same day of each month thereafter for the balance of the Lease Term, unless the commencement date of the Lease Term is other than the first day of a calendar month, in which event rent shall be payable on the commencement date for the remaining number of days in that month prorated for such partial month, and thereafter as provided above. 4.2 [Intentionally Omitted] 4.3 Place of Payments. Basic Rent and all other sums payable by Tenant to Landlord under this Lease shall be paid to Landlord at the place for payments specified for notices in Section 14.8, or such other place as Landlord may, from time to time, designate in writing. In addition to such remedies as may be provided under the Default provisions of this Lease, Landlord shall be entitled to collect a late charge of four percent (4%) of the amount of each monthly payment not received within ten (10) days of the date when due, and a charge of the lower of the maximum lawful bad check fee or five (5%) of the amount of any check given by Tenant and not paid when first presented by Landlord. 4.4 Lease a Net Lease and Rent Absolute. It is the intent of the parties that the Basic Rent provided in this Lease shall be a net payment to Landlord; that the Lease shall continue for the full Lease Term, including any damage or destruction affecting the Premises, and any action by governmental authority relating to or affecting the Premises, except as otherwise specifically provided in this Lease; that the Basic Rent shall be absolutely payable without offset, reduction or abatement for any cause except as otherwise specifically provided in this Lease; that Landlord shall not bear any costs or expenses relating to the Premises or provide any services or do any act in connection with the Premises except as otherwise specifically provided in this Lease; and that Tenant shall pay, in addition to Basic Rent, Additional Rent to cover costs and expenses relating to the Premises, the Common Facilities, the Property, and the Park. 4.5 Additional Rent. Except as otherwise provided herein and excluding Landlord's administrative costs and expenses, Tenant covenants and agrees to pay, as Additional Rent, its Proportionate Share of the reasonable costs and expenses relating to the Premises which shall include: (a) Taxes and Assessments (as defined in Article V below); (b) insurance costs (as provided in Article VI below); (c) utility charges (as provided in Section 7.1 below); (d) operating expenses (as provided in Section 7.2 below); (e) maintenance and repair expenses (as provided in Section 7.3 below); (f) the HVAC Maintenance Expense (as defined in Section 4.7 below); and (g) other costs and expenses relating to the Premises, the Common Facilities, the Property, and the Park during or attributable to the Lease Term, all as hereinafter provided in this Lease. Additional Rent during the first twelve months of the term is estimated to be approximately $.85 per rentable square foot, which $.85 includes the foregoing items and Park expenses under Section 4.8. 4.6 Tenant's Proportionate Share. "Tenant's Proportionate Share" shall mean the percentage derived by dividing the square footage of the Premises, as set forth in Section 2.3, by the square footage within the Building as set forth in Section 2.5. Tenant's Proportionate Share on the date of this Lease is 16.71%. Such percentage shall be appropriately adjusted in the event of construction of additional building(s) on the Land if such building(s) or tenants thereof share the Common Facilities. 4.7 Monthly Deposits for Costs and Expenses Payable as Additional Rent. Tenant covenants and agrees to pay to Landlord, monthly in advance, without notice, on each day that payment of Monthly Rent is due, amounts as hereinafter specified (the "Monthly Deposits"). The Monthly Deposits shall each be equal to the aggregate of 1/12 of the amount, as reasonably estimated by Landlord, of the annual expense of maintenance of the HVAC and 3 4 Tenant's Proportionate Share of 1/12 of the amounts, as reasonably estimated by Landlord, of the annual expenses set forth in Section 4.5 (the "Expenses"). If the Monthly Deposits are insufficient to pay the Expenses, Tenant agrees to pay to Landlord, within ten (10) days after demand by Landlord, amounts necessary to provide Landlord with funds to pay the same. To the extent the Monthly Deposits exceed the Expenses, the excess amount shall, except as may be otherwise provided by law, either be paid to Tenant or credited against future Monthly Deposits or against Basic Rent, or other amounts payable by Tenant under this Lease. The Expenses payable by Tenant for the years in which the Lease Term commences and expires shall be subject to the provisions hereinafter contained in this Lease for proration of such amounts in such years. Prior to the dates on which payment becomes delinquent for Expenses, Landlord shall make payment of such amounts to the extent of funds from Monthly Deposits available therefor and, upon request by Tenant, shall furnish Tenant with a copy of any receipt for such payments. Except for Landlord's obligation to make payments out of funds available from Monthly Deposits, the making of Monthly Deposits by Tenant shall not limit or alter Tenant's obligation to pay any part of the Expenses, as elsewhere provided in this Lease. 4.8 Park Expenses. In addition to all other amounts payable by Tenant pursuant to the terms of this Lease, Tenant shall pay, as Additional Rent payable pursuant to the provisions hereinabove for Monthly Deposits, Tenant's Proportionate Share of the Park Expenses which are deemed allocated to the Property. "Park Expenses" shall mean all items listed in Section 4.5 hereof as Additional Rent which relate to the Park and which are not separately attributable to the Property or any other portion of the Park. 4.19 percent (4.19%) of Park Expenses is allocated to the Property, which will be appropriately adjusted downward if additional buildings are constructed in the Park. 4.9 Proration at Commencement and Expiration of Term. Expenses shall be prorated between Landlord and Tenant for the year in which the Lease Term commences and for the year in which the Lease Term expires as of, respectively, the date of commencement of the Lease Term and the date of expiration of the Lease Term, except as hereinafter provided. Tenant shall be liable without proration for the full amount of any Taxes and Assessments relating to improvements, fixtures, equipment or personal property installed by or on behalf of Tenant which are levied, assessed, or attributable to the Lease Term. Proration of Expenses shall be made on the basis of the actual Expenses billed during the calendar years of the Lease Term, after adjusting such Expenses as though the Building were 95% occupied. The Tenant's Proportionate Share of Expenses for the years in which the Lease Term commences and expires shall be paid and deposited with the Landlord through Monthly Deposits as hereinabove provided, but, in the event actual Expenses for either year are greater or less than as estimated for purposes of Monthly Deposits, appropriate adjustment and payment shall be made between the parties, at the time the actual amounts are known, as may be necessary to accomplish payment or proration, as herein provided. 4.10 Upfit Payment. Tenant shall pay Landlord its agreed share of the cost of upfitting the Premises in the amounts and at the times set forth in Addendum #1. 4.11 General Provisions as to Monthly Deposits. Landlord shall be free to commingle the Monthly Deposits with Landlord's own funds and Landlord shall not be obligated to pay interest to Tenant on account of the Monthly Deposits. In the event of a transfer by Landlord of Landlord's interest in the Premises, Landlord may deliver the Monthly Deposits to the transferee of Landlord's interest and Landlord shall thereupon be discharged from any further liability to Tenant with respect to such Monthly Deposits. In the event of a transfer by Tenant of Tenant's interest in the Premises (Tenant's right to do being limited by Section 8.17), Landlord shall be entitled to deliver the Monthly Deposits to Tenant's successor in interest and Landlord shall thereafter have no liability with respect to the Monthly Deposits. V. TAXES AND ASSESSMENTS. 5.1 Covenant to Pay Taxes and Assessments. Tenant covenants and agrees to pay, as Additional Rent (as provided in Section 4.5), Tenant's pro rata share (as described in Section 4.9) of Taxes and Assessments, which are billed during any calendar year falling partly or wholly within the Lease Term, payable pursuant to the provisions hereinabove for Monthly Deposits. "Taxes and Assessments" shall mean all taxes, assessments or other impositions, 4 5 general or special, ordinary or extraordinary, of every kind or nature, which may be levied, assessed or imposed upon or with respect to the Property or any part thereof. 5.2 Special Assessments. In the event any Taxes or Assessments are payable in installments over a period of years, Tenant shall be responsible only for installments billed during the calendar years within the Lease Term, with proration, as above provided, of any installment payable prior to or after expiration of the Lease Term. 5.3 New or Additional Taxes. Tenant's obligation to pay tenant's pro rata Share of Taxes and Assessments shall include any Taxes and Assessments of a nature not presently in effect but which may hereafter be levied, assessed or imposed upon Landlord or upon the Property if such tax shall be based upon or arise out of the ownership, use or operation of, or the rents received from, the Property, other than income taxes of Landlord. For the purposes of computing Tenant's liability for such new type of tax or assessment, the Property shall be deemed the only property of Landlord. 5.4 Landlord's Sole Right to Contest Taxes. Landlord shall have the sole right to contest any Taxes or Assessments. Landlord shall pay to or credit Tenant with Tenant's pro rata share of any abatement, reduction or recovery of any Taxes and Assessments attributable to the Lease Term, less Tenant's Proportionate Share of all costs and expenses incurred by Landlord, including attorneys' fees, in connection with such abatement, reduction or recovery. VI. INSURANCE. 6.1 Property Insurance. Landlord covenants and agrees to obtain and keep in full force and effect during the Lease Term, Property Insurance as hereinafter defined. "Property Insurance" shall mean fire and extended coverage insurance with respect to the Property, in an amount equal to the full replacement cost thereof, with coinsurance clauses of no less than 90%, and with coverage, at Landlord's option, by endorsement or otherwise, for all risks, vandalism and malicious mischief, sprinkler leakage, boilers, and rental loss and with a deductible in an amount for each occurrence as Landlord, in its sole discretion, may determine from time to time. Property Insurance obtained by Landlord need not name Tenant as an insured party but may, at Landlord's option, name any mortgagee or holder of a deed of trust as an insured party as its interest may appear. Tenant covenants and agrees to pay Tenant's Proportionate Share of the cost of Property Insurance obtained by Landlord as Additional Rent, payable pursuant to the provisions hereinabove for Monthly Deposits. Tenant shall be responsible for obtaining, at Tenant's cost and expense, insurance coverage for property of Tenant and for business interruption of Tenant, and Tenant shall have no claim against Landlord for damage to its property or interruption of its business whether or not it insures the same, unless due to fault on the part of the Landlord. Tenant shall not be responsible for increases in the cost of Property Insurance attributable to actions by persons other than Tenant, its officers, directors, employees, agents, guests or invitees. 6.2 Liability Insurance. Tenant covenants and agrees at its expense to obtain and keep in full force and effect during the Lease Term Liability Insurance as hereinafter defined. "Liability Insurance" shall mean comprehensive general liability insurance covering public liability with respect to the ownership, use and operation of the Premises, with combined single limit coverage of not less than $10,000,000, with endorsements for assumed contractual liability with respect to the liabilities assumed by Tenant under Section 8.24 of this Lease, and with no deductible, retention or self-insurance provision contained therein, unless otherwise approved in writing by Landlord. Landlord covenants and agrees to obtain and keep in full force and effect during the Lease Term public liability insurance with respect to the ownership, use and operation of the Property, and the Common Facilities, but excluding the Premises and space leased to other tenants, with continued single limit coverage of not less than $10,000,000, on which Tenant shall be named as an additional insured, and with no deductible, retention or self-insurance provisions contained therein unless approved in writing by Tenant. Such liability policies shall contain a waiver of rights of subrogation as between Landlord and Tenant. Tenant also covenants and agrees to pay Tenant's Proportionate Share of the premiums and costs of such liability insurance as Additional Rent, payable pursuant to the provisions hereinabove for Monthly Deposits. 6.3 General Provisions Respecting Insurance. All general liability insurance obtained by Tenant shall be with insurers licensed to do business in North Carolina having Best 5 6 rating of B+(X) or higher; shall name Landlord and the holder of any first mortgage or deed of trust encumbering the Property as insured parties, as their interests may appear; shall contain a waiver of rights of subrogation as among Tenant, Landlord and the holder of any such first mortgage or deed of trust and any other named party; and shall provide, by certificate of insurance or otherwise, that the insurance coverage shall not be cancelled or altered except upon thirty (30) days prior written notice to Landlord and the holder of any such first mortgage or deed of trust. Certificates of insurance obtained by Tenant shall be delivered to Landlord, who may deposit the same with the holder of any such first mortgage or deed of trust. 6.4 Cooperation in the Event of Loss. Landlord and Tenant shall cooperate with each other in the collection of any insurance proceeds which may be payable in the event of any loss, including the execution and delivery of any proof of loss or other actions required to effect recovery. VII. UTILITY, OPERATING, MAINTENANCE AND REPAIR EXPENSES. 7.1 Utility Charges. Tenant covenants and agrees to pay all charges for water, sewage disposal, gas, electricity, light, heat, power, telephone or other utility services used, rendered or supplied to or for the Premises and to contract for the same in Tenant's own name. Tenant also covenants and agrees to pay to Landlord Tenant's Proportionate Share of any such charges relating to Common Facilities, such charges to be payable pursuant to the provisions hereinabove for Monthly Deposits. 7.2 Tenant's Operating Expenses. Tenant covenants and agrees to pay all costs and expenses of Tenant's operations on or relating to the Premises, including costs and expenses for utilities, trash and garbage disposal, janitorial and cleaning services, gardening and landscaping services, security services, removal of snow and ice from Parking Areas, sidewalks and driveways serving the Premises, painting, replacement of damaged or broken glass and other breakable materials in or serving the Premises and replacement of lights and light fixtures in or serving the Premises, and to contract for the same in Tenant's own name. Tenant also covenants and agrees to pay to Landlord the HVAC Expense and to pay to Landlord Tenant's Proportionate Share of any such costs and expenses incurred by Landlord (excluding Landlord's administrative costs and expenses) relating to Common Facilities or which are not separately allocated to premises in the Building leased or held for lease to tenants, such costs and expenses to be payable pursuant to the provisions hereinabove for Monthly Deposits. 7.3 Maintenance and Repair Expenses. Tenant covenants and agrees to maintain, repair, replace and keep the Premises and all improvements, fixtures and personal property thereon in good, safe and sanitary condition, order and repair and in accordance with all applicable laws, ordinances, orders, rules and regulations [including, without limitation, the Americans with Disabilities Act ("ADA")] of governmental authorities having jurisdiction, now existing or hereafter enacted; to pay all costs and expenses in connection therewith; and to contract for the same in Tenant's own name; and to pay to Landlord, pursuant to the provisions hereinabove for Monthly Deposits, Tenant's Proportionate Share of any such costs and expenses incurred by Landlord relating to Common Facilities or which are not separately allocated to premises in the Building leased or held for lease to tenants. Such costs and expenses as to Common Facilities may include the costs and expenses of maintenance and upkeep of grass, trees, shrubs and landscaping, including replanting where necessary; keeping parking areas, landscaped areas, sidewalks and driveways safe and secure (with guards or watchmen where indicated) and free from litter, dirt, debris, snow, and obstructions; and ordinary maintenance and repair of the Property and Improvements, but excluding Landlord's administrative costs and expenses. All maintenance and repairs by Tenant shall be, done promptly, in a good and workmanlike fashion, and without diminishing the original quality of the Premises or the Property. Landlord shall be responsible for and shall bear the costs and expenses of replacement of, or maintenance and repairs to, roofs, exterior walls, and structural elements of the Building and Improvements, and the extraordinary repair and maintenance of the Parking Area, unless the need for such replacement or repair is caused by the act or neglect of Tenant. 6 7 VIII. OTHER COVENANTS OF TENANT. 8.1 Limitation on Use by Tenant. Tenant covenants and agrees to use the Premises only for the following use or uses: manufacturing, testing, assembling, packaging, storing, shipping and marketing of electronic equipment and products and for no other purposes, except with the prior written consent of Landlord, which consent shall not be unreasonably withheld. 8.2 Compliance with Laws. Tenant covenants and agrees that nothing shall be done or kept on the Premises in violation of any law, ordinance, order, rule or regulation of any governmental authority having jurisdiction, and that the Premises shall be used, kept and maintained in compliance with any such law, ordinance, order, rule or regulation (now existing or hereafter enacted) and with the certificate of occupancy issued for the Building and the Premises. 8.3 Compliance with Insurance Requirements. Tenant covenants and agrees that nothing shall be done or kept on the Premises which might make unavailable or increase the cost of insurance maintained with respect to the Premises or the Property, which might increase the insured risks or which might result in cancellation of any such insurance. 8.4 No Waste or Impairment of Value. Tenant covenants and agrees that nothing shall be done or kept on the Premises or the Property which might impair the value of the Premises or the Property, or which would constitute waste. 8.5 No Hazardous Use. Tenant covenants and agrees that nothing shall be done or kept on the Premises or the Property and that no improvements, changes, alterations, additions, maintenance or repairs shall be made to the Premises which might be unsafe or hazardous to any person or property. Tenant shall at all times comply with its representations, warranties and covenants as set forth in Exhibit D with respect to the proper use and safeguarding (in accordance with all applicable governmental regulations) of any hazardous materials used on the Premises. 8.6 No Structural or Overloading. Tenant covenants and agrees that nothing shall be done or kept on the Premises or the Building and that no improvements, changes, alterations, additions, maintenance or repairs shall be made to the Premises which might impair the structural soundness of the Building, which might result in an overload of the weight capacity of floors or of electricity lines serving, the Building or which might interfere with electric or electronic equipment in the Building or on any adjacent or nearby property. In the event of violations hereof, Tenant covenants and agrees to remedy immediately the violation at Tenant's expense and in compliance with all requirements of governmental authorities and insurance underwriters. 8.7 No Nuisance, Noxious or Offensive Activity. Tenant covenants and agrees that no noxious or offensive activity shall be carried on upon the Premises or the Property; nor shall anything be done or kept on the Premises or the Property which may be or become a public or private nuisance or which may cause embarrassment, disturbance, or annoyance to others in the Building or on adjacent or nearby property. 8.8 No Annoying Lights, Sounds or Odors. Tenant covenants and agrees that no light shall be emitted from the Premises which is unreasonably bright or causes unreasonable glare; no sound shall be emitted from the Premises which is unreasonably loud or annoying; and no odor shall be emitted from the Premises which is or might be extraordinarily noxious or offensive to others in the Building or on adjacent or nearby property. 8.9 No Unsightliness. Tenant covenants and agrees that no unsightliness shall be permitted on the Premises or the Property. Without limiting the generality of the foregoing, all unsightly conditions, equipment, objects and conditions shall be kept enclosed within the Premises; hallways adjoining the Premises may not be used for discarding or storing any materials; no refuse, scrap, debris, garbage, trash, bulk materials or waste shall be kept, stored or allowed to accumulate on the Premises or the Property except as may be enclosed within the Premises; all pipes, wires, poles, antenna and other facilities for utilities or the transmission or reception of audio or visual signals or electricity shall be kept and maintained underground or 7 8 enclosed within the Premises or appropriately screened from view; and no temporary structure shall be placed or permitted on the Premises or the Property without the prior written consent of Landlord. 8.10 No Animals. Tenant covenants and agrees that no animals other than seeing eye dogs shall be permitted or kept on the Premises or the Property. 8.11 Restriction on Signs and Exterior Lighting. Tenant may install only such exterior signs as comply with Landlord's "Signage Criteria," a copy of which is attached as Exhibit C. Tenant covenants and agrees that no other signs or advertising devices of any nature shall be erected or maintained by Tenant on the Premises or the Property and no exterior lighting shall be permitted on the Premises or the Property except as approved in writing by Landlord. 8.12 [Intentionally Omitted] 8.13 Restriction on Changes and Alterations. Tenant may not make any structural or interior alterations which change the Premises from the condition that existed at the time Tenant takes possession thereof except as provided herein. If Tenant desires to have alterations made, Tenant shall provide Landlord's managing agent with two (2) complete sets of construction drawings, and such agent shall then determine the cost of the work to be done pursuant to such drawings (such cost to include a construction supervision fee of 4% of such cost to be paid to Landlord's managing agent), and submit the cost to Tenant. Tenant may then either agree to pay Landlord the cost, in which event Landlord shall cause the work to be done, or Tenant may withdraw its request for alterations. If Tenant terminates this Lease at the end of two full years after the commencement date, Landlord may elect to require Tenant to leave alterations performed for it or may elect to require Tenant to remove the same and restore the Premises to warehouse condition. If the Lease expires or is terminated after two full years of the Lease Term have elapsed, Tenant may leave such alterations, or at its option may remove the same and if Tenant does so remove Tenant shall repair any damage occasioned by such removal. 8.14 No Mechanics Liens. Tenant covenants and agrees not to permit or suffer, and to cause to be removed and released, any mechanics, materialmen or other lien on account of supplies, machinery, tools, equipment, labor or material furnished or used in connection with the construction, alteration, improvement, addition to or repair of the Premises by, through or under Tenant. Tenant shall have the right to contest, in good faith and with reasonable diligence, the validity of any such lien or claimed lien, provided that Tenant shall give to Landlord such security as may be reasonably requested by Landlord to insure the payment of any amounts claimed, including interests and costs, and to prevent any sale, foreclosure or forfeiture of any interest in the Property on account of any such lien and provided that, on final determination of the lien or claim for lien, Tenant shall immediately pay any judgment rendered, with interests and costs, and will cause the lien to be released and any judgment satisfied. 8.15 No Other Encumbrances. Tenant covenants and agrees not to obtain any financing secured by Tenant's interest in the Premises and not to encumber the Premises, or Landlord or Tenant's interest therein, without the prior written consent of Landlord, and to keep the Premises free from all liens and encumbrances except those created by Landlord; provided, however, that Tenant shall be free to obtain financing secured by, and may create liens and encumbrances relating to Tenant's equipment and personal property located on the Premises. 8.16 Subordination to Landlord Mortgages. Tenant covenants and agrees that, at Landlord's option, this Lease and Tenant's interest in the Premises shall be junior and subordinate to any mortgage or deed of trust now or hereafter encumbering the Property if in any mortgage or deed of trust given hereunder, the mortgagee or beneficiary under such mortgage or deed of trust agrees in writing, or adequate provision is made in the mortgage or deed of trust, that, in the event of foreclosure of any such mortgage or deed of trust, Tenant shall not be disturbed in its possession of the Premises conditioned only on Tenant attorning to the party acquiring title to the Property as the result of such foreclosure. Tenant covenants and agrees, within fifteen (15) days of request of Landlord, to execute such documents as may be necessary or appropriate to confirm and establish this Lease as subordinate to any such mortgage or deed of trust in accordance with the foregoing provisions. Alternatively, Tenant covenants and agrees that at Landlord's request, Tenant shall execute documents as may be necessary to establish this Lease and Tenant's interest in the Premises as superior to any such mortgage or deed of trust. 8 9 If Tenant fails to execute any documents required to be executed by Tenant under the provisions hereof, Tenant hereby makes, constitutes and irrevocably appoints Landlord as Tenant's attorney in fact and in Tenant's name, place and stead to execute any such documents. 8.17 No Assignment or Subletting. Tenant covenants and agrees not to make or permit a transfer by Tenant, as hereinafter defined, without Landlord's prior written consent, not to be unreasonably withheld. A transfer by Tenant shall include an assignment of this Lease, a sublease of all or any part of the Premises or any assignment, sublease, transfer, mortgage, pledge or encumbrance of all or any part of Tenant's interest under this Lease or in the Premises, by operation of law or otherwise, directly or indirectly, or resulting from, a change in the ownership of Tenant, except as results from a merger between Tenant and a third party, or the use or occupancy of all or any part of the Premises by anyone other than Tenant. Any such transfer by Tenant without Landlord's written consent shall be void and shall constitute a default under this Lease. In the event Landlord consents to any transfer by Tenant, Tenant shall not be relieved of its obligations under this Lease and Tenant shall remain liable, jointly and severally and as a principal, and not as a guarantor or surety, under this Lease, to the same extent as though no transfer by Tenant had been made, unless specifically provided to the contrary in Landlord's prior written consent. The acceptance of rent by Landlord from any person other than Tenant shall not be deemed to be a waiver by Landlord of the provisions of this Section or of any other provision of this Lease and any consent by Landlord to transfer by Tenant shall not be deemed a consent to any subsequent transfer by Tenant. Notwithstanding the foregoing, Landlord shall, at Landlord's option, have the right, in lieu of consenting to a transfer by Tenant, to terminate this Lease as to the portion of the Premises which is subject to the proposed transfer by Tenant and to enter into a new lease with the proposed transferee and receive directly from the proposed transferee the consideration agreed to be given by such transferee to Tenant for the transfer by Tenant. In the event Landlord consents to a transfer by Tenant, any option to renew this lease, to expand the Premises, or right to extend the Lease Term shall automatically terminate unless otherwise agreed in writing by Landlord. 8.18 Annual Financial Statements. Tenant covenants and agrees to furnish to Landlord annually, within ninety (90) days after the end of each fiscal year of Tenant, copies of financial statements of Tenant, audited if requested by Landlord, by a certified public accountant, and which financial statements Landlord shall hold in trust and confidence and shall not disclose them to third parties except as provided herein. Tenant agrees that Landlord may deliver any such financial statements to any existing or prospective mortgagee or purchaser of the Property. The financial statements shall include a balance sheet as of the end of, and a statement of profit or loss for, the preceding fiscal year of Tenant. 8.19 Payment of Income and Other Taxes. Tenant covenants and agrees to pay promptly when due all property taxes on personal property of Tenant on the Premises and all federal, state and local income taxes, sales taxes, use taxes, Social Security taxes, unemployment taxes and taxes withheld from wages or salaries paid to Tenant's employees, the nonpayment of which might give rise to a lien on the Premises or Tenant's interest therein, and to furnish, if requested by Landlord, evidence of such payments. 8.20 Estoppel Certificates. Tenant covenants and agrees to execute, acknowledge and deliver to Landlord, within ten (10) days of Landlord's written request, a written statement certifying that this Lease is unmodified (or, if modified, stating the modifications) and in full force and effect; stating the dates to which Basic Rent has been paid; stating the amount of Monthly Deposits held by Landlord for the then tax and insurance year; and stating whether or not Landlord is in default under this Lease (and, if so, specifying the nature of the default). Tenant agrees that such statement may be delivered to and relied upon by any existing or prospective mortgagee or purchaser of the Property. Tenant agrees that a failure to deliver such a statement within ten (10) days after written request from Landlord shall be conclusive upon Tenant that this Lease is in full force and effect without modification except as may be represented by Landlord; that there are no uncured defaults by Landlord under this Lease; and that any representation by Landlord with respect to Basic Rent, and Monthly Deposits are true. 9 10 8.21 Landlord Right to Inspect and Show Premises and to Install for Sale Signs. Tenant covenants and agrees that Landlord and authorized representatives of Landlord shall have the right to enter the Premises at any reasonable time during ordinary business hours without interruption of Tenant's business for the purposes of inspecting, repairing or maintaining the same or performing any obligations of Tenant which Tenant has failed to perform hereunder, or for the purposes of showing the Premises to any existing or prospective mortgagee, purchaser or lessee of the Property or the Premises. Landlord agrees that any of its authorized representatives entering the Premises shall be subject to a written agreement which enforces confidentiality and prevents disclosure of any information pertaining to Tenant's business. Tenant covenants and agrees that Landlord may at any time and from time to time place on the Property or the Premises a sign advertising the Property or the Premises for sale and during the year prior the expiration or termination of this Lease, for lease. 8.22 Landlord Title to Fixtures, Improvements and Equipment. Tenant covenants and agrees that all fixtures and improvements on the Premises and all equipment and personal property relating to the use and operation of the Premises (excluding that installed as a part of Tenant's upfit and additional or replacements thereto, and as distinguished from operations incident to the business of Tenant), including all plumbing, heating, lighting, electrical and air conditioning fixtures and equipment, whether or not attached to or affixed to the Premises, and whether now or hereafter located upon the Premises, shall be and remain the property of the Landlord if the Lease is terminated at the end of two full years after the commencement date. However, Landlord reserves the right to require the Tenant at its expense to restore the Premises to the "warehouse condition", being the condition of the Premises before being readied for Tenant's occupancy, if Tenant terminates at the end of two full years after the commencement date. If termination or expiration occurs after two full years of the Lease Term have elapsed, then the provisions of Section 8.13 will control. 8.23 Removal of Tenant's Equipment. Tenant covenants and agrees to remove, not later than the expiration date of the Lease Term, all of Tenant's Equipment, as hereinafter defined. "Tenant's Equipment" shall mean all equipment, apparatus, machinery, signs, furniture, furnishings and personal property used in the operation of the business of Tenant (as distinguished from the use and operation of the Premises). If such removal shall injure or damage the Premises, Tenant covenants and agrees, at its sole cost and expense, at or prior to the expiration of the Lease Term, to repair such injury and damage in good and workmanlike fashion and to place the Premises in the same condition as the Premises would have been in if such Tenant's Equipment had not been installed. If Tenant fails to remove any Tenant's Equipment by the expiration of the Lease Term, Landlord may, at its option, keep and retain any such Tenant's Equipment or dispose of the same and retain any proceeds thereof and Landlord shall be entitled to recover from Tenant any costs or expenses of Landlord in removing the same and in restoring the Premises in excess of the actual proceeds, if any, received by Landlord from disposition thereof. 8.24 Tenant Indemnification of Landlord. Except where caused by Landlord's actions, Tenant covenants and agrees to protect, indemnify and save Landlord harmless from and against all liability, obligations, claims, damages, penalties, causes of action, costs and expenses, including attorneys' fees at all tribunal levels, imposed upon, incurred by or asserted against Landlord by reason of (a) any accident, injury to or death of any person or loss of or damage to any property occurring on or about the Premises; (b) any act or omission of Tenant or Tenant's officers, employees, agents, guests or invitees or of anyone claiming by, through or under Tenant; (c) any use which may be made of, or condition existing upon, the Demised Premises; (d) any improvements, fixtures or equipment upon the Premises; (e) any failure on the part of Tenant to perform or comply with any of the provisions, covenants or agreements of Tenant contained in this Lease; (f) any violation of any law, ordinance, order, rule or regulation of governmental authorities having jurisdiction by Tenant or Tenant's officers, employees, agents, guests or invitees or by anyone claiming by, through or under Tenant; and (g) any repairs, maintenance or changes to the Premises by, through or under Tenant. Tenant further covenants and agrees that, in case any such action, suit or proceeding, is brought against Landlord by reason of any of the foregoing, Tenant will, at Tenant's sole cost and expense, defend Landlord in any such action, suit or proceeding, with counsel acceptable to Landlord. 8.25 Waiver by Tenant. Tenant waives and releases any claims Tenant may have against Landlord or Landlord's officers, agents or employees for loss, damage or injury to person or property sustained by Tenant or Tenant's officers, agents, employees, guests, invitees 10 11 or anyone claiming by, through or under Tenant resulting from any cause whatsoever other than Landlord's gross negligence or willful misconduct. 8.26 Release upon Transfer by Landlord. The provisions of this Lease shall bind and inure to the benefit of Landlord and Tenant, and their respective successors, legal representatives and assigns. It is understood and agreed, however, that the term "Landlord", as used in this Lease, means only the fee owner or the Landlord for the time being of the Leased Premises, so that, except as otherwise provided herein, in the event of any sale or sales of Landlord's interest in the Leased Premises (including, without limitation, any judicial sale, any sale in foreclosure, and any sale pursuant to a power of sale contained in a mortgage or deed of trust affecting all or any part of the Leased Premises), the Landlord named herein shall be, and hereby is, entirely freed and relieved of all covenants and obligations of Landlord hereunder accruing thereafter. It shall be deemed without further agreement that the purchaser or transferee in any such sale or transfer, as the case may be, has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder, during the period such is owner of the Leased Premises. Tenant shall be bound to any succeeding party Landlord for all the terms, covenants and conditions hereof, and shall execute any attornment agreement not in conflict herewith at the request of any succeeding party Landlord. 8.27 Compliance with ADA. Tenant covenants and agrees that nothing shall be done or kept by Tenant on the Premises or in the Common Facilities in violation of ADA, and that Tenant shall maintain, repair, replace, keep and use the Premises and all improvements, fixtures and personal property therein and thereon, and conduct its business within the Premises, in accordance with the requirements of ADA. If any improvements, alterations or repairs to the Premises are required by governmental authority under ADA or its implementing regulations or guidelines, Tenant shall be solely responsible for all non-structural items and any structural items due to Tenant's specific use of the Premises. Tenant covenants and agrees to pay all costs and expenses in connection with the performance of its obligations under this Section 8.27. Nothing contained in this Section 8.27 shall be construed to limit the generality of the provisions of Section 8.2 respecting Tenant's obligation to comply with applicable laws and of the provisions of Section 8.13 respecting Tenant's obligation to comply with ADA and other applicable laws in connection with any Change. IX. DAMAGE OR DESTRUCTION. 9.1 Tenant's Notice of Damage. If any portion of the Premises shall be damaged or destroyed by fire or other casualty, Tenant shall give prompt written notice thereof to Landlord ("Tenant's Notice of Damage"). 9.2 Options to Terminate if Damage Substantial. Upon receipt of Tenant's Notice of Damage, Landlord shall promptly proceed to determine the nature and extent of the damage or destruction and to estimate the time necessary to repair or restore the Premises. As soon as reasonably possible, Landlord shall give written notice to Tenant stating Landlord's estimate of the time necessary to repair or restore the Premises ("Landlord's Notice of Repair Time"). If Landlord reasonably estimates that repair or restoration of the Premises cannot be completed within 120 days from the time of Tenant's Notice of Damage, Landlord and Tenant shall each have the option to terminate this Lease. In the event, however, that the damage or destruction was caused by the act or omission of Tenant or Tenant's officers, employees, agents, guests or invitees, Landlord shall have the option to terminate this Lease if Landlord reasonably estimates that the repair or restoration cannot reasonably be completed within 120 days from the time of Tenant's Notice of Damage, but Tenant shall not have the option to terminate this Lease. Any option granted hereunder shall be exercised by written notice to the other party given within 10 days after Landlord's Notice of Repair Time. In the event either Landlord or Tenant exercises its option to terminate this Lease, the Lease Term shall expire 10 days after the notice by either Landlord or Tenant exercising such party's option to terminate this Lease. In the event of termination of this Lease under the provisions hereof, Landlord shall refund to Tenant such amounts of Basic Rent and Additional Rent theretofore paid by Tenant as may be applicable to the period subsequent to the time of Tenant's Notice of Damage less the reasonable value (based on Basic Rent applicable at the time of damage) of any use or occupation of the Premises by Tenant subsequent to the time of Tenant's Notice of Damage. 11 12 9.3 Obligations to Repair and Restore. In the event there are sufficient funds, and such funds are available to Landlord to repair and restore and repair of the Premises, and restoration can be completed within the period specified in Section 9.2, in Landlord's reasonable estimation, this Lease shall continue in full force and effect and Landlord shall proceed forthwith to cause the Premises to be repaired and restored with reasonable diligence and there shall be abatement of Basic Rent and Additional Rent proportionate to the extent of the space and period of time that Tenant is unable to use and enjoy the Premises. Landlord may, at its option, request Tenant to arrange for and handle the repair and restoration of the Premises, in which case Landlord shall furnish Tenant with sufficient funds for such repair and restoration, at the time or times such funds are needed, utilizing any proceeds from insurance and any additional funds necessary to cover the costs of repair or restoration. 9.4 Application of Insurance Proceeds. The proceeds of any Property Insurance maintained on the Premises, other than Property Insurance maintained by Tenant on fixtures and personal property of Tenant, shall be paid to and become the property of Landlord, subject to any obligation of Landlord to cause the Premises to be repaired and restored, which obligation is contingent on Property Insurance proceeds adequate to complete the repair or restoration being available to Landlord. X. CONDEMNATION. 10.1 Taking -- Substantial Taking -- Insubstantial Taking. A "Taking" shall mean the taking of all or any portion of the Premises as a result of the exercise of the power of eminent domain or condemnation for public or quasi-public use or the sale of all or part of the Premises under the threat of condemnation. A "Substantial Taking" shall mean a Taking of so much of the Premises that the Premises cannot thereafter, be reasonably used by Tenant for carrying on, at substantially the same level or scope, the business theretofore conducted by Tenant on the Premises. An "Insubstantial Taking" shall mean a Taking such that the Premises can thereafter continue to be used by Tenant for carrying on, at substantially the same level or scope, the business theretofore conducted by Tenant on the Premises. 10.2 Termination on Substantial Taking. If there is a Substantial Taking with respect to the Premises, the Lease Term shall expire on the date of vesting of title pursuant to such Taking. In the event of termination of this Lease under the provisions hereof, Landlord shall refund to Tenant such amounts of Basic Rent and Additional Rent theretofore paid by Tenant as may be applicable to the period subsequent to the time of termination of this Lease. 10.3 Restoration on Insubstantial Taking. In the event of an Insubstantial Taking, this Lease shall continue in full force and effect, Landlord shall proceed forthwith to cause the Premises to be restored as near as may be to the original condition thereof and there shall be abatement of Basic Rent and Additional Rent proportionate to the extent of the space so taken. Landlord may, at its option, require Tenant to arrange for and handle the restoration of the Premises, in which case Landlord shall furnish Tenant with sufficient funds for such restoration, at the time or times such funds are needed, utilizing the proceeds of any awards or consideration received as a result of the Taking and any additional funds necessary to cover the costs of restoration. 10.4 Right to Award. The total award, compensation, damages or consideration received or receivable as a result of a Taking ("Award") shall be paid to and be the property of Landlord, whether the Award shall be made as compensation for diminution of the value of the leasehold or the fee of the Premises or otherwise and Tenant hereby assigns to Landlord, all of Tenant's right, title and interest in and to any such Award. Tenant covenants and agrees to execute, immediately upon demand by Landlord, such documents as may be necessary to facilitate collection by Landlord of any such Award. Tenant, however, shall be entitled to apply for compensation, if available, for its relocation and for any of its personal property taken. XI. DEFAULTS BY TENANT. 11.1 Defaults Generally. Each of the following shall constitute a "Default by Tenant" under this Lease: 11.2 Failure to Pay Rent or Other Amounts. A Default by Tenant shall exist if Tenant fails to pay when due, Basic Rent, Additional Rent, Monthly Deposits, Upfit 12 13 Amortization, or any other amounts payable by Tenant under the terms of this Lease, and such failure shall continue for ten (10) days after notice from Landlord of non-receipt, providing Landlord shall not be required to give such notice more than twice in any consecutive twelve month period, and failure to receive rent within ten days of its due date after two notices during any consecutive twelve month period shall constitute a "Default by Tenant". 11.3 Violation of Lease Terms. A Default by Tenant shall exist if Tenant breaches or fails to comply with any agreement, term, covenant or condition in this Lease applicable to Tenant, and such breach or failure to comply continues for a period of 20 days after notice thereof by Landlord to Tenant, or, if such breach or failure to comply cannot be reasonably cured within such thirty (30) day period, if Tenant shall not in good faith commence to cure such breach or failure to comply within such thirty (30) day period or shall not diligently proceed therewith to completion within no more than sixty (60) days after Landlord's notice. 11.4 Transfer of Interest Without Consent. Except as provided in Section 8.17, a Default by Tenant shall exist if Tenant's interest under this Lease or in the Premises shall be transferred to or pass to or devolve upon any other party (including, without limitation, a change in ownership of Tenant) without Landlord's prior written consent. 11.5 Execution and Attachment against Tenant. A Default by Tenant shall exist if Tenant's interest under this Lease or in the Premises shall be taken upon execution or by other process of law directed against Tenant, or shall be subject to any attachment at the instance of any creditor or claimant against Tenant and said attachment shall not be discharged, disposed of, or bonded against to Landlord's satisfaction within fifteen (15) days after the levy thereof. 11.6 Bankruptcy or Related Proceedings. A Default by Tenant shall exist if Tenant shall file a petition in bankruptcy or insolvency or for reorganization or arrangement under the bankruptcy laws of the United States or under any similar act of any state, or shall voluntarily take advantage of such law or act by answer or otherwise, or shall be dissolved or shall make an assignment for the benefit of creditors or if involuntary proceedings under any such bankruptcy or insolvency law or for the dissolution of Tenant shall be instituted against Tenant or a receiver or trustee shall be appointed for the Premises or for all or substantially all of the property of Tenant, and such proceedings shall not be dismissed or such receivership or trusteeship vacated within sixty (60) days after such institution or appointment. XII. LANDLORD'S REMEDIES. 12.1 Remedies Generally. Upon the occurrence of any Default by Tenant, Landlord shall have the right, at Landlord's election, then or at any time thereafter, to exercise any one or more of the following remedies: 12.2 Cure by Landlord. In the event of a Default by Tenant, Landlord may, at Landlord's option, but without obligation to do so, and without releasing Tenant from any obligations under this Lease, make any payment or take any action as Landlord may deem necessary or desirable to cure any such Default by Tenant in such manner and to such extent as Landlord may deem necessary or desirable. Landlord may do so after written notice to Tenant and Tenant's failure within a reasonable time to cure such Default by Tenant. Tenant covenants and agrees to pay to Landlord, within ten (10) days after written notice, all advances, costs and expenses of Landlord in connection with the making of any such payment or the taking of any such action, including reasonable attorney's fees, together with interest as hereinafter provided, from the date of payment of any such advances, costs and expenses by Landlord. Action taken by Landlord may include commencing, appearing in, defending or otherwise participating in any action or proceeding and paying, purchasing, contesting, or compromising any claim, right, encumbrance, charge or lien with respect to the Premises which Landlord, in its discretion, may deem necessary or desirable to protect its interest in the Premises and under this Lease. 12.3 Termination of Lease and Damages. In the event of a Default by Tenant, Landlord may terminate this Lease, effective at such time as may be specified by written notice to Tenant, and demand (and, if such demand is refused, recover) possession of the Premises from Tenant. Tenant shall remain liable to Landlord for damages in an amount equal to the Basic Rent, Additional Rent and other sums which would have been owing by Tenant hereunder for the balance of the term, had this Lease not been terminated, less the net proceeds, if any, of any reletting of the Premises by Landlord subsequent to such termination, after deducting all Landlord's expenses in connection with such recovery of possession or reletting. Landlord shall 13 14 be entitled to collect and receive such damages from Tenant on the days on which the Basic Rent, Additional Rent and other amounts would have been payable if this Lease had not been terminated. Alternatively, at the option of Landlord, Landlord shall be entitled to recover forthwith from Tenant, as damages for loss of the bargain and not as a penalty, an aggregate sum which, at the time of such termination of this Lease, represents the excess, if any, of (a) the aggregate of the Basic Rent, Additional Rent and all other sums payable by Tenant hereunder that would have accrued for the balance of the Lease Term, over (b) the aggregate rental value of the Premises for the balance of the Lease Term, both discounted to present worth at the greater of Prime Rate (hereafter defined) or 8% per annum. 12.4 Repossession and Reletting. In the event of Default by Tenant, Landlord may reenter and take possession of the Premises or any part thereof, without demand or notice, and repossess the same and expel Tenant and any party claiming by, under or through Tenant, and remove the effects of both using such force for such purposes as may be necessary, without being liable for prosecution on account thereof or being deemed guilty of any manner of trespass, and without prejudice to any remedies for arrears of rent or right to bring any proceeding for breach of covenants or conditions. No such reentry or taking possession of the Premises by Landlord shall be construed as an election by Landlord to terminate this Lease unless a written notice of such intention is given to Tenant. No notice from Landlord hereunder or under a forcible entry and detainer statute or similar law shall constitute an election by Landlord to terminate this Lease unless such notice specifically so states. Landlord reserves the right, following any reentry or reletting, to exercise its right to terminate this Lease by giving Tenant such written notice, in which event the Lease will terminate as specified in said notice. After recovering possession of the Premises, Landlord may relet the Premises, or any part thereof, for the account of Tenant, for such term or terms and on such conditions and upon such other terms as Landlord, in its reasonable discretion, may determine. Landlord may make such repairs, alterations or improvements as Landlord may consider appropriate to accomplish such reletting, and Tenant shall reimburse Landlord upon demand for all costs and expenses, including attorneys' fees, which Landlord may incur in connection with such reletting. Landlord may collect and receive the rents for such reletting but Landlord shall in no way be responsible or liable for any failure to relet the Premises, or any part thereof, or for any failure to collect any rent due upon such reletting. Notwithstanding Landlord's recovery of possession of the Premises, Tenant shall continue to pay on the dates herein specified, the Basic Rent, Additional Rent and other amounts which would be payable hereunder if such repossession had not occurred. Upon the expiration or earlier termination of this Lease, Landlord shall refund to Tenant any amount, without interest, by which the amounts paid by Tenant, when added to the net amount, if any, recovered by Landlord through any reletting of the Premises, exceeds the amounts payable by Tenant under this Lease. If, in connection with any reletting, the new lease term extends beyond the existing term, or the premises covered thereby include other premises not part of the Premises, a fair apportionment of the rent received from such reletting and the expenses incurred in connection therewith will be made in determining the net amount recovered from such reletting. 12.5 Suits by Landlord. Actions or suits for the recovery of amounts and damages payable under this Lease may be brought by Landlord, from time to time, at Landlord's election, and Landlord shall not be required to await the date upon which the Lease Term would have expired to bring any such action or suit. 12.6 Recovery of Landlord Enforcement Costs. All costs and expenses incurred by Landlord in connection with collecting any amounts and damages owing by Tenant pursuant to the provisions of this Lease or to enforce any provisions of this Lease, including reasonable attorneys' fees whether or not any action is commenced by Landlord, shall be paid by Tenant to Landlord upon demand. 12.7 Interest on Past Due Payments and Advances. In addition to charges set forth in Section 4.3, Tenant covenants and agrees to pay Landlord on demand interest at a per annum rate of four percent (4%) in excess of Prime Rate (hereafter defined) on the amount of any payments due from Tenant to Landlord not paid when due, and on the amount of any payment made by Landlord on Tenant's behalf, including reasonable attorneys' fees paid by Landlord in connection with any action taken to cure a Tenant Default, from the date of such payment. Prime Rate shall mean the interest rate announced by NationsBank, N.A. from time to time as such, and if the use of Prime Rate is discontinued then Landlord in its discretion may select a comparable rate for computing interest charges under this Section. 14 15 12.8 Landlord's Bankruptcy Remedies. Nothing contained in this Lease shall limit or prejudice the right of Landlord to prove and obtain as liquidated damages in any bankruptcy, insolvency, receivership, reorganization or dissolution proceeding, an amount equal to the maximum allowable by any statute or rule of law governing such proceeding in effect at the time when such damages are to be proved, whether or not such amount be greater, equal or less than the amounts recoverable, either as damages or rent, under this Lease. 12.9 Remedies Cumulative. Exercise of any of the remedies of Landlord under this Lease shall not prevent the concurrent or subsequent exercise of any other remedy provided for in this Lease or otherwise available to Landlord at law or in equity. XIII. SURRENDER AND HOLDING OVER. 13.1 Surrender Upon Lease Expiration. Upon the expiration or earlier termination of this Lease, or on the date specified in any demand for possession by Landlord after any Default by Tenant, Tenant, except as provided herein, covenants and agrees to surrender possession of the Premises to Landlord in the same condition as when Tenant first occupied the Premises, ordinary wear and tear and damage by fully insured casualty excepted. 13.2 Holding Over. If Tenant shall hold over after the expiration of the Lease Term, without written agreement providing otherwise, Tenant shall be a tenant from month to month, (terminable on seven (7) days notice) at a monthly rental, payable in advance, equal to 150% of the Monthly Rental, and Tenant shall be bound by all of the other terms, covenants and agreements of this Lease. Nothing contained herein shall be construed to give Tenant the right to hold over at any time, and Landlord may exercise any and all remedies at law or in equity to recover possession of the Premises, as well as any damages incurred by Landlord due to Tenant's failure to vacate the Premises and deliver possession to Landlord as herein provided. XIV. COVENANTS, WARRANTIES AND REPRESENTATIONS OF LANDLORD. 14.1 Good Title. Landlord represents that it owns the leased property in fee simple and that the property is free from encumbrances except as referred to elsewhere in this Lease. The Landlord further represents that it has the right to make this Lease and covenants that it will execute or procure any further necessary assurances of title that may be reasonably required for the protection of Tenant, including but not limited to a title report respecting the Premises setting any existing liens, encumbrances and other restrictions pertaining to the Property. Landlord covenants that it will notify Tenant of any mortgages or other encumbrances affecting the Premises. 14.2 Assurance of Continuation of Lease. Landlord covenants that in the event of a sale or foreclosure of the Property of which the Premises is a part, this Lease shall continue in full force and effect, according to the terms hereof. Landlord covenants further that in the event of any assignment of Landlord's interest in the Premises or in this Lease, such assignment shall be upon and subject to all the terms, covenants and conditions contained in this Lease. 14.3 Environmental Audit. Landlord represents that it has performed a Phase 1 environmental audit of the Property and agrees to provide said audit to Tenant for its inspection. Landlord warrants that the Property is in compliance with environmental laws and that regulated substances have not been stored, treated, handled, disposed of, generated or otherwise located on the Property. XV. MISCELLANEOUS. 15.1 No Implied Waiver. No failure by Landlord to insist upon the strict performance of any term, covenant or agreement contained in this Lease, no failure by Landlord to exercise any right or remedy under this Lease, and no acceptance of full or partial payment during the continuance of any Default by Tenant, shall constitute a waiver of any such term, covenant or agreement or a waiver of any such right or remedy or a waiver of any such Default by Tenant. 15 16 15.2 Survival of Provisions. Notwithstanding any termination of this Lease, the same shall continue in force and effect as to any provisions hereof which require observance or performance by Landlord or Tenant subsequent to termination. 15.3 Right of First Offer to Lease Additional Space. Tenant shall have the right of first offer to lease additional space as set forth on Addendum #2. 15.4 Covenants Independent. This Lease shall be construed as if the covenants herein between Landlord and Tenant are independent, and not dependent. 15.5 Covenants as Conditions. Each provision of this Lease performable by Tenant shall be deemed both a covenant and a condition. 15.6 Tenant's Remedies. Tenant may bring a separate action against Landlord for any claim Tenant may have against Landlord under this Lease, provided Tenant shall first give written notice thereof to Landlord and shall afford Landlord a reasonable opportunity to cure any such default. In addition Tenant shall send notice of such default by certified or registered mail, postage prepaid, to the holder of any mortgage or deed of trust covering the Premises, the Property or any portion thereof of whose address Tenant has been notified in writing, and shall afford such holder a reasonable opportunity to cure any default on Landlord's behalf. In no event will Landlord be responsible to Tenant for any damages for loss of profits or interruption of business as a result of any default by Landlord hereunder, but Landlord shall always be liable for any damages caused by Landlord to Tenant's physical property. 15.7 Binding Effect. This Lease shall extend to and be binding upon the heirs, executors, legal representative, successors and assigns of the respective parties hereto. The terms, covenants, agreements and conditions in this Lease shall be construed as covenants running with the Land. 15.8 Notices and Demands. Any notices which Landlord or Tenant are required or desire to give the other hereunder shall be deemed to have been properly given for all purposes if (i) delivered against a written receipt of delivery, (ii) mailed by registered or certified mail of the United States Postal Service, return receipt requested, postage prepaid, or (iii) delivered to a nationally recognized overnight courier service for next business day delivery, to its addressee at such party's address as set forth herein or (iv) delivered via telecopier or facsimile transmission to the facsimile number listed herein, provided, however, that if such communication is given via telecopier or facsimile transmission, an original counterpart of such communication shall concurrently be sent in either the manner specified in clause (i) or (iii) above. Each such notice, demand or request shall be deemed to have been given upon the earlier of (i) actual receipt or refusal by the addressee or (ii) deposit thereof at any main or branch United States post office if sent in accordance with section (ii) above, and deposit thereof with the courier if sent pursuant to section (iii) above. Landlord may, by written notice setting forth the name and address thereof and delivered to the Tenant as provided in this Section 14.8, require that duplicate copies of any such notice or communication from Tenant to Landlord be sent to any holder of a mortgage or deed of trust on Landlord's interest in the Leased Premises. Copies of notices shall also be sent to: Wolf, Block, Schorr & Solis-Cohen, Twelfth Floor, Packard Building, 15th and Chestnut Streets, Philadelphia, Pennsylvania 19102-2678, Fax #215-977-2346, Attn: James R. Williams, Esq.; to Manning, Fulton & Skinner, P.A., 500 UCB Plaza, 3605 Glenwood Avenue, Raleigh, North Carolina 27612, Fax #919-781-0811, Attn: Charles L. Fulton, Esq.; and to Craig Davis Properties, Suite 435 UCB Plaza, 3605 Glenwood Avenue, Raleigh, North Carolina 27612, Fax #919-781-1262, Attn: Mr. Craig M. Davis, 15.9 Time of the Essence. Time is of the essence under this Lease, and all provisions herein relating thereto shall be strictly construed. 15.10 Captions for Convenience. The headings and captions hereof are for convenience only and shall not be considered in interpreting the provisions hereof. 15.11 Severability. If any provision of this Lease shall be held invalid or unenforceable, the remainder of this Lease shall not be affected thereby, and there shall be deemed substituted for the affected provisions a valid and enforceable provision as similar as possible to the affected provision. 16 17 15.12 Governing Law. This Lease shall be interpreted and enforced according to the laws of the State of North Carolina. 15.13 Entire Agreement. This Lease and any exhibits and addenda referred to herein, constitute the final and complete expression of the parties' agreements with respect to the Premises and Tenant's occupancy thereof. Each party agrees that it has not relied upon or regarded as binding any prior agreements, negotiations, representations, or understandings, whether oral or written, except as expressly set forth herein. Both parties have participated in the preparation of this Lease and in resolving any ambiguities there shall be no presumption that they are construed against the drafting party. 15.14 No Oral Amendment or Modifications. No amendment or modification of this Lease, and no approvals, consents or waivers by Landlord under this Lease, shall be valid or binding unless in writing and executed by the party to be bound. 15.15 Real Estate Brokers. Tenant covenants to pay, hold harmless and indemnify the Landlord from and against any and all cost, expense or liability for any compensation, commissions, charges or claims by any broker or other agent with respect to this Lease or the negotiation thereof claiming to represent Tenant. 15.16 Relationship of Landlord and Tenant. Nothing contained herein shall be deemed or construed as creating the relationship of principal and agent or of partnership, or of joint venture by the parties hereof, it being understood and greed that no provision contained in this Lease nor any acts of the parties hereto shall be deemed to create any relationship other than the relationship of Landlord and Tenant. 15.17 Authority of Tenant. Each individual executing this Lease on behalf of Tenant represents and warrants that such individual is duly authorized to deliver this Lease on behalf of Tenant and that this Lease is binding upon Tenant in accordance with its terms, and agrees to document such authorization to Landlord's satisfaction if requested to do so. 15.18 Exculpation. Any provision of this Lease to the contrary notwithstanding Landlord shall have no personal liability for payment of any damages or performance of any term, provision or condition under this Lease or under any other instrument in connection with this Lease, and Tenant shall look for such payment or performance to the Property, the rents, issues and profits thereof, in satisfaction of any claim, order or judgment Tenant may at any time obtain against Landlord in connection with this Lease. 15.19 Guaranty. The entering into of this Lease by Landlord is contingent upon and subject to Micron Custom Manufacturing Services, Inc. executing and delivering to Landlord the Guaranty attached hereto as Addendum #4. IN WITNESS WHEREOF the parties hereto have caused this Lease to be executed the day and year first above written. LANDLORD: TRI-CENTER SOUTH LIMITED PARTNERSHIP (SEAL) ATTEST: By: Durham-South RPF II Realty Corp. General Partner /s/ [ILLEGIBLE] - -------------------------------- Secretary By: /s/ [ILLEGIBLE] -------------------------------- Its President (Corporate Seal) 17 18 TENANT: MICRON ELECTRONICS OF NORTH CAROLINA, INC. ATTEST: By: /s/ Joseph M. Daltoso -------------------------------- /s/ [ILLEGIBLE] Typed Name: Joseph M. Daltoso - -------------------------------- Secretary Title: Chairman (Corporate Seal) By: /s/ Gregory D. Stevenson -------------------------------- Typed Name: Gregory D. Stevenson Title: President 18 19 EXHIBIT A TO LEASE OF SPACE Beginning at an iron pipe located in the southwestern right-of-way line of Old Cornwallis Road, a 60' right-of-way, said pipe marking the southeast corner of property belonging to Mary E. Fletcher, now or formerly (see deed recorded in Book 1282, page 931, Durham County Registry), said pipe also being located South 77(degrees) 16' 54" East 247.19 feet from the southeast corner of property conveyed by Louis Edward Tapp and wife, Irma B. Tapp to GE Investment Realty Partners II, Limited Partnership ("GEIRP II") by deed recorded in Book 1722, page 271, Durham County Registry; runs thence along the southwestern right-of-way line of Old Cornwallis Road South 36(degrees) 49' 15" East 17.52 feet to an iron pipe, and South 36(degrees) 49' 15" East 146.61 feet to an iron pipe marking the northernmost corner of property belonging to Tri-Center South Limited Partnership; runs thence along a new line of the property belonging to Tri-Center South Limited Partnership the following courses and distances: South 53(degrees) 10' 35" West 116.51 feet to an iron pipe, South 11(degrees) 11' 31" West 34.99 feet to an iron pipe, North 78(degrees) 52' 26" West 5.99 feet to an iron pipe, South 11(degrees) 10' 45" West 121.01 feet to an iron pipe, South 79(degrees) 06' 06" East 57.85 feet to an iron pipe, South 10(degrees) 53' 54" West 978.08 feet to an iron pipe, South 77(degrees) 12' 06" West 10.41 feet to an iron pipe, South 10(degrees) 04' 49" West 140.00 feet to an iron pipe, and South 63(degrees) 32' 27" East 74.84 feet to an iron pipe located in the northern line of property conveyed to Tri-Center South III, Limited Partnership by deed recorded in Book 1931, page 762, Durham County Registry; runs thence along the northern line of the Tri-Center South III, Limited Partnership property the following courses and distances: South 88(degrees) 35' 57" West 76.41 feet to an iron pipe, North 71(degrees) 17' 40" West 154.18 feet to an iron pipe, and North 56(degrees) 14' 39" West 196.30 feet to an iron pipe located in a new line of property belonging to GEIRP, II; runs thence along the new eastern line of the GEIRP II property North 11(degrees) 00' 00" East 1,421.86 feet to an iron pipe marking the southeast corner of the GEIRP, II property conveyed by Louis Edward Tapp and wife, and the southwest corner of the Fletcher property; runs thence along the southern line of the Fletcher property South 77(degrees) 16' 54" East 247.19 feet to an iron pipe, the point and place of beginning, containing 11.311 acres, all as shown on that recombination plat entitled "Survey for TriCenter South Limited Partnership", dated November 12, 1992 and last revised November 17, 1992, prepared by S.D. Puckett & Assoc., Inc., Registered Land Surveyors and recorded in Plat Book 129, page 9, Durham County Registry. 20 EXHIBIT B [GRAPHIC OMITTED] 21 EXHIBIT B [GRAPHIC OMITTED] 22 Exhibit C - Sign Criteria The sign criteria for the building must conform to City of Durham requirements. There will be space provided for Micron Electronics of North Carolina, Inc. on the following signs: 1. A sign can be placed on the north face of the building tenant will be allowed at its cost to install a sign in similar proportion and height location than that sign which currently exists for Glaxo Inc. on Phase 1 or the east side of the facility. 2. Lettering will be allowed to identify tenant on the existing monument sign at the intersection of Tri-Center South Blvd. and Old Cornwallis Road. The lettering will need to conform to park standards for multi-tenant facilities. 3. There will be directional signs at various locations within Tri-Center South that will direct all visitors and deliveries to their appropriate locations. All signs shall be coordinated and approved by Craig Davis Properties (Frank E. Hellmuth) for conformance with all applicable standards set by The City of Durham and the owners of the property. 23 EXHIBIT D ENVIRONMENTAL RIDER I. Tenant's Representations, Warranties and Covenants Concerning the Use of Hazardous Substances/Periodic Notice (a) Acceptance of Property and Covenant to Surrender. Tenant accepts the Property as being in good and sanitary order, condition and repair and accepts all buildings and other improvements in their present condition. Tenant agrees on the last day of the term of this Lease, to surrender the Premises to Landlord in good and sanitary order, condition and repair, except for such wear and tear as would be normal for the period of the Tenant's occupancy. No spill, deposit, emission, leakage or other release of Hazardous Substances on the Property or the soil, surface water or groundwater thereof shall be deemed to be "wear and tear [that] would be normal for the period of the Tenant's occupancy." Tenant shall be responsible to promptly and completely clean up any such release caused by Tenant, its officers and employees, agents, contractors, and invitees as shall occur on the Property during the term of this Lease and shall surrender the Property free of any contamination or other damage caused by such occurrences during the term of the Lease. (b) Maintenance of Premises. Tenant shall, at its sole cost and expense, keep and maintain the Premises in good and sanitary order, condition, and repair. As part of this maintenance obligation, Tenant shall promptly respond to and clean up any release or threatened release of any Hazardous Substance into the drainage systems, soil, surface water, groundwater, or atmosphere, in a safe manner, in strict accordance with Applicable Law, and as authorized or approved by all federal, state, and/or local agencies having authority to regulate the permitting, handling, and cleanup of Hazardous Substances. (c) Use of Hazardous Substances. Landlord acknowledges advice from Tenant that in its manufacturing processes that it will be using Hazardous Substances as defined in this Exhibit D. Tenant agrees that all Hazardous Substances which it may use on the Property shall be used in strict compliance with all Applicable Laws (hereafter defined), and that Tenant shall make such periodic reports to any governmental authority requiring reports as to the introduction of such Substances onto the Property, their storage, use and disposition. Should there be any release of Hazardous Substances Tenant shall immediately notify the appropriate governmental authorities and the Landlord, and shall remediate any contamination to the satisfaction of such governmental authorities. Landlord's knowledge of Tenant's proposed use shall not limit or affect Tenant's obligations under this Lease, including Tenant's duty to remedy or remove releases or threatened releases, to comply with Applicable Laws relating to the use, storage, generation, treatment, transportation, and/or disposal of such Hazardous Substances; or to indemnify Landlord against all harm or damage caused thereby. (d) Reports to Landlord. For months in which any Hazardous Substances have been used, generated, treated, stored, transported or otherwise been present on or in the Property pursuant to the provisions of the preceding paragraph, in which any release occurs, Tenant shall provide Landlord with a written report listing the Hazardous Substances which were present on the Property; all releases of Hazardous Substances that to Tenant's knowledge occurred or were discovered on the Property; all compliance activities related to such releases, including all contacts with government agencies or private parties of any kind concerning the releases or other documents relating to the releases executed or requested during that time period. The report shall include copies of all documents and correspondence related to such activities and written reports of all oral contacts relating thereto with outside authorities or investigators, but excluding internal communications. (e) Entry By Landlord. Tenant shall permit Landlord and his agents to enter into and upon the Premises, without notice, at all reasonable times during ordinary business hours and without interruption of Tenant's business for the purpose of inspecting the Premises and all activities thereon, including activities involving Hazardous Substances, or for purposes of maintaining any buildings on the property. Such right of entry and inspection shall not constitute managerial or operational control by Landlord over any activities or operations conducted on the Property by Tenant. 24 II. Tenant's Indemnity and Release (a) Indemnity (i) Tenant hereby indemnifies, defends and holds harmless Landlord from and against any suits, actions, legal or administrative proceedings, demands, claims, liabilities, fines, penalties, losses, injuries, damages, expenses or costs, including interest and attorneys' fees, incurred by, claimed or assessed against Landlord under any laws, rules, regulations including, without limitation, Applicable Laws (as hereinafter defined), in any way connected with any injury to any person or damage to any property or any loss to Landlord caused by Tenant, its officers, employees, agents, contractors, and invitees occasioned in any way by Hazardous Substances (as hereinafter defined) on the Property or the Premises. (ii) This indemnity specifically includes the direct obligation of Tenant or Landlord to perform any remedial or other activities required, ordered, recommended or requested by any agency, government official or third party, or otherwise necessary to avoid or minimize injury or liability to any person, or to prevent the spread of pollution, however it came to be located thereon during the Term and caused by Tenant (hereinafter, the "Remedial Work"). Tenant or Landlord shall perform all such work in its own name in accordance with Applicable Laws (as hereinafter defined). (iii) Without waiving its rights hereunder, Landlord may, at its option, after notice to Tenant to perform Remedial Work and Tenant's failure to promptly undertake same, perform such remedial or removal work as described in clause (ii) above, and thereafter seek reimbursement for the costs thereof. Tenant shall permit Landlord access to the Property to perform such remedial activities. (iv) Whenever Landlord has incurred costs described in this section, Tenant shall, within 10 days of receipt of notice thereof, reimburse Landlord for all such expenses together with interest from the date of expenditure at the "applicable federal rate" established by the Internal Revenue Service. (b) Agency or Third Party Action. Without limiting its obligations under any other paragraph of this Agreement, Tenant shall be solely and completely responsible for responding to and complying with any administrative notice, order, request or demand, or any third party claim or demand relating to potential or actual contamination on the Premises if caused by Tenant. (c) Release. Tenant hereby waives, releases and discharges forever Landlord from all present and future claims, demands, suits, legal and administrative proceedings and from all liability for damages, losses, costs, liabilities, fees and expenses, present and future, arising out of or in any way connected with Landlord's use, maintenance, ownership or operation of the Property, any condition of environmental contamination of the Property, or the existence of Hazardous Substances in any state on the Property, unless they came to be emplaced there by reason of Landlord fault. (d) Landlord's Responsibility. Should Hazardous Substances be found on the Premises which are shown to have existed prior to the commencement of the Lease Term, or which are shown to have been placed there by or due to the fault of the Landlord, Landlord shall promptly cause Remedial Work as required, ordered, recommended or requested by any government agency or official to be performed, and shall indemnify, defend and hold harmless Tenant from loss, damage or expense occasioned by such Hazardous Substances. III. Definitions. (a) Hazardous Substance. "Hazardous Substance(s)" shall mean any substance which at any time shall be listed as "hazardous" or "toxic" under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. 9601 et seq., as amended and the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. 6901 et seq., as amended, or in the regulations implementing such statutes, or which has been or shall be determined at any time by any agency or court to be a hazardous or toxic substance regulated under any other Applicable Laws (as hereinafter defined). The term "Hazardous Substance(s)" shall also include, without limitation, raw materials, building components, the products of any manufacturing or other activities on the Property, wastes, petroleum products, or special nuclear or by-product material as defined by the Atomic Energy Act of 1954, 42 U.S.C. 3011, et seq., as amended. 25 (b) Applicable Law(s). "Applicable Law(s)" shall include, but shall not be limited to, CERCLA, RCRA, the Federal Water Pollution Control Act, 33 U.S.C. 1251 et seq., the Clean Air Act, 42 U.S.C. 7401 et seq., as amended, and the regulations promulgated thereunder, and any other federal, state and/or local laws or regulations, whether currently in existence or hereafter enacted or promulgated, that govern or relate to: (i) The existence, cleanup and/or remedy of contamination of property; (ii) The protection of the environment from spilled, deposited or otherwise emplaced contamination; (iii) The control of hazardous or toxic substances or wastes; or (iv) The use, generation, discharge, transportation, treatment, removal or recovery of hazardous or toxic substances or wastes, including building materials. 26 EXHIBIT E [MAP OMITTED] 27 EXHIBIT E [MAP OMITTED] 28 EXHIBIT F [MAP OMITTED] 29 Addendum # 1 to Lease between Tri Center South Limited Partnership as Landlord and Micron Electronics of North Carolina, Inc. as the Tenant TENANT'S UPFIT AND TERMINATION RIGHTS 1. Tenant Upfit. The cost for upfitting the Premises for Tenant's use is estimated to cost approximately $980,164.00 (the "Upfit Cost"). Landlord and Tenant agree to develop and complete the upfit of the Premises in accordance with Tenant's designs and specifications. All upfits relating to the Premises will be completed by Landlord subject to Tenant's final approval of upfit design, costs, and of Landlord's contractor. Landlord shall be solely responsible for the completion of improvements and upfit of the Parking Area. Tenant agrees to contribute for such upfit $780,164 in cash, one-half of which Tenant shall pay Landlord at the time of its execution of this Lease, and the balance of which Tenant shall pay Landlord not later than February 1, 1995, or the date Tenant takes possession of any part of the Premises. If the cost of developing and completing the upfit of the Premises in accordance with Tenant's designs and specifications exceeds the Upfit Cost, Tenant shall pay such excess to Landlord prior to or at the time it occupies the Premises. Tenant may audit at its expense the Upfit Cost, and Landlord shall make available to Tenant at the offices of Craig Davis Properties, Inc. all invoices and other data that were used in arriving at the Upfit Cost. 2. Tenant's Rights to Terminate. The Tenant is hereby granted the right to terminate this lease on three separate occasions, the first after two full years of the Lease Term have elapsed, the second after five full years of the Lease Term have elapsed, and the third (and last), after seven full years of the Lease Term have elapsed. Tenant's right to so terminate is subject to and conditioned on Tenant's complying with the following conditions, each of which are independently material: A. Written notice of intent to terminate must be given to Landlord at least six months before the date the termination is to be effective, and failure to give such notice shall be an absolute bar to terminating at the time the termination might otherwise occur. B. Tenant's notice to terminate shall be accompanied by payments in the amounts set forth below as a premium for early termination, which premium might in part compensate Landlord for unamortized cost of Tenant Fitup and anticipated vacant time while releasing (if at the two year period), and defray releasing commissions Landlord is likely to incur in finding a replacement tenant for the remainder of the initial Lease Term: (i) if at the end of two full years, a premium of $98,400.00; (ii) if at the end of five full years, a premium of $36,000.00; and (iii) if at the end of seven years, no premium will be due. C. Should Tenant terminate, regardless of the time, Landlord shall have the right at its option to require that Tenant restore the Premises to the warehouse condition in which they existed at the date of execution of this Lease, reasonable wear and tear and damage by insured casualty only excepted, except as otherwise agreed herein. D. If Tenant fails to give notice to terminate to be effective after seven years (no earlier termination having occurred) there shall be no further right to terminate and the Lease shall be in full force for its entire ten year Lease Term. 30 12/2/94 Tricenter South I, Phase 2 Fit-up Preliminary Cost Estimate Micron - 30,000 sf
Preliminary Site Modifications Budget Comments - ------------------ ------------------------------------ 1. Fencing truck court area $16,000 Incl. Electrical Gate and vinyl slats 2. Phase 1 parking expansion 77 spaces total for Micron (incl. 2 handicap spaces) a. Access Road Construction $57,600 b. 31 Parking spaces added $43,400 Incl. lighting at lFC average maintained in parking area c. Landscaping parking area $10,000 3. Phase 2 parking expansion 167 spaces total for Micron use a. Approx. 90 parking spaces added $126,000 Incl. Lighting at lFC average maintained in parking area b. Landscaping parking area $15,000 4. Transformer pad and conduit $7,000 5. External tank equipment pads $6,200 Fence with slats, 10' x 12', 6" concrete with 2 bollards 6. Directional signage at new entrance $5,000 Subtotal Site Costs $286,200 Shell Modifications 1. Add two dock doors, shelter, and 1 leveler $13,500 2. Glass Enhancements a. Entry way curtainwall glass $48,500 Curtainwall two sides (similar to Tricenter South II) b. Windows along north wall $22,000 7 windows allocated (5' 4" x 13') 3. Tenant separation wall $31,500 4. Service corridor $51,500 Subtotal Shell Modifications $167,000
31 12/2/94 Tricenter South I, Phase 2 Fit-up Preliminary Cost Estimate Micron - 30,000 sf Internal Modifications 1. HVAC - assembly and support area $163,000 Exhaust for compressors, 110 tons, ductwork at 16' above floor 2. Special exhaust requirements $31,000 2 lines; 1 fiberglass (12" wide), 1 galvanized line 3. Electrical a. New electrical service (3000 amp service) $43,000 b. Lighting to 150 - 175 FC $60,000 Includes unistrut supports for process piping c. Dedicated panels for operational equipment $13,000 Excludes separate breakers, service runs and hook-up d. Security electrical $3,000 6 outlets on perimeter of building 4. Plumbing a. Process piping underslab plumbing $18,000 Line back to mech. area, concrete removal and replace 5. Office/Bathroom Fit-up (7,400 sf) $177,600 $24 psf allowance, does not include modular offices 6. Floor to Deck Interior walls, doors/O.H. doors $65,000 Office, facilities, and support area wals Subtotal Interior Modification Cost $573,600 Fees 1. GC Conditions & Fee & Permits $82,144 2. Architectural Design/Coordination $8,500 3. Civil Engineering Design/Coordination $6,000 4. Landscape Design/Government Coordination $4,000 5. CDP Management Coordination $5,000 Total Preliminary Budget $1,132,444 Possible Deducts from Initial Budget 1. Deduct Parking Phase 2 Construction Costs ($152,280) Total Adjusted Preliminary Budget $980,164
32 12/2/94 Tricenter South I, Phase 2 Fit-up Preliminary Cost Estimate Micron - 30,000 sf Budgetary Items not Addressed 1. Air Compressor and associated connections 2. Electrical, plumbing or mechanical connections to operational equipment 3. Modular office cubicle cost and utility installation 4. 3" waterline to space not included, calculations indicate that existing 2" line is adequate 5. Painting Ceiling 6. ESD floor tiles 7. Glass vestibule at entrance 8. Exterior building tenant sign 9. Cable tray for electrical/communications 10. UPS and conditioned power 11. Air compressor and associated piping 33 Micron - 30,000 sf Project Specifications December 16, 1994 Site Modifications 1. Fencing 400 lf of 10' - 0" high galvanized fencing with slats. Aluminum framed, cantilever slide gate for 20' - 0" opening. Gate equipped with a 3/4 hp gate operator. Double drive gate for a 30' - 0" opening. 2. Phase 1 Access Road 24" Curb and Gutter Pavement Section = 10"CABC + 2"H - Binder and 1" I-2 Asphalt. Phase 1 Parking 24" Curb and Gutter Pavement Section = 8"CABC = 2" I-2 Asphalt. 3. Phase 2 Parking Not Applicable. 4. Transformer Pad as required by Duke Power. Shell Modifications 1. Dock Equipment Dock doors, shelters and levelers are to be building standard. 2. Glass Curtain wall system to be similar to Tri-Center South II. Windows are to be 5' 4" x 13' 0". Total of 7 allocated. Glass to be building standard. 3. Tenant Wall Two hour rated wall extending from floor to deck. Wall is to be insulated and painted. 4. Corridor Construction to be as shown on building shell drawings. Internal Modifications 1. HVAC Manufacturing Floor Five 20 ton gas rooftop units with gas piping, thermostat, smoke detector, duct system, supply grilles and air side economizer. Three of the units will have an electric heater for reheat in the dehumidification mode. System is designed to handle the following items: Lighting of 3.5 watts/sf. Internal gains of 4.0 watts/sf. Exhaust of 5500 cfm. 34 Finished Goods Area One 6 ton gas rooftop unit with gas piping, thermostat, smoke detector, duct system and supply grilles. Facilities Room One 4 ton gas rooftop unit with gas piping, thermostat, smoke detector, duct system and supply grilles. Air Compressor Room This room is to have ventilation only. There is no heating or cooling in this room. Room to have two louvers approximately 42" x 36" and one 1200 cfm exhaust fan thermostatically controlled. 2. Exhaust Manufacturing Floor One 3500 cfm fiberglass fan and 14" fiberglass duct dropped 14' from the fan between the two wave solder machines and a 12" horizontal fiberglass duct 24' long run over both machines for future tie-in. One 2000 cfm standard exhaust fan with a similar exhaust system. This duct system is to be galvanized in lieu of fiberglass. 3. Electrical New Service 1 ea. 3000 amp, 480 volt, 3 phase, 4 wire service. 1 ea. 3000 amp, 480 volt switchboard with main lugs only. 1 ea. 400 amp, 480 volt panel with main lugs only. 1 ea. 400 amp, 208 volt panel with main breaker only installed. 1 ea. 150 kva transformer. Lighting 380 ea., 8' - 0" long, 2 lamp high output fluorescent fixtures with reflectors located 12' 0" above finished floor. Relocate existing high bay lights as required. Dedicated Panels 2 ea. 800 amp 400 volt panel with the main breaker only installed. 4. Plumbing 6" PVC line, cleanouts as required by code. 2" insulated copper water line. 5. Office/Bathroom Fit-up Allowance Finish Carpentry Items included are: Vanity tops, Pre-manufactured wall and base cabinets. Hollow Metal Standard 3' x 7', 16 gauge hollow metal "knock down" door frames. 35 Wood Doors Standard 3' x 7' solid core birch door. Hardware Passage sets to be "cylindrical" type with a brushed aluminum finish. Standard hinges. Push/Pulls at restrooms. Closures as required. Drywall Interior walls to consist of 3-5/8", 25 GA metal studs, with one layer of 5/8" sheet rock each side of metal stud. Walls to be installed under the ceiling grid. Interior side of pre-cast wall to be furred out with 7/8" furring channels and one layer of 5/8" sheet rock which will extend to 10' - 0" above finished floor. Acoustical Ceiling Throughout the space will be a 2' x 2' Class "A", square edge, fissured mina board. Floor Finishes Allowance of 1.35/sf for material and labor. Base All walls to receive 4" rubber cove base. Painting All walls to receive 2 coats of latex paint. Finish to be "egg-shell". Wood doors to receive 1 coat of stain and 1 coat of sealer. Door frames to receive 2 coats of semi-gloss paint. Toilet Partitions Partitions are to be floor mounted, overhead rail braced. Finish to be baked enamel, standard color. Toilet Accessories Grab bars Toilet paper holder Soap dispenser Paper towel dispenser Feminine napkin disposal Window Treatment One inch horizontal mini blinds on all exterior windows. Color to be standard. 36 Plumbing System is to be designed to meet code requirements. Fixtures to include "flush valve" type water closets, urinal, lavatories, water cooler and a hot water heater. Sprinkler System designed to meet code requirements. Sprinkler heads to be building standard. HVAC System to be designed using DX rooftop units complete with roof curbs and outside air intakes. Perimeter zones to utilize gas fired rooftop units and straight cooling DX units with electric heaters for internal zones. Duct system to consist of insulated galvanized steel duct with insulated flexible runouts. Standard perforated steel lay-in diffusers for supply grilles and plastic egg crate returns. System is to be a free air return type system. Restrooms to be exhausted at a rate of 2 cfm/sf. Electrical 2' x 4' lay-in lights with acrylic lens. Lighting to achieve approximately 60 foot candles at 36" above finished floor. Standard switches with ivory plate. Standard receptacles with ivory plate. Data/telephone stub-up, 6" above ceiling. Exit and emergency lighting as required by code. 6. Interior Walls/ O.H. Door Walls Walls at the electrical and communication rooms to extend to 10' - 0" above finished floor. All other walls to extend from floor to underside of deck. Wall construction to consist of metal studs and one layer of 5/8 sheet rock each side of metal stud. Walls to receive two coats of latex paint, "egg-shell" finish, and rubber base. Overhead Door Overhead door to be building standard. Personal Door Construction similar to doors in the office fit-up. 37 Addendum # 2 to Lease between Tri Center South Limited Partnership as Landlord and Micron Electronics of North Carolina, Inc. as the Tenant RIGHT OF FIRST OFFER TO LEASE ADDITIONAL SPACE Landlord and Tenant agree that prior to entering into a lease for all or any part of that portion of the Landlord Property shown on Schedule 1 to this Addendum (the "Additional Premises") with another tenant, Landlord shall notify Tenant in writing of the availability of the Additional Premises, which notice shall be accompanied by a termsheet containing the terms under which Landlord shall offer the Additional Premises (the "Termsheet"). Tenant shall then have a period of fifteen (15) days after receipt of such notice and Termsheet (the "Acceptance Period") within which to deliver written notice to Landlord that Tenant elects to lease the Additional Premises on the terms and conditions set forth in such Termsheet. If Tenant makes such election within the Acceptance Period, an appropriate amendment to this Lease (and a memorandum thereof in recordable form) shall be entered into by Landlord and Tenant to add the Additional Premises to the Demised Premises on the terms set forth in the Termsheet submitted by Landlord. If Tenant does not make the aforesaid election within the Acceptance Period, or if Landlord and Tenant do not enter into an amendment to this Lease incorporating the Additional Premises on the terms set forth in the Termsheet within fifteen (15) days thereafter, having both used reasonable best efforts to do so, Tenant shall be deemed to have waived its rights with respect to the Additional Premises, and the Landlord shall be free to lease the Additional Premises to another tenant; provided that if the economic terms on which Landlord is to lease the Additional Premises to another tenant vary from those set form in the Termsheet by ten percent (10%) or more, or Landlord has not entered into a letter of intent or other serious negotiations with another tenant for the Additional Premises within six (6) months of offering the same to Tenant, Landlord shall again offer the Additional Premises to Tenant, which offer shall be on the same terms then being offered to the other tenant with which Landlord is negotiating, before Landlord may lease the Additional Premises to another tenant. Notwithstanding anything in the preceding paragraph to the contrary, Landlord agrees that its Termsheet will cover space to the extent then available in the building which when added to the Premises would total 100,000 rentable square feet (the "Additional Space"), and will afford Tenant the right to lease such additional space on the same terms and conditions as then existing as contained in the attached Lease, except that the term for such Additional Space shall, at Tenant's option be the longer of the period set in such Termsheet or the remaining term under this Lease. Tenant may lease all or part of the Additional Space if it does so during the Acceptance Period, and thereafter excluding any part of the Additional Space that the Landlord has leased in the interim period. If during the six months period following delivery of the Termsheet to Tenant Landlord receives an offer it is willing to accept for a rental which exceeds by 10% or more the escalated rent under the within lease, Landlord agrees to first offer such space to Tenant, who must within fifteen days following receipt of Landlord's offer agree to the same terms or lose its rights thereto. Tenant shall have no right to elect to lease any portion of the Additional Premises pursuant to this Attachment so long as any uncured Default exists under the Lease, and should Tenant terminate this Lease in accordance with the provisions of Addendum #1, this Right of First Offer shall automatically terminate. Initials: /s/ RY ------------------- For Landlord /s/ [ILLIGIBLE] ------------------- For Tenant 38 ADDENDUM 2 [FLOOR PLAN OMITTED] 39 ADDENDUM 2 [FLOOR PLAN OMITTED] 40 MCMS, Inc. Addendum #3 Square Footage 28,474 Escalation Rate 103%
Total Annual P.S.F. Cost Cost Year 1 $ 111,902.82 $ 3.93 2 $ 115,259.90 $ 4.05 3 $ 118,717.70 $ 4.17 4 $ 122,279.23 $ 4.29 5 $ 125,947.61 $ 4.42 6 $ 129,726.04 $ 4.56 7 $ 133,617.82 $ 4.69 8 $ 137,626.35 $ 4.83 9 $ 141,755.14 $ 4.98 10 $ 146,007.80 $ 5.13 11 $ 150,388.03 $ 5.28 12 $ 154,899.67 $ 5.44 13 $ 159,546.66 $ 5.60 14 $ 164,333.06 $ 5.77 15 $ 169,263.06 $ 5.94
Page 1 41 Addendum # 4 to Lease between Tri Center South Limited Partnership as Landlord and Micron Electronics of North Carolina, Inc. as the Tenant GUARANTY This Guaranty is made as of the ______ day of December, 1994 by Micron Custom Manufacturing Services, Inc. ("Guarantor") whose address is 8455 Westpark Street, Boise, Idaho 83704, in favor of Tri-Center South Limited Partnership, ("Landlord"), whose address is c/o Craig Davis Property, Inc., Suite 435 UCB Plaza, 3605 Glenwood Avenue, Raleigh, North Carolina 27612. 1. Lease. The "Lease" shall mean the Lease dated December ____, 1994 to which this Addendum is attached between Landlord and Micron Electronics of North Carolina, Inc., ("Tenant") and all extensions, renewals, amendments, supplements or modifications thereto. 2. Purpose and Consideration. The execution and delivery of this Guaranty by Guarantor is a condition to Landlord's entering into the Lease with Tenant and is made in order to induce Landlord to enter into the Lease. Guarantor is the parent company of Tenant. 3. Guaranty. Guarantor hereby absolutely, unconditionally and irrevocably, guarantees the compliance with and performance by Tenant of each of the provisions, covenants, agreements and conditions applicable to Tenant contained in the Lease and guarantees the full and prompt payment by Tenant of the Basic Rent, Additional Rent and other amount payable by Tenant under the Lease, as and when the same become due, whether by acceleration or otherwise. This is a Guaranty of payment and not of collection. 4. Guaranty as Independent. The obligations of Guarantor hereunder are independent of the obligations of Tenant, and Guarantor expressly agrees that a separate action or actions may be brought and prosecuted against Guarantor whether or not any action is brought against Tenant and whether or not Tenant is joined in any action against Guarantor and that Landlord may pursue any rights or remedies it has under the Lease and under this Guaranty in any order or simultaneously or in any other manner. 5. Authorizations to Landlord. Guarantor authorizes Landlord, without notice or demand and without affecting Guarantor's liability hereunder, from time to time to (a) change, amend, modify or alter any of the terms, covenants, agreements, or conditions contained in the Lease; (b) extend or renew the Lease; (c) change, renew, compromise, extend, accelerate or otherwise change the time for payment of any amounts payable under the Lease; (d) consent to any assignment, sublease, pledge or transfer of the Lease by Tenant or of Tenant's interest in the Premises; (e) release Tenant and substitute any one or more parties as Tenants or sublessees under the Lease; (f) waive or fail to take action with respect to any Default by Tenant under the Lease; and (g) waive or fail to take action with respect to any Remedy under the Lease. 6. Application of Payments Received by Landlord. Any sums of money that Landlord receives from or on behalf of Tenant may be applied by Landlord to reduce any indebtedness of Tenant to Landlord as Landlord, in its sole discretion, deems appropriate. 7. Waiver by Guarantor. Guarantor hereby waives (a) any right to require Landlord to proceed against, give notice to or make demand upon Tenant; (b) any right to require Landlord to pursue any remedy of Landlord; (c) any right to participate in or to direct the application of any security held by Landlord; (d) any defense arising out of any disability or other defense of Tenant, including cessation, impairment, modification, or limitation, from any cause, of liability of Tenant or of any remedy for the enforcement of such liability; and (e) any rights under G.S. 26-7 et seq. 8. Subordination by Guarantors. Guarantor hereby agrees that any indebtedness of Tenant to Guarantor, whether now existing or hereafter created, shall be subordinated to any indebtedness of Tenant to Landlord. 9. Notices and Demands. All notices and demands under this Guaranty shall be in writing and shall be deemed properly given and received when actually given and received three business days after mailing, if sent by registered or certified United States mail, postage prepaid, addressed to the party to receive the notice or demand at the address set forth for such 42 party in the first paragraph of this Guaranty or at such other address as either party may notify the other in writing with copies, in the case of notices given by Guarantor to Landlord, to Craig Davis Properties, Inc., Suite 435 UCB Plaza, 3605 Glenwood Avenue, Raleigh, North Carolina 27612. 10. Payment of Costs of Enforcement. In the event any action or proceeding is brought to enforce this Guaranty and if Landlord is held entitled to recovery against Guarantor, Guarantor agrees to pay all costs and expenses of Landlord in connection with such action or proceeding, including reasonable attorney's fees. 11. Binding Effect. This Guaranty shall be binding upon Guarantor and his heirs, personal representatives, successors and assigns and shall inure to the benefit of Landlord and its successors and assigns. 12. Severability. If any provision of this Guaranty shall be held invalid or unenforceable, the remainder of this Guaranty shall not be affected thereby and there shall be deemed substituted for the affected provision, a valid and enforceable provision as similar as possible to the affected provision. 13. Governing Law. This Guaranty shall be interpreted under and enforced according to the laws of the State of North Carolina. 14. Captions for Convenience. The headings and captions hereof are for convenience only and shall be not considered in interpreting the provisions hereof. IN WITNESS WHEREOF, Guarantor has executed this Guaranty the day and year first above written. GUARANTOR: ATTEST: MICRON CUSTOM MANUFACTURING SERVICES, INC. /s/ [ILLIGIBLE] By: /s/ [ILLIGIBLE] - ------------------------------ ------------------------ Secretary Title: Chairman ---------------------- EX-10.19 28 FRAME MANUFACTURING AGREEMENT 1 Exhibit 10.19 FRAME MANUFACTURING AGREEMENT BETWEEN ALCATEL BELL N.V. AND M.C.M.S. BELGIUM S.A. Dated November 18, 1997 2 FRAME MANUFACTURING AGREEMENT This Frame Manufacturing Agreement (the "Frame Agreement") is dated as of November 18, 1997 by and between MCMS Belgium s.a., a Belgian corporation ("MCMS") and Alcatel Bell s.a., a Belgian corporation ("Alcatel Bell"). WHEREAS MCMS is in the business of providing manufacturing services that include the custom manufacture of electronic board and system level products (the "Products") and related services; WHEREAS the parties desire to establish the terms and conditions that will apply to purchase by any Alcatel Company (as defined hereafter) of any Product manufactured by MCMS. NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth, the receipt and adequacy of which are hereby acknowledged, THE PARTIES AGREE AS FOLLOWS: 1. Definitions 1.1 Alcatel Company: any company directly or indirectly controlled by Alcatel Alsthom s.a., which shall enter into a Manufacturing Services Agreement with MCMS, whereby "control" means the ownership of no less than 50% of the shares entitled to vote for the election of the directors (or any management body comparable to a board of directors). 1.2 Downside: the authorized percentage reduction (set forth below in article 9 hereafter) in the quantity of Products ordered by the Customer compared to any forecast; 1.3 Effective Date: the Effective Date of this Agreement is the Closing Date as defined in the Asset Sale and Purchase Agreement entered into on November 4, 1997 between the parties hereto. 1.4 Modified Turnkey Materials Arrangement: the arrangement applicable during the period referred in article 3 hereafter, whereby the Customer shall sell to MCMS, CIF MCMS' site in Belgium, all materials necessary to manufacture Products pursuant to the 200,000 hours commitment stated in article 2 hereafter on a strictly cost basis, which materials shall be resold to the Customer at such cost as part of the overall Product being manufactured by MCMS. 1.5 Release: the Customer order to MCMS, whether by written or electronic means, for committed delivery dates and quantities of Product(s), at agreed upon prices, for a specified period of time; 3 1.6 Upside: The percentage increase (set forth below in article 9) in the quantity of Product(s) that the Customer may purchase in excess volumes in any forecast. 2. Quantities and Products Alcatel Bell will cause Alcatel Companies to place with MCMS orders representing a work volume of no less than 100,000 hours during the first 12 months from the Effective Date of this Agreement, 65,000 hours during the period from 13 through 24 months after the Effective Date of this Agreement and 35,000 hours during the period from 25 through 36 months after the Effective Date of this Agreement. In case Alcatel Bell would not, during any year of the Term of this Agreement (as defined in article 19) order the minimum volume as set forth above, the parties will jointly examine the possibility to transfer the missing volume (expressed in hours) to the next year. The hours which can not be transferred will be invoiced to Alcatel Bell. 3. Manufacturing Services Agreement Alcatel Bell will cause Alcatel Companies to enter into individual Manufacturing Services Agreement with MCMS. Each of the Manufacturing Services Agreement will set forth the Products to be manufactured initially by MCMS, which Products may be added to or changed from time to time by mutual agreement of the parties. 4. Modified Turnkey Materials Arrangement Starting from the Effective Date of this Agreement, the Alcatel Companies shall sell to MCMS all materials necessary to manufacture Products pursuant to the aggregate 200,000 hours commitment stated in article 2 above on a strictly cost basis, which materials shall be resold to the Alcatel Companies at such cost as part of the overall Product being manufactured by MCMS. Alcatel Companies may consign materials to MCMS as mutually agreed to. All such consigned materials will be delivered to MCMS in sufficient time and quantities, taking into account attrition levels set forth in the Manufacturing Services Agreements, to allow MCMS to meet scheduled delivery dates for the applicable Products. Components and materials consigned to MCMS will be duly insured by the latter against any kind of damage while in its custody. Notwithstanding the foregoing, the parties acknowledge that they will as soon as possible establish a Turnkey Arrangement, as set forth in article 5 hereafter. 2/8 4 5. Turnkey Arrangement Notwithstanding the provisions of article 4, MCMS and any Alcatel Company may elect any time to establish a turnkey arrangement, at which point the pricing as established in the corresponding Manufacturing Services Agreement shall be modified to the mutual agreement and benefit of each of the parties. 6. Pricing Pricing for the Products shall be agreed to and paid in Belgian Francs for delivery ex-works by MCMS. The initial price per hour during the period from the Effective Date hereof through six months thereafter for the minimum commitments referred to in article 2, shall be set forth in each Manufacturing Services Agreement. In case however such initial price would be less than BEF 2,016 (two thousands and sixteen Belgian Francs) per hour, then Alcatel Bell shall compensate MCMS for the difference within the limits of the commitments set forth in article 2. Such compensation shall be paid monthly within 30 days of submission by MCMS of the supporting documents and invoice. Every six months, such price of BEF 2,016 (or any price resulting from revision thereof) will be reviewed in order to take into account the actual costs directly imputable to the Alcatel Companies' orders, whereby MCMS' fixed assets depreciation will be accounted for in proportion to such Alcatel Companies' orders in the total turnover of MCMS. In case of Turnkey Arrangement, the resulting additional operational profit will be shared between MCMS and Alcatel Bell on a 50/50 basis. 7. Forecasts Each Alcatel Company shall provide MCMS with a monthly rolling forecast ("Forecast") detailing such Alcatel Company's anticipated Product requirements for the ensuing six month period. 8. Releases The Customer will submit to MCMS (by letter, fax or electronic mail), Releases including following information: - Release order and issuing date - Product part number and price - Delivery date and quantity MCMS will accept all Releases issued within the limits of flexibility set forth in article 9 hereafter and will make all reasonable efforts to meet the upside requests exceeding such limits 3/8 5 9. Products Testing and Debug Included as part of its standard assembly services, MCMS provides ICT and FCT testing. The test times and costs are based on the scope of work and complexity of the Product(s). MCMS establishes an upper limit on the test and debug time of individual board level Product(s) at four (4) hours. MCMS will provide the Alcatel Companies with a list of defects found within 72 hours after the discovery thereof. The disposition of Product(s) will be determined mutually by MCMS and each Alcatel Company. My additional debug and rework performed by MCMS will be done on a time and materials basis. 10. Payment Terms Each Alcatel Company shall pay MCMS invoices within thirty days end of the month of the date of invoice. Invoices issued by any Alcatel Company for materials and components will be payable within thirty days end of the month of the date of invoice. MCMS and every Alcatel Company will however agree upon an invoicing procedure so as to compensate the respective invoices and avoid any cash advance by MCMS. 11. Delivery conditions All materials sold to MCMS by any Alcatel Company as provided for in article 4 will be delivered CIF MCMS' premises in Belgium. All Products sold by MCMS to any Alcatel Company shall be delivered F.O.B. MCMS' dock in Belgium. 12. Cancellations In the event that any Alcatel Company wishes to cancel Product(s) ordered by Release pursuant to this Agreement, such Alcatel Company shall be liable to MCMS for the following: 12.1 Payment for all Product(s) delivered to such Alcatel Company and in transit, plus Product(s) in MCMS' finished goods inventory prior to, and including, the effective date of cancellation, at the unit prices applicable to such Product(s) as set forth in applicable Releases. 12.2 Payment for all "work-in-process" as of the effective date of cancellation based upon the percentage of completion, as determined by MCMS, multiplied by the applicable unit price of the Product(s). Such Alcatel Company may request MCMS to complete and deliver all work-in-process inventory at the unit prices set forth in applicable Releases. 12.3 Payment for the price difference between purchasing cost plus burden (if any) and reselling cost of material inventory in MCMS facilities in support of such Alcatel Company's Releases 4/8 6 12.4 Payment for the cost plus burden associated with material inventory in MCMS facilities and on order which cannot be cancelled or returned, provided that such inventory is in support of such Alcatel Company's Releases. 12.5 Payment of any restocking charges, cancellation charges and other charges incurred by MCMS with suppliers for all components and materials ordered for the manufacture of Product(s) in accordance with such Alcatel Company's Releases plus a five percent (5%) handling fee calculated on the purchase price of the corresponding components and materials. MCMS shall use reasonable efforts to minimize cancellation charges by returning inventory and material for credit, cancelling material on order and applying material to other MCMS business requirements (when possible, at the sole discretion of MCMS), by reselling inventory and minimizing all work-in-process and finished goods to support the final production schedule. Upon payment of the cancellation charges relating thereto, all finished goods inventory of Product(s), work-in-process, and non-returnable/non-cancellable components at MCMS or on order shall be delivered, at Customer's expense and on its request, to Customer, F.O.B. MCMS. 13. Warranty MCMS warrants for a period of one (1) year from the date of shipment of the Product(s) that (i) the Product(s) will conform to the specifications applicable to such Product(s) at the time of its manufacture which an furnished in writing by Alcatel Company and accepted by MCMS; and (ii) such Product(s) will be of good material and workmanship and free from defects for which MCMS is responsible. In the event that any Product(s) manufactured is not in conformity with the foregoing warranties MCMS shall, subject to parties' mutual agreement, either (i) credit Alcatel Company for any such non-conformity the purchase price paid by Alcatel Company for such Product(s), or (ii) at MCMS's expense, replace, repair or correct such non-conforming Product(s); provided that, if such Product(s) is not repaired, replaced or corrected within thirty (30) days after MCMS is notified of any non-conformity, MCMS shall credit Alcatel Company the purchase price paid by Alcatel Company for such non-conforming Product(s). THE FOREGOING CONSTITUTES ALCATEL COMPANY'S SOLE REMEDIES AGAINST MCMS FOR BREACH OF WARRANTY CLAIMS. EXCEPT AS PROVIDED IN THIS AGREEMENT, MCMS MAKES NO WARRANTIES WITH RESPECT TO THE PRODUCT(S), EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES RESPECTING NON INFRINGEMENT, OR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING FROM A COURSE OF PERFORMANCE, A COURSE OF DEALING, OR TRADE USAGE. 14. Indemnification a) Each party agrees to indemnify, defend and hold harmless the other party, including its directors, officers and employees, from and against any and all claims, losses, demands, costs or liabilities, resulting from or in connection with such party's breach of this Agreement, negligence or misconduct. 5/8 7 b) Any Alcatel Company with which MCMS will enter into a Manufacturing Services Agreement will represent and warrant that the manufacture, use, delivery and sale of any Product(s) manufactured by MCMS for such Alcatel Company in execution of such Manufacturing Services Agreement will not infringe any patent, trademark or other intellectual property rights of any third party. Said Alcatel Company shall agree to defend at its expense, hold harmless and indemnify MCMS, including its officers, directors, and employees, from and against any judgements, liabilities, expenses, or costs arising from any claim or action asserting that MCMS' manufacture, use or sale of any Product(s) or part thereof infringes, directly or indirectly, any intellectual property right, including, without limitation, parent, trademark, copyright, trade secret, or other proprietary right of any third party, foreign or domestic. c) An indemnified party pursuant to article 11 shall notify the indemnifying party promptly upon receiving or learning of any claim or action pursuant to which indemnity will be sought and shall provide reasonable assistance to the indemnifying party in the defense of any such action. This article 11 shall survive the termination of this Agreement. 15. Proprietary Rights The manufacture of the Products for any Alcatel Company in execution of a Manufacturing Services Agreement will not convey to such Alcatel Company any rights of license, express or implied, or by estoppel or otherwise, under any patent copyright or maskwork of MCMS or its affiliates. MCMS expressly reserves all rights under such patents, copyrights or maskworks. All patents, copyright or other intellectual property rights relating to the Products will remain property of the Alcatel Company having ordered such Product in the frame of a Manufacturing Services Agreement and such agreement will not convey to MCMS any right of license except for the execution of such agreement. 16. Assignment Neither party may assign this Agreement, or any portion thereof, without the prior written consent of the other party, provided however that Alcatel Bell will be entitled to assign this Agreement to any Alcatel Company. 17.Entire Agreement This document is the entire understanding between MCMS and Alcatel Bell with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, dealings and negotiations. No modification, alteration or amendment shall be effective unless made in writing and signed by duly authorized representatives of both parties. 6/8 8 18. Limitation of Liability IN NO EVENT, WHETHER AS A RESULT OF BREACH OF CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, PRODUCT LIABILITY, OR OTHERWISE, SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY LOSS OF PROFITS, LOSS OF USE, OR ANY SPECIAL INCIDENTAL, CONSEQUENTIAL, OR EXEMPLARY DAMAGES OF ANY KIND, WHETHER OR NOT SUCH PARTY IS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 19. Term and Termination This Agreement shall remain in effect for a period of three (3) years from the Effective Dare hereof. Notwithstanding the foregoing, either party may terminate this Agreement at any time in the event that the other party (i) fails to cure a material default under this Agreement within thirty (30) days after receiving written notice thereof or (ii) becomes insolvent, files or has filed against it a petition in bankruptcy, or generally becomes unable to pay its debts as they become due. 20. Force Majeure Except with respect to Alcatel Bell's payment obligations hereunder, neither party shall be liable for their failure to perform under this Agreement due to reasons beyond their reasonable control, including, without limitation, fire, flood, acts of God, accident, riot, war, government intervention, strikes, labor difficulties, natural disasters or power outages. 21. Relationship of the Panic Neither party is designated or appointed an agent or representative to the other party and no party will have any authority, either expressed or implied, to create or assume any agency or obligation on behalf of or in the name of the other party. The relationship of MCMS to Alcatel Bell is that of independent contractor, and neither party will have any responsibility for or obligations to the employees of the other. 22. Successors; Severability This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and permitted assigns. If any provision of this Agreement is adjudged to be unenforceable in whole or in part, such adjudication shall not affect the validity of the remainder of this Agreement. Each provision of this Agreement is severable from every other provision and constitutes a separate, distinct and binding covenant. 23. Non-Waiver Failure by either Party to exercise any right granted in this Agreement shall not be deemed a waiver of such right 7/8 9 24. Governing law - Disputes This Agreement shall be governed by the laws of Belgium and all disputes which can not be settled amicably will be deferred to the courts of Brussels. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. MCMS S.A ALCATEL BELL N.V. By: /s/ Robert F. SUBIA By: /s/ Julien DE WILDE ------------------------- ------------------------- Name: Robert F. SUBIA Name: Julien DE WILDE Title: President and CEO Title: President and CEO EX-10.21 29 INDEMNIFICATION AGREEMENT 1 Exhibit 10.21 FORM OF INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is made as of this *** day of ***, 1997, by and between Micron Custom Manufacturing Services, Inc., an Idaho corporation (the "Company"), and *****, ("Indemnitee"). WHEREAS, the Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve the Company and its related entities; WHEREAS, in order to induce Indemnitee to continue to provide services to the Company, the Company wishes to provide for the indemnification of, and advancement of expenses to, Indemnitee to the maximum extent permitted by law; WHEREAS, Indemnitee does not regard the current protection available as adequate under the present circumstances, and the Indemnitee and other directors, officers, employees, agents and fiduciaries of the Company may not be willing to continue to serve in such capacities without additional protection; WHEREAS, the Company and Indemnitee recognize the continued difficulty in obtaining liability insurance for the Company's directors, officers, employees, agents and fiduciaries, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance; WHEREAS, the Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers, employees, agents and fiduciaries to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited; and WHEREAS, in view of the considerations set forth above, the Company desires that Indemnitee shall be indemnified by the Company as forth herein; NOW THEREFORE, in consideration of Indemnitee's service to the Company, the Company and Indemnitee hereby agree as follows: 1. Indemnification (a) Indemnification. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (whether in a third party proceeding or in an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer, director, employee or agent or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against judgments, penalties, fines (including, without limitation, excise taxes assessed against Indemnitee with respect to an employee benefit plan), settlements and reasonable expenses, including attorneys' fees and disbursements, actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding; provided, however, the Company shall not indemnify Indemnitee: (1) If Indemnitee has been indemnified by another organization or employee benefit plan for the same judgments, penalties, fines (including, without limitation, excise taxes assessed against the person with respect to an employee benefit plan), settlements, and reasonable expenses, including attorneys' fees and disbursements, incurred by the person in connection with the proceeding with respect to the same acts or omissions; (2) For any breach of the Indemnitee's duty of loyalty to the Company or its stockholders; 2 (3) For acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law; (4) For the liability of Indemnitee provided for under Section 30-1-48 of the Idaho General Business Corporations Code ("IGBCC"); (5) For any transaction from which the Indemnitee derived an improper personal benefit. The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent does not, of itself, establish that Indemnitee did not meet the criteria set forth in this Section 1(a). (b) Mandatory Payment of Expenses. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Subsection (a) of this Section 1 or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. 2. Expenses; Indemnification Procedure (a) Advancement of Expenses. The Company shall advance all expenses (including attorney's fees) incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal, administrative or investigative action, suit or proceeding referenced in Section 1(a) hereof. Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. (b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition precedent to his right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) Procedure. Any indemnification and advances provided for by this Agreement shall be made no later than thirty (30) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Articles of Incorporation or Bylaws providing for indemnification is not paid in full by the Company within thirty (30) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses hereunder unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. (d) Selection of Counsel. In the event the Company shall be obligated to pay the expenses of any proceeding against Indemnitee, the Company shall be entitled to assume the defense of such proceeding, with counsel selected by the Company, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ his counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been authorized by the Company, (B) The Company shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 3. Additional Indemnification Rights; Nonexclusivity 3 (a) Scope. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Articles of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of an Idaho corporation to indemnify a member of its board of directors or an officer, such changes shall be, ipso facto, within the purview of Indemnitee's rights and Company's obligations, under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of an Idaho corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. (b) Nonexclusivity. The indemnification and advancement of expenses provided by or granted pursuant to this Agreement shall not be deemed exclusive of any rights to which an Indemnitee may be entitled under the Company's Articles of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested directors, the IGBCC, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he may have ceased to serve in such capacity at the time of any action, suit or other covered proceeding. 4. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by him in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. 5. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. 6. Severability. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 7. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense. (b) Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company. (c) Claims Under Section 16(b). To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 4 8. Construction of Certain Phrases (a) For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (b) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of any employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 9. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall constitute an original. 10. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns. 11. Attorneys' Fees. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. 12. Notice. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressee, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice. 13. Choice of Law. This Agreement shall be governed by and its provisions construed in accordance with the laws of the State of Idaho, without reference to the provisions thereof regarding conflicts of laws. 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. Micron Custom Manufacturing Services, Inc. By: _________________________________ Its: _________________________________ Address: 16399 Franklin Road Nampa, Idaho 83687 AGREED TO AND ACCEPTED: INDEMNITEE: ________________________________ EX-21.1 30 SUBSIDIARIES 1 Exhibit 21.1 SUBSIDIARIES OF MCMS, INC. Name Jurisdiction of Incorporation M.C.M.S. International, Inc. British Virgin Islands M.C.M.S. Sdn. Bhd. Malaysia M.C.M.S. Belgium S.A. Belgium M.C.M.S. Netherlands B.V. Netherlands M.C.M.S. Asia Pacific Pte. Ltd. Singapore EX-23.1 31 CONSENT OF COOPERS & LYBRAND L.L.P. 1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 (File No. ) of our report dated October 29, 1997, on our audits of the consolidated financial statements of Micron Custom Manufacturing Services, Inc. as of August 29, 1996 and August 28, 1997 and for each of the three years in the period ended August 28, 1997. We also consent to the references to our firm under the caption "Experts." Coopers & Lybrand, L.L.P. Boise, Idaho April 24, 1998 EX-25.1 32 STATEMENT OF ELIGIBILITY OF TRUSTEE 1 Exhibit 25.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 -------------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE -------------------------- CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) _______ -------------------------- UNITED STATES TRUST COMPANY OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-3818954 (Jurisdiction of incorporation (I. R. S. Employer if not a U. S. national bank) Identification No.) 114 West 47th Street 10036-1532 New York, New York (Zip Code) (Address of principal executive offices) -------------------------- MCMS, Inc. (Exact name of OBLIGOR as specified in its charter) Idaho 82-0450118 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 16399 Franklin Road 83687 Nampa, ID (Zip code) (Address of principal executive offices) -------------------------- Series B 9-3/4% Senior Subordinated Notes Due 2008 Series B Floating Interest Rate Subordinated Term Securities Due 2008 12-1/2% Subordinated Exchange Debentures Due 2010 (Title of the indenture securities) 2 - 2 - GENERAL 1. GENERAL INFORMATION Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Reserve Bank of New York (2nd District), New York, New York (Board of Governors of the Federal Reserve System) Federal Deposit Insurance Corporation, Washington, D.C. New York State Banking Department, Albany, New York (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. 2. AFFILIATIONS WITH THE OBLIGOR If the obligor is an affiliate of the trustee, describe each such affiliation. None 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15: The obligor currently is not in default under any of its outstanding securities for which United States Trust Company of New York is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form T-1 are not required under General Instruction B. 16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by the State of New York Banking Department to transact business as a Trust Company, is incorporated by reference to Exhibit T-1.1 to Form T-1 filed on September 15, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 (Registration No. 33-97056). T-1.2 -- Included in Exhibit T-1.1. T-1.3 -- Included in Exhibit T-1.1.
3 - 3 - 16. LIST OF EXHIBITS (cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York, as amended, is incorporated by reference to Exhibit T-1.4 to Form T-1 filed on September 15, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 (Registration No. 33-97056). T-1.6 -- The consent of the trustee required by Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990. T-1.7 -- A copy of the latest report of condition of the trustee pursuant to law or the requirements of its supervising or examining authority.
NOTE As of April 21, 1998, the trustee had 2,999,020 shares of Common Stock outstanding, all of which are owned by its parent company, U.S. Trust Corporation. The term "trustee" in Item 2, refers to each of United States Trust Company of New York and its parent company, U. S. Trust Corporation. In answering Item 2 in this statement of eligibility as to matters peculiarly within the knowledge of the obligor or its directors, the trustee has relied upon information furnished to it by the obligor and will rely on information to be furnished by the obligor and the trustee disclaims responsibility for the accuracy or completeness of such information. ------------------ Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, United States Trust Company of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 22nd day of April 1998. UNITED STATES TRUST COMPANY OF NEW YORK, Trustee By: /s/ James E. Logan ----------------------------------- James E. Logan Vice President JEL/pg 4 EXHIBIT T-1.6 The consent of the trustee required by Section 321(b) of the Act. United States Trust Company of New York 114 West 47th Street New York, NY 10036 September 1, 1995 Securities and Exchange Commission 450 5th Street, N.W. Washington, DC 20549 Gentlemen: Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990, and subject to the limitations set forth therein, United States Trust Company of New York ("U.S. Trust") hereby consents that reports of examinations of U.S. Trust by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. Very truly yours, UNITED STATES TRUST COMPANY OF NEW YORK By: /s/ Gerard F. Ganey ------------------------------------ Senior Vice President 5 EXHIBIT T-1.7 UNITED STATES TRUST COMPANY OF NEW YORK CONSOLIDATED STATEMENT OF CONDITION DECEMBER 31, 1997 ($ IN THOUSANDS)
ASSETS Cash and Due from Banks $ 80,246 Short-Term Investments 386,006 Securities, Available for Sale 661,596 Loans 1,774,551 Less: Allowance for Credit Losses 16,202 ---------- Net Loans 1,758,349 Premises and Equipment 61,477 Other Assets 124,499 ---------- TOTAL ASSETS $3,072,173 ========== LIABILITIES Deposits: Non-Interest Bearing $ 686,507 Interest Bearing 1,773,254 ---------- Total Deposits 2,459,761 Short-Term Credit Facilities 295,342 Accounts Payable and Accrued Liabilities 149,775 ---------- TOTAL LIABILITIES $2,904,878 ========== STOCKHOLDER'S EQUITY Common Stock 14,995 Capital Surplus 49,541 Retained Earnings 100,235 Unrealized Gains on Securities Available for Sale (Net of Taxes) 2,524 ---------- TOTAL STOCKHOLDER'S EQUITY 167,295 ---------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $3,072,173 ==========
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank do hereby declare that this Statement of Condition has been prepared in conformance with the instructions issued by the appropriate regulatory authority and is true to the best of my knowledge and belief. Richard E. Brinkmann, SVP & Controller February 9, 1998 EX-27.1 33 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS YEAR AUG-31-1995 SEP-02-1994 AUG-31-1995 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 188,782 0 169,758 0 6,464 0 (613) 13,173 5,142 8,031 0 0 0 8,031 0 0
EX-27.2 34 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS YEAR AUG-29-1996 SEP-01-1995 AUG-29-1996 1 16,290 0 33,894 1,430 21,668 72,064 53,663 12,892 113,245 45,709 0 0 0 0 65,881 113,245 374,116 0 341,110 0 9,303 0 (482) 24,185 9,190 14,995 0 0 0 14,995 0 0
EX-27.3 35 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS YEAR AUG-28-1997 AUG-30-1996 AUG-28-1997 1 13,636 0 39,697 1,735 17,786 71,047 73,999 20,515 124,862 41,957 0 0 0 0 78,191 124,862 292,379 0 258,982 0 12,560 0 (380) 21,217 8,465 12,752 0 0 0 12,752 0 0
EX-27.4 36 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 6-MOS AUG-29-1997 AUG-30-1996 FEB-27-1997 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 124,117 0 108,136 0 5,941 0 (260) 10,300 4,243 6,057 0 0 0 6,057 0 0
EX-27.5 37 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 6-MOS SEP-03-1998 AUG-29-1997 FEB-26-1998 1 13,263 0 44,914 1,835 23,384 0 86,884 25,627 150,728 56,399 175,312 24,000 5 5 (109,251) 150,728 145,681 0 128,091 0 15,239 0 (329) 2,680 2,067 613 0 0 0 613 0 0
EX-99.1 38 LETTER OF TRANSMITTAL 1 EXHIBIT 99.1 LETTER OF TRANSMITTAL TO TENDER FOR EXCHANGE 9 3/4% SENIOR SUBORDINATED NOTES DUE 2008 FLOATING INTEREST RATE SUBORDINATED TERM SECURITIES DUE 2008 AND 12 1/2% SENIOR EXCHANGEABLE PREFERRED STOCK OF MCMS, INC. PURSUANT TO THE PROSPECTUS DATED , 1998 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998 UNLESS EXTENDED (THE "EXPIRATION DATE"). PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS If you desire to accept the Exchange Offer, this Letter of Transmittal should be completed, signed, and submitted to the Exchange Agent: By Hand after 4:30 p.m. By Hand before 4:30 p.m.: By Registered or Certified Mail: on the Expiration Date United States Trust Company United States Trust Company only/Overnight Courier: of New York of New York United States Trust Company 111 Broadway P.O. Box 843 of New York New York, New York 10006 Cooper Station 770 Broadway Avenue -- Attention: Lower Level Corporate New York, New York 10276 13th Floor Trust Window Attention: Corporate Trust New York, New York 10003 Operations Attention: Corporate Trust Services
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT 1-800-548-6565, OR BY FACSIMILE AT (212) 780-0592. The undersigned hereby acknowledges receipt of the Prospectus dated , 1998 (the "Prospectus") of MCMS, Inc., an Idaho corporation (the "Issuer"), and this Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Issuer's offer (the "Exchange Offer") to exchange (i) $1,000 in principal amount of its Series B 9 3/4% Senior Subordinated Notes due 2008 (the "Fixed Rate Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (together with the rules and regulations promulgated thereunder, the "Securities Act"), pursuant to a Registration Statement, for each $1,000 in principal amount of its outstanding 9 3/4% Senior Subordinated Notes due 2008 (the "Fixed Rate Notes"), of which $145,000,000 aggregate principal amount is outstanding; (ii) $1,000 in principal amount of its Series B Floating Interest Rate Subordinated Term Securities due 2008 (the "Floating Rate Exchange Notes" and, together with the Fixed Rate Exchange Notes, the "Exchange Notes"), which have been registered under the Securities Act, pursuant to a Registration Statement, for each $1,000 in principal amount of its outstanding Floating Interest Rate Subordinated Term Securities due 2008 (the "Floating Rate Notes"), of which $30,000,000 aggregate principal amount is outstanding; and (iii) shares of its Series B 12 1/2% Senior Exchangeable Preferred Stock (the "Exchange 1 2 Preferred Stock" and, together with the Exchange Notes, the "Exchange Securities"), which have been registered under the Securities Act, pursuant to a Registration Statement, for each share of its outstanding 12 1/2% Senior Exchangeable Preferred Stock (the "Preferred Stock"), of which 250,000 shares are issued and outstanding in the aggregate. Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. The Letter of Transmittal is to be used by holders of Securities if (i) certificates representing the Securities are to be physically delivered to the Exchange Agent herewith by such holders; (ii) tender of Securities is to be made by book-entry transfer to the Exchange Agent's account at the Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures set forth under the caption "The Exchange Offer -- Procedures for Tendering" in the Prospectus; or (iii) tender of Securities is to be made according to the guaranteed delivery procedures set forth under the caption "The Exchange Offer -- Guaranteed Delivery Procedures" in the Prospectus; and, in each case, instructions are not being transmitted through the DTC Automated Tender Offer Program ("ATOP"). Holders of Securities that are tendering by book-entry transfer to the Exchange Agent's account at the Book-Entry Transfer Facility can execute the tender through ATOP for which the transaction will be eligible. The Book-Entry Transfer Facility participants that are accepting the Exchange Offer must transmit their acceptances to the Book-Entry Transfer Facility which will verify the acceptance and execute a book-entry delivery to the Exchange Agent's account at the Book-Entry Transfer Facility. The Book-Entry Transfer Facility will then send an Agent's Message to the Exchange Agent for its acceptance. Delivery of the Agent's Message by the Book-Entry Transfer Facility will satisfy the terms of the Exchange Offer as to execution and delivery of a Letter of Transmittal by the participant identified in the Agent's Message. The undersigned hereby tenders the Fixed Rate Notes described in Box 1A below (the "Tendered Fixed Rate Notes"), the Floating Rate Notes described in Box 1B below (the "Tendered Floating Rate Notes" and, together with the Tendered Fixed Rate Notes, the "Tendered Notes") and/or the Exchange Preferred Stock described in Box 1C below (the "Tendered Preferred Stock" and, together with the Tendered Notes, the "Tendered Securities") pursuant to the terms and conditions described in the Prospectus and this Letter of Transmittal. The undersigned is the registered owner of all the Tendered Securities and the undersigned represents that it has received from each beneficial owner of the Tendered Securities ("Beneficial Owners") a duly completed and executed form of "Instruction to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner" accompanying this Letter of Transmittal, instructing the undersigned to take the action described in this Letter of Transmittal. Subject to, and effective upon, the acceptance for exchange of the Tendered Securities, the undersigned hereby exchanges, assigns, and transfers to, or upon the order of, the Issuer, all right, title, and interest in, to, and under the Tendered Securities. Please issue the Exchange Securities exchanged for Tendered Securities in the name(s) of the undersigned. Similarly, unless otherwise indicated under "Special Delivery Instructions" below (Box 3), please send or cause to be sent the certificates for the Exchange Securities (and accompanying documents, as appropriate) to the undersigned at the address shown below in Box 1A, Box 1B, and/or Box 1C as the case may be. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the true and lawful agent and attorney in fact of the undersigned with respect to the Tendered Securities, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (i) deliver the Tendered Securities to the Issuer or cause ownership of the Tendered Securities to be transferred to, or upon the order of, the Issuer, on the books of the registrar for the Securities and deliver all accompanying evidences of transfer and authenticity to, or upon the order of, the Issuer upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Securities to which the undersigned is entitled upon acceptance by the Issuer of the Tendered Securities pursuant to the Exchange Offer, and (ii) receive all benefits and otherwise exercise all rights of beneficial ownership of the Tendered Securities, all in accordance with the terms of the Exchange Offer. The undersigned understands that tenders of Securities pursuant to the procedures described under the caption "The Exchange Offer" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Issuer upon the terms and subject to the conditions of the Exchange Offer, subject only to withdrawal of such tenders on the terms set forth in the Prospectus under the caption "The Exchange Offer-Withdrawal of Tenders." All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and any 2 3 Beneficial Owner(s), and every obligation of the undersigned or any Beneficial Owners hereunder shall be binding upon the heirs, representatives, successors, and assigns of the undersigned and such Beneficial Owner(s). The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, exchange, assign, and transfer the Tendered Securities and that the Issuer will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, and adverse claims when the Tendered Securities are acquired by the Issuer as contemplated herein. The undersigned and each Beneficial Owner will, upon request, execute and deliver any additional documents reasonably requested by the Issuer or the Exchange Agent as necessary or desirable to complete and give effect to the transactions contemplated hereby. The undersigned hereby represents and warrants that the information set forth in Box 2 is true and correct. By accepting the Exchange Offer, the undersigned hereby represents and warrants that (i) the Exchange Securities to be acquired by the undersigned and any Beneficial Owner(s) in connection with the Exchange Offer are being acquired by the undersigned and any Beneficial Owner(s) in the ordinary course of business of the undersigned and any Beneficial Owner(s), (ii) the undersigned and each Beneficial Owner are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the Exchange Securities, (iii) except as otherwise disclosed in writing herewith, neither the undersigned nor any Beneficial Owner is an "affiliate," as defined in Rule 405 under the Securities Act, of the Issuer, and (iv) the undersigned and each Beneficial Owner acknowledge and agree that any person participating in the Exchange Offer with the intention or for the purpose of distributing the Exchange Securities must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale of the Exchange Securities acquired by such person and cannot rely on the position of the Staff of the Securities and Exchange Commission (the "Commission") set forth in the no-action letters that are discussed in the section of the Prospectus entitled "The Exchange Offer." In addition, by accepting the Exchange Offer, the undersigned hereby (i) represents and warrants that, if the undersigned or any Beneficial Owner of the Securities is a Participating Broker-Dealer, such Participating Broker-Dealer acquired the Securities for its own account as a result of market-making activities or other trading activities and has not entered into any arrangement or understanding with the Company or any affiliate of the Company (within the meaning of Rule 405 under the Securities Act) to distribute the Exchange Securities to be received in the Exchange Offer, and (ii) acknowledges that, by receiving Exchange Securities for its own account in exchange for Securities, where such Securities were acquired as a result of market-making activities or other trading activities, such Participating Broker-Dealer will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Securities. [ ] CHECK HERE IF TENDERED SECURITIES ARE BEING DELIVERED HEREWITH. [ ] CHECK HERE IF TENDERED SECURITIES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE "Use of Guaranteed Delivery" BELOW (Box 4). [ ] CHECK HERE IF TENDERED SECURITIES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE "Use of Book-Entry Transfer" BELOW (Box 5). 3 4 PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING THE BOXES
- ------------------------------------------------------------------------------------------------------------------------------------ BOX 1A DESCRIPTION OF FIXED RATE NOTES TENDERED (ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY) - ------------------------------------------------------------------------------------------------------------------------------------ NAME(S) AND ADDRESS(ES) OF REGISTERED FIXED RATE CERTIFICATE AGGREGATE NOTE HOLDER(S), EXACTLY AS NAME(S) APPEAR(S) ON NUMBER(S) OF PRINCIPAL AMOUNT AGGREGATE FIXED RATE NOTE CERTIFICATE(S) FIXED RATE REPRESENTED BY PRINCIPAL AMOUNT (PLEASE FILL IN, IF BLANK) NOTES* CERTIFICATE(S) TENDERED** - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ * Need not be completed by persons tendering by book-entry transfer. ** The minimum permitted tender is $1,000 in principal amount of Fixed Rate Notes. All other tenders must be in integral multiples of $1,000 of principal amount. Unless otherwise indicated in this column, the principal amount of all Fixed Rate Note Certificates identified in this Box 1A or delivered to the Exchange Agent herewith shall be deemed tendered. See Instruction 4. - ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ BOX 1B DESCRIPTION OF FLOATING RATE NOTES TENDERED (ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY) - ------------------------------------------------------------------------------------------------------------------------------------ NAME(S) AND ADDRESS(ES) OF REGISTERED FLOATING RATE CERTIFICATE AGGREGATE NOTE HOLDER(S), EXACTLY AS NAME(S) APPEAR(S) ON NUMBER(S) OF PRINCIPAL AMOUNT AGGREGATE FLOATING RATE NOTE CERTIFICATE(S) FLOATING RATE REPRESENTED BY PRINCIPAL AMOUNT (PLEASE FILL IN, IF BLANK) NOTES* CERTIFICATE(S) TENDERED** - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ * Need not be completed by persons tendering by book-entry transfer. ** The minimum permitted tender is $1,000 in principal amount of Floating Rate Notes. All other tenders must be in integral multiples of $1,000 of principal amount. Unless otherwise indicated in this column, the principal amount of all Floating Rate Note Certificates identified in this Box 1B or delivered to the Exchange Agent herewith shall be deemed tendered. See Instruction 4. - ------------------------------------------------------------------------------------------------------------------------------------
4 5
- ------------------------------------------------------------------------------------------------------------------------------------ BOX 1C DESCRIPTION OF PREFERRED STOCK TENDERED (ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY) - ------------------------------------------------------------------------------------------------------------------------------------ NAME(S) AND ADDRESS(ES) OF REGISTERED PREFERRED STOCK HOLDER(S), EXACTLY AS NAME(S) APPEAR(S) ON CERTIFICATE AGGREGATE SHARES PREFERRED STOCK CERTIFICATE(S) NUMBER(S) OF REPRESENTED BY AGGREGATE SHARES (PLEASE FILL IN, IF BLANK) PREFERRED STOCK* CERTIFICATE(S) TENDERED** - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL - ------------------------------------------------------------------------------------------------------------------------------------ * Need not be completed by persons tendering by book-entry transfer. ** Tendered shares will include all dividends paid in the form of additional Preferred Stock on such shares since the Issue Date. - ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------- BOX 2 BENEFICIAL OWNERS(S) - ---------------------------------------------------------------------------------------------------------------------- STATE OF STATE OF PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL RESIDENCE OF AMOUNT OF STATE OF PRINCIPAL RESIDENCE OF AMOUNT OF EACH BENEFICIAL TENDERED RESIDENCE OF EACH BENEFICIAL TENDERED FIXED OWNER OF FLOATING RATE EACH BENEFICIAL OWNER OF RATE NOTES HELD TENDERED NOTES HELD FOR OWNER OF TENDERED FIXED FOR ACCOUNT OF FLOATING RATE ACCOUNT OF TENDERED RATE NOTES BENEFICIAL OWNER NOTES BENEFICIAL OWNER PREFERRED STOCK - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------- ---------------------- BOX 2 BENEFICIAL OWNERS(S) - ---------------------- ---------------------- STATE OF PRINCIPAL SHARES OF RESIDENCE OF TENDERED EACH BENEFICIAL PREFERRED STOCK OWNER OF HELD FOR ACCOUNT TENDERED FIXED OF BENEFICIAL RATE NOTES OWNER - ---------------------- ---------------------- - ---------------------------------------------- - ---------------------------------------------- - ---------------------------------------------- - ---------------------------------------------- - ---------------------------------------------- - ---------------------------------------------- - ----------------------------------------------
5 6 BOX 3 SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 5, 6 AND 7) TO BE COMPLETED ONLY IF EXCHANGE SECURITIES EXCHANGED FOR SECURITIES AND UNTENDERED SECURITIES ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE. Mail Exchange Securities and any untendered Securities to: Name(s): - ------------------------------------------------------ (please print) Address: - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ (include Zip Code) Tax Identification or Social Security No.: - ------------------------------------ BOX 4 USE OF GUARANTEED DELIVERY (SEE INSTRUCTION 2) TO BE COMPLETED ONLY IF SECURITIES ARE BEING TENDERED BY MEANS OF A NOTICE OF GUARANTEED DELIVERY. Name(s) of Registered Holder(s): - ------------------------------------------------------ Date of Execution of Notice of Guaranteed Delivery: - ------------------------------------------------------ Name of Institution which Guaranteed Delivery: - ------------------------------------------------------ BOX 5 USE OF BOOK-ENTRY TRANSFER (SEE INSTRUCTION 1) TO BE COMPLETED ONLY IF DELIVERY OF TENDERED SECURITIES IS TO BE MADE BY BOOK-ENTRY TRANSFER. Name of Tendering Institution: - ------------------------------------------------------ Account Number: - -------------------------------------- Transaction Code Number: - ------------------------------ 6 7 BOX 6 TENDERING HOLDER SIGNATURE (SEE INSTRUCTIONS 1 AND 5) IN ADDITION, COMPLETE SUBSTITUTE FORM W-9 - -------------------------------------------------------------------------------- X -------------------------------------------------------------------------- X -------------------------------------------------------------------------- (Signature of Registered Holder(s) or Authorized Signatory) Note: The above lines must be signed by the registered holder(s) of Securities as their name(s) appear(s) on the Securities or by persons(s) authorized to become registered holder(s) (evidence of which authorization must be transmitted with this Letter of Transmittal). If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer, or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below. See Instruction 5. Name(s): -------------------------------------------------------------------- -------------------------------------------------------------------------- Capacity: -------------------------------------------------------------------- Street Address: ---------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number: ------------------------------------------------- Tax Identification or Social Security Number: ------------------------------------------ SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 5) Authorized Signature X ------------------------------------------------------------------------ Name: --------------------------------------------------------------------- (PLEASE PRINT) Title: ---------------------------------------------------------------------- Name of Firm: ---------------------------------------------------------------- (Must be an Eligible Institution as defined in Instruction 2) Address: --------------------------------------------------------------------- (INCLUDE ZIP CODE) Area Code and Telephone Number: ------------------------------------------------- Dated: -------------------------------------- BOX 7 BROKER-DEALER STATUS - -------------------------------------------------------------------------------- [ ] Check this box if the Beneficial Owner of the Securities is a Participating Broker-Dealer and such Participating Broker-Dealer acquired the Securities for its own account as a result of market-making activities or other trading activities. 7 8 - -------------------------------------------------------------------------------------------------------------------------------- PAYOR'S NAME: MCMS, INC. - -------------------------------------------------------------------------------------------------------------------------------- SUBSTITUTE Name (if joint names, list first and circle the name of the person or entity whose number FORM W-9 you enter in Part 1 below. See instructions if your name has changed.) ------------------------------------------------------------------------------------------- Address ------------------------------------------------------------------------------------------- City, State and ZIP Code ------------------------------------------------------------------------------------------- List account number(s) here (optional) --------------------------------------------------------------------------------------------- DEPARTMENT OF THE TREASURY Part 1 -- PLEASE PROVIDE YOUR TAXPAYER Social Security INTERNAL REVENUE SERVICE IDENTIFICATION NUMBER ("TIN") IN THE BOX AT RIGHT Number of TIN AND CERTIFY BY SIGNING AND DATING BELOW --------------------------------------------------------------------------------------------- Part 2 -- Check the box if you are NOT subject to backup withholding under the provisions of section 3406(a)(1)(C) of the Internal Revenue Code because (1) you have not been notified that you are subject to backup withholding as a result of failure to report all interest or dividends or (2) the Internal Revenue Service has notified you that you are no longer subject to backup withholding. [ ] --------------------------------------------------------------------------------------------- CERTIFICATION -- UNDER PENALTIES OF PERJURY, I Part 3 -- CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM Awaiting TIN [ ] IS TRUE, CORRECT, AND COMPLETE. - -------------------------------------------------------------------------------------------------------------------------------- Signature ------------------------------------------ Date------------------------------- - --------------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. 8 9 INSTRUCTIONS TO LETTER OF TRANSMITTAL FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. Delivery of this Letter of Transmittal and Securities. A properly completed and duly executed copy of this Letter of Transmittal, including Substitute Form W-9, and any other documents required by this Letter of Transmittal must be received by the Exchange Agent at its address set forth herein, and either certificates for Tendered Securities must be received by the Exchange Agent at its address set forth herein or such Tendered Securities must be transferred pursuant to the procedures for book-entry transfer described in the Prospectus under the caption "The Exchange Offer -- Procedure for Tendering" (and a confirmation of such transfer received by the Exchange Agent), in each case prior to 5:00 p.m., New York City time, on the Expiration Date. The method of delivery of certificates for Tendered Securities, this Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of the tendering holder and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. Instead of delivery by mail, it is recommended that the Holder use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. No Letter of Transmittal or Securities should be sent to the Issuer. Neither the Issuer nor the registrar is under any obligation to notify any tendering holder of the Issuer's acceptance of Tendered Securities prior to the closing of the Exchange Offer. 2. Guaranteed Delivery Procedures. Holders who wish to tender their Securities but whose Securities are not immediately available, and who cannot deliver their Securities, this Letter of Transmittal or any other documents required hereby to the Exchange Agent prior to the Expiration Date must tender their Securities according to the guaranteed delivery procedures set forth below, including completion of Box 4. Pursuant to such procedures: (i) such tender must be made by or through a firm which is a member of a recognized Medallion Program approved by the Securities Transfer Association Inc. (an "Eligible Institution") and the Notice of Guaranteed Delivery must be signed by the holder; (ii) prior to the Expiration Date, the Exchange Agent must have received from the holder and the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by mail or hand delivery) setting forth the name and address of the holder, the certificate number(s) of the Tendered Securities and the principal amount of Tendered Notes and/or the number of shares of Tendered Preferred Stock, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the Expiration Date, this Letter of Transmittal together with the certificate(s) representing the Securities and any other required documents will be deposited by the Eligible Institution with the Exchange Agent; and (iii) such properly completed and executed Letter of Transmittal, as well as all other documents required by this Letter of Transmittal and the certificate(s) representing all Tendered Securities in proper form for transfer, must be received by the Exchange Agent within three New York Stock Exchange trading days after the Expiration Date. Any holder who wishes to tender Securities pursuant to the guaranteed delivery procedures described above must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery relating to such Securities prior to 5:00 p.m., New York City time, on the Expiration Date. Failure to complete the guaranteed delivery procedures outlined above will not, of itself, affect the validity or effect a revocation of any Letter of Transmittal form properly completed and executed by an Eligible Holder who attempted to use the guaranteed delivery process. 3. Beneficial Owner Instructions to Registered Holders. Only a holder in whose name Tendered Securities are registered on the books of the registrar (or the legal representative or attorney-in-fact of such registered holder) may execute and deliver this Letter of Transmittal. Any Beneficial Owner of Tendered Securities who is not the registered holder must arrange promptly with the registered holder to execute and deliver this Letter of Transmittal on his or her behalf through the execution and delivery to the registered holder of the Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner form accompanying this Letter of Transmittal. 4. Partial Tenders. Tenders of Notes will be accepted only in integral multiples of $1,000 in principal amount. If less than the entire principal amount of Notes held by the holder is tendered, the tendering holder should fill in the principal amount tendered in the columns labeled "Aggregate Principal Amount Tendered" of the box entitled "Description of Fixed Rate Notes Tendered" (Box 1A) above and/or the box entitled "Description of Floating Rate Notes Tendered" (Box 1B) above, as the case may be. The entire principal amount of Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of all Notes held 9 10 by the holder is not tendered, then Notes for the principal amount of Notes not tendered and Exchange Notes issued in exchange for any Notes tendered and accepted will be sent to the Holder at his or her registered address, unless a different address is provided in the appropriate box on this Letter of Transmittal, as soon as practicable following the Expiration Date. 5. Signatures on the Letter of Transmittal; Securities Powers and Endorsements; Guarantee of Signatures. If this Letter of Transmittal is signed by the registered holder(s) of the Tendered Securities, the signature must correspond with the name(s) as written on the face of the Tendered Securities without alteration, enlargement or any change whatsoever. If any of the Tendered Securities are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any Tendered Securities are held in different names, it will be necessary to complete, sign and submit as many separate copies of the Letter of Transmittal as there are different names in which Tendered Securities are held. If this Letter of Transmittal is signed by the registered holder(s) of Tendered Securities, and Exchange Securities issued in exchange therefor are to be issued (and any untendered principal amount of Securities is to be reissued) in the name of the registered holder(s), then such registered holder(s) need not and should not endorse any Tendered Securities, nor provide a separate securities power. In any other case, such registered holder(s) must either properly endorse the Tendered Securities or transmit a properly completed separate securities power with this Letter of Transmittal, with the signature(s) on the endorsement or securities power guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of any Tendered Securities, such Tendered Securities must be endorsed or accompanied by appropriate securities powers, in each case, signed as the name(s) of the registered holder(s) appear(s) on the Tendered Securities, with the signature(s) on the endorsement or securities power guaranteed by an Eligible Institution. If this Letter of Transmittal or any Tendered Securities or securities powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and, unless waived by the Issuer, evidence satisfactory to the Issuer of their authority to so act must be submitted with this Letter of Transmittal. Endorsements on Tendered Securities or signatures on securities powers required by this Instruction 5 must be guaranteed by an Eligible Institution. Signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution unless the Tendered Securities are tendered (i) by a registered holder who has not completed the box set forth herein entitled "Special Delivery Instructions" (Box 3) or (ii) by an Eligible Institution. 6. Special Delivery Instructions. Tendering holders should indicate, in the applicable box (Box 3), the name and address to which the Exchange Securities, the substitute Notes for principal amounts not tendered or not accepted for exchange and/or the substitute Preferred Stock for shares not tendered or not accepted for exchange are to be sent, if different from the name and address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. 7. Transfer Taxes. The Issuer will pay all transfer taxes, if any, applicable to the exchange of Tendered Securities pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the transfer and exchange of Tendered Securities pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or on any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. Except as provided in this Instruction 7, it will not be necessary for transfer tax stamps to be affixed to the Tendered Securities listed in this Letter of Transmittal. 8. Tax Identification Number. Federal income tax law requires that the holder(s) of any Tendered Securities which are accepted for exchange must provide the Issuer (as payor) with its correct taxpayer identification number ("TIN"), which, in the case of a holder who is an individual, is his or her social security number. If the Issuer is not provided with the correct TIN, the Holder may be subject to backup withholding and a $50 penalty imposed by the 10 11 Internal Revenue Service. (If withholding results in an over-payment of taxes, a refund may be obtained.) Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. To prevent backup withholding, each holder of Tendered Securities must provide such holder's correct TIN by completing the Substitute Form W-9 set forth herein, certifying that the TIN provided is correct (or that such holder is awaiting a TIN), and that (i) the holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the Tendered Securities are registered in more than one name or are not in the name of the actual owner, consult the "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for information on which TIN to report. The Issuer reserves the right in its sole discretion to take whatever steps are necessary to comply with the Issuer's obligation regarding backup withholding. 9. Validity of Tenders. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of Tendered Securities will be determined by the Issuer in its sole discretion, which determination will be final and binding. The Issuer reserves the right to reject any and all Securities not validly tendered or any Securities the Issuer's acceptance of which would, in the opinion of the Issuer or their counsel, be unlawful. The Issuer also reserves the right to waive any conditions of the Exchange Offer or defects or irregularities in tenders of Securities as to any ineligibility of any holder who seeks to tender Securities in the Exchange Offer. The interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) by the Issuer shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Securities must be cured within such time as the Issuer shall determine. Neither the Issuer, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Securities, nor shall any of them incur any liability for failure to give such notification. Tenders of Securities will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Securities received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders, unless otherwise provided in this Letter of Transmittal, as soon as practicable following the Expiration Date. 10. Waiver of Conditions. The Company reserves the absolute right to amend, waive or modify any of the conditions in the Exchange Offer in the case of any Tendered Securities. 11. No Conditional Tender. No alternative, conditional, irregular, or contingent tender of Securities or transmittal of this Letter of Transmittal will be accepted. 12. Mutilated, Lost, Stolen or Destroyed Notes. Any tendering Holder whose Securities have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated herein for further instructions. 13. Requests for Assistance or Additional Copies. Questions and requests for assistance and requests for additional copies of the Prospectus or this Letter of Transmittal may be directed to the Exchange Agent at the address indicated herein. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. 14. Acceptance of Tendered Notes and Issuance of Securities; Return of Securities. Subject to the terms and conditions of the Exchange Offer, the Issuer will accept for exchange all validly tendered Securities as soon as practicable after the Expiration Date and will issue Exchange Securities therefor as soon as practicable thereafter. For purposes of the Exchange Offer, the Issuer shall be deemed to have accepted tendered Securities when, as and if the Issuer has given written or oral notice (immediately followed in writing) thereof to the Exchange Agent. If any Tendered Securities are not exchanged pursuant to the Exchange Offer for any reason, such unexchanged Securities will be returned, without expense, to the undersigned at the address shown in Box 1A, Box 1B and/or Box 1C or at a different address as may be indicated herein under "Special Delivery Instructions" (Box 3). 15. Withdrawal. Tenders may be withdrawn only pursuant to the procedures set forth in the Prospectus under the caption "The Exchange Offer." 11 EX-99.2 39 NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY 9 3/4% SENIOR SUBORDINATED NOTES DUE 2008 FLOATING INTEREST RATE SUBORDINATED TERM SECURITIES DUE 2008 AND 12 1/2% SENIOR EXCHANGEABLE PREFERRED STOCK OF MCMS, INC. PURSUANT TO THE PROSPECTUS DATED , 1998 This form must be used by a holder of 9 3/4% Senior Subordinated Notes due 2008 (the "Fixed Rate Notes"), a holder of Floating Interest Rate Subordinated Term Securities due 2008 (the "Floating Rate Notes" and, together with the Fixed Rate Notes, the "Notes") and/or a holder of 12 1/2% Senior Exchangeable Preferred Stock (the "Preferred Stock" and, together with the Notes, the "Securities") of MCMS, Inc., an Idaho corporation (the "Company"), who wishes to tender Securities to the Exchange Agent pursuant to the guaranteed delivery procedures described in "The Exchange Offer -- Guaranteed Delivery Procedures" of the Company's Prospectus, dated , 1998 (the "Prospectus") and in Instruction 2 to the related Letter of Transmittal. Any holder who wishes to tender Securities pursuant to such guaranteed delivery procedures must ensure that the Exchange Agent receives this Notice of Guaranteed Delivery prior to the Expiration Date of the Exchange Offer. Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus or the Letter of Transmittal. THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998 UNLESS EXTENDED (THE "EXPIRATION DATE"). United States Trust Company of New York (the "Exchange Agent") By Hand after 4:30 p.m. on the By Hand before 4:30 p.m.: By Registered or Certified Mail: Expiration Date only/Overnight United States Trust Company of New York United States Trust Company of New York Courier: 111 Broadway P.O. Box 843 Cooper Station United States Trust Company of New York New York, New York 10006 New York, New York 10276 770 Broadway Avenue -- 13th Floor Attention: Lower Level Corporate Trust Attention: Corporate Trust Operations New York, New York 10003 Window Window Attention: Corporate Trust Services
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. LADIES AND GENTLEMEN: The undersigned hereby tenders to the Company, upon the terms and subject to the conditions set forth in the Prospectus and the related Letter of Transmittal, receipt of which is hereby acknowledged, the principal amount of Notes and/or the shares of Preferred Stock set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus and in Instruction 2 of the Letter of Transmittal. 1 2 The undersigned hereby tenders the Fixed Rate Notes listed below:
- ------------------------------------------------------------------------------------------------------------ CERTIFICATE NUMBER(S) (IF KNOWN) OF FIXED RATE NOTES OR AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY AMOUNT REPRESENTED AMOUNT TENDERED - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------
The undersigned hereby tenders the Floating Rate Notes listed below:
- ------------------------------------------------------------------------------------------------------------ CERTIFICATE NUMBER(S) (IF KNOWN) OF FLOATING RATE NOTES OR AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY AMOUNT REPRESENTED AMOUNT TENDERED - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------
The undersigned hereby tenders the Preferred Stock listed below:
- ------------------------------------------------------------------------------------------------------------ CERTIFICATE NUMBER(S) (IF KNOWN) OF PREFERRED STOCK OR AGGREGATE SHARES AGGREGATE SHARES ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY REPRESENTED TENDERED - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------
2 3 PLEASE SIGN AND COMPLETE - -------------------------------------------------------------------------------- Signatures of Registered Holder(s) or Authorized Signatory:-------------------------------- Date:------------------------------------------, 1998 ----------------------------------------------------- Address:----------------------------------------------- ----------------------------------------------------- -------------------------------------------------------- Name(s) of Registered Holder(s): ------------------------------- Area Code and Telephone No.---------------------------------------- ----------------------------------------------------- -----------------------------------------------------
This Notice of Guaranteed Delivery must be signed by the Holder(s) exactly as their name(s) appear on certificates for the Securities or on a security position listing as the owner of Securities, or by person(s) authorized to become Holder(s) by endorsements and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information. Please print name(s) and address(es) Name(s): -------------------------------------------------------------------------- -------------------------------------------------------------------------- Capacity: -------------------------------------------------------------------------- Address(es): -------------------------------------------------------------------------- -------------------------------------------------------------------------- 3 4 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or is a commercial bank or trust company having an office or correspondent in the United States, or is otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal (or facsimile thereof), together with the Securities tendered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Securities into the Exchange Agent's account at the Book-Entry Transfer Facility described in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures" and in the Letter of Transmittal) and any other required documents, all by 5:00 p.m., New York City time, on the third New York Stock Exchange trading day following the Expiration Date. Name of firm --------------------------------- ------------------------------- (AUTHORIZED SIGNATURE) Address -------------------------------------- Name -------------------------- (Please Print) - ---------------------------------------------- Title-------------------------- (Include Zip Code) Area Code and Dated -------------------, 1998 Tel. No. -------------------------------------
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF SECURITIES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL. 4 5 INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY 1. Delivery of this Notice of Guaranteed Delivery. A properly completed and duly executed copy of this Notice of Guaranteed Delivery and any other documents required by this Notice of Guaranteed Delivery must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. The method of delivery of this Notice of Guaranteed Delivery and any other required documents to the Exchange Agent is at the election and sole risk of the holder, and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. As an alternative to delivery by mail, the holders may wish to consider using an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. For a description of the guaranteed delivery procedures, see Instruction 2 of the Letter of Transmittal. 2. Signatures on this Notice of Guaranteed Delivery. If this Notice of Guaranteed Delivery is signed by the registered holder(s) of the Securities referred to herein, the signature must correspond with the name(s) written on the face of the Securities without alteration, enlargement, or any change whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of the Securities, the signature must correspond with the name shown on the security position listing as the owner of the Securities. If this Notice of Guaranteed Delivery is signed by a person other than the registered holder(s) of any Securities listed or a participant of the Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by appropriate securities powers, signed as the name of the registered holder(s) appears on the Securities or signed as the name of the participant shown on the Book-Entry Transfer Facility's security position listing. If this Notice of Guaranteed Delivery is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, or other person acting in a fiduciary or representative capacity, such person should so indicate when signing and submit with the Letter of Transmittal evidence satisfactory to the Company of such person's authority to so act. 3. Requests for Assistance or Additional Copies. Questions and requests for assistance and requests for additional copies of the Prospectus may be directed to the Exchange Agent at the address specified in the Prospectus. Holders may also contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Exchange Offer. 5 EX-99.3 40 TENDER INSTRUCTIONS 1 EXHIBIT 99.3 INSTRUCTIONS TO REGISTERED HOLDER AND/OR BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER OF MCMS, INC. 9 3/4% SENIOR SUBORDINATED NOTES DUE 2008 FLOATING INTEREST RATE SUBORDINATED TERM SECURITIES DUE 2008 AND 12 1/2% SENIOR EXCHANGEABLE PREFERRED STOCK To Registered Holder and/or Participant of the Book-Entry Transfer Facility: The undersigned hereby acknowledges receipt of the Prospectus, dated , 1998 (the "Prospectus") of MCMS, Inc., an Idaho corporation (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's offer (the "Exchange Offer"). Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. This will instruct you, the registered holder and/or book-entry transfer facility participant, as to action to be taken by you relating to the Exchange Offer with respect to the 9 3/4% Senior Subordinated Notes due 2008 (the "Fixed Rate Notes"), the Floating Interest Rate Subordinated Term Securities due 2008 (the "Floating Rate Notes" and, together with the Fixed Rate Notes, the "Notes") and/or the 12 1/2% Senior Exchangeable Preferred Stock (the "Preferred Stock" and, together with the Notes, the "Securities") held by you for the account of the undersigned. The aggregate face amount of the Fixed Rate Notes held by you for the account of the undersigned is (FILL IN AMOUNT): $ of the 9 3/4% Senior Subordinated Notes due 2008. The aggregate face amount of the Floating Rate Notes held by you for the account of the undersigned is (FILL IN AMOUNT): $ of the Floating Interest Rate Subordinated Term Securities due 2008. The aggregate face amount of the Preferred Stock held by you for your account of the undersigned is (FILL IN AMOUNT): $ of the 12 1/2% Senior Exchangeable Preferred Stock. With respect to the Exchange Offer, the undersigned hereby instructs you (CHECK APPROPRIATE BOX): [ ] TO TENDER the following Fixed Rate Notes held by you for the account of the undersigned (INSERT PRINCIPAL AMOUNT OF FIXED RATE NOTES TO BE TENDERED, IF ANY): $ [ ] NOT TO TENDER any Fixed Rate Notes held by you for the account of the undersigned. [ ] TO TENDER the following Floating Rate Notes held by you for the account of the undersigned (INSERT PRINCIPAL AMOUNT OF FLOATING RATE NOTES TO BE TENDERED, IF ANY): $ [ ] NOT TO TENDER any Floating Rate Notes held by you for the account of the undersigned. [ ] TO TENDER the following Preferred Stock held by you for the account of the undersigned (INSERT SHARES OF PREFERRED STOCK TO BE TENDERED, IF ANY): [ ] NOT TO TENDER any Preferred Stock held by you for the account of the undersigned. If the undersigned instruct you to tender the Securities held by you for the account of the undersigned, it is understood that you are authorized (a) to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representation and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to the representations that (i) the undersigned's principal residence is in the state of (FILL IN STATE) , (ii) the undersigned is acquiring the Exchange Securities in the ordinary course of business of the undersigned, (iii) the undersigned is not participating, does not participate, and has no arrangement or understanding with any person to participate in the distribution of the Exchange Securities, (iv) the undersigned acknowledges that any person participating in the Exchange Offer for the purpose of distributing the Exchange Securities must comply with the registration and prospectus delivery requirements of 6 2 the Securities Act of 1933, as amended (the "Act"), in connection with a secondary resale transaction of the Exchange Securities acquired by such person and cannot rely on the position of the Staff of the Securities and Exchange Commission set forth in no-action letters that are discussed in the section of the Prospectus entitled "The Exchange Offer -- Resale of the Exchange Securities," and (v) the undersigned is not an "affiliate," as defined in Rule 405 under the Act, of the Company; (b) to agree, on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c) to take such other action as necessary under the Prospectus or the Letter of Transmittal to effect the valid tender of such Securities. SIGN HERE Name of beneficial owner(s): - -------------------------------------------------------------------------------- Signature(s): - -------------------------------------------------------------------------------- Name (please print): - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Telephone number: - -------------------------------------------------------------------------------- Taxpayer Identification or Social Security Number: - -------------------------------------------------------------------------------- Date: - -------------------------------------------------------------------------------- 7 -----END PRIVACY-ENHANCED MESSAGE-----