-----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, Tv2Tmgwj3S3iNInMfYFxLzLvJhT0gMyb8l0dNKui3IbUCCj26JUMVsI42EBoz+El jT+cTc8PKGvAbPwDZ34uCA== 0000835541-99-000012.txt : 19990713 0000835541-99-000012.hdr.sgml : 19990713 ACCESSION NUMBER: 0000835541-99-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990528 FILED AS OF DATE: 19990712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOLECTRON CORP CENTRAL INDEX KEY: 0000835541 STANDARD INDUSTRIAL CLASSIFICATION: PRINTED CIRCUIT BOARDS [3672] IRS NUMBER: 942447045 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11098 FILM NUMBER: 99662836 BUSINESS ADDRESS: STREET 1: 777 GIBRALTAR DR CITY: MILPITAS STATE: CA ZIP: 95035 BUSINESS PHONE: 4089578500 MAIL ADDRESS: STREET 1: 777 GIBRALTAR DR CITY: MILPITAS STATE: CA ZIP: 95035 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 28, 1999. __ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________ COMMISSION FILE NUMBER 1-11098 SOLECTRON CORPORATION (Exact Name of Registrant as specified in its Charter) Delaware 94-2447045 (State or other jurisdiction (IRS Employer of Incorporation or Organization) Identification Number) 777 Gibraltar Drive, Milpitas, California 95035 (Address of principal executive offices and Zip Code) Registrant's telephone number, including area code: (408) 957-8500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. At June 30, 1999, 253,222,130 shares of Common Stock of the Registrant were outstanding. SOLECTRON CORPORATION INDEX TO FORM 10-Q PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets at May 31, 1999 and August 31, 1998 3 Condensed Consolidated Statements of Income for the three months and nine months ended May 31, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows for the nine months ended May 31, 1999 and 1998 5 - 6 Notes to Condensed Consolidated Financial Statements 7 - 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 28 Item 3. Quantitative and Qualitative Disclosures About 28 Market Risk PART II. OTHER INFORMATION Item 1. Legal Proceedings 29 Item 2. Changes in Securities 29 Item 3. Defaults Upon Senior Securities 29 Item 4. Submission of Matters to a Vote of Security Holders 29 Item 5. Other Information 29 Item 6. Exhibits and Reports on Form 8-K 29 Signature 30 2 ITEM 1. FINANCIAL STATEMENTS SOLECTRON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In millions) (Unaudited) May 31, August 31, 1999 1998 ASSETS ----------- ----------- Current assets: Cash, cash equivalents and short-term investments $ 707.9 $ 308.8 Accounts receivable, net 903.2 670.2 Inventories 945.5 788.5 Prepaid expenses and other current assets 130.5 120.0 ---------- ---------- Total current assets 2,687.1 1,887.5 Net property and equipment 607.8 448.0 Other assets 159.6 75.0 ---------- ---------- Total assets $ 3,454.5 $ 2,410.5 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt $ 16.6 $ - Accounts payable 700.8 666.5 Accrued employee compensation 69.2 72.1 Accrued expenses 81.9 34.9 Other current liabilities 31.4 67.3 ---------- ---------- Total current liabilities 899.9 840.8 Long-term debt 917.7 385.5 Other long-term liabilities 16.0 2.9 ---------- ---------- Total liabilities 1,833.6 1,229.2 ---------- ---------- Commitments Stockholders' equity: Common stock 0.1 0.1 Additional paid-in capital 803.3 510.8 Retained earnings 882.4 677.4 Accumulated other comprehensive income - cumulative translation adjustments (64.9) (7.0) ---------- ---------- Total stockholders' equity 1,620.9 1,181.3 ---------- ---------- Total liabilities and stockholders' equity $ 3,454.5 $ 2,410.5 ========== ========== See accompanying notes to condensed consolidated financial statements. 3 SOLECTRON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In millions, except per share data) (Unaudited) Three Months Ended Nine Months Ended May 31, May 31, ------------------ ------------------ 1999 1998 1999 1998 -------- -------- -------- -------- Net sales $2,151.5 $1,278.1 $6,005.3 $3,601.8 Cost of sales 1,949.9 1,145.0 5,449.4 3,218.8 -------- -------- -------- -------- Gross profit 201.6 133.1 555.9 383.0 Operating expenses: Selling, general and administrative 79.2 55.3 219.4 155.3 Research and development 9.1 5.4 24.6 14.7 Acquisition costs - - 2.9 - -------- -------- -------- -------- Operating income 113.3 72.4 309.0 213.0 Interest income 9.1 6.5 18.6 19.6 Interest expense (11.1) (4.9) (26.0) (17.7) -------- -------- -------- -------- Income before income taxes 111.3 74.0 301.6 214.9 Income taxes 35.6 24.8 96.5 72.0 -------- -------- -------- -------- Net income $ 75.7 $ 49.2 $ 205.1 $ 142.9 ======== ======== ======== ======== Net income per share: Basic $ 0.30 $ 0.21 $ 0.85 $ 0.62 ======== ======== ======== ======== Diluted $ 0.29 $ 0.20 $ 0.80 $ 0.59 ======== ======== ======== ======== Shares used to compute net income per share: Basic 252.1 232.1 242.3 230.9 ======== ======== ======== ======== Diluted 263.2 253.7 261.2 252.9 ======== ======== ======== ======== See accompanying notes to condensed consolidated financial statements. 4 SOLECTRON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) (Unaudited) Nine Months Ended May 31, ----------------------- 1999 1998 ---------- ---------- Cash flows from operating activities: Net income $ 205.1 $ 142.9 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 126.9 90.6 Non-cash interest 10.2 - Tax benefit associated with the exercise of stock options 18.9 2.7 Other (15.8) 19.6 Changes in operating assets and liabilities: Accounts receivable (244.7) (144.0) Inventories (139.4) (159.8) Prepaid expenses and other current assets (11.7) (19.4) Accounts payable 40.6 152.8 Accrued expenses and other current liabilities 10.8 5.2 ---------- --------- Net cash provided by operating activities 0.9 90.6 ---------- --------- Cash flows from investing activities: Sales and maturities of short-term investments 133.2 256.3 Purchases of short-term investments (367.1) (164.9) Acquisitions of manufacturing locations (108.4) (79.4) Capital expenditures (308.0) (186.9) Proceeds from sale of property and equipment 15.5 25.5 Other (12.9) (2.1) ---------- --------- Net cash used in investing activities (647.7) (151.5) ---------- --------- (continued on next page) 5 SOLECTRON CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (In millions) (Unaudited) Nine Months Ended May 31, ------------------------ 1999 1998 ---------- ---------- Cash flows from financing activities: Net proceeds from short-term debt 16.6 - Net proceeds from long-term debt 732.1 - Repayments of long-term debt (0.7) (1.6) Net proceeds from sale of common stock 48.2 22.2 Other 15.7 (0.1) ---------- ---------- Net cash provided by financing activities 811.9 20.5 ---------- ---------- Effect of exchange rate changes on cash and cash equivalents 0.1 1.0 ---------- --------- Net increase (decrease) in cash and cash equivalents 165.2 (39.4) Cash and cash equivalents at beginning of period 225.2 225.1 ---------- ---------- Cash and cash equivalents at end of period $ 390.4 $ 185.7 ========== ========== SUPPLEMENTAL DISCLOSURES Cash paid during the period: Income taxes $ 71.9 $ 55.5 Interest $ 26.0 $ 12.5 Non-cash investing and financing activities: Issuance of common stock upon conversion of long-term debt $ 230.0 $ - See accompanying notes to condensed consolidated financial statements. 6 SOLECTRON CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - Basis of Presentation The accompanying unaudited condensed consolidated balance sheet as of May 31, 1999 and August 31, 1998, and the related unaudited condensed consolidated statements of income for the three- and nine-month periods ended May 31, 1999 and 1998, and the unaudited condensed consolidated statements of cash flows for the nine months ended May 31, 1999 and 1998 have been prepared on substantially the same basis as the annual consolidated financial statements. Management believes the financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company's financial position, operating results and cash flows for the periods presented. The results of operations for the three- and nine-month periods ended May 31, 1999 are not necessarily indicative of results to be expected for the entire year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended August 31, 1998 included in the Company's Annual Report on the Form 10-K. For clarity of presentation, the Company has indicated its third fiscal quarters as ending on May 31, and its fiscal year as ending on August 31, whereas in fact, the Company's third quarter of fiscal 1999 ended on May 28, 1999, its third quarter of fiscal 1998 ended on May 29, 1998 and its 1998 fiscal year ended on August 28, 1998. NOTE 2 - Inventories Inventories consisted of (in millions): May 31, August 31, 1999 1998 ----------- ----------- Raw materials $ 682.0 $ 577.8 Work-in-process 188.5 167.8 Finished goods 75.0 42.9 ----------- ----------- Total $ 945.5 $ 788.5 =========== =========== NOTE 3 - Net Income Per Share Basic net income per share is calculated using the weighted average number of common shares outstanding during the period. Diluted net income per share is calculated using the weighted average number of common shares plus dilutive potential common shares outstanding during the period. Potential common shares consist of stock options that are computed using the treasury stock method and shares issuable upon conversion of the Company's outstanding convertible subordinated notes. Approximately 12.4 million shares issuable upon conversion of the Company's convertible senior notes were not included in the calculation because the effect would have been antidilutive. Share and per-share data presented reflect the two-for-one stock split effective February 24, 1999. The following table sets forth the computation of basic and diluted net income per share for the three- and nine-month periods ended May 31, 1999 and 1998. 7 Three Months Ended Nine Months Ended May 31, May 31, ------------------ ------------------ 1999 1998 1999 1998 ------- ------- ------- ------- (in millions, except per share data) Net income - basic $ 75.7 $ 49.2 $ 205.1 $ 142.9 Interest expense from convertible subordinated notes, net of taxes - 2.4 5.0 7.2 ------- ------- ------- ------- Net income - diluted $ 75.7 $ 51.6 $ 210.1 $ 150.1 ======= ======= ======= ======= Weighted average shares - basic 252.1 232.1 242.3 230.9 Common shares issuable upon stock options exercised 10.6 8.0 9.6 8.4 Common shares issuable upon assumed conversion of convertible subordinated notes 0.5 13.6 9.3 13.6 ------- ------- ------- ------- Weighted average shares - diluted 263.2 253.7 261.2 252.9 ======= ======= ======= ======= Net income per share - basic $ 0.30 $ 0.21 $ 0.85 $ 0.62 ======= ======= ======= ======= Net income per share - diluted $ 0.29 $ 0.20 $ 0.80 $ 0.59 ======= ======= ======= ======= For the three- and nine-month periods ended May 31, 1999, options to purchase 310,000 and 1.7 million shares, respectively, of common stock with exercise prices greater than the average fair market value of the Company's stock for the period of $50.08 and $39.38, respectively, were not included in the calculation because the effect would have been antidilutive. For the three- and nine-month periods ended May 31, 1998, options to purchase 3.4 million shares of common stock with exercise prices greater than the average fair market value of the Company's stock for the period of $21.26 and $20.70, respectively, were not included in the calculation because the effect would have been antidilutive. NOTE 4 - Comprehensive income Effective in the first quarter of fiscal 1999, the Company adopted Statement of Financial Accounting Standards No. 130 (SFAS No. 130), "Reporting Comprehensive Income," which requires the Company to report and display certain information related to comprehensive income. Comprehensive income includes net income and other comprehensive income. Other comprehensive income is classified separately into foreign currency items, minimum pension liability adjustments, and unrealized gains and losses on certain investments in debt and equity securities. Solectron's other comprehensive income is comprised solely of foreign currency translation adjustments. The components of comprehensive income were as follows: 8 Three Months Ended Nine Months Ended May 31, May 31, ------------------ ------------------ 1999 1998 1999 1998 ------- ------- ------- ------- (in millions) Net income $ 75.7 $ 49.2 $ 205.1 $ 142.9 Other comprehensive income (loss) foreign currency translation adjustments 12.8 0.8 (57.9) 1.8 ------- ------- ------- ------- Comprehensive income $ 88.5 $ 50.0 $ 147.2 $ 144.7 ======= ======= ======= ======= For the nine-month period of fiscal 1999, the loss in foreign currency translation resulted primarily from the recent devaluation of the Brazilian Real. In addition, the foreign currency translation adjustments are not currently adjusted for income taxes since they relate to investments which are permanent in nature. NOTE 5 - Asset Securitization The Company has an asset securitization arrangement with a bank group under which it may sell up to $220 million of eligible accounts receivable without recourse. The arrangement expires in August 1999 and is subject to certain financial covenants and management representations. NOTE 6 - Commitments The Company leases various facilities under operating lease agreements. The facility leases expire at various dates through 2006. All such leases require the Company to pay property taxes, insurance and normal maintenance costs. Payments of some leases are periodically adjusted based on LIBOR rates. Certain leases for Solectron's facilities including Milpitas and San Jose, California; Everett, Washington; Suwanee, Georgia; and Columbia, South Carolina, provide the Company with an option at the end of the lease term of either acquiring the property at its original cost or arranging for the property to be acquired. For these leases, the Company is contingently liable under a first loss clause for a decline in market value of such leased facilities up to 85% of the original costs, or $145 million in total, in the event the Company does not purchase the properties at the end of the respective lease terms. The Company must also maintain compliance with financial covenants similar to its credit facilities. In fiscal 1998, Solectron entered into notional lease arrangements with a third-party leasing company under which the Company sold fixed assets with a carrying value of $31.3 million and leased them back from the leasing company. The Company is accounting for these leases as operating leases. Future minimum payments related to lease obligations are $39.5 million, $29.8 million, $20.9 million, $65.1 million and $44.9 million in each of the years in the five-year period ending August 31, 2003 and an aggregate $2.6 million for periods after that date. 9 NOTE 7 - Convertible Debt In January 1999, Solectron issued 1,656,000 zero-coupon convertible senior notes to qualified institutional investors in a private placement at an issue price of $452.89 per note which resulted in gross proceeds to the Company of approximately $750 million. These notes are unsecured and unsubordinated indebtedness of the Company with a maturity value aggregating $1.656 billion. There will be no interest payment by the Company prior to maturity. Each note has a yield of 4% with a maturity value of $1,000 on January 27, 2019. The Company is amortizing the issue discount using the effective interest method over the term of the notes. Each note is convertible at any time by the holder at a conversion rate of 7.472 shares per note, adjusted for the two-for-one stock split effective February 24, 1999. Holders may require the Company to purchase all or a portion of their notes on January 27, 2002 and January 27, 2009, at a price of $510.03 and $672.97 per note, respectively. Also, each holder may require the Company to repurchase all or a portion of such holder's notes upon a change in control of the Company occurring on or before January 27, 2002. The Company, at its option, may redeem all or a portion of the notes at any time on or after January 27, 2003. In addition, the Company filed with the Securities Exchange Commission a registration statement for resales of the notes and the common stock issuable upon conversion. Such registration statement was declared effective in June 1999. In February 1996, the Company issued convertible subordinated notes for an aggregate principal amount of $230 million. The notes were in denominations of and had a maturity value of $1,000 each, payable on March 1, 2006. Interest was payable semi-annually at 6%. Each note was convertible at any time by the holder into shares of common stock at a conversion price of $16.90 per share as adjusted for the two-for-one stock split effective February 24, 1999. The notes were redeemable at the option of the Company beginning on March 3, 1999. During February and March 1999, all of the convertible subordinated notes were voluntarily converted into 13,609,428 shares of common stock. NOTE 8 - Pending Acquisitions of Manufacturing Assets On April 13, 1999, Solectron announced that it had signed a letter of intent to acquire the manufacturing assets of Trimble Navigation Limited ("Trimble")in Sunnyvale, California and to assume full manufacturing responsibility for all of Trimble's global positioning system (GPS) and related radio frequency (RF)technology products. Trimble is a world leader in RF products enabled by GPS technology. It is expected that the acquisition will enhance Solectron's reach into the rapidly growing GPS market and significantly expand the Company's global RF design and manufacturing expertise. As part of the proposed agreement, Solectron intends to provide Trimble a full range of integrated services across the entire product life cycle including design consultation, prototyping, New Product Introduction management and volume printed circuit board and systems assembly for the next three years. The Company intends to offer employment to approximately 250 manufacturing, engineering and related support associates currently working at the Trimble facility in Sunnyvale. On April 21, 1999, Solectron announced a plan to acquire the RF design and manufacturing assets of Glenayre Technologies, Inc. ("Glenayre") in Quincy, Illinois, and to assume full manufacturing responsibility for all of Glenayre's one- and two-way paging infrastructure equipment. Glenayre is the world leader in paging and wireless data technologies. Solectron anticipates that the acquisition will enable the Company to 10 strengthen its rapidly growing RF design and manufacturing services portfolio, and expand its presence in the Midwest. Under the proposed multi-year agreement, Solectron will provide Glenayre a full range of integrated services across the entire product life cycle including design, prototyping, New Product Introduction management, volume printed circuit board and systems assembly, repair and end-of-product life support. The Company intends to offer employment to approximately 350 RF manufacturing, engineering and related support associates currently working at the Glenayre facility in Quincy. On May 20, 1999, Solectron announced the signing of a letter of intent to acquire all of the outstanding capital stock of Sequel, Inc. ("Sequel"). Sequel is a privately held corporation specializing in notebook computer and liquid crystal display repair service and support. The Company will assume responsibility for Sequel's business operations in San Jose, California; Memphis, Tennessee; and Reading, United Kingdom. Solectron will also assume Sequel's ownership in joint venture operations in Japan and Taiwan. The acquisition is expected to enable Solectron to expand its global support services capabilities by adding quick-turn service operations, customer service centers, and help-desk support for the end users of Solectron-built products. The Company intends to offer employment to approximately 550 manufacturing, engineering, customer service and related support associates. All three pending acquisitions are expected to be completed in the fourth fiscal quarter of 1999. Completion of the transactions is subject to applicable government approvals and various conditions of closing. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements contained in the following Management's Discussion and Analysis of Financial Condition and Results of Operations, including, without limitation, statements containing the words "believes," "anticipates," "estimates," "expects," and words of similar import, constitute forward-looking statements which involve risks and uncertainties. Solectron's actual results could differ materially from those anticipated in these forward looking statements as a result of certain factors, including those factors set forth under "Trends and Uncertainties" below. General Solectron provides electronics manufacturing services to original equipment manufacturers who design and sell networking equipment, workstations, personal and notebook computers, computer peripherals, telecommunications equipment or other electronic equipment, including Hewlett-Packard Company, Cisco Systems, Inc., International Business Machines Corporation, and Sun Microsystems, Inc. These companies contract with Solectron to build their products for them. Our range of services includes: - - product design, - - materials purchasing and management, - - prototyping, - - printed circuit board assembly (the process of placing components on an electrical printed circuit board that controls the processing functions of a personal computer or other electronic equipment), - - system assembly (for example, building a complete system such as mobile telephone and testing it to ensure functionality), - - distribution, - - product repair, and - - warranty services. Our performance of these services allows our customers to remain competitive by focusing on their core competencies of sales, marketing and research and development. Solectron has manufacturing sites in North and South America, Europe and Asia, giving our customers access to manufacturing services in the regions where they sell product. Our subsidiaries, Force Computers and Fine Pitch Technologies, are both headquartered in San Jose, California. Force's European headquarters and a significant portion of its operations are located in Munich, Germany. In addition to its headquarters' locations, Force has sales support offices in various locations in the United States and internationally. A discussion of some of the potential fluctuations in operating results is included under "Trends and Uncertainties." During 1997, Solectron established a strategic, global manufacturing partnership with Ericsson Telecom AB's Business Area Infocom Systems (Ericsson). We set up a New Product Introduction center in Sweden, and production from certain Ericsson plants worldwide was transferred to our manufacturing sites around the world. In October 1997, we acquired certain assets, primarily equipment and inventory, of Ericsson's printed circuit board assembly operation located in Sao Paulo, Brazil. In addition, our subsidiary, Solectron Brasil Ltda., hired approximately 370 associates formerly employed by Ericsson Telecomunicacoes S.A. in Brazil. 12 In April 1998, we acquired NCR Corporation's (NCR) manufacturing assets in three cities for a purchase price of approximately $91 million. The acquisition was accounted for as a purchase of assets and the purchase price was allocated to the assets acquired based on the relative fair values of the assets at the date of acquisition. Under the terms of the agreement, NCR will outsource the manufacturing of certain computer components to Solectron for at least five years. We also hired approximately 1,200 NCR manufacturing and related support associates. In June 1998, we acquired International Business Machines Corporation's (IBM) Electronic Card Assembly and Test (ECAT) manufacturing assets in Charlotte, North Carolina and non-exclusive rights to certain IBM intellectual property for a purchase price of approximately $96 million. The acquisition was accounted for as a purchase of assets and the purchase price was allocated to the assets acquired, including the intellectual property rights, based on their relative fair values at the date of acquisition. Under the terms of the agreement, we hired approximately 700 IBM manufacturing and related support associates and we will provide printed circuit board assembly services to IBM in North America for the next three years. In addition, IBM has made available to Solectron 115 patents and 51 disclosures (collectively the intellectual property rights) covering a wide spectrum of technologies and capabilities. IBM will also provide to Solectron failure analysis and characterization tools for process development and manufacturing, including fault detection and isolation. In October 1998, we acquired the wireless telephone manufacturing assets of Mitsubishi Consumer Electronics America, Inc.'s (MCEA) Cellular Mobile Telephone (CMT) division in Braselton, Georgia. MCEA is a subsidiary of Mitsubishi Electric Corporation (Mitsubishi). The acquisition was accounted for as a purchase of assets and the purchase price of approximately $25 million was allocated to the acquired assets based on their relative fair values at the date of acquisition. Under the terms of the agreement, we will provide MCEA-CMT with a full range of manufacturing services for five years, including New Product Introduction management, printed circuit board assembly and full systems assembly for MCEA's branded and private-label cellular products sold within North America. In addition, we hired approximately 400 MCEA-CMT manufacturing and support associates. Also in October 1998, we signed a definitive agreement with Ingram Micro Inc. under which the two companies entered into a strategic alliance to provide global build-to-order and configure-to-order assembly services for personal computers, servers and related products in the United States, Canada, Europe, Asia and Latin America. The alliance is managed by both companies under a joint management matrix that includes a sales and marketing staff, program management, materials management, information technology resources and test and process engineers and, in most part, utilizes existing facilities, systems and personnel. Shipments to customers under the arrangement started in April 1999. On February 1, 1999, we acquired IBM's Electronic Card Assembly and Test (ECAT) manufacturing assets in Austin, Texas and non-exclusive rights to certain IBM intellectual property for a purchase price of approximately $83 million. The transaction was accounted for as a purchase of assets, and the purchase price was allocated to the assets acquired based on the relative fair values of the assets at the date of acquisition. Under the terms of the agreement, we will provide printed circuit board (PCB) assembly for motherboards used in IBM's mobile products manufactured worldwide for the next three years. This includes physical design, early prototyping, new product launch, PCB assembly and test, volume 13 production, end-of-life support, field return services and life-cycle management. We will also provide IBM's worldwide design teams a full range of integrated New Product Introduction (NPI) services which involve pre-manufacturing support, such as design and layout, component and concurrent engineering, test development, prototype, procurement and assembly. In addition, we hired approximately 1,300 IBM design, test, and manufacturing associates. On April 13, 1999, we announced that we had signed a letter of intent to acquire Trimble's manufacturing assets in Sunnyvale, California and to assume full manufacturing responsibility for all of Trimble's global positioning system (GPS) and related radio frequency (RF) technology products. Trimble is a world leader in RF products enabled by GPS technology. It is expected that the acquisition will enhance Solectron's reach into the rapidly growing GPS market and significantly expand the Company's global RF design and manufacturing expertise. As part of the proposed agreement, we intend to provide Trimble a full range of integrated services across the entire product life cycle including design consultation, prototyping, New Product Introduction management and volume printed circuit board and systems assembly for the next three years. We intend to offer employment to approximately 250 manufacturing, engineering and related support associates currently working at the Trimble facility in Sunnyvale. Completion of the transaction is expected in the fourth quarter of fiscal 1999, subject to applicable government approvals and various conditions of closing. On April 21, 1999, we announced a plan to acquire Glenayre's RF design and manufacturing assets in Quincy, Illinois, and to assume full manufacturing responsibility for all of Glenayre's one- and two-way paging infrastructure equipment. Glenayre is the world leader in paging and wireless data technologies. The acquisition is expected to enable us to strengthen the rapidly growing RF design and manufacturing services portfolio, and expand our presence in the Midwest. Under the proposed multi-year agreement, we will provide Glenayre a full range of integrated services across the entire product life cycle including design, prototyping, New Product Introduction management, volume printed circuit board and systems assembly, repair and end-of-product life support. We intend to offer employment to approximately 350 RF manufacturing, engineering and related support associates currently working at the Glenayre facility in Quincy. Completion of the transaction is expected in the fourth quarter of fiscal 1999, subject to applicable government approvals and various conditions of closing. On May 20, 1999, we announced the signing a letter of intent to acquire all of the outstanding capital stock of Sequel. Sequel is a privately held corporation specializing in notebook computer and liquid crystal display repair service and support. We will assume responsibility for Sequel's business operations in San Jose, California; Memphis, Tennessee; and Reading, United Kingdom. We will also assume Sequel's ownership in joint venture operations in Japan and Taiwan. The acquisition is expected to enable us to expand our global support services capabilities by adding quick-turn service operations, customer service centers, and help-desk support for the end users of Solectron-built products. We intend to offer employment to approximately 550 manufacturing, engineering, customer service and related support associates. Completion of the transaction is expected in the fourth quarter of fiscal 1999, subject to applicable government approvals and various conditions of closing. 14 Results of Operations The electronics industry is subject to rapid technological change, product obsolescence and price competition. These and other factors affecting the electronics industry, or any of Solectron's major customers in particular, could have an adverse material effect on Solectron's results of operations. See "Trends and Uncertainties" for further discussion of potential fluctuations in operating results. The following table sets forth, for the periods indicated, certain items in the Condensed Consolidated Statements of Income as a percentage of net sales. The financial information and the discussion below should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto. Three Months Ended Nine Months Ended May 31, May 31, ------------------ ----------------- 1999 1998 1999 1998 ------- ------- ------- ------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 90.6 89.6 90.7 89.4 ------- ------- ------- ------- Gross profit 9.4 10.4 9.3 10.6 Operating expenses: Selling, general and administrative 3.7 4.3 3.7 4.3 Research and development 0.4 0.4 0.4 0.4 Acquisition costs - - 0.1 - ------- ------- ------- ------- Operating income 5.3 5.7 5.1 5.9 Net interest income (expense) (0.1) 0.1 (0.1) 0.1 ------- ------- ------- ------- Income before income taxes 5.2 5.8 5.0 6.0 Income taxes 1.7 1.9 1.6 2.0 ------- ------- ------- ------- Net income 3.5% 3.9% 3.4% 4.0% ======= ======= ======= ======= Net Sales Net sales of $2.2 billion increased 68.3% for the third quarter of fiscal 1999, compared to the third quarter of 1998. Net sales of $6.0 billion increased 66.7% for the first nine months of fiscal 1999, compared to the first nine months in fiscal 1998. The sales growth was principally due to significant increases in sales volume from both existing and new customers worldwide, as well as from the acquisitions of Ericsson, NCR, and IBM ECAT in Charlotte, North Carolina during fiscal 1998 and Mitsubishi in first quarter of fiscal 1999. In addition, sales from the acquisition of IBM ECAT in Austin, Texas on February 1, 1999 were recognized beginning in the third quarter of fiscal 1999 because our Texas site reports its results consistently one month in arrears. Within the Americas, the acquired sites from NCR, IBM ECAT in Charlotte, IBM ECAT in Texas and the new site in Mexico were the largest contributors to the strong growth in the fiscal 1999 periods as compared to the fiscal 1998 periods. The Milpitas, California site also 15 experienced sales growth despite the planned transfer of personal computer printed circuit board programs and computer peripherals systems assembly programs to Mexico and networking business to Penang, which represent management's efforts to improve global load balancing through specific product program transitioning. Net sales in our European and Asian operations increased in the fiscal 1999 periods over the same periods of fiscal 1998 primarily as a result of core business growth and new accounts. The sales growth at the Penang site was principally due to increased demand from personal computer customers and networking business transferred in from California. For the first nine months of fiscal 1999, the sales in European operations also grew due to increased demand from our telecommunications customers. Although we do not presently anticipate any future decline in sales, to lessen the potential impact of any possible future declines related to customers within any particular region or market segment, we are committed to seeking diversification of our customer base among many countries, market segments and product lines within market segments. Several of our customers accounted for more than 10% of our net sales in the three- and nine-month periods of fiscal 1999 and 1998. The following table details these customers and the percentage of net sales attributed to them. Three Months Ended Nine Months Ended May 31, May 31, ------------------ ----------------- 1999 1998 1999 1998 -------- ------- ------- ------- Cisco Systems, Inc. 12.1% 12.8% 10.8% 11.2% International Business Machines Corporation (IBM) 10.7% * * * Hewlett-Packard Company (HP) 10.4% 13.8% 11.4% 14.3% Sun Microsystems, Inc. * 11.0% * 11.1% - ------------- *Less than 10% No other customer accounted for more than 10% of net sales during any of the periods presented. In the first nine months of fiscal 1999, our top ten customers accounted up to 73.8% of consolidated net sales. For the same period of fiscal 1998, our top ten customers accounted for 66.8% of consolidated net sales. We are dependent upon continued revenues from Cisco, HP and IBM, and the rest of our top ten customers. There can be no guarantee that these or any other customers will not increase or decrease as a percentage of consolidated net sales either individually or as a group. Consequently, any material decrease in sales to these or other customers could have an adverse material effect on Solectron's results of operations. In the first nine months of fiscal 1999, international locations contributed 36.8% of consolidated net sales compared to 34.1% in the same period of fiscal 1998. In addition to the sales growth factors for Europe and Asia noted above, the Company's international sales also benefited from the Mexico and Brazil sites added during the first quarter of fiscal 1998 and the Ireland site acquired from NCR in April 1998. As a result of Solectron's international sales and facilities, our operations are subject to risks of doing business abroad. While to 16 date these dynamics have not had an adverse material effect on our results of operations, there can be no assurance that there will not be such an impact in the future. See "Trends and Uncertainties" for a further discussion of potential fluctuations in operating results associated with the risks of doing business abroad. Our operations in Milpitas, California contributed a substantial portion of Solectron's net sales and operating income during the first nine months of fiscal 1999 and fiscal 1998. Although management has been undertaking deliberate actions to achieve improved global load balancing by transferring certain projects from the Milpitas site to other sites worldwide, the performance of the Milpitas operation is expected to continue as a significant factor in the overall financial performance of Solectron. Any adverse material change to the customer base, product mix, efficiency, or other attributes of this site could have an adverse material effect on our consolidated results of operations. We believe that our ability to continue to achieve growth will depend upon growth in sales to existing customers for their current and future product generations, successful marketing to new customers and future geographic expansion. Customer contracts can be canceled and volume levels can be changed or delayed. The timely replacement of delayed, canceled or reduced orders with new business cannot be assured. In addition, there can be no assurance that any of our current customers will continue to utilize our services. Because of these factors, there can be no assurance that our historical revenue growth rate will continue. See "Trends and Uncertainties" for a discussion of certain factors affecting the management of growth, geographic expansion and potential fluctuations in sales and results of operations. Gross Profit The gross margin percentage decreased to 9.3% for the first nine months of fiscal 1999 period from 10.6% for the corresponding period of fiscal 1998. The decline was primarily attributable to a shift toward higher volume projects and systems build projects which typically generate lower profit margins. As an example, gross margins of the acquired NCR operations are lower than the overall average margins of the rest of the Solectron's operations principally due to the fact that the majority of its net sales are derived from systems integration activities, which normally yield lower gross margins than printed circuit board assembly. For the foreseeable future, our gross margin is expected to depend primarily on product mix, production efficiencies, utilization of manufacturing capacity, start-up and integration costs of new and acquired businesses, the percentage of sales derived from systems build projects, pricing within the electronics industry and the cost structure at individual sites. Over time, gross margins at the individual sites and for Solectron as a whole may continue to fluctuate. We anticipate that a larger portion of our sales may be derived from systems build projects in future periods. Systems build projects typically have lower gross margin percentages than printed circuit board assembly projects. Increases in systems build business, additional costs associated with new projects and price erosion within the electronics industry could adversely affect our gross margin. Additionally, changes in product mix could cause our gross margin to fluctuate. Also, while the availability of raw materials appears adequate to meet our current revenue projections for the foreseeable future, component availability is still subject to lead time and other constraints that could possibly limit Solectron's revenue growth. Because of these factors and others 17 discussed under "Trends and Uncertainties" below, there can be no assurance that our gross margin will not fluctuate or decrease in future periods. Selling, General and Administrative Expenses In absolute dollars, selling, general and administrative (SG&A) expenses increased 43.2% for the third quarter and 41.3% for the first nine months of fiscal 1999 over the same periods of fiscal 1998. For the third quarter of fiscal 1999, the increase principally reflects expenses associated with sales growth. The increase for the first nine months of fiscal 1999 resulted from investment in infrastructure such as personnel and related departmental expenses at all manufacturing locations as well as continuing investment in information systems to support the increased size and complexity of our business. As a percentage of net sales, SG&A expenses were 3.7% in each of the fiscal 1999 periods and 4.3% for both the comparable fiscal 1998 periods. The primary reason for the fiscal 1999 decrease in SG&A expenses as a percentage of net sales is the significant increase in the sales base offset partially by the costs associated with investments in starting up new sites and investments in our information systems. We expect SG&A expenses will continue to increase in terms of absolute dollars in the future, and may possibly increase as a percentage of net sales, as we continue to build the infrastructure necessary to support our current and prospective business. Research and Development Expenses With the exception of Force Computers operation, the research and development (R&D) activities have been focused primarily on the development of prototype and engineering design capabilities, fine pitch interconnecting technologies (which include ball-grid array, tape-automated bonding, multichip modules, chip-on-flex, chip-on-board and flip chip), high reliability environmental stress test technology and the implementation of environmentally friendly assembly processes, such as VOC-free and no-clean. Force's R&D efforts are concentrated on new product development and improvement of product designs through improvements in functionality and the use of microprocessors in embedded applications. Research and development expenses, as a percentage of net sales, were 0.4% in each of the fiscal 1999 and fiscal 1998 periods. In absolute dollars, R&D expenses increased 68.5% for the third quarter and 67.3% for the first nine months of fiscal 1999 over the corresponding periods in fiscal 1998. The increases were primarily due to increased R&D expenditures at Force. We anticipate that R&D expenses will increase in absolute dollars in the future and may possibly increase as a percentage of net sales as we continues to invest in R&D efforts. Acquisition Costs A one-time charge for acquisition costs of approximately $2.9 million related to personnel benefit expenses was incurred as a result of the acquisition of IBM ECAT operations in Austin, Texas on February 1, 1999. Net Interest Income (Expense) Net interest expense was $2.0 million for the third quarter and $7.4 million for first nine months of fiscal 1999, compared to net interest income of $1.6 million for the third quarter of fiscal 1998 and $1.9 million for the first nine months of fiscal 1998. In the third quarter of fiscal 1999, the interest expense consisted of $7.7 million for the 4% yield zero-coupon convertible senior notes issued in January 1999, 18 $2.8 million for the 7 3/8% senior notes, and substantially no interest expense from the 6% convertible subordinated notes for which to a large extent were converted to common stock in early March of 1999. The net interest expense in fiscal 1999 periods reflects the interest expense associated with our long-term debt offset by interest income earned on undeployed cash and investments and the capitalization of interest expense. In the first nine months of fiscal 1999, we capitalized $2.7 million of interest expense related to the costs of computer software developed for internal use and the facility construction projects at the Brazil, China and Mexico sites. We expect to utilize more of the undeployed cash during future periods in order to fund anticipated future growth. See "Trends and Uncertainties" for factors related to management growth and potential fluctuations in operating results." Income Taxes Income taxes increased to $96.5 million in the first nine months of fiscal 1999 from $72.0 million in the fiscal 1998 period primarily due to increased income before income taxes. For the first nine months of fiscal 1999, our effective income tax rate was 32.0% compared to 33.5% for the corresponding period in fiscal 1998. While our effective tax rate is substantially affected by the proportion of income before taxes derived from domestic and international operations, the tax rate reduction in fiscal 1999 resulted from increased income before taxes from the foreign operations which have been taxed at a lower rate than in the United States. This is primarily due to the tax holiday granted to our Malaysia sites. The Malaysian tax holiday is effective through January 31, 2002, subject to certain conditions. We have also been granted various tax holidays in China, which are effective for various terms and are subject to certain conditions. Liquidity and Capital Resources Working capital was $1.8 billion at May 31, 1999 compared to $1.0 billion at the end of fiscal 1998. During the same period, cash, cash equivalents and short-term investments increased to $707.9 million from $308.8 million. The increase was primarily due to proceeds from the completion of the private placement of the 4% yield zero-coupon convertible senior notes, offset by required investments in working capital and capital expenditures to support sales growth and acquisitions of manufacturing locations. The notes have a maturity date in January 2019, and no interest payment will be made during the term. We used approximately $25 million for the purchase of manufacturing assets of MCEA's CMT division in the first quarter of fiscal 1999 and approximately $83 million for the acquisition of manufacturing assets and rights to certain intellectual property from IBM ECAT in Austin, Texas during the second quarter of fiscal 1999. As we continue to grow, it is expected that we will require greater amounts of working capital to support our operations. We believe that our current level of working capital and available credit facilities will provide adequate working capital for the foreseeable future. However, we may need to raise additional funds to finance more rapid expansion, including establishing new locations or financing additional acquisitions. There can be no assurance that such funds, if needed, will be available on terms acceptable to us. Inventory levels fluctuate directly with our volume of manufacturing. Changes or significant fluctuations in product market demands can cause fluctuations in inventory levels which may result in changes in levels of inventory turns and liquidity. Historically, we have been able to manage our inventory levels with regard to these fluctuations. However, 19 should material fluctuations occur in product demand, we could experience slower turns and reduced liquidity. In the first nine months of fiscal 1999, we invested approximately $308 million in capital expenditures. A large portion of these expenditures related to the purchase of new equipment, primarily surface mount assembly and test equipment, to meet current and expected production levels, as well as to replace or upgrade older equipment which was retired or sold. Significant expenditures were also made for the acquisition of land and buildings for our manufacturing sites, principally in Brazil and Mexico. We expect total capital expenditures in fiscal 1999 to be in the range of $350 million to $375 million. In addition to working capital as of May 31, 1999, which includes cash and cash equivalents of $390.4 million and short-term investments of $317.5 million, we have available a $100 million unsecured multicurrency revolving credit facility and a $220 million asset securitization arrangement. Both of these facilities are subject to financial covenants. We also had approximately $93 million in unused foreign credit facilities available at the end of the quarter. In addition, we filed with the Securities Exchange Commission a $1.0 billion shelf registration statement for common stock, preferred stock, or debt securities over the next two years. Such registration statement was declared effective in June 1999. "Year 2000" Issues Solectron is aware of and is addressing the issues associated with the programming code in existing computer systems as the year 2000 approaches. The Year 2000 problem is pervasive and complex, as many computer systems, manufacturing equipment and industrial control systems will be affected in some way by the rollover of the two-digit year value to 00. Systems that do not properly recognize such dates could generate erroneous information or cause a system to fail. The Year 2000 issue creates risk for us from unforeseen problems in our systems and from third parties with whom we deal on business transactions worldwide. Failures of Solectron's and/or third parties' computer systems, manufacturing equipment and industrial control systems would have an adverse material impact on our ability to conduct the business. We have formed a worldwide task force and have implemented a comprehensive program to analyze the internal systems as well as all external systems (such as vendor, customer, banking systems, etc.) upon which we are dependent, to identify and evaluate any potential Year 2000 issues. This task force meets regularly and tracks progress against the program, modifying it as needed to help ensure timely completion. We are committed to achieving Year 2000 compliance; however, because a significant portion of the problem is external to us and therefore outside of our direct control, we can offer no assurance that we will be fully Year 2000 compliant at the critical juncture. In addition, as full testing of Year 2000 functionality must occur in a simulated environment, we will not be able to test full system Year 2000 interfaces and capabilities prior to the Year 2000. As of May 31, 1999, we had completed an inventory, assessment, remediation, and testing of internal systems, hardware, software, manufacturing equipment and embedded chips in industrial control instruments. While we believe that our testing and evaluation have been entirely comprehensive, there can be no complete assurance that all systems critical to Year 2000 compliance have been identified, or that the corrective actions identified will be completely successful. 20 As of May 31, 1999, we had inventoried every key supplier of goods and services to us, and considered the potential impact on us and our customers of Year 2000 compliance by these suppliers. Also, we had evaluated the key suppliers' responses to our mailing surveys and are in the process of auditing these suppliers. We plan to disqualify potentially non-compliant sources, look for alternative sources and re-qualify new suppliers to help mediate potential business disruptions. We are also involved with various geographic Year 2000 consortiums worldwide, with the intent to leverage contacts and information for commonly used suppliers and services such as utility companies. We were instrumental in founding the High Tech Consortium (HTC) which, through collaborative efforts, has the goal of ensuring that member companies will be ready. The HTC will help address the risk associated with the inter-connected supply chain. Detailed supplier audits by the HTC's independent consultants started in late March. In addition, we are nearly completed with the reviewing of EDI linkages and data transmission for our customers and suppliers. While we believe that we will be able to qualify alternative suppliers as needed, until all supplier and customer survey responses have been received and evaluated, we can not fully evaluate the extent of potential problems and the costs associated with corrective actions. We still estimate the cost to complete the current compliance program to be in the range of $28 million to $42 million. Of this amount, approximately $8 million is associated with the replacement of capital equipment, of which approximately half is being purchased to replace non-compliant systems that would not otherwise have been replaced at this time. The variability in these estimates depends largely on the response from our suppliers and the extent to which supplier re-qualification is needed. Cost estimates will also be re-evaluated as the status of the overall compliance program is updated. There can be no assurance that actual costs will not be materially higher than currently anticipated. A significant portion of these costs is not likely to be incremental to us, but rather will represent the redeployment of existing information technology resources. Certain other information technology projects have been delayed due to the focus on Year 2000 issues. The potential costs of the redeployment of personnel and delays in implementing other projects is not known but could be substantial. The total amount spent on the compliance program this fiscal year through May 31, 1999 was $21 million, of which $13 million pertained to payroll costs for personnel involved in the program and costs of outside consultants, and $8 million principally pertained to the replacement of capital equipment. Prior to fiscal 1999, costs of software and hardware applications incurred for Year 2000 compliance were not material and related payroll costs for the information systems group were not tracked separately. Although we have developed initial contingency plans, such as the replacement and re-qualification of suppliers, the stockpiling of supplies and purchase of generators, a final contingency plan will not be established until the end of August, 1999 when the audit of suppliers is expected to be completed. We are unable to determine the extent of effect on us, our supplier, or our customers due to the failure of systems caused by the Year 2000 issues, but any significant failures could have an adverse material effect on our results of operations and financial condition. 21 Trends and Uncertainties A Majority of Our Sales Comes from a Small Number of Customers; If We Lose Any of These Customers, Our Sales Could Decline Significantly. The majority of our annual sales come from a small number of our customers. Our 10 largest customers accounted for 68.7% of net sales in fiscal 1998, 65.5% of net sales in fiscal 1997 and 64.0% of net sales in fiscal 1996. In the first nine months of fiscal 1999, the Company's ten largest customers accounted for 73.8% of consolidated net sales. Since we are dependent upon continued revenue from our 10 largest customers, any material delay, cancellation or reduction of orders from these or other major customers could cause our sales to decline significantly. Some of these customers individually account for more than 10% of our annual net sales. Hewlett-Packard Company has historically been one of our largest customers and sales to that corporation were 13.9% of net sales in fiscal 1998, 13.5% of net sales in fiscal 1997 and 10.7% of net sales in fiscal 1996. Sales to Cisco Systems, Inc. and Sun Microsystems, Inc. were 10.7% and 10.5% of total net sales in fiscal 1998. Sales to Nortel Networks Inc., formerly Bay Networks, Inc., were 10.4% of total net sales in fiscal 1997. There is no guarantee that we will be able to retain any of our 10 largest customers or any other accounts. In addition, our customers may materially reduce the levels of services ordered from us at any time. This could cause a significant decline in our net sales and we may not be able to reduce the accompanying expenses at the same time. Our Long-Term Contracts Do Not Include Minimum Purchase Requirements Although we have long-term contracts with a few of our top ten customers, including Ericsson, NCR, and IBM, under which these customers are obligated to obtain services from us, they are not obligated to purchase any minimum amount of services from us. As a result, while we may have some long-term contracts, there is no guarantee that we will receive any revenue from these contracts. In addition, these customers with whom we have long-term contracts may materially reduce the levels of services ordered from us at any time. This could cause a significant decline in our net sales and we may not be able to reduce the accompanying expenses at the same time. Possible Fluctuation of Operating Results from Quarter to Quarter Could Affect the Market Price of Our Common Stock. Our quarterly earnings may fluctuate in the future due to a number of factors including the following: o Differences in the profitability of the types of manufacturing services we provide (for example, systems assembly services have lower gross margins than printed circuit board assembly services), o Our ability to maximize the hours of use of our equipment and facilities is dependent on the duration of the production run time for each job and customer, o The amount of automation that we can use in the manufacturing process for cost reduction, which varies depending upon the complexity of the product being made, o Our ability to optimize the ordering of inventory as to timing and amount to avoid holding excess inventory in excess of immediate production. (For example, electronic components could be made obsolete by technological advances), and 22 o Fluctuations in demand for our services or the products being manufactured. Therefore, our operating results in the future could be below the expectations of securities analysts and investors. If this occurs, the market price of our common stock could be materially and adversely affected. We Are Dependent Upon the Electronics Industry Which Continually Produces Technologically Advanced Products with Short Life Cycles; Our Inability to Continually Manufacture Such Products on a Cost-Effective Basis Would Harm Our Business. A majority of our sales is to corporations in the electronics industry, which is subject to rapid technological change and product obsolescence. If our customers are unable to create products that keep pace with the changing technological environment, their products could become obsolete and the demand for our services could significantly decline. If we are unable to offer technologically advanced, quick response manufacturing services to our customers that are cost effective, our customers' demand for our services will also decline. In addition, a substantial portion of our revenue is derived from our ability to offer complete service solutions for our customers. For example, if we fail to maintain high quality design and engineering services, our sales would significantly decline. We Bear the Risk of Price Increases Associated with Potential Shortages in the Availability of Electronics Components. At various times, there have been shortages of components in the electronics industry. One of the services that we perform for many of our customers is purchasing electronics components used in the manufacturing of their products. As a result of this service, we bear the risk of price increases for these components because we are unable to purchase them at the same time when we agree with our customers on the pricing for the electronic components that we will use for manufacturing their products. Our Sales Will Decline If Our Competitors Provide Comparable Manufacturing Services at a Lower Cost. We compete with different contract manufacturers depending on the type of service we provide or the geographic locale of our operations. These competitors may have greater manufacturing, financial, research and development and/or marketing resources than we have. In addition, we may not be able to offer prices as low as some of our competitors because they may have lower cost structures as a result of where they are located geographically or the services they provide. Our inability to provide comparable or better manufacturing services at a lower cost than our competitors could cause our sales to decline. If We Are Unable to Manage Our Rapid Growth and Assimilate New Operations in a Cost-Effective Manner, Our Profitability Could Decline. We have experienced rapid growth over our last five fiscal years, with net sales increasing from $1.5 billion in fiscal 1994 to $5.3 billion in fiscal 1998. Solectron reported net sales of $6.0 billion for the first nine months of fiscal 1999. Our historical growth may not continue. In recent years, we have established operations in different places throughout the world. For example, in fiscal 1998, we opened 23 offices in Taiwan and Israel, commenced manufacturing operations in Mexico and Romania and, in fiscal 1999, announced a joint venture with Ingram Micro, Inc. In fiscal 1998, we acquired foreign facilities in Brazil, Sweden and Ireland. Furthermore, through acquisitions in fiscal 1998 and 1999, we acquired facilities in Georgia and South Carolina and enhanced our capabilities in North Carolina and Texas. In March 1999, We announced the grand opening of the first phase of our new facility in Brazil. As we manage and continue to expand our new operations, we may incur substantial infrastructure and working capital costs. If we do not achieve sufficient growth to offset increased expenses associated with our rapid expansion, our profitability will decline. We Need to Manage Integration of Our Acquisitions to Maintain Profitability In fiscal 1998 and 1999, we completed acquisitions of certain manufacturing assets and facilities from Ericsson, NCR, IBM and Mitsubishi. Currently, we have three pending acquisitions including Trimble, Glenayre and Sequel to be completed during the fourth quarter of fiscal 1999. We also continue to evaluate acquisition opportunities and may pursue additional acquisitions over time. These acquisitions involve risks, including: o integration and management of the operations, o retention of key personnel, o integration of purchasing operations and information systems, o management of an increasingly larger and more geographically disparate business, and o diversion of management's attention from other ongoing business concerns. Our profitability will suffer if we are unable to successfully integrate and manage our recent acquisitions, as well as any future acquisitions that we might pursue, or if we do not achieve sufficient revenue to offset the increased expenses associated with these acquisitions. Our International Sales Are a Significant and Growing Portion of Our Revenues; We Are Increasingly Exposed to Unique Risks Associated with Operating Internationally. In fiscal 1998 approximately 34% of our sales came from outside of the United States. For the first nine months of fiscal 1999, our international locations contributed approximately 37% of consolidated net sales. As a result of our foreign sales and facilities, our operations are subject to a variety of risks that are unique to our international operations including the following: o Adverse movement of foreign currencies against our U.S. dollar reporting currency, o Import and export duties, and value add taxes that we may have to absorb, 24 o Import and export regulation changes that could erode our profit margins or restrict exports, o Potential restrictions on the transfer of funds, o Inflexible employee contracts in the event of business downturns, and o The burden and cost of compliance with foreign laws. In addition, we have operations in several locations that have inflationary economies or potentially volatile currencies, including Mexico, Brazil, China and Romania. In the future, these factors may have a material adverse impact on the results of our operations. The Southeast Asian, Latin American and Eastern European markets are experiencing currency, economic and political instability. As of May 31, 1999, the Company recorded a $64.9 million cumulative foreign exchange translation loss on its balance sheet which was primarily the result of the recent devaluation of the Brazilian Real. While, to date, these factors have not had a significant adverse impact on the Company's results of operations, there can be no assurance that there will not be such an impact. Furthermore, while the Company may adopt measures to reduce the impact of losses resulting from volatile currencies and other risks of doing business abroad, no assurance may be given that such measures will be adequate. The Malaysian government adopted currency exchange controls, including controls on ringgit held outside Malaysia, and established a fixed exchange rate for the ringgit against the U.S. dollar. Solectron does not hold ringgit outside of Malaysia and therefore will not be affected by these controls. The fixed exchange rate, when applied to local expenses denominated in ringgit, will result in higher expenses when translated to U.S. dollars. However, such local expenses represent a small percentage of our total costs and therefore Solectron's results of operations will not be significantly affected in the near future. The long term impact of such controls is not predictable due to dynamic economic conditions that also affect or are affected by other regional or global economies. Solectron has been granted a tax holiday for its Malaysia sites which is effective through January 31, 2002, subject to certain conditions. We have also been granted various tax holidays in China. These tax holidays are effective for various terms and are subject to certain conditions. There is no assurance that the current tax holidays will not be terminated or modified or that any future tax holidays that we may seek will be granted. If the current tax holidays are terminated or modified or if additional tax holidays are not granted in the future, our effective income tax rate would likely increase. We Are Exposed to Fluctuations in the Exchange Rates of Foreign Currency. We do not use derivative financial instruments for speculative purposes. Our policy is to hedge our foreign currency denominated transactions in a manner that substantially offsets the effects of changes in foreign currency exchange rates. Presently, we use foreign currency borrowings and foreign currency forward contracts to hedge only those currency exposures associated with certain assets and liabilities denominated in nonfunctional currencies. Gains and losses on these foreign currency hedges are generally offset by corresponding losses and gains on the underlying transaction. At May 31, 1999, all of the foreign currency hedging contracts mature in three months or less and there were no material deferred gains or losses. In addition, our international operations in some instances act as a natural hedge 25 because both operating expenses and a portion of sales are denominated in local currency. In these instances including our recent experience involving the devaluation of the Brazilian Real, although an unfavorable change in the exchange rate of a foreign currency against the U.S. dollar will result in lower sales when translated to U.S. dollars, operating expenses will also be lower in these circumstances. However, because less than 10% of net sales are denominated in currencies other than the U.S. dollar, we do not believe our total exposure to be significant. We have a task force which is constantly evaluating the effects of the Euro conversion on the Company. We do not believe that significant modifications of its information technology systems are needed in order to handle Euro transactions and reporting. We are in the process of evaluating its tax positions and all outstanding contracts in currencies of the participating countries to determine the effects, if any, of the Euro conversion. We do not expect the Euro conversion to have a significant impact on our derivatives as we have already modified the hedging policies to take the Euro conversion into account. While we currently believe that the Euro conversion effects do not have a significant adverse material effect on our business and operations, there can be no assurances that such conversion will not have an adverse material effect on our results of operations and financial position due to competitive and other factors that may be affected by the conversion that cannot be predicted by us. We Are Exposed to Fluctuations in Interest Rates. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we maintain our portfolio of cash-equivalents and short-term investments in a variety of securities, including both government and corporate obligations, certificates of deposit and money market funds. As of May 31, 1999, approximately 64% of our portfolio mature in less than 6 months. Because our investments are diversified and of relatively short maturity, a hypothetical 10% increase in interest rates would not have a material effect on our financial position. We have entered into an interest rate swap transaction under which we pay a fixed rate of interest hedging against the variable interest rates charged by the lessor for the facility lease at Milpitas, California. The interest rate swap expires in the year of 2002 which coincides with the maturity date of the lease term. As we intend to hold the interest rate swap until the maturity date, we are not subject to market risk. In fact, such interest rate swap has fixed the interest rate for the facility lease reducing interest rate risk. Our debt instruments are subject to fixed interest rates and, in the case of the convertible notes, to fixed conversion ratios into the Company's common stock. In addition, the amount of principal to be repaid at maturity is also fixed. Therefore, we are not subject to market risk from its debt instruments. We May Not Be Able to Adequately Protect or Enforce Our Intellectual Property Rights and We Could Become Involved in Intellectual Property Disputes. Our ability to effectively compete may be affected by our ability to protect our proprietary information. We hold a number of patents and other license rights. These patent and license rights may not provide 26 meaningful protection for our manufacturing process and equipment innovations. In addition, in the future third parties may assert infringement claims against us or our customers. In the event of an infringement claim, we may be required to spend a significant amount of money to develop a non-infringing manufacturing process or to obtain licenses. We may not be successful in developing such a process or obtaining a license on reasonable terms, if at all. In addition, any such litigation could be lengthy and costly and could have a material adverse effect on our financial condition. Failure to Comply with Environmental Regulations Could Harm Our Business. As a company in the contract manufacturing services industry, we are subject to a variety of environmental regulations relating to the use, storage and discharge and disposal of hazardous chemicals used during our manufacturing process. Although we have never sustained any significant loss as a result of noncompliance with such regulations, any failure by us to comply with environmental laws and regulations could result in liabilities or the suspension of production. In addition, these laws and regulations could restrict our ability to expand our facilities or require us to acquire costly equipment or incur other significant costs to comply with regulations. Our Stock Price May Be Volatile Due to Factors Outside of Our Control. Our stock price could fluctuate due to the following factors: o Announcements of operating results and business conditions by our customers, o Announcements by our competitors relating to new customers or technological innovations or new services, o Economic developments in the electronics industry as a whole, o Political and economic development of countries in which we have operations, and o General market conditions. Failure to Maintain Key Personnel and Skilled Associates Could Hurt Our Operations. Our continued success depends to a large extent upon the efforts and abilities of key managerial and technical associates. The loss of services of certain key personnel could have an adverse material effect on us. Solectron's business also depends upon its ability to continue to attract and retain senior managers and skilled associates. Failure to do so could adversely affect our operations. Year 2000 Compliance Issues Could Harm Our Business. The Year 2000 issue is the result of computer programs written using two digits rather than four to define the applicable year. Computer programs that have this date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, order materials or otherwise engage in normal business activities. 27 A key to our ability to successfully manage our operations is the responsiveness of the supply chain for electronics components. This supply chain is often controlled by computer systems, which could fail. While we control some of these systems, our vendors, our customers and service providers that are outside of our control operate some of these computer systems as well. If the computer systems within their control fail, this could delay our receipt of previously-ordered electronics components thereby causing us to delay, cancel or modify orders from our customers, which could harm our business. We have not yet developed a final contingency plan to handle the Year 2000 problem and, when developed, such a contingency plan may still not be successful in preventing a disruption of our operations. Although we have extensively tested our equipment and interfaces with other companies, we cannot be sure that this testing will fully replicate the actual situation when the Year 2000 arrives. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Management's Discussion and Analysis of Financial Condition and Results of Operations "Trends and Uncertainties -- Fluctuations in interest Rate" and "-- Fluctuations in the Exchange Rates of Foreign Currency." 28 SOLECTRON CORPORATION AND SUBSIDIARIES Part II. OTHER INFORMATION Item 1: Legal Proceedings None Item 2: Changes in Securities None Item 3: Defaults upon Senior Securities None Item 4: Submission of Matters to a Vote of Security Holders None Item 5: Other Information None Item 6: Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Second Amended and Restated Receivables Purchase Agreement among Solectron Funding Corporation, Solectron Corporation, Solectron Technology, Inc., Solectron California Corporation, Quincy Capital Corporation, and Bank Of America National Trust and Savings Association, dated February 22, 1999 10.2 Amended and Restated Purchase and Sale Agreement among Solectron Corporation, Solectron California Corporation, Solectron Technology, Inc. and Solectron Funding Corporation, dated February 22, 1999 27.1 Financial Data Schedule - Nine Months Ended May 28, 1999 (b) Reports on Form 8-K None 29 SOLECTRON CORPORATION SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SOLECTRON CORPORATION (Registrant) Date: July 12, 1999 By: /s/ Susan Wang ---------------------- Susan S. Wang Senior Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) 30 EXHIBIT INDEX Exhibit Number Document - ------- -------- 10.1 Second Amended and Restated Receivables Purchase Agreement among Solectron Funding Corporation, Solectron Corporation, Solectron Technology, Inc., Solectron California Corporation, Quincy Capital Corporation, and Bank Of America National Trust and Savings Association, dated February 22, 1999 10.2 Amended and Restated Purchase and Sale Agreement among Solectron Corporation, Solectron California Corporation, Solectron Technology, Inc. and Solectron Funding Corporation, dated February 22, 1999 27.1 Financial Data Schedule - Nine Months Ended May 28, 1999 EX-10.1 2 SECOND AMENDED AND RESTATED REC. PURCHASE Exhibit 10.1 ------------ SECOND AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT among SOLECTRON FUNDING CORPORATION, as Seller, SOLECTRON CORPORATION, individually and as Servicer, SOLECTRON TECHNOLOGY, INC., as a Sub-Servicer SOLECTRON CALIFORNIA CORPORATION, as a Sub-Servicer QUINCY CAPITAL CORPORATION, as Issuer and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrator Dated as of February 22, 1999 TABLE OF CONTENTS PAGE ARTICLE IAMOUNTS AND TERMS OF THE PURCHASES Section 1.1. Purchase Facility.......................................2 Section 1.2. Making Purchases........................................2 Section 1.3. Purchased Interest Computation..........................4 Section 1.4. Settlement Procedures...................................4 Section 1.5. Fees....................................................7 Section 1.6. Payments and Computations, Etc..........................7 Section 1.7. [intentionally omitted].................................8 Section 1.8. Increased Costs.........................................8 Section 1.9. Additional Discount on Portions of Purchased Interest Bearing a Eurodollar Rate...............................8 Section 1.10. Requirements of Law.....................................9 Section 1.11. Inability to Determine Eurodollar Rate..................9 ARTICLE II REPRESENTATIONS AND WARRANTIES; COVENANTS; TERMINATION EVENTS Section 2.1. Representations and Warranties; Covenants..............10 Section 2.2. Termination Events.....................................10 ARTICLE III INDEMNIFICATION Section 3.1. Indemnities by the Seller..............................10 Section 3.2. Indemnities by the Servicer............................12 Section 3.3. Contribution...........................................12 ARTICLE IV ADMINISTRATION AND COLLECTIONS Section 4.1. Appointment of Servicer................................13 Section 4.2. Duties of Servicer.....................................14 Section 4.3. LockBox Arrangements...................................15 Section 4.4. Enforcement Rights.....................................16 Section 4.5. Responsibilities of the Seller and Servicer............16 Section 4.6. Servicing Fee..........................................17 ARTICLE V MISCELLANEOUS Section 5.1. Amendments, Etc........................................17 Section 5.2. Notices, Etc...........................................17 Section 5.3. Assignability..........................................18 Section 5.4. Costs, Expenses and Taxes..............................18 Section 5.5. No Proceedings; Limitation on Payments.................19 Section 5.6. Confidentiality........................................19 Section 5.7. GOVERNING LAW AND JURISDICTION........................19 Section 5.8. Execution in Counterparts..............................20 Section 5.9. Survival of Termination................................20 Section 5.10. WAIVER OF JURY TRIAL...................................20 Section 5.11. Entire Agreement.......................................21 Section 5.12. Headings...............................................21 Section 5.13. Issuer's Liabilities...................................21 Section 5.14. Purchase and Sale Agreement........................... 21 EXHIBIT I DEFINITIONS...........................................I-1 EXHIBIT II CONDITIONS OF PURCHASES..............................II-1 EXHIBIT III REPRESENTATIONS AND WARRANTIES......................III-1 EXHIBIT IV COVENANTS............................................IV-1 EXHIBIT V TERMINATION EVENTS....................................V-1 SCHEDULE I CREDIT AND COLLECTION POLICY SCHEDULE II LOCK-BOX BANKS AND LOCK-BOX ACCOUNTS SCHEDULE III TRADE NAMES ANNEX A FORM OF LOCK-BOX AGREEMENT ii SECOND AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT This SECOND AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT (this "Agreement") is entered into as of February 22, 1999 among SOLECTRON FUNDING CORPORATION, a Delaware corporation, as seller (the "Seller"), SOLECTRON CORPORATION, a Delaware corporation, in its individual capacity ("Solectron") and as initial Servicer (in such capacity, together with its successors and permitted assigns in such capacity, the "Servicer"), SOLECTRON TECHNOLOGY, INC., a California corporation, ("Solectron Technology") as Sub-Servicer (in such capacity, a "Sub-Servicer"), SOLECTRON CALIFORNIA CORPORATION, a California corporation, ("Solectron California"), as Sub-Servicer (in such capacity, a "Sub-Servicer") QUINCY CAPITAL CORPORATION, a Delaware corporation (together with its successors and permitted assigns, the "Issuer"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association, as administrator (in such capacity, together with its successors and assigns in such capacity, the "Administrator") for the Issuer pursuant to an agreement between the Issuer and the Administrator. PRELIMINARY STATEMENTS. A. Certain terms that are capitalized and used throughout this Agreement are defined in Exhibit I to this Agreement. References in the Exhibits hereto to "the Agreement" or "this Agreement" refer to this Agreement, as amended, amended and restated, modified or supplemented from time to time. B. The Seller, the Servicer, the Issuer and the Administrator entered into a Receivables Purchase Agreement, dated as of September 17, 1997. C. The Seller, the Servicer, the Issuer and the Administrator entered into an Amended and Restated Receivables Purchase Agreement dated as of October 31, 1998. D. The parties to this Agreement desire to amend and restate the Amended and Restated Receivables Purchase Agreement in order to, among other things, provide for the addition of Solectron Technology as an Originator hereunder and to make certain other modifications to the Amended and Restated Receivables Purchase Agreement. E. The Seller has sold, transferred and assigned and desires to continue to sell, transfer and assign an undivided variable percentage interest in a pool of receivables, and the Issuer has acquired and desires to continue to acquire such undivided variable percentage interest, as such percentage interest shall be adjusted from time to time based upon, in part, reinvestment payments which are made by the Issuer and additional incremental payments made to the Seller. In consideration of the mutual agreements, provisions and covenants contained herein, the parties hereto agree as follows: ARTICLE I AMOUNTS AND TERMS OF THE PURCHASES Section 1.1. Purchase Facility. (a) Subject to and upon the terms and conditions set forth in the Amended and Restated Receivables Purchase Agreement, the Issuer has purchased and made reinvestments in the Purchased Interest from the Seller (the Issuer's Purchased Interest on the last day of the Settlement Period immediately preceding the Effective Date is herein referred to as the "Initial Purchased Interest") and the payment for the Purchased Interests referred to above was paid to Seller in accordance with the Amended and Restated Receivables Purchase Agreement. The parties hereto agree that, from and after the Effective Date, the terms and conditions of this Agreement and the rights and obligations of the parties set forth herein shall apply to the Initial Purchased Interest and other Purchased Interests purchased by the Issuer from the Seller irrespective of whether the Initial Purchased Interest and other Purchased Interests purchased by the Issuer from the seller irrespective of whether the Initial Purchased Interest and such other Purchased Interests originally were purchased by the Issuer pursuant to the Amended and Restated Receivables Purchase Agreement or this Agreement. (b) On the terms and conditions hereinafter set forth, the Issuer may, in its sole discretion, purchase and make reinvestments in the Purchased Interest from the Seller from time to time during the period from the Effective Date to the Facility Termination Date; provided, that nothing herein shall be deemed or construed as a commitment by the Issuer to fund the purchase or reinvestment with regard to the Purchased Interest through the issuance of Notes, and it is hereby expressly acknowledged and agreed that such funding is, and shall continue to be, wholly discretionary on the part of the Issuer. Under no circumstances shall the Issuer make any such purchase or reinvestment if after giving effect to such purchase or reinvestment the aggregate outstanding Capital of the Purchased Interest, together with the aggregate outstanding Capital under the Parallel Purchase Agreement, would exceed the Purchase Limit. (c) The Seller may, upon at least 5 days' notice to the Administrator, terminate the purchase facility provided in this Section 1 in whole or, from time to time, irrevocably reduce in part the unused portion of the Purchase Limit; provided that each partial reduction shall be in the amount of at least $5,000,000 or an integral multiple of $1,000,000 in excess thereof. Termination of the purchase facility in whole shall cause the Termination Date to occur. Section 1.2. Making Purchases. (a) Each purchase (but not reinvestments) of undivided ownership interests with regard to the Purchased Interest hereunder shall be made upon the Seller's irrevocable written notice delivered to the Administrator in accordance with Section 5.2 (which notice must be received by the Administrator prior to 11:00 a.m., San Francisco time) (i) three Business Days prior to the requested purchase date, in the case of a purchase to be funded at the 2 Alternate Rate and based on the Eurodollar Rate, (ii) one Business Day prior to the requested purchase date, in the case of a purchase to be funded at the Alternate Rate and based on the Base Rate and (iii) one Business Day prior to the requested purchase date, in the case of a purchase to be funded at the CP Rate, which notice shall specify (A) the amount requested to be paid to the Seller (such amount, which shall not be less than $5,000,000, being the "Capital" relating to the undivided ownership interest then being purchased), (B) the date of such purchase (which shall be a Business Day) and (C) the desired funding basis for such purchase (which shall be either the Alternate Rate or the CP Rate) and (unless such purchase shall be funded at the CP Rate) the duration of the initial Fixed Period(s) for such purchase. The Administrator shall promptly thereafter notify the Seller whether such terms are acceptable to the Issuer and whether the Issuer is willing to make such a purchase. If the Administrator notifies the Seller that such terms relating to the CP Rate are unacceptable to the Issuer due to market conditions, then the Seller shall be deemed to have requested that the purchase be funded at the Alternate Rate and based on the Base Rate. (b) On the date of each purchase (but not reinvestment) of undivided ownership interests with regard to the Purchased Interest hereunder, the Issuer shall, if the Administrator has notified the Seller that the Issuer is willing to make such purchase, upon satisfaction of the applicable conditions set forth in Exhibit II hereto, make available to the Seller in same day funds, at Bank of America National Trust and Savings Association, account # 1233056289, an amount equal to the Capital relating to the undivided ownership interest then being purchased. (c) Effective on the date of each purchase pursuant to this Section 1.2 and each reinvestment pursuant to Section 1.4, the Seller hereby sells and assigns to the Administrator for the benefit of the Issuer an undivided percentage ownership interest in all its right, title and interest in (i) each Pool Receivable then existing, (ii) all Related Security with respect to such Pool Receivables, and (iii) Collections with respect to, and other proceeds of, such Pool Receivables and Related Security; provided that the foregoing shall not include any Excluded Property. The Administrator and the Issuer acknowledge that the Seller may also grant an undivided ownership interest in the same items as described in the first sentence of this Section 1.2(c) to the Parallel Purchase Administrator, for its benefit and the benefit of the Parallel Purchasers under the Parallel Purchase Agreement and that the respective rights of the Administrator, the Issuer, the Parallel Purchase Administrator and the Parallel Purchasers with respect thereto shall be governed by the Intercreditor Agreement. (d) To secure all of the Seller's obligations (monetary or otherwise) under this Agreement and the other Transaction Documents to which it is a party, whether now or hereafter existing or arising, due or to become due, direct or indirect, absolute or contingent, the Seller hereby grants to the Administrator, for its benefit and the benefit of the Issuer, a security interest in all of the Seller's right, title and interest (including without limitation any undivided interest of the Seller) in, to and under all of the following, whether now or hereafter owned, existing or arising (A) all Pool Receivables, (B) all Related Security with respect to each such Pool Receivable, (C) all Collections with respect to each such Receivable, (D) the Lock-Box Accounts and any related deposit accounts and post office boxes and all amounts on deposit therein and all certificates and instruments, if any, from time to time evidencing such Lock-Box Accounts, related deposit accounts and post office 3 boxes and amounts held or on deposit therein, and (E) all proceeds of, and all amounts received or receivable under any or all of, the foregoing; provided that the foregoing shall not include any Excluded Property. The Administrator and the Issuer shall have, with respect to the property described in this Section 1.2(d), and in addition to all the other rights and remedies available to the Administrator and the Issuer, all the rights and remedies of a secured party under any applicable UCC. Section 1.3. Purchased Interest Computation. The Purchased Interest shall be initially computed on the date of the initial purchase hereunder. Thereafter until the Termination Date, the Purchased Interest shall be automatically recomputed (or deemed to be recomputed) on each Business Day other than a Termination Day. The Purchased Interest, as computed (or deemed recomputed) as of the day immediately preceding the Termination Date, shall thereafter remain constant. Notwithstanding the preceding sentence, the Purchased Interest shall become zero when the Capital thereof and Discount thereon shall have been paid in full, all the amounts owed by the Seller hereunder to the Issuer, the Administrator, and any other Indemnified Party or Affected Person, are paid in full and the Servicer shall have received the accrued Servicing Fee thereon. Section 1.4. Settlement Procedures. (a) Collection of the Pool Receivables shall be administered by the Servicer in accordance with the terms of this Agreement. The Seller shall provide to the Servicer on a timely basis all information needed for such administration, including notice of the occurrence of any Termination Day and current computations of the Purchased Interest. (b) The Servicer shall, on each day on which Collections of Pool Receivables are received (or deemed received) by the Seller or Servicer or an Originator (including pursuant to Section 1.8 of the Purchase and Sale Agreement): (i) set aside and hold in trust (and, at the request of the Administrator, segregate) for the Issuer, out of the percentage of such Collections represented by the Purchased Interest, first an amount equal to the Discount accrued through such day for each Portion of Capital and not previously set aside and second, to the extent funds are available therefor, an amount equal to the Servicing Fee accrued through such day for the Purchased Interest and not previously set aside; and (ii) subject to Section 1.4(f), if such day is not a Termination Day, remit to the Seller, on behalf of the Issuer, the remainder of the percentage of such Collections, represented by the Purchased Interest, to the extent representing a return of Capital; such Collections shall be automatically deemed reinvested in Pool Receivables, and in the Related Security and Collections and other proceeds with respect thereto, and the Purchased Interest shall be automatically recomputed pursuant to Section 1.3; (iii) if such day is a Termination Day, set aside, segregate and hold in trust for the Issuer the entire remainder of the percentage of the Collections represented by the Purchased Interest; provided that if amounts are set aside and held in trust on any Termination Day and thereafter, the conditions set forth in Section 2 of Exhibit II are satisfied or are waived by 4 the Administrator, such previously set aside amounts shall, to the extent representing a return of Capital, be reinvested in accordance with the preceding paragraph (ii) on the day of such subsequent satisfaction or waiver of conditions; and (iv) during such times as amounts are required to be reinvested in accordance with the foregoing paragraph (ii) or the proviso to paragraph (iii), release to the Seller (subject to Section 1.4(f)) for its own account any Collections in excess of (x) such amounts, (y) the amounts that are required to be set aside pursuant to paragraph (i) above and (z) any other obligations of the Seller hereunder which are then due and owing. (c) The Servicer shall deposit into the Administration Account, on the last day of each Settlement Period relating to a Portion of Capital (or at such other times as the Administrator shall require upon the occurrence and during the continuation of (i) any Unmatured Termination Event or Termination Event or (ii) at any time when the Rated Long Term Debt of Solectron is not rated at least Investment Grade or (iii) any event that materially and adversely affects the Servicer's ability to perform its obligations hereunder or the collectibility of the Receivables), Collections held for the Issuer pursuant to Section 1.4(b)(i) or Section 1.4(f) with respect to such Portion of Capital and the lesser of (x) the amount of Collections then held for the Issuer pursuant to Section 1.4(b)(iii) and (y) such Portion of Capital. (d) Upon receipt of funds deposited into the Administration Account pursuant to Section 1.4(c) with respect to any Portion of Capital, the Administrator shall cause such funds to be distributed as follows: (i) if such distribution occurs on a day that is not a Termination Day, first to the Issuer (x) in payment in full of all accrued Discount with respect to such Portion of Capital and (y) as a reduction of such Portion of Capital pursuant to Section 1.4(f), if applicable, and second, from amounts set aside in respect of the Servicing Fee pursuant to Section 1.4(b)(i), to the Servicer (payable in arrears on the last day of each calendar month) in payment in full of accrued Servicing Fees so set aside with respect to such Portion of Capital; and (ii) if such distribution occurs on a Termination Day, first to the Issuer in payment in full of all accrued Discount with respect to such Portion of Capital, second to the Issuer in payment in full of such Portion of Capital, third, if the Servicer is not Solectron or an Affiliate thereof, to the Servicer in payment in full of all accrued Servicing Fees with respect to such Portion of Capital, fourth, if the Capital and accrued Discount with respect to each Portion of Capital has been reduced to zero, and all accrued Servicing Fees payable to the Servicer (if other than Solectron or an Affiliate thereof) have been paid in full, to the Issuer, the Administrator and any other Indemnified Party or Affected Person in payment in full of any other amounts owed thereto by the Seller hereunder and then to the Servicer (if Solectron or an Affiliate thereof) in payment in full of all accrued Servicing Fees. After the Capital and Discount and Servicing Fees with respect to the Purchased Interest, and any other amounts payable by the Seller to the Issuer, the Administrator or any other Indemnified Party 5 or Affected Person hereunder, have been paid in full, all additional Collections with respect to the Purchased Interest shall be paid to the Seller for its own account. (e) For the purposes of this Section 1.4: (i) if on any day the Outstanding Balance of any Pool Receivable is reduced or adjusted as a result of any defective, rejected, returned, repossessed goods or services, or any discount or other adjustment made by the Seller, or any setoff or dispute between the Seller and an Obligor, the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in the amount of such reduction or adjustment; (ii) if on any day any of the representations or warranties in paragraphs (h) or (o) of Exhibit III is not true with respect to any Pool Receivable, the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in full; (iii) except as provided in paragraph (i) or (ii) of this Section 1.4(e), or as otherwise required by applicable law or the relevant Contract, all Collections received from an Obligor of any Receivable shall be applied to the Receivables of such Obligor in the order of the age of such Receivables, starting with the oldest such Receivable, unless such Obligor designates in writing its payment for application to specific Receivables; and (iv) if and to the extent the Administrator or the Issuer shall be required for any reason to pay over to an Obligor (or any trustee, receiver, custodian or similar official in any Insolvency Proceeding) any amount received by it hereunder, such amount shall be deemed not to have been so received but rather to have been retained by the Seller and, accordingly, the Administrator or the Issuer, as the case may be, shall have a claim against the Seller for such amount, payable immediately. (f) If at any time the Seller shall wish to cause the reduction of a Portion of Capital (but not to commence the liquidation, or reduction to zero, of the entire Capital of the Purchased Interest), the Seller may do so as follows: (i) the Seller shall give the Administrator at least five Business Days' prior written notice thereof (including the amount of such proposed reduction and the proposed date on which such reduction will commence), (ii) on the proposed date of commencement of such reduction and on each day thereafter, the Servicer shall cause Collections with respect to such Portion of Capital not to be reinvested pursuant to Section 1.4(b)(ii) until the amount thereof not so reinvested shall equal the desired amount of reduction, and (iii) the Servicer shall hold such Collections in trust for the Issuer, for payment to the Administrator on the last day of the current Settlement Period relating to such Portion 6 of Capital, and the applicable Portion of Capital shall be deemed reduced in the amount to be paid to the Administrator only when in fact finally so paid; provided that, A. the amount of any such reduction shall be not less than $1,000,000 and shall be an integral multiple of $100,000, and the entire Capital of the Purchased Interest after giving effect to such reduction shall be not less than $10,000,000 and shall be in an integral multiple of $1,000,000, B. the Seller shall choose a reduction amount, and the date of commencement thereof, so that to the extent practicable such reduction shall commence and conclude in the same Fixed Period, and C. if two or more Portions of Capital shall be outstanding at the time of any proposed reduction, such proposed reduction shall be applied, unless the Seller shall otherwise specify in the notice given pursuant to Section 1.4(f)(i), to the Portion of Capital with the shortest remaining Fixed Period. Section 1.5. Fees. The Seller shall pay to the Administrator certain fees in the amounts and on the dates set forth in a letter dated February 12, 1999 between the Seller and the Administrator delivered pursuant to Section 1 of Exhibit II, as such letter agreement may be amended, amended and restated or otherwise modified from time to time. Section 1.6. Payments and Computations, Etc. (a) All amounts to be paid or deposited by the Seller or the Servicer hereunder shall be paid or deposited no later than 11:00 a.m. (San Francisco time) on the day when due in same day funds in United States dollars to the Administration Account. All amounts received after 11:00 a.m. (San Francisco time) will be deemed to have been received on the immediately succeeding Business Day. (b) The Seller shall, to the extent permitted by law, pay interest on any amount not paid or deposited by the Seller (whether paid by Servicer or otherwise) when due hereunder, at an interest rate equal to 2.0% per annum above the Base Rate, payable on demand. (c) All computations of interest under subsection (b) above and all computations of Discount, fees, and other amounts hereunder shall be made on the following basis: (i) when such computation is based on the Base Rate, and the Base Rate is determined by Bank of America's "reference rate", such computations shall be made on the basis of 365 or 366 days, as the case may be, and actual days elapsed; and (ii) all other such computations shall be made on the basis of a 360-day year and actual number of days elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of such payment or deposit. 7 Section 1.7. [intentionally omitted] Section 1.8. Increased Costs. (a) If the Administrator, the Issuer, any Purchaser, any other Program Support Provider or any of their respective Affiliates (each an "Affected Person") determines that the existence of or compliance with (i) any law or regulation or any change therein or in the interpretation or application thereof, in each case adopted, issued or occurring after the date hereof or (ii) any request, guideline or directive from any central bank or other Governmental Authority (whether or not having the force of law) issued or occurring after the date of this Agreement affects or would affect the amount of capital required or expected to be maintained by such Affected Person and such Affected Person determines that the amount of such capital is increased by or based upon the existence of any commitment to make purchases of or otherwise to maintain the investment in Pool Receivables related to this Agreement or any related liquidity facility or credit enhancement facility and other commitments of the same type, then, upon demand by such Affected Person (with a copy to the Administrator), the Seller shall immediately pay to the Administrator, for the account of such Affected Person, from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person in the light of such circumstances, to the extent that such Affected Person reasonably determines such increase in capital to be allocable to the existence of any of such commitments. A certificate as to such amounts submitted to the Seller and the Administrator by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. (b) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements referred to in Section 1.9) in or in the interpretation of any law or regulation or (ii) compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to any Affected Person of agreeing to purchase or purchasing, or maintaining the ownership of the Purchased Interest in respect of which Discount is computed by reference to the Eurodollar Rate, then, upon demand by such Affected Person, the Seller shall immediately pay to such Affected Person, from time to time as specified, additional amounts sufficient to compensate such Affected Person for such increased costs. A certificate as to such amounts submitted to the Seller by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. Section 1.9. Additional Discount on Portions of Purchased Interest Bearing a Eurodollar Rate. The Seller shall pay to any Affected Person, so long as such Affected Person shall be required under regulations of the Board of Governors of the Federal Reserve System to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities, additional Discount on the unpaid Capital of the applicable Portion of Capital during each Fixed Period in respect of which Discount is computed by reference to the Eurodollar Rate, for such Fixed Period, at a rate per annum equal at all times during such Fixed Period to the remainder obtained by subtracting (i) the Eurodollar Rate for such Fixed Period from (ii) the rate obtained by dividing such Eurodollar Rate referred to in clause (i) above by that percentage equal to 100% minus the Eurodollar Reserve Percentage for such Fixed Period, payable on each date on which Discount is payable on the applicable Portion of Capital. Such additional Discount shall be determined by the 8 Affected Person and notified to the Seller through the Administrator within 60 days after any Discount payment is made with respect to which such additional Discount is requested. A certificate as to such additional Discount submitted to the Seller by the Affected Person shall be conclusive and binding for all purposes, absent manifest error. Section 1.10. Requirements of Law. In the event that any Affected Person determines that the existence of or compliance with (a) any law or regulation or any change therein or in the interpretation or application thereof, in each case adopted, issued or occurring after the date hereof or (b) any request, guideline or directive from any central bank or other Governmental Authority (whether or not having the force of law) issued or occurring after the date of this Agreement: (i) does or shall subject such Affected Person to any tax of any kind whatsoever with respect to this Agreement, any increase in the Purchased Interest or in the amount of Capital relating thereto, or does or shall change the basis of taxation of payments to such Affected Person on account of Collections, Discount or any other amounts payable hereunder (excluding taxes imposed on the overall net income of such Affected Person, and franchise taxes imposed on such Affected Person, by the jurisdiction under the laws of which such Affected Person is organized or has a lending office or a political subdivision thereof); (ii) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, purchases, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Affected Person which are not otherwise included in the determination of the Eurodollar Rate or the Base Rate hereunder; or (iii) does or shall impose on such Affected Person any other condition; and the result of any of the foregoing is (x) to increase the cost to such Affected Person of acting as Administrator, or of agreeing to purchase or purchasing or maintaining the ownership of undivided ownership interests with regard to the Purchased Interest (or interests therein) or any Portion of Capital in respect of which Discount is computed by reference to the Eurodollar Rate or the Base Rate or (y) to reduce any amount receivable hereunder (whether directly or indirectly) funded or maintained by reference to the Eurodollar Rate or the Base Rate, then, in any such case, upon demand by such Affected Person the Seller shall promptly pay such Affected Person any additional amounts necessary to compensate such Affected Person for such increased cost or reduced amount receivable. All such amounts shall be payable as incurred. A certificate from such Affected Person to the Seller certifying, in reasonably specific detail, the basis for, calculation of, and amount of such increased costs or reduced amount receivable shall be conclusive in the absence of manifest error; provided, however, that no Affected Person shall be required to disclose any confidential or tax planning information in any such certificate. Section 1.11. Inability to Determine Eurodollar Rate. In the event that the Administrator shall have determined prior to the first day of any Fixed Period (which determination shall be conclusive and binding upon the parties hereto) by reason of circumstances affecting the interbank 9 Eurodollar market, either (a) dollar deposits in the relevant amounts and for the relevant Fixed Period are not available, (b) adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Fixed Period or (c) the Eurodollar Rate determined pursuant hereto does not accurately reflect the cost to the Issuer (as conclusively determined by the Administrator) of maintaining any Portion of Capital during such Fixed Period, the Administrator shall promptly give telephonic notice of such determination, confirmed in writing, to the Seller prior to the first day of such Fixed Period. Upon delivery of such notice (a) no Portion of Capital shall be funded thereafter at the Alternate Rate determined by reference to the Eurodollar Rate, unless and until the Administrator shall have given notice to the Seller that the circumstances giving rise to such determination no longer exist, and (b) with respect to any outstanding Portions of Capital then funded at the Alternate Rate determined by reference to the Eurodollar Rate, such Alternate Rate shall automatically be converted to the Alternate Rate determined by reference to the Base Rate at the respective last days of the then current Fixed Periods relating to such Portions of Capital. ARTICLE II REPRESENTATIONS AND WARRANTIES; COVENANTS; TERMINATION EVENTS Section 2.1. Representations and Warranties; Covenants. Each of the Seller and the Servicer hereby makes the representations and warranties set forth in Exhibit III as of the Effective Date, and each of the Seller and the Servicer hereby agrees to perform and observe the covenants set forth in Exhibit IV. Section 2.2. Termination Events. If any Termination Event shall occur and be continuing, the Administrator may, by notice to the Seller, declare the Facility Termination Date to have occurred (in which case the Facility Termination Date shall be deemed to have occurred); provided that, automatically upon the occurrence of any event (without any requirement for the passage of time or the giving of notice) described in subsection (g) of Exhibit V, the Facility Termination Date shall occur. Upon any such declaration, occurrence or deemed occurrence of the Facility Termination Date, the Issuer and the Administrator shall have, in addition to the rights and remedies which they may have under this Agreement or otherwise, all other rights and remedies provided after default under the UCC and under other applicable law, which rights and remedies shall be cumulative. ARTICLE III INDEMNIFICATION Section 3.1. Indemnities by the Seller. Without limiting any other rights that the Administrator or the Issuer or any of their respective Affiliates, employees, agents, successors, transferees or assigns (each, an "Indemnified Party") may have hereunder or under applicable law, 10 the Seller hereby agrees to indemnify each Indemnified Party from and against any and all claims, damages, expenses, losses and liabilities (including Attorney Costs) (all of the foregoing being collectively referred to as "Indemnified Amounts") arising out of or resulting from this Agreement (whether directly or indirectly) or the use of proceeds of purchases or reinvestments or the ownership of the Purchased Interest, or any interest therein, or in respect of any Receivable or any Contract, excluding, however, (a) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party, or (b) any overall net income taxes or franchise taxes imposed on such Indemnified Party by the jurisdiction under the laws of which such Indemnified Party is organized or any political subdivision thereof. Without limiting or being limited by the foregoing, but subject to the exclusions set forth in the preceding sentence, the Seller shall pay on demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from any of the following: (i) the failure of any Receivable included in the calculation of the Net Receivables Pool Balance as an Eligible Receivable to be an Eligible Receivable, the failure of any information contained in a Seller Report to be true and correct, or the failure of any other information provided to the Issuer or the Administrator with respect to Receivables or this Agreement to be true and correct; (ii) the failure of any representation or warranty or statement made or deemed made by the Seller (or any of its officers) under or in connection with this Agreement to have been true and correct in all respects when made; (iii) the failure by the Seller to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract; or the failure of any Pool Receivable or the related Contract to conform to any such applicable law, rule or regulation; (iv) the failure to vest (A) in the Issuer a valid and enforceable perfected undivided percentage ownership interest, to the extent of the Purchased Interest, in the Receivables in, or purporting to be in, the Receivables Pool and the Related Security and Collections with respect thereto and (B) in the Administrator, on its behalf and on behalf of the Issuer, a first priority perfected security interest in the items described in Section 1.2(d), in each case, free and clear of any Adverse Claim; (v) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables in, or purporting to be in, the Receivables Pool and the Related Security and Collections in respect thereof, whether at the time of any purchase or reinvestment or at any subsequent time; (vi) any dispute, claim, offset, billing adjustment or defense of the Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool (including, without limitation, a defense based on such Receivable or the related Contract not being a 11 legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the goods or services related to such Receivable or the furnishing or failure to furnish such goods or services or relating to collection activities with respect to such Receivable (if such collection activities were performed by the Seller or any of its Affiliates acting as Servicer or by any agent or independent contractor retained by the Seller or any of its Affiliates); (vii) any failure of the Seller to perform its duties or obligations in accordance with the provisions hereof or to perform its duties or obligations under the Contracts; (viii) any breach of warranty, products liability or other claim, investigation, litigation or proceeding arising out of or in connection with merchandise, insurance or services which are the subject of any Contract; (ix) the commingling of any portion of Collections of Pool Receivables at any time with other funds; (x) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of purchases or reinvestments or the ownership of the Purchased Interest or in respect of any Receivable, Related Security or Contract; (xi) any reduction in Capital as a result of the distribution of Collections pursuant to Section 1.4(d), in the event that all or a portion of such distributions shall thereafter be rescinded or otherwise must be returned for any reason; or (xii) any action or omission by the Seller which constitutes or results in the breach of any covenant or any representation and warranty made by Solectron in the Solectron Credit Agreement. For purposes of this Article III, in determining whether any representation or warranty or information was true and correct, any qualification or limitation in such representation and warranty or information as to materiality, material adverse effect, knowledge or limitation on enforcement shall be disregarded. Section 3.2. Indemnities by the Servicer. Without limiting any other rights that the Administrator or the Issuer or other Indemnified Party may have hereunder or under applicable law, the Servicer hereby agrees to indemnify each Indemnified Party from and against any and all Indemnified Amounts arising out of or resulting from the breach by the Servicer of any of the covenants or representations and warranties made by it herein or in any other Transaction Document or from the negligence, willful misconduct or bad faith of the Servicer in the performance of its duties hereunder or under any other Transaction Document. Section 3.3. Contribution. If for any reason the indemnification provided above in this Article III is unavailable to an Indemnified Party or is insufficient to hold an Indemnified Party 12 harmless, then the Seller or the Servicer, as the case may be, shall contribute to the maximum amount payable or paid to such Indemnified Party in such proportion as is appropriate to reflect not only the relative benefits received by such Indemnified Party on the one hand and the Seller or the Servicer, as the case may be, on the other hand, but also the relative fault of such Indemnified Party (if any) and the Seller or the Servicer, as the case may be, and any other relevant equitable considerations. ARTICLE IV ADMINISTRATION AND COLLECTIONS Section 4.1. Appointment of Servicer. (a) The servicing, administering and collection of the Pool Receivables shall be conducted by the Person so designated from time to time as Servicer in accordance with this Section 4.1. Until the Administrator gives notice to the Seller and the Servicer (in accordance with this Section 4.1) of the designation of a new Servicer, Solectron is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms hereof. Upon the occurrence and during the continuation of (i) any Unmatured Termination Event or Termination Event or (ii) at any time when the Rated Long Term Debt of Solectron is not rated at least Investment Grade or (iii) any event that materially and adversely affects the Servicer's ability to perform its obligations hereunder or the collectibility of the Receivables, the Administrator may designate as Servicer any Person (including itself) to succeed Solectron or any successor Servicer, on the condition in each case that any such Person so designated shall agree to perform the duties and obligations of the Servicer pursuant to the terms hereof. (b) Upon the designation of a successor Servicer as set forth in Section 4.1(a) hereof, Solectron (or any successor Servicer) agrees that it will terminate its activities as Servicer hereunder in a manner which the Administrator determines will facilitate the transition of the performance of such activities to the new Servicer, and Solectron shall cooperate with and assist such new Servicer. Such cooperation shall include (without limitation) access to and transfer of records and use by the new Servicer of all books, records, other relevant data, licenses, hardware or software necessary or desirable to collect the Pool Receivables and the Related Security. (c) Solectron acknowledges that the Administrator and the Issuer have relied on Solectron's agreement to act as Servicer hereunder in making their decision to execute and deliver this Agreement. Accordingly, Solectron agrees that it will not voluntarily resign as Servicer and the Seller agrees that it will not terminate Solectron as Servicer without the prior written consent of the Administrator. (d) The Servicer may delegate its duties and obligations hereunder to any subservicer (each, a "Sub-Servicer"); provided that, in each such delegation, (i) such Sub-Servicer shall agree in writing to perform the duties and obligations of the Servicer pursuant to the terms hereof, (ii) the Servicer shall remain primarily liable to the Issuer for the performance of the duties and obligations 13 so delegated, (iii) the Seller, the Administrator and the Issuer shall have the right to look solely to the Servicer for performance and (iv) the terms of any agreement with any Sub-Servicer shall provide that the Administrator may terminate such agreement upon the termination of the Servicer hereunder by giving notice of its desire to terminate such agreement to the Servicer (and the Servicer shall provide appropriate notice to such Sub-Servicer). In accordance with the requirements set forth in this Section 4.1(d)(i) through (iv), the Servicer hereby delegates its duties and obligations as to the Receivables originated by Solectron Technology, Inc. to Solectron Technology, Inc. and Solectron Technology, Inc. hereby agrees to perform such duties and obligations pursuant to the terms hereof. In accordance with the requirements set forth in this Section 4.1(d)(i) through (iv), the Servicer hereby delegates its duties and obligations as to the Receivables originated by Solectron California Corporation to Solectron California Corporation and Solectron California Corporation hereby agrees to perform such duties and obligations pursuant to the terms hereof. Section 4.2. Duties of Servicer. (a) The Servicer shall take or cause to be taken all such action as may be necessary or advisable to collect each Pool Receivable from time to time, all in accordance with this Agreement and all applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy. The Servicer shall set aside (and, if applicable, segregate) and hold in trust for the accounts of the Seller and the Issuer the amount of the Collections to which each is entitled in accordance with Article I hereto. The Servicer may, in accordance with the Credit and Collection Policy, extend the maturity of any Pool Receivable (but not beyond thirty (30) days) and extend the maturity or adjust the Outstanding Balance of any Defaulted Receivable as the Servicer may determine to be appropriate to maximize Collections thereof; provided, however, that (i) such extension or adjustment shall not alter the status of such Pool Receivable as a Delinquent Receivable or a Defaulted Receivable or limit the rights of the Issuer or the Administrator under this Agreement and (ii) if a Termination Event has occurred and is continuing and Solectron is still serving as Servicer, Solectron may make such extension or adjustment only upon the prior written approval of the Administrator. The Seller shall deliver (and shall cause each Originator to deliver) to the Servicer and the Servicer shall hold for the benefit of the Seller and the Administrator (for the benefit of the Issuer and individually) in accordance with their respective interests, all records and documents (including without limitation computer tapes or disks) with respect to each Pool Receivable. Notwithstanding anything to the contrary contained herein, the Administrator may direct the Servicer (whether the Servicer is Solectron or any other Person) to commence or settle any legal action to enforce collection of any Pool Receivable or to foreclose upon or repossess any Related Security; provided, however, that no such direction may be given unless a Termination Event has occurred and is continuing. (b) The Servicer shall as soon as practicable following actual receipt of collected funds turn over to the Seller the collections of any indebtedness that is not a Pool Receivable, less, in the event that Solectron or one of its Affiliates is not the Servicer, all reasonable and appropriate out-of-pocket costs and expenses of such Servicer of servicing, collecting and administering such collections; provided, however, the Servicer shall not be under any obligation to remit any such funds to the Seller unless and until the Servicer has received from the Seller evidence satisfactory to the Administrator and the Servicer that the Seller is entitled to such funds hereunder and under applicable law. The Servicer, if other than Solectron or one of its Affiliates, shall as soon as 14 practicable upon demand, deliver to the Seller all records in its possession which evidence or relate to any indebtedness that is not a Pool Receivable, and copies of records in its possession which evidence or relate to any indebtedness that is a Pool Receivable. (c) Notwithstanding anything to the contrary contained in this Article IV, the Servicer, if not Solectron or one of its Affiliates, shall have no obligation to collect, enforce or take any other action described in this Article IV with respect to any indebtedness that is not a Pool Receivable other than to deliver to the Seller the collections and documents with respect to any such indebtedness as described in Section 4.2(b). It is expressly understood and agreed by the parties that such Servicer's duties in respect of any indebtedness that is not a Pool Receivable are set forth in this Section 4.2 in their entirety. Upon delivery by such Servicer of funds or records relating to any indebtedness that is not a Pool Receivable to the Seller, such Servicer shall have discharged in full all of its responsibilities to make any such delivery. (d) The Servicer's obligations (other than indemnity obligations) hereunder shall terminate on the later of (i) the Facility Termination Date and (ii) the date on which all amounts required to be paid to the Issuer, the Administrator and any other Indemnified Party or Affected Person hereunder shall have been paid in full. After such termination, the Servicer shall promptly deliver to the Seller all books, records and related materials that the Seller previously provided to the Servicer in connection with this Agreement. Section 4.3. Lock-Box Arrangements. On or prior to February 26, 1999, to the extent requested by the Administrator, the Seller shall enter into Lock-Box Agreements with all of the Lock-Box Banks to reflect the changes incorporated in the Purchase and Sale Agreement and this Agreement and shall deliver original counterparts thereof to the Administrator. Upon the occurrence and during the continuance of a Termination Event, the Administrator may at any time thereafter (i) give notice to each Lock-Box Bank that the Administrator is assuming exclusive ownership and control of the Lock-Box Accounts, and (ii) take any or all other actions permitted under the applicable Lock-Box Agreement or under applicable law, including causing the proceeds that are sent to the respective Lock-Box Accounts to be redirected pursuant to the Administrator's instructions rather than deposited in the applicable Lock-Box Account. Each of the Seller and the Servicer hereby agrees that if the Administrator, at any time, takes any action set forth in the preceding sentence, the Administrator shall have exclusive control of the proceeds (including Collections) of all Pool Receivables and each of the Seller and the Servicer hereby further agrees to take any other action that the Administrator may reasonably request to transfer such control. Any proceeds of Pool Receivables received by the Seller or the Servicer thereafter shall be sent immediately to the Administrator. The parties hereto hereby acknowledge that if at any time the Administrator takes control of any Lock-Box Account, the Administrator shall not have any rights to the funds therein in excess of the unpaid amounts due to the Administrator, the Issuer or any other Person hereunder and the Administrator shall distribute or cause to be distributed such funds in accordance with Section 4.2(b) hereof (including the proviso thereto) and Article I hereof (in each case as if such funds were held by the Servicer thereunder); provided, however, that the Administrator shall not be under any obligation to remit any such funds to the Seller or any other Person unless and until the Administrator has received from the Seller or such Person evidence 15 satisfactory to the Administrator that the Seller or such Person is entitled to such funds hereunder and under applicable law. Section 4.4. Enforcement Rights. (a) At any time following the occurrence of a Termination Event or the designation of a Servicer (other than Solectron or any of its Affiliates) pursuant to Section 4.1 hereof: (i) the Administrator may direct the Obligors that payment of all amounts payable under any Pool Receivable be made directly to the Administrator or its designee; (ii) the Administrator may instruct the Seller to give notice of the Issuer's interest in Pool Receivables to each Obligor, which notice shall direct that payments be made directly to the Administrator or its designee, and upon such instruction from the Administrator the Seller shall give such notice at the expense of the Seller; provided, that if the Seller fails to so notify each Obligor, the Administrator may so notify the Obligors; and (iii) the Administrator may request the Seller to, and upon such request the Seller shall, (A) assemble all of the records necessary or desirable to collect the Pool Receivables and the Related Assets, and transfer or license the use of, to the new Servicer, all software necessary or desirable to collect the Pool Receivables and the Related Assets, and make the same available to the Administrator or its designee at a place selected by the Administrator, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections with respect to the Pool Receivables in a manner acceptable to the Administrator and, promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Administrator or its designee. (b) Upon the occurrence and during the continuation of any Unmatured Termination Event or Termination Event or any event that materially and adversely affects the Servicer's ability to perform its obligations hereunder or the collectibility of the Receivables, the Seller hereby authorizes the Administrator, and irrevocably appoints the Administrator as its attorney-in-fact with full power of substitution and with full authority in the place and stead of the Seller, which appointment is coupled with an interest, to take any and all steps in the name of the Seller and on behalf of the Seller necessary or desirable, in the determination of the Administrator, to collect any and all amounts or portions thereof due under any and all Pool Receivables or Related Assets, including, without limitation, endorsing the name of the Seller on checks and other instruments representing Collections and enforcing such Pool Receivables and Related Assets. Notwithstanding anything to the contrary contained in this subsection (b), none of the powers conferred upon such attorney-in-fact pursuant to the immediately preceding sentence shall subject such attorney-in-fact to any liability if any action taken by it shall prove to be inadequate or invalid, nor shall they confer any obligations upon such attorney-in-fact in any manner whatsoever. Section 4.5. Responsibilities of the Seller and Servicer. (a) Anything herein to the contrary notwithstanding, Solectron shall cause each Originator to perform all of its obligations under the Contracts related to the Pool Receivables to the same extent as if interests in such Pool Receivables 16 had not been transferred hereunder and the exercise by the Administrator or the Issuer of its rights hereunder shall not relieve Solectron or such Originator from such obligations, and the Seller shall pay when due any taxes, including, without limitation, any sales taxes payable in connection with the Pool Receivables and their creation and satisfaction. The Administrator and the Issuer shall not have any obligation or liability with respect to any Pool Receivable or any Related Assets, nor shall any of them be obligated to perform any of the obligations of the Seller or Solectron or each Originator under any of the foregoing. (b) Solectron hereby irrevocably agrees that if at any time it shall cease to be the Servicer hereunder, it shall act (if the then current Servicer so requests) as the data-processing agent of the Servicer and, in such capacity, Solectron shall conduct the data-processing functions of the administration of the Receivables and the Collections thereon in substantially the same way that Solectron conducted such data-processing functions while it acted as the Servicer. Section 4.6. Servicing Fee. For so long as the Servicer is Solectron or an Affiliate of Solectron, the Servicer shall be paid a fee, through distributions contemplated by Section 1.4(d), equal to 0.50% per annum of the average outstanding Capital. If the Servicer is not Solectron or an Affiliate of Solectron, then the Servicer shall be paid a fee, through distributions contemplated by Section 1.4(d), in an amount negotiated in good faith by such Servicer and by the Administrator in the Administrator's sole discretion (which fee shall be based on a per annum percentage rate agreed upon by such Servicer and the Administrator). ARTICLE V MISCELLANEOUS Section 5.1. Amendments, Etc. No amendment or waiver of any provision of this Agreement or consent to any departure by the Seller or Servicer therefrom shall be effective unless in a writing signed by the Administrator, and, in the case of any amendment, by the Seller and the Servicer and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Issuer or Administrator to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. Section 5.2. Notices, Etc. All notices and other communications hereunder shall, unless otherwise stated herein, be in writing (which shall include facsimile communication) and sent or delivered, to each party hereto, at its address set forth under its name on the signature pages hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto. Notices and communications by facsimile shall be effective when sent (and shall be followed by hard copy sent by first class mail), and notices and communications sent by other means shall be effective when received. 17 Section 5.3. Assignability. (a) This Agreement and the Issuer's rights and obligations herein (including ownership of the Purchased Interest) shall be assignable, in whole or in part, by the Issuer and its successors and assigns with the prior written consent of the Seller; provided, however, that such consent shall not be unreasonably withheld; and provided, further, however, that no such consent shall be required if the assignment is made to Bank of America, any Affiliate of Bank of America (other than a director or officer of Bank of America), any Purchaser or other Program Support Provider or any Person which is (i) in the business of issuing short-term promissory notes and (ii) associated with or administered by Bank of America or any Affiliate of Bank of America. Each assignor may, in connection with the assignment, disclose to the applicable assignee any information relating to Solectron, the Seller or the Pool Receivables furnished to such assignor by or on behalf of Solectron, the Seller, the Issuer or the Administrator. (b) The Issuer may at any time grant to one or more banks or other institutions (each a "Purchaser") party to the Liquidity Asset Purchase Agreement or to any other Program Support Provider participating interests in the Purchased Interest. In the event of any such grant by the Issuer of a participating interest to a Purchaser or other Program Support Provider, the Issuer shall remain responsible for the performance of its obligations hereunder. The Seller agrees that each Purchaser or other Program Support Provider shall be entitled to the benefits of Sections 1.8, 1.9 and 1.10 with respect to its participating interest. (c) This Agreement and the rights and obligations of the Administrator hereunder shall be assignable, in whole or in part, by the Administrator and its successors and assigns. (d) Except as provided in Section 4.1(d), neither the Seller nor the Servicer may assign its rights or delegate its obligations hereunder or any interest herein without the prior written consent of the Administrator. (e) Without limiting any other rights that may be available under applicable law, the rights of the Issuer may be enforced through it or by its agents. Section 5.4. Costs, Expenses and Taxes. (a) In addition to the rights of indemnification granted under Section 3.1 hereof, the Seller agrees to pay on demand all costs and expenses in connection with the preparation, execution, delivery and administration (including, without limitation, periodic auditing of Pool Receivables) of this Agreement, the Purchase and Sale Agreement, the Liquidity Asset Purchase Agreement, any asset purchase agreement, reimbursement agreement, letter of credit or similar agreement relating to the sale or transfer of interests in Purchased Interests and the other documents and agreements to be delivered hereunder, and of any amendment, modification or waiver of any of the foregoing, including, without limitation, Attorney Costs for the Administrator, the Issuer and their respective Affiliates and agents with respect thereto and with respect to advising the Administrator, the Issuer and their respective Affiliates and agents as to their rights and remedies under this Agreement and the other Transaction Documents, and all costs and expenses, if any (including, without limitation, Attorney Costs), of the Administrator, the Issuer and their respective Affiliates and agents, in connection with the enforcement of this Agreement and the other Transaction Documents. 18 (b) In addition, the Seller shall pay on demand any and all stamp and other taxes and fees payable in connection with the execution, delivery, filing and recording of this Agreement or the other documents or agreements to be delivered hereunder, and agrees to save each Indemnified Party harmless from and against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. Section 5.5. No Proceedings; Limitation on Payments. Each of the Seller, the Servicer, the Administrator, each assignee of the Purchased Interest or any interest therein and each Person which enters into a commitment to purchase the Purchased Interest or interests therein hereby covenants and agrees that it will not institute against, or join any other Person in instituting against, the Issuer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or other proceeding under any federal or state bankruptcy or similar law, for one year and one day after the latest maturing Note issued by the Issuer is paid in full. Section 5.6. Confidentiality. Unless otherwise required by applicable law, the Seller and the Servicer each agree to maintain the confidentiality of this Agreement and the other Transaction Documents (and all drafts thereof) in communications with third parties and otherwise; provided that this Agreement may be disclosed to (a) third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the Administrator, and (b) the Seller's legal counsel and auditors if they agree to hold it confidential. Section 5.7. GOVERNING LAW AND JURISDICTION. (a)THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF), EXCEPT TO THE EXTENT THAT THE PERFECTION (OR THE EFFECT OF PERFECTION OR NON-PERFECTION) OF THE INTERESTS OF THE ISSUER IN THE POOL RECEIVABLES, AND THE OTHER ITEMS DESCRIBED IN SECTION 1.2(d), IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF ILLINOIS. (b) EACH SOLECTRON PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT OF THE NORTHERN DISTRICT OF ILLINOIS, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH ILLINOIS STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT IN 19 ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATOR OR THE ISSUER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT AGAINST ANY SOLECTRON PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION. EACH SOLECTRON PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT IN ANY COURT REFERRED TO IN THIS CLAUSE (b). EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT. EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 5.2. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. Section 5.8. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Section 5.9. Survival of Termination. The provisions of Sections 1.8, 1.9, 1.10, 3.1, 3.2, 5.4, 5.5, 5.6, 5.7 , 5.10 and 5.13 (and this Section 5.9) shall survive any termination of this Agreement except that the provisions of Sections 1.8, 1.9 and 1.10 shall survive only for a period of six months following such termination; provided that the lapse of such six month period shall not limit or prevent the effectiveness of any request or demand for payment under Section 1.8, 1.9 or 1.10 which has made prior to the end of such six month period. Section 5.10. WAIVER OF JURY TRIAL. THE ISSUER, THE SELLER, THE SERVICER AND THE ADMINISTRATOR EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR INDEMNIFIED PARTY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE ISSUER, THE SELLER, THE SERVICER AND THE ADMINISTRATOR EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING 20 THE FOREGOING, EACH OF THE PARTIES HERETO FURTHER AGREES THAT ITS RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR ANY PROVISION HEREOF OF THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, AMENDMENTS AND RESTATEMENTS, OR MODIFICATIONS TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT (INCLUDING WITHOUT LIMITATION ANY EXTENSION OF THE FACILITY TERMINATION DATE). Section 5.11. Entire Agreement. This Agreement embodies the entire agreement and understanding between the Issuer, the Seller, the Servicer and the Administrator, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof, except for that certain letter referred to in Section 1.5. The Exhibits, Schedules and Annex to this Agreement shall be deemed incorporated into this Agreement as if set forth herein. Section 5.12. Headings. The captions and headings of this Agreement and in any Exhibit, Schedule or Annex hereto are for convenience of reference only and shall not affect the interpretation hereof or thereof. Section 5.13. Issuer's Liabilities. The obligations of the Issuer under this Agreement are solely the corporate obligations of the Issuer. No recourse shall be had for any obligation or claim arising out of or based upon this Agreement against MLMMI or against any stockholder, employee, officer, director or incorporator of the Issuer. For purposes of this paragraph, "MLMMI" shall mean and include Merrill Lynch Money Markets, Inc. and all affiliates thereof and any employee, officer, director, incorporator, shareholder or beneficial owner of any of them; provided, however, that the Issuer shall not be considered to be an affiliate of MLMMI; and provided, further, that this Section 5.13 shall not relieve any such Person of any liability it might otherwise have for its own gross negligence or willful misconduct. The agreements provided in this Section 5.13 shall survive termination of this Agreement. Section 5.14. Purchase and Sale Agreement. In consideration of the obligations of the Issuer now or hereafter arising under this Agreement, the Seller hereby sells and assigns to the Administrator, for its benefit and the benefit of the Issuer, without any formal or other instrument of assignment all of the Seller's right, title and interest in, to and under the Purchase and Sale Agreement and the other Transaction Documents, and all rights, remedies, powers, privileges and claims of the Seller under the Purchase and Sale Agreement and the other Transaction Documents (whether arising pursuant to the terms of the Purchase and Sale Agreement (including Article VI of the Purchase and Sale Agreement) and the other Transaction Documents or otherwise available to the Seller at law or in equity) whether against any Originator, the Guarantor or otherwise, including without limitation, (i) the right of the Seller, at any time, to enforce the Purchase and Sale Agreement and any other Transaction Documents against each Originator and the Servicer, (ii) the 21 right to appoint a successor to the Servicer, (iii) the right, at any time, to give or withhold any and all consents, requests, notices, directions, approvals, demands, extensions or waivers under or with respect to the Purchase and Sale Agreement, any other Transaction Document or the obligations in respect of each Originator or Guarantor thereunder to the same extent as the Seller may do, and (iv) all of the Seller's rights, remedies, powers, privileges, and claims under or with respect to the Purchase and Sale Agreement and the other Transaction Documents (whether arising pursuant to the terms of the Purchase and Sale Agreement or any other Transaction Document or otherwise available at law or in equity). Notwithstanding the foregoing, the Seller shall nevertheless be permitted to give all consents, requests, notices, directions, approvals, demands, extensions or waivers, if any, which are required by the specific terms of the Purchase and Sale Agreement and the other Transaction Documents to be given by the Seller, unless the Administrator shall otherwise direct the Seller. The assignment pursuant to the first sentence of this Section 5.14 shall not relieve the Seller, any Originator, the Guarantor or Solectron from (or require the Issuer or the Administrator to undertake) the performance of any term, covenant or agreement on the part of the Seller, any Originator, the Guarantor or Solectron to be performed or observed under or in connection with the Purchase and Sale Agreement and the other Transaction Documents, any Pool Receivable or any Related Security. The Administrator and the Issuer acknowledge that the Seller may also grant an assignment as described in the first sentence of this Section 5.14, to the Parallel Purchase Administrator, for its benefit and the benefit of the Parallel Purchasers, under the Parallel Purchase Agreement and that the respective rights of the Administrator, the Issuer, the Parallel Purchase Administrator and the Parallel Purchasers with respect thereto shall be governed by the Intercreditor Agreement. 22 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. SOLECTRON FUNDING CORPORATION By: /s/ Susan A. Wang Name: Susan A. Wang Title: President 847 Gibraltar Drive Building 5 Milpitas, California 95035 Attention: Treasurer Telephone: (408) 956-6577 Facsimile: (408) 956-6062 SOLECTRON CORPORATION, in its individual capacity and as initial Servicer By: /s/ Susan A. Wang Name: Susan A. Wang Title: Sr. Vice President, CFO and Secy. 847 Gibraltar Drive Building 5 Milpitas, California 95035 Attention: Treasurer Telephone No. (408) 956-6577 Facsimile No. (408) 956-6062 S-1 SOLECTRON TECHNOLOGY, INC., as Sub-Servicer By: /s/ Robert Aeschliman Name: Robert Aeschliman Title: Assistant Secretary 6800 Solectron Drive Charlotte, North Carolina 28262 Attention: _____________________ Telephone No.: _________________ Facsimile No.: __________________ SOLECTRON CALIFORNIA CORPORATION, as Sub-Servicer By: /s/ Susan A. Wang Name: Susan A. Wang Title: Chief Financial Officer and Secy. 847 Gibraltar Drive Building 5 Milpitas, California 95035 Attention: Treasurer Telephone No. (408) 956-6577 Facsimile No. (408) 956-6062 S-2 QUINCY CAPITAL CORPORATION By:/s/ Juliana C. Johnson Name: Juliana C. Johnson Title: Vice President c/o AMACAR Group LLC 6707 Fairview Road Charlotte, North Carolina 28210 Attention: Elizabeth Eldredge Telephone No. (704) 365-0569 Facsimile No. (704) 365-1362 with a copy to: Bank of America National Trust and Savings Association 231 South LaSalle Street Chicago, Illinois 60697 Attention: John Svolos Telephone No. (312) 828-6220 Facsimile No. (312) 923-0273 S-3 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Administrator By: /s/ Erle R.L. Archer Name: Erle R.L. Archer 231 South LaSalle Street Chicago, Illinois 60697 Attention: John Svolos Telephone No. (312) 828-6220 Facsimile No. (312) 923-0273 S-4 EXHIBIT I DEFINITIONS As used in the foregoing Second Amended and Restated Receivables Purchase Agreement (including (i) in its Exhibits and (ii) in any other Transaction Document that refers to the definitions set forth in this Exhibit)), the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined). Unless otherwise indicated, all Section, Annex, Exhibit and Schedule references in this Exhibit are to Sections of and Annexes, Exhibits and Schedules to the Agreement. "Administration Account" means the special account (account number 47-03421) of the Issuer maintained at the office of Bank of America at 231 South LaSalle Street, or such other account as may be so designated in writing from time to time by the Administrator to the Seller and the Servicer. "Administrator" has the meaning set forth in the preamble to the Agreement. "Adverse Claim" means a Lien, security interest or other encumbrance, it being understood that a Lien, security interest or other encumbrance, in favor of the Issuer or Parallel Purchaser or the Administrator or the Parallel Purchase Administrator shall not constitute an Adverse Claim. "Affected Person" has the meaning set forth in Section 1.8. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person, except that with respect to the Issuer, Affiliate shall mean the holder(s) of its capital stock. "Agreement" means the Second Amended and Restated Receivables Purchase Agreement dated as of February 22, 1999 among Solectron Funding Corporation, as Seller, Solectron Corporation, individually and as Servicer, Quincy Capital Corporation, as Issuer and Bank of America National Trust and Savings Association, as Administrator, as the same may be amended, supplemented or otherwise modified from time to time. "Alternate Rate" for any Fixed Period for any Portion of Capital of the Purchased Interest means an interest rate per annum equal to (a) 0.55% per annum above the Eurodollar Rate for such Fixed Period (or, if such Portion of Capital has been funded for three consecutive one-month Fixed Periods at an Alternate Rate based upon the Eurodollar Rate, 0.625% per annum above the Eurodollar Rate for such Fixed Period) or (b) the Base Rate for such Fixed Period; provided, however, that in the case of I-1 (i) any Fixed Period on or prior to the first day of which the Administrator shall have been notified by the Issuer or a Purchaser or other Program Support Provider that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other Governmental Authority asserts that it is unlawful, for the Issuer or such Purchaser or other Program Support Provider to fund any Portion of Capital (based on the Eurodollar Rate) set forth above (and the Issuer or such Purchaser or other Program Support Provider shall not have subsequently notified the Administrator that such circumstances no longer exist), (ii) any Fixed Period of one to (and including) 13 days, (iii) any Fixed Period as to which the Administrator does not receive notice, by no later than 11:00 a.m.(San Francisco time) on (w) the Business Day preceding the first day of such Fixed Period that the Seller desires that the related Portion of Capital be funded at the CP Rate, (x) the third Business Day preceding the first day of such Fixed Period that the Seller desires that the related Portion of Capital be funded at the Alternate Rate and based on the Eurodollar Rate, or (y) the Seller has given the notice contemplated by clause (w) of this clause (iii) and the Administrator shall have notified the Seller that funding the related Portion of Capital at the CP Rate is unacceptable to the Issuer due to market conditions, or (iv) any Fixed Period relating to a Portion of Capital which is less than $1,000,000, the "Alternate Rate" for each such Fixed Period shall be an interest rate per annum equal to the Base Rate in effect on each day of such Fixed Period. The "Alternate Rate" for any Termination Day shall be an interest rate equal to 2% per annum above the Base Rate in effect on such day. "Amended and Restated Receivables Purchase Agreement" means the Amended and Restated Receivables Purchase Agreement dated as of October 31, 1998 among Solectron Funding Corporation, as Seller, Solectron Corporation, individually and as Servicer, Receivables Capital Corporation, as Issuer and Bank of America National Trust and Savings Association, as Administrator, as amended, supplemented or otherwise modified in accordance with its terms and in effect immediately prior to the effectiveness of the Agreement. "Applicable Concentration Percentage" for any Obligor means at any time (i) 16.0% if such obligor is a Special Obligor; (ii) 12.0% if (A) its Rated Long Term Debt is rated at least AA- or Aa3 or its Rated Short Term Debt is rated at least A-1+ or P-1, in each case by Standard & Poor's or Moody's, respectively or (B) such Obligor is a Designated Obligor; (iii) 8.0% if its Rated Long Term Debt is rated at least BBB+ or Baa1 or its Rated Short Term Debt is rated at least A-2 or P-2, in each case by Standard & Poor's or Moody's, respectively; (iv) 6.0% if its Rated Long Term Debt is rated at least Investment Grade; and (v) the Normal Concentration Percentage if such Obligor has no outstanding Investment Grade Rated Long Term Debt; provided, that the Administrator may at any time, by written notice to the Servicer, reduce the Applicable Concentration Percentage for any Obligor to the Normal Concentration Percentage if the Administrator determines in good faith that I-2 the creditworthiness of such Obligor is not sufficient to support a concentration percentage greater than the Normal Concentration Percentage. "Attorney Costs" means and includes all reasonable fees and disbursements of any law firm or other external counsel, the allocated cost of internal legal services and all disbursements of internal counsel. "Average Maturity" means at any time that period of days equal to the average maturity of the Pool Receivables calculated by the Servicer in the then most recent Seller Report; provided that if the Administrator shall have a reasonable basis to disagree with any such calculation, the Administrator may recalculate such Average Maturity, and any such recalculation shall be prima facie evidence of such Average Maturity. "Bank of America" means Bank of America National Trust and Savings Association, a national banking association. "Bankruptcy Code" means the United States Bankruptcy Reform Act of 1978 (11 U.S.C.ss. 101, et seq.), as amended from time to time. "Base Rate" means for any day, a fluctuating interest rate per annum as shall be in effect from time to time, which rate shall be at all times equal to the higher of: (a) the rate of interest in effect for such day as publicly announced from time to time by Bank of America in San Francisco, California, as its "reference rate." It is a rate set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate; and (b) 0.50% per annum above the latest Federal Funds Rate. "Business Day" means any day on which (i) banks are not authorized or required to close in Chicago, New York City or San Francisco and (ii) if this definition of "Business Day" is utilized in connection with the Eurodollar Rate, dealings are carried out in the London interbank market. "Capital" means with respect to each of the Agreement and the Parallel Asset Purchase Agreement, as applicable, the amount paid to the Seller in respect of the Purchased Interest by the Issuer or the Parallel Purchasers pursuant to the Agreement or the Parallel Asset Purchase Agreement, as applicable, in each case reduced from time to time by Collections distributed and applied on account of such Capital pursuant to Section 1.4(d) of the Agreement or the Parallel Purchase Agreement, as applicable, and increased from time to time by reinvestments pursuant to Section 1.4(b)(ii) of the Agreement or the Parallel Asset Purchase Agreement, as applicable; provided, that if such Capital shall have been reduced by any distribution and thereafter all or a I-3 portion of such distribution is rescinded or must otherwise be returned for any reason, such Capital shall be increased by the amount of such rescinded or returned distribution, as though it had not been made. The amount of Capital outstanding under each of the Agreement or the Parallel Asset Purchase Agreement, as the case may be, shall be computed separately for each such agreement by reference to the amount paid to the Seller under such agreement in respect of the separately computed Purchased Interest acquired by the Issuer under the Agreement or the Parallel Purchasers under the Parallel Asset Purchase Agreement. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under generally accepted accounting principles, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with generally accepted accounting principles. "Change of Control" means any of the following events or circumstances: (a) any Person or "group" (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended) shall either (i) acquire beneficial ownership of more than 35% of any outstanding class of common stock of Solectron having ordinary voting power in the election of directors of Solectron or (ii) obtain the power (whether or not exercised) to elect a majority of Solectron's directors; (b) Solectron or the Seller shall (i) merge with any other Person and not be the surviving company or (ii) sell all or substantially all of its assets to another Person; (c) any Person or "group" (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended) other than Solectron or any of its subsidiaries shall either (i) acquire beneficial ownership of more than 35% of any outstanding class of common stock of Solectron California or Solectron Technology, Inc. or (ii) obtain the power (whether or not exercised) to elect a majority of either Solectron California's or Solectron Technology's directors; or (d) a majority of the Board of Directors of Solectron shall not be Continuing Directors. As used in this definition, "Continuing Directors" shall mean the directors of Solectron on the date of this Agreement and each other director of Solectron, if such other director's nomination for election to the Board of Directors of Solectron is recommended by a majority of the then Continuing Directors. "Collections" means, with respect to any Pool Receivable, (a) all funds (regardless of whether in the form of cash, checks, money orders, wire transfers, money-grams or otherwise) which are received by an Originator, the Seller, the Servicer or the Administrator in payment of any amounts owed in respect of such Receivable (including, without limitation, purchase price, finance charges, interest and all other charges), or applied to amounts owed in respect of such Receivable I-4 (including, without limitation, insurance payments and net proceeds of the sale or other disposition of repossessed goods or other collateral or property of the related Obligor or any other Person directly or indirectly liable for the payment of such Pool Receivable and available to be applied thereon), (b) all amounts deemed to have been received pursuant to Section 1.4(e) of the Agreement or the Parallel Purchase Agreement or Section 1.8 of the Purchase and Sale Agreement and (c) all other proceeds of such Receivable (regardless of whether in the form of cash, checks, money orders, wire transfers, money-grams or otherwise). "Contract" means, with respect to any Receivable, any and all contracts, understandings, instruments, agreements, leases, invoices, notes, or other writings pursuant to which such Receivable arises or which evidences such Receivable or under which an Obligor becomes or is obligated to make payment in respect of such Receivable. "CP Rate" for any Fixed Period for any Portion of Capital of the Purchased Interest means, to the extent the Issuer funds such Portion of Capital for such Fixed Period by issuing Notes, the per annum rate equivalent to the "weighted average cost" (as defined below) related to the issuance of Notes that are allocated, in whole or in part, by the Issuer or the Administrator to fund or maintain such Portion of Capital (and which may also be allocated in part to the funding of other Portions of Capital hereunder or of other assets of the Issuer); provided, however, that if any component of such rate is a discount rate, in calculating the "CP Rate" for such Portion of Capital for such Fixed Period, the Issuer shall for such component use the rate resulting from converting such discount rate to an interest bearing equivalent rate per annum. As used in this definition, the Issuer's "weighted average cost" shall consist of (w) the actual interest rate (or discount) paid to purchasers of the Issuer's Notes, together with the commissions of placement agents and dealers in respect of such Notes, to the extent such commissions are allocated, in whole or in part, to such Notes by the Issuer or the Administrator, (x) certain documentation and transaction costs associated with the issuance of such Notes, (y) any incremental carrying costs incurred with respect to Notes maturing on dates other than those on which corresponding funds are received by the Issuer, and (z) other borrowings by the Issuer (other than under any Program Support Agreement), including borrowings to fund small or odd dollar amounts that are not easily accommodated in the commercial paper market. "Credit and Collection Policy" means those receivables credit and collection policies and practices in effect on the date of the Agreement and described in Schedule I hereto, as modified in compliance with the Agreement. "Defaulted Receivable" means a Receivable: (i) as to which any payment, or part thereof, remains unpaid for at least 151 days from the original customer billing date for such payment; (ii) as to which the Obligor thereof or any other Person obligated thereon or owning any Related Security in respect thereof has taken any action, or suffered any event to occur, of the type described in paragraph (g) of Exhibit V hereto; or I-5 (iii) (a) which, consistent with the Credit and Collection Policy, would be written off as uncollectible or (b) which has been written off as uncollectible. "Delinquency Ratio" means the ratio (expressed as a percentage) computed as of each Month-End Date having (a) a numerator that is equal to the aggregate Outstanding Balance of Delinquent Receivables as of that Month-End Date and (b) a denominator that is the aggregate Outstanding Balance of Receivables as of that Month-End Date. "Delinquent Receivable" means any Receivable that is not a Defaulted Receivable as to which any payment, or part thereof, remains unpaid for at least 91 days from the original customer billing date for such Receivable. "Designated Obligor" means, as of the date hereof, Cisco Systems, Inc. and Sun Microsystems, Inc., and thereafter, shall include any other Obligor designated as such in writing by the Administrator to the Servicer, until such time as the Administrator shall have notified the Servicer in writing that such Obligor is no longer a Designated Obligor hereunder (it being understood that the Administrator shall not notify the Servicer that an Obligor is no longer a Designated Obligor absent a good-faith determination on its part that such Obligor's credit has declined). "Dilution Horizon Variable" means, at any time, a ratio having (a) a numerator equal to the sum of the aggregate amounts payable pursuant to invoices giving rise to Receivables (without giving effect to any payments received with respect to such invoices) and generated by the Originators during the calendar month ending on the most recent Month-End Date and (b) a denominator equal to the aggregate Outstanding Balance of all Eligible Receivables as of the most recent Month-End Date. "Dilution Percentage" means, for any calendar month, the result (expressed as a percentage) calculated in accordance with the following formula: {(2.0 x ADR) + [(HDR-ADR) x (HDR/ADR)]} x DHV where: ADR = the average of the Sales-Based Dilution Ratios during the period of 12 consecutive calendar months ending on the related Month-End Date. DHV = the Dilution Horizon Variable. HDR = the highest Sales-Based Dilution Ratio for any calendar month within the 12 consecutive calendar months ending on the related Month-End Date. I-6 "Discount" means: (i) for the Portion of Capital of the Purchased Interest for any Fixed Period to the extent the Issuer will be funding such Portion of Capital on the first day of such Fixed Period through the issuance of Notes, CPR x C x ED + TF --- 360 (ii) for the Portion of Capital of the Purchased Interest for any Fixed Period to the extent the Issuer will not be funding such Portion of Capital on the first day of such Fixed Period through the issuance of Notes, ED --- AR x C x 360 + TF where: AR = the Alternate Rate for the Portion of Capital of the Purchased Interest for such Fixed Period C = the Portion of Capital of the Purchased Interest during such Fixed Period CPR = the CP Rate for the Portion of Capital of the Purchased Interest for such Fixed Period ED = the actual number of days during such Fixed Period TF = the Termination Fee, if any, for the Portion of Capital of the Purchased Interest for such Fixed Period ; provided that (x) no provision of the Agreement or the Parallel Purchase Agreement shall require the payment or permit the collection of Discount in excess of the maximum permitted by applicable law; (y) that Discount for the Portion of Capital of the Purchased Interest shall not be considered paid by any distribution to the extent that at any time all or a portion of such distribution is rescinded or must otherwise be returned for any reason and (z) on each day during any Period when the Issuer shall have indicated pursuant to Section 1.2.(a) that it will not purchase or reinvest in the Purchased Interest under the Agreement, Discount will accrue on each remaining Portion of Capital under the Agreement at the highest rate then applicable to any Portion of Capital under the Parallel Purchase Agreement. "Discount Rate Percentage" has the meaning set forth in Section 1.5(d) of the Purchase and Sale Agreement. I-7 "Discount Reserve" for the Purchased Interest under the Agreement or the Parallel Purchase Agreement at any time means the sum of (i) the Termination Discount at such time for such Purchased Interest, and (ii) the then accrued and unpaid Discount for such Purchased Interest. "Dividend" means in respect of any corporation or any Solectron Party, as the case may be, (i) cash distributions or any other distributions on, or in respect of, any class of capital stock of such corporation or such Solectron Party, as the case may be, except for distributions made solely in shares of stock of the same class, and (ii) any and all funds, cash or other payments made in respect of the redemption, repurchase or acquisition of such stock, unless such stock shall be redeemed or acquired through the exchange of such stock with stock of the same class. "Effective Date" means the date upon which (i) all Conditions of Purchases in Section 1 of Exhibit I to the Purchase and Sale Agreement and (ii) all Conditions of Purchase in Section 1 of Exhibit II to this Agreement are fulfilled; provided that Administrator shall notify Solectron when the Effective Date has occurred and such notice need not be in written form. "Eligible Receivables" means, at any time, Receivables: (i) the Obligor of which is a United States resident or a resident of such other jurisdiction as has been approved in writing by the Administrator, is not an Affiliate of any Solectron Party, is not a government or a governmental subdivision or agency or instrumentality, is not declared ineligible by the Administrator, is not subject to any action of the type described in paragraph (g) of Exhibit V, and is not an Excluded Obligor; (ii) which are denominated and payable only in U.S. dollars in the United States; (iii) which have a stated maturity and which stated maturity is not more than 91 days after the customer billing date of such Receivable; (iv) which arise in the ordinary course of the applicable Originator's business; (v) which arise under a Contract which is in full force and effect and which is a legal, valid and binding obligation of the related Obligor, enforceable against such Obligor in accordance with its terms; (vi) which conform with all applicable laws, rulings and regulations in effect; (vii) which are not the subject of any asserted dispute (whether or not in writing), offset, hold back defense, Adverse Claim or other claim and which do not arise from the sale of inventory which is subject to any Adverse Claim (other than Permitted Liens of the types described in clauses (a), (b) and (h) of the definition of Permitted Liens), it being understood that if a dispute pertains only to a portion of the Outstanding Balance of an otherwise Eligible Receivable, such portion shall be reduced in accordance with Section 1.4(e)(i) of the Agreement and the remaining portion may continue to be characterized as a Eligible I-8 Receivable, subject to satisfying the other requirements of this definition of Eligible Receivables; (viii) which comply with the requirements of the Credit and Collection Policy; (ix) which arise from the completion of the sale and delivery of goods or services performed, and which do not represent an invoice in advance of such completion; (x) which are not subject to any contingent performance requirements of the applicable Originator unless such requirements are guaranteed or insured by third parties acceptable to the Administrator; (xi) which do not require the consent of the related Obligor to be sold or assigned; (xii) which have not been modified or restructured since their creation, except as permitted pursuant to Section 4.2 of the Agreement; (xiii) (A) to which the applicable Originator has good and marketable title immediately prior to the sale thereof to the Seller, and as to which the Seller has good and marketable title, and (B) which, immediately prior to the applicable Originator's sale thereof to the Seller, were freely assignable by such Originator and which are freely assignable by the Seller; (xiv) for which the Issuer shall have a valid, perfected and enforceable undivided percentage ownership interest, to the extent of the Purchased Interest, and for which the Administrator for its benefit and the benefit of the Issuer shall have a valid and enforceable first priority perfected security interest therein and in the Related Security and Collections with respect thereto, in each case free and clear of any Adverse Claim; (xv) which constitute "accounts" as defined in the UCC, and which are not evidenced by instruments or chattel paper; (xvi) which are not Defaulted Receivables; (xvii) for which the applicable Originator has established no offset arrangements with the related Obligor; (xviii) for which Defaulted Receivables of the related Obligor do not exceed 25% of all such Obligor's Receivables; (xix) which do not represent any amounts owing by any Obligor in respect of sales taxes, interest, late charges, or similar items; I-9 (xx) which meet the eligibility requirements appropriate to the specific type of Receivables which the Administrator may set based on aging, turnover, delinquency, loss, dilution, type or other factor that are necessary to maintain an A-1+/P-1 rating by S&P and Moody's respectively, on the Notes; (xxi) the Obligor of which has been instructed to make payment thereon to a Lock-Box Account or a post office box to which only Lock-Box Banks have access or otherwise solely in accordance with clause (j) of Exhibit IV of this Agreement; and (xxii) with respect to which the Administrator has not directed the Servicer (whether the Servicer is Solectron or any other Person) to commence or settle any legal action to enforce collection of such Receivable or to foreclose upon or repossess any Related Security which in good faith the Administrator believes that the failure to commence, settle, or effect such legal action, foreclosure or repossession could adversely affect Receivables constituting a material portion of the Pool Receivables; provided that, the Outstanding Balance of any Eligible Receivable shall be reduced by the aggregate amount of Indebtedness of the applicable Originator owing to the related Obligor or any of its Affiliates. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "Eurodollar Rate" means, for any Fixed Period, an interest rate per annum (rounded upward to the nearest 1/16th of 1%) determined pursuant to the following formula: Eurodollar Rate = LIBOR --------------------------- 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Reserve Percentage" means, for any Fixed Period, the maximum reserve percentage (expressed as a decimal, rounded upward to the nearest 1/100th of 1%) in effect on the date LIBOR for such Fixed Period is determined under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as "Eurocurrency Liabilities") having a term comparable to such Fixed Period; and "Excluded Obligor" means an Obligor, so designated from time to time in writing as such by the Administrator to the Servicer in the event that the Administrator reasonably considers such Obligor to be unacceptable due to the credit risk associated with such Obligor or due to I-10 the nature of such Obligor's business, it being understood that from time to time the Administrator may revoke its designation of one or more Obligors as Excluded Obligors by written notice to the Servicer. "Excluded Property" means any Collections released to Seller pursuant to Section 1.4(b)(iv). "Facility Termination Date" means the earliest to occur of (a) September 15, 1999, (b) the Purchase Termination Date, as defined in the Liquidity Asset Purchase Agreement, which on the date of the Agreement is September 15, 1999, or such later date designated as the Purchase Termination Date from time to time pursuant to the Liquidity Asset Purchase Agreement (it being understood that the Administrator shall notify the Servicer of the designation of such later date, provided that failure to provide such notice shall not limit or otherwise affect the obligations of the Servicer or the rights of the Administrator, the Issuer, or any other party to the Liquidity Asset Purchase Agreement), (c) the date of termination of the commitment under any other Program Support Agreement, (d) the date determined pursuant to Section 2.2, (e) the date the Purchase Limit reduces to zero pursuant to Section 1.1(c), and (f) the Purchase and Sale Termination Date under the Purchase and Sale Agreement. "Federal Funds Rate" means, for any period, the per annum rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Board (including any such successor, "H.15(519)") for such day opposite the caption "Federal Funds (Effective)". If on any relevant day such rate is not yet published in H.15(519), the rate for such day will be the rate set forth in the daily statistical release designated as the Composite 3:30 p.m. Quotations for U.S. Government Securities, or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m. Quotation") for such day under the caption "Federal Funds Effective Rate". If on any relevant day the appropriate rate for such previous day is not yet published in either H.15(519) or the Composite 3:30 p.m. Quotations, the rate for such day will be the arithmetic mean as determined by the Administrator of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Administrator. "Federal Reserve Board" means the Board of Governors of the Federal Reserve System, or any entity succeeding to any of its principal functions. "Final Payout Date" has the meaning set forth in the introductory paragraph to Exhibit IV. "Fixed Period" means, unless otherwise mutually agreed by the Administrator and the Seller, (a) with respect to any Portion of Capital funded by the issuance of Notes, (x) initially the period commencing on (and including) the date of the initial purchase or funding of such Portion of Capital and ending on (and including) the last day of the current calendar month, and (y) thereafter, each period commencing on (and including) the first day after the last day of the I-11 immediately preceding Fixed Period for such Portion of Capital and ending on (and including) the last day of the current calendar month; and (b) with respect to any Portion of Capital not funded by the issuance of Notes, (x) initially the period commencing on (and including) the date of the initial purchase or funding of such Portion of Capital and ending on (but excluding) the next following Settlement Date, and (y) thereafter, each period commencing on (and including) a Settlement Date and ending on (but excluding) the next following Settlement Date; provided, that (i) any Fixed Period with respect to any Portion of Capital not funded by the issuance of Notes which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day; provided, however, if Discount in respect of such Fixed Period is computed by reference to the Eurodollar Rate, and such Fixed Period would otherwise end on a day which is not a Business Day, and there is no subsequent Business Day in the same calendar month as such day, such Fixed Period shall end on the next preceding Business Day; (ii) in the case of any Fixed Period for any Portion of Capital of the Purchased Interest which commences before the Termination Date and would otherwise end on a date occurring after the Termination Date, such Fixed Period shall end on such Termination Date and the duration of each Fixed Period which commences on or after the Termination Date shall be of such duration as shall be selected by the Administrator or the Parallel Purchase Administrator, as applicable; (iii) any Fixed Period in respect of which Discount is computed by reference to the CP Rate may be terminated at the election of, and upon notice thereof to the Seller by, the Administrator any time; the Portion of Capital allocated to such terminated Fixed Period and shall accrue Discount at the Alternate Rate. "Funding Discount" has the meaning set forth in Section 1.5(c) of the Purchase and Sale Agreement. "Funding Rate" has the meaning set forth in Section 1.5(d) of the Purchase and Sale Agreement. "Generally Accepted Accounting Principles" or "generally accepted accounting principles" means generally accepted accounting principles at the time in the United States. Except as otherwise expressly provided, all references to generally accepted accounting principles shall be applied on a consistent basis. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any body or entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including without limitation any court, and any Person owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. I-12 "Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any matter, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. "Guarantor" has the meaning set forth in the preamble of the Purchase and Sale Agreement. "Hedging Agreement" means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid (excluding deferred compensation obligations owed to current and former directors, officers and employees), (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable, measured in accordance with generally accepted accounting principles, incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty supporting Indebtedness, (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances, and (k) all obligations, contingent or otherwise, with respect to synthetic leases or securitized assets. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. "Indemnified Amounts" has the meaning set forth in Section 3.1. I-13 "Indemnified Party" has the meaning set forth in Section 3.1. "Initial Purchase Date" means the date on which the initial purchase occurred under the Amended and Restated Receivables Purchase Agreement. "Initial Purchaser" has the meaning set forth in the preamble to the Purchase and Sale Agreement. "Initial Purchased Interest" has the meaning set forth in Section 1.1(a). "Initial Purchaser Note" means the non-negotiable promissory notes, set forth in Annex A to Purchase and Sale Agreement, issued by the Initial Purchaser to each Originator. "Insolvency Proceeding" means (a) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidations, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; in each case (a) and (b) undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. "Investment Grade" means, with respect to the Rated Long Term Debt of Solectron or any other Person, a rating of at least BBB- by Standard & Poor's or, with respect to the Rated Long Term Debt of any Person other than Solectron a rating of at least Baa3 by Moody's, or at least BBB- by Duff & Phelps Credit Rating Co.; provided, that if the Rated Long Term Debt of any Person other than Solectron is rated by more than one of the foregoing rating agencies, then at least one of such rating agencies which rates such securities shall have given them a rating at least equal to the categories specified above; and provided further, that if Solectron or any such other Person does not have Rated Long-Term Debt outstanding, the Administrator shall have received written materials reasonably satisfactory to the Administrator prepared by at least one of such rating agencies to the effect that if such Person did have Rated Long Term Debt securities outstanding, such securities would receive at least such a rating. "Intercreditor Agreement" means the Intercreditor Agreement, dated as of October 31, 1998, among the Issuer, the Administrator, the Parallel Purchase Administrator, and Solectron as the same may be amended, supplemented or otherwise modified from time to time. "Issuer" has the meaning set forth in the preamble to the Agreement. "LIBOR" means the rate of interest per annum determined by the Liquidity Agent to be the arithmetic mean (rounded upward to the nearest 1/16th of 1%) of the rates of interest per annum notified to the Liquidity Agent by each Reference Bank as the rate of interest at which dollar deposits in the approximate amount of the Capital associated with such Fixed Period would be offered to major banks in the London interbank market at their I-14 request at or about 11:00 a.m. (London time) on the second Business Day prior to the commencement of such Fixed Period. "Lien" means any mortgage, pledge, hypothecation, assignment deposit arrangement, security interest, encumbrance, lien (statutory or otherwise) 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 other similar recording or notice statute, and any lease in the nature thereof). "Liquidity Agent" means Bank of America in its capacity as Liquidity Agent pursuant to the Liquidity Asset Purchase Agreement. "Liquidity Asset Purchase Agreement" means that certain Liquidity Asset Purchase Agreement dated as of September 17, 1997 among Bank of America and the other financial institutions listed therein as the Purchasers, Bank of America, as Liquidity Agent and Administrator, and the Issuer, as amended, supplemented or otherwise modified from time to time. "Lock-Box Account" means a bank account subject to a Lock-Box Agreement. "Lock-Box Agreement" means an agreement, in substantially the form of Annex A, among the Seller, one or more Originators, the Servicer, the Issuer, the Administrator and a Lock-Box Bank. "Lock-Box Bank" means any of the banks or other financial institutions holding one or more Lock-Box Accounts. "Loss Discount" has the meaning set forth in Section 1.4(b) of the Purchase and Sale Agreement. "Loss Percentage" means, on any date, the greater of (i) the Loss Ratio on such date, and (ii) 12%. "Loss Ratio" means the result (expressed as a percentage), computed as of each Month-End Date, of (a) 2.0 multiplied by (b) the highest average of the Sales-Based Default Ratio for any three consecutive calendar months that occurred during the preceding 12 consecutive calendar months ending on such Month-End Date multiplied by (c) a fraction having (i) a numerator equal to the sum of the aggregate amounts payable pursuant to invoices giving rise to Receivables (without giving effect to any payments received with respect to such invoices) that were generated by each Originator during the six calendar months ending on such Month-End Date, and (ii) a denominator equal to the aggregate Outstanding Balance of all Eligible Receivables, as of such Month-End Date. "Loss Reserve" means, for the Purchased Interest under the Agreement or the Parallel Purchase Agreement, on any date, an amount equal to the greater of: I-15 (a): (LP + DP) x (AER); and (b): (16.0%) x (AER) where: LP = the Loss Percentage for such Purchased Interest on such date. DP = the Dilution Percentage for such Purchased Interest on such date. AER = the aggregate Outstanding Balance of all Eligible Receivables at the close of business of the Servicer on such date. "Majority Parallel Purchasers" means, at any time, Parallel Purchasers with Percentages under the Parallel Purchase Agreement that are more than 50% in the aggregate. "Maximum Parallel Purchase" means, with respect to each Parallel Purchaser and the Parallel Purchase Agreement, the maximum amount of Capital which such Parallel Purchaser is obligated to pay in respect of the Purchased Interest acquired by the Parallel Purchasers under such Parallel Purchase Agreement, as set forth below its signature to such Parallel Purchase Agreement or in the assignment pursuant to which it became a Parallel Purchasers thereunder, as such amount may be modified (w) in connection with any subsequent assignment pursuant to Section 6.3 of the Parallel Purchase Agreement, (x) in connection with a change in the Purchase Limit applicable to such Parallel Purchase Agreement pursuant to Section 6.1 of the Parallel Purchase Agreement, (y) as provided in Section 1.1(a) of the Parallel Purchase Agreement to reflect the aggregate outstanding Capital of the Purchased Interest under the Agreement and such Parallel Purchase Agreement, or (z) in connection with a termination of such Purchaser's Purchase Commitment pursuant to Section 1.1(b) of the Parallel Purchase Agreement. "Material Indebtedness" means Indebtedness, or obligations in respect of one or more Hedging Agreements, of any one or more of the Solectron Parties in an aggregate principal amount exceeding $10,000,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of any Solectron Party in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that such Solectron Party would be required to pay if such Hedging Agreement were terminated at such time. "Month-End Date" means the last day of a calendar month. I-16 "Moody's" means Moody's Investors Service, Inc., or any successor thereto. "Net Receivables Pool Balance" means at any time the Outstanding Balance of Eligible Receivables then in the Receivables Pool reduced by the aggregate amount by which the Outstanding Balance of Eligible Receivables (other than Defaulted Receivables) of each Obligor then in the Receivables Pool exceeds the product of (A) the Applicable Concentration Percentage for such Obligor multiplied by (B) the Outstanding Balance of the Eligible Receivables then in the Receivables Pool. "Normal Concentration Percentage" for any Obligor means at any time 3%. "Notes" means short-term promissory notes issued or to be issued by the Issuer to fund its investments in accounts receivable or other financial assets. "Obligor" means, with respect to any Receivable, the Person obligated to make payments pursuant to the Contract relating to such Receivable. "Original Purchase and Sale Agreement" means the Purchase and Sale Agreement dated as of September 17, 1997 among Solectron California Corporation, as an Originator, Solectron Corporation, as an Originator, as Guarantor and as Servicer, and Solectron Funding Corporation, as the Initial Purchaser, as amended, amended and restated or otherwise modified in accordance with its terms and in effect immediately prior to the effectiveness of the Purchase and Sale Agreement. "Originator" means each of Solectron Corporation, Solectron California Corporation, and Solectron Technology, Inc. "Original Receivables Purchase Agreement" means the Receivables Purchase Agreement dated as of September 17, 1997 among Solectron Funding Corporation, as Seller, Solectron Corporation, individually and as Servicer, Receivables Capital Corporation, as Issuer, and Bank of America National Trust and Savings Association, as Administrator, as the same may be amended, supplemented or otherwise modified from time to time. "Outstanding Balance" of any Receivable at any time means the then outstanding principal balance thereof. "Payment Date" has the meaning set forth in Section 1.4 of the Purchase and Sale Agreement. "Parallel Purchase Administrator" has the meaning set forth in the preamble to the Parallel Purchase Agreement. "Parallel Purchase Agreement" means the Parallel Asset Purchase Agreement dated as of October 31, 1998 among the Seller, the Servicer, certain financial institutions from time to time I-17 parties thereto, as the Parallel Purchasers, the Bank of America, as Parallel Purchase Administrator, as the same may be amended, supplemented or otherwise modified from time to time. "Parallel Purchase Termination Date", with respect to each Parallel Purchaser, has the meaning set forth in Section 6.6 of the Parallel Purchase Agreement. "Parallel Purchaser", with respect to each Parallel Purchaser, has the meaning set forth in the preamble to the Parallel Purchase Agreement. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is defined in section 3(2) of ERISA, which is subject to title IV of ERISA (other than a multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which Solectron, Solectron California Corporation or the Seller or any corporation, trade or business that is, along with Solectron, Solectron California Corporation or the Seller, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in sections 414(b) and 414(c), respectively, of the Internal Revenue Code of 1986, as amended or section 4001 of ERISA may have any liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Percentages" has the meaning set forth in Section 1.2(b) of the Parallel Purchase Agreement. "Permitted Liens" means: (a) Liens imposed by law by any Governmental Authority for taxes that are not yet due or are being contested in compliance with Section 5.04 of the Solectron Credit Agreement; (b) carriers', warehousemen's, mechanics', material men's, repairmen's and other like Liens imposed by law, and any other involuntary, statutory or common law Lien arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.04 of the Solectron Credit Agreement; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; I-18 (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not secure any monetary obligations and do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of any Solectron Party; (f) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default under the Solectron Credit Agreement; (g) Liens which constitute rights of set-off of a customary nature or banker's Liens with respect to amounts on deposit arising by operation of law in connection with arrangements entered into with banks in the ordinary course of business; (h) Liens in favor or customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; and (i) leases or subleases and licenses and sublicenses granted to others in the ordinary course of business not interfering in any material respect with the business of any of the Solectron Parties taken as a whole, and any interest or title of any lessor or licensor under any lease or license; provided that the term "Permitted Liens" shall not include any Lien securing Indebtedness. "Person" means an individual, partnership, corporation, joint stock company, trust (including a business trust), unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof. "Pool Receivable" means a Receivable in the Receivables Pool. "Portion of Capital" means, at any time, each portion of the Capital of the Purchased Interest having the same Fixed Period and accruing Discount by reference to the same Rate Type at such time. In addition, at any time when the Capital of the Purchased Interest is not divided into more than one portion, "Portion of Capital" means 100% of the Capital of the Purchased Interest. "PPA-Related Person" has the meaning assigned thereto in Section 5.2 of the Parallel Purchase Agreement. "Program Support Agreement" means and includes the Liquidity Asset Purchase Agreement and any other agreement entered into by any Program Support Provider providing for the issuance of one or more letters of credit for the account of the Issuer, the issuance of one or more surety bonds for which the Issuer is obligated to reimburse the applicable Program Support Provider I-19 for any drawings thereunder, the sale by the Issuer to any Program Support Provider of the Purchased Interest (or portions thereof) and/or the making of loans and/or other extensions of credit to the Issuer in connection with the Issuer's securitization program, together with any letter of credit, surety bond or other instrument issued thereunder (but excluding any discretionary advance facility provided by the Administrator). "Program Support Provider" means and includes any Purchaser and any other or additional Person (other than any customer of the Issuer) now or hereafter extending credit or having a commitment to extend credit to or for the account of, or to make purchases from, the Issuer or issuing a letter of credit, surety bond or other instrument to support any obligations arising under or in connection with the Issuer's securitization program. "Purchase and Sale Agreement" means the Amended and Restated Purchase and Sale Agreement dated as of February 22, 1999 among Solectron California Corporation, as an Originator; Solectron Technology, Inc., as an Originator; Solectron Corporation, as an Originator, as Guarantor, and as Servicer, and Solectron Funding Corporation as the Initial Purchaser, as the same may be amended, amended and restated or otherwise modified in accordance with its terms. "Purchase and Sale Termination Date" means date determined in accordance with Section 2.3 of the Purchase and Sale Agreement. "Purchase and Sale Termination Event" has the meaning set forth in Exhibit IV to the Purchase and Sale Agreement. "Purchase Discount" has the meaning set forth in Section 1.5 of the Purchase and Sale Agreement. "Purchase Limit" means the lesser of (i) $220,000,000, as such amount may be reduced pursuant to Section 1.1(c) and (ii) (A) the aggregate of the Maximum Liquidity Purchase (as defined in the Liquidity Asset Purchase Agreement) of the Purchasers under the Liquidity Asset Purchase Agreement less (B) the aggregate of the Discount of the existing Fixed Periods (for the entirety of such Fixed Periods), as such amount may be reduced pursuant to Section 1.1(c). References to the unused portion of the Purchase Limit shall mean, at any time, the Purchase Limit minus the then outstanding Capital of the Purchased Interest under the Agreement. "Purchase Period" has the meaning set forth in Section 1.4 of the Purchase and Sale Agreement. "Purchase Price" has the meaning set forth in Section 1.4 of the Purchase and Sale Agreement. I-20 "Purchased Interest" means, with respect to each of the Agreement and the Parallel Purchase Agreement, at any time, the undivided percentage ownership interest in (i) each and every Pool Receivable now existing or hereafter arising, other than any Pool Receivable that arises on or after the Facility Termination Date, (ii) all Related Security with respect to such Pool Receivables, and (iii) all Collections with respect to, and other proceeds of, such Pool Receivables and Related Security. Such undivided percentage interest shall be computed as C + DR + LR + SFR ----------------- NRB where: C = the Capital of the Purchased Interest under the Agreement or the Parallel Purchase Agreement, as applicable, at the time of computation. DR = the Discount Reserve of the Purchased Interest under the Agreement or the Parallel Purchase Agreement, as applicable, at the time of computation. LR = the Loss Reserve of the Purchased Interest under the Agreement or the Parallel Purchase Agreement, as applicable, at the time of computation. SFR = the Servicing Fee Reserve of the Purchased Interest under the Agreement or the Parallel Purchase Agreement, as applicable, at the time of computation. NRB = the Net Receivables Pool Balance at the time of computation. The separate Purchased Interest under each of the Agreement and the Parallel Purchase Agreement shall be determined from time to time pursuant to the provisions of Section 1.3 of each of the Agreement and the Parallel Asset Purchase Agreement, as applicable, and a each such Purchased Interest shall be computed separately under each such agreement. "Purchaser" has the meaning set forth in Section 5.3(b). "Rate Type" means the Eurodollar Rate, the Base Rate or the CP Rate. "Rate Variance Factor" means a number greater than one that reflects the potential variance in selected interest rates over a period of time designated by the Administrator, in the case of the Purchased Interest under the Agreement and the Parallel Purchase Administrator, in the case of the Purchased Interest under the Parallel Purchase Agreement as reasonably specified by the Administrator or the Parallel Purchase Administrator, as applicable from time to time, notified to I-21 the Seller and set forth in the Seller Report in accordance with the provisions thereof; provided that the "Rate Variance Factor" may be changed from time to time upon at least five days' prior notice by the Administrator or the Parallel Purchase Administrator, as applicable, to the Servicer. "Rated Long Term Debt" means, with respect to any Person, at any time, the long-term, senior, unsecured, noncredit-enhanced debt of such Person that is rated by any nationally recognized statistical rating agency. "Rated Short Term Debt" means, with respect to any Person, at any time, the short-term, senior, unsecured, noncredit-enhanced debt of such Person that is rated by any nationally recognized statistical rating agency. "Receivable" means any indebtedness and other obligations owed to any Originator or any rights of any Originator to payment from or on behalf of an Obligor whether constituting an account, chattel paper, instrument or general intangible, arising in connection with the sale or lease of goods or the rendering of services by such Originator, and includes, without limitation, the obligation to pay any finance charges, fees and other charges with respect thereto. Indebtedness and other obligations arising from any one transaction, including, without limitation, indebtedness and other obligations represented by an individual invoice or agreement, shall constitute a Receivable separate from a Receivable consisting of the indebtedness and other obligations arising from any other transaction. "Receivables Pool" means at any time all of the then outstanding Receivables sold or contributed to the Seller pursuant to the Purchase and Sale Agreement or the Subscription Agreement. "Reference Bank" means Bank of America. "Related Assets" has the meaning set forth in Section 1.2 of the Purchase and Sale Agreement. "Related Security" means with respect to any Receivable: (i) all of any Originator's interest in any goods (including returned goods), and documentation or title evidencing the shipment or storage of any goods (including returned goods), relating to any sale giving rise to such Receivable; (ii) all other security interests or liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all UCC financing statements or similar filings signed by an Obligor relating thereto; and (iii) the related Contract and all guaranties, indemnities, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable or otherwise relating to such Receivable whether pursuant to the Contract related to such Receivable or otherwise. I-22 "Restricted Payments" has the meaning given thereto in paragraph (m) of Exhibit IV. "Sales-Based Default Ratio" means the ratio (expressed as a percentage) computed as of each Month-End Date having (a) a numerator that is the sum of (i) the aggregate Outstanding Balance of Receivables that remained outstanding 151 to 180 days after their respective original customer billing dates, as determined as of such Month-End Date, plus (ii) the aggregate Outstanding Balance of Receivables that were written off as uncollectible during the most recently ended calendar month and that, if not so written off, would have been outstanding not more than 180 days after their respective original customer billing dates, as determined as of that Month-End Date; provided that for Solectron Technology for each Month-End Date prior to January 1, 1999 the numerator shall be the sum of (i) the aggregate Outstanding Balance of Receivables that remained outstanding 61-90 days after their respective due dates, as determined as of such Month-End Date, plus (ii) the aggregate Outstanding Balance of Receivables that were written off as uncollectible during the most recently ended calendar month and that, if not so written off, would have been outstanding not more than 90 days after their respective due dates, as determined as of such Month-End Date, and (b) a denominator that is the aggregate amount payable pursuant to invoices giving rise to Receivables (without giving effect to any payments received on such invoices) that were generated by the Originators during the calendar month that occurred six calendar months prior to the calendar month ending on such Month-End Date. "Sales-Based Dilution Ratio" means, for any calendar month, the ratio (expressed as a percentage) having (a) a numerator equal to the aggregate amount of payments owed by the Seller pursuant to Section 1.4(e) during such period and (b) a denominator equal to the aggregate amounts payable pursuant to invoices giving rise to Receivables (without giving effect to any payments received with respect to such invoices) that were generated by the Originators during the preceding calendar month (so that, for example, if the calendar month specified in clause (a) corresponds to the month of March, the calendar month in this clause (b) would be the one corresponding to the month of February). "Seller" has the meaning set forth in the preamble to the Agreement. "Seller Report" means a report, in form and substance satisfactory to the Administrator, furnished by the Servicer to the Administrator pursuant to the Agreement. "Servicer" has the meaning set forth in the preamble to the Agreement. "Servicer's Fee Percentage" has the meaning set forth in Section 1.5(d) of the Purchase and Sale Agreement. "Servicing Fee" shall mean the fee referred to in Section 4.6. "Servicing Fee Reserve" for the Purchased Interest under the Agreement or the Parallel Asset Purchase Agreement at any time means the sum of (i) the unpaid Servicing Fee relating to the Purchased Interest under such agreement accrued to such time, plus (ii) an amount equal to (a) the Capital of such Purchased Interest at the time of computation multiplied by (b) the product of (x) the percentage per annum at which the Servicing Fee is accruing on such date and (y) I-23 a fraction having as its numerator the product of (i) the Average Maturity (as in effect on such date) times (ii) 2.0 and 360 as its denominator. "Settlement Period" for each Portion of Capital means each period commencing on the first day and ending on the last day of each Fixed Period for such Portion of Capital and, on and after the Termination Date, such period (including, without limitation, a period of one day) as shall be selected from time to time by the Administrator or, in the absence of any such selection, each period of 30 days from the last day of the immediately preceding Settlement Period. "Solectron" has the meaning set forth in the preamble to the Agreement. "Solectron Credit Agreement" shall mean the Credit Agreement dated as of May 1, 1997, among Solectron, the banks party thereto, Bank of America, as agent and issuing bank, and BancAmerica Securities, Inc., as arranger, as amended, supplemented or otherwise modified from time to time. "Solectron Party" means Solectron (whether acting as an Originator, as Guarantor or Servicer), Solectron California Corporation, Solectron Technology, Inc., the Seller or any of their respective Affiliates. "Solvent" means, as to any Person at any time, that (a) the fair value of the property of such Person is greater than the amount of such Person's liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the Bankruptcy Code and, in the alternative, for purposes of applicable state fraudulent conveyance law; (b) the present fair saleable value of the property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person is able to realize upon its property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business; (d) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature; and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital. "Special Obligor" means, as of the date hereof, International Business Machines Corp., and thereafter, shall include any other Obligor designated as such in writing by the Administrator to the Servicer, until such time as the Administrator shall have notified the Servicer in writing that such Obligor is no longer a Special Obligor hereunder (it being understood that the Administrator shall not notify the Servicer that an Obligor is no longer a Special Obligor absent a good-faith determination on its part that such Obligor's credit has declined). "Standard & Poor's" or "S&P" means Standard & Poor's Rating Services, a division of The McGraw Hill Companies, Inc., or any successor thereto. I-24 "Subscription Agreement" means the Subscription Agreement dated as of September 17, 1997 between Solectron Funding Corporation and Solectron Corporation as the same may be amended, amended and restated or otherwise modified in accordance with its terms. "Tangible Net Worth" means total stockholders' equity minus goodwill, patents, trade names, trade marks, copyrights, franchises, organizational expense, deferred assets other than prepaid insurance and prepaid taxes and such other assets as are properly classified as "intangible assets", for any corporation as determined in accordance with generally accepted accounting principles. "Termination Date" means the earlier of (i) the Business Day which the Seller so designates by notice to the Administrator at least five days in advance and (ii) the Facility Termination Date. "Termination Day" means (i) each day on which the conditions set forth in Section 2 of Exhibit II are not satisfied and (ii) each day which occurs on or after the Termination Date. "Termination Discount" means, for the Purchased Interest under the Agreement or the Parallel Purchase Agreement on any date, an amount equal to the Rate Variance Factor on such date multiplied by the product of (i) the Capital of such Purchased Interest on such date and (ii) the product of (a) the Base Rate for such Purchased Interest for a 30-day Fixed Period deemed to commence on such date and (b) a fraction having as its numerator the product of (i) the Average Maturity (as in effect on such date) times (ii) 2.0 and 360 as its denominator. "Termination Event" has the meaning specified in Exhibit V. "Termination Fee" means, for any Fixed Period during which a Termination Day occurs, the amount, if any, by which (i) the additional Discount (calculated without taking into account any Termination Fee or any shortened duration of such Fixed Period pursuant to clause (c)(iv) of the definition thereof) which would have accrued during such Fixed Period on the reductions of Capital of the Purchased Interest relating to such Fixed Period had such reductions remained as Capital, exceeds (ii) the income, if any, received by the Issuer from the Issuer investing the proceeds of such reductions of Capital, as reasonably determined by the Administrator, which determination shall be binding and conclusive for all purposes, absent manifest error. "Transaction Documents" means the Agreement, the Purchase and Sale Agreement, the Lock-Box Agreements, the Liquidity Asset Purchase Agreement, the Initial Purchaser Notes, the Subscription Agreement, the Parallel Purchase Agreement, the Intercreditor Agreement and all other certificates, instruments, UCC financing statements, reports required under the Transaction Documents, notices and agreements executed or delivered under or in connection with the Agreement, in each case as the same may be amended, amended and restated or otherwise modified from time to time in accordance with their respective terms and, if applicable, in accordance with the terms of the Agreement. "UCC" means the Uniform Commercial Code as from time to time in effect in the applicable jurisdiction. II-25 "Unmatured Termination Event" means, with respect to the Purchase and Sale Agreement or the Agreement, an event which, with the giving of notice or lapse of time, or both, would constitute a Purchase and Sale Termination Event or a Termination Event, as the case may be. "Welfare Plan" means a "welfare plan", as such term is defined in Section 3(1) of ERISA. Other Terms. All accounting terms not specifically defined in the Agreement or in any other Transaction Document shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the UCC in effect in the State of Illinois, and not specifically defined in the Agreement or in any other Transaction Document, are used herein as defined in such Article 9. Unless the context otherwise requires, when used in the Agreement or in any other Transaction Document, "or" means "and/or", and "including" (and with correlative meaning "include" and "includes") means including without limiting the generality of any description preceding such term. I-26 EXHIBIT II CONDITIONS OF PURCHASES 1. Conditions Precedent to the Effectiveness of this Agreement. Any purchase under this Agreement is subject to the conditions precedent that the Administrator shall have received on or before the date of such purchase the following, each in form and substance (including the date thereof) satisfactory to the Administrator: (a) A counterpart of each of the following, duly executed by the parties thereto: (i) of this Agreement, (ii) Amendment No. 1 to the Parallel Asset Purchase Agreement and (iii) Amendment No. 4 to the Liquidity Asset Purchase Agreement. (b) A duly executed counterpart of the Purchase and Sale Agreement. (c) Certified copies of (i) the resolutions of the Board of Directors of each of Solectron Technology, Inc. and the Seller authorizing the execution, delivery, and performance by Solectron Technology, Inc. and the Seller, respectively, of the Agreement and the other Transaction Documents, (ii) all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to the Agreement and the other Transaction Documents and (iii) the certificate of incorporation and by-laws of Solectron Technology, Inc. (d) A certificate of the Secretary or Assistant Secretary of Solectron Technology, Inc., certifying the names and true signatures of the officers of Solectron Technology, Inc., authorized to sign the Transaction Documents to which it is party. Until the Administrator receives a subsequent incumbency certificate from Solectron Technology, Inc., in form and substance satisfactory to the Administrator, the Administrator shall be entitled to rely on the last such certificate delivered to it by Solectron Technology, Inc., as the case may be. (e) Acknowledgment copies, or time stamped receipt copies, of proper UCC financing statements, duly filed on or before the Effective Date under the UCC of all jurisdictions that the Administrator may deem necessary or desirable in order to perfect the interests of the Seller, the Administrator and the Issuer contemplated by the Agreement and the Purchase and Sale Agreement. (f) Acknowledgment copies, or time stamped receipt copies, of proper financing statements, if any, necessary to release all security interests and other rights of any Person in the Receivables, Contracts or Related Security previously granted by the Seller and each Originator. (g) Completed UCC requests for information, dated on or before the Effective Date, listing the financing statements referred to in subsection (e) above and all other effective financing statements filed in the jurisdictions referred to in subsection (e) above that name the Seller or an Originator as debtor, together with copies of such other financing statements (none of which shall cover any Receivables, Contracts or Related Security), and similar search reports with respect to federal tax liens and liens of the PBGC and judgment liens in such jurisdictions as the II-1 Administrator may request, showing no such liens on any of the Receivables, Contracts or Related Security. (h) Copies of executed Lock-Box Agreements with the Lock-Box Banks. (i) A favorable opinion of Wilson Sonsini Goodrich & Rosati, counsel for Solectron California Corporation, Solectron Technology, Inc., the Seller and Solectron Corporation (as an Originator, as Servicer and Guarantor), as to corporate matters, security interests (including perfection and priority), and as to such other matters as the Administrator may reasonably request. (j) A favorable opinion of Murphy Sheneman Julian & Rogers, as to true sale and substantive consolidation. (k) Satisfactory results of a review and audit of each Originator's and the Servicer's collection, operating and reporting systems, Credit and Collection Policy, historical receivables data and accounts, including satisfactory results of a review of each Originator's and the Servicer's operating location(s) and satisfactory review and approval of the Eligible Receivables in existence on the date of the initial purchase under the Agreement. (l) A completed Seller Report representing the performance of the Receivables for the month prior to closing. (m) Evidence of payment by each Originator, Solectron and the Seller of all accrued and unpaid fees (including those contemplated by the letter agreement referred to in Section 1.5), costs and expenses to the extent then due and payable on the date thereof, together with Attorney Costs of the Administrator to the extent invoiced prior to or on such date, plus such additional amounts of Attorney Costs as shall constitute the Administrator's reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude final settling of accounts between such Persons and the Administrator) and, without limiting the foregoing, including any such costs, fees and expenses arising under or referenced in Section 5.4. (n) A letter agreement between the Seller and the Administrator contemplated by Section 1.5. (o) The Initial Purchaser Notes. (p) Good standing certificates with respect to each of Solectron California Corporation, Solectron Technology, Inc., the Seller and the Servicer issued by the Secretaries of the States of California and (with respect to the Seller and Solectron) Delaware. (q) A certificate from an officer of Solectron Corporation to the effect that the Seller has a Tangible Net Worth of at least $30,000,000. (r) Such other approvals, opinions or documents as the Administrator or Purchasers may reasonably request. II-2 2. Conditions Precedent to All Purchases and Reinvestments. Each purchase and each reinvestment shall be subject to the further conditions precedent that: (a) in the case of each purchase, the Servicer shall have delivered to the Administrator on or prior to such purchase, in form and substance satisfactory to the Administrator, a completed Seller Report with respect to the immediately preceding calendar month, dated within 10 days prior to the date of such purchase together with a listing by Obligor of all Receivables and such additional information as may reasonably be requested by the Administrator; (b) on the date of such purchase or reinvestment the following statements shall be true (and acceptance of the proceeds of such purchase or reinvestment shall be deemed a representation and warranty by the Seller that such statements are then true): (i) the representations and warranties contained in paragraphs (e), (f), (h), (i), (j), (k), (o), (q), (r) and (t) of Exhibit III are true and correct on and as of the date of such purchase or reinvestment as though made on and as of such date; and (ii) no event has occurred and is continuing, or would result from such purchase or reinvestment, that constitutes a Termination Event or that would constitute a Termination Event but for the requirement that notice be given or time elapse or both; and (c) the Administrator shall have received such other approvals, opinions or documents as it may reasonably request. II-3 EXHIBIT III REPRESENTATIONS AND WARRANTIES Each of the Seller and the Servicer, Sub-Servicers, represents and warrants as follows with respect to itself and its respective properties, as applicable: (a) It is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction under which it was organized, and is duly qualified to do business and is in good standing in every other jurisdiction where the failure to so qualify could reasonably be expected to result in a material adverse effect on its business, assets, operations, prospects or condition, financial or otherwise, and those of any of its subsidiaries taken as a whole, its ability to perform its obligations under the Agreement, or the rights of or benefits available under any Transaction Document to the Issuer or the Administrator. (b) The execution, delivery and performance by it of the Agreement and the other Transaction Documents to which it is a party, including, in the case of the Seller, the Seller's use of the proceeds of purchases and reinvestments, (i) are within its corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not contravene or result in a default under or conflict with (1) its charter or by-laws, (2) any material law, rule or regulation applicable to it, (3) any contractual restriction binding on or affecting it or its property (including, without limitation the Solectron Credit Agreement) or (4) any order, writ, judgment, award, injunction or decree binding on or affecting the Seller or its property, and (iv) do not result in or require the creation of any Adverse Claim upon or with respect to any of its properties. The Agreement and the other Transaction Documents to which it is a party have been duly executed and delivered by it. (c) No authorization or approval or consent or other action by, and no notice to or filing with, any Governmental Authority or other Person is required for the due execution, delivery and performance by it of the Agreement or any other Transaction Document to which it is a party. (d) Each of the Agreement and the other Transaction Documents to which it is a party constitutes the legal, valid and binding obligation of it enforceable against it in accordance with its terms. (e) The balance sheets of Solectron and its subsidiaries, in each case as at September 30, 1998, and the related statements of income and retained earnings of the Servicer and its subsidiaries, in each case for the fiscal period then ended, copies of which have been furnished to the Administrator, fairly present the financial condition of the Servicer and its subsidiaries, as at such date and the results of the operations of the Servicer and its subsidiaries, for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied, and since the applicable date of each such balance sheets and related statements there has been no material adverse change in the business, operations, property or financial or other condition or operations of the Servicer, or any of its subsidiaries, the ability of the Servicer to perform its obligations under the Agreement or the other Transaction Documents or, in the case of the Seller, III-1 the collectibility of the Receivables, or which affects the legality, validity or enforceability of the Agreement or the other Transaction Documents. (f) There is no pending or threatened action or proceeding affecting the Seller or the Servicer or the Sub-Servicers or any of their subsidiaries before any Governmental Authority or arbitrator (x) which could materially adversely affect (i) the business, operations, prospects, property, financial or other condition or operations of the Seller or the Servicer or either Sub-Servicer or any of their subsidiaries, (ii) the ability of the Seller or the Servicer or either Sub-Servicer to perform its obligations under the Agreement or the other Transaction Documents, (iii) the ability of Solectron to pay its obligations under the Solectron Credit Agreement or (iv) the collectibility of the Receivables, or (y) which affects or purports to affect the legality, validity or enforceability of the Agreement or the other Transaction Documents. (g) No proceeds of any purchase or reinvestment in respect of the Purchased Interest will be used to acquire any equity security of a class which is registered or required to be registered pursuant to Section 12 of the Securities Exchange Act of 1934. (h) The Seller is the legal and beneficial owner of the Pool Receivables and Related Security, subject to the interest of (i) the Administrator on its behalf and on behalf of the Issuer and the (ii) Parallel Purchase Administrator, on its behalf and on behalf of the Parallel Purchasers therein, free and clear of any Adverse Claim; upon each purchase or reinvestment, the Administrator, on its behalf and on behalf of the Issuer shall acquire a valid and enforceable perfected undivided percentage ownership interest, to the extent of the Purchased Interest, in each Pool Receivable then existing or thereafter arising and in the Related Assets with respect thereto, free and clear of any Adverse Claim; the Agreement creates a security interest in favor of the Administrator, on its behalf and on behalf of the Issuer in Seller's right, title and interest in, to and under the items described in Section 1.2(d), and the Administrator, on its behalf and on behalf of the Issuer,, has a first priority perfected security interest in such items, free and clear of any Adverse Claims. Each Receivable constitutes an "account" as such term is defined in the UCC. No effective financing statement or other instrument similar in effect covering any Contract or any Pool Receivable or Related Asset or any Lock Box Account (or other items covered by Section 1.2(d) of the Agreement) is on file in any recording office, except those filed in favor of (i) the Administrator on its behalf and on behalf of the Issuer and (ii) the Parallel Asset Purchase Administrator, on its behalf and on behalf of the Parallel Purchasers, relating to the Agreement or the Parallel Asset Purchase Agreement or otherwise permitted by the Transaction Documents. (i) Each Seller Report (if prepared by the Seller or one of its Affiliates, or to the extent that information contained therein is supplied by the Seller or an Affiliate), information, exhibit, financial statement, document, book, record or report furnished or to be furnished at any time by or on behalf of the Seller to the Administrator in connection with the Agreement is or will be accurate in all material respects as of its date or (except as otherwise disclosed to the Administrator at such time) as of the date so furnished, and no such item contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. III-2 (j) The principal place of business and chief executive office (as such terms are used in the UCC) of the Seller and the office where the Seller keeps its records concerning the Receivables are located at the address referred to in paragraph (b) of Exhibit IV. (k) The names and addresses of all the Lock-Box Banks, together with the account numbers of the Lock-Box Accounts, are specified in Schedule II to the Agreement (or at such other Lock-Box Banks and/or with such other Lock-Box Accounts as have been notified to the Administrator in accordance with the Agreement). The Lock-Box Banks have complied with all of the terms of the Lock-Box Agreements. (l) It is not in violation of any order of any court, arbitrator or Governmental Authority. (m) Neither it nor any of its Affiliates of has any direct or indirect ownership or other financial interest in the Issuer. (n) No proceeds of any purchase or reinvestment will be used for any purpose that violates any applicable law, rule or regulation, including, without limitation, Regulation U of the Federal Reserve Board. (o) Each Pool Receivable included as an Eligible Receivable in the calculation of the Net Receivables Pool Balance, exists and is an Eligible Receivable as of the date of such calculation. (p) No event has occurred and is continuing, or would result from a purchase in respect of, or reinvestment in respect of the Purchased Interest or from the application of the proceeds therefrom, which constitutes a Termination Event. (q) The Seller has accounted for each sale of undivided percentage ownership interests in Receivables in its books and financial statements as sales, consistent with Generally Accepted Accounting Principles. (r) It has complied in all material respects with the Credit and Collection Policy with regard to each Pool Receivable. (s) It has complied with all of the terms, covenants and agreements contained in the Agreement and the other Transaction Documents and applicable to it. (t) It is Solvent; and at the time of (and immediately after) each purchase and reinvestment by the Purchaser, it shall have been Solvent. (u) The Seller's complete corporate name is set forth in the preamble to the Agreement, and the Seller does not use and has not during the last six years used any other corporate name, trade name, doing business name or fictitious name, except as set forth on Schedule III and except for names first used after the date of the Agreement and set forth in a notice delivered to the Administrator pursuant to paragraph (b)(ii) of Exhibit IV. III-3 (v) The Seller is not, and is not controlled by, an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended. III-4 EXHIBIT IV COVENANTS Covenants of the Seller, Sub-Servicers and the Servicer. Until the latest of the Facility Termination Date, the date on which no Capital of or Discount in respect of the Purchased Interest shall be outstanding and the date all other amounts (other than in respect of unasserted indemnity claims) owed by the Seller under the Agreement or the Parallel Asset Purchase Agreement to the Issuer, the Administrator, the Parallel Purchase Administrator, any Parallel Purchaser and any PPA-Related Person or other Indemnified Party or Affected Person shall be paid in full (such latest date being referred to as the "Final Payout Date"), each of the Seller, the Servicer and the Sub-Servicers covenants and agrees, with respect to itself, unless otherwise indicated, as follows: (a) Compliance with Laws, Etc. It shall comply in all material respects with all applicable laws, rules, regulations and orders, and preserve and maintain its corporate existence, rights, franchises, qualifications, and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such existence, rights, franchises, qualifications, and privileges would not materially adversely affect the collectibility of the Receivables or the enforceability of any related Contract or its ability to perform its obligations under any related Contract or under the Agreement. (b) Offices, Records and Books of Account; Change of Name, Identity, Corporate Structure; Etc. In the case of the Seller, it (i) shall keep its principal place of business and chief executive office (as such terms are used in the UCC) and the office where it keeps its records concerning the Receivables at the address set forth under its name on the signature page to the Agreement or, upon at least 30 days' prior written notice of a proposed change to the Administrator, at any other locations in jurisdictions where all actions reasonably requested by the Administrator to protect and perfect the interests of the Administrator and the Issuer in the Receivables and related items (including without limitation the items described in Section 1.2(d)) have been taken and completed; and (ii) shall provide the Administrator with at least 30 days' written notice prior to making any change in its name or making any other change in its identity or corporate structure (including a merger) which could render any UCC financing statement filed in connection with this Agreement "seriously misleading" as such term is used in the UCC; each notice to the Administrator pursuant to this sentence shall set forth the applicable change and the effective date thereof. Each of the Seller, Servicer, and the Sub-Servicers also will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing the Receivables and related Contracts that it services in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records, computer tapes and disks and other information reasonably necessary or advisable for the collection of the Receivables IV-1 that it services (including, without limitation, records adequate to permit the daily identification of each Receivable and all Collections of and adjustments to each existing Receivable). (c) Performance and Compliance with Contracts and Credit and Collection Policy. Each of the Servicer and the Sub-Servicers shall, at its expense, cause the Originator whose accounts it services to timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by such Originator under the Contracts related to the Pool Receivables, and timely and fully comply in all material respects with the Credit and Collection Policy with regard to each Receivable and the related Contract. (d) Ownership Interest, Etc. It shall, at its expense, take all action necessary or desirable to establish and maintain a valid and enforceable and perfected undivided ownership interest, to the extent of the Purchased Interest, in the Pool Receivables and the Related Assets with respect thereto, and a first priority perfected security interest in the items described in Section 1.2(d), in each case free and clear of any Adverse Claim, in favor of the Administrator and the Issuer, including, without limitation, filing UCC financing statements and taking such other action to perfect, protect or more fully evidence the interest of the Administrator and the Issuer under the Agreement as the Administrator or the Issuer, through the Administrator, may reasonably request. (e) Sales, Liens, Etc. The Seller shall not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim (except in favor of the Issuer and the Parallel Purchasers) upon or with respect to, any or all of its right, title or interest in, to or under, any item described in Section 1.2(d) including without limitation the Seller's undivided interest in any Receivable, Related Security, or Collections, or upon or with respect to any account to which any Collections of any Pool Receivables are sent, or assign any right to receive income in respect of any items contemplated by this paragraph (e). (f) Extension or Amendment of Receivables. Except as provided in Section 4.2(a) of the Agreement, it shall not extend the maturity or adjust the Outstanding Balance or otherwise modify the terms of any Pool Receivable or amend, modify or waive any term or condition of any related Contract. (g) Change in Business or Credit and Collection Policy. It shall not make any material change in the character of its business or in the Credit and Collection Policy, that would adversely affect the collectibility of the Receivables Pool or the enforceability of any related Contract or the ability of each Originator to perform its obligations under any related Contract or the ability of each Seller or the Servicer to perform its obligations under the Agreement without the prior written consent of the Administrator. (h) Audits. It shall, from time to time during regular business hours with prior written notice to it as reasonably requested by the Administrator, permit the Administrator, or its agents or representatives, (i) to examine and make copies of and make abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under its control relating to Receivables and the Related Assets (including, without limitation, the related Contracts and any such books, records and documents relating to the identification of Obligors and agings, charge-offs, offsets and delinquencies of Receivables), and (ii) to visit its IV-2 offices and properties for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to Receivables and the Related Assets or its performance hereunder or under the Contracts with any of its officers, employees, agents or contractors having knowledge of such matters. (i) Change in Lock-Box Banks, Lock-Box Accounts and Payment Instructions to Obligors. It shall not add or terminate any bank as a Lock-Box Bank or any account as a Lock-Box Account from those listed in Schedule II to the Agreement, or make any change in its instructions to Obligors regarding payments to be made to any Lock-Box Account (or related post office box), unless the Administrator shall have consented thereto in writing and the Administrator shall have received copies of all agreements and documents (including without limitation Lock-Box Agreements) that it may request in connection therewith. (j) Deposits to Lock-Box Accounts. Each of the Servicer and the Sub-Servicers shall (i) instruct the Obligors, whose accounts it services, to make payments of all Receivables only to one or more Lock-Box Accounts or to post office boxes which are covered by a Lock-Box Agreement and to which only Lock-Box Banks have access, provided that, consistent with its efforts to maximize Collections and its month-end collection practices in effect as of the date of the Agreement, it may permit the Obligors, whose accounts it services, to make payments on Receivables directly to the applicable Originator so long as the Rated Long Term Debt of Solectron is Investment Grade or otherwise with the prior written consent of the Administrator, (ii) instruct and cause the Lock-Box Bank, with whom it entered into a Lock-Box Agreement, to cause all items and amounts relating to such Receivables received in such post office boxes to be removed and deposited into a Lock-Box Account on a daily basis, and (iii) deposit, or cause to be deposited, any Collections of Pool Receivables received by it into Lock-Box Accounts not later than three Business Days after receipt thereof. It will not deposit or otherwise credit, or cause or permit to be so deposited or credited, to any Lock-Box Account cash or cash proceeds other than Collections of Pool Receivables or interest accruing on amounts held in such accounts. (k) Marking of Records. It shall, at its expense, mark its master data processing records relating to Pool Receivables and related Contracts, including with a legend evidencing that the undivided percentage ownership interests with regard to the Purchased Interest related to such Receivables and related Contracts have been sold in accordance with the Agreement. (l) Reporting Requirements. Servicer shall provide to the Administrator (in multiple copies, if requested by the Administrator) the following: (i) as soon as available and in any event within 45 days after the end of the first three quarters of each fiscal year of the Seller, the Servicer, and the Sub-Servicers, balance sheets of Solectron, Solectron California Corporation, Solectron Technology, Inc., and the Seller and of Solectron and its subsidiaries on a consolidated basis as of the end of such quarter, and statements of income and retained earnings of each of Solectron, Solectron California Corporation and Solectron Technology, Inc., individually, and of Solectron and its subsidiaries on a consolidated basis, for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, certified by the chief financial officer IV-3 of each of Solectron California Corporation, Solectron Technology, Inc., the Seller and Solectron; (ii) as soon as available and in any event within 90 days after the end of each fiscal year of Solectron, a copy of the annual report for such year for Solectron and its subsidiaries, containing financial statements for such year audited by KPMG Peat Marwick or other independent certified public accountants of national reputation; (iii) as soon as available and in any event not later than the tenth calendar day of each month or, if such day is not a Business Day, the first Business Day thereafter, a Seller Report as of the previous Month-End Date; (iv) on the first Business Day of each calendar week, a report with respect to Solectron's, Solectron Technology's, and Solectron California's accounts payable as of the last Business Day of the preceding week, in form and substance satisfactory to the Administrator, however, such report will not be required of Solectron if the rating on its Rated Long Term Debt is Investment Grade; (v) as soon as possible and in any event within five days after the occurrence of each Termination Event or event which, with the giving of notice or lapse of time, or both, would constitute a Termination Event, a statement of the chief financial officer of the Servicer, the Seller, Solectron California Corporation, or Solectron Technology, Inc. setting forth details of such Termination Event or event and the action that the Seller or Solectron California Corporation, or Solectron Technology, Inc. as the case may be, has taken and proposes to take with respect thereto; (vi) promptly after the sending or filing thereof, copies of all reports that the Servicer, the Seller, Solectron California Corporation, or Solectron Technology, Inc. or any of their respective subsidiaries sends to any of its security holders, and copies of all reports and registration statements that the Seller, Solectron California Corporation, Solectron, or Solectron Technology, Inc., or any of their respective subsidiaries files with the Securities and Exchange Commission or any national securities exchange; (vii) promptly after the filing or receiving thereof, copies of all reports and notices that the Seller, Solectron California Corporation, or Solectron Technology, Inc., Solectron or any Affiliate files under ERISA with the Internal Revenue Service or the PBGC or the U.S. Department of Labor or that the Seller, Solectron California Corporation, or Solectron Technology, Inc., Solectron or any Affiliate receives from any of the foregoing or from any multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) to which the Seller, Solectron California Corporation, Solectron, or Solectron Technology, Inc., or any Affiliate is or was, within the preceding five years, a contributing employer, in each case in respect of the assessment of withdrawal liability or an event or condition which could, in the aggregate, result in the imposition of liability on the Seller, Solectron California Corporation, Solectron and/or any such Affiliate in excess of $5,000,000; IV-4 (viii) at least thirty days prior to any change in the Seller's or an Originator's name, or any other change requiring the amendment of UCC financing statements or the filing of new UCC financing statements in order to maintain the perfection and priority of the security interest granted pursuant to Section 1.2 of the Agreement, a notice setting forth such changes and the effective date thereof; (ix) such other information respecting the Receivables or the condition or operations, financial or otherwise, of the Seller, Solectron California Corporation, or Solectron Technology, Inc., Solectron or any of their respective Affiliates as the Administrator may from time to time reasonably request; (x) promptly after the Seller or the Servicer obtains knowledge thereof, notice of any (a) litigation, investigation or proceeding which may exist at any time involving any Solectron Party and any Governmental Authority which, if not cured or if adversely determined, as the case may be, would have a material adverse effect (i) on the business, operations, property or financial or other condition of Solectron or any of its subsidiaries or (ii) upon the ability of Solectron or any of its subsidiaries to pay any Indebtedness or (iii) upon the Receivables Pool or (iv) upon the Seller's receipt of or right to receive Collections; or (b) litigation or proceeding adversely affecting any Solectron Party or in which the amount involved is $5,000,000 or more and not covered by insurance or in which injunctive or similar relief is sought or (c) litigation or proceeding relating to any Transaction Document; and (xi) promptly after the occurrence thereof, notice of a material adverse change in the business, operations, property or financial or other condition of the Seller or any other Solectron Party. (m) General Restrictions. On and after the Effective Date, (i) Restricted Payments. the Seller shall not (A) pay or declare any Dividend, (B) lend or advance any funds, or (C) repay any loans or advances to, for or from any Solectron Party, or (D) make any payments in respect of the purchase price of Receivables and Related Assets under the Purchase and Sale Agreement, except in accordance with clause (o) of this Exhibit IV and this clause (m). Actions of the type described in the preceding sentence are herein collectively called "Restricted Payments"; (ii) Types of Permitted Payments. subject to the limitations set forth in clause (o) below, the Seller may declare and pay Dividends to any shareholder provided, that payment of such Dividends must comply with applicable law; and provided, further, that Dividends may not be paid more frequently than permitted by applicable law; (iii) Additional Specific Restrictions. the Seller may make Restricted Payments only out of Collections paid or released to the Seller pursuant to Sections 1.4(b)(ii) or 1.4(b)(iv) of the Agreement, from the proceeds of any Purchased Interest, from the original paid in capital of the Seller, or from other net income of the Seller; provided, however, that the Seller shall not pay, make or declare; IV-5 (A) any Dividend if, after giving effect thereto, the Seller's Tangible Net Worth would be less than $30,000,000; (B) any Restricted Payment if, after giving effect thereto, a Termination Event or Unmatured Termination Event shall have occurred and be continuing; or (C) any Restricted Payment if, after giving effect thereto, the Seller would not be Solvent. (n) ERISA Matters. Solectron shall notify the Administrator as soon as is practicable and in any event not later than two Business Days after (i) the institution of any steps by it or any other Person to terminate any Pension Plan which is not fully funded, unless adequate reserves have been set aside for the funding thereof, (ii) the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a lien under section 302(f) of ERISA, (iii) the taking of any action with respect to a Pension Plan which could result in the requirement that any Solectron Party furnish a bond or other security to the PBGC or such Pension Plan or (iv) the occurrence of any other event concerning any Pension Plan which is reasonably likely to result in a material adverse effect on the business, operations, property or financial or other condition of any Solectron Party. (o) Mergers, Acquisitions, Sales, Investments, etc. Solectron shall cause the Seller not to: (i) be a party to any merger or consolidation, or directly or indirectly purchase or otherwise acquire all or substantially all of the assets or any stock of any class of, or any partnership or joint venture interest in, any other Person, (ii) sell, transfer, convey or lease any of its assets other than pursuant to or the Parallel Purchase Agreement or as expressly permitted by this Agreement, or (iii) make, incur or suffer to exist any investment in, equity contribution to, loan or advance to, or payment obligation in respect of the deferred purchase price of property from, any other Person, except as expressly contemplated by this Agreement and, the Purchase and Sale Agreement and the Parallel Asset Purchase Agreement. IV-6 EXHIBIT V TERMINATION EVENTS Each of the following shall be a "Termination Event": (a) The Servicer shall fail to deliver the Seller Report pursuant to the Agreement or the Parallel Purchase Agreement and such failure shall remain unremedied for five days, or (ii) the Seller shall fail to make any payment required under the Agreement or the Parallel Purchase Agreement and such failure shall remain unremedied for two Business Days; or (b) The Servicer shall fail (i) to transfer to any successor Servicer when required any rights, pursuant to the Agreement or the Parallel Purchase Agreement, which the Servicer then has, or (ii) to make any payment required under the Agreement or the Parallel Purchase Agreement; or (c) Any representation or warranty made or deemed made by the Seller, the Servicer or either Sub-Servicer (or any of their respective officers) under or in connection with the Agreement or any other Transaction Document or any information or report delivered by the Seller, the Servicer or either Sub-Servicer pursuant to the Agreement shall prove to have been incorrect or untrue in any material respect when made or deemed made or delivered; or (d) The Seller or the Servicer shall fail to perform or observe (i) any term, covenant or agreement contained in paragraphs (d), (e), (f), (g), (i), (j), (m), (n) or (o) of Exhibit IV to the Agreement or the Parallel Purchase Agreement and, in the case of any such failure with respect to paragraphs (i) or (j) that is solely the result of the termination of the applicable Lockbox Agreement by Bank of America National Trust and Savings Association, such failure shall remain unremedied for fourteen (14) days, (ii) any term, covenant or agreement contained in paragraph (l) of Exhibit IV to the Agreement or the Parallel Purchase Agreement and such failure shall remain unremedied for five days, or (iii) any other term, covenant or agreement contained in the Agreement or the Parallel Purchase Agreement or any other Transaction Document on its part to be performed or observed and any such failure shall remain unremedied for thirty (30) days; or (e) Any Solectron Party shall be in default with respect to any payment (whether or principal or interest and regardless of amount) in respect of any Material Indebtedness and such failure shall continue beyond the applicable grace period specified in the agreement or instrument relating to such Material Indebtedness or any Solectron Party shall default in any obligation under any Material Indebtedness and such failure shall result in such Material Indebtedness being declared to be due and payable prior to the stated maturity thereof; or (f) The Agreement or the Parallel Purchase Agreement or any purchase or any reinvestment pursuant to the Agreement or the Parallel Purchase Agreement shall for any reason (other than pursuant to the terms the Agreement or the Parallel Purchase Agreement) (i) cease to create, or the Purchased Interest under either such agreement shall for any reason cease to be, a valid V-1 and enforceable first priority perfected undivided percentage ownership interest to the extent of such Purchased Interest in each Pool Receivable and the Related Security and Collections and other proceeds with respect thereto, free and clear of any Adverse Claim or (ii) cease to create with respect to the items described in Section 1.2(d), or the interest of the Administrator, on its behalf and on behalf of the Issuer, with respect to such items shall cease to be, a valid and enforceable first priority perfected security interest, free and clear of any Adverse Claim; or (g) Solectron or the Seller shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against Solectron or Seller seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or Solectron or the Seller shall take any corporate action to authorize any of the actions set forth above in this paragraph (g); or (h) As of any Month-End Date on and after the Effective Date, (i) the average Sales-Based Dilution Ratio for the three months ended on such Month-End Date shall exceed 9%, (ii) the average Sales-Based Default Ratio for the three months ended on such Month-End Date shall exceed 4% or (iii) the average Delinquency Ratio for the three months ended on such Month-End Date shall exceed 6%; or (i) The sum of the Purchased Interests under the Agreement and the Parallel Purchase Agreement shall exceed 100% and such condition shall have continued for a period of five (5) Business Days following the earlier of (x) the Servicer's knowledge of such condition and (y) notice to the Servicer by the Administrator or the Parallel Purchase Administrator of the occurrence of such condition; or (j) An "Event of Default", as defined in the Solectron Credit Agreement, shall occur and be continuing, or, if the Solectron Credit Agreement (or the commitments of the lenders thereunder) has expired, been terminated or is otherwise not in full force and effect, an "Event of Default" as defined in the Solectron Credit Agreement, as in effect at the time immediately preceding such expiration, termination or failure to be in full force and effect, would have occurred and been continuing if the Solectron Credit Agreement had not so expired, terminated or failed to be in full force and effect; or (k) On and after the Initial Purchase Date, the Tangible Net Worth of Seller shall at anytime be less than $30,000,000; or V-2 (l) Any Change of Control shall occur or Solectron shall not own, directly or indirectly, 100% of all issued and outstanding capital stock of the Seller; or (m) If Solectron has any Rated Long Term Debt outstanding, the rating assigned by S&P shall at any time be withdrawn or be less than "BB"; or (n) A Purchase and Sale Termination Event shall have occurred. V-3 SCHEDULE I CREDIT AND COLLECTION POLICY Supplied by Solectron Corporation, Solectron California Corporation and Solectron Technology, Inc. I-1 SCHEDULE II LOCK-BOX BANKS AND LOCK-BOX ACCOUNTS Lock-Box Bank Lock-Box Account Bank of America National Trust 1584 and Savings Association First Union National Bank 60862 SCHEDULE III TRADE NAMES None II-2 SCHEDULE IV PERMITTED LIENS None ANNEX A FORM OF LOCK-BOX AGREEMENT AGREEMENT RELATING TO LOCKBOX SERVICES This Agreement is entered into as of September __, 1997 among Solectron California Corporation ("SCC"), Solectron Corporation ("Solectron" and together with SCC, the "Originators"), Solectron Funding Corporation ("Seller"), Receivables Capital Corporation ("Purchaser"), Bank of America National Trust and Savings Association, as administrator for Purchaser ("Administrator"), and Bank of America National Trust and Savings Association ("Bank") with respect to the following: A. Solectron and Bank have agreed to the Standard Terms and Conditions, a copy of which is attached as Exhibit A and incorporated herein by reference (the "Standard Terms and Conditions"), relating to remittance processing services to be performed by Bank ("Remittance Processing Service") in relation to the checks and other payment instruments mailed to the United States Post Office address or addresses ("Lockbox Address or Addresses") assigned to Solectron (collectively, the "Payments") from time to time received or deposited in [Solectron's] Account No. _____________ with Bank (the "Account"). B. Each of the Originators has assigned and/or may hereafter assign to Seller, ad Seller has assigned and/or may hereafter assign to Purchaser and Administrator an undivided percentage interest in, and has granted to Administrator for its benefit and the benefit of Purchaser a security interest in, certain accounts, chattel paper instruments or general intangibles ("Receivables") and all proceeds thereof, including the Payments. C. Each Originator, Seller, Purchaser, Administrator and Bank are entering into this Agreement to provide for the assignment of the Account to Administrator, for its benefit and the benefit of Purchaser, and the disposition of net proceeds of Payments deposited in the Account. Accordingly, each Originator, Purchaser, Administrator and Bank agree as follows: 1. Assignment of Account: (a) Each Originator hereby assigns and transfers to Seller, and Seller hereby assigns and transfers to Administrator, for its benefit and the benefit of Purchaser, and grants to Administrator, for its benefit and the benefit of Purchaser, a security interest in, the Account, all Payments and all other moneys deposited in the Account from time to time. Subject to the terms hereof, Administrator, for its benefit and the benefit of Purchaser, shall have exclusive dominion and control over the Account. (b) Bank hereby acknowledges receipt of notice of the ownership and security interest of Administrator, for its benefit and the benefit of Purchaser, in the Payments, the A-1 Account and the amounts from time to time on deposit therein and agrees that the Account shall be maintained for the benefit of Administrator, on its behalf and on behalf of Purchaser, on the terms provided herein). (c) The Account shall be entitled "Solectron for the benefit of Bank of America, as Administrator." (d) Administrator, on behalf of itself and Purchaser, hereby authorizes Bank to transfer balances in the Account to each Originator in accordance with instructions to Bank from Solectron, and hereby authorizes Solectron (in its capacity as servicer of the Receivables) to accept such transfers and to give such instructions prior to the Activation Period. The "Activation Period" means the period of time commencing on the date [two] Business Days after Bank's receipt of a written notice from Administrator in the form of Attachment I (the "Notice"). Administrator will simultaneously provide a copy of the Notice to Solectron. (e) Bank has sole and exclusive access to items mailed to the Lockbox Address(es). 2. Bank is hereby authorized (and, in the case of clauses (a), (b) and (e) below, hereby agrees): (a) to perform the Remittance Processing Service and to follow its usual operating procedures for the handling of any Payments, in accordance with the Standard Terms and Conditions, as modified by this Agreement; (b) to charge the Account for all returned Payments, service charges, and other fees and charges associated with the Remittance Processing Service and this Agreement; (c) to follow its usual procedures in the event the Account or any Payment should be or become the subject of any writ, levy, order or other similar judicial or regulatory order or process ("Order") to comply with such Order; and (d) at all times prior to the Activation Period, to transfer all collected and available balances in the Account to [Solectron] Account No. __________ at ______________ (or such other account as [Solectron] may designate by written notice to the Bank and Administrator), and, notwithstanding anything to the contrary herein or in the Standard Terms and Conditions, during the Activation Period (i) to refrain from transferring any balances at the discretion of the Company and (ii) to transfer all collected and available balances in the Account to such account as Administrator may designate by written notice to Bank) pursuant to Administrator's instructions. Funds are not available if, in the reasonable determination of Bank, they are subject to a hold, dispute or legal process preventing their withdrawal. Company or Administrator, as applicable, will give Bank reasonable advance written notice of any change in the instructions. A-2 3. If the balances in the Account are not sufficient to pay Bank for any returned check, each Originator agrees to pay Bank on demand the amount due Bank. (a) If the balances in the Account are not sufficient to compensate Bank for any fees or charges due Bank in connection with the Remittance Processing Service or this Agreement, each Originator agrees to pay Bank on demand the amount due Bank. 4. Each Originator hereby authorizes Bank, without prior notice, from time to time to debit any other account either Originator may have with Bank for the amount or amounts due Bank under subsection 3(a) or 3(b). Neither Purchaser nor Administrator shall be responsible for payment of any such amount. (a) Bank agrees it shall not offset against the Account, except as permitted under this Agreement, until this Agreement has been terminated pursuant to subsection 5(d) hereof or by agreement of the parties. 5. Termination of this Agreement shall be as follows: (a) Bank may terminate this Agreement upon 30 days' prior written notice to each Originator, Seller and Administrator. Purchaser or Administrator may terminate this Agreement upon 30 days' prior written notice by Administrator to each Originator, Seller and Bank. Neither of the Originators nor Seller may terminate this Agreement or the Remittance Processing Service except with the written consent of Administrator and upon 30 days' prior written notice to Bank and Administrator. (b) Notwithstanding subsection 4(a), Bank may terminate this Agreement at any time by at least one Business Day's prior written notice to each Originator, Seller and Administrator if (i) either Originator or Seller breaches any of the terms of this Agreement, any other agreement with Bank or any agreement involving the borrowing of money or the extension of credit; (ii) either Originator or Seller liquidates, dissolves, merges with or into or consolidates with another entity or sells, leases or disposes of a substantial portion of its business or assets; (iii) either Originator, or Seller terminates its business, fails generally or admits in writing its inability to pay its debts as they become due; any bankruptcy, reorganization, arrangement, insolvency, dissolution or similar proceeding is instituted with respect to either Originator or Seller; either Originator, or Seller makes any assignment for the benefit of creditors or enters into any composition with creditors or takes any action in furtherance of any of the foregoing; or (iv) any material adverse change occurs in each Originator's or Seller's financial condition, results of operations or ability to perform its obligations under this Agreement. Each Originator and Seller shall promptly give written notice to Bank and Administrator of the occurrence of any of the foregoing events with respect to itself. (c) Upon any termination of this Agreement pursuant to subsection 4(a) or 4(b) hereof, and subject to Section 13 hereof, (i) each Originator shall promptly arrange for Payments received at the Lockbox Address(es) or otherwise in or for deposit to the Account to A-3 be forwarded to another bank acceptable to Administrator and processed pursuant to an agreement acceptable to Administrator, and (ii) Bank shall no longer be required to process Payments, but subject to payment in advance of Bank's standard charges for such service, shall forward all Payments then held by Bank and all mail thereafter received at the Lockbox Address to such address or account as Administrator may direct. Otherwise the provisions of this Agreement shall remain in effect until terminated pursuant to subsection 5(d) or by agreement among the parties. 6. Bank will not be liable to either Originator, Seller, Purchaser or Administrator for any expense, claim, loss, damage or cost ("Damages") arising out of or relating to its performance under this Agreement other than those Damages which result directly from its acts or omissions constituting negligence or willful misconduct, subject to the limits in subsection 5(b). (a) Bank's liability is limited to direct money Damages actually incurred. In no event will Bank be liable for any special, indirect, consequential or exemplary damages or for lost profits. (b) Bank will be excused from failing to act or delay in acting, and no such failure or delay shall constitute a breach of this Agreement or otherwise give rise to any liability of Bank, if (i) such failure or delay is caused by circumstances beyond Bank's reasonable control, including but not limited to legal constraint, emergency conditions, action or inaction of governmental, civil or military authority, fire, strike, lockout or other labor dispute, war, riot, theft, flood, earthquake or other natural disaster, breakdown of public or private or common carrier communications or transmission facilities, equipment failure, or act, negligence or default of either Originator, Seller, Purchaser or Administrator or (ii) such failure or delay resulted from Bank's reasonable belief that the action would have violated any guideline, rule or regulation of any governmental authority. Bank agrees to give each Originator, Seller and Administrator prompt notice of any actual or anticipated failure or delay resulting from any of the foregoing but any failure of Bank to give such notice shall not affect Bank's rights (or the limitation of its liability) under this subsection 5(b) or 5(c). (c) Administrator shall notify Bank promptly in writing when Purchaser has no further ownership interest (or commitment to acquire any interest) in the Receivables and all of each Originator's and Seller's, obligations have been paid in full, and this Agreement shall automatically terminate upon Bank's receipt of such notice. 7. Each Originator shall indemnify Bank against, and hold it harmless from, any and all liabilities, claims, costs, expenses and damages of any nature (including but not limited to allocated costs of staff counsel, other reasonable attorney's fees and any fees and expenses incurred in enforcing this Agreement) in any way arising out of or relating to disputes or legal actions concerning Bank's provision of the Remittance Processing Service, this Agreement, the Lockbox Addresses or any Payment. This Section does not apply to any cost or damage attributable to the gross negligence or intentional misconduct of Bank. Each Originator's obligations under this Section shall survive termination of this Agreement. A-4 8. The Originators and Seller each represents and warrants to Bank, Purchaser and Administrator, that (i) each Acceptable Payee has authorized Payments payable to it to be credited to the Account; (ii) this Agreement constitutes its duly authorized, legal, valid, binding and enforceable obligation; (iii) the performance of its obligations under this Agreement and the consummation of the transactions contemplated hereunder will not (A) constitute or result in a breach of its certificate or articles of incorporation, by-laws or partnership agreement, as applicable, or the provisions of any material contract to which it is a party or by which it is bound or (B) result in the violation of any law, regulation, judgment, decree or governmental order applicable to it; and (iv) all approvals and authorizations required to permit the execution, delivery, performance and consummation of this Agreement and the transactions contemplated hereunder have been obtained. (a) The Originators and Seller each agrees that it shall be deemed to make and renew each representation and warranty in subsection 7(a) on and as of each day on which it uses the Remittance Processing Service. 9. The Originators and Seller each represents and warrants that it has not assigned or granted a security interest in the Account or any funds now or hereafter deposited in the Account, except to Seller (in the case of each Originator and to Purchaser and Administrator. 10. The Originators and Seller each agrees that: (a) Except as permitted under Section 2(d), it cannot, and will not, withdraw any monies from the Account until such time as Administrator advises Bank in writing that Purchaser and Administrator no longer claim any interest in the Account and the monies deposited and to be deposited in the Account; and (b) It will not permit the Account to become subject to any other pledge, assignment, lien, charge or encumbrance of any kind, nature or description, other than ownership and security interests of Purchaser, and Administrator on its behalf, hereunder and as referred to herein. 11. Purchaser and Administrator each acknowledges and agrees that Bank has the right to charge the Account from time to time, as set forth in this Agreement, and the account agreement, as amended from time to time, and that Purchaser and Administrator have no right to the sums so withdrawn by Bank. 12. Each Business Day (as defined below), Bank will prepare a package of materials for each Lockbox Address which will include, but is not limited to, any Payments not processed in accordance with the set-up documents, invoices, any other material received at the Lockbox Address(es) and information regarding the deposit for such Business Day. For purposes hereof, "Business Day" shall mean each Monday through Friday, excluding bank holidays. A-5 (a) Bank will send the materials to the address specified below for Solectron, with a copy of the deposit advice to the address specified below for Administrator. In addition to the original statement which will be provided to Solectron, if requested by Administrator, Bank will provide Administrator with a duplicate statement. 13. Each Originator agrees to pay to Bank, upon receipt of Bank's invoice, all costs, expenses and attorneys' fees (including allocated costs for in-house legal services) incurred by Bank in connection with the preparation and administration (including any amendments) and enforcement of this Agreement and any instrument or agreement required hereunder, including but not limited to any such costs, expenses and fees arising out of the resolution of any conflict, dispute, motion regarding entitlement to rights or rights of action, or other action to enforce Bank's rights in a case arising under Title 11, United States Code. 14. Notwithstanding any of the other provisions in this Agreement, in the event of the commencement of a case pursuant to Title 11, United States Code, filed by or against either Originator or Seller, or in the event of the commencement of any similar case under then applicable federal or state law providing for the relief of debtors or the protection of creditors by or against either Originator or Seller, Bank may take or omit to take any action as Bank reasonably deems necessary in order to comply with all applicable provisions of governing statutes, and shall not be liable to the other parties, and each of the other parties hereby agrees not to assert any claim against Bank, for any Damages arising from such action or omission. 15. This Agreement may be amended only be a writing signed by each Originator, Seller, Purchaser, Administrator and Bank; except that Bank's charges are subject to change by Bank upon 30 days' prior written notice to each Originator and Seller. 16. This Agreement may be executed in counterparts; all such counterparts shall constitute but one and the same agreement. 17. Any written notice or other written communication to be given under this Agreement shall be addressed to each party at its address set forth on the signature page of this Agreement or to such other address as a party may specify in writing. Except as otherwise expressly provided herein, any such notice shall be effective upon receipt. 18. This Agreement controls in the event of any conflict between this Agreement and or any other document or written or oral statement. This Agreement supersedes all prior understandings, writings, proposals, representations and communications, oral or written, of any party relating to the subject matter hereof. 19. Neither of the Originators nor Seller may assign any of its rights or obligations under this Agreement without the prior written consent of Bank. Upon [30 days] prior written notice to Bank, Purchaser may assign its rights and interests under this Agreement to any assignee of Purchaser's interest in the Receivables. Administrator may assign its rights, interests and obligations under this Agreement to any successor administrator for Purchaser. Administrator A-6 agrees to give prompt written notice to Bank of any such assignment by Purchaser or Administrator, but no failure to give or delay in giving such notice shall impair the assignee's interest in the Account or, on and after the giving of such notice, the rights of the assignee hereunder. 20. Bank hereby agrees that it will not institute, or join any other person or entity in instituting, any case pursuant to Title 11, United States Code, or any similar case under then applicable state or federal law providing for the relief of debtors or the protection of creditors, (a) against Purchaser prior to the date which is one year and one day after payment of all commercial paper or other rated securities now or hereafter issued by Purchaser or (b) against Seller prior to the date which is one year and one day after the date on which Purchaser has no further ownership interest (or commitment to acquire any interest) in the Receivables and all of Seller's obligations which are secured by the Receivables, the Payments and the Account are paid in full. This Section 20 shall survive any termination of this Agreement. 21. This Agreement shall be interpreted in accordance with Illinois law without reference to Illinois principles of conflicts of law. A-7 IN WITNESS WHEREOF, the parties hereto have executed this agreement by their duly authorized officers as of the day and year first above written. Solectron Corporation Address for notices: ("Solectron" and "Originator") 847 Gilbrator Drive By: Building 5 --------------------------- Name: Milpitas, California 95035 ------------------------- Title: Attention: Treasurer ------------------------ Telephone: (408) 956-6577 Facsimile: (408) 956-6062 Solectron California Corporation Addresses for notices ("Originator") 847 Gilbrator Drive By: Building 5 --------------------------- Name: Milpitas, California 95035 ------------------------- Title: Attention: Treasurer ------------------------ Telephone: (408) 956-6577 Facsimile: (408) 956-6062 Solectron Funding Corporation Address for notices: ("Seller") 847 Gilbrator Drive By: Building 5 ---------------------------- Name: Milpitas, California 95035 -------------------------- Title: Attention: Treasurer -------------------------- Telephone: (408) 956-6577 Facsimile: (408) 956-6062 Receivables Capital Corporation Address for notices: ("Purchaser") c/o Administrator at its address shown below By: c/o Merrill Lynch Money Markets, Inc. ---------------------------- Name: World Financial Center, North Tower ---------------------------- Title: 250 Vesey Street - 11th Floor ---------------------------- New York, New York 10281-1311 Attention: George Roller Telephone: (212) 449-1606 Facsimile: (212) 449-2234 S-1 Bank of America National Trust Address for notices: and Savings Association ("Administrator") Asset Securitization Group 231 South LaSalle Street By: Chicago, Illinois 60697 -------------------------- Name: Attention: Asset Securitization Group -------------------------- Title: Telephone: (312) 828-7421 -------------------------- Facsimile: (312) 828-7855 Bank of America National Trust and Savings Association ("Bank") By: --------------------------- Name: --------------------------- Title: --------------------------- By: --------------------------- Name: --------------------------- Title: --------------------------- S-2 EXHIBIT A TO THREE PARTY AGREEMENT RELATING TO LOCKBOX SERVICES STANDARD TERMS AND CONDITIONS The Lockbox Service involves processing checks that are received at a Lockbox Address. With this Service, Company instructs its customers to mail checks it wants to have processed under the Service to the Lockbox Address. Banks picks up mail at the Lockbox Address according to its mail pick-up schedule. Banks will have unrestricted and exclusive access to the mail directed to the Lockbox Address. Bank will provide Company with the Lockbox Service for a Lockbox Address when Company has completed and Bank has received Bank's then current set-up documents for the Lockbox Address. If Bank receives any mail containing Company's Lockbox number at Bank's lockbox operations location (instead of the Lockbox Address), Bank may handle the mail as if it had been received at the Lockbox Address. PROCESSING Bank will handle checks received at the Lockbox Address according to the applicable deposit account agreement, if the checks were delivered by Company to Bank for deposit to the Account, except as modified by this Agreement. Bank will open the envelopes picked up from the Lockbox Address and remove the contents. For the Lockbox Address, checks and other documents contained in the envelopes will be inspected and handled in the manner specified in the Company's set-up documents. Bank captures and reports information related to the lockbox processing, where available, if Company has specified this option in the set-up documents. Banks will endorse all checks Bank processes on Company's behalf. If Bank processes an unsigned check as instructed in the set-up documents, and the check is paid, but the account owner does not authorize payment, Company agrees to indemnify Bank, the drawee bank, (which may include Bank) and any intervening collection bank for any liability or expense incurred by such indemnitee due to the payment and collection of the check. If Company instructs Bank not to process a check bearing a handwritten or typed notation "Payment in Full" or words of similar import on the face of the check, Company understands that Bank has adopted procedures designed to detect checks bearing such notations; however, Bank will not be liable to Company or any other party for losses suffered if Bank fails to detect checks bearing such notations. A-1 RETURN CHECK Unless Company and Bank agree to another processing procedure, Bank will reclear a check once which has been returned and marked to "Refer to Maker," "Not Sufficient Funds:" or "Uncollected Funds." If the Check is returned for any other reason or if the check is returned a second time, Bank will debit the applicable Account and return the check to Company. Company agrees that Bank will not send a returned item notice to Company for a returned check unless Company and Bank have agreed otherwise. ACCEPTABLE PAYEES For the Lockbox Address, Company will provide to Bank the names of Acceptable Payees ("Acceptable Payee" means Company's name and any other payee name provided to Bank by Company as an acceptable payee for checks to be processed under the Lockbox Service). Bank will process a check only if it is made payable to an Acceptable Payee and if the check is otherwise processable. Company warrants that each Acceptable Payee has authorized checks payable to it be credited to the Account Company designates for the Lockbox Service. Bank may treat as an acceptable Payee any variation of any Acceptable Payee's name that Bank deems to be reasonable. CHANGES TO PROCESSING INSTRUCTIONS Company may request Bank orally or in writing to make changes to the processing instructions (including changes to Acceptable Payees) for any Lockbox Address by contacting its Bank representative . Bank will not be obligated to implement any requested changes until Bank has actually received the requests and had a reasonable opportunity to act upon them. In making changes, Bank is entitled to rely on instructions purporting to be from Company. A-2 ATTACHMENT I MULTI PARTY LOCKBOX Bank of America National Trust and Savings Association as Administrator To: Bank of America 231 South LaSalle Street Chicago, Illinois 60697 Re: Solectron Corporation Account No. Ladies and Gentlemen: Reference is made to the Lockbox Agreement dated September __, 1997 (the "Agreement") among Solectron Corporation, Solectron California Corporation, Solectron Funding Corporation, Receivables Capital Corporation, Bank of America National Trust and Savings Association, as administrator, and you regarding the above-described account (the "Account"). In accordance with Section 1(d) and 2(d) of the Agreement, we hereby give you notice of our exercise of control of the Account and we hereby instruct you to transfer funds to Administrator's account or otherwise in accordance with Administrator's instructions as follows: [insert instructions]. Very truly yours, BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION as Administrator By: ------------------------ Name: ------------------------ Title: ------------------------ EX-10.2 3 AMENDED AND RESTATED PURCHASE AND SALE Exhibit 10.2 ------------ AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT among SOLECTRON CORPORATION, as Originator, Servicer and Guarantor, SOLECTRON CALIFORNIA CORPORATION and SOLECTRON TECHNOLOGY, INC., as Originators, and SOLECTRON FUNDING CORPORATION, as the Initial Purchaser Dated as of February 22, 1999 TABLE OF CONTENTS PAGE ARTICLE I AMOUNTS AND TERMS OF THE PURCHASES SECTION 1.1. Previous Purchases...................................2 SECTION 1.2. Agreement to Purchase and Sell.......................2 SECTION 1.3. Timing of Purchases..................................3 SECTION 1.4. Calculation of Purchase Price........................3 SECTION 1.5. Definitions and Calculations Related to Purchase Discount....................................4 SECTION 1.6. Purchase Price Payments..............................6 SECTION 1.7. The Initial Purchaser Notes..........................6 SECTION 1.8. Deemed Collections, Etc..............................6 SECTION 1.9. No Recourse..........................................7 SECTION 1.10. True Sales...........................................7 SECTION 1.11. Payments and Computations, Etc.......................8 ARTICLE II CONDITIONS TO PURCHASES; REPRESENTATIONS AND WARRANTIES; COVENANTS; PURCHASE AND SALE TERMINATION EVENTS SECTION 2.1. Conditions to Purchases..............................9 SECTION 2.2. Representations and Warranties; Covenants............9 SECTION 2.3. Purchase and Sale Termination Events.................9 ARTICLE III INDEMNIFICATION SECTION 3.1. Indemnities by each Originator......................10 SECTION 3.2. Contribution........................................11 ARTICLE IV ADMINISTRATION AND COLLECTIONS; ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF THE RECEIVABLES SECTION 4.1. Servicing of Receivables and Related Assets.........12 SECTION 4.2. Rights of the Initial Purchaser; Enforcement Rights.12 SECTION 4.3. Responsibilities of each Originator.................13 SECTION 4.4. Further Action Evidencing Purchases.................14 ARTICLE V MISCELLANEOUS SECTION 5.1. Amendments, Etc.....................................15 SECTION 5.2. Notices, Etc........................................15 SECTION 5.3. Acknowledgment and Consent..........................15 SECTION 5.4. Binding Effect; Assignability.......................16 SECTION 5.5. Costs, Expenses and Taxes...........................16 SECTION 5.6. No Proceedings; Limitation on Payments..............17 SECTION 5.7. GOVERNING LAW AND JURISDICTION......................17 SECTION 5.8. Execution in Counterparts...........................18 SECTION 5.9. Survival of Termination.............................18 (i) SECTION 5.10. WAIVER OF JURY TRIAL................................18 SECTION 5.11. Entire Agreement....................................19 SECTION 5.12. Headings............................................19 SECTION 5.13. Several Obligations.................................19 ARTICLE VI GUARANTEE SECTION 6.1. Guarantee...........................................19 SECTION 6.2. Representation and Warranty.........................21 SECTION 6.3. Subrogation.........................................21 EXHIBIT I CONDITIONS OF PURCHASES EXHIBIT II REPRESENTATIONS AND WARRANTIES EXHIBIT III COVENANTS EXHIBIT IV PURCHASE AND SALE TERMINATION EVENTS ANNEX A FORM OF INITIAL PURCHASER NOTE (ii) AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT This AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT (this "Agreement") is entered into as of February 22, 1999 among SOLECTRON CORPORATION, a Delaware corporation ("Solectron"), as Servicer (in such capacity, the "Servicer"), as an Originator (in such capacity, an "Originator") and as Guarantor (in such capacity, the "Guarantor"), SOLECTRON CALIFORNIA CORPORATION, a California corporation ("Solectron California"), as an Originator (in such capacity, an "Originator"), SOLECTRON TECHNOLOGY, INC., a California corporation, ("Solectron Technology"), as an Originator (in such capacity, an "Originator"), and SOLECTRON FUNDING CORPORATION, a Delaware corporation, ("Solectron Funding") as Initial Purchaser (the "Initial Purchaser"). PRELIMINARY STATEMENTS Definitions Unless otherwise defined herein or the context otherwise requires, certain terms that are used throughout this Agreement (including the Exhibits hereto) are defined in Exhibit I to the Second Amended and Restated Receivables Purchase Agreement, dated of even date herewith, among the Initial Purchaser, Solectron, individually and as the Servicer, Quincy Capital Corporation, as Issuer, and Bank of America National Trust and Savings Association, as Administrator (as the same may be amended, amended and restated or otherwise modified from time to time, the "Receivables Purchase Agreement"). Any reference to "this Agreement" or "the Purchase and Sale Agreement", including any such reference in any Exhibit hereto, shall mean this Agreement in its entirety, including the Exhibits and other attachments hereto, as amended, modified or supplemented from time to time in accordance with the terms hereof. Background A. Solectron, Solectron California and Solectron Funding Corporation entered into the Purchase and Sale Agreement, dated as of September 17, 1997 (as amended, supplemented or otherwise modified and in effect on February 22, 1999 the "Original Purchase and Sale Agreement") pursuant to which, among other things, each of Solectron and Solectron California sold from time to time its Receivables to Funding. B. The parties desire to amend and restate in its entirety the Original Purchase and Sale Agreement in order to, among other things, provide for the addition of Solectron Technology as an Originator hereunder. C. Each Originator wishes to sell Receivables that it now owns and from time to time hereafter will own to the Initial Purchaser, and the Initial Purchaser is willing, on the terms and subject to the conditions contained in this Agreement, to purchase such Receivables from such Originator at such time. D. The Initial Purchaser entered into the Original Receivables Purchase Agreement and the Amended and Restated Receivables Purchase Agreement and will enter into the Second Amended and Restated Receivables Purchase Agreement, pursuant to which, among other things, the Initial Purchaser sold and intends to continue to sell to the Issuer undivided ownership interests in the Receivables and the other items specified in Section 1.2(c) of the Second Amended and Restated --------------- Receivables Purchase Agreement. In consideration of the mutual agreements, provisions and covenants contained herein, the parties hereto agree as follows: ARTICLE I AMOUNTS AND TERMS OF THE PURCHASES SECTION 1.1. Previous Purchases. Subject to and upon the terms and conditions set forth in the Original Purchase and Sale Agreement (including Article II), Solectron and Solectron California sold and assigned to the Initial Purchaser, and the Initial Purchaser purchased from Solectron and Solectron California, each of Solectron and Solectron California's right, title and interest in, to and under: (a) each Receivable that was owing on the closing of Solectron and Solectron Corporation's business, as applicable, on September 17, 1997; (b) each Receivable created or acquired by Solectron and Solectron Corporation from September 17, 1997, to but excluding the Effective Date; (c) all Related Security with respect to such Receivables; and (d) All Collections with respect to, and other proceeds of, such Receivable and Related Security. The parties hereto agree that from and after the Effective Date, the terms and conditions of this Purchase and Sale Agreement and the rights and obligations of the parties set forth herein, shall apply to the Receivables and Related Assets purchased by the Initial Purchaser from Solectron and Solectron California, irrespective of whether such Receivables and Related Assets originally were purchased by the Initial Purchaser pursuant to the Original Purchase and Sale Agreement or this Agreement. SECTION 1.2. Agreement to Purchase and Sell. On the terms and conditions hereinafter set forth, each Originator agrees to sell to the Initial Purchaser, and the Initial Purchaser agrees to purchase from such Originator, at the times set forth in Section 1.3, but prior to the Purchase and Sale Termination Date, all of such Originator's right, title, and interest in, to and under: 2 (a) each Receivable of Solectron and Solectron Corporation that was owing on the closing of Solectron's and Solectron Corporation's business, as applicable, on the Effective Date; (b) each Receivable of Solectron, Solectron Corporation and Solectron Technology from and including the close of business, as applicable, on February 22, 1999 to and including the Purchase and Sale Termination Date; and (c) all Related Security with respect to such Receivables, and (d) all Collections with respect to, and other proceeds of, such Receivables and Related Security. The items listed in clauses (c) and (d) of the preceding sentence in relation to any Receivables are herein collectively called the "Related Assets" or, with respect to any such Receivable, the "Related Asset". SECTION 1.3. Timing of Purchases. (a) Regular Purchases. After the Effective Date until the Purchase and Sale Termination Date, each Receivable and Related Asset of each Originator shall be deemed to have been sold to the Initial Purchaser pursuant hereto immediately (and without any formal or other instrument of assignment and without further action by any Person) upon the creation of such Receivable. (b) Lock-Box Accounts. As of the Effective Date, each Originator hereby sells to the Initial Purchaser, and the Initial Purchaser hereby purchases from such Originator, all of such Originator's right, title and interest in the Lock-Box Accounts and any related deposit accounts and post office boxes, all monies, instruments, and other property from time to time held or on deposit therein, all certificates and instruments, if any, from time to time evidencing such Lock-Box Accounts, related deposit accounts and post office boxes and all related agreements between such Originator and the applicable Lock-Box Banks. SECTION 1.4. Calculation of Purchase Price. As soon as available and in any event not later than the tenth calendar day of each month or, if such day is not a Business Day, the first Business Day thereafter, the Servicer shall deliver to the Initial Purchaser, the Administrator and each Originator a Seller Report with respect to the Initial Purchaser's purchases of Receivables and Related Assets from such Originator during the immediately preceding Purchase Period. "Purchase Period" means, with respect to any Month-End Date, the calendar month ending on such Month-End Date. "Payment Date" means the third Business Day following the day upon which the Seller Report was delivered by the Servicer as provided in this Section 1.4. The "Purchase Price" to be paid to such Originator on each Payment Date for the Receivables and Related Assets sold by such Originator pursuant to Section 1.2 during the Purchase Period immediately preceding such Payment Date shall be set forth in the relevant Seller Report and shall be determined in accordance with the following formula: 3 PP = AOB - PD where: PP = the Purchase Price to be paid to such Originator on the relevant Payment Date; AOB = the aggregate Outstanding Balance of the Receivables that were purchased from such Originator during the Purchase Period immediately preceding such Payment Date. (For purposes of this calculation, the Outstanding Balance of a Receivable shall be measured only at the time of such Receivable's creation and sale to the Initial Purchaser.) PD = the Purchase Discount as measured on such Payment Date pursuant to Section 1.5. SECTION 1.5. Definitions and Calculations Related to Purchase Discount. (a) Purchase Discount. "Purchase Discount" for the Receivables and Related Assets that were purchased from each Originator during the Purchase Period immediately preceding a Payment Date shall be determined in accordance with the following formula: PD = AOB x (LD + FD) where: PD = the Purchase Discount as measured on such Payment Date; AOB, in respect of such Originator, has the meaning set forth in Section 1.4; LD = the Loss Discount as measured on such Payment Date, as determine pursuant to paragraph (b) below; and FD = the Funding Discount as measured on such Payment Date, as determined pursuant to paragraph (c) below. (b) Loss Discount. "Loss Discount" in effect for any day with respect to an Originator shall mean the lesser of (i) fifteen percent (15%) and (ii) the result, expressed as a percentage, calculated as of the most recent Month-End Date, of the quotient of (a) the aggregate Outstanding Amount of Receivables originated by such Originator that became Defaulted Receivables during the Purchase Period ending on such Month-End Date divided by (b) the aggregate Outstanding Balance of Receivables that were originated by such Originator during the Purchase Period that occurred six calendar months prior to the Purchase Period ending on such Month-End Date. 4 (c) Funding Discount. "Funding Discount" with respect to an Originator, as measured on any Payment Date, means a percentage determined in accordance with the following formula: FD = (AM/360) x FR where: FD = the Funding Discount as measured on such Payment Date; AM = the Average Maturity of the Receivables as of the most recent Month End Date; and FR = the Funding Rate as measured on such Payment Date, as determined pursuant to paragraph (d) below. (d) Funding Rate. "Funding Rate" as measured on any Payment Date means a per annum percentage rate determined in accordance with the following formula: FR = 0.02% + DRP + SFP + EXP where: FR = the Funding Rate as measured on such Payment Date; DRP = the "Discount Rate Percentage", which shall be equal to a fraction (expressed as a percentage) (x) the numerator of which is the sum of the products obtained by multiplying (A) each CP Rate or Alternate Rate applicable to each Portion of Capital outstanding as of the first day of the Purchase Period ending on the Month-End Date immediately preceding such Payment Date, times (B) the amount of the Portion of Capital to which such CP Rate or Alternate Rate applied on such first day, and (y) the denominator of which is the aggregate outstanding amount of Capital on such first day; SFP = the "Servicer's Fee Percentage", which shall be equal to the per annum percentage rate contemplated by the definition of Servicing Fee; and EXP = the amount, expressed as a per annum percentage rate, of any fees, costs and expenses incurred by the Initial Purchaser during the Purchase Period preceding such Payment Date (and not accounted for in the Discount Rate Percentage), including without limitation reserve costs, tax payments and indemnity obligations of the Initial Purchaser for which the Initial Purchaser is not indemnified pursuant to this Agreement; provided, however, that, for purposes of minimizing fluctuations in the rate calculated as the Funding Rate, the Servicer may allocate and spread any unscheduled or unaccruable 5 costs and expenses of the Initial Purchaser over several Payment Dates at the Servicer's reasonable discretion, subject to the requirement that such allocation be reasonably calculated to allow the Initial Purchaser to recover such costs and expenses over a reasonable period of time. SECTION 1.6. Purchase Price Payments. On the Effective Date, the Initial Purchaser shall pay each Originator the Purchase Price for the Receivables and Related Assets sold by such Originator, if any, on that date. On each Payment Date falling after the date of the purchase pursuant to Section 1.3, on the terms and subject to the conditions of this Agreement, the Initial Purchaser shall pay to each Originator the Purchase Price for the Receivables and Related Assets purchased from such Originator, if any, during the immediately preceding Purchase Period as follows: (i) First, by making a cash payment to or at the direction of such Originator to the extent that the Initial Purchaser has cash available to make such payment subject to the terms of clause (m) of Exhibit IV to the Receivables Purchase Agreement; and (ii) Second, to the extent any portion of the Purchase Price remains unpaid, the principal amount outstanding under the Initial Purchaser Note issued to such Originator automatically shall be increased in an amount equal to such remaining Purchase Price. SECTION 1.7. The Initial Purchaser Notes. (a) On or prior to the date hereof, the Initial Purchaser shall deliver to each Originator a promissory note in the form of Annex A to this Agreement payable to the order of such Originator (each such promissory note, as it may be amended, amended and restated, endorsed or otherwise modified from time to time, together with any promissory notes issued from time to time in substitution therefor or renewal thereof in accordance with the Transaction Documents, being called the "Initial Purchaser Note"). The obligations of the Initial Purchaser to each Originator under the related Initial Purchaser Note shall be subordinated in accordance with the terms of such Initial Purchaser Note. (b) The Servicer shall hold the Initial Purchaser Notes for the benefit of the Originators, and shall make all appropriate record-keeping entries with respect to the Initial Purchaser Notes or otherwise to reflect the payments on and adjustments of such Initial Purchaser Notes. The Servicer's books and records shall constitute rebuttable presumptive evidence of the principal amount of and accrued interest on the Initial Purchaser Notes at any time. By its execution of this Agreement, the Servicer acknowledges receipt of the Initial Purchaser Notes relating to the Originators. Each Originator hereby irrevocably authorizes the Servicer to mark its Initial Purchaser Note "CANCELLED" and to return such Initial Purchaser Note to the Initial Purchaser upon the full and final payment thereof after the Purchase and Sale Termination Date. SECTION 1.8. Deemed Collections, Etc. On and after the Initial Purchase Date: 6 (a) if on any day the Outstanding Balance of any Receivable is reduced or adjusted as a result of any defective, rejected, returned, repossessed, goods or services, or any discount or other adjustment made by an Originator, or any setoff or dispute between such Originator and an Obligor, such Originator shall be deemed to have received on such day a Collection of such Receivable in an amount equal to the amount of such reduction or adjustment and shall deliver to the Servicer for application in accordance with Section 1.4(b) of the Receivables Purchase Agreement in same day funds an amount equal to the amount of such reduction or adjustment; (b) if on any day any of the representations or warranties in paragraph (h) of Exhibit II hereto is not true with respect to any Receivable, the applicable Originator shall be deemed to have received on such day a Collection of such Receivable in an amount equal to the Outstanding Balance of such Receivable and shall deliver to the Servicer in same day funds an amount equal to the Outstanding Balance of such Receivable for application in accordance with Section 1.4(b) of the Receivables Purchase Agreement; (c) except as provided in paragraph (a) or (b) of this Section, or as otherwise required by applicable law or the relevant Contract, all Collections received from an Obligor of any Receivables originated by an Originator shall be applied to such Receivables of such Obligor in the order of the age of such Receivables, starting with the oldest such Receivable, unless such Obligor designates in writing its payment for application to specific Receivables; and (d) if and to the extent the Initial Purchaser shall be required for any reason to pay over to an Obligor (or any trustee, receiver, custodian or similar official in any Insolvency Proceeding) any amount received by it hereunder, such amount shall be deemed not to have been so received but rather to have been retained by the applicable Originator and, accordingly, the Initial Purchaser shall have a claim against such Originator for such amount, payable immediately. SECTION 1.9. No Recourse. Except as specifically provided in this Agreement, the purchase and sale of Receivables and Related Assets under this Agreement shall be without recourse to the Originators; provided that each Originator shall be liable to the Initial Purchaser for all representations, warranties, covenants and indemnities made by such Originator pursuant to the terms of this Agreement, it being understood that, under the terms of this Agreement, such obligations of such Originator will not arise on account of the failure of the Obligor for credit reasons to make any payment in respect of a Receivable. SECTION 1.10. True Sales. (a) Each Originator and the Initial Purchaser intend the transactions hereunder to constitute true sales (or to the extent the Subscription Agreement applies, true conveyances in the form of capital contributions) of Receivables, Related Assets and the Lock-Box Accounts (and the other items described in Section 1.2) by such Originator to the Initial Purchaser providing the Initial Purchaser with the full benefits of ownership thereof, and no party hereto intends the transactions contemplated hereunder to be, or for any purpose to be characterized as, a loan from the Initial Purchaser to the Originators. 7 (b) In the event (but only to the extent) that the conveyance of Receivables and Related Assets hereunder is characterized by a court or other Governmental Authority as a loan rather than a sale, each Originator shall be deemed hereunder to have granted to the Initial Purchaser, and such Originator hereby grants to the Initial Purchaser, a security interest in all of such Originator's right, title and interest in, to and under all of the following, whether now or hereafter owned, existing or arising: (A) all Receivables of such Originator, (B) all Related Security with respect to each such Receivable, (C) all Collections with respect to each such Receivable, (D) the Lock-Box Accounts, all amounts on deposit therein, all certificates and instruments, if any, from time to time evidencing such Lock-Box Accounts and amounts on deposit therein, and all related agreements between such Originator and the Lock-Box Banks, and (E) all proceeds of, and all amounts received or receivable under any or all of, the foregoing. Such security interest shall secure all of such Originator's obligations (monetary or otherwise) under this Agreement and the other Transaction Documents to which it is a party, whether now or hereafter existing or arising, due or to become due, direct or indirect, absolute or contingent. In the event (but only to the extent) that the conveyance of Receivables and Related Assets hereunder is characterized by a court or other Governmental Authority as a loan rather than a sale, the Initial Purchaser shall have, with respect to the property described in this Section 1.10(b), and in addition to all the other rights and remedies available to the Initial Purchaser under this Agreement and applicable law, any additional rights and remedies of a secured party specified under any applicable UCC, and this Agreement shall constitute a security agreement under applicable law. SECTION 1.11. Payments and Computations, Etc. (a) All amounts to be paid or deposited by each Originator or the Servicer hereunder shall be paid or deposited no later than 12:00 noon (New York City time) on the day when due in same day funds in United States dollars. All amounts received after 12:00 noon (New York City time) will be deemed to have been received on the immediately succeeding Business Day. (b) Each Originator shall, to the extent permitted by law, pay interest on any amount not paid or deposited by such Originator when due hereunder, at an interest rate per annum equal to 2.0% per annum above the Base Rate, payable on demand. (c) All computations of interest under Section 1.11(b) and all computations of the Purchase Price, fees, and other amounts hereunder shall be made on the basis of a 360-day year and actual days elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of such payment or deposit. 8 ARTICLE II CONDITIONS TO PURCHASES; REPRESENTATIONS AND WARRANTIES; COVENANTS; PURCHASE AND SALE TERMINATION EVENTS SECTION 2.1. Conditions to Purchases. The obligation of the Initial Purchaser to make any purchase of Receivables and Related Assets hereunder is subject to satisfaction of the conditions to purchase set forth in Exhibit I hereto. SECTION 2.2. Representations and Warranties; Covenants. Each Originator hereby makes the representations and warranties set forth in Exhibit II as of the Effective Date, and hereby agrees to perform and observe the covenants set forth in Exhibit III hereto. SECTION 2.3. Purchase and Sale Termination Events. If any Purchase and Sale Termination Event set forth in Exhibit IV shall occur, the Initial Purchaser may, with the prior written consent of the Administrator, by notice to each Originator (with a copy to the Administrator), declare the Purchase and Sale Termination Date to have occurred; provided that automatically upon the occurrence of an event (without any requirement for the passage of time or the giving of notice) described in clause (f) of Exhibit IV hereto the Purchase and Sale Termination Date shall occur. The agreement of each Originator to sell Receivables and Related Assets hereunder, and the agreement of the Initial Purchaser to purchase Receivables and Related Assets from such Originator hereunder, shall terminate automatically on the earlier to occur of (i) the Purchase and Sale Termination Date and (ii) the Facility Termination Date; provided that in the event that each related Purchase and Sale Termination Event shall cease to exist, such agreements of the Originators and Initial Purchaser shall be automatically reinstated as though such Purchase and Sale Termination Date had never occurred. Notwithstanding the occurrence of the Purchase and Sale Termination Date, all obligations of each Originator under the Transaction Documents that shall have arisen prior to the Purchase and Sale Termination Date shall survive until each such obligation has been finally and fully paid and performed by such Originator. Upon the occurrence of a Purchase and Sale Termination Event, the Initial Purchaser shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of each applicable jurisdiction and other applicable laws, which rights and remedies shall be cumulative. Without limiting the foregoing, the occurrence of a Purchase and Sale Termination Event hereunder shall not deny to the Initial Purchaser any remedy to which the Initial Purchaser may be otherwise appropriately entitled, whether by statute or applicable law, at law or in equity. 9 ARTICLE III INDEMNIFICATION SECTION 3.1. Indemnities by each Originator. Without limiting any other rights which the Initial Purchaser or any Indemnified Party may have hereunder or under applicable law, each Originator hereby agrees to indemnify the Initial Purchaser and each Indemnified Party from and against any and all Indemnified Amounts arising out of or resulting from this Agreement (whether directly or indirectly) or the use of proceeds of purchases or the ownership of any Receivable or Related Asset, excluding, however, (a) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of the Initial Purchaser or such Indemnified Party, (b) recourse (except as otherwise specifically provided in this Agreement) for uncollectible Receivables or (c) any overall net income taxes or franchise taxes imposed on the Initial Purchaser or such Indemnified Party by the jurisdiction under the laws of which such Indemnified Party is organized or any political subdivision thereof. Without limiting or being limited by the foregoing, but subject to the exclusions set forth in the preceding sentence, each Originator shall pay on demand to the Initial Purchaser and each Indemnified Party any and all amounts necessary to indemnify the Initial Purchaser and such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from any of the following: (i) the failure of any information provided by such Originator to the Initial Purchaser, the Issuer, the Administrator or the Servicer with respect to Receivables or this Agreement to be true and correct; (ii) the failure of any representation or warranty or statement made or deemed made by such Originator under or in connection with this Agreement to have been true and correct in all respects when made; (iii) the failure by such Originator to comply with any applicable law, rule or regulation with respect to any Receivable or any Related Asset; or the failure of any Receivable or Related Asset to conform to any such applicable law, rule or regulation; (iv) the failure to vest in the Initial Purchaser a valid and enforceable (A) perfected ownership interest in each Receivable originated by such Originator at any time existing and the Related Assets with respect thereto and in the items covered by Section 1.3(b) and (B) a first priority perfected security interest in the items described in Section 1.10(b) to the extent Section 1.10(b) is applicable, in each case free and clear of any Adverse Claim; (v) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables originated by such Originator and the Related Assets in respect thereof, whether at the time of any purchase or at any subsequent time; 10 (vi) any dispute, claim, offset, billing adjustment or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable originated by such Originator (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the goods or services related to such Receivable or the furnishing or failure to furnish such goods or services or relating to collection activities with respect to such Receivable (if such collection activities were performed by such Originator, or any of its Affiliates, acting as Servicer or by any agent or independent contractor retained by such Originator or any of its Affiliates); (vii) any failure of such Originator to perform its duties or obligations in accordance with the provisions hereof or to perform its duties or obligations under the Contracts; (viii) any breach of warranty, products liability or other claim, investigation, litigation or proceeding arising out of or in connection with merchandise, insurance or services which are the subject of any Contract relating to a Receivable originated by such Originator; (ix) the commingling by any Solectron Party of any portion of Collections of Receivables at any time with other funds; (x) any investigation, litigation or proceeding related to this Agreement or the use of proceeds of purchases or the ownership of any Receivable or Related Asset; (xi) any requirement that all or a portion of the payments or distributions made to the Initial Purchaser pursuant to this Agreement shall be rescinded or otherwise must be returned to such Originator for any reason; or (xii) the breach of any covenant or any representation and warranty made by Solectron in the Solectron Credit Agreement. For purposes of this Article III, in determining whether any representation or warranty or information was true and correct, any qualification or limitation in such representation and warranty or information as to materiality, material adverse effect, knowledge or limitation on enforcement shall be disregarded. SECTION 3.2. Contribution. If for any reason the indemnification provided above in this Article III (and subject to the exceptions set forth therein) is unavailable to the Initial Purchaser or an Indemnified Party or is insufficient to hold the Initial Purchaser or an Indemnified Party harmless, then each Originator shall contribute to the maximum amount of Indemnified Amount payable or paid by the Initial Purchaser or such Indemnified Party in such proportion as is appropriate to reflect not only the relative benefits received by the Initial Purchaser or such Indemnified Party on the one 11 hand and such Originator on the other hand, but also the relative fault of such Indemnified Party (if any) and such Originator and any other relevant equitable considerations. ARTICLE IV ADMINISTRATION AND COLLECTIONS; ADDITIONAL RIGHTS AND OBLIGATIONS IN RESPECT OF THE RECEIVABLES SECTION 4.1. Servicing of Receivables and Related Assets. Consistent with the Initial Purchaser's ownership of the Receivables and the Related Assets, the Initial Purchaser shall have the sole right to service, administer and collect the Receivables, to assign such right and to delegate such right to others. In consideration of the Initial Purchaser's purchase of the Receivables and the Related Assets, each Originator agrees to cooperate fully with the Initial Purchaser to facilitate the full and proper performance of such servicing, administering and collecting for the benefit of the Initial Purchaser, the Issuer and the Administrator. To the extent that the Initial Purchaser, individually or through the Servicer, has granted or grants powers of attorney to the Administrator under the Receivables Purchase Agreement, each Originator hereby grants a corresponding power of attorney on the same terms to the Initial Purchaser. Each Originator hereby acknowledges and agrees that the Initial Purchaser, in all of its capacities, shall assign to the Administrator for the benefit of the Issuer and the Administrator such powers of attorney and other rights and interests granted by such Originator to the Initial Purchaser hereunder, and agrees to cooperate fully with the Administrator in the exercise of such rights. SECTION 4.2. Rights of the Initial Purchaser; Enforcement Rights. (a) The Initial Purchaser shall have no obligation to account for, to replace, to substitute or to return any Receivables or Related Assets to any Originator. Without limiting the foregoing, the Initial Purchaser shall have no obligation to account for, or to return to any Originator, Collections, or any interest or other finance charge collected pursuant thereto, without regard to whether such Collections and charges are in excess of the Purchase Price for such Receivables and Related Assets. (b) The Initial Purchaser shall have the unrestricted right to further assign, transfer, deliver, hypothecate, subdivide or otherwise deal with the Receivables and Related Assets (and other items covered by Section 1.2(c) and (d)), and all of the Initial Purchaser's right, title and interest in, to and under this Agreement, on whatever terms the Initial Purchaser shall determine, pursuant to the Receivables Purchase Agreement or otherwise. (c) The Initial Purchaser shall have the sole right to retain any gains or profits created by buying, selling or holding the Receivables and Related Assets and shall have the sole risk of and responsibility for losses or damages created by such buying, selling or holding, it being understood that this Section shall not limit the Initial Purchaser's rights and remedies pursuant to Article III or other provisions of this Agreement or pursuant to applicable law. 12 (d) At any time following the designation of a Servicer (other than Solectron) pursuant to Section 4.1 of the Receivables Purchase Agreement: (i) the Administrator may direct the Obligors that payment of all amounts payable under any Pool Receivable be made directly to the Administrator or its designee; (ii) the Administrator may instruct any Originator to give notice of the Initial Purchaser's or the Issuer's interest in Receivables to each Obligor, which notice shall direct that payments be made directly to the Administrator or its designee, and upon such instruction from the Administrator such Originator shall give such notice at the expense of such Originator; provided, that if such Originator fails to so notify each Obligor, the Administrator may so notify the Obligors; and (iii) the Administrator may request such Originator to, and upon such request such Originator shall, (A) assemble all of the records necessary or desirable to collect the Receivables and the Related Assets, and transfer or license the use of, to the new Servicer, all software necessary or desirable to collect the Receivables and the Related Assets, and make the same available to the Administrator or its designee at a place selected by the Administrator, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections with respect to the Receivables in a manner acceptable to the Administrator and, promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Administrator or its designee. (e) Each Originator hereby authorizes the Initial Purchaser, and irrevocably appoints the Initial Purchaser as its attorney-in-fact with full power of substitution and with full authority in the place and stead of such Originator, which appointment is coupled with an interest, to take any and all steps in the name of such Originator and on behalf of such Originator necessary or desirable, in the determination of such Originator, to collect any and all amounts or portions thereof due under any and all Receivables originated by such Originator or Related Assets, including, without limitation, endorsing the name of such Originator on checks and other instruments representing Collections and enforcing such Receivables and Related Assets. Notwithstanding anything to the contrary contained in this subsection (e), none of the powers conferred upon such attorney-in-fact pursuant to the immediately preceding sentence shall subject such attorney-in-fact to any liability if any action taken by it shall prove to be inadequate or invalid, nor shall they confer any obligations upon such attorney-in-fact in any manner whatsoever. SECTION 4.3. Responsibilities of each Originator. On and after the Effective Date, anything herein to the contrary notwithstanding: (a) Each Originator agrees to deliver any Collections that it receives, in the form so received, to Lock-Box Accounts in accordance with clause (j) of Exhibit III and agrees that all such Collections shall be deemed to be received in trust for the Initial Purchaser and 13 shall be maintained and segregated separate and apart from all other funds and moneys of such Originator until such delivery; and (b) Each Originator shall (i) perform all of its obligations hereunder and under the Contracts related to the Receivables and Related Assets (and under its agreements with the Lock-Box Banks) to the same extent as if the Receivables, Related Assets and Lock-Box Accounts (and the other items described in Section 1.2(c) and 1.2(d)) had not been sold hereunder, and the exercise by the Initial Purchaser or its designee or assignee of the Initial Purchaser's rights hereunder or in connection herewith shall not relieve such Originator from such obligations and (ii) pay when due any taxes, including, without limitation any sales taxes, payable in connection with the Receivables and their creation and satisfaction. Notwithstanding anything to the contrary in this Agreement, the Initial Purchaser, the Administrator and the Issuer shall not have any obligation or liability with respect to any Receivable, Related Asset, or Lock-Box Account (or any other item described in Section 1.2(c) and 1.2(d)) nor shall any of them be obligated to perform any of the obligations of such Originator under any of the foregoing. SECTION 4.4. Further Action Evidencing Purchases. Each Originator agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments, UCC financing statements and documents, and take all further action, reasonably requested by the Initial Purchaser or the Administrator in order to perfect, protect or more fully evidence the purchase of the Receivables and the Related Assets and Lock-Box Accounts (and the other items described in Section 1.3(b)) by the Initial Purchaser hereunder, or to enable the Initial Purchaser or the Administrator, the Issuer or any other Indemnified Party to exercise or enforce any of its or their respective rights or remedies hereunder or under any other Transaction Document or Program Support Agreement; provided that the Originators shall not be required pursuant to this Section 4.4 to take any action that conflicts with any other provision of this Agreement or of the Receivables Purchase Agreement. Without limiting the generality of the foregoing, upon the request of the Initial Purchaser or the Administrator, such Originator will: (a) execute and file such UCC financing or continuation statements, or amendments thereto or assignments thereof, and such other instruments or notices, as the Initial Purchaser or the Administrator may reasonably determine to be necessary or appropriate; and (b) legend the related Contracts, to reflect the sale of the Receivables and Related Assets pursuant to this Agreement and the Receivables Purchase Agreement. Each Originator hereby authorizes the Initial Purchaser or its designee or assignee to file one or more UCC financing or continuation statements, and amendments thereto and assignments thereof, relative to all or any of the Receivables and Related Assets, in each case whether now existing or hereafter generated. If any Originator fails to perform any of its agreements or obligations under this Agreement, the Initial Purchaser or its designee or assignee may (but shall not be required to) itself perform, or cause performance of, such agreement or obligation, and the 14 reasonable expenses of the Initial Purchaser or its designee or assignee incurred in connection therewith shall be payable by such Originator under Section 5.5. ARTICLE V MISCELLANEOUS SECTION 5.1. Amendments, Etc. No amendment or waiver of any provision of this Agreement or consent to any departure by an Originator or the Servicer therefrom shall be effective unless in a writing signed by the Administrator (and, in the case of an amendment, by the Administrator, such Originator and the Servicer), and any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Initial Purchaser or Administrator to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. SECTION 5.2. Notices, Etc. All notices and other communications hereunder shall, unless otherwise stated herein, be in writing (which shall include facsimile communication) and sent or delivered, to each party hereto, at its address set forth under its name on the signature pages hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto. Notices and communications by facsimile shall be effective when sent (and shall be followed by hard copy sent by first class mail), and notices and communications sent by other means shall be effective when received. SECTION 5.3. Acknowledgment and Consent. (a) Each of the Originators and the Guarantor acknowledges that, contemporaneously herewith or at any time hereafter, the Initial Purchaser (i) is assigning or will assign to the Issuer, pursuant to the Receivables Purchase Agreement, one or more undivided interests in all of the Initial Purchaser's rights, title and interest in, to and under the Receivables and Related Assets, and (ii) is assigning to the Administrator, pursuant to the Receivables Purchase Agreement, all of the Initial Purchaser's right, title and interest in, to and under this Agreement and the other Transaction Documents (and all rights, remedies, powers, privileges and claims of the Initial Purchaser under this Agreement (including Article VI) and the other Transaction Documents), it being understood that such assignment shall not relieve any party hereto from (or require the Issuer or the Administrator to undertake) the performance of any term, covenant or agreement on the part of any party hereto to be performed or observed under or in connection with this Agreement, any other Transaction Document, and any Pool Receivable or any Related Security. Each of the Originators and the Guarantor hereby consents to such assignments, including, without limitation, the assignment by the Initial Purchaser to the Administrator for its benefit and the benefit of the Issuer of (i) the right of the Initial Purchaser, at any time, to enforce this Agreement and any other Transaction Documents against such Originator and the Servicer, (ii) the right to appoint a successor to the Servicer as set forth therein, (iii) the right, at any time, to give or withhold any and all 15 consents, requests, notices, directions, approvals, demands, extensions or waivers under or with respect to this Agreement, any other Transaction Document or the obligations in respect of such Originator or Guarantor thereunder to the same extent as the Initial Purchaser may do, and (iv) all of the Initial Purchaser's rights, remedies, powers, privileges, and claims under or with respect to this Agreement and the other Transaction Documents (whether arising pursuant to the terms of this Agreement or any other Transaction Document or otherwise available at law or in equity). Each of the parties hereto acknowledges and agrees that the Issuer, the Administrator and the other Affected Persons are third party beneficiaries of the rights of the Initial Purchaser arising hereunder and under the other Transaction Documents to which such Originator and the Guarantor is a party. (b) Each of the Originators and the Guarantor hereby agrees to execute all agreements, instruments and documents, and to take all other action, that the Initial Purchaser or the Administrator reasonably determines is necessary or reasonably desirable to evidence its consent described in Section 5.3(a); provided that neither the Originators nor the Guarantor shall be required pursuant to this Section 5.3 to execute any agreements, instruments or documents, or take any actions, that conflict with any other provision of this Agreement or of the Receivables Purchase Agreement. (c) Each of the Originators and the Guarantor hereby acknowledges that its obligations to the Administrator for its benefit and the benefit of the Issuer are and shall be, to the extent permitted by applicable law or not prohibited by any order of any court or administrative or regulatory authority, absolute and unconditional under any and all circumstances and shall be unaffected by any claims, offsets or other defenses such Originator or the Guarantor may have against the Initial Purchaser (other than in respect of the Initial Purchaser Note), and each of such Originator and the Guarantor agrees that it shall not interpose any such claims, offsets or defenses as a defense to its performance of its obligations under the Transaction Documents to which it is a party. SECTION 5.4. Binding Effect; Assignability. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. No Originator shall assign any of its rights or delegate its obligations hereunder or under any other Transaction Document or any interest herein or therein without the prior written consent of the Initial Purchaser and the Administrator. Without limiting any other rights that may be available under applicable law, the rights of the Initial Purchaser may be enforced through it or by its agents. SECTION V.5. Costs, Expenses and Taxes. In addition to the rights of indemnification granted under Article III, each Originator agrees to pay on demand all costs and expenses in connection with the preparation, execution, delivery and administration (including, without limitation, periodic auditing of Receivables) of this Agreement and the other Transaction Documents, and any amendment, modification or waiver of any of the foregoing, including, without limitation, Attorney Costs for the Administrator, the Initial Purchaser and their respective Affiliates and agents with respect thereto and with respect to advising the Administrator, the Initial Purchaser and their respective Affiliates and agents as to their rights and remedies under this Agreement and the other Transaction Documents, and all costs and expenses, if any (including, without limitation, 16 Attorney Costs), of the Administrator, the Initial Purchaser and their respective Affiliates and agents, in connection with the enforcement of this Agreement and the other Transaction Documents. SECTION 5.6. No Proceedings; Limitation on Payments. (a) Each party hereto hereby agrees that it will not institute against, or join any other Person in instituting against, the Initial Purchaser or the Issuer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or other proceeding under any federal or state bankruptcy or similar law, for one year and one day after the latest maturing Note is paid in full. (b) Notwithstanding any provisions contained in this Agreement to the contrary, the Initial Purchaser shall not, and shall not be obligated to, pay any amount pursuant to this Agreement unless the Initial Purchaser has excess cash flow from operations or has received funds with respect to such obligation which may be used to make such payment. SECTION 5.7. GOVERNING LAW AND JURISDICTION. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF), EXCEPT TO THE EXTENT THAT THE PERFECTION (OR THE EFFECT OF PERFECTION OR NON-PERFECTION) OF THE INTERESTS OF THE INITIAL PURCHASER IN THE RECEIVABLES AND THE OTHER ITEMS DESCRIBED IN SECTION 1.10(b) IS GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF ILLINOIS. (b) EACH SOLECTRON PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT OF THE NORTHERN DISTRICT OF ILLINOIS, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT SHALL AFFECT ANY RIGHT THAT THE 17 ADMINISTRATOR OR THE ISSUER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT AGAINST ANY SOLECTRON PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION. EACH SOLECTRON PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT IN ANY COURT REFERRED TO IN THIS CLAUSE (b). EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT. EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 5.2. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. SECTION 5.8. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. SECTION 5.9. Survival of Termination. The provisions of Section 1.11, Section 2.3, Article III, Article IV, Section 5.3, Section 5.5, Section 5.6, Section 5.7, Section 5.10, Article VI and of this Section 5.9, shall survive any termination of this Agreement. SECTION 5.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ITS RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR INDEMNIFIED PARTY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH PARTY HERETO AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH OF THE PARTIES HERETO FURTHER AGREES THAT ITS RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, AMENDMENTS AND RESTATEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OTHER 18 TRANSACTION DOCUMENT (INCLUDING WITHOUT LIMITATION ANY EXTENSION OF THE FACILITY TERMINATION DATE). SECTION 5.11. Entire Agreement. This Agreement embodies the entire agreement and understanding of the parties hereto, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof. The Exhibits, Schedules and Annexes to this Agreement shall be deemed incorporated by reference into this Agreement as if set forth herein. SECTION 5.12. Headings. The captions and headings of this Agreement and in any Exhibit hereto are for convenience of reference only and shall not affect the interpretation hereof or thereof. SECTION 5.13. Several Obligations. The obligations of the Originators under this Agreement are several but not joint obligations. ARTICLE VI GUARANTEE SECTION 6.1. Guarantee. (a) Guarantor hereby unconditionally and irrevocably covenants and agrees that it will cause Solectron California and Solectron Technology duly and punctually to perform and observe all of the terms, conditions, covenants, agreements (including, without limitation, agreements to make payments or deemed Collections) and indemnities under this Agreement and the other Transaction Documents strictly in accordance with the terms hereof and thereof and that if for any reason whatsoever Solectron California or Solectron Technology shall fail to so perform and observe such terms, conditions, covenants, agreements and indemnities, Guarantor will duly and punctually perform and observe the same. (b) The liabilities and obligations of Guarantor under this Section 6.1 shall be absolute and unconditional under all circumstances and shall be performed by Guarantor regardless of (i) whether the Initial Purchaser, the Administrator, or the Issuer shall have taken any steps to collect from Solectron California or Solectron Technology any of the amounts payable by Solectron California or Solectron Technology to the Initial Purchaser or shall otherwise have exercised any of their rights or remedies under this Agreement or the other Transaction Documents against Solectron California or Solectron Technology or against any Obligor under any of the Pool Receivables, (ii) the validity, legality or enforceability of this Agreement or any other Transaction Documents, or the disaffirmance of any thereof in any event of bankruptcy relating to Solectron California, (iii) any law, regulation or decree now or hereafter in effect which might in any manner affect any of the terms or provisions of this Agreement or any other Transaction Document or any of the rights of Initial Purchaser, the Administrator or the Issuer as against Solectron California, or Solectron Technology, or as against any Obligor under any of such Pool Receivables or which might cause or permit to be invoked any alteration in time, amount, manner of payment or performance of any amount payable by Solectron California or Solectron Technology to the Initial Purchaser, the 19 Administrator or the Issuer under the Transaction Documents, (iv) the merger or consolidation of Solectron California or Solectron Technology into or with any corporation or any sale or transfer by Solectron California or Solectron Technology of all or any part of its property, (v) the existence or assertion of any Adverse Claim with respect to any Pool Receivable, or (vi) any other circumstance whatsoever (with or without notice to or knowledge of Guarantor) which may or might in any manner or to any extent vary the risk of Guarantor, or might otherwise constitute a legal or equitable discharge of a surety or guarantor, it being the purpose and intent of Guarantor that the liabilities and obligations of Guarantor under this Section 6.1 shall be absolute and unconditional under any and all circumstances, and shall not be discharged except by payment and performance as in this Agreement provided. The guaranty set forth in this Section 6.1 is a guaranty of payment and performance and not just of collection. (c) Without in any way affecting or impairing the liabilities and obligations of Guarantor under this Section 6.1, the Initial Purchaser, the Administrator and the Issuer may at any time and from time to time in its discretion, without the consent of, or notice to, Guarantor, and without releasing or affecting Guarantor's liability hereunder, (i) extend or change the time, manner, place or terms of any Transaction Document, (ii) settle or compromise any of the amounts payable by Solectron California or Solectron Technology to the Initial Purchaser, the Administrator or the Issuer under any Transaction Document or subordinate the same to the claims of others, (iii) retain or obtain a lien upon or security interest in any property to secure any of the obligations under any Transaction Document, (iv) retain or obtain the primary or secondary obligation of any obligor or obligors, in addition to Guarantor, with respect to any of the obligations due under any Transaction Document, or (v) release or fail to perfect any lien upon or security interest in, or impair, surrender, release or permit any substitution in exchange for, all or any part of any property securing any of the obligations under any Transaction Document, it being understood that nothing contained in this Section 6.1(c) shall give the Initial Purchaser, the Administrator or the Issuer the right to take any of the foregoing actions if not permitted by the other provisions of this Agreement, by law or otherwise. (d) The provisions of this Section 6.1 shall continue to be effective or be reinstated, as the case may be, if at any time payment of any of the amounts payable by Solectron California or Solectron Technology, to the Initial Purchaser, the Administrator or the Issuer under any Transaction Document is rescinded or must otherwise be restored or returned by any of such Persons, as the case may be, upon any event of bankruptcy involving Solectron California or Solectron Technology, or otherwise, all as though such payment had not been made. Guarantor hereby waives (i) notices of the occurrence of any default under any Transaction Document, (ii) any requirement of diligence or promptness on the part of the Initial Purchaser, the Administrator or the Issuer in making demand, commencing suit or exercising any other right or remedy under any Transaction Document, or otherwise, and (iii) any right to require the Initial Purchaser, the Administrator or the Issuer to exercise any right or remedy against Solectron California or Solectron Technology or the Pool Receivables prior to enforcing any of their rights against Guarantor under this Section 6.1. Guarantor agrees that, in the event of an event of bankruptcy with respect to Solectron California or Solectron Technology, and if such event shall occur at a time when all of the indemnified amounts and other amounts due under any Transaction Document may not then be due and payable, 20 Guarantor will pay to Initial Purchaser or the Administrator or the Issuer, as the case may be, forthwith the full amount which would be payable hereunder by Guarantor if all such indemnified amounts and other obligations were then due and payable. Without limiting the foregoing, Guarantor hereby expressly waives any and all benefits of California Civil Code Sections 2787 through 2855, inclusive, 2899 and 3433 and California Code of Civil Procedure Sections 580(a), 580(b), 580(d) and 726. Nothing in this Section 6.1 shall be construed to impose any liability or obligation on Guarantor for any losses in respect of the collectibility of any Receivable that would constitute credit recourse to Solectron California or Solectron Technology for the amount of any Receivable or Related Asset not paid by the applicable Obligor. SECTION 6.2. Representation and Warranty. Guarantor represents and warrants that it now has, and will continue to have, independent means of obtaining information concerning the affairs, financial condition and business of Solectron California, Solectron Technology, and the Initial Purchaser. Neither the Administrator or the Issuer shall have any duty or responsibility to provide Guarantor with any credit or other information concerning the affairs, financial condition or business of Solectron California, Solectron Technology, and the Initial Purchaser which may come into the possession of the Administrator or the Issuer. SECTION 6.3. Subrogation. Guarantor will not exercise or assert any rights which it may acquire by way of subrogation under any Transaction Document unless and until all of the obligations of Solectron California and Solectron Technology shall have been paid and performed in full. If any payment shall be made to Guarantor on account of any subrogation rights at any time when all of the obligations of Solectron California or Solectron Technology shall not have been paid and performed in full, each and every amount so paid will be held in trust for the benefit of the Initial Purchaser, the Administrator and the Issuer and any other applicable Person and forthwith be paid to the Administrator to be credited and applied to the obligations of Solectron California or Solectron Technology to the extent then unsatisfied, in accordance with the terms of the Transaction Documents or any document delivered in connection with the Transaction Documents, as the case may be. [SIGNATURES FOLLOW] 21 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. SOLECTRON CORPORATION, as the Guarantor, as an Originator and as Servicer By: /s/ Susan A. Wang Name: Susan A. Wang Title: Sr. Vice President, CFO and Secy. 847 Gibraltar Drive, Building 5 Milpitas, California 95035 Attention: Treasurer Telephone: (408) 956-6577 Facsimile: (408) 956-6062 SOLECTRON TECHNOLOGY, INC., as an Originator By: /s/ Robert Aeschliman Name: Robert Aeschliman Title: Assistant Secretary 6800 Solectron Drive Charlotte, North Carolina 28262 Attention: Telephone: Facsimile: S-1 SOLECTRON CALIFORNIA CORPORATION, as an Originator By: /s/ Susan A. Wang Name: Susan A. Wang Title: Chief Financial Officer and Secretary 847 Gibraltar Drive, Building 5 Milpitas, California 95035 Attention: Treasurer Telephone: (408) 956-6577 Facsimile: (408) 956-6062 SOLECTRON FUNDING CORPORATION, as Initial Purchaser By: /s/ Susan A. Wang Name: Susan A. Wang Title: President 847 Gibraltar Drive, Building 5 Milpitas, California 95035 Attention: Treasurer Telephone: (408) 956-6577 Facsimile: (408) 956-6062 S-2 EXHIBIT I CONDITIONS OF PURCHASES 1. Conditions Precedent to the Effectiveness of this Agreement. Any purchase under the Purchase and Sale Agreement is subject to the condition precedent that the Initial Purchaser shall have received each of the following (with copies to the Administrator), on or before the date of such purchase, each in form and substance (including the date thereof) satisfactory to the Initial Purchaser and the Administrator: (a) The Second Amended and Restated Receivables Purchase Agreement, duly executed by the parties thereto, together with evidence reasonably satisfactory to the Initial Purchaser that all conditions precedent to the initial purchase of an undivided interest thereunder shall have been met; (b) Duly executed counterparts of the Lock-Box Agreements; (c) Evidence that a capital contribution of Receivables having an aggregate Outstanding Balance of not less than $10,000,000 shall have been made to the Initial Purchaser thereunder by Solectron Corporation; and (d) Such other agreements, instruments, UCC financing statements, certificates, opinions and other documents as the Initial Purchaser or the Administrator may reasonably request. 2. Certification as to Representations and Warranties. Each Originator, by accepting the Purchase Price paid for each purchase of Receivables and Related Assets on any day, shall be deemed to have certified that its representations and warranties contained in paragraphs (e), (f), (h), (j), (k), (o), (p) and (q), Exhibit II to the Purchase and Sale Agreement are true and correct on and as of such day, with the same effect as though made on and as of such day. 3. Effect of Payment of Purchase Price. Upon the payment of the Purchase Price (whether in cash or by an increase in the principal amount outstanding under the applicable Initial Purchaser Note) for any purchase of Receivables and Related Assets, title to such Receivables and Related Assets shall vest in the Initial Purchaser, whether or not the conditions precedent to such purchase were in fact satisfied; provided that the Initial Purchaser shall not be deemed to have waived any claim it may have under the Purchase and Sale Agreement for the failure by any Originator in fact to satisfy any such condition precedent. 4. Conditions Precedent to All Purchases. Each purchase under the Purchase and Sale Agreement is subject to the condition precedent that the agreement of each Originator to sell Receivables and Related Assets, and the agreement of the Initial Purchaser to purchase Receivables and Related Assets, shall not have terminated pursuant to Section 2.3 of the Purchase and Sale Agreement. I-2 EXHIBIT II REPRESENTATIONS AND WARRANTIES In order to induce the Initial Purchaser to enter into the Purchase and Sale Agreement and to make purchases thereunder, each Originator hereby represents and warrants as follows: (a) Organization and Good Standing. Such Originator is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization, and is duly qualified to do business, and is in good standing, in every other jurisdiction where the failure to so qualify could reasonably be expected to result in a material adverse effect on the business, assets, operations, prospects or condition, financial or otherwise, of such Originator and any of its subsidiaries taken as a whole, the ability of such Originator to perform its obligations under the Purchase and Sale Agreement, or the rights of or benefits available to the Initial Purchaser hereunder. (b) Due Qualification; No Conflicts. The execution, delivery and performance by such Originator of the Purchase and Sale Agreement and the other Transaction Documents to which it is a party, including, without limitation, such Originator's use of the proceeds of purchases, (i) are within such Originator's corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) do not contravene or result in a default under or conflict with (1) such Originator's certificate of incorporation or by-laws, (2) any material law, rule or regulation applicable to such Originator, (3) any contractual restriction binding on or affecting such Originator or its property (including, without limitation, the Solectron Credit Agreement) or (4) any order, writ, judgment, award, injunction or decree binding on or affecting such Originator or its property and (iv) do not result in or require the creation of any Adverse Claim upon or with respect to any of its properties. The Purchase and Sale Agreement and the other Transaction Documents to which it is a party have been duly executed and delivered by such Originator. (c) Consents. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority or any other Person is required for the due execution, delivery and performance by such Originator of the Purchase and Sale Agreement or any other Transaction Document to which it is a party (other than UCC financing statements filed on or prior to the date of the initial purchase under the Purchase and Sale Agreement, all of which have been filed in the appropriate jurisdiction). (d) Binding Obligations. Each of the Purchase and Sale Agreement and the other Transaction Documents to which it is a party constitutes the legal, valid and binding obligation of such Originator enforceable against such Originator in accordance with its terms. (e) Financial Statements. The balance sheets of Solectron and its subsidiaries, in each case as at September 30, 1998 and the related statements of income and retained earnings of Solectron and its subsidiaries, in each case for the fiscal year then ended, copies of which have been furnished to the Administrator, fairly present the financial condition of Solectron and its subsidiaries, as at such date and the results of the operations of Solectron and its subsidiaries, for the period ended on such date, all in accordance with generally accepted accounting principles consistently applied, and since September 30, 1998 there has been no material adverse change in the business, operations, property or financial or other condition or operations of Solectron any of its subsidiaries, the ability of any Originator to perform its obligations under the Purchase and Sale Agreement or the other Transaction Documents, the collectibility of the Receivables, or which affects the legality, validity or enforceability of the Purchase and Sale Agreement or the other Transaction Documents. (f) No Proceedings. There is no pending or threatened action or proceeding affecting such Originator or any of its subsidiaries before any Governmental Authority or arbitrator which could reasonably be expected to materially adversely affect the business, operations, property, financial or other condition or operations of such Originator or any of its subsidiaries, the ability of such Originator to perform its obligations under the Purchase and Sale Agreement or the other Transaction Documents or the collectibility of the Receivables, or which affects or purports to affect the legality, validity or enforceability of the Purchase and Sale Agreement or the other Transaction Documents. (g) Securities Exchange Act. No proceeds of any purchase will be used to acquire any equity security of a class which is registered or required to be registered pursuant to Section 12 of the Securities Exchange Act of 1934. (h) Quality of Title; Valid Sale; Etc. Upon its creation and prior to its sale (or contribution) to the Initial Purchaser under the Purchase and Sale Agreement, such Originator is the legal and beneficial owner of each of the Receivables and Related Assets and the items described in Section 1.2(c) and 1.2(d) of the Purchase and Sale Agreement free and clear of any Adverse Claim; and (i) upon each purchase (or contribution) the Initial Purchaser shall acquire a valid and enforceable first priority perfected ownership interest in each Receivable then existing or thereafter arising, in the Related Assets with respect thereto, and the items described in Section 1.2(c) and 1.2(d) of the Purchase and Sale Agreement, free and clear of any Adverse Claim; or (ii) the Purchase and Sale Agreement creates a security interest in favor of the Initial Purchaser in the items described in Section 1.10(b) of the Purchase and Sale Agreement, and the Initial Purchaser has a first priority perfected security interest in such items, free and clear of any Adverse Claims. Each Receivable constitutes an "account" as such term is defined in the UCC. No effective UCC financing statement or other instrument similar in effect covering any Receivable or Related Asset with respect thereto or any Lock-Box Account or any other item described in Section 1.10(b) of the Purchase and Sale Agreement is on file in any recording office, except those filed in favor of the Initial Purchaser pursuant to the Purchase and Sale Agreement and in favor of the Administrator pursuant to the Receivables Purchase Agreement. II-2 (i) Accuracy of Information. Each report, information, exhibit, financial statement, document, book, record or report furnished or to be furnished at any time by or on behalf of such Originator to the Initial Purchaser or the Administrator in connection with this Agreement is or will be accurate in all material respects as of its date or (except as otherwise disclosed to the Administrator at such time) as of the date so furnished, and no such item contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading. (j) Principal Place of Business. The principal place of business and chief executive office (as such terms are used in the UCC) of such Originator and the office where such Originator keeps its records concerning the Receivables are located at the address referred to in paragraph (b) of Exhibit III to the Purchase and Sale Agreement (or at such other addresses designated in accordance with such paragraph (b)), and during the six years prior to the initial purchase under the Purchase and Sale Agreement such principal place of business, chief executive office and office were located at such address. (k) Lock-Box Banks, Accounts. Such Originator has irrevocably instructed all of the Obligors to make payments on the Receivables only to the Lock-Box Accounts or to one or more post office boxes covered by a Lock-Box Agreement; provided that, consistent with its efforts to maximize Collections and its month-end collection practices in effect as of the date of the Purchase and Sale Agreement, such Originator may permit Obligors to make payments on Receivables directly to such Originator so long as the Rated Long Term Debt of Solectron is Investment Grade or otherwise with the prior written consent of the Administrator. Except as contemplated by the Lock-Box Agreements, no Person other than employees of such Originator has signing authority with respect to, or otherwise has the power to withdraw funds from or to direct amounts on deposit in, the Lock-Box Accounts and any related deposit accounts or post office boxes. The names and addresses of all the Lock-Box Banks, together with the account numbers of the Lock-Box Accounts at such Lock-Box Banks, are specified in Schedule II to the Receivables Purchase Agreement (except as permitted by paragraph (i) of Exhibit III to the Purchase and Sale Agreement). Each Lock-Box Bank has complied with all the terms of its Lock-Box Agreement. (l) No Violation. Such Originator is not in violation of any order of any court, arbitrator or Governmental Authority. (m) Proceeds. No proceeds of any purchase will be used for any purpose that violates any applicable law, rule or regulation, including, without limitation, Regulation U of the Federal Reserve Board. (n) No Purchase and Sale Termination Events. No event has occurred and is continuing, or would result from a purchase, in respect of the Receivables or Related Assets or from the application of the proceeds therefrom, which constitutes a Purchase and Sale Termination Event. II-3 (o) Maintenance of Books and Records; Taxes. Such Originator has accounted for each sale (and contribution) of Receivables and Related Assets in its books and financial statements as sales (or, in the case of contributions, as capital contributions), consistent with Generally Accepted Accounting Principles. In addition, each Originator shall treat, and, to the extent such treatment affects its returns or tax liabilities, report, the sale of Receivables and Related Assets as a true sale for tax purposes. (p) Credit and Collection Policy. Such Originator has complied in all material respects with the Credit and Collection Policy with regard to each Receivable. (q) Solvency. Such Originator is Solvent; and at the time of (and immediately after) each purchase pursuant to the Purchase and Sale Agreement, such Originator shall have been Solvent. (r) Compliance with Transaction Documents. Such Originator has complied with all of the terms, covenants and agreements contained in the Purchase and Sale Agreement and the other Transaction Documents and applicable to it. (s) Corporate Name. Such Originator's complete corporate name is set forth in the preamble to the Purchase and Sale Agreement, and such Originator does not use and has not during the last six years used any other corporate name, trade name, doing business name or fictitious name, except for names first used after the date of the Purchase and Sale Agreement and set forth in a notice delivered to the Administrator pursuant to clause (b) of Exhibit III to the Purchase and Sale Agreement. (t) No Labor Disputes. There are no strikes, lockouts or other labor disputes against such Originator or any of its subsidiaries, or, to the best of such Originator's knowledge, threatened against or affecting such Originator or any of its subsidiaries, and no significant unfair labor practice complaint is pending against such Originator or any of its subsidiaries or, to the best knowledge of such Originator, threatened against any of them by or before any Governmental Authority. (u) Pension Plans. During the preceding twelve months, no steps have been taken to terminate any Pension Plan, and no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which could result in the incurrence by such Originator of any material liability, fine or penalty. Such Originator has no contingent liability with respect to any post-retirement benefit under a Welfare Plan, other than liability for continuation coverage described in Part 6 of title I of ERISA. (v) Investment Company Act. Such Originator is not, and is not controlled by, an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended. II-4 EXHIBIT III COVENANTS Until the later of the Purchase and Sale Termination Date and the Final Payout Date each Originator covenants and agrees, as to itself, as follows: (a) Compliance with Laws, Etc. Such Originator shall comply in all material respects with all applicable laws, rules, regulations and orders, and preserve and maintain its corporate existence, rights, franchises, qualifications, and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such existence, rights, franchises, qualifications, and privileges would not materially adversely affect the collectibility of the Receivables or the enforceability of any related Contract or the ability of such Originator to perform its obligations under any related Contract or under the Purchase and Sale Agreement. (b) Offices, Records and Books of Account; Etc. Such Originator: (i) shall keep its principal place of business and chief executive office (as such terms are used in the UCC) and the office where it keeps its records concerning the Receivables at the address of such Originator set forth under its name on the signature page to the Purchase and Sale Agreement or, upon at least 30 days' prior written notice of a proposed change to the Administrator, at any other locations in jurisdictions where all actions reasonably requested by the Administrator to protect and perfect the interest of the Initial Purchaser, the Administrator and the Issuer in the Receivables and related items (including without limitation the items described in Section 1.10(b) of the Purchase and Sale Agreement) have been taken and completed; and (ii) shall provide the Administrator with at least 30 days' written notice prior to making any change in such Originator's name or making any other change in such Originator's identity or corporate structure (including, without limitation, a merger) which could render any UCC financing statement filed in connection with the Purchase and Sale Agreement "seriously misleading" as such term is used in the UCC; each notice to the Administrator pursuant to this sentence shall set forth the applicable change and the effective date thereof. Such Originator also will maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate records evidencing Receivables and related Contracts in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records, computer tapes and disks and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the daily identification of each Receivable and all Collections of and adjustments to each existing Receivable). (c) Performance and Compliance with Contracts and Credit and Collection Policy. Such Originator shall at its expense, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Receivables, and timely and fully comply in all material respects with the Credit and Collection Policy with regard to each Receivable and the related Contract. (d) Ownership Interest, Etc. Such Originator shall, at its expense, take all action necessary or desirable to establish and maintain a valid and enforceable first priority perfected ownership interest in the Receivables, the Related Assets, and the items described in Section 1.2(c) and (d) of the Purchase and Sale Agreement to the extent transferred pursuant to the terms of Section 1.3 of the Purchase and Sale Agreement, or a first priority perfected security interest in the items described in Section 1.10(b) of the Purchase and Sale Agreement, in each case free and clear of any Adverse Claim, in favor of the Initial Purchaser, including, without limitation, taking such action to perfect, protect or more fully evidence the interest of the Initial Purchaser under the Purchase and Sale Agreement as the Administrator may reasonably request. (e) Sales, Liens, Etc. Other than a sale to the Initial Purchaser as contemplated by the Purchase and Sale Agreement, such Originator shall not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any or all of its right, title or interest in, to or under, (i) any item described in Section 1.2(c) and (d) or Section 1.10(b) of the Purchase and Sale Agreement or (ii) any post office box to which any payments in respect of any Receivable are sent, including, without limitation, any assignment of any right to receive income in respect of items contemplated by clause (i) or (ii) of this paragraph (e). (f) Extension or Amendment of Receivables. On and after the Effective Date, such Originator shall not extend the maturity or adjust the Outstanding Balance or otherwise modify the terms of any Receivable, or amend, modify or waive any term or condition of any related Contract; provided that this clause (f) shall not limit the ability of the Servicer to take such actions pursuant to the Receivables Purchase Agreement. (g) Change in Business or Credit and Collection Policy. Such Originator shall not make any material change in the character of its business or in the Credit and Collection Policy that would adversely affect the collectibility of the Receivables or the enforceability of any related Contract or the ability of such Originator to perform its obligations under any related Contract or under the Purchase and Sale Agreement without the prior written consent of the Administrator. III-2 (h) Audits. Such Originator shall, from time to time during regular business hours with prior written notice to it as reasonably requested by the Administrator, permit the Administrator, or its agents or representatives, (i) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of such Originator relating to Receivables and the Related Assets (including, without limitation, the related Contracts and any books, records and documents relating to the identification of Obligors and agings, charge-offs, offsets and delinquencies of Receivables), and (ii) to visit the offices and properties of such Originator for the purpose of examining such materials described in clause (i) above, and to discuss matters relating to Receivables and the Related Assets or such Originator's performance hereunder or under the Contracts with any of the officers, employees, agents or contractors of such Originator having knowledge of such matters. (i) Change in Lock-Box Banks, Lock-Box Accounts and Payment Instructions to Obligors. Such Originator shall not add or terminate any bank as a Lock-Box Bank or any account as a Lock-Box Account from those listed in Schedule II to the Receivables Purchase Agreement, or make any change in its instructions to Obligors regarding payments to be made to such Originator or payments to be made to any Lock-Box Account (or related post office box), unless the Administrator shall have consented thereto in writing and the Administrator shall have received copies of all agreements and documents (including, without limitation, Lock-Box Agreements) that it may reasonably request in connection therewith. (j) Deposits to Lock-Box Accounts. Such Originator shall (i) instruct all Obligors to make payments of all Receivables only to one or more Lock-Box Accounts or to post office boxes which are covered by Lock-Box Agreements and to which only Lock-Box Banks have access, provided that, consistent with its efforts to maximize Collections and its month-end collection practices in effect as of the date of the Purchase and Sale Agreement, such Originator may permit Obligors to make payments on Receivables directly to such Originator so long as the Rated Long Term Debt of Solectron is Investment Grade or otherwise with the prior written consent of the Administrator, (ii) instruct the Lock-Box Banks to cause all items and amounts relating to such Receivables received in such post office boxes to be removed and deposited into a Lock-Box Account on a daily basis, and (iii0 deposit, or cause to be deposited, any Collections of Receivables received by it into Lock-Box Accounts not later than three Business Days after receipt thereof. Each Originator will not deposit or otherwise credit, or cause or permit to be deposited or credited, to any Lock-Box Account cash or cash proceeds other than Collections of Receivables or interest accruing on amounts held in such account. (k) Marking of Records. At its expense, on or before the Effective Date, such Originator shall mark its master data processing records relating to Receivables and related Contracts, including with a legend evidencing that the Receivables and related Contracts (and interests therein) have been sold (or, in the case of contributions, transferred as a capital III-3 contribution) in accordance with the Purchase and Sale Agreement and/or the Receivables Purchase Agreement. (l) ERISA Matters. Such Originator shall notify the Administrator as soon as is practicable and in any event not later than two Business Days after (i) the institution of any steps by such Originator or any other Person to terminate any Pension Plan, (ii) the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a lien under section 302(f) of ERISA, (iii) the taking of any action with respect to a Pension Plan which could result in the requirement that such Originator furnish a bond or other security to the PBGC or such Pension Plan or (iv) the occurrence of any other event concerning any Pension Plan which is reasonably likely to result in a material adverse effect on the business, operations, property or financial or other condition of such Originator or any other Solectron Party. (m) Separate Corporate Existence of the Initial Purchaser. Each of the Initial Purchaser, the Originators and Solectron hereby acknowledges that the Initial Purchaser, the Issuer and the Administrator entered into the Original Purchase and Sale Agreement, the Original Receivables Sale Agreement and the Amended and Restated Receivables Sale Agreement and are entering into the transactions contemplated by this Agreement and by the Receivables Purchase Agreement in reliance upon the Initial Purchaser's identity as a legal entity separate from its Affiliates. Therefore, each of the Initial Purchaser, such Originator and Solectron shall take all steps to continue the Initial Purchaser's identity as such a separate legal entity and to make it apparent to third Persons that the Initial Purchaser is an entity with assets and liabilities distinct from those of its Affiliates and those of any other Person, and not a division of any of its Affiliates or any other Person. Without limiting the generality of the foregoing, each of the Initial Purchaser, each Originator and Solectron will, and will cause its Affiliates to, take such actions as shall be required in order that: (i) The Initial Purchaser will be a limited purpose corporation whose primary activities are restricted in its articles of incorporation to purchasing Pool Receivables from such Originator (or other Persons approved in writing by the Administrator), entering into agreements for the servicing of such Pool Receivables, selling undivided interests in the Pool Receivables to the Issuer and conducting such other activities as it deems necessary or appropriate to carry out its primary activities; (ii) At all times, at least one member of the Initial Purchaser's Board of Directors shall be an individual who is and has never been a direct, indirect or beneficial stockholder, officer, director (except in his capacity as a member of the Initial Purchaser's Board of Directors), employee, Affiliate, associate, customer or supplier of any of the Initial Purchaser or of any of the Initial Purchaser's Affiliates; (iii) No director or officer of the Initial Purchaser shall at any time serve as a trustee in bankruptcy for any of its Affiliates; III-4 (iv) Any employee, consultant or agent of the Initial Purchaser will be compensated from the Initial Purchaser's own bank accounts for services provided to the Initial Purchaser except as provided in the Agreement in respect of the Servicing Fee. The Initial Purchaser will engage no agents other than a Servicer for the Pool Receivables, which Servicer (if an Affiliate) will be fully compensated for its services to the Initial Purchaser by payment of the Servicing Fee; (v) The Initial Purchaser may incur indirect or overhead expenses for items shared between the Initial Purchaser and any of its Affiliates which are not reflected in the Servicing Fee, such as legal, auditing and other professional services, but such expenses will be allocated to the extent practical on the basis of cost, it being understood that Solectron shall pay all expenses relating to the preparation, negotiation, execution and delivery of the Transaction Documents, including legal and other fees; (vi) The Initial Purchaser's operating expenses will not be paid by any of its Affiliates; (vii) The Initial Purchaser will have its own separate telephone number, stationery and bank checks signed by it and in its own name and, if it uses premises leased, owned or occupied by any of its Affiliates, its portion of such premises will be defined and separately identified and it will pay such other Affiliates reasonable compensation for the use of such premises; (viii) The books and records of the Initial Purchaser will be maintained separately from those of its Affiliates; (ix) The assets of the Initial Purchaser will be maintained in a manner that facilitates their identification and segregation from those of its Affiliates; and the Initial Purchaser will strictly observe corporate formalities in its dealings with each of its Affiliates; (x) The Initial Purchaser shall not maintain joint bank accounts with any of its Affiliates or other depository accounts to which any of its Affiliates (other than Solectron (or any of its Affiliates) in its capacity as the Servicer under this Agreement or under the Receivables Purchase Agreement) has independent access; (xi) The Initial Purchaser shall not, directly or indirectly, be named and shall not enter into any agreement to be named as a direct or contingent beneficiary or loss payee on any insurance policy covering the property of any other Solectron Party or any Affiliate of any other Solectron Party unless it pays a proportional share of the premium relating to any such insurance policy; III-5 (xii) The Initial Purchaser will maintain arm's-length relationships with each of its Affiliates. Any of its Affiliates that renders or otherwise furnishes services or merchandise to the Initial Purchaser will be compensated by the Initial Purchaser at market rates for such services or merchandise; (xiii) Neither the Initial Purchaser, on the one hand, nor any of its Affiliates, on the other hand, will be or will hold itself out to be responsible for the debts of the other or the decisions or actions in respect of the daily business and affairs of the other; and (xiv) Every representation and warranty of the Initial Purchaser, such Originator and Solectron contained in the officer's certificates delivered in connection with the opinion of Murphy Sheneman Julian & Rogers pursuant to Section 1(j) of Exhibit II of the Receivables Purchase Agreement, is true and correct in all material respects as of the date hereof; and each of the Initial Purchaser, such Originator and Solectron shall comply with all of the assumptions set forth in such opinion and with all of its respective covenants and other obligations set forth in such officer's certificates. III-6 EXHIBIT IV PURCHASE AND SALE TERMINATION EVENTS Each of the following events or occurrences described in this Exhibit IV shall constitute a "Purchase and Sale Termination Event": (a) The Servicer shall (i) fail to deliver the Seller Report pursuant to the Purchase and Sale Agreement and such failure shall remain unremedied for five days, (ii) fail to make when due any payment or deposit to be made by it under the Purchase and Sale Agreement, or (iii) fail to perform or observe any other term, covenant or agreement under the Purchase and Sale Agreement and such failure shall remain unremedied for ten (10) days; or (b) Any Originator or the Guarantor shall fail to make any payment required under the Purchase and Sale Agreement and such failure shall remain unremedied for two Business Days; or (c) Any representation or warranty made or deemed to be made by any Originator (or any of its officers) under or in connection with the Purchase and Sale Agreement or any other information or report delivered by such Originator or the Servicer pursuant to the Purchase and Sale Agreement shall prove to have been incorrect or untrue in any material respect when made or deemed made or delivered; or (d) Any Originator or the Guarantor shall fail to perform or observe (i) any term, covenant or agreement contained in paragraphs (d), (f), (g), (i), (j) and (l) of Exhibit III to the Purchase and Sale Agreement and, in the case of any such failure to paragraphs (i) and (j) that is solely the result of the termination of the applicable Lock-Box Agreement by Bank of America National Trust and Savings Association, such failure shall remain unremedied for fourteen (14) days or (ii) any other term, covenant or agreement contained in the Purchase and Sale Agreement on its part to be performed or observed and the failure to perform such other term, covenant or agreement referred to in this clause (ii) shall remain unremedied for thirty (30) days; or (e) The Purchase and Sale Agreement shall for any reason (other than pursuant to the terms thereof) (i) cease to create in favor of the Initial Purchaser a valid and enforceable first priority perfected ownership interest in each Receivable, the Related Assets, and the items described in Section 1.2(c) and (d) of the Purchase and Sale Agreement, or (ii) cease to create, with respect to the items described in Section 1.10(b) of the Purchase and Sale Agreement, a valid and enforceable first priority perfected security interest in favor of the Initial Purchaser, in each case free and clear of any Adverse Claim; or (f) Any Originator or any of its subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against such Originator or any of its subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or such Originator or any of its subsidiaries shall take any corporate action to authorize any of the actions set forth above in this clause (f); or (g) Any Change of Control shall occur; or (h) A Termination Event shall have occurred. IV-2 ANNEX A FORM OF INITIAL PURCHASER NOTE [AMENDED AND RESTATED] NON-NEGOTIABLE PROMISSORY NOTE Chicago, Illinois February 22, 1999 FOR VALUE RECEIVED, the undersigned, SOLECTRON FUNDING CORPORATION, a Delaware corporation (the "Initial Purchaser"), promises to pay to [NAME OF ORIGINATOR], a [California] [Delaware] corporation (the "Originator"), on the terms and subject to the conditions set forth herein and in the Purchase and Sale Agreement referred to below, the aggregate unpaid Purchase Price of all Receivables and Related Assets purchased and to be purchased by the Initial Purchaser pursuant to the Purchase and Sale Agreement (subject to adjustment pursuant to Section 1.9 of such Purchase and Sale Agreement). 1. Purchase and Sale Agreement. This [Amended and Restated] Non-Negotiable Promissory Note (this "Note") is the "Initial Purchaser Note" described in, and is subject to the terms and conditions set forth in, that certain Amended and Restated Purchase and Sale Agreement, dated as of February 22, 1999 (as amended and in effect on the date hereof and as the same may be amended, amended and restated, or otherwise modified in accordance with its terms, the "Purchase and Sale Agreement"), among the Originator, the other "Originators" referred to therein, Solectron Corporation, as Servicer and Guarantor, and the Initial Purchaser. Reference is hereby made to the Purchase and Sale Agreement for a statement of certain other rights and obligations of the Initial Purchaser and the Originator. In the case of any conflict or inconsistency between the terms of this Note and the terms of the Purchase and Sale Agreement, the terms of the Purchase and Sale Agreement shall control. 2. Definitions. Capitalized terms used (but not defined) herein have the meanings ascribed thereto in the Purchase and Sale Agreement. In addition, as used herein, the following terms have the following meanings: "Final Maturity Date" means the date that falls ninety one (91) days after the later of (x) the Purchase and Sale Termination Date and (y) the date all amounts due to the Issuer, the Administrator, any Indemnified Party or any Affected Person under the Receivables Purchase Agreement have been paid in full. "Junior Liabilities" means all obligations of the Initial Purchaser to the Originator under this Note. "Senior Agent" means Bank of America National Trust and Savings Association, as the Administrator and the Parallel Asset Purchase Administrator. "Senior Interests" means (a) the undivided percentage ownership interests acquired by the Issuer pursuant to the Receivables Purchase Agreement, (b) the undivided percentage ownership interests acquired by the Parallel Purchasers pursuant to the Parallel Purchase Agreement and (c) all obligations of the Initial Purchaser to the Senior Interest Holders, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due on or before the Final Maturity Date. "Senior Interest Holders" means, collectively, the Issuer, the Administrator, the Parallel Purchasers, the Parallel Purchase Administrator and the other Affected Persons and Indemnified Parties. "Subordination Provisions" means, collectively, clauses (a) through (k) of Section 7 hereof. 3. Interest. Subject to the Subordination Provisions, the Initial Purchaser promises to pay interest on the aggregate unpaid principal amount of this Note outstanding on each day (a) prior to the final payment in full and in cash of the Senior Interests, at a variable rate per annum equal to the Discount Rate Percentage, determined as of the then most recent Payment Date, and (b) after such final payment, at a variable rate per annum equal to the Base Rate, as determined by the Servicer. 4. Interest Payment Dates. Subject to the Subordination Provisions, the Initial Purchaser shall pay accrued interest on this Note on June 1 and November 1 of each calendar year and on the Final Maturity Date (or, if any such day is not a Business Day, the next succeeding Business Day). The Initial Purchaser also shall pay accrued interest on the principal amount of each prepayment hereof on the date of each such prepayment. 5. Basis of Computation. Interest accrued hereunder shall be computed for the actual number of days elapsed on the basis of a 360-day year. 6. Principal Payment Dates. Subject to the Subordination Provisions, any unpaid principal of this Note shall be paid on the Final Maturity Date (or, if such date is not a Business Day, the next succeeding Business Day). Subject to the Subordination Provisions, the principal amount of and accrued interest on this Note may be prepaid on any Business Day without premium or penalty. 7. Subordination Provisions. The Initial Purchaser covenants and agrees, and the [name of Originator], by its acceptance of this Note, likewise covenants and agrees, that the payment of all Junior Liabilities is hereby expressly subordinated in right of payment to the payment and performance of the Senior Interests to the extent and in the manner set forth in the following clauses of this Section 7: (a) No payment or other distribution of the Initial Purchaser's assets of any kind or character, whether in cash, securities, or other rights or property, shall be made on account of this Note except to the extent such payment or other distribution is permitted under (i) 2 clause (m) of Exhibit IV to the Receivables Purchase Agreement and the Parallel Purchase Agreement and (ii) Section 4 or Section 6 of this Note; (b) (i) In the event of any Insolvency Proceeding with respect to the Initial Purchaser, and (ii) on and after the occurrence of the Purchase and Sale Termination Date, the Senior Interests shall first be paid and performed in full and in cash before each Originator shall be entitled to receive and to retain any payment or distribution in respect of the Junior Liabilities. In order to implement the foregoing: (x) all payments and distributions of any kind or character in respect of the Junior Liabilities to which the Originator would be entitled except for this subsection 7(b) shall be made directly to the Senior Agent (for the benefit of the Senior Interest Holders); and (y) the Originator hereby irrevocably agrees that the Issuer or the Parallel Purchasers (or the Senior Agent acting on their behalf), in the name of the Originator or otherwise, may demand, sue for, collect, receive and receipt for any and all such payments or distributions, and file, prove and vote or consent in any such Insolvency Proceeding with respect to any and all claims of the Originator relating to the Junior Liabilities, in each case until the Senior Interests shall have been paid and performed in full and in cash. (c) In the event that the Originator receives any payment or other distribution of any kind or character from the Initial Purchaser or from any other source whatsoever in respect of the Junior Liabilities, other than as expressly permitted by the terms of this Note, such payment or other distribution shall be received in trust for the Senior Interest Holders and shall be turned over by the Originator to the Senior Agent (for the benefit of the Senior Interest Holders) forthwith. All payments and distributions received by the Senior Agent in respect of this Note, to the extent received in or converted into cash, may be applied by the Senior Agent (for the benefit of the Senior Interest Holders) first to the payment of any and all reasonable expenses (including, without limitation, reasonable attorneys' fees and other legal expenses) paid or incurred by the Senior Agent or the Senior Interest Holders in enforcing these Subordination Provisions, or in endeavoring to collect or realize upon the Junior Liabilities, and any balance thereof shall, solely as between the Originator and the Senior Interest Holders, be applied by the Senior Agent toward the payment of the Senior Interests in a manner determined by the Senior Agent to be in accordance with the Receivables Purchase Agreement or the Parallel Purchase Agreement, as applicable; but as between the Initial Purchaser and its creditors, no such payments or distributions of any kind or character shall be deemed to be payments or distributions in respect of the Senior Interests. (d) Upon the final payment in full and in cash of all Senior Interests, the Originator shall be subrogated to the rights of the Senior Interest Holders to receive payments or distributions from the Initial Purchaser that are applicable to the Senior Interests until the Junior Liabilities are paid in full. (e) These Subordination Provisions are intended solely for the purpose of defining the relative rights of the Originator, on the one hand, and the Senior Interest 3 Holders, on the other hand. Nothing contained in the Subordination Provisions or elsewhere in this Note is intended to or shall impair, as between the Initial Purchaser, its creditors (other than the Senior Interest Holders) and the Originator, the Initial Purchaser's obligation, which is unconditional and absolute, to pay the Junior Liabilities as and when the same shall become due and payable in accordance with the terms hereof and of the Purchase and Sale Agreement or to affect the relative rights of such Originator and creditors of the Initial Purchaser (other than the Senior Interest Holders). (f) The Originator shall not, until the Senior Interests have been finally paid and performed in full and in cash, (i) cancel, waive, forgive, transfer or assign, or commence legal proceedings to enforce or collect, or subordinate to, any obligation of the Initial Purchaser, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or now or hereafter existing, or due or to become due, (other than as permitted by this Note) or (ii) convert the Junior Liabilities into an equity interest in the Initial Purchaser, unless, in the case of each of clauses (i) and (ii) above, the Originator shall have received the prior written consent of the Administrator and the Parallel Asset Purchase Administrator in each case. (g) The Originator shall not, without the advance written consent of the Administrator and the Parallel Asset Purchase Administrator, commence, or join with any other Person in commencing, any Insolvency Proceedings with respect to the Initial Purchaser until at least one year and one day shall have passed since the Senior Interests shall have been finally paid and performed in full and in cash. (h) If, at any time, any payment (in whole or in part) made with respect to any Senior Interest is rescinded or must be restored or returned by a Senior Interest Holder (whether in connection with any Insolvency Proceedings or otherwise), these Subordination Provisions shall continue to be effective or shall be reinstated, as the case may be, as though such payment had not been made. (i) Each of the Senior Interest Holders may, from time to time, at its sole discretion, without notice to the Originator, and without waiving any of its rights under these Subordination Provisions, take any or all of the following actions: (i) retain or obtain an interest in any property to secure any of the Senior Interests; (ii) retain or obtain the primary or secondary obligations of any other obligor or obligors with respect to any of the Senior Interests; (iii) extend or renew for one or more periods (whether or not longer than the original period), alter or exchange any of the Senior Interests, or release or compromise any obligation of any nature with respect to any of the Senior Interests; (iv) amend, supplement, or otherwise modify any Transaction Document; and (v) release its security interest in, or surrender, release or permit any substitution or exchange for all or any part of any rights or property securing any of the Senior Interests, or extend or renew for one or more periods (whether or not longer than the original period), or release, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such rights or property. 4 (j) The Originator hereby waives: (i) notice of acceptance of these Subordination Provisions by any of the Senior Interest Holders; (ii) notice of the existence, creation, non-payment or non-performance of all or any of the Senior Interests; and (iii) all diligence in enforcement, collection or protection of, or realization upon the Senior Interests, or any thereof, or any security therefor. (k) These Subordination Provisions constitute a continuing offer from the Initial Purchaser to all Persons who become the holders of, or who continue to hold, Senior Interests; and these Subordination Provisions are made for the benefit of the Senior Interest Holders, and the Senior Agent may proceed to enforce such provisions on behalf of each of such Persons. 8. Amendments, Etc. No failure or delay on the part of the Originator, the Senior Agent or the Senior Interest Holders in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No amendment, modification or waiver of, or consent with respect to, any provision of this Note shall in any event be effective unless (a) the same shall be in writing and signed and delivered by the Initial Purchaser and the Originator and the Senior Agent, and (b) all consents required for such actions under the Transaction Documents shall have been received by the appropriate Persons. 9. Limitation on Interest. Notwithstanding anything in this Note to the contrary, the Initial Purchaser shall never be required to pay unearned interest on any amount outstanding hereunder, and shall never be required to pay interest on the principal amount outstanding hereunder, at a rate in excess of the maximum interest rate that may be contracted for, charged or received without violating applicable federal or state law. 10. No Negotiation. This Note is not negotiable. 11. Governing Law. THIS NOTE SHALL GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF). 12. Captions. Paragraph captions used in this Note are provided solely for convenience of reference only and shall not affect the meaning or interpretation of any provision of this Note. 5 IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by its officer thereunto duly authorized on the date first above written. SOLECTRON FUNDING CORPORATION, a Delaware corporation By: Title: EX-27.1 4 FINANCIAL DATA SCHEDULE - 5/28/99
5 0000835541 SOLECTRON CORPORATION 1,000 9-MOS AUG-27-1999 MAY-28-1999 390,418 317,489 907,156 3,947 945,528 2,687,163 1,098,953 491,129 3,454,575 899,946 917,668 0 0 133 1,620,796 3,454,575 6,005,270 6,005,270 5,449,411 5,449,411 245,839 1,000 26,015 301,610 96,516 205,094 0 0 0 205,094 0.85 0.80
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