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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 16, 1995
APPLIED MAGNETICS CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware 1-6635 95-1950506
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(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
incorporation) Number)
Registrant's telephone number, including area code: (805) 683-5353
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Item 5. Other Events
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On January 16, 1995, the Registrant issued a press release announcing that
the Registrant had concluded a Financing Agreement with the CIT Group/Business
Credit, Inc., which will provide the Company with secured financing, in the form
of a revolving line of credit, for up to $35,000,000. The amount available for
borrowing under the facility will be subject to certain formula provisions.
Item 7. Financial Statements and Exhibits
- - ------------------------------------------------------
(c) Exhibits
20. Financing Agreement, dated January 11, 1995, between the Registrant
and The CIT Group/Business Credit, Inc.
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 hereunto duly authorized.
APPLIED MAGNETICS CORPORATION
-----------------------------
Date: January 20, 1995 By: /s/ Craig D. Crisman
________________________________
Craig D. Crisman
Chief Executive Officer
Chief Financial Officer
(Principal Financial Officer)
Date: January 20, 1995 By: /s/ Peter Altavilla
_________________________________
Peter Altavilla
Corporate Controller
(Principal Accounting Officer)
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EXHIBIT INDEX
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Page Number In
Sequential Numbering
Exhibit System
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20 Financing Agreement, dated 4-45
January 11, 1995, between
the Registrant and The CIT
Group/Business Credit, Inc.
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EXHIBIT 20
----------
FINANCING AGREEMENT
-------------------
THE CIT GROUP/BUSINESS CREDIT, INC.
AND
APPLIED MAGNETICS CORPORATION
DATED: JANUARY 11, 1995
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TABLE OF CONTENTS
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<CAPTION>
Page
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<S> <C>
SECTION 1. Definitions.............................. 3
SECTION 2. Conditions Precedent..................... 14
SECTION 3. Revolving Loans.......................... 16
SECTION 4. Intentionally Omitted.................... 18
SECTION 5. Letters of Credit........................ 18
SECTION 6. Collateral............................... 21
SECTION 7. Representations, Warranties and Covenants 24
SECTION 8. Interest, Fees and Expenses.............. 31
SECTION 9. Powers................................... 34
SECTION 10. Events of Default and Remedies........... 34
SECTION 11. Termination 37
SECTION 12. Miscellaneous............................ 38
</TABLE>
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THE CIT GROUP/BUSINESS CREDIT, INC., a New York corporation, (hereinafter
"CITBC") with offices located at 300 South Grand Avenue, Los Angeles, CA 90071,
is pleased to confirm the terms and conditions under which CITBC has agreed to
provide the Line of Credit, as defined below, and subject to the terms and
conditions of this Financing Agreement, dated January 11, 1995, to APPLIED
MAGNETICS CORPORATION (herein the "Company"), a Delaware corporation with a
principal place of business at 75 Robin Hill Road, Goleta, CA 93117.
SECTION 1. DEFINITIONS
-----------
ACCOUNTS shall mean, exclusive of the Notes Receivable, all of the Company's now
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existing and future: (A) accounts receivable, (whether or not specifically
listed on schedules furnished to CITBC), and any and all instruments, documents,
contract rights, chattel paper, including, without limitation, all accounts
created by or arising from all of the Company's sales of goods or rendition of
services to its customers, and all accounts arising from sales or rendition of
services made under any of the Company's trade names or styles, or through any
of the Company's divisions; (B) unpaid seller's rights (including rescission,
replevin, reclamation and stoppage in transit) relating to the foregoing or
arising therefrom; (C) rights to any goods represented by any of the foregoing,
including rights to returned or repossessed goods; (D) reserves and credit
balances arising hereunder; (E) guarantees or collateral for any of the
foregoing; (F) insurance policies or rights relating to any of the foregoing;
and (G) cash and non-cash proceeds of any and all the foregoing.
AFFILIATE shall mean as to any corporation, partnership or entity, any
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corporation, partnership or entity which is controlled by such corporation,
partnership or entity, or is under common control with such corporation,
partnership or entity. For purposes of this definition, the term "control"
means ownership, directly or indirectly, of fifty percent (50%) or more of the
outstanding shares or other ownership interest, representing the right to vote
for the election of a majority of the board of directors or other managing
authority of such corporation, partnership or entity, provided, however, that
such corporation, partnership or entity shall be deemed an Affiliate only so
long as such control exists.
ANNIVERSARY DATE shall mean the date occurring one (1) year from the date hereof
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and the same date in every year thereafter.
APPLIED MAGNETICS IRELAND shall mean Applied Magnetics Ireland, Ltd. Inc., a
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corporation formed under the laws of Panama.
APPLIED MAGNETICS KOREA shall mean Applied Magnetics Korea, Ltd., a corporation
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formed under the laws of the Republic of Korea.
APPLIED MAGNETICS MALAYSIA shall mean Applied Magnetics Holdings (M) Sdn. Bhd.
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Malaysia, a corporation formed under the laws of Malaysia.
APPLIED MAGNETICS SINGAPORE shall mean Applied Magnetics Holdings (Asia) Pte.
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Ltd., a corporation formed under the laws of Singapore.
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AVAILABILITY shall mean, at any time of determination, the amount by which i)
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the product determined by multiplying the Eligible Accounts Receivable by the
percentage provided for in paragraph 1 of Section 3 of this Financing Agreement
exceeds ii) the sum of x) the outstanding aggregate amount of all Obligations of
the Company posted to the Company's loan account, y) the Availability Reserve,
and z) after the occurrence of an Event of Default and until such Event of
Default is waived by CITBC, all payments of the Company to CITBC coming due
within sixty (60) days from the date of computation.
AVAILABILITY RESERVE shall mean, at any time of determination, the sum of i)
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the then outstanding amount of all Letters of Credit; and ii) $2,500,000.00
until the receipt by CITBC of the Foreign Charge Certifications.
BUSINESS DAY shall mean any day on which both CITBC and Chemical Bank are open
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for business.
CAPITAL EXPENDITURES for any period shall mean the aggregate of all expenditures
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of the Company during such period that in conformity with GAAP are required to
be included in or reflected by the property, plant or equipment or similar fixed
asset accounts reflected in the balance sheet of the Company.
CAPITAL LEASE shall mean any lease of property (whether real, personal or mixed)
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which, in conformity with GAAP, is accounted for as a capital lease or a Capital
Expenditure on the balance sheet of the Company.
CHEMICAL BANK RATE shall mean the rate of interest per annum announced by
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Chemical Bank from time to time as its prime rate in effect at its principal
office in the City of New York. (The prime rate is not intended to be the
lowest rate of interest charged by Chemical Bank to its borrowers).
COLLATERAL shall mean all present and future Accounts, Equipment, Inventory,
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Documents of Title and General Intangibles of the Company.
COLLATERAL MANAGEMENT FEE shall mean the fee which shall be paid to CITBC in
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accordance with paragraph 9 of Section 8 hereof to offset the expenses and costs
of CITBC in connection with record keeping, periodic examinations, analyzing and
evaluating the Collateral.
CONNER shall mean Conner Peripherals, Inc.
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CONSOLIDATED BALANCE SHEET shall mean a consolidated balance sheet for the
- - --------------------------
Company and its consolidated subsidiaries eliminating all inter-company
transactions and prepared in accordance with GAAP.
CONSOLIDATING BALANCE SHEET shall mean a Consolidated Balance Sheet plus
- - ---------------------------
individual balance sheets for the Company and its subsidiaries showing all
eliminations of inter-company transactions and prepared in accordance with GAAP
and including a balance sheet for the Company exclusively.
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CURRENT LIABILITIES shall mean, wherever used throughout this Financing
- - -------------------
Agreement, those liabilities of the Company which in accordance with GAAP, are
classified as "current", provided, however, that notwithstanding GAAP, the
Revolving Loans and the current portion of Permitted Indebtedness shall be
considered "current liabilities".
CUSTOMARILY PERMITTED LIENs shall mean
- - ---------------------------
(a) liens of local or state authorities for franchise or other like taxes
provided the aggregate amounts of such liens shall not exceed $250,000.00 in the
aggregate at any one time;
(b) statutory liens of landlords and liens of carriers, warehousemen,
mechanics, materialmen and other like liens imposed by law, created in the
ordinary course of business and for amounts not yet due (or which are being
contested in good faith by appropriate proceedings or other appropriate actions
which are sufficient to prevent imminent foreclosure of such liens) and with
respect to which adequate reserves or other appropriate provisions are being
maintained in accordance with GAAP;
(c) deposits made (and the liens thereon) in the ordinary course of business
(including, without limitation, security deposits for leases, consultants,
professional advisors, utility companies, surety bonds and appeal bonds) or in
connection with workers' compensation, unemployment insurance and other types of
social security or employee benefits or to secure the performance of tenders,
bids, supply agreements, contracts (other than for the repayment or guarantee of
borrowed money or purchase money obligations), statutory obligations and other
similar obligations arising as a result of progress payments under government
contracts;
(d) easements (including, without limitation, reciprocal easement agreements
and utility agreements), encroachments, minor defects or irregularities in
title, variation and other restrictions, charges or encumbrances (whether or not
recorded) affecting the Real Estate;
(e) liens on cash securing obligations in an aggregate amount not exceeding
$5,000,000.00 under (i) contracts and agreements involving automatic payroll
deposits for the Company's employees and (ii) foreign exchange contracts; and
(f) liens or security interests extending, renewing, replacing or refunding
any lien or security interest permitted by clauses (a) through (e) inclusive,
provided such liens or security interests are on the same or similar collateral
only.
DEFAULT shall mean any event specified in Section 10 hereof, whether or not any
- - -------
requirement for the giving of notice, the lapse of time, or both, or any other
condition, event or act, has been satisfied.
DEFAULT RATE OF INTEREST shall mean a rate of interest per annum equal to the
- - ------------------------
sum of: a) four percent (4%) and b) the Chemical Bank Rate, which CITBC shall
be entitled to charge the Company on all Obligations due CITBC by the Company to
the extent provided in paragraph 2 of Section 10 of this Financing Agreement.
DEPOSITORY ACCOUNTS shall mean those accounts owned by CITBC and designated for
- - -------------------
the deposit of proceeds of Collateral.
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DOCUMENTATION FEE shall mean I) the sum of $25,000.00 intended to compensate
- - -----------------
CITBC for the use of CITBC's in-house Legal Department and facilities in
documenting, in whole or in part, the initial transaction solely on behalf of
CITBC, exclusive of Out-of-Pocket Expenses, and II) CITBC's standard fees
relating to any and all modifications, waivers, releases, amendments or
additional collateral with respect to this
Financing Agreement, the Collateral and/or the Obligations.
DOCUMENTS OF TITLE shall mean all present and future warehouse receipts, bills
- - ------------------
of lading, shipping documents, chattel paper, instruments and similar documents,
all whether negotiable or not and all goods and inventory relating thereto and
all cash and non-cash proceeds of the foregoing.
EARLY TERMINATION DATE shall mean the date on which the Company terminates this
- - ----------------------
Financing Agreement or the Line of Credit which date is other than the third or
any subsequent Anniversary Date.
EARLY TERMINATION FEE shall: I) mean the fee CITBC is entitled to charge the
- - ---------------------
Company in the event the Company terminates the Line of Credit or this Financing
Agreement on a date other than the third or any subsequent Anniversary Date; and
II) be determined by multiplying the Line of Credit by one percent (1%).
EBIT shall mean, in any period, all earnings of the Company before all interest
- - ----
and tax obligations of the Company for said period, determined in accordance
with GAAP.
EBITDA shall mean, in any period, all earnings of the Company before all
- - ------
interest and tax obligations, depreciation and amortization of general
intangibles of the Company for said period, determined in accordance with GAAP.
EVENT(S) OF DEFAULT shall have the meaning provided for in Section 10 of this
- - -------------------
Financing Agreement.
ELIGIBLE ACCOUNTS RECEIVABLE shall mean the gross amount of the Company's
- - ----------------------------
Accounts that conform to the warranties contained herein and at all times
continue to be acceptable to CITBC in the exercise of its commercially
reasonable business judgment and based on reasons that are customary either in
the commercial finance industry or in the business practices of CITBC, less,
without duplication, the sum of a) the amount, at any time of determination,
then reflected on the Company's books and records for product warranty matters
and b) reserves for: i) Accounts representing sales to the United States of
America or to any agency, department or division thereof; ii) Accounts
representing foreign sales other than sales x) secured by letters of credit (in
form and substance satisfactory to CITBC) issued or confirmed by, and payable
at, banks having a place of business in the United States of America and payable
in United States currency provided such sales otherwise comply with all of the
other criteria for eligibility hereunder, or y) to customers residing in Canada
provided such sales otherwise comply with all of the other criteria for
eligibility hereunder, are payable in United States currency and do not exceed
$2,000,000.00 in the aggregate at any one time; or z) to the Foreign Account
Debtors provided such sales otherwise comply with all of the other criteria for
eligibility hereunder, iii) accounts that remain unpaid more than ninety (90)
days from invoice date; iv) contra Accounts but in no event more than the
amounts or Indebtedness owed by the Company to a customer on an Account; v)
Accounts representing sales to any subsidiary, or to any Affiliate; vi) bill and
hold (deferred shipment) or consignment sales; vii) Accounts representing sales
to any customer which is a) the debtor in any bankruptcy, insolvency,
arrangement, reorganization, receivership or similar proceedings under any
federal or state law, b) negotiating, or has called a
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meeting of its creditors for purposes of negotiating, a compromise of its debts
or c) in the commercially reasonable judgment of CITBC, financially unacceptable
to CITBC or has a credit rating unacceptable to CITBC; viii) Accounts
representing all sales to any customer if fifty percent (50%) or more of either
x) all outstanding invoices due from such customer or y) the aggregate dollar
amount of all outstanding invoices due from such customer, are unpaid more than
ninety (90) days from invoice date; ix) Accounts not payable in the United
States of America; x) Accounts not payable in United States currency; xi)
Accounts not originated by, or payable to, the Company; xii) Accounts due from
any customer to the extent such outstanding Accounts due from such customer
exceed fifty percent (50%) of all then outstanding Accounts; xiii) any other
reasons deemed necessary by CITBC in its commercially reasonable business
judgment and which are customary either in the commercial finance industry or in
the lending practices of CITBC and which reasons have been so given to the
Company not less than five (5) Business Days prior to such reserve; and xiv) an
amount (in dollars) representing the increase, if any, in the percentage
relationship that x) the total aggregate dollar amount of all returns,
discounts, claims, credits and allowances granted or allowed by the Company for
the goods and services sold by the Company during the immediately preceding
fiscal quarter in the ordinary course of the Company's business bears to y) the
total aggregate dollar amount of all sales generated in the same fiscal quarter
exceeds eight percent (8%).
EQUIPMENT shall mean all present and hereafter acquired machinery, equipment,
- - ---------
and furnishings , and all additions, substitutions and replacements thereof,
wherever located, together with all attachments, components, parts, equipment
and accessories installed thereon or affixed thereto and all proceeds of
whatever sort.
ERISA shall mean the Employee Retirement Income Security Act or 1974, as amended
- - -----
from time to time and the rules and regulations promulgated thereunder from time
to time.
EXCESS AVAILABILITY shall mean the amount by which i) Availability on any date
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of determination exceeds ii) all past due or then due debts and payables of the
Company.
FOREIGN ACCOUNT DEBTORS shall mean the foreign subsidiaries of IBM, Maxtor
- - -----------------------
Corporation, Conner, Hewlett Packard Company, Western Digital Corporation,
Quantum Corporation and of such other companies domiciled in the United States
and approved in writing, from time to time, by CITBC.
FOREIGN CHARGE DOCUMENTS shall mean the documents all reasonably satisfactory to
- - ------------------------
CITBC consisting of: i) where permitted by applicable local law, evidence that
the mortgage and pledge to CITBC of sixty-five percent (65%) of the issued and
outstanding shares of the Foreign Entities, other than Applied Magnetics
Maylasia, have been noted in the books, records and stock ledgers of such
Foreign Entity; ii) evidence that all other actions necessary, under the laws of
Singapore, Panama and Korea, to perfect the liens of CITBC on the stock of the
Foreign Entities that are incorporated in those jurisdictions, have taken place;
iii) evidence that all stamp duties and/or taxes due as a result of the
aforesaid pledges, debentures and actions or which would be due if CITBC's
foreclosure rights under the aforesaid mortgages, pledges and debentures were
exercised are fully paid to the appropriate authorities; iv) the execution and
delivery of the pledge agreements and stock powers pledging to CITBC the stock
of the Foreign Entities other than Applied Magnetics Maylasia; v) the delivery
of the stock certificates so pledged; and vi) delivery to CITBC of the opinions
of foreign counsel (as described in paragraph e of Section 2 of this Financing
Agreement) required by CITBC in connection with the aforesaid
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stock pledges which opinions may satisfy, in whole or in part, evidence of the
matters referred to in clauses i through iii above.
FOREIGN ENTITY shall mean any one of the Foreign Entities.
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FOREIGN ENTITIES shall mean i) Applied Magnetics Ireland; ii) Applied Magnetics
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Korea; iii) Applied Magnetics Malaysia; and iv) Applied Magnetics Singapore.
FREE CASH FLOW shall mean, for any period of determination, EBITDA for such
- - --------------
period less the sum of i) Net Interest Expense and ii) Net Capital Expenditures
for such period.
GAAP shall mean generally accepted accounting principles in the United States of
- - ----
America as in effect from time to time and for the period as to which such
accounting principles are to apply.
GENERAL INTANGIBLES shall have the meaning set forth in the Uniform Commercial
- - -------------------
Code as in effect in the State of California and shall include, without
limitation, exclusive of the Notes Receivable and exclusive of the Proprietary
Know How, all present and future right, title and interest in and to all
tradenames, trademarks (together with the goodwill associated therewith),
patents, licenses, copyrights, customer lists, distribution agreements, supply
agreements and tax refunds, together with all monies and claims for monies now
or hereafter due and payable in connection with any of the foregoing or
otherwise, and all cash and non-cash proceeds thereof, subject, however, i) in
the case of patents, trademarks, tradenames and copyrights, to any and all
licenses and rights heretofore or hereafter granted by the Company or its
Affiliates to third parties, including, but not limited to licenses granted by
the Company to HML under the HML Agreement, and ii) in the case of licenses, to
any and all licenses, sublicenses and cross licenses granted by or to the
Company or its Affiliates pursuant to contracts and agreements, including the
HML Agreement, with third parties.
HML shall mean Hitachi Metals, Ltd., a corporation organized under the laws of
- - ---
Japan.
HML AGREEMENT shall mean that certain License and Technology Development
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Agreement, dated September 25, 1992, between the Company and HML.
INDEBTEDNESS shall mean, without duplication, all liabilities, contingent or
- - ------------
otherwise, which are any of the following: (a) obligations in respect of
borrowed money or for the deferred purchase price of goods or assets, other than
Inventory, or (b) lease obligations which, in accordance with GAAP, have been,
or which should be capitalized.
INTEREST EXPENSE shall mean total interest obligations (paid or accrued) of the
- - ----------------
Company, determined in accordance with GAAP on a basis consistent with the
latest audited financial statements of the Company.
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INVENTORY shall mean all of the Company's present and hereafter acquired
- - ---------
merchandise, inventory and goods, and all additions, substitutions and
replacements thereof, wherever located, together with all goods and materials
used or usable in manufacturing, processing, packaging or shipping same; in all
stages of production-from raw materials through work-in-process to finished
goods - and all proceeds thereof of whatever sort.
ISSUING BANK shall mean the bank issuing Letters of Credit for the Company.
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LETTERS OF CREDIT shall mean all letters of credit issued with the assistance of
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CITBC by the Issuing Bank for or on behalf of the Company.
LETTER OF CREDIT GUARANTY shall mean the guaranty delivered by CITBC to the
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Issuing Bank of the Company's reimbursement obligation under the Issuing Bank's
reimbursement agreement, application for letter of credit or other like
document.
LETTER OF CREDIT GUARANTY FEE shall mean the fee CITBC may charge the Company
- - -----------------------------
under paragraph 4 of Section 8 of this Financing Agreement for: i) issuing the
Letter of Credit Guaranty or ii) otherwise aiding the Company in obtaining
Letters of Credit.
LEVERAGE RATIO shall mean the ratio determined by dividing Total Liabilities by
- - --------------
Net Worth.
LIBOR shall mean, at any time of determination, and subject to availability, the
- - -----
London Interbank Offered Rate paid in London by Chemical Bank on one month, two
month, three month or six month dollar deposits and if such rates are not
otherwise available, then those rates as published, under "Money Rates", in the
New York City edition of the Wall Street Journal or if there is no such
publication or statement therein as to Libor, then in any publication used in
the New York City financial community.
LIBOR LOAN shall mean the loans for which the Company has elected to use Libor
- - ----------
for interest rate computations.
LIBOR PERIOD shall mean the Libor for one month, two month, three month or six
- - ------------
month dollar deposits, as selected by the Company.
LINE OF CREDIT shall mean the commitment, subject to the terms and conditions of
- - --------------
this Financing Agreement, of CITBC to x) make loans and advances to the Company
pursuant to Section 3 of this Financing Agreement, and y) assist the Company in
obtaining Letters of Credit pursuant to Section 4 of this Financing Agreement,
all in the aggregate amount not to exceed $35,000,000.00.
LINE OF CREDIT FEE shall: I) mean the fee due CITBC at the end of each month
- - ------------------
for the Line of Credit, and II) be determined by multiplying the difference
between the Line of Credit, and the average daily Revolving Loans of the Company
for said month by the per annum percentage set forth in paragraph 7 of Section 8
of this Financing Agreement for the number of days in said month.
LOAN FACILITY FEE shall mean the fee payable to CITBC in accordance with, and
- - -----------------
pursuant to, the provisions of paragraph 8 of Section 8 of this Financing
Agreement.
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MAYBANK shall mean Malayan Banking Berhad, Bayan Lepas Branch.
- - -------
MAYBANK AGREEMENT shall mean, as of the date hereof, the financing facility
- - -----------------
between Maybank and Applied Magnetics Malaysia.
NET CAPITAL EXPENDITURES shall mean, for any period of determination, Capital
- - ------------------------
Expenditures which are not financed by any third party (other than CITBC),
provided that for purposes of this computation, such financing shall be included
in the calculation during the fiscal period in which such financing is obtained
whether or not the Capital Expenditures to which such third party financing
relates was incurred in such period or any prior period. For purposes of this
computation, third party financing shall include, but not be limited to,
Purchase Money Liens, security interests, sale-leaseback transactions, Capital
Leases or the like.
NET INTEREST EXPENSE shall mean, for any period of determination, Interest
- - --------------------
Expense less interest income of the Company for such period.
NET WORTH shall mean assets in excess of liabilities, and determined in
- - ---------
accordance with GAAP, on a consistent basis with the latest audited statements.
NOTES RECEIVABLE shall mean any and all promissory notes, instruments of
- - ----------------
indebtedness, securities (including, but not limited to, common stock, warrants,
preferred stock, options or other forms of capital stock or ownership interests
in any corporation, partnership or limited liability company) held, as of the
date of this Financing Agreement, by the Company and received by it: i) in
connection with the sale or transfer by it of any of its present or former
Affiliates (other than the Foreign Entities) or all or any part of the business,
assets or properties of its present or former Affiliates (other than the Foreign
Entities); ii) any loans, advances or extensions of credit, whether secured or
unsecured, made, as of the date of this Financing Agreement, by the Company to
any of its officers, directors or employees; or iii) any substitution,
replacements, renewals, extensions or refinancing of the foregoing.
OBLIGATIONS shall mean all loans and advances made or to be made by CITBC to the
- - -----------
Company or to others for the Company's account; any and all indebtedness and
obligations which may at any time be owing by the Company to CITBC howsoever
arising under this Financing Agreement, whether now in existence or incurred by
the Company from time to time hereafter; whether secured by pledge, lien upon or
security interest in any of the Company's assets or property or the assets or
property of any other person, firm, entity or corporation; whether such
indebtedness is absolute or contingent, joint or several, matured or unmatured,
direct or indirect and whether the Company is liable to CITBC for such
indebtedness as principal, surety, endorser, guarantor or otherwise.
Obligations shall also include indebtedness owing to CITBC by the Company under
this Financing Agreement or under any other written agreement now or hereafter
entered into between the Company and CITBC in connection with this Financing
Agreement; indebtedness or obligations incurred by, or imposed on, CITBC as a
result of environmental claims (other than as a result of actions of CITBC)
arising out of the Company's operation, premises or waste disposal practices or
sites; the Company's liability to CITBC as maker or endorser on any promissory
note or other instrument for the payment of money; the Company's liability to
CITBC under any instrument of guaranty or indemnity, or arising under any
guaranty, endorsement or undertaking which CITBC may make or issue, at the
request of the Company or with the consent of the Company in writing, to others
for the Company's account, including any accommodation extended with respect
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to applications for Letters of Credit, CITBC's acceptance of drafts or CITBC's
endorsement of notes or other instruments for the Company's account and benefit.
OPERATING LEASES shall mean all leases of property (whether real, personal or
- - ----------------
mixed) other than Capital Leases.
OUT-OF-POCKET EXPENSES shall mean all of CITBC's present and future expenses
- - ----------------------
incurred relative to this Financing Agreement, whether incurred heretofore or
hereafter, which expenses shall include, without being limited to, the cost of
record searches, all costs and expenses incurred by CITBC in opening bank
accounts, depositing checks, receiving and transferring funds, and any charges
imposed on CITBC due to "insufficient funds" of deposited checks and CITBC's
standard fee relating thereto, any amounts paid by CITBC, incurred by or charged
to CITBC by the Issuing Bank under the Letter of Credit Guaranty or the
Company's reimbursement agreement, application for letter of credit or other
like document which pertain either directly or indirectly to such Letters of
Credit, and CITBC's standard fees relating to the Letters of Credit and any
drafts thereunder, local counsel fees, fees and taxes relative to the filing of
financing statements, and all expenses, costs and fees set forth in paragraph 3
of Section 10 of this Financing Agreement.
PENDING LITIGATION shall mean i) the consolidated class action litigation
- - ------------------
captioned Applied Magnetics Securities Litigation, Case No. CV 93-6195DT(JRx),
U.S. District Court, Central District of California, and ii) the case entitled
Douglas Lynch v. Applied Magnetics Corporation, Santa Barbara Superior Court,
- - ----------------------------------------------
Case No. SB 198852, both of which matters are subject to pending settlement
agreements.
PERMITTED ENCUMBRANCES shall mean: I) liens expressly permitted, or consented
- - ----------------------
to, by CITBC; II) Purchase Money Liens; III) Customarily Permitted Liens; IV)
liens granted CITBC by the Company; V) liens of judgment creditors provided such
liens do not exceed, in the aggregate, at any time, $100,000.00 (other than
liens bonded or insured to the reasonable satisfaction of CITBC); VI) liens for
taxes not yet due and payable or which are being diligently contested in good
faith by the Company by appropriate proceedings and which liens are not x)
senior to the liens of CITBC or y) for taxes due the United States of America;
VII) liens on the Company's Equipment and Real Estate, all owned as of the date
hereof, provided the Indebtedness (including sale-leaseback transactions)
incurred subsequent to the date of execution of this Financing Agreement and
secured by such liens x) does not exceed $20,000,000.00 in the aggregate at any
one time and y) at the time of incurrence of such Indebtedness, is not less than
fifty percent (50%) of the then book value of such Equipment and/or Real Estate
securing such Indebtedness; VIII) the lien of Union Bank on the cash of the
Company to secure the Company's reimbursement obligation under the Union Bank
Letter of Credit; IX) liens on the Company's Equipment and/or Real Estate to
secure Indebtedness (including sale-leaseback transactions) incurred, or
represented by agreements entered into, prior to the date of execution of this
Financing Agreement; X) liens on the Company's Equipment and/or Real Estate, in
each instance acquired after the date of execution of this Financing Agreement,
to secure Indebtedness (including sale-leaseback transactions) incurred
subsequent to the date of execution of this Financing Agreement; and XI) liens
granted in conjunction with the renewal, extension or refinancing of any
Permitted Encumbrance provided such lien is on the same or similar collateral
only.
PERMITTED INDEBTEDNESS shall mean: I) current indebtedness maturing in less
- - ----------------------
than one year and incurred in the ordinary course of business for raw materials,
supplies, equipment, services, taxes or labor; II) the indebtedness secured by
the Purchase Money Liens; III) indebtedness of the Company which is subordinated
to the prior
14
<PAGE>
payment and satisfaction of the Company's Obligations to CITBC by means of a
subordination agreement in form and substance satisfactory to CITBC; IV)
indebtedness arising under the Letters of Credit and this Financing Agreement;
V) deferred taxes and other expenses incurred in the ordinary course of
business; VI) other indebtedness existing on the date of execution of this
Financing Agreement and listed in the most recent financial statement delivered
to CITBC or otherwise disclosed to CITBC in writing; VII) Indebtedness
(including sale-leaseback transactions) of the Company incurred subsequent to
the date of execution of this Financing Agreement and secured solely by the
Company's Equipment and/or Real Estate provided x) the aggregate amount of such
Indebtedness does not exceed $20,000,000.00 in the aggregate at any one time, y)
at the time of incurrence of such Indebtedness, the Indebtedness is for not less
then fifty percent (50%) of the then book value of such Equipment and/or Real
Estate securing such Indebtedness and z) at the time of occurrence of such
Indebtedness 1) there was then no Event of Default or 2) no Event of Default
would occur after giving effect to such Indebtedness; VIII) the Indebtedness of
the Company under the Union Bank Letter of Credit; IX) Indebtedness (including
sale-leaseback transactions) of the Company incurred, or represented by
agreements entered into, prior to the date of execution of this Financing
Agreement and secured solely by the Company's Equipment and/or Real Estate; X)
Indebtedness (including sale-leaseback transactions) of the Company incurred
subsequent to the date of execution of this Financing Agreement and secured
solely by the Company's Equipment and/or Real Estate acquired after the date of
execution of this Financing Agreement; XI) the Indebtedness of the Company to
Union Bank under the Union Bank Facility; and XII) any renewals, extensions or
refinancing of any of the foregoing provided such is on terms and conditions
substantially similar to the Indebtedness being so renewed, extended or
refinanced.
PERMITTED INVESTMENTS shall mean (i) commercial paper maturing not more than 270
- - ---------------------
days after the date of issue, and municipal bonds, and in each case rated P-1 by
Moody's Investors Services, Inc. or A-1 or MIG-1 by Standard & Poor's
Corporation, (ii) certificates of deposit and bankers' acceptances maturing not
more than ninety (90) days after the date of issue, issued by any commercial
banking institution, which is a member of the Federal Reserve System and has a
combined capital and surplus and undivided profits of not less than
$50,000,000,.00 (iii) repurchase agreements having maturities of not more than
ninety (90) days from the date of acquisition which are entered into with any
major money center banks included in the commercial banking institution
described in clause (ii) and which are secured by readily marketable direct
obligations of the Government of the United States of America or any agency
thereof, (iv) readily marketable obligations of the Government of the United
States of America or any agency thereof; (v) mutual funds regularly traded in
the United States of America whose investments are limited to those described in
clauses (i) through (iv) above; vi) the Notes Receivable; vii) any promissory
notes, instruments of indebtedness or securities received by the Company in full
or partial payment of Accounts that the Company reasonably deems to be
uncollectible in cash; and viii) to the extent not inconsistent, the investments
included under the caption "Permitted Investments" in the Corporate Investment
Policy, dated August 20, 1993, of the Company.
PERMITTED MALAYSIAN CAPITAL STOCK ACTIVITY shall mean, i) any transfer,
- - ------------------------------------------
assignment or conveyance of the capital stock of Applied Magnetics Malaysia to a
Foreign Entity; ii) any merger, reorganization or consolidation of Applied
Magnetics Malaysia with or into any Foreign Entity; iii) any pledge, transfer,
mortgage, assignment or conveyance in order to comply with the current rules,
laws or regulations of the Government of Malaysia or any agency or
instrumentality thereof; iv) any pledge, transfer, mortgage, assignment or
conveyance to a third party unrelated in any respect to the Company or any
Foreign Entity provided such x) is in connection with a joint venture or similar
arrangement between such third party and the Company and/or Applied Magnetics
15
<PAGE>
Malaysia, y) does not have a material adverse affect on Applied Magnetics
Malaysia, and z) does not 1) constitute a default or event of default under the
Maybank Agreement and/or 2) have a material adverse effect on the Maybank
Agreement; and v) the issuance by Applied Magnetics Malaysia of its capital
stock to any Foreign Entity in full or partial satisfaction of debts or
obligations due such Foreign Entity by Applied Magnetics Malaysia, or to the
Company pursuant to paragraph 10(h) of Section 7 of this Financing Agreement.
PROPRIETARY KNOW HOW shall mean all present and future computer software, data,
- - --------------------
documentation, trade secrets, formulas, compositions, practices, know how,
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals and technical
data, all as it relates to the Company's design, development, production,
fabrication, processing, testing and assembling of Inventory, provided, however,
that Proprietary Know How does not include such of the aforementioned as to
which the Company is the owner of record with the U.S. Patent and Trademark
Office or with the U.S. Copyright Office as to U.S. registered patents,
trademarks and copyrights.
PURCHASE MONEY LIENS shall mean liens on any item of Equipment acquired after
- - --------------------
the date of this Financing Agreement provided that I) each such lien shall
attach only to the property to be acquired, II) a description of the property so
acquired is furnished to CITBC, and III) the debt incurred in connection with
such acquisitions shall not exceed in the aggregate $5,000,000 in any fiscal
year.
REAL ESTATE shall mean the Company's present and future fee and/or leasehold
- - -----------
interests in real property.
REVOLVING LOANS shall mean the loans and advances made, from time to time, to or
- - ---------------
for the account of the Company by CITBC pursuant to Section 3 of this Financing
Agreement.
SEAGATE shall mean Seagate Technology, Inc., a Delaware corporation.
- - -------
TAPE HEAD DIVISION shall mean the former division of the Company engaged in
- - ------------------
designing, developing, manufacturing and marketing magnetic recording disks and
tape heads for use with or in tape drives only and which division was sold, on
or about December 10, 1994, to Seagate.
TOTAL LIABILITIES shall mean total liabilities of the Company determined in
- - -----------------
accordance with GAAP, on a basis consistent with the latest audited statements
of the Company.
UNION BANK FACILITY shall mean that certain Revolving Credit Agreement, as
- - -------------------
amended from time to time, dated February 13, 1992, between the Company and
Union Bank.
UNION BANK LETTER OF CREDIT shall mean, as of the date of this Financing
- - ---------------------------
Agreement, the letter of credit issued by Union Bank in the face amount of
$4,500,000.00 for the account of Comdisco, Inc. with an expiry date of September
30, 1997.
WORKING CAPITAL shall mean current assets in excess of current liabilities,
- - ---------------
determined in accordance with GAAP on a basis consistent with the latest audited
statements.
16
<PAGE>
SECTION 2. CONDITIONS PRECEDENT
--------------------
The obligation of CITBC to make loans hereunder is subject to the satisfaction
of, or waiver of, immediately prior to or concurrently with the making of such
loans, the following conditions precedent:
A) LIEN SEARCHES - CITBC shall have received tax, judgment and Uniform
-------------
Commercial Code searches satisfactory to CITBC for all locations presently
occupied or used by the Company.
B) CASUALTY INSURANCE - The Company shall have delivered to CITBC evidence
------------------
satisfactory to CITBC that casualty insurance policies listing CITBC as loss
payee or mortgagee, as the case may be, are in full force and effect, all as set
forth in Section 7, paragraph 5 of this Financing Agreement.
C) UCC FILINGS - Any documents (including without limitation, financing
-----------
statements) required to be filed in order to create, in favor of CITBC, a first
and exclusive perfected security interest, subject to the Permitted
Encumbrances, in the Collateral with respect to which a security interest may be
perfected by a filing under the Uniform Commercial Code shall have been properly
filed in each office in each jurisdiction required in order to create in favor
of CITBC a perfected lien on the Collateral. CITBC shall have received
acknowledgement copies of all such filings (or, in lieu thereof, CITBC shall
have received other evidence satisfactory to CITBC that all such filings have
been made); and CITBC shall have received evidence that all necessary filing
fees and all taxes or other expenses related to such filings have been paid in
full.
D) EXAMINATION & VERIFICATION - CITBC shall have completed to the
--------------------------
satisfaction of CITBC an examination and verification of the Accounts,
Inventory, books and records of the Company.
E) OPINIONS - Counsel for the Company shall have delivered to CITBC, opinions
--------
satisfactory to CITBC opining, inter alia, that, subject to the i) filing,
priority and remedies provisions of the Uniform Commercial Code of California,
ii) the provisions of the Bankruptcy Code, insolvency statutes or other like
laws, iii) the equity powers of a court of law and iv) such other matters as may
be agreed upon with CITBC, this Financing Agreement and all other agreements and
documents executed by the Company in connection with this Financing Agreement
are x) valid, binding and enforceable according to their terms, y) are duly
authorized and z) do not violate any terms, provisions, representations or
covenants in the charter or by-laws of the Company or, to the best knowledge of
such counsel, of any loan agreement, mortgage, deed of trust, note, security or
pledge agreement or indenture to which the Company is a signatory or by which
the Company or its assets are bound. Further, CITBC shall have received
opinions, in form and substance satisfactory to CITBC, of counsel opining on all
specific laws of the countries of incorporation of the Foreign Entities, other
than Applied Magnetics Malaysia, as to: a) liens on the stock of such Foreign
Entity so pledged to CITBC; and b) such other matters as CITBC may deem
appropriate, including, but not limited to, the absence of any charges or taxes
that may be imposed or assessed on CITBC by a country other than the United
States as a result of this transaction or the transfer to someone other than the
Company of the stock so pledged.
F) INTENTIONALLY OMITTED
G) ADDITIONAL DOCUMENTS - The Company shall have executed and delivered to
----------------------
CITBC all loan documents necessary to consummate the lending arrangement
contemplated between the Company and CITBC.
H) OPENING EXCESS AVAILABILITY - On the date of execution of this Financing
---------------------------
Agreement, the sum of the Company's i) Excess Availability and ii) Permitted
Investments that are not subject to any security interest or lien, must be not
less than $5,000,000.00.
I) CITBC COMMITMENT LETTER - The Company has fully complied, to the
-----------------------
satisfaction of CITBC, with all of the terms and conditions of the commitment
letter, dated November 14, 1994, issued by CITBC to, and accepted by, the
Company.
17
<PAGE>
J) ENVIRONMENTAL REPORT - CITBC shall have received phase 1 environmental
--------------------
reports on i) all of the Company's fee interests in California, exclusive of the
fee property in Santa Maria, California, and ii) the Company's waste disposal
practices. The reports must x) be satisfactory to CITBC and y) not disclose or
indicate any material liability (real or potential) stemming from the Company's
premises, its operations, its waste disposal practices or waste disposal sites
used by Company.
K) BOARD RESOLUTION - CITBC shall have received a copy of the resolutions of
----------------
the Board of Directors of the Company authorizing the execution, delivery and
performance of (i) this Financing Agreement, and (ii) any related agreements, in
each case certified by the Secretary or Assistant Secretary of the Company as of
the date hereof, together with a certificate of the Secretary or Assistant
Secretary of the Company as to the incumbency and signature of the officers of
the Company executing this Financing Agreement and any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary.
L) CORPORATE ORGANIZATION - CITBC shall have received (i) a copy of the
----------------------
Certificate of Incorporation of the Company certified by the Secretary of State
of its incorporation, and (ii) a copy of the By-Laws (as amended through the
date hereof) of the Company and certified by the Secretary or Assistant
Secretary of the Company.
M) OFFICER'S CERTIFICATE - CITBC shall have received an executed Officer's
---------------------
Certificate of the Company, satisfactory in form and substance to CITBC,
certifying that (i) the representations and warranties contained herein are true
and correct in all material respects on and as of the date hereof; (ii) the
Company is in compliance with all of the terms and provisions set forth herein;
and (iii) no Default has occurred.
N) ABSENCE OF DEFAULT - No Default, Event of Default or material adverse
------------------
change in the financial condition, business, prospects, profits, operations or
assets of the Company or any of the Foreign Entities, other than Applied
Magnetics Singapore, shall have occurred.
O) LEGAL RESTRAINTS/LITIGATION - At the date of execution of this Financing
---------------------------
Agreement, there shall be no x) litigation, investigation or proceeding
(judicial or administrative) pending or threatened against the Company or any
Foreign Entity, or their assets, by any agency, division or department of any
county, city, state, federal or foreign government arising out this Financing
Agreement, y) injunction, writ or restraining order restraining or prohibiting
the consummation of the financing arrangements contemplated under this Financing
Agreement or z) except for the Pending Litigation, suit, action, investigation
or proceeding (judicial or administrative) pending or threatened against the
Company or any Foreign Entity, other than Applied Magnetics Singapore, or their
assets, which, in each case, in the reasonable opinion of CITBC, if adversely
determined could have a material adverse effect on the business, operation,
assets, financial condition or Collateral of the Company and/or Foreign Entity,
other than Applied Magnetics Singapore.
P) DISBURSEMENT AUTHORIZATION - The Company shall have delivered to CITBC all
--------------------------
information necessary for CITBC to issue wire transfer instructions on behalf of
the Company for the initial and subsequent loans and/or advances to be made
under this Agreement including, but not limited to, disbursement authorizations
in form acceptable to CITBC.
Q) MAYBANK AGREEMENT - The Company and Applied Magnetics Malaysia shall have
-----------------
delivered to CITBC i) a then current copy of the Maybank Agreement and ii) their
certification that as of the date of execution of this Financing Agreement the
Company and Applied Magnetics Malaysia are x) not aware of any default or event
of default under the Maybank Agreement and y) not in receipt of any notices
(verbal or written) from Maybank of any defaults or events of default under the
Maybank Agreement.
R) FOREIGN CHARGE DOCUMENTS - CITBC shall have received as to the Foreign
------------------------
Entities, other than Applied Magnetics Malaysia, the Foreign Charge Documents.
18
<PAGE>
S) LICENSE OF PROPRIETARY KNOW HOW - The Company shall prepare, execute and
-------------------------------
deliver to CITBC a then effective License of Proprietary Know How, sufficient in
form and substance reasonably satisfactory to CITBC, to permit CITBC, upon the
occurrence of an Event of Default, to use the Proprietary Know How for purposes
of collecting the Accounts and disposing of Inventory.
Upon the execution of this Financing Agreement, the initial disbursement, if
any, of loans hereunder and payment of the Loan Facility Fee, Collateral
Management Fee and Documentation Fee, all of the above Conditions Precedent
shall have been deemed satisfied except as the Company and CITBC shall otherwise
agree herein. Notwithstanding anything in this Financing Agreement to the
contrary, it is understood and agreed that a condition required herein has not
been met. The Company, as of the date of execution of this Financing
Agreement, is unable to deliver to CITBC the Foreign Charge Documents. To
induce CITBC to defer compliance with the requirements of paragraph r of this
Section 2, the Company has agreed to deliver the Foreign Charge Documents by
March 15, 1995 or pay the fees required in paragraph 11 of Section 8 of the
Financing Agreement. The failure of the Company to deliver such Foreign Charge
Documents shall not constitute an Event of Default.
SECTION 3. REVOLVING LOANS
---------------
1. CITBC agrees, subject to the terms and conditions of this Financing
Agreement from time to time, and within x) the Availability and y) the Line of
Credit, but subject to CITBC's right to make "overadvances", to make loans and
advances to the Company on a revolving basis (i.e. subject to the limitations
set forth herein, the Company may borrow, repay and re-borrow Revolving Loans).
Such loans and advances shall be in amounts up to eighty percent (80%) of the
outstanding Eligible Accounts Receivable of the Company. All requests for loans
and advances must be received by an officer of CITBC no later than 1:00 p.m.,
New York time, of the Business Day on which such loans and advances are
required. Should CITBC for any reason honor requests for advances in excess of
the limitations set forth herein, such advances shall be considered
"overadvances" and shall be made in CITBC's sole discretion, subject to any
additional terms CITBC deems necessary.
2. In furtherance of the continuing assignment and security interest in the
Company's Accounts, the Company will, upon the creation of Accounts, execute and
deliver to CITBC in such form and manner as CITBC may reasonably require, solely
for CITBC's convenience in maintaining records of Collateral, such confirmatory
schedules of Accounts as CITBC may reasonably request, and such other
appropriate reports designating, identifying and describing the Accounts as
CITBC may reasonably require. In addition, upon CITBC's request the Company
shall provide CITBC with copies of agreements with, or purchase orders from, the
Company's customers, and copies of invoices to customers, proof of shipment or
delivery and such other documentation and information relating to said Accounts
as CITBC may reasonably require and CITBC will hold such information subject to
the terms of paragraph 5 of Section 12 of this Financing Agreement. Failure to
provide CITBC with any of the foregoing shall in no way affect, diminish, modify
or otherwise limit the security interests granted herein. The Company hereby
authorizes CITBC to regard the Company's printed name or rubber stamp signature
on assignment schedules or invoices as the equivalent of a manual signature by
one of the Company's authorized officers or agents.
19
<PAGE>
3. The Company hereby represents and warrants that: each Account is based on
an actual and bona fide sale and delivery of Inventory or rendition of services
to customers, made by the Company in the ordinary course of its business; the
Inventory being sold and the Accounts created are the exclusive property of the
Company and are not and shall not be subject to any lien, encumbrance, security
interest or financing statement whatsoever, other than the Permitted
Encumbrances; such sale by the Company is an outright sale of Inventory and is
not a consignment arrangement; the invoices evidencing such Accounts are in the
name of the Company; and the customers of the Company have accepted the goods or
services, owe and are obligated to pay the full amounts stated in the invoices
according to their terms, without dispute, offset, defense, counterclaim or
contra, except for disputes, returns and other matters arising in the ordinary
course of business of which the Company has advised CITBC pursuant to paragraph
5 of this Section 3. The Company confirms to CITBC that any and all taxes or
fees relating to its sales, the Accounts or goods relating thereto, are its sole
responsibility and that same will be paid by the Company when due and that none
of said taxes or fees represent a lien on or claim against the Accounts. The
Company also warrants and represents that it is a duly and validly existing
corporation and is qualified in all states and foreign countries where the
failure to so qualify would have a material adverse effect on the business of
the Company or the ability of the Company to enforce collection of Accounts due
from customers residing in such states or foreign countries. The Company agrees
to maintain such books and records regarding Accounts as CITBC may reasonably
require and agrees that the books and records of the Company will reflect
CITBC's interest in the Accounts. All of the books and records of the Company
will be available to CITBC upon reasonable prior notice at normal business
hours, including any records handled or maintained for the Company by any other
company or entity.
4. Until CITBC has advised the Company to the contrary after the occurrence
of an Event of Default, the Company may and will enforce, collect and receive
all amounts owing on the Accounts for CITBC's benefit and on CITBC's behalf, but
at the Company's expense. Such privilege shall terminate at the election of
CITBC, upon the occurrence of any Event of Default and until such Event of
Default is waived. Any checks, cash, notes or other instruments or property
received by the Company with respect to any Accounts shall be held by the
Company for CITBC, separate from the Company's own property and funds, and
immediately turned over to CITBC with proper assignments or endorsements by
deposit to the Depository Accounts. All amounts received by CITBC in payment of
Accounts will be credited to the Company's accounts upon CITBC's receipt of
"collected funds" at CITBC's bank account in New York, New York on the Business
Day of receipt if received no later than 1:00 pm or on the next succeeding
Business Day if received after 1:00 pm unless such funds are received at CITBC's
bank account in New York, New York no later than 4:00 p.m., New York time, on
any Business Day on which CITBC has received notice from the Company, no later
than 1:00 p.m., New York time, on the same Business Day, specifying the amount
being paid by the Company. No checks, drafts or other instrument received by
CITBC shall constitute final payment to CITBC unless and until such instruments
have actually been collected. Notwithstanding anything contained in this
Financing Agreement to the contrary, if x) the Company is not then in Default,
y) the Company has Availability and z) the sum of the then outstanding Letters
of Credit and the then outstanding loan balance is not more than $5,000,000.00,
then CITBC will, at the Company's request, advise the banks holding the
Depository Accounts to remit all proceeds of Collateral to the Company. CITBC
may immediately rescind these instructions unilaterally a) upon the occurrence
of a Default, or b) when the sum of outstanding Letters of Credit and the then
outstanding loan balance is greater than $5,000,000.00; or c) the Company has no
Availability.
20
<PAGE>
5. The Company agrees to notify CITBC i) promptly of any matters known to the
Company materially affecting the value, enforceability or collectibility of any
Account and of all material customer disputes, offsets, defenses, counterclaims,
returns, rejections, warranty claims and all reclaimed or repossessed Inventory
and ii) periodically, and as often as requested by CITBC, of all other customer
disputes, offsets, defenses, counterclaims, returns, rejections, warranty claims
and all reclaimed or repossessed Inventory. The Company agrees to issue credit
memoranda promptly (with duplicates to CITBC upon request after the occurrence
of an Event of Default) upon accepting returns or granting allowances, and may
continue to do so until CITBC has notified the Company, in writing, that an
Event of Default has occurred and that all future credits or allowances are to
be made only after CITBC's prior written approval.
6. CITBC shall maintain a separate account on its books in the Company's name
in which the Company will be charged with loans and advances made by CITBC to it
or for its account, and with any other Obligations, including any and all costs,
expenses and reasonable attorney's fees which CITBC may incur in connection with
the exercise by or for CITBC of any of the rights or powers herein conferred
upon CITBC, or in the prosecution or defense of any action or proceeding to
enforce or protect any rights of CITBC in connection with this Financing
Agreement or the Collateral assigned hereunder, or any Obligations owing to
CITBC by the Company. The Company will be credited with all amounts received by
CITBC from the Company or from others for the Company's account, including, as
above set forth, all amounts received by CITBC in payment of assigned Accounts
and such amounts will be applied to payment of the Obligations. In no event
shall prior recourse to any Accounts or other security granted to or by the
Company be a prerequisite to CITBC's right to demand payment of any Obligation.
Further, it is understood that CITBC shall have no obligation whatsoever to
perform in any respect any of the Company's contracts or obligations relating to
the Accounts.
7. After the end of each month, CITBC shall promptly send the Company a
statement showing the accounting for the charges, loans, advances and other
transactions occurring between CITBC and the Company during that month. The
monthly statements shall be deemed correct and binding upon the Company and
shall constitute an account stated between the Company and CITBC unless CITBC
receives a written statement of the exceptions within thirty (30) days of the
date of the monthly statement.
SECTION 4. INTENTIONALLY OMITTED
---------------------
SECTION 5. LETTERS OF CREDIT
-----------------
In order to assist the Company in establishing or opening: a) documentary
Letters of Credit with an Issuing Bank to cover the purchase and importation of
Inventory and/or Equipment from an entity unrelated to the Company or b) stand-
by Letters of Credit for other business purposes of the Company but not for the
purchase of Inventory nor to secure the payment of the Company's obligations to
its suppliers, the Company has requested CITBC to join in the applications for
such Letters of Credit, and/or guarantee payment or performance of such Letters
of Credit and any drafts or acceptances thereunder through the issuance of the
Letters of Credit Guaranty, thereby lending CITBC's credit to the Company and
CITBC has agreed to do so. These arrangements shall be handled by CITBC subject
to the terms and conditions set forth below.
21
<PAGE>
1. The amount, purpose and extent of the Letters of Credit and changes or
modifications thereof by the Company and/or the Issuing Bank of the terms and
conditions thereof shall in all respects be subject to the prior approval of
CITBC in the exercise of its reasonable discretion provided however, that: a)
in no event may the aggregate amount of all such outstanding Letters of Credit
exceed, in the aggregate, at any one time $10,000,000.00, and b) the Letter of
Credit and all documentation in connection therewith shall be in form and
substance satisfactory to the Company, CITBC and the Issuing Bank.
2. CITBC shall have the right, without notice to the Company, to charge the
Company's account on CITBC's books with the amount of any and all indebtedness,
liability or obligation of any kind incurred by CITBC under the Letters of
Credit Guaranty upon payment by CITBC under the Letters of Credit Guaranty.
After the occurrence of an Event of Default and the election by CITBC to
exercise its remedies under paragraph 2 of Section 10 of this Financing
Agreement, and there is then any undrawn Letter of Credit, CITBC may, after
payment in full of all Obligations posted to the Company's loan account, at its
election, secure repayment of such Letter of Credit, in such amounts deemed
reasonably necessary by CITBC, with Collateral and/or the cash proceeds of
Collateral until such time as all amounts due in connection with any drafts
under the Letter of Credit have been fully repaid to CITBC. Any amount charged
to Company's loan account shall be deemed a Revolving Loan hereunder and shall
incur interest at the rate provided in Section 8, paragraph 1 of this Financing
Agreement.
3. The Company unconditionally indemnifies CITBC and holds CITBC harmless
from any and all loss, claim or liability incurred by CITBC arising from any
transactions or occurrences relating to Letters of Credit established or opened
for the Company's account, the collateral relating thereto and any drafts or
acceptances thereunder, and all Obligations thereunder, including any such loss
or claim due to any action taken by any Issuing Bank, other than for any such
loss, claim or liability arising out of the gross negligence or willful
misconduct by CITBC under the Letters of Credit Guaranty. The Company further
agrees to hold CITBC harmless from any errors or omission, negligence or
misconduct by the Issuing Bank. The Company's unconditional obligation to CITBC
hereunder shall not be modified or diminished for any reason or in any manner
whatsoever, other than as a result of CITBC's gross negligence or willful
misconduct. The Company agrees that any charges incurred by CITBC for the
Company's account by the Issuing Bank shall be conclusive on CITBC and may be
charged to the Company's account.
4. CITBC shall not be responsible for: the existence, character, quality,
quantity, condition, packing, value or delivery of the goods purporting to be
represented by any documents; any difference or variation in the character,
quality, quantity, condition, packing, value or delivery of the goods from that
expressed in the documents; the validity, sufficiency or genuineness of any
documents or of any endorsements thereon, even if such documents should in fact
prove to be in any or all respects invalid, insufficient, fraudulent or forged;
the time, place, manner or order in which shipment is made; partial or
incomplete shipment, or failure or omission to ship any or all of the goods
referred to in the Letters of Credit or documents; any deviation from
instructions; delay, default, or fraud by the shipper and/or anyone else in
connection with the Collateral or the shipping thereof; or any breach of
contract between the shipper or vendors and the Company.
5. The Company agrees that any action taken by CITBC, if taken in good faith,
or any action taken by any Issuing Bank, under or in connection with the Letters
of Credit, the guarantees, the drafts or acceptances, or the Collateral, shall
be binding on the Company and shall not, absent CITBC's gross negligence or
willful
22
<PAGE>
misconduct, put CITBC in any resulting liability to the Company. In furtherance
thereof, but subject to the provisions of paragraph 6 below, CITBC shall have
the full right and authority to clear and resolve any questions of non-
compliance of documents; to give any instructions as to acceptance or rejection
of any documents or goods; to execute any and all steamship or airways
guaranties (and applications therefore), indemnities or delivery orders; to
grant any extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances, or documents; and to agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letters of Credit, drafts
or acceptances; all in CITBC's sole name, and the Issuing Bank shall be entitled
to comply with and honor any and all such documents or instruments executed by
or received solely from CITBC, all without any notice to or any consent from the
Company.
6. Without CITBC's express consent and endorsement in writing, the Company
agrees: a) not to execute any and all applications for steamship or airway
guaranties, indemnities or delivery orders; to grant any extensions of the
maturity of, time of payment for, or time of presentation of, any drafts,
acceptances or documents; or to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any
of the applications, Letters of Credit, drafts or acceptances; and b) after the
occurrence of an Event of Default which is not waived by CITBC, not to i) clear
and resolve any questions of non-compliance of documents, or ii) give any
instructions as to acceptances or rejection of any documents or goods.
7. The Company agrees that any necessary import, export or other licenses or
certificates for the import or handling of the Collateral will have been
promptly procured; all foreign and domestic governmental laws and regulations in
regard to the shipment and importation of the Collateral, or the financing
thereof will have been promptly and full complied with in all material respects;
and any certificates in that regard that CITBC may at any time request will be
promptly furnished. In this connection, the Company warrants and represents
that to the best of its knowledge, all shipments made under any such Letters of
Credit are in accordance with the laws and regulations of the countries in which
the shipments originate and terminate, and are not prohibited by any such laws
and regulations. The Company assumes all risk, liability and responsibility
for, and agrees to pay and discharge (or cause to be paid and discharged), all
present and future local, state, federal or foreign taxes, duties, or levies.
Any embargo, restriction, laws, customs or regulations of any country, state,
city, or other political subdivision, where the Collateral is or may be located,
or wherein payments are to be made, or wherein drafts may be drawn, negotiated,
accepted, or paid, shall be solely the Company's risk, liability and
responsibility.
8. Upon any payments made to the Issuing Bank under the Letter of Credit
Guaranty, CITBC shall acquire by subrogation, any rights, remedies, duties or
obligations granted or undertaken by the Company to the Issuing Bank in any
application for Letters of Credit, any standing agreement relating to Letters of
Credit or otherwise, all of which shall be deemed to have been granted to CITBC
and apply in all respects to CITBC and shall be in addition to any rights,
remedies, duties or obligations contained herein.
23
<PAGE>
SECTION 6. COLLATERAL
----------
1. As security for the prompt payment in full of all loans and advances made
and to be made to the Company from time to time by CITBC pursuant hereto, as
well as to secure the payment in full of the other Obligations, the Company
hereby pledges and grants to CITBC a continuing general lien upon and security
interest in all of its:
(A) present and hereafter acquired Inventory;
(B) present and hereafter acquired Equipment;
(C) present and future Accounts;
(D) present and future Documents of Title; and
(E) present and future General Intangibles,
provided, however, that nothing contained herein shall be deemed to create a
security interest in, or lien on, for the benefit of CITBC in the Company's i)
present and future Real Estate and Proprietary Know How; and ii) Notes
Receivable owned by the Company as of the date of this Financing Agreement.
Further, it is understood and agreed that general lien and security interests
granted herein shall not contravene any intellectual property, marketing or
licensing rights granted to HML in the HML Agreement and CITBC expressly agrees
that it will not knowingly take any action which will materially interfere with
those rights of HML.
2. The security interests granted hereunder shall extend and attach to:
(A) All Collateral which is presently in existence and which is owned by the
Company, whether held by the Company or others for its account, and, if any
Collateral is Equipment, whether the Company's interest in such Equipment is as
owner or conditional vendee;
(B) All Equipment including, but without limiting the generality of the
foregoing, all dies, jigs, tools, benches, tables, accretions, component parts
thereof and additions thereto, as well as all accessories, motors, engines and
auxiliary parts used in connection with or attached to the Equipment; and
(C) All Inventory and any portion thereof which may be returned, rejected,
reclaimed or repossessed by either CITBC or the Company from the Company's
customers, as well as to all supplies, goods, incidentals, packaging materials,
labels and any other items which contribute to the finished goods or products
manufactured or processed by the Company, or to the sale, promotion or shipment
thereof.
3. The Company agrees to safeguard, protect and hold all Inventory and make
no disposition thereof except in the regular course of the business of the
Company as herein provided. Inventory may only be sold and shipped by the
Company to its customers in the ordinary course of the Company's business, on
open account and on terms currently being extended by the Company to its
customers or on new terms but in no event longer than ninety (90) days from date
of sale, provided that all proceeds of all sales (including cash, accounts
receivable,
24
<PAGE>
checks, notes, instruments for the payment of money and similar proceeds) are
forthwith transferred, endorsed, and turned over and delivered to CITBC by
deposit to the Depository Accounts. Cash sales or sales of Inventory in which
a lien upon, or security interest in, Inventory (exclusive of the Company's
rights as an unpaid seller under the Uniform Commercial Code) is retained by the
Company shall be made by the Company only with the approval of CITBC, and the
proceeds of such sales or sales of inventory for cash shall not be commingled
with the Company's other property, but shall be segregated, held by the Company
for CITBC as CITBC's exclusive property, and shall be delivered immediately by
the Company to CITBC in the identical form received by the Company by deposit to
the Depository Accounts. Upon the sale, exchange, or other disposition of
Inventory, as herein provided, the security interest in the Company's Inventory
provided for herein shall, without break in continuity and without further
formality or act, continue in, and attach to, all proceeds, including any
instruments for the payment of money, accounts receivable, contract rights,
documents of title, shipping documents, chattel paper and all other cash and
non-cash proceeds of such sale, exchange or disposition. As to any such sale,
exchange or other disposition, CITBC shall have, upon the occurrence of an Event
of Default and the election by CITBC to exercise its remedies under paragraph 2
of section 10 of this Financing Agreement, all of the rights of an unpaid
seller, including stoppage in transit, replevin, rescission and reclamation.
4. The Company agrees at its own cost and expense to keep the Equipment in as
good and substantial repair and condition as the same is now or at the time the
lien and security interest granted herein shall attach thereto, reasonable wear
and tear excepted, making any and all repairs and replacements when and where
necessary and consistent with the Company's business practices. Except as
otherwise permitted in this Financing Agreement, the Company also agrees to make
no disposition of the Equipment, unless the Company first obtains the prior
written approval of CITBC. Except as otherwise permitted in this Financing
Agreement, any sale, exchange or other disposition of any Equipment shall only
be made by the Company with the prior written approval of CITBC, and the
proceeds of any such sales shall not be commingled with the Company's other
property (other than the Collateral), but shall be segregated, held by the
Company for CITBC as CITBC's exclusive property, and shall be delivered
immediately by the Company to CITBC in the identical form received by the
Company by deposit to the Depository Accounts. Upon the sale, exchange, or
other disposition of the Equipment, as herein provided, the security interest
provided for herein shall, without break in continuity and without further
formality or act, continue in, and attach to, all proceeds, including any
instruments for the payment of money, accounts receivable, contract rights,
documents of title, shipping documents, chattel paper and all other cash and
non-cash proceeds of such sales, exchange or disposition. As to any such sale,
exchange or other disposition, CITBC shall have, upon the occurrence of an Event
of Default and the election by CITBC to exercise its remedies under paragraph 2
of Section 10 of this Financing Agreement, all of the rights of an unpaid
seller, including stoppage in transit, replevin, rescission and reclamation.
Notwithstanding anything hereinabove contained to the contrary, the Company may
sell, exchange or otherwise dispose of obsolete Equipment or Equipment no longer
needed in the Company's operations, provided, however, that (a) the then book
value of the Equipment so disposed of does not exceed $7,500,000.00 in the
aggregate in any fiscal year and (b) the proceeds of such sales or dispositions
are delivered to CITBC in accordance with the foregoing provisions of this
paragraph, except that the Company may retain and use such proceeds to purchase
forthwith replacement Equipment which the Company determines in its reasonable
business judgment to have a book value at least equal to the Equipment so
disposed of or sold, provided, however, that the aforesaid right shall
automatically cease upon the occurrence of an Event of Default which is not
waived.
25
<PAGE>
5. The rights and security interests granted to CITBC hereunder are to
continue in full force and effect, notwithstanding the termination of this
Financing Agreement or the fact that the account maintained in the Company's
name on the books of CITBC may from time to time be temporarily in a credit
position, until the final payment in full to CITBC of all Obligations and the
termination of this Financing Agreement. Any delay, or omission by CITBC or the
Company to exercise any right hereunder, shall not be deemed a waiver thereof,
or be deemed a waiver of any other right, unless such waiver be in writing and
signed by CITBC or the Company, as applicable. A waiver on any one occasion
shall not be construed as a bar to or waiver of any right or remedy on any
future occasion.
6. To the extent that the Obligations are now or hereafter secured by any
assets or property other than the Collateral or by the guarantee, endorsement,
assets or property of any other person, then CITBC shall have the right in its
sole discretion to determine which rights, security, liens, security interests
or remedies CITBC shall at any time pursue, foreclose upon, relinquish,
subordinate, modify or take any other action with respect to, without in any way
modifying or affecting any of them, or any of CITBC's rights hereunder.
7. Any balances to the credit of the Company and any other property or assets
of the Company in the possession of CITBC, may, after the occurrence of an Event
of Default which is not waived, be held by CITBC as security for any Obligations
and applied in whole or partial satisfaction of such Obligations when due. It
is agreed that CITBC's security interests therein, and liens on, arise at the
date of execution of this Financing Agreement by the Company, but CITBC's rights
to retain possession and/or apply the same does not arise until after the
occurrence of an Event of Default which is not waived. The liens and security
interests granted herein and any other lien or security interest CITBC may have
in any other assets of the Company, shall secure payment and performance of all
now existing and future Obligations. CITBC may in its discretion charge any or
all of the Obligations to the account of the Company when due.
8. The Company shall give to CITBC, from time to time such pledge or security
agreements with respect to sixty-five percent (65%) capital stock of the Foreign
Entities other than Applied Magnetics Maylasia as CITBC shall require to obtain
valid first liens thereon.
END OF SECTION 6
SECTION 7 CONTINUES
ON NEXT PAGE
26
<PAGE>
SECTION 7. REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
1. The Company hereby warrants and represents that: i) the fair value, as
determined on the basis of, among other things, certain appraisals obtained by
the Company in conjunction with this or other contemplated financing
arrangements, of the Company's assets exceeds the book value of the Company's
liabilities; ii) the Company is generally able to pay its material debts as they
become due and payable; and iii) the Company does not have unreasonably small
capital to carry on its business as it is currently conducted absent
extraordinary and unforeseen circumstances. The Company further warrants and
represents that except for the Permitted Encumbrances, the security interests
granted herein constitute and shall at all times constitute the first and only
liens on the Collateral; that, except for the Permitted Encumbrances, the
Company is or will be at the time additional Collateral is acquired by it, the
only owner of the Collateral with full right to pledge, sell, consign, transfer
and create a security interest therein, free and clear of any and all claims
known to the Company or liens in favor of others; that the Company will at its
expense forever warrant and, at CITBC's request, defend the same from any and
all claims and demands of any other person other than the Permitted
Encumbrances; that the Company will not knowingly grant, create or permit to
exist, any lien upon or security interest in the Collateral, or any proceeds
thereof, in favor of any other person other than the holders of the Permitted
Encumbrances; and that the Equipment does not comprise a part of the Inventory
of the Company and that the Equipment is and will only be used by the Company in
its business and will not be held for sale or lease, or removed from its
premises, or otherwise disposed of by the Company without the prior written
approval of CITBC except as otherwise permitted in paragraph 4 of Section 6 and
paragraph 19 of this Section 7 of this Financing Agreement.
2. The Company agrees to maintain books and records pertaining to the
Collateral in such detail, form and scope as CITBC shall reasonably require.
The Company agrees that CITBC or its agents may enter upon the Company's
premises at any time, upon prior advance notice, during normal business hours,
and from time to time, for the purpose of inspecting the Collateral, and any and
all records pertaining thereto. The Company agrees to afford CITBC prior
written notice of any change in the location of any Collateral, other than to
locations, that as of the date hereof, are known to CITBC and at which CITBC has
filed financing statements and otherwise fully perfected its liens thereon. The
Company is also to advise CITBC promptly, in sufficient detail, of any material
adverse change, known to the Company, relating to the type, quantity or quality
of the Collateral or on the security interests granted to CITBC therein.
3. The Company agrees to: execute and deliver to CITBC, from time to time,
solely for CITBC's convenience in maintaining a record of the Collateral, such
written statements, and schedules as CITBC may reasonably require, designating,
identifying or describing the Collateral pledged to CITBC hereunder. The
Company's failure, however, to promptly give CITBC such statements, or schedules
shall not affect, diminish, modify or otherwise limit CITBC's security interests
in the Collateral.
4. The Company agrees to comply with the requirements of all state and
federal laws in order to grant to CITBC valid and perfected first liens in the
Collateral, subject only to the Permitted Encumbrances. CITBC is hereby
authorized by the Company to file any financing statements covering the
Collateral whether or not the Company's signature appears thereon. The Company
agrees to do whatever CITBC may reasonably request, from time to time, by way
of: filing notices of liens, financing statements, amendments, renewals and
continuations thereof; cooperating with CITBC's agents and employees; keeping
Inventory records; transferring
27
<PAGE>
proceeds of Collateral to CITBC's possession; and performing such further acts
as CITBC may reasonably require in order to effect the purposes of this
Financing Agreement.
5.(A) The Company agrees to maintain insurance on the i) Equipment and
Inventory under such policies of insurance, with such insurance companies, in
such reasonable amounts and covering such insurable risks as are at all times
reasonably satisfactory to CITBC and ii) Real Estate covering fire, flood,
earthquake and such other insurable risks and in such amounts as the Company
deems reasonable and prudent. All policies covering the Equipment and Inventory
are, subject to the rights of any holders of Permitted Encumbrances holding
claims senior to CITBC, to be made payable to CITBC, in case of loss, under a
standard non-contributory "mortgagee", "lender" or "secured party" clause and
are to contain such other provisions as CITBC may require to fully protect
CITBC's interest in the Inventory and Equipment and to any payments to be made
under such policies. All original policies or true copies thereof are to be
delivered to CITBC, premium prepaid, with the loss payable endorsement in
CITBC's favor, and shall provide for not less than thirty (30) days prior
written notice to CITBC of the exercise of any right of cancellation. At the
Company's request, or if the Company fails to maintain such insurance, CITBC may
arrange for such insurance, but at the Company's expense and without any
responsibility on CITBC's part for: obtaining the insurance, the solvency of
the insurance companies, the adequacy of the coverage, or the collection of
claims. Upon the occurrence of an Event of Default which is not waived, CITBC
shall, subject to the rights of any holders of Permitted Encumbrances holding
claims senior to CITBC, have the sole right, in the name of CITBC or the
Company, to file claims under any insurance policies relating to Inventory and
Equipment, to receive, receipt and give acquittance for any payments that may be
payable thereunder, and to execute any and all endorsements, receipts, releases,
assignments, reassignments or other documents that may be necessary to effect
the collection, compromise or settlement of any claims under any such insurance
policies.
(B) In the event of any loss or damage by fire or other casualty, insurance
proceeds relating to such Collateral, if any, that is lost or damaged by such
fire or other casualty, shall reduce the Company's Revolving Loan, provided,
however, that CITBC will promptly endorse and return to the Company casualty
insurance checks pertaining to Equipment if i) the Equipment is unencumbered
other than by the lien of CITBC, and ii) there is then no unwaived Event of
Default.
6. The Company agrees to pay, when due, all taxes, assessments, claims and
other charges (herein "taxes") lawfully levied or assessed upon the Company or
the Collateral and if such taxes remain unpaid after the date fixed for the
payment thereof unless such taxes are being diligently contested in good faith
by the Company by appropriate proceedings or if any lien shall be claimed
thereunder x) for taxes due the United States of America or y) which in CITBC's
opinion might create a valid obligation having priority over the rights granted
to CITBC herein, CITBC may, on the Company's behalf, pay such taxes, and the
amount thereof shall be an Obligation secured hereby and due to CITBC on demand.
7. The Company: (a) agrees to comply with all acts, rules, regulations and
orders of any legislative, administrative or judicial body or official, which
the failure to comply with would have a material and adverse impact on the
Collateral, or any material part thereof, or on the operation of the Company's
business, provided that the Company may contest any acts, rules, regulations,
orders and directions of such bodies or officials in any reasonable manner which
will not, in CITBC's reasonable opinion, materially and adversely effect CITBC's
rights or priority in the Collateral; (b) agrees to comply with all
environmental statutes, acts, rules, regulations
28
<PAGE>
or orders as presently existing or as adopted or amended in the future,
applicable to the ownership and/or use of its real property and operation of its
business, which the failure to comply with would have a material and adverse
impact on the Collateral, or any material part thereof, or on the operation of
the business of the Company, provided that the Company may contest any acts,
rules, regulations, orders and directions of such bodies or officials in any
reasonable manner which will not, in CITBC's reasonable opinion, materially and
adversely effect CITBC's rights or priority in the Collateral. The Company
hereby indemnifies CITBC and agrees to defend and hold CITBC harmless from and
against any and all loss, damage, claim, liability, injury or expense which
CITBC may sustain or incur (other than as a result of actions of CITBC) in
connection with: any claim or expense asserted against CITBC as a result of any
environmental pollution, hazardous material or environmental clean-up of the
Company's real property, or any claim or expense which results from the
Company's operations (including, but not limited to, the Company's off-site
disposal practices) and the Company further agrees that this indemnification
shall survive termination of this Financing Agreement as well as the payment of
all Obligations or amounts payable hereunder; and CITBC shall promptly give the
Company notice of any such claim or expense; and (c) shall not be deemed to have
breached any provision of this paragraph 7 if (i) the failure to comply with the
requirements of this paragraph 7 resulted from good faith error or innocent
omission, (ii) the Company promptly commences and diligently pursues a cure of
such breach and (iii) such failure is cured within a reasonable time frame based
upon the circumstances and amount of work required.
8. Until termination of the Financing Agreement and payment and satisfaction
of all Obligations due hereunder, the Company agrees that, unless CITBC shall
have otherwise consented in writing, the Company will furnish to CITBC, within
ninety (90) days after the end of each fiscal year of the Company, an audited
Consolidated Balance Sheet and an unaudited Consolidating Balance Sheet as at
the close of such year, and statements of profit and loss, cash flow and
reconciliation of surplus of the Company and all subsidiaries of each for such
year, audited by Arthur Andersen LLP or such other independent public
accountants as are selected by the Company and satisfactory to CITBC; within
sixty (60) days after the end of each fiscal quarter a Consolidated Balance
Sheet and Consolidating Balance Sheet as at the end of such period and unaudited
statements of profit and loss, cash flow and surplus of the Company and all
subsidiaries of each, certified by an authorized financial or accounting officer
of the Company; and within thirty (30) days after the end of each month a
Consolidated Balance Sheet and a Consolidating Balance Sheet as at the end of
such period and unaudited statements of profit and loss, cash flow and surplus
of the Company and all subsidiaries for such period, certified by an authorized
financial or accounting officer of the Company; and from time to time, such
further information regarding the business affairs and financial condition of
the Company and/or the Foreign Entities as CITBC may reasonably request,
including without limitation annual cash flow projections in form satisfactory
to CITBC. Each financial statement which the Company is required to submit
hereunder must be accompanied by an officer's certificate, signed by the
President, any Vice President, Controller, or Treasurer, pursuant to which any
one such officer must certify that: (i) the financial statement(s) fairly and
accurately represent(s) the Company's financial condition at the end of the
particular accounting period, as well as the Company's operating results during
such accounting period, subject to year-end audit adjustments; (ii) during the
particular accounting period: (x) there has been no Default or Event of Default
under this Financing Agreement, provided, however, that if any such officer has
knowledge that any such Default or Event of Default, has occurred during such
period, the existence of and a detailed description of same shall be set forth
in such officer's certificate; and (y) the Company has not received any notice
of cancellation with respect to its property insurance policies; and (iii) the
financial covenant compliance statement attached, by the Company, to
29
<PAGE>
such financial statement(s) constitute detailed calculations showing compliance
with all financial covenants contained in this Financing Agreement.
9. The Company, and the Foreign Entities, shall maintain at all times, on a
consolidated basis, during the fiscal quarters below, a Net Worth of not less
than:
FISCAL QUARTER ENDING NET WORTH
--------------------- ---------
<TABLE>
<CAPTION>
<S> <C>
December 31, 1994 $82,500,000.00
March 31, 1995 $75,000,000.00
June 30, 1995 $73,000,000.00
September 30, 1995 and for each
fiscal quarter thereafter $71,500,000.00
</TABLE>
10. Until termination of the Financing Agreement and payment and satisfaction
of all Obligations due hereunder, the Company agrees that, without the prior
written consent of CITBC, except as otherwise herein provided, the Company will
not:
A. Mortgage, assign, pledge, transfer or otherwise permit any lien,
charge, security interest, encumbrance or judgment, (whether as a
result of a purchase money or title retention transaction, or other
security interest, or otherwise) to exist on any of its assets or
goods, whether real, personal or mixed, whether now owned or hereafter
acquired, except for x) the Permitted Encumbrances or y) the Permitted
Malaysian Capital Stock Activity;
B. Incur or create any Indebtedness other than the Permitted Indebtedness;
C. Borrow any money on the security of the Company's Collateral, other
than the Permitted Indebtedness, from sources other than CITBC;
D. Sell, lease, assign, transfer or otherwise dispose of i) Collateral,
except as otherwise specifically permitted by this Financing Agreement,
provided, however, that the Company may at any time hereafter transfer
to HML the Company's rights to market and sell certain licensed
Products and Components (as defined in the HML Agreement) to
Matsushita-Kotobuki Electronics Industries, Ltd.; ii) the stock of any
Foreign Entity except for the Permitted Malaysian Capital Stock
Activity; or iii) either all or substantially all of the Company's
assets, which do not constitute Collateral;
E. Merge, consolidate or otherwise alter or modify its corporate name,
principal place of business, structure, or existence, or enter into or
engage in any operation or activity materially different from that
presently being conducted by the Company;
F. Assume, guarantee, endorse, or otherwise become liable upon the
obligations of any person, firm, entity or corporation, except by the
endorsement of negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business, provided,
however, that the Company may assume, guarantee, endorse or otherwise
become liable upon the obligations of the Foreign Entities provided the
sum of such amounts does not exceed $70,000.000.00 in the aggregate at
any one time;
30
<PAGE>
G. Declare or pay any dividend of any kind on, or purchase, acquire,
redeem or retire, any of the capital stock or equity interest, of any
class whatsoever, whether now or hereafter outstanding, except that the
Company may declare and pay dividends, in kind only, on its capital
stock;
H. Make any advance or loan to, or any investment in, any firm, entity,
person or corporation, provided, however, that the Company may i) make
Permitted Investments; ii) make or extend loans and advances to its
employees for employee relocations, travel expenses and similar items
in the ordinary course of business, provided that in no event shall the
aggregate amount of such loans and advances made on and after the date
of this Financing Agreement exceed $2,500,000.00 in the aggregate at
any one time; iii) make advances and/or deposits as contemplated in the
definition of Customarily Permitted Liens; and (iv) notwithstanding
anything in this Financing Agreement to the contrary, the Company may,
at any time, accept from Applied Magnetics Malaysia capital stock of
Applied Magnetics Malaysia in satisfaction of Accounts or other
obligations due the Company by Applied Magnetics Malaysia (the
"Conversion") provided:
a) the aggregate amount of all such Accounts and other obligations so
capitalized, after the date of this Financing Agreement, does not
exceed $25,000,000.00 in the aggregate at any one time;
b) at the time of such Conversion the Company is not then in Default
under this Financing Agreement and, after giving effect to such
Conversion, the Company will not be in Default under this Financing
Agreement;
c) immediately prior to, and immediately after giving effect to, such
Conversion the sum of the Company's i) Excess Availability and ii)
Permitted Investments and cash that are, in each instance, not subject
to any security interest or lien, must be not less than $5,000,000.00;
and
d) such Conversion is due to increased capital requirements imposed by
the central banking authority on Maybank with respect to transactions
between Maybank and its customers and such Conversion is necessary to
either i) avoid Maybank from x) declaring a default or event of default
under the Maybank Agreement or y) otherwise terminating the Maybank
Agreement or z) demanding a reduction in the then outstanding loan
balance due under the Maybank Agreement or ii) permit Applied Magnetics
Malaysia to increase its borrowings under the Maybank Agreement.
I. Permit, or consent to i) the merger, consolidation, alteration or
modification of the corporate name, principal place of business,
structure or existence of any Foreign Entity other than the Permitted
Malaysian Capital Stock Activity or ii) any Foreign Entity to enter into
or engage in any operation or activity materially different from that
presently being conducted by such Foreign Entity; or
J. Permit the gross amount of all payables and other obligations (which are
reflected on the Consolidating Balance Sheet) due by the Company to one
or more of the Foreign Entities minus the gross amount of all payables
and other obligations (which are reflected on the Consolidating Balance
Sheet) due the Company from one or more of the Foreign Entities to be
less than $82,000,000.00 in the aggregate at any time outstanding, or
such lesser amount as may result after deducting from $82,000,000.00,
the sum of i) the aggregate sales price of all Equipment sold by the
Company to one or more of the Foreign Entities ii) the amounts, if any,
received by the Company in the form of dividends from Applied Magnetics
Singapore, and iii) the amount of loans, advances and Accounts owed
directly or indirectly to
31
<PAGE>
the Company from Applied Magnetics Malaysia and are converted into the
capital stock of Applied Magnetics Malaysia
11. Without the prior written consent of CITBC, the Company and the Foreign
Entities will not, on a consolidated basis: a) enter into any Operating Lease
if after giving effect thereto the aggregate payments with respect to Operating
Leases during any fiscal year would exceed $20,000,000.00 or b) contract for,
purchase, make expenditures for, lease pursuant to a Capital Lease or otherwise
incur obligations with respect to Capital Expenditures (whether subject to a
security interest or otherwise) during any fiscal year in the aggregate amount
in excess of:
a) $62,000,000.00 for the fiscal year ending September 30, 1995;
b) $70,000,000.00 for the fiscal year ending September 30, 1996;
c) $75,000,000.00 for the fiscal year ending September 30, 1997;
d) $75,000,000.00 for the fiscal year ending September 30, 1998, and for each
fiscal year thereafter.
12. Intentionally Omitted.
13. Intentionally Omitted
14. The Company, and the Foreign Entities shall have on a consolidated basis,
at the end of each fiscal period below, a cumulative EBIT of at least:
FISCAL PERIOD EBIT
------------- -----------
For the fiscal quarter ending December 31, 1994 ($12,500,000.00)
For the fiscal period commencing October 1, 1994
and ending March 31, 1995 ($20,000,000.00)
For the fiscal period commencing October 1, 1994
and ending June 30, 1995 ($19,750,000.00)
For the fiscal year ending September 30, 1995 ($19,250,000.00)
On December 31, 1995 for the four fiscal quarters
then ended ($6,250,000.00)
On March 31, 1996 for the four fiscal quarters
then ended $1,750,000.00
On June 30, 1996 and at the end of each fiscal
quarter thereafter for the four fiscal quarters
then ended $2,000,000.00
32
<PAGE>
15. The Company and the Foreign Entities shall have, on a consolidated basis,
at the end of each fiscal quarter below, a Leverage Ratio of not more than:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING RATIO
- - --------------------- -----
<S> <C>
December 31, 1994 1.5 to 1
March 31, 1995 1.9 to 1
June 30, 1995 2.1 to 1
September 30, 1995 and at the end
of each fiscal quarter thereafter 2.2 to 1
</TABLE>
16. The Company and the Foreign Entities shall have, on a consolidated basis,
at the end of each fiscal period below, a cumulative Free Cash Flow of at least:
FISCAL PERIOD FREE CASH FLOW
------------- --------------
A) For the fiscal quarter ending
December 31, 1994 ($10,000,000.00)
B) For the fiscal period commencing October 1, 1994
and ending March 31, 1995 ($19,000,000.00)
C) For the fiscal period commencing October 1, 1994
and ending June 30, 1995 ($21,000,000.00)
D) For the fiscal year ending
September 30, 1995 ($21,000,000.00)
E) On December 31, 1995 for the five fiscal quarters
then ended ($21,000,000.00)
F) On March 31, 1996 for the six fiscal quarters then
ended ($21,000,000.00)
G) At the end of each fiscal quarter thereafter for
the four fiscal quarters then ended $0.00
provided, however, for the fiscal periods described in A), B), C) and D) above
net proceeds of i) asset sales other than sales of Accounts and Inventory and
ii) new outside financing (exclusive of Net Capital Expenditures) shall be
included in the definition of Free Cash Flow.
17. Intentionally Omitted
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<PAGE>
18. The Company agrees to advise CITBC in writing of: a) all expenditures
(actual or anticipated) in excess of $250,000.00 for x) environmental clean-up,
y) environmental compliance or z) environmental testing, other than such costs
and expenses customarily incurred by the Company in the ordinary course of its
business; b) the impact of said expenses on the Company's Working Capital; and
c) any notices the Company or any Foreign Entity receives from any local, state,
federal or foreign authority advising of any environmental liability (real or
potential) stemming from the Company's or any Foreign Entity's operations, its
premises, its waste disposal practices, or waste disposal sites used by the
Company or any Foreign Entity and to provide CITBC with copies of all such
notices if so required.
19. Without the prior written consent of CITBC, the Company agrees that it
will not enter into any transaction, including, without limitation, any
purchase, sale, lease, loan or exchange of property with any subsidiary or
Affiliate of the Company, provided, however, that the Company may, subsequent to
the date of execution of this Financing Agreement a) lend or lease Equipment to
a Foreign Entity and such Equipment may be removed to the locale of such Foreign
Entity provided, however, that at any time of determination, the then book value
of all such Equipment so on lease or loan to the Foreign Entities may not exceed
$3,000,000.00 in the aggregate at any one time; b) contribute Equipment to the
capital of any one or more of the Foreign Entities between the date of this
Financing Agreement and September 30, 1997 provided, however, that the book
value, at the time of such contribution to capital, of the Equipment so
capitalized does not exceed: x) $12,000,000.00 in the fiscal year ending
September 30, 1995; y) on a cumulative basis $27,000,000.00 for the two (2)
consecutive fiscal years ending September 30, 1996; and z) on a cumulative basis
$42,000,000.00 for the three (3) consecutive fiscal years ending September 30,
1997; c) share or license to or from a Foreign Entity any patent, license,
Proprietary Know How or trademark; d) sell or transfer, for cash, raw material
Inventory, partially finished Inventory or work in process to any Foreign Entity
provided such sale or transfer is on terms and in a manner which are consistent
with the Company's practices in existence on the date of execution of this
Financing Agreement; and e) receive from, or purchase from, any Foreign Entity
finished goods Inventory, raw material Inventory, partially finished Inventory
or work in process provided such sale or transfer is on terms and in a manner
which are consistent with the Company's practices in existence on the date of
execution of this Financing Agreement.
20. To the extent any Account of the Company is payable in currency other
than the currency of the United States of America then a) the Company shall bear
full responsibility for any currency fluctuations; and b) the Obligations shall
be reduced by an amount equal to the United States dollar equivalent of such
foreign currency at the time, and only at the time, such foreign currency is in
fact converted to the currency of the United States.
SECTION 8. INTEREST, FEES AND EXPENSES
---------------------------
1. Interest on the Revolving Loan shall be payable monthly as of the end of
each month and shall be an amount equal to the sum of one and three-quarters
percent (1.75%) or, subject to paragraph 2 of this Section 8, one and one-
quarter percent (1 1/4%) if the Company's EBIT for the previous fiscal quarter
was greater than zero, and the Chemical Bank Rate, on a per annum basis, on the
average of the net balances (other than Libor Loans) owing by the Company to
CITBC in the Company's account at the close of each day during such month or, at
the Company's option, the sum of three and one-quarter percent (3 1/4%) or,
subject to paragraph 2 of this Section 8, two and three-quarters percent (2.75%)
if the Company's EBIT for the previous fiscal quarter was greater than zero, and
the Libor on any then outstanding Revolving Loans which are Libor Loans, on a
per
34
<PAGE>
annum basis, on the average of the net balances owing by the Company to CITBC in
the Company's account at the close of each day during such month. The Company
may elect to use Libor as to any new or then outstanding Revolving Loans
provided x) there is then no Default or unwaived Event of Default and y) the
Company has advised CITBC of its election to use Libor and the Libor Period
selected no later than four (4) Business Days prior to the proposed borrowing
or, in the case of a Libor election with respect to a then outstanding Revolving
Loan, four (4) Business Days prior to the conversion of any then outstanding
Revolving Loans to Libor Loans and z) the election and Libor shall be effective,
provided, there is then no Default or unwaived Event of Default, on the fifth
Business Day following said notice. The Libor elections must be for
$1,000,000.00 or whole multiples thereof. If no such election is timely made or
can be made, then CITBC shall use the Chemical Bank Rate to compute interest.
In the event of any change in said Chemical Bank Rate, the rate hereunder shall
change, as of the first of the month following any change, so as to remain one
and three-quarters percent (1.75%), or, if appropriate, one and one-quarter
percent (1 1/4%), above the Chemical Bank Rate. The rates hereunder shall be
calculated based on a 365-day year. CITBC shall be entitled to charge the
Company's account at the rate provided for herein when due until all Obligations
have been paid in full.
2. If the Company had, for the previous fiscal quarter, EBIT in excess of
zero, then the Company shall be entitled for the next succeeding fiscal quarter
(but subject to the provisions of paragraph 2 of Section 10 of this Financing
Agreement) to the lower spread over the Chemical Bank Rate and Libor provided
each of the following conditions are met: a) the Company shall have delivered
to CITBC a copy of the Company's filed (with the Securities and Exchange
Commission) i) 10Q Statement for the fiscal quarter then ended in which EBIT was
greater than zero or ii) 10K Statement (if the fiscal year it then over)
evidencing that EBIT for the last fiscal quarter of the fiscal year was greater
than zero; b) there is no Default or Event of Default then in existence on both
i) the date of filing of the aforesaid Statement with the Securities and
Exchange Commission and ii) the date of effectiveness of such lower spreads; c)
the lower spread over x) the Chemical Bank Rate shall be effective on the first
day of the month following CITBC's receipt of the aforesaid Statement; y) Libor
as to all Revolving Loans which are not Libor Loans shall be effective on the
first day of the month following CITBC's receipt of the aforesaid Statement; and
z) Libor as to all then Libor Loans shall be effective on the day after the
expiration of a Libor Period; and d) the lower spread over the Chemical Bank
Rate and Libor shall be prospective only and shall not be retroactive.
3. The Company shall pay to CITBC such amount or amounts as shall compensate
CITBC for any loss, costs or expense incurred by CITBC as a result of: (i) any
payment or prepayment on a date other than the last day of a Libor Period for
such Libor Loan, or (ii) any failure of the Company to borrow a Libor Loan on
the date for such borrowing specified in the relevant notice; such compensation
to include, without limitation, an amount equal to any loss or expense suffered
by CITBC during the period from the date of receipt of such payment or
prepayment or the date of such failure to borrow to the last day of such Libor
Period if the rate of interest obtained by CITBC upon the reemployment of an
amount of funds equal to the amount of such payment, prepayment or failure to
borrow is less than the rate of interest applicable to such Libor Loan for such
Libor Period. The determination by CITBC of the amount of any such loss or
expense, when set forth in a written notice to the Company, containing the
calculations thereof in reasonable detail, shall be conclusive, in the absence
of manifest error.
4. In consideration of the Letter of Credit Guaranty of CITBC, the Company
shall pay CITBC the Letter of Credit Guaranty Fee which shall be an amount equal
to: a) two percent (2%) per annum, payable monthly, on
35
<PAGE>
the average daily face amount of each documentary Letter of Credit less the
amount of any and all amounts previously drawn under the Letter of Credit and b)
one and one-half percent (1 1/2%) per annum, payable monthly, on the average
daily face amount of each standby Letter of Credit.
5. Any charges, fees, commissions, costs and expenses charged to CITBC for
the Company's account by any Issuing Bank in connection with or arising out of
Letters of Credit issued pursuant to this Financing Agreement or out of
transactions relating thereto will be charged to the Company's account in full
when charged to or paid by CITBC and when made by any such Issuing Bank shall be
conclusive on CITBC.
6. The Company shall reimburse or pay CITBC, as the case may be, for: i) all
Out-of-Pocket Expenses of CITBC and b) any applicable Documentation Fee charged
by CITBC.
7. Upon the last Business Day of each month, the Company shall pay CITBC the
Line of Credit Fee which shall be amount determined by multiplying x) one-half
of one percent (1/2%) per annum on the difference between the Line of Credit and
the average daily Revolving Loan for such month, or y) one-quarter of one
percent (1/4%) per annum for each month for which the lower spread over the
Chemical Bank Rate and Libor is in effect on the difference between the Line of
Credit and the average daily Revolving Loan for such month.
8. To induce CITBC to enter into this Financing Agreement and to extend to
the Company the Revolving Loan, the Company shall pay to CITBC a Loan Facility
Fee in the amount of $500,000.00 payable upon execution of this Financing
Agreement. The commitment fee given CITBC by the Company under the commitment
letter will be refunded by means of a credit to the Company's account.
9. Upon a) the date of execution of this Financing Agreement, the Company
shall pay to CITBC a Collateral Management Fee in the amount of $100,000.00 and
b) each Anniversary Date, the Company shall pay to CITBC a Collateral Management
Fee in the amount of $100,000.00, provided, however, such Collateral Management
Fee shall be $50,000.00 if the Company's EBIT for the previous fiscal year was
greater than zero.
10. The Company shall pay CITBC's standard charges for, and the fees and
expenses of, the CITBC personnel used by CITBC for reviewing the books and
records of the Company and for verifying, testing protecting, safeguarding,
preserving or disposing of all or any part of the Collateral provided, however,
that the foregoing shall not be payable unless and until the occurrence of an
Event of Default and until such Event of Default is waived.
11. If the Foreign Charge Documents, and the opinions of foreign counsel
required by CITBC in connection with the capital stock of the Foreign Entities
so pledged to CITBC, have not been received, in form and substance reasonably
satisfactory to CITBC, on or before March 15, 1995, then CITBC shall be
entitled, on March 16, 1995 and on the first Business Day following the 15th day
of each month thereafter and until such time as all of the Foreign Charge
Documents and the opinions of local counsel in connection therewith have been
delivered, to charge the Company, and the Company agrees to immediately pay, a
non-refundable fee of $50,000.
12. The Company hereby authorizes CITBC to charge the Company's accounts with
CITBC with the amount of all payments due hereunder as such payments become due.
The Company confirms that any charges which
36
<PAGE>
CITBC may so make to the Company's account as herein provided will be made as an
accommodation to the Company and solely at CITBC's discretion.
SECTION 9. POWERS
------
The Company hereby constitutes CITBC or any person or agent CITBC may
designate as its attorney-in-fact, at the Company's cost and expense, to
exercise all of the following powers, which being coupled with an interest,
shall be irrevocable until all of the Company's Obligations to CITBC have been
paid in full:
(A) To receive, take, endorse, sign, assign and deliver, all in the name of
CITBC or the Company, any and all checks, notes, drafts, and other documents or
instruments relating to the Collateral;
(B) To receive and open all mail addressed to the Company and to notify
postal authorities to change the address for delivery thereof to such address as
CITBC may designate solely for purposes of obtaining proceeds of Collateral or
filling the Company's purchase orders;
(C) To request from customers indebted on Accounts at any time, in the name
of the Company or that of CITBC's designee, information concerning the amounts
owing on the Accounts;
(D) To request from customers indebted on Accounts at any time, in the name
of CITBC, information concerning the amounts owing on the Accounts;
(E) To transmit to customers indebted on Accounts notice of CITBC's interest
therein and to notify customers indebted on Accounts to make payment directly to
CITBC for the Company's account; and
(F) To take or bring, in the name of CITBC or the Company, all steps,
actions, suits or proceedings deemed by CITBC necessary or desirable to enforce
or effect collection of the Accounts.
Notwithstanding anything hereinabove contained to the contrary, the powers set
forth in (b), (d), (e) and (f) above may only be exercised after the occurrence
of an Event of Default and until such time as such Event of Default is waived.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
------------------------------
1. Notwithstanding anything hereinabove to the contrary, CITBC may terminate
this Financing Agreement immediately upon the occurrence of any of the following
(herein "Events of Default"):
A) cessation of the business of i) the Company or ii) any Foreign Entity,
other Applied Magnetics Singapore, or the calling of a meeting of the
creditors of i) the Company or ii) any Foreign Entity, other Applied
Magnetics Singapore, for purposes of compromising the debts and
obligations of i) the Company or ii) any Foreign Entity, other Applied
Magnetics Singapore;
B) the failure of the Company to generally meet a material portion of its
debts as they mature;
37
<PAGE>
C) the commencement by i) the Company or ii) any Foreign Entity, other than
Applied Magnetics Singapore, of any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceedings under any, foreign,
federal or state law;
D) the commencement against i) the Company or ii) any Foreign Entity, other
than Applied Magnetics Singapore, of any bankruptcy, insolvency,
arrangement, reorganization, receivership or similar proceedings under any
foreign, federal or state law, provided, however, that such Default shall
not constitute an Event of Default if such is dismissed or vacated within
sixty (60) days from the date of such filing or commencement;
E) breach in any material respect, by the Company of any warranty,
representation or covenant contained herein (other than those referred to
in sub-paragraph f below) or in any other written agreement pertaining or
relating to this Financing Agreement between the Company and CITBC,
provided that such Default by the Company of any of the warranties,
representations or covenants referred in this clause e shall not be deemed
to be an Event of Default unless and until such Default shall remain
unremedied to CITBC's satisfaction for a period of thirty (30) days from
the date of such Default;
F) breach by the Company of any warranty, representation or covenant of
Section 3, Paragraphs 3 (other than the third sentence of paragraph 3) and
4; Section 6, Paragraphs 3 and 4 (other than the first sentence of
paragraph 4); Section 7, Paragraphs 1,5,6, and 9 through 16;
G) failure of the Company to pay any of the Obligations posted to the
Company's loan account within ten (10) Business Days of the due date
thereof, provided that nothing contained herein shall prohibit CITBC from
charging such amounts to the Company's loan account on the due date
thereof;
H) Applied Magnetics Malaysia sells or transfers any portion of its finished
goods inventory to other than the Company, provided, however, that Applied
Magnetics Malaysia may sell finished goods inventory to an entity other
than the Company provided the aggregate amunt of all such sales in any
fiscal year does not exceed $1,000,000.00;
I) the Company shall i) engage in any "prohibited transaction" as defined in
ERISA, ii) have any "accumulated funding deficiency" as defined in ERISA,
iii) have any Reportable Event as defined in ERISA, iv) terminate any
Plan, as defined in ERISA or v) be engaged in any proceeding in which the
Pension Benefit Guaranty Corporation shall seek appointment, or is
appointed, as trustee or administrator of any Plan, as defined in ERISA,
and with respect to this sub-paragraph i such event or condition x)
remains uncured for a period of sixty (60) days from date of occurrence
and y) could, in the reasonable opinion of CITBC, subject the Company to
any tax, penalty or other liability material to the business, operations
or financial condition of the Company;
J) the occurrence of a default or event of default under the Union Bank
Facility;
K) the Company's receipt of a notice of default or event of default under the
Maybank Agreement;
L) the termination, repayment or refinancing of the Maybank Agreement other
than with proceeds obtained from i) any replacement facility on terms
substantially similar to the Maybank Agreement; ii) the sale of any assets
of a) any Foreign Entity or b) the Company provided such assets of the
Company, do not constitute x) Collateral or y) the stock of any Foreign
Entity, other than Applied Magnetics Malaysia, owned, as of the date of
this Financing Agreement, by the Company and further provided that an
Event of Default will not occur after giving effect to such sale; iii) the
issuance of any capital stock of the Company or any Foreign Entity; iv)
any joint venture or similar arrangement or agreement between any third
party and the Company and/or Applied Magnetics Malaysia provided such
joint venture arrangement or agreement is reasonably satisfactory to
38
<PAGE>
CITBC and provided further that an Event of Default will not occur after
giving effect to such arrangement, joint venture or agreement; or v) any
combination of the foregoing;
M) the obligations of Applied Magnetics Malaysia outstanding at any one time
in the aggregate under the Maybank Agreement are less then the lesser of:
i) $40,000,000.00 or ii) the amount available to be drawn under the
Maybank Agreement;
N) without the prior written consent of CITBC, the Maybank Agreement is
amended or modified, provided, however, that the consent of CITBC shall
not be required if the amendment or modification i) provides for the
granting to Maybank by Applied Magnetics Malaysia of additional liens,
pledges, charges or security interests in the assets of Applied Magnetics
Malaysia or ii) provides for the payment by Applied Magnetics Malaysia of
a higher rate of interest to Maybank then is provided for, as of the date
of this Financing Agreement, in the Maybank Agreement provided the rate of
interest, as agreed to, is not greater than five percent (5%) over the
rate of interest in effect on the date of execution of this Financing
Agreement; or iii) is necessary to implement the repayment or refinancing
of the Maybank Agreement permitted in sub-paragraph l above; or
O) Applied Magnetics Singapore has, at any time, assets other than i)
equipment and/or inventory having a then book value of not more than
$2,000,000.00 and ii) real estate.
2. Upon the occurrence of a Default and/or an Event of Default, at the option
of CITBC, all loans and advances provided for in paragraph 1 of Section 3 of
this Financing Agreement shall be thereafter in CITBC's sole discretion and the
obligation of CITBC to make revolving loans and/or open Letters of Credit shall
cease unless such Default is cured to CITBC's satisfaction or Event of Default
is waived, and at the option of CITBC upon the occurrence of an Event of
Default: I) all Obligations shall become immediately due and payable; II) CITBC
may charge the Company, from the date of such Event of Default, the Default Rate
of Interest on all then outstanding or thereafter incurred Obligations in lieu
of the interest provided for in paragraph one of Section 8 of this Financing
Agreement provided a) CITBC has given the Company written notice of the Event of
Default, provided, however, that no notice is required if the Event of Default
is the event listed in paragraph 1(c) or 1(d) of this Section 10 and b) the
Company has failed to cure the Event of Default within ten (10) days after x)
CITBC deposited such notice in the United States mail or y) the occurrence of
the Event of Default listed in paragraph 1(c) or 1 (d) of this Section 10; and
III) CITBC may immediately terminate this Financing Agreement upon notice to the
Company, provided, however, that no notice of termination is required if the
Event of Default is the event listed in paragraph 1(c) or 1 (d) of this Section
10. The exercise of any option is not exclusive of any other option which may
be exercised at any time by CITBC.
3. Immediately upon the occurrence of any Event of Default, CITBC may to the
extent permitted by law: (A) remove from any premises where same may be located
any and all documents, instruments, files and records, and any receptacles or
cabinets containing same, relating to the Accounts, or CITBC may use, at the
Company's expense, such of the Company's personnel, supplies or space at the
Company's places of business or otherwise, as may be necessary to properly
administer and control the Accounts or the handling of collections and
realizations thereon; (B) bring suit, in the name of the Company or CITBC, and
generally shall have all other rights respecting said Accounts, including
without limitation the right to: accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any
Accounts and issue credits in the name of the Company or CITBC; (C) sell, assign
and deliver the Collateral and any returned, reclaimed or repossessed
merchandise, with or without advertisement, at public or private sale, for cash,
on credit or
39
<PAGE>
otherwise, at CITBC's sole option and discretion, and CITBC may bid or become a
purchaser at any such sale, free from any right of redemption, which right is
hereby expressly waived by the Company; (D) foreclose the security interests
created herein by any available judicial procedure, or to take possession of any
or all of the Inventory and Equipment without judicial process, and to enter any
premises where any Inventory and Equipment may be located for the purpose of
taking possession of or removing the same and (E) exercise any other rights and
remedies provided in law, in equity, by contract or otherwise. CITBC shall have
the right, without notice or advertisement, to sell, lease, or otherwise dispose
of all or any part of the Collateral whether in its then condition or after
further preparation or processing, in the name of the Company or CITBC, or in
the name of such other party as CITBC may designate, either at public or private
sale or at any broker's board, in lots or in bulk, for cash or for credit, with
or without warranties or representations, and upon such other terms and
conditions as CITBC in its sole discretion may deem advisable, and CITBC shall
have the right to purchase at any such sale. If any Inventory and Equipment
shall require rebuilding, repairing, maintenance or preparation, CITBC shall
have the right, at its option, to do such of the aforesaid as is necessary, for
the purpose of putting the Inventory and Equipment in such saleable form as
CITBC shall deem appropriate. The Company agrees, at the request of CITBC, to
assemble the Inventory and Equipment and to make it available to CITBC at
premises of the Company or elsewhere and to make available to CITBC the premises
and facilities of the Company for the purpose of CITBC's taking possession of,
removing or putting the Inventory and Equipment in saleable form. However, if
notice of intended disposition of any Collateral is required by law, it is
agreed that ten (10) days notice shall constitute reasonable notification and
full compliance with the law. The net cash proceeds resulting from CITBC's
exercise of any of the foregoing rights, (after deducting all charges, costs and
expenses, including reasonable attorneys' fees) shall be applied by CITBC to the
payment of the Company's Obligations, whether due or to become due, in such
order as CITBC may elect, and the Company shall remain liable to CITBC for any
deficiencies, and CITBC in turn agrees to remit to the Company or its successors
or assigns, any surplus resulting therefrom. The enumeration of the foregoing
rights is not intended to be exhaustive and the exercise of any right shall not
preclude the exercise of any other rights, all of which shall be cumulative.
Notwithstanding anything herein contained to the contrary, the Proprietary Know
How may only be used by CITBC to facilitate the sale or other disposition of
Inventory. When such sale or other disposition of Inventory is fully completed
then CITBC's license of the Proprietary Know How shall irrevocably be
terminated.
SECTION 11. TERMINATION
-----------
Except as otherwise permitted herein, CITBC may terminate this Financing
Agreement and the Line of Credit only as of the third or any subsequent
Anniversary Date and then only by giving the Company at least sixty (60) days
prior written notice of termination. Notwithstanding the foregoing CITBC may
terminate the Financing Agreement immediately upon the occurrence of an Event of
Default, provided, however, that if the Event of Default is an event listed in
paragraph 1(c) or 1(d) of Section 10 of this Financing Agreement, CITBC may
regard the Financing Agreement as terminated and notice to that effect is not
required. This Financing Agreement, unless terminated as herein provided, shall
automatically continue from Anniversary Date to Anniversary Date.
Notwithstanding the foregoing, the Company may terminate this Financing
Agreement and the Line of Credit at any time upon sixty (60) days' prior written
notice to CITBC, provided, however, that if such date of termination is other
than the third or any subsequent Anniversary Date, that the Company pay to
CITBC, immediately on demand, an Early Termination Fee. All Obligations shall
become due and payable as of any termination hereunder or under Section 10
hereof and, pending a final accounting, CITBC may withhold
40
<PAGE>
any balances in the Company's account (unless supplied with an indemnity
satisfactory to CITBC) to cover all of the Company's Obligations, whether
absolute or contingent. All of CITBC's rights, liens and security interests
shall continue after any termination until all Obligations have been paid and
satisfied in full.
SECTION 12. MISCELLANEOUS
-------------
1. The Company hereby waives diligence, demand, presentment and protest and
any notices thereof as well as notice of nonpayment. No delay or omission of
CITBC or the Company to exercise any right or remedy hereunder, whether before
or after the happening of any Event of Default, shall impair any such right or
shall operate as a waiver thereof or as a waiver of any such Event of Default.
No single or partial exercise by CITBC or the Company of any right or remedy
precludes any other or further exercise thereof, or precludes any other right or
remedy.
2. This Financing Agreement and the documents executed and delivered in
connection therewith constitute the entire agreement between the Company and
CITBC; supersede any prior agreements; can be changed only by a writing signed
by both the Company and CITBC; and shall bind and benefit the Company and CITBC
and their respective successors and assigns.
3. In no event shall the Company, upon demand by CITBC for payment of any
indebtedness relating hereto, by acceleration of the maturity thereof, or
otherwise, be obligated to pay interest and fees in excess of the amount
permitted by law. Regardless of any provision herein or in any agreement made
in connection herewith, CITBC shall never be entitled to receive, charge or
apply, as interest on any indebtedness relating hereto, any amount in excess of
the maximum amount of interest permissible under applicable law. If CITBC ever
receives, collects or applies any such excess, it shall be deemed a partial
repayment of principal and treated as such; and if principal is paid in full,
any remaining excess shall be refunded to the Company. This paragraph shall
control every other provision hereof and of any other agreement made in
connection herewith.
4. If any provision hereof or of any other agreement made in connection
herewith is held to be illegal or unenforceable, such provision shall be fully
severable, and the remaining provisions of the applicable agreement shall remain
in full force and effect and shall not be affected by such provision's
severance. Furthermore, in lieu of any such provision, there shall be added
automatically as a part of the applicable agreement a legal and enforceable
provision as similar in terms to the severed provision as may be possible.
5. Nothing in this Financing Agreement shall permit CITBC to take possession
of, use or distribute, information and/or material unrelated to the Collateral,
the Company or the Foreign Entities. Further to the extent CITBC, in the course
of exercising its remedies pursuant to paragraph 3 of Section 10 of this
Financing Agreement, comes into possession of any confidential proprietary
information given the Company by its customers, CITBC will maintain the
confidentiality of such information and will not use, distribute or publish such
confidential proprietary information to the extent such confidential proprietary
information is not essential to the collection of outstanding Accounts due from
such customers.
6. The Company authorizes CITBC to disclose to any participant or purchasing
lender (each a "Transferee"), provided such Transferee has executed a
confidentiality agreement acceptable to CITBC, any and all financial
41
<PAGE>
information in CITBC's possession concerning the Company and its Affiliates
solely for use by the Transferee in connection with such credit evaluation of
the Company and its Affiliates prior to entering into a participation agreement
or purchasing a portion of this Financing Agreement. Although consent of the
Company to such Transferee is not required, CITBC will use its reasonable
efforts to advise the Company of the name of any prospective Transferee so that
the Company may discuss with CITBC its thoughts about such prospective
Transferee. It is understood and agreed that the failure of CITBC to give such
prior advise to the Company shall not give the Company any rights or causes of
action against CITBC. If CITBC transfers to a Transferee that was not
acceptable to the Company, more than fifty percent (50%) of its interest in this
Financing Agreement, then the Company shall have the right, within ninety (90)
days after the date of such transfer, to terminate this Financing Agreement and
to repay the Obligations, in full, without payment of the Early Termination Fee.
The Company has made and will, from time to time, make available to CITBC
certain financial and other business information (the "Confidential
Information") relating to its business. CITBC agrees to maintain the
confidentiality of all Confidential Information, and to disclose such
information only (a) to officers, directors or employees or to legal or
financial advisors, in each case to the extent necessary to carry out this
Financing Agreement and the other loan documents; b) to The CIT Group Holdings,
Inc., The CIT Group, Inc., Chemical Bank Corporation or Dai-Ichi Kangyo Bank, or
such other Transferee's parent companies; (c) to any other recipient to the
extent the disclosure of such information to such recipient is required in
connection with the examination of CITBC's or such Transferee's records by
appropriate authorities, pursuant to court order, subpoena or other legal
process or otherwise as required by law or regulation; and (d) to a Transferee.
In each instance, CITBC shall advise the recipient or Transferee to maintain the
confidentiality of the Confidential Information. Neither CITBC nor any
Transferee or recipient shall be required to maintain the confidentiality of any
portion of the Confidential Information which (a) becomes generally available to
the public other than by such Transferee's, recipient's or CITBC's unauthorized
disclosure, (b) is known by such recipient, CITBC or Transferee or its agents,
advisors or representatives prior to disclosure by the Company or (c) becomes
available from a source other than the Company provided that the disclosure of
Confidential Information to such recipient, CITBC or Transferee by such source
does not violate a confidentiality agreement or duty imposed on such source of
which such recipient, CITBC or Transferee has actual knowledge.
7. CITBC agrees that if there is then no unwaived Event of Default, CITBC
will release its security interest in, and lien on, such of the Equipment as is
reasonably requested by the Company to facilitate the Company's transfer of
title to, or the granting of liens on, the collateral so released, as permitted
in clauses viii and x of the definition of Permitted Encumbrances in Section 2
of this Financing Agreement. In connection with the foregoing, CITBC shall, but
subject to the last sentence of this paragraph, promptly following receipt of a
written request from the Company, execute, deliver or cause to be delivered to
the Company, all at the expense of the Company, such Release Documents (as
defined below) as are reasonably necessary in the reasonable opinion of the
Company's counsel to confirm the termination and release of Equipment from the
lien and security interest created under this Financing Agreement and the
termination of CITBC's security interest with respect thereto. Further, with
respect to any properties or assets of the Company which do not constitute
Collateral, as defined herein, and as to which the Company desires to enter into
a transaction which constitutes a Permitted Encumbrance or Permitted
Indebtedness (within the definition set forth in Section 2 of this Financing
Agreement), CITBC shall, promptly following receipt of written request from the
Company, but subject to the last sentence of this paragraph, execute, deliver to
the Company, all at the expense of the Company, such consents and/or
confirmations as may be reasonably necessary or appropriate under the
circumstances. CITBC acknowledges that the occurrence of a transaction as
described in this paragraph 7 may
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require that the Company deliver, as a condition to the closing of one or more
such transactions, a form UCC-2 Termination Statement or such other releases,
assignments and reassignments, including, but not limited to, confirmations of
lien releases or lien terminations as may be reasonable or necessary under the
circumstances to release and terminate CITBC's security interest and lien in the
Equipment to be released (herein the "Release Documents"). Accordingly, CITBC
covenants and agrees it will promptly, but in any event, within five (5)
Business Days after receipt from the Company of such information reasonably
requested from the Company concerning i) the terms of the contemplated
transaction, ii) an accurate description of the Equipment to be released and
iii) the value of the Equipment to be so released, execute and deliver to the
Company such Release Documents to be held in safekeeping pending the closing of
the transaction with the understanding that the Company i) may deliver or file,
or cause to be delivered or filed, such Release Documents in such manner and in
such time or times as may be necessary or appropriate to consummate the
transactions, provided, however, that such Release Documents may not be
delivered to such third party or filed prior to the consummation of the proposed
transaction and ii) will return such Release Documents to CITBC if the proposed
transaction does not close within five (5) Business Days after the Company's
receipt, from CITBC of the Release Documents.
8. THE COMPANY AND CITBC EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING ARISING OUT OF THIS FINANCING AGREEMENT. THE COMPANY
HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE
OF PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED.
9. Except as otherwise herein provided, any notice or other communication
required hereunder shall be in writing, and shall be deemed to have been validly
served, given or delivered when hand delivered or sent by facsimile or three
days after deposit in the United States mails, with proper first class postage
prepaid and addressed to the party to be notified as follows:
(A) if to CITBC at:
The CIT Group/Business Credit, Inc.
300 South Grand Avenue
Los Angeles, CA 90071
Attn: Regional Credit Manager
(B) if to the Company at:
Applied Magnetics Corporation
75 Robin Hill Road
Goleta, CA 93117
Attn: Chief Financial Officer
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with a copy to:
Applied Magnetics Corporation
75 Robin Hill Road
Goleta, CA 93117
Attn: Raymond P. LeBlanc, Esq.
or to such other address as any party may designate for itself by like notice,
provided, however, that the failure to send any notice to Raymond P. LeBlanc
shall not invalidate any notice given to the Company and shall not give the
Company any rights or causes of action against CITBC.
10. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING AGREEMENT
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA.
11. This Financing Agreement may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument and any
of the parties to this Financing Agreement may execute this Financing Agreement
by signing such counterpart.
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IN WITNESS WHEREOF, the parties hereto have caused this Financing Agreement to
be executed and delivered in Los Angeles, California by their proper and duly
authorized officers and to be effective as of the date set forth above.
THE CIT GROUP/BUSINESS CREDIT, INC.
By /s/ Allen Grosshans
________________________________
Vice President
APPLIED MAGNETICS CORPORATION
By /s/ Craig D. Crisman
________________________________
Title: President and Chief Executive Officer
/s/ Raymond P. Le Blanc
___________________________________
Secretary
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