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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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MAXTOR CORPORATION
(NAME OF SUBJECT COMPANY)
MAXTOR CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
577729 10 6
(CUSIP NUMBER OF CLASS OF SECURITIES)
DR. CHONG SUP PARK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MAXTOR CORPORATION
211 RIVER OAKS PARKWAY
SAN JOSE, CA 95134
(408) 432-1700
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF PERSON(S) FILING STATEMENT)
COPY TO:
DIANE HOLT FRANKLE, ESQ.
GRAY CARY WARE & FREIDENRICH
A PROFESSIONAL CORPORATION
400 HAMILTON AVENUE
PALO ALTO, CA 94301-1825
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Maxtor Corporation, a Delaware
corporation (the "Company"), and the address of the principal executive offices
of the Company is 211 River Oaks Parkway, San Jose, California 95134. The title
of the class of equity securities to which this statement relates is the
Company's common stock, par value $.01 per share ("Share", collectively the
"Shares"), including the related common stock purchase rights (the "Rights")
issued pursuant to the Rights Agreement dated as of January 27, 1988, as amended
on September 10, 1994 and November 2, 1994 (the "Rights Agreement"), between the
Company and The First National Bank of Boston, which will expire and be of no
force and effect on consummation of the Merger (as defined below).
ITEM 2. TENDER OFFER OF BIDDER.
This statement relates to the tender offer by Hyundai Acquisition, Inc., a
Delaware corporation (the "Purchaser") and a wholly-owned subsidiary of Hyundai
Electronics America, a California corporation (the "Parent"), to purchase any
and all outstanding Shares at a price of $6.70 per Share, net to the seller in
cash, upon the terms and subject to the conditions set forth in the Purchaser's
Offer to Purchase dated November 8, 1995 and in the related Letter of
Transmittal (which, together with the Offer to Purchase and any amendments or
supplements thereto, collectively constitute the "Offer"), copies of which are
filed respectively as Exhibits 1 and 2 hereto and are hereby incorporated herein
by reference. The Offer is disclosed in a Tender Offer Statement on Schedule
14D-1 dated November 8, 1995 (the "Schedule 14D-1") and in a Rule 13e-3
Transaction Statement on Schedule 13E-3 dated November 8, 1995 (the "Schedule
13E-3"), both of which are filed with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules promulgated by the Commission thereunder.
The Offer is being made by Purchaser pursuant to the Agreement and Plan of
Merger dated November 2, 1995 by and among the Company, the Purchaser and Parent
(the "Merger Agreement").
As set forth in the Schedule 14D-1, the address of the principal executive
offices of each of the Purchaser and Parent is 510 Cottonwood Drive, Milpitas,
California 95035.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this statement, are set forth in Item 1 above.
(b) Except as described herein and in Schedule I hereto, to the knowledge
of the Company, as of the date hereof, there are no material contracts,
agreements, arrangements or understandings, or any potential or actual conflicts
of interest between the Company or its affiliates and (1) the Company and its
executive officers, directors or affiliates or (2) Parent, the Purchaser,
Hyundai Electronics Industries Co., Ltd. Hyundai Heavy Industries Co., Ltd.,
Hyundai Corporation and Hyundai Merchant Marine Co. Ltd. (collectively, the
"Hyundai Shareholders") and their respective executive officers, directors and
affiliates.
(1) Certain Contracts, Agreements, Arrangements or Understandings and any
Actual or Potential Conflicts of Interest Between (A) the Company or its
Affiliates and (B) the Company and its Executive Officers, Directors or
Affiliates.
Interests of Certain Persons in the Offer and the Merger. In considering
the recommendations of the Board and the Special Committee set forth in Item
4(a) below, the Company's stockholders (other than holders of the Class A Common
Stock, par value $.01 per share (the "Class A Shares")), of the Company should
be aware that certain members of the Board and the Special Committee,
respectively, have interests in the Merger and the Offer with are described in
Schedule I below and which may present them with certain conflicts of interest.
Each of the Special Committee and the Board were aware of these potential
conflicts and considered them along with the other factors described in Item
4(b)(2) below.
(2) Certain Contracts, Agreements, Arrangements or Understandings and any
Actual or Potential Conflicts of Interest Between (A) the Company or its
Affiliates and (B) the Purchaser and its Executive Officers, Directors or
Affiliates.
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The Merger Agreement.
This description of the Merger Agreement is qualified in its entirety by
reference to the Merger Agreement, a copy of which is filed as Exhibit 3 hereto
and is hereby incorporated herein by reference.
The Offer. The Merger Agreement provides, among other things, for the
making of the Offer by the Purchaser, and further provides that following the
purchase of Shares pursuant to the Offer and promptly after the satisfaction or
waiver of certain other conditions, the Purchaser will be merged with and into
the Company (the "Merger"). The Purchaser's obligation to accept for payment or
pay for Shares is subject to the satisfaction of the conditions that are
described herein. Pursuant to the Merger Agreement, the Purchaser expressly
reserves the right to waive any of the conditions to the Offer, to the extent
permitted by applicable law, and to make any change in the terms or conditions
of the Offer; provided that, without the written consent of the Company, the
Purchaser shall not decrease the price per Share, decrease the number of Shares
sought, change the form of consideration payable, add additional conditions to
the Offer or make any other change in the terms or conditions of the Offer set
forth in the Merger Agreement in any manner that is adverse to the holders of
Shares. Notwithstanding the foregoing, the Purchaser may, in its sole
discretion, extend the expiration date from time to time if all conditions to
the Offer have not been satisfied or waived. Subject to the other conditions of
the Offer, the Purchaser intends to extend the Offer from time to time until the
obtainment of final approval of all necessary governmental officials and
agencies of the Republic of Korea (the "Korean Approval Condition") is
satisfied.
Consideration to be Paid in the Merger. The Merger Agreement provides
that, following the purchase of Shares pursuant to the Offer and upon the terms
and subject to the conditions set forth in the Merger Agreement, the Purchaser
will be merged with and into the Company, with the Company continuing as the
Surviving Corporation (the "Suviving Corporation"). In the Merger, each Share
other than: (i) Shares and Class A Shares held by the Purchaser or any of its
subsidiaries; (ii) Shares held by the Company or any of its subsidiaries; and
(iii) Shares as to which appraisal rights have been exercised pursuant to
Delaware General Corporation Law ("DGCL"), Section 262 ("Dissenting Shares"),
will be converted into the right to receive, in cash and without interest, $6.70
or such higher price paid for each Share in the Offer. Each share of common
stock of the Purchaser issued and outstanding immediately prior to the time of
the Merger will be converted into and become one share of common stock of the
surviving corporation (the "Surviving Corporation"). The Merger Agreement
provides that (i) the Merger shall close no later than the second business day
after satisfaction or waiver of all of the conditions to the Merger set forth in
the Merger Agreement; and (ii) on the Merger closing date (or such other date as
Parent and the Company may agree), the Company and Purchaser will file a
certificate of merger or, if applicable, a certificate of ownership and merger
(the "Certificate of Merger") with the Secretary of State of Delaware. The
Merger shall become effective when the Certificate of Merger is duly filed with
the Secretary of State of Delaware or at such time as is agreed by the parties
and specified in the Certificate of Merger (the "Effective Time").
Pursuant to the Merger Agreement, effective as of the Effective Time, each
outstanding stock option shall become fully exercisable and vested and shall
thereupon be canceled, and each holder of any such option shall be paid by the
Company promptly after the Effective Time for each such option an amount
determined by multiplying (i) the excess, if any, of $6.70 per Share over the
applicable exercise price of such option by (ii) the number of Shares previously
subject to such option immediately prior to its cancellation.
The Company agreed to take all actions reasonably necessary to cause the
last day of the "Offering Period" (as such term is used in the Company's 1992
Employee Stock Purchase Plan (the "1992 ESPP"), to be the date immediately prior
to the date on which the Purchaser accepts Shares for payment pursuant to the
Offer (the "Final Purchase Date"), and apply the funds within each participant's
withholdings account on the Final Purchase Date to the purchase of whole Shares
in accordance with the terms of the 1992 ESPP.
Board Representation. The Merger Agreement provides that, effective upon
Purchaser's purchase of at least the number of Shares that, together with the
Class A Shares, constitutes a majority of the outstanding voting stock of the
Company, Parent shall be entitled to designate the number of directors, rounded
up to the next whole number, on the Company's Board of Directors, such that the
percentage of its designees on the Board, together with the directors nominated
by the Hyundai Shareholders, equals the percentage of the aggregate number of
outstanding Shares and Class A Shares then beneficially owned by Parent and the
Hyundai Shareholders. At such time as Parent's designees constitute a majority
of the Company's Board of
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Directors, any amendment of the Merger Agreement, any termination of the Merger
Agreement by the Company, any extension of time for performance of any of the
obligations of Parent or the Purchaser thereunder, any waiver of any condition
or any of the Company's rights thereunder or other action by the Company
thereunder will be ineffective unless it is approved by a majority of the
directors of the Company then in office who were not officers of the Company or
Parent or designees, stockholders or affiliates of Parent and the full Board of
Directors; provided, that if there shall be no such directors, such actions may
be effected by majority vote of the entire Board of Directors of the Company.
The Merger Agreement provides that, from and after the Effective Time, the
directors and officers of the Purchaser will be the initial directors and
officers of the Surviving Corporation. Pursuant to the Merger Agreement, the
certificate of incorporation and the by-laws of the Company, as in effect
immediately prior to the Effective Time, will be the certificate of
incorporation and by-laws of the Surviving Corporation.
Stockholders' Meeting. The Merger Agreement provides that, if required by
applicable law, the Company will call a meeting of its stockholders to be held
as promptly as practicable following the purchase of Shares for the purpose of
considering and voting on the approval of the Merger and adoption of the Merger
Agreement. Under the Merger Agreement, at any such meeting, Parent has agreed to
vote, or cause to be voted, all Shares and Class A Shares owned by it, the
Purchaser, any of its other subsidiaries or the Hyundai Shareholders in favor of
approval of the Merger and adoption of the Merger Agreement.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties of the Company with respect to corporate
existence and power, corporate authorization, governmental consents and
approvals, non-contravention, capitalization, subsidiaries, Commission reports,
financial statements, absence of certain changes, undisclosed liabilities,
litigation, taxes, compliance with laws, intellectual property and other
matters.
Parent and Purchaser have also made certain representations and warranties
with respect to corporate existence and power, corporate authorization,
governmental consents and approvals, non-contravention and other matters.
Conduct of Business Pending the Merger. The Company has agreed that,
except as expressly contemplated in the Merger Agreement, as set forth in the
company disclosure schedule or as agreed by Parent, during the period from the
date of the Merger Agreement until such time as the directors designated by
Parent and the Hyundai Shareholders together constitute a majority of the Board
(the "Appointment Date"), (i) the business of the Company and its subsidiaries
will be conducted only in the ordinary and usual course and, to the extent
consistent therewith, each will use its best efforts to preserve intact its
business organizations and maintain its existing relationships with customers,
suppliers, employees, creditors and business partners and (ii) the Company will
not, directly or indirectly, amend its or any of its subsidiaries' certificate
of incorporation or by-laws or similar organizational documents. The Company has
further agreed that during such period and subject to the same exceptions, the
Company will not, and will not permit any of its subsidiaries to, among other
things, (i)(a) declare, set aside or pay any dividend or other distribution in
respect of any of its capital stock or that of its subsidiaries, (b) split,
combine or reclassify the outstanding capital stock of the Company or any of its
subsidiaries, or (c) redeem, purchase or otherwise acquire any shares of capital
stock of the Company or any of its subsidiaries; (ii) issue, sell, pledge,
dispose of or encumber any additional shares of, or securities convertible into
or exchangeable for, or options, warrants, calls, commitments or rights of any
kind to acquire, any shares of capital stock of any class of the Company or its
subsidiaries (other than the issuance of Shares upon the exercise of outstanding
Company stock options); (iii) acquire or agree to acquire any material assets
not listed in the company disclosure schedule, either by purchase, merger,
consolidation, sale of shares in a subsidiary or otherwise; (iv) transfer,
lease, license, sell, mortgage, pledge, dispose of or encumber any material
assets other than in the ordinary and usual course of business and consistent
with past practice; (v) modify, amend or terminate any of its material contracts
or waive, release or assign any material rights or claims, except in the
ordinary course of business and consistent with past practice; (vi) incur or
assume any long-term debt, or except in the ordinary course of business, incur
or assume any short-term indebtedness in amounts not consistent with past
practice, incur or modify any material indebtedness or other liability, assume,
guarantee, endorse or otherwise become liable or responsible for the obligations
of any other person, except in the ordinary course of business and consistent
with past
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practice except as set forth in the company disclosure schedule, make any loans,
advances or capital contributions to, or investments in, any other person except
as set forth in the company disclosure schedule, or enter into any material
commitment or transaction, except in the ordinary course of business and
consistent with past practice; (vii) pay, discharge or satisfy any claims,
liabilities or obligations, other than the payment, discharge or satisfaction of
any such claims, liabilities or obligations, in the ordinary course of business
and consistent with past practice, of claims, liabilities or obligations
reflected or reserved against in, or contemplated by, the consolidated financial
statements of the Company and its consolidated subsidiaries; (viii) take or
agree or commit to take any action that would make any representation or
warranty of the Company contained in the Merger Agreement inaccurate in any
respect at or as of any time prior to the Effective Time; or (ix) enter into an
agreement, contract, commitment or arrangement to do any of the foregoing, or to
authorize, recommend, propose or announce an intention to do any of the
foregoing.
The Company has agreed to afford Parent and its representatives access
during normal business hours prior to the Appointment Date to the properties,
books, contracts, commitments and records, of the Company and its subsidiaries
and during such period furnish Parent with such other information concerning its
business, properties and personnel as Parent may reasonably request.
Subject to the terms and conditions in the Merger Agreement, each of the
parties to the Merger Agreement has agreed to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the Merger and the other transactions contemplated
by the Merger Agreement. Pursuant to the Merger Agreement, each of the Company,
Parent and the Purchaser has agreed to take all reasonable actions necessary to
comply promptly with all legal requirements that may be imposed on it with
respect to the Merger Agreement and the transactions contemplated thereby and to
cooperate with each other in connection with any such requirements imposed upon
any of them or any of their subsidiaries in connection with the Merger Agreement
and the transactions contemplated thereby.
Other Offers. Pursuant to the Merger Agreement, the Company has agreed
that the Company and its subsidiaries or affiliates will not (and the Company
will use its best efforts to cause its officers, directors, employees and other
agents not to), directly or indirectly, take any action to encourage, solicit,
participate in or initiate discussions or negotiations with any entity or group
(other than Parent, any of its affiliates or representatives) concerning any
merger, tender offer, exchange offer, sale of assets, sale of shares of capital
stock or debt securities or similar transactions involving the Company or any
subsidiary, division or operating or principal business unit of the Company (an
"Acquisition Proposal").
Notwithstanding the foregoing, the Company may furnish information
concerning its business, properties or assets to any corporation, partnership,
person or other entity or group pursuant to appropriate confidentiality
agreements, and may negotiate and participate in discussions and negotiations
with such entity or group concerning an Acquisition Proposal, (x) if such entity
or group has on an unsolicited basis submitted a bona fide written proposal to
the Board of Directors of the Company relating to any such transaction which the
Special Committee determines represents a superior alternative to the
stockholders of the Company (other than the holders of the Class A Shares) to
the acquisition of the Company contemplated by the Merger Agreement and (y) if,
in the opinion of the Special Committee, only after receipt of advice from legal
counsel to the Special Committee, the failure to provide such information or to
engage in such discussions or negotiations would cause the Board of Directors to
violate its fiduciary duties to the Company's stockholders under applicable law.
The Company agreed to immediately communicate to Parent the terms of any
proposal or inquiry (and agreed to disclose any written materials received by
the Company in connection with such proposal or inquiry) and the identity of the
party making such proposal or inquiry which it may receive in respect of any
such transaction.
Agreement with Respect to Director and Officer Indemnification and
Insurance. Pursuant to the Merger Agreement and subject to certain limitations
set forth therein, Parent has agreed, subject to any limitation imposed from
time to time under applicable law, that, for a period of six years after the
Effective Time, it will cause the Surviving Corporation (or any successor) to
indemnify, defend and hold harmless the present and former officers, directors,
employees and agents of the Company and its subsidiaries against all losses,
claims, damages, liabilities, fees and expenses arising out of actions or
omissions occurring at or prior to the Effective
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Time to the full extent permitted under Delaware law, subject to the Company's
certificate of incorporation, by-laws and indemnification agreements, all as in
effect on the date of the Merger Agreement. Parent has further agreed, subject
to certain limitations set forth in the Merger Agreement, that, for not less
than three years after the Effective Time, Parent or the Surviving Corporation
shall maintain the Company's existing officers' and directors' liability
insurance. Parent has also agreed to cause the Surviving Corporation to comply
with the Company's existing indemnification agreements with the Company's
directors and executive officers.
Conditions to the Merger. Pursuant to the Merger Agreement, the respective
obligations of each party to consummate the Merger are subject to the
satisfaction or waiver (to the extent permitted by law), on or prior to the
Closing Date of the following conditions: (i) the adoption and approval of the
Merger Agreement by the requisite vote of the stockholders, if such vote is
required by applicable law and the certificate of incorporation of the Company,
to consummate the Merger, (ii) no statute, rule, order, decree or regulation
shall have been enacted or promulgated that prohibits the consummation of the
Merger; (iii) no order or injunction shall preclude, restrain, enjoin or
prohibit the consummation of the Merger and (iv) Parent, the Purchaser or their
affiliates shall have purchased the Shares pursuant to the Offer.
Termination. The Merger Agreement may be terminated and the Merger
contemplated therein may be abandoned at any time prior to the Effective Time,
whether before or after stockholder approval thereof (i) by the mutual consent
of Parent and the Company, (ii) by either Parent or the Company if the Offer
shall have expired without any Shares being purchased therein, or if the Shares
tendered in the Offer shall not have been accepted for payment by March 31,
1996; except that the right to terminate the Merger Agreement is not available
to any party whose failure to fulfill any obligation thereunder has been the
cause of, or resulted in, the failure of Parent or the Purchaser, as the case
may be, to purchase the Shares pursuant to the Offer on or prior to such date,
(iii) by either Parent or the Company if any Governmental Entity (as defined in
the Merger Agreement) shall have issued an order, decree or ruling or taken any
other action in each case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by the Merger Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable, (iv) by the Board of Directors of the Company if prior to the
purchase of the Shares pursuant to the Offer, the Board decides that the Company
should enter into a definitive agreement providing for an acquisition of the
Company by a third party on terms determined by the Board to be superior to the
Offer, (v) by the Board of Directors of the Company if, prior to the purchase of
the Shares pursuant to the Offer, Parent or the Purchaser breaches or fails in
any material respect to perform or comply with any of the material covenants and
agreements in the Merger Agreement or breaches its representations and
warranties in any material respect, (vi) by the Board of Directors of the
Company if the Offer shall have expired, or shall have been withdrawn, abandoned
or terminated, without (in each case) Parent or the Purchaser, as the case may
be, purchasing any Shares, (vii) by the Board of Directors of the Company if
Parent, the Purchaser or any of their affiliates shall have failed to commence
the Offer on or prior to five business days following the date of the initial
public announcement of the Offer, (viii) by Parent or the Purchaser if prior to
the purchase of the Shares pursuant to the Offer, the Board of Directors of the
Company shall have withdrawn, or modified or changed in a manner adverse to
Parent or the Purchaser, its approval or recommendation of the Offer, the Merger
Agreement or the Merger or shall have recommended an Acquisition Proposal or
offer, or shall have executed an agreement in principle (or similar agreement)
or definitive agreement providing for a tender offer or exchange offer for any
shares of capital stock of the Company, or a merger, consolidation or other
business combination with a person or entity other than Parent, the Purchaser or
their affiliates; (ix) by Parent or the Purchaser, if Parent or the Purchaser
has terminated the Offer, without Parent or the Purchaser purchasing any Shares
thereunder, provided that Parent or the Purchaser has not failed to purchase the
Shares in the Offer in breach of the material terms thereof; or (x) by Parent or
the Purchaser if, due to an occurrence that if occurring after the commencement
of the Offer would result in a failure to satisfy any of the conditions set
forth in Annex A to the Merger Agreement, Parent, the Purchaser, or any of their
affiliates has failed to commence the offer on or prior to five business days
following the date of initial public announcement of the offer.
Fees and Expenses. Each party to the Merger Agreement has agreed to pay
its own fees and expenses.
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Amendment to the Rights Agreement.
In connection with the Company's entering into the Merger Agreement, on
November 2, 1995, the Company further amended the Rights Agreement by entering
into an Amendment No. 2 thereto ("Rights Amendment"). The Rights Amendment has
been effected to provide that stock purchase rights will not trade separately
from shares. The Rights Amendment provides that no Distribution Date, Stock
Acquisition Date or Triggering Event (each as defined in the Rights Agreement)
shall be deemed to have occurred, and neither Parent nor any affiliate nor
associate thereof shall be deemed to have become an Acquiring Person (as defined
in the Rights Agreement), by reason of the Merger Agreement and the consummation
of the transactions contemplated thereby. However, if after November 2, 1995,
the Parent or any of its subsidiaries or any of their respective directors
becomes the beneficial owner of any Shares (other than by reason of the Merger
Agreement or the consummation of the transactions contemplated thereby or in any
transaction in conformity with the standstill provisions of the Stock Purchase
Agreement, dated as of September 10, 1993, among the Company and the Hyundai
Shareholders, such provision of the Rights Amendment becomes no longer
applicable. The Rights Amendment also provides that the Rights will expire and
be of no force or effect upon consummation of the Merger. Accordingly, the
tender of a Share will constitute the tender of the associated Right, and no
additional consideration will be paid in respect thereof. The foregoing summary
is qualified in its entirety by reference to the Rights Agreement, Amendment No.
1 thereto dated September 10, 1994 and the Rights Amendment, copies of which are
respectively filed as Exhibits 4, 5 and 6 hereto and are hereby incorporated
herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
A copy of a letter to all stockholders of the Company communicating the
recommendation of the Board of Directors and the Special Committee is filed as
Exhibit 7 hereto and is incorporated herein by reference.
As stated above in Item 3(b)(1) and described in Item 4 herein, certain
members of the Board have (in addition to their positions as members of the
Board) varying degrees of other associations or affiliations with either the
Company, Purchaser or Parent. Consequently, such directors do not purport to be,
and in no circumstance intend to imply that they are, independent or among
themselves all equally independent, of each of the Company, Purchaser, Parent or
all of them.
Background of the Transaction; Past Contracts, Transactions and Negotiations
with Parent and the Purchaser.
The highly cyclical and competitive nature of the disk drive industry has
affected the Company since its inception in 1982. The disk drive industry
typically is characterized by rapid technological change, short product life
cycles and intense competition. In addition, the Company has not consistently
been able to bring products to market in a timely and cost-effective manner. As
a result of these and other factors, the Company has incurred cumulative net
losses over the last eleven quarters of approximately $418 million.
From the beginning of 1993 through September 1995, these losses decreased
the Company's available cash, leading the Company to seek a capital infusion in
1993, additional debt financing in 1993 and again in 1995, and the manufacture
by Hyundai Storage Division ("HSD") of Hyundai Electronics Industries Co., Ltd.
("HEI") of certain of the Company's products in 1995, as set forth below.
In early 1993, in light of its losses and the expectation of continuing
intense price competition in the disk drive industry, the Company decided to
seek to increase its capital base. It considered issuing additional equity or
other securities in the public market or selling all or part of the Company. In
March 1993, the Company's management first contacted HEI and its affiliates to
determine their possible interest in an investment in the Company. In order to
facilitate discussions between the parties, the Company and HEI entered into a
confidentiality agreement dated May 1, 1993. In May 1993, the Company retained
Bear, Stearns & Co. Inc. ("Bear Stearns") to aid the Company in exploring
strategic alternatives. In addition to contacting HEI and its affiliates, the
Company and Bear Stearns identified and contacted several other prospective
investors which the Company believed might be capable of and interested in a
purchase of or significant investment in the Company. Either the Company or Bear
Stearns provided each prospective purchaser with financial statements
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and a written overview of the Company and responded to all other due diligence
requests. However, the Company received no offers other than the offer from HEI
to invest in the Company, except for an indication that a third party was
interested in acquiring a fully secured debenture that would be convertible into
Shares. No specific terms were proposed by the third party, and after
considering the general nature of this potential offer, the Board of Directors
decided not to pursue it because it would have prevented the Company from
obtaining any other significant financing from third parties and because the
proposal was for substantially less financing than offered by HEI.
On several occasions between June and August 1993, representatives of the
Company and HEI met to discuss terms of a possible investment by HEI in the
Company. In August 1993, the parties negotiated extensively, primarily focusing
on voting rights, standstill provisions, the price and amount of capital stock
of the Company to be purchased, and the Company's ability to continue to
negotiate with parties with whom the Company had previously held discussions or
who independently contacted the Company.
On August 18, 1993, the parties executed a letter of intent and the next
day made a public announcement of its terms. Between August 18 and September 10,
1993, the Company and HEI negotiated the terms of a definitive stock purchase
agreement. On September 10, 1993, the Board of Directors approved and the
Company and HEI, Hyundai Heavy Industries Co., Ltd., Hyundai Corporation and
Hyundai Merchant Marine Co., Ltd. (collectively, the "Hyundai Shareholders")
entered into the Stock Purchase Agreement (the "Stock Purchase Agreement"), with
the closing of the transaction conditioned on Company stockholder approval and
other conditions.
Also in September 1993, the Company obtained a fully secured, asset-based
revolving line of credit from CIT Group/Business Credit, Inc. ("CIT"). The
original committed line of credit provided for borrowings of up to $76.0 million
over a two-year term and was secured by receivables, certain inventories and
other assets. CIT conditioned its line of credit on the Company meeting certain
financial covenants, particularly, minimum operating profit and net worth
covenants.
On December 20, 1993, the Company's stockholders voted to approve the
Hyundai Shareholders' investment in the Company and to amend and restate the
Company's Certificate of Incorporation (the "Restated Certificate") as described
below, as set forth in the Stock Purchase Agreement. The Korean government
approved the investment in the Company by the Hyundai Shareholders in late
January 1994. Shortly thereafter, on February 3, 1994, the Hyundai Shareholders
purchased an aggregate of 19,480,000 Class A Shares at a per share price of
$7.70, for an aggregate purchase price of $149,996,000, which Class A Shares
represented approximately 40% of the outstanding voting stock of the Company on
the date of issuance (the "Hyundai Investment").
The standstill provisions of the Stock Purchase Agreement restrict the
right of the Hyundai Shareholders and their affiliates to acquire additional
voting securities of the Company prior to August 18, 2000 without approval of
the Board of Directors when such purchases will result in the Hyundai
Shareholders owning collectively more than 45% of the outstanding voting stock
of the Company. However, the Hyundai Shareholders and their affiliates may make
a tender or exchange offer for all of the outstanding Shares provided that the
purchase price has been approved by a majority of the disinterested members of
the Board of Directors following negotiations conducted in good faith between
the Hyundai Shareholders or any of their affiliates and such members of the
Board of Directors. In addition, the Hyundai Shareholders and their affiliates
may make unlimited open market purchases if a third party acquires more than 20%
of the Shares or makes a tender or exchange offer for more than 40% of the
Company's total outstanding voting stock and (in each case) the Board of
Directors waives the application of the Rights Agreement to such third party.
Pursuant to the Stock Purchase Agreement, the Company adopted the Restated
Certificate at the closing of the Hyundai Investment. The Restated Certificate
provides that the Company will not take certain actions without the Hyundai
Shareholders' approval, including certain transactions or decisions with respect
to a core line of products, capital expenditures, new high-volume manufacturing
facilities, joint ventures, material exclusive licenses, changes in senior
management compensation arrangements and the issuance of stock in excess of 20%
of the outstanding voting securities of the Company. The Hyundai Shareholders
may not unreasonably withhold their approval of such a transaction or decision.
In addition, the Hyundai Shareholders
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have approval rights over any Corporate Sale (generally, any consolidation or
merger of the Company or the sale of all or substantially all of the assets of
the Company) of the Company until February 3, 1999, and, thereafter, a right of
approval if any Corporate Sale is not offered first to the Hyundai Shareholders
under a right of first refusal. Collectively, these rights are referred to
herein as the "Consent Rights." The Consent Rights remain in effect as long as
Hyundai Shareholders and their subsidiaries retain either substantially all the
Class A Shares and/or Shares issuable upon conversion thereof (so long as the
Class A Shares constitute at least 20% of the total outstanding voting stock of
the Company) or at least 30% of the total outstanding voting stock of the
Company.
In addition, the Stock Purchase Agreement and the Restated Certificate
entitle the Hyundai Shareholders to nominate the number of Company directors
equal to the Hyundai Shareholders' proportionate voting interest in the Company.
The Hyundai Shareholders' right to nominate directors is suspended during such
times as the Hyundai Shareholders and their affiliates no longer collectively
hold of record either (i) at least 80% of the Class A Shares and/or shares
issuable upon conversion thereof, or (ii) at least 20% of the total outstanding
voting stock of the Company. The Board of Directors as a whole, including the
Hyundai Shareholders' nominees, selects the balance of the nominees for
directors, and the Hyundai Shareholders must vote their shares for such
nominees. The Stock Purchase Agreement entitles the Hyundai Shareholders to
designate the director to be elected Chairman of the Board of the Company, and
the Board of Directors must elect the Hyundai Shareholders' designee. The
Hyundai Shareholders' right to designate the director to be elected as Chairman
of the Board terminates permanently at such time as Hyundai Shareholders and
their affiliates no longer collectively hold of record either (i) at least 80%
of the Class A Shares, or (ii) at least 60% of the Class A Shares and at least
20% of the total outstanding voting stock of the Company. On February 3, 1994,
the Hyundai Shareholders nominated Messrs. M. H. Chung, C. S. Park and I. B.
Jeon as directors of the Company. On February 7, 1994, the Board of Directors
increased the authorized number of directors from five to eight and elected
Messrs. Chung, Park and Jeon as directors. Additionally, on February 7, 1994,
the Board of Directors elected Mr. Chung, the Hyundai Shareholders' designee, as
Chairman of the Board of the Company.
An immediate effect of the Stock Purchase Agreement, as approved by the
Company's stockholders, was to give the Hyundai Shareholders considerable
influence over major strategic and operational decisions of the Company. The
Hyundai Shareholders' large equity stake in the Company and the Consent Rights
granted to them pursuant to the Stock Purchase Agreement created impediments to
a sale of the Company to a third party. The Board of Directors did not
anticipate a sale of the Company at the time the Company entered into the Stock
Purchase Agreement and believed that the capital infusion and statement of
confidence represented by the Hyundai Shareholders' investment would
substantially assist the Company's growth and prospects for returning to
profitability, to the ultimate benefit of all stockholders. The preceding
descriptions of the Stock Purchase Agreement and the Restated Certificate are
qualified in their entirety by reference to the full text of the Stock Purchase
Agreement and the Restated Certificate, which are filed as Exhibits 8 and 9,
respectively, hereto each of which is incorporated herein by reference.
Following the closing of the Hyundai Investment, the Company sought to
improve operating performance by closing its San Jose development operations,
focusing its product offerings and significantly reducing headcount, but with
mixed results. The Company's net losses during each of the four calendar
quarters of 1994 were $4.5 million, $12.2 million, $54.7 million and $16.4
million, respectively, and its net cash position declined from a quarter-end
high of approximately $189.4 million at March 26, 1994 to $104.3 million at
December 31, 1994.
In December 1994, the Board of Directors began to consider expanding the
relationship with HEI from a purely financial orientation to a more strategic
focus. The Board of Directors received a report from the then Chief Executive
Officer, Mr. Larry Smart. Mr. Smart described a variety of different forms that
a more strategic relationship might take, including a research and development
joint venture or a manufacturing partnership. In response to Mr. Smart's report,
Dr. Park stated on behalf of HEI that although providing additional financial
support would demonstrate the Hyundai Shareholders' continued commitment to the
Company, HEI preferred a more strategic and tangible expression of its
commitment which could utilize its manufacturing and technological competencies.
Dr. Park described as an example that HEI could establish a
8
<PAGE> 10
manufacturing facility in Korea that could help the Company reduce its capital
expenditure requirements and manufacture on a more cost-competitive basis. The
Board of Directors felt an expansion of the relationship was worth further
consideration, and directed management to gather additional information and
develop more specific ideas regarding the form such an expansion might take.
After several additional meetings and discussions among management
representatives of the parties, in January 1995, the Company and HEI entered
into a memorandum of understanding concerning the creation of a manufacturing
partnership (the "Manufacturing Memorandum").
On February 8, 1995, Mr. Smart resigned his positions as the Company's
President and Chief Executive Officer and a director. Following the
recommendation of members of the Board of Directors who were neither Company
executives nor nominees of the Hyundai Shareholders, the Board of Directors
appointed Dr. Park as President and Chief Executive Officer of the Company. In
connection with this appointment, Dr. Park resigned from his positions with HEI
and its affiliates, except his position as a director of Axil Computer, Inc.,
and Dr. Park retained his HEI retirement benefits. In anticipation of further
developments in the relationship between the Company and the Hyundai
Shareholders, and due to Dr. Park's former affiliation with the Hyundai
Shareholders, in February 1995, the Board of Directors established a special
committee comprised of independent outside directors of the Company who were not
employed by the Company or any Hyundai Shareholder. This committee was known as
the Special Committee for Hyundai/Maxtor Transactions (the "Transactions
Committee"). The Transactions Committee was required to review and approve all
significant proposed transactions between the Company and any Hyundai
Shareholder or affiliate of a Hyundai Shareholder.
On April 27, 1995, pursuant to the Manufacturing Memorandum, the Company
and HEI, through HSD, entered into a Manufacturing and Purchasing Agreement (the
"Manufacturing Agreement"), which the Transactions Committee reviewed and
approved. Pursuant to the Manufacturing Agreement, HSD will manufacture certain
mutually agreed Company-designed disk drives in a production facility operated
by HSD. HEI's additional manufacturing capacity was intended to supplement the
production of the Company's hard disk drive assembly plant in Singapore without
any capital expenditure on the Company's part. By entering into the
Manufacturing Agreement, the two companies intended to exchange technology to
enable the Company to obtain high-quality, low-cost manufacturing capacity from
HEI. Pursuant to the Manufacturing Agreement, HSD promptly commenced
preparations to manufacture a new proprietary Company-designed 2 1/2 inch hard
disk.
The Manufacturing Agreement was intended to increase the Company's
operating efficiencies and competitiveness once volume sales were achieved.
Between May and September, 1995, however, the Company's performance continued to
decline due, in part, to industry-wide price reductions for 3 1/2 inch disk
drives, component shortages and the usual soft demand for disk drive products
during late summer. As a result, the Company's cash flow was under increasing
pressure. These developments increased collaboration and planning between the
Company and HEI. The foregoing description is qualified in its entirety by
reference to the Manufacturing Agreement, a copy of which is filed as Exhibit 10
hereto and is hereby incorporated herein by reference.
During July 1995, as a result of significant operating losses and declining
cash balances, the Company required additional financing. However, the Company
recognized that its borrowing capacity was extremely limited, and that its cost
of borrowing was very high. In July 1995, the Company's management advised the
Board of Directors that, to meet the dual goals of lowering the overall cost of
debt to the Company and increasing its access to borrowing capacity, management
would seek out a new credit facility, but that in light of the Company's current
financial condition, any such facility would need to be supported by the
guaranty of HEI.
The proposed loan guaranty was submitted to the Transactions Committee for
review and recommendation to the full Board of Directors. Prior to considering
the proposed loan guaranty, the Transactions Committee retained special counsel
to advise it as to its duties in connection with the proposed loan guaranty.
In connection with considering the issues involved in seeking a loan
guaranty from HEI, the Transactions Committee discussed the advisability of
engaging in a more broad-reaching transaction, such as a sale of the
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<PAGE> 11
Company. In this regard, however, the Transactions Committee was aware of the
Consent Rights held by the Hyundai Shareholders with respect to the sale of the
Company to a third party, and the Hyundai Shareholders' expressed lack of
interest in purchasing the remaining equity interest in the Company. In light of
the then-current financial condition of the Company, the Transactions Committee
directed that the acting Chief Financial Officer of the Company prepare certain
liquidation and related analyses, as well as information regarding management's
two-year strategic plan. The Transactions Committee reviewed these materials in
connection with its determination regarding whether or not to approve the
proposed loan guaranty. After considering this information, the Transactions
Committee authorized the Company's management to proceed to negotiate the terms
of a guaranty, subject to the Transactions Committee's final review and
approval.
Thereafter, management approached HEI and requested that HEI provide an
unconditional guaranty of up to $100 million of prospective borrowings by the
Company. On July 17, 1995, HEI and the Company agreed and entered into a
memorandum of understanding for such a guaranty (the "Guaranty Memorandum"),
subject to negotiation of loan documents. At a meeting held on August 10, 1995,
the Transactions Committee met and approved in principle the terms of the
guaranty of the Company's proposed borrowing, which the Transactions Committee
had previously discussed on several occasions. The Transactions Committee
conditioned its approval of the guaranty upon the Company having a right to
substitute different collateral to support the guaranty in the event that it
chose to sell the assets supporting the guaranty. In August 1995, the Company
and HEI entered into a Guaranty and Recourse Agreement (the "Guaranty"),
pursuant to which HEI agreed to unconditionally guarantee up to $100 million of
indebtedness of the Company to Citibank, N.A. (in such capacity, "Citibank") and
certain financial institutions syndicated by Citibank (the "Lenders"). Also in
August 1995, the Company and the Lenders entered into a Credit Agreement (the
"Credit Agreement") which provides the Company with a $100 million line of
credit. As of October 31, 1995, approximately $94 million was outstanding under
the Credit Agreement and no borrowings were outstanding under the Company's $20
million secured line of credit with CIT.
The Guaranty requires HEI to keep the Guaranty in effect for a period of
one year and to renew it annually, provided that the Company is not in default
under its Guaranty obligations and the Company's financial performance has not
materially deteriorated, for a total term of three years. If the Company
defaults on its Credit Agreement loans, the Guaranty provides that the Company
will reimburse HEI within ninety days after HEI pays the Lenders pursuant to the
Guaranty (the "Reimbursement Date"). In its sole discretion, on the
Reimbursement Date, HEI may choose to receive the Company's common stock in
partial satisfaction of the Company's reimbursement obligations, up to the
amount which would result in HEI and the other Hyundai Shareholders owning 45%
of the outstanding stock of the Company, which was the standstill limitation
already provided in the Stock Purchase Agreement. The share price at which
shares would be issued to HEI would be the lesser of (i) the share's closing
price on the date of the Guaranty or (ii) the share's average daily closing
price for the ninety days preceding the Reimbursement Date. If a balance remains
after HEI has received the maximum Company shares permissible, as described
above, then the Company is required to assign to HEI shares which the Company
owns in four of its subsidiaries, as selected by the Company, equal to such
outstanding balance. The fair market value of the subsidiaries' stock selected
by the Company is to be determined by a mutually acceptable investment bank. The
preceding descriptions of the Guaranty and Credit Agreement are qualified in
their entirety by reference to the full text of the Guaranty and the Credit
Agreement, which is filed as Exhibits 11 and 12 respectively, hereto, each of
which is incorporated herein by reference.
During the summer of 1995, the Company's management developed a strategic
business plan which was intended to improve the Company's operational
efficiencies, with the goal of making the Company one of the top three companies
in the disk drive industry within two years. The plan aimed to increase the
Company's market share in the 3 1/2 inch and 2 1/2 inch markets with innovative
product designs. The Company believed that its plan was achievable in part due
to its growing success in selling existing products to major personal computer
manufacturers and to indications of strong interest by prospective customers in
the Company's 2 1/2 inch disk drive under development, which incorporates
certain of the Company's proprietary 1.8 inch disk drive technology to offer
unusually high capacity and small form factors. This plan, however, would
require
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<PAGE> 12
significant capital investment in manufacturing, and management concluded that
the Company lacked the financial resources to fully execute the plan by itself.
In August 1995, in connection with the Board of Director's consideration of
management's strategic plan, the Board asked the Transactions Committee to
consider the possibility of negotiating an outsourcing arrangement pursuant to
which the Company would sell substantially all of the Company's manufacturing
facilities and HEI would manufacture and supply the Company with all its disk
drive requirements on mutually agreed terms (the "Proposed Outsourcing
Transaction"). The Company believed that the Proposed Outsourcing Transaction
would improve the Company's liquidity through the cash provided by the sale of
manufacturing assets. In addition, the Company believed that this transaction
would have the ancillary benefit of relieving management of the burden of
managing and funding the Company's capital-intensive manufacturing operations
and would also allow management to focus on design, marketing and sales
functions, which the Company viewed as its core competencies.
After consulting with its own counsel, the Transactions Committee
determined to recommend to the full Board of Directors that it be charged with
negotiating the sale of the Company's manufacturing assets to a party which
would supply the Company's disk drive needs. In accordance with the Committee's
recommendation, the full Board of Directors changed the charge of the
Transactions Committee from the review and approval of Maxtor-Hyundai
transactions, to the negotiation of a sale of the Company's manufacturing
facilities to a supplier on the most advantageous terms. This newly-chartered
committee (referred to herein as the "Special Committee") was comprised of Mr.
Charles Hill, Chairman, Mr. Charles Christ and Mr. Gregory Gallo. After
discussing several different investment banking firms, the Special Committee
determined to retain Bear Stearns to advise it in the negotiation of the
Proposed Outsourcing Transaction. The Special Committee chose Bear Stearns as
its advisor in part due to the fact that Bear Stearns was familiar with the
Company, having represented the Company in connection with its sale of Class A
Shares to the Hyundai Shareholders pursuant to the Stock Purchase Agreement
described above.
Following the expansion of its charter, at a meeting held on August 19,
1995, the Special Committee considered the process it would follow in conducting
the sale of the Company's manufacturing facilities to a new supplier. In light
of the Special Committee's view that retooling the Company's factories in order
to produce its newest products would require approximately $50-60 million in
capital in addition to the consideration to be paid for purchasing the
facilities, the Special Committee concluded, based in part on the advice of Bear
Stearns, that the likely universe of credible buyers for the Company's
facilities appeared to be limited. The Special Committee also recognized that,
in light of the financial and other support previously provided to the Company
by HEI and the financial resources of HEI and its affiliates, HEI appeared to be
the most logical buyer for the Company's manufacturing assets, as part of an
outsourcing of its manufacturing operations. Accordingly, after considering,
among other things, the cash needs of the Company and its interest in
consummating a favorable transaction as quickly as possible, the Special
Committee determined to instruct Bear Stearns to approach HEI first, to
determine whether HEI had an interest in purchasing the Company's manufacturing
assets as part of an outsourcing transaction at a price which was attractive to
the Special Committee and the Company.
HEI responded to the Company's request by stating that it was willing to
consider the Proposed Outsourcing Transaction in order to support the Company's
needs, in light of the difficulty of seeking financial support from other
existing stockholders or other potential equity investors. Thereafter,
representatives of HEI and Bear Stearns met several times to negotiate this
transaction during late August and September 1995.
As a result of these negotiations, on September 19, 1995, the Company and
HEI signed a non-binding memorandum of understanding (the "Outsourcing
Memorandum"). The Outsourcing Memorandum provided that the parties would
negotiate in good faith definitive agreements by which: (i) HEI would acquire
all of the Company's manufacturing facilities in Singapore, Hong Kong and
Thailand for $100 million, subject to certain adjustments based on due diligence
and independent appraisals; and (ii) HEI and the Company would enter into a
long-term manufacturing and supply agreement on mutually acceptable terms under
which HEI would manufacture and supply all of the Company's disk drive
requirements. The Outsourcing Memorandum between HEI and the Company did not
prohibit the Company from receiving or considering other offers for
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<PAGE> 13
the assets being sold. While negotiating with HEI for the sale of the
manufacturing assets, the Special Committee, through Bear Stearns, received
expressions of interest and an offer for certain of the Company's manufacturing
assets, but no expression of interest or offer (other than that made by HEI) for
all of the assets being sold. The Special Committee did consider selling the
Company's printed circuit board assembly contract manufacturing subsidiary, IMS
International Manufacturing Services Limited ("IMS"), to a purchaser other than
HEI, and alternatively considered retaining IMS for the Company until better
values could be generated from the sale of IMS. In 1995, IMS has had increasing
success in marketing its manufacturing services to unaffiliated customers. The
foregoing description of the Outsourcing Memorandum is qualified in its entirety
by reference thereto, a copy of which is filed as Exhibit 13 hereto and is
hereby incorporated by reference.
Following execution and public announcement of the Outsourcing Memorandum,
HEI performed extensive due diligence on the manufacturing assets. Thereafter,
the Special Committee was advised that HEI reported that, based on its advisors'
valuation reports, there was a potential downward adjustment in the purchase
price, including approximately $9 million relating to the valuation of one of
the assets being sold. No final agreement was reached on price, or the assets
which would be sold.
Prior to and during the time that the Proposed Outsourcing Transaction was
being negotiated, Dr. Park, with the approval of the Board of Directors, engaged
in discussions with several major companies in the disk drive and related
industries, with a view towards seeking out interest on the part of such
companies in entering into some form of strategic alliance, partnership,
business combination or similar transaction with the Company. On October 13,
1995, approximately three weeks following the Company's press release announcing
the Outsourcing Memorandum with HEI, Dr. Park briefed the Special Committee on
the talks he had conducted and advised the Special Committee that only one of
the companies which he had contacted had expressed an interest in forming a
strategic alliance with the Company. Dr. Park also reported that the interested
company, a major multinational electronics manufacturer (the "Interested
Manufacturer"), indicated that its interest was in forming such an alliance with
both the Company and HEI.
Dr. Park also reported that during his discussions with the Interested
Manufacturer, he had discussed the possibility of a joint venture or a merger
between the Company and the Interested Manufacturer. After consideration, the
Interested Manufacturer had rejected the notion of a joint venture or a merger
between the Company and the Interested Manufacturer as part of its strategy, in
part due to the perceived lack of credibility of the Company due to its
historical failure to timely deliver products and its historical financial
performance. Dr. Park informed the Special Committee that the Interested
Manufacturer had indicated its interest in a potential joint venture or business
combination with a partner stronger than the Company in its stand-alone form,
such as HEI. After consulting first with the Chairman of the Special Committee,
who polled each member of the Special Committee and its advisors, and who
thereafter gave Dr. Park the authority to do so, Dr. Park briefly discussed with
HEI the Interested Manufacturer's concept of an HEI acquisition of Maxtor and a
subsequent joint venture. As a result of those discussions, Dr. Park reported to
the Special Committee that HEI had expressed its willingness to discuss a
possible acquisition of all of the Company, although the Company and HEI
recognized that there was no assurance that any joint venture would be formed
with the Interested Manufacturer. Thereafter, the Special Committee asked Dr.
Park to provide further information to the Special Committee regarding whether
HEI's interest in exploring a possible acquisition of the Company was
conditioned in any way on HEI's successful formation of a joint venture with the
Interested Manufacturer, and to elaborate on why HEI had appeared to change its
view with respect to being willing to consider the acquisition of the Company.
At a subsequent meeting, Dr. Park reported to the Special Committee
regarding a conversation he had with Mr. M.H. Chung, the Chairman of HEI.
Specifically, Dr. Park reported that he had been told by Mr. Chung that HEI's
willingness to discuss a possible acquisition of the Company was not conditioned
upon its ability to reach an agreement with the Interested Manufacturer with
respect to a joint venture, and that HEI believed an acquisition of the Company
would be a better way to support the financial viability of the Company than the
Proposed Outsourcing Transaction.
On October 16, 1995, Parent retained Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, "Merrill Lynch") to evaluate the possibility of
acquiring the remaining equity interest in the
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<PAGE> 14
Company. Parent instructed Merrill Lynch to prepare a financial analysis of the
Company. Merrill Lynch conducted its review and prepared a financial analysis,
which was presented to senior executives of Parent and HEI on October 23, 1995.
On October 17, 1995, after satisfying itself through its discussion with
Dr. Park that the exploration of a possible sale of the Company was a feasible
alternative to continuing negotiations regarding the Proposed Outsourcing
Transaction, the Special Committee recommended that the full Board of Directors
approve a resolution expanding its authority to encompass the exploration of,
and, if practicable, negotiation of the sale of the entire Company on terms and
conditions the Special Committee deemed to be in the best interests of the
Company and its stockholders, and to report to the full Board of Directors of
the Company upon conclusion of its negotiations with a recommendation for or
against approval by the full Board of Directors of any transaction involving the
sale of the entire Company. At the same meeting, counsel to the Special
Committee was instructed to negotiate with Bear Stearns, the financial advisor
to the Special Committee, to update its retention letter to encompass the
revised scope of the Special Committee's work. Thereafter, the Board of
Directors charged the Special Committee with the responsibility to explore and
negotiate the possible sale of the Company, and to make its recommendation in
that regard to the full Board of Directors.
On October 19, 1995, with the authorization of the Special Committee,
representatives of the Company, Parent and Merrill Lynch met with
representatives of the Interested Manufacturer. At this meeting, the Interested
Manufacturer and the Company each made presentations as to their respective
businesses in the context of a possible business combination. Management
representatives of the Company, Parent and the Interested Manufacturer met again
on October 25, 1995 to discuss further the respective businesses of the parties.
On October 24, 1995, financial and legal advisors of Parent, the Special
Committee and the Company held discussions about a possible acquisition by
Parent of all of the outstanding Shares not owned by the Hyundai Shareholders.
At this meeting legal advisors of Parent gave the legal representatives of the
Special Committee and the Company a draft merger agreement for the possible
acquisition.
On October 24, 1995, Parent's representatives delivered a letter to
representatives of the Special Committee stating that Parent was willing to
start negotiations with the Special Committee concerning a possible acquisition
by HEI of the remaining equity interest in the Company not already owned by the
Hyundai Shareholders at a per Share price of $5.15. Parent indicated in the
letter that its ability to proceed with the proposed acquisition would be
subject to several conditions, including the approval of the Company's
disinterested directors under the "standstill" provisions of the Stock Purchase
Agreement, obtaining the necessary Korean governmental approvals and the
satisfaction of certain applicable regulatory requirements. Following caucuses
by each side with its respective advisors, the representatives of Bear Stearns,
the financial advisor to the Special Committee, advised Parent's representatives
that Parent's letter would be presented to the Special Committee at a meeting
scheduled for the following day, but that Bear Stearns would not advise the
Special Committee to accept a price of $5.15.
In response to Bear Stearns' inquiry regarding Parent's rationale for the
$5.15 price, Merrill Lynch indicated that Parent's offer reflected the fact
that, under certain circumstances, if the Company continued its pattern of
quarterly losses, the equity value of the Company could be negative and the
Company would likely exhaust its cash reserves and borrowing capacity in the
near future, and that the Company's financial projections, based on past
performance, were not likely to be achieved.
Thereafter, on October 25, 1995, the Special Committee met and, after
receiving the advice of its financial advisors, determined to decline to accept
Parent's offer of $5.15 per Share. During that meeting the financial advisors to
the Special Committee presented their view that a higher price for the Company
could be supported.
Later that day, the legal and financial advisors of Parent and the Special
Committee met again. At this meeting, representatives of Bear Stearns made a
presentation justifying a range of prices between $6.30 and $12.33 per Share
based on a variety of different valuation methodologies and proposed a per Share
acquisition price of $10.75. Representatives of Merrill Lynch advised the
Special Committee's representatives that $10.75
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was not acceptable to the Parent and that $5.15 per Share was a full and fair
price. Representatives of Merrill Lynch also advised the Special Committee's
representatives that their client was reviewing its options concerning further
negotiations.
On October 26, 1995, the Company issued a press release stating that the
Special Committee did not accept Parent's offer per Share and that the parties
were reviewing their options concerning negotiations and announcing its
quarterly financial results, including net loss of $44.5 million for the quarter
ended September 30, 1995, compared to the $13.8 million net loss reported for
the quarter ended July 1, 1995. See Section 7. On October 26, 1995, the Hyundai
Shareholders filed an amendment to their Schedule 13D disclosing that Parent had
delivered the letter described above to the Special Committee. The Special
Committee also met on October 26, 1995 to consider the status of negotiations
and concluded that it would seek to continue discussions with Parent.
Thereafter, and after discussing the matter with the Special Committee and Bear
Stearns, Mr. Gallo of the Special Committee and Mr. Y. H. Kim, President and
Chief Executive Officer of Parent, met to discuss Parent's offer. At their
meeting, Mr. Gallo indicated that the Special Committee desired a price of $8.00
per Share and Mr. Kim indicated that he believed agreement would be difficult to
reach if the Special Committee were not willing to consider a price
significantly below $8.00, but that HEI would respond to the Special Committee's
position. Mr. Kim also reiterated Parent's view that $5.15 per Share was a full
and fair price for the Shares not already owned by the Hyundai Shareholders.
Later on October 26, 1995, Mr. Charles Hill, the Chairman of the Special
Committee, sent by facsimile to Mr. Chung, the Chairman of HEI, a letter
proposing that Parent pay $8.00 for each Share, and attaching a memorandum
explaining the Special Committee's justifications for a range of prices between
$6.30 and $12.33 per Share based on a number of different valuation
methodologies.
The Special Committee met again on October 27, 1995 to receive a briefing
from Mr. Gallo and to consider the posture of negotiations, and was advised that
management reported that several of the Company's suppliers had indicated their
intention to change the terms upon which they extended credit to the Company.
The Special Committee was also informed that these suppliers expressed
discomfort at the Company's reaction to Parent's original offer. In particular,
one of the Company's major suppliers had advised the Company that it intended to
reduce the Company's credit line with that supplier, with a negative cash impact
to the Company of up to $10 million.
On Saturday, October 28, 1995, Mr. Chung responded by letter to Mr. Hill's
October 26, 1995 letter by requesting that the Special Committee communicate
directly with Mr. Kim concerning the negotiations. Mr. Chung's letter to Mr.
Hill also reiterated Parent's offer of $5.15 per Share.
On Sunday, October 29, 1995, Mr. Kim and Mr. Hill spoke by telephone. Mr.
Kim told Mr. Hill that Parent was willing to increase its offer price for the
outstanding Shares to a price of $6.15 per Share, and that this was Parent's
"best and final" price. Later that evening, Parent's representatives provided to
representatives of the Special Committee their explanation of Parent's $6.15
offer, based on a number of valuation methodologies, and stated that the offer
would be withdrawn on Wednesday, November 1, 1995 at 5:00 p.m., California time
unless the Special Committee accepted it prior to that time. Also, in response
to a specific inquiry from Bear Stearns, Merrill Lynch reported that HEI had
made no determination as to whether to restart negotiations relating to the
Proposed Outsourcing Transaction or the terms thereof in the event that no
agreement was reached on the sale of the Company. Parent also advised the
Special Committee that it intended to amend its filing on Schedule 13D to
disclose its new offer, that the new offer was its "best and final offer," and
that the offer would be withdrawn if not accepted by November 1, 1995. During
the late evening of October 29, 1995, Mr. Hill, after consulting with the
Special Committee, called Mr. Kim and told him that if Parent agreed to a price
of $7.15, then he believed agreement could be reached quickly.
On October 30, 1995, Mr. Kim spoke with Dr. Park and indicated his concern
about the apparent impasse in negotiations. After reporting this conversation to
the Special Committee and requesting authority to do so, Dr. Park was authorized
to conduct a further discussion with Mr. Kim to determine the extent of the
increase which Parent would be willing to make in its offering price. Dr. Park
then did so, and reported back to the Special Committee that Parent appeared
willing to offer $6.30 per Share to conclude the negotiations, but that it did
not appear that Parent would be willing to offer a materially higher price. In a
conversation held
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later that same day between Mr. Hill and Mr. Kim, Mr. Kim confirmed that Parent
would be willing to consider paying $6.30 per Share.
At a meeting of the Special Committee held on October 31, 1995, Bear
Stearns provided its preliminary views as to the fairness of a possible
transaction in the range discussed with Parent, and briefly discussed its
analysis of that subject, and, in particular its view that there appeared to be
a high potential for value erosion at the Company in light of several factors,
including factors beyond the control of the Company such as access to components
to manufacture its products. During this discussion, several members of the
Special Committee noted their view that there appeared to be a significant risk
to the viability of the Company on a stand-alone basis during the next several
months, in part due to the Company's exposure to one or more large customers, as
well as the lack of a predictable supply of components available to the Company
and the difficulty of controlling its inventory, output and receivables
balances, and the possibility that customers would defer payment or reschedule
orders to the Company if the Christmas season was not as robust as expected. In
light of the Company's very tight cash situation, these members of the Special
Committee stated their views that it appeared that a prompt sale of the Company
was in the best interests of the Company and all of its constituencies, and
should be concluded as soon as practicable at the best price which could be
negotiated with Parent. Accordingly, the Special Committee authorized Mr. Hill
to conduct a final round of negotiations with Parent with a view towards
maximizing the price Parent was willing to offer to the Company's shareholders.
During the evening of October 31, 1995, Mr. Kim and Mr. Hill spoke again by
telephone. During that conversation, each indicated his willingness to favorably
consider an acquisition at a per Share price of $6.70.
During the evening of October 31, 1995, the Special Committee met and
discussed the $6.70 per Share price which Parent had indicated it would be
prepared to offer. In connection therewith, the Special Committee was advised by
its financial advisors that they would recommend to Bear Stearns' valuation
committee the issuance of a fairness opinion with regard to the $6.70 offer. The
Bear Stearns representatives also reiterated the basis for their recommendation,
which they had discussed with the Special Committee at its meeting earlier in
the day.
During this meeting, the Special Committee also received a report from
counsel to the Special Committee regarding the draft merger agreement, its
terms, and the issues to be negotiated between the parties. Following such
meeting, the Special Committee determined to request Bear Stearns to provide an
opinion as to the fairness of Parent's $6.70 offer, and instructed its counsel
and counsel for the Company to proceed with negotiation of the merger agreement
as promptly as practicable. The Special Committee also determined that it was
prepared to recommend an offer of $6.70, subject to the receipt of a fairness
opinion from its financial advisor and the negotiation of satisfactory
definitive documentation.
Thereafter, at a meeting held on November 1, 1995, the Special Committee
received the oral opinion of Bear Stearns, confirmed in writing, that the
proposed acquisition at a price of $6.70 per Share was fair from a financial
point of view to the stockholders (other than the holders of the Class A
Shares). The Special Committee also received a presentation by Bear Stearns
outlining the basis for its opinion, and a further report from its counsel and
the Company's counsel as to the draft merger agreement between the parties and
related matters. Bear Stearns advised the Special Committee that the Bear
Stearns Opinion was based, in part, on its view that the Company's financial
viability as a stand-alone company was questionable. Bear Stearns observed that
without a major equity infusion or other long-term financing, the Company might
not survive as an independent company, and therefore stockholders faced a
significant risk of continued value erosion. In particular, Bear Stearns advised
that based on the Company's own projections, by December 1995, it was likely to
have cash on hand of only $6 million, and borrowing capacity of only $31
million. These limited liquidity resources could quickly be exhausted in the
event that any of the assumptions underlying the Company's projections were not
accurate. In this regard, Bear Stearns also noted the historically significant
magnitude of the divergence of the Company's actual operating performance from
its internal financial projections. Bear Stearns also pointed out that the
Company's history of losses for eleven consecutive quarters, totaling
approximately $418 million, and the risk of a liquidity crisis if the Company's
vendors were to change or limit the terms of trade credit extended to the
Company, as some had done and others had indicated an
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intention to do, strongly supported their view. Bear Stearns also reviewed with
the Special Committee its view as to the implied value of the Company based on
implied values of comparable publicly traded companies, recent acquisitions in
the Company's industry and related industries and a premium analysis of storage
company acquisitions and acquisitions of remaining interests of selected
companies, in addition to other analyses and data. See "Opinion of Financial
Advisor" below.
Counsel to the Special Committee and counsel to the Company also advised
the Company on the form of merger agreement negotiated between the parties and
the outstanding issues to be negotiated. In particular, counsel advised the
Special Committee that the proposed agreement did not contain any financing
contingency, did not contain a minimum condition and allows the Company to
terminate the agreement under certain circumstances to accept a more desirable
transaction without any break-up fees. Following such presentations, the Special
Committee approved the Parent's $6.70 offer and determined to recommend it to
the full Board of Directors of the Company, subject to negotiation of definitive
documentation. Following the Special Committee's approval, a press release was
issued by the Company stating that the Special Committee had approved Parent's
acquisition proposal, subject to negotiation of a satisfactory acquisition
agreement. Negotiation of the Merger Agreement was completed on November 2,
1995.
On November 2, 1995, the Special Committee met with its financial and legal
advisors to discuss further the matters that were reviewed at the previous day's
Special Committee meeting. The Special Committee received presentations by its
counsel and counsel for the Company regarding the Merger Agreement. After this
discussion, representatives of Bear Stearns reaffirmed the opinion delivered the
previous day. After discussion of the presentation and the documents, the
Special Committee ratified the decision it had made the previous day to
recommend Parent's offer to the full Board and voted unanimously to recommend
that the full Board of Directors approve the Merger Agreement.
At that same meeting, the Special Committee also formally rejected an offer
it had received for the purchase of IMS from a prospective purchaser other than
HEI. The Special Committee took this action in order to respond formally to such
offer, and in light of its view that the sale of the Company to Parent better
maximized value to stockholders and all other constituencies of the Company than
the sale of the Company's manufacturing facilities, either together or
separately.
On November 2, 1995 the Company's Board of Directors, with Chairman M.H.
Chung absent, met to hear the report of the Special Committee. Chairman Hill of
the Special Committee and the Special Committee's legal advisor reviewed the
negotiations between the Special Committee and Parent concerning the acquisition
proposal. Following these presentations, the Special Committee unanimously
recommended the approval of the Offer, the Merger, and the Merger Agreement. A
representative of Bear Stearns answered questions regarding its fairness opinion
delivered to the Special Committee. Legal counsel for the Company then reviewed
with the Board of Directors the terms of the Merger Agreement, as well as an
amendment to the Company's Rights Agreement to exempt from the Rights Agreement
the transactions contemplated by the Merger Agreement. Following these
presentations, the Board of Directors, based on the recommendation of the
Special Committee, unanimously, with Chairman Chung absent, approved the Offer,
the Merger, the Merger Agreement and the amendment of the Rights Agreement. The
legal representatives of Parent, Purchaser and the Company finalized the Merger
Agreement and Parent, the Purchaser and the Company executed the Merger
Agreement. On the morning of November 3, 1995, the Company issued a press
release announcing the Board of Directors' approval of the transactions
contemplated by the Merger Agreement, based on the recommendation of the Special
Committee, and the parties' execution of the Merger Agreement.
On November 8, 1995, the Purchaser commenced the Offer.
Certain Litigation. On November 1, 1995, a purported class action styled
Wacholder v. Gallo, et al., C.A. No. 14668 (the "Wacholder Action") was filed in
the Court of Chancery of the State of Delaware in and for New Castle County. The
Wacholder Action names as defendants each member of the current Board of
Directors except Mr. Christ. The Wacholder Action also names as defendants HEI,
Parents and Mr. Ryal R. Poppa, a former director of the Company. The Wacholder
Action alleges that HEI controls and dominates the directors of the Company and
that the Company directors have approved the Parent's $6.70 proposal
notwithstanding the "gross inadequacy and unfairness of the price." The
Wacholder Action seeks relief
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including, inter alia, a preliminary and permanent injunction against the
consummation of the Offer, unspecified damages and attorneys' fees and costs.
The defendants in the Wacholder Action believe the allegations in the complaint
are without merit and those defendants which are subject to the jurisdiction of
the court intend to defend against the action vigorously.
Reasons for the Recommendation of the Board of Directors and the Special
Committee.
The Special Committee. As described above, at its meeting on November 1,
1995, the Special Committee unanimously approved the Offer and the Merger as
fair to the Company's stockholders (other than the holders of the Class A
Shares), subject to negotiation of definitive documents. At its meeting on
November 2, 1995, the Special Committee unanimously reaffirmed its approval of
the Offer and the Merger, unanimously approved the Merger Agreement and the
transactions contemplated thereby and unanimously decided to recommend approval
to the Board of Directors.
In reaching its conclusion and recommendation described above, the Special
Committee considered the following factors:
(i) the substantial premium which $6.70 per Share represents over
current and recent trading prices;
(ii) the opinion of Bear Stearns to the effect that, as of the date of
its opinion and based upon and subject to certain matters stated therein,
the consideration to be received by the holders of Shares (other than Class
A Shares) pursuant to the Offer and the Merger was fair from a financial
point of view to such holders. The full text of the Bear Stearns Opinion,
which sets forth the assumptions made, matters considered and limitations
on the review undertaken by Bear Stearns, is attached hereto as Exhibit I.
Stockholders are urged to read the Bear Stearns Opinion carefully and in
its entirety for assumptions made, matters considered and limits of the
review by Bear Stearns;
(iii) the results of the inquiries made by the Company to several
major companies in the disk drive and related industries regarding a
possible strategic alliance, partnership, business combination or similar
transaction with the Company which indicated that none of those companies
expressed any interest in entering into any such transaction except the
Interested Manufacturer, and the Interested Manufacturer had declined
outright to consider a joint venture or merger with the Company as a
stand-alone entity;
(iv) the business, results of operations, financial condition and
future prospects of the Company;
(v) the uncertainty of the Company's cash position, and the fact that
the Company was relying heavily on the cash to be generated from the
proposed outsourcing transaction in the event that the negotiations
regarding the sale of the Company did not succeed, and the observation of
its financial advisor that without a major equity infusion or other
long-term financing, the Company might not survive as an independent
company;
(vi) the terms of the Offer, the Merger and the Merger Agreement,
including the structural feature of the Offer and the Merger providing for
a prompt cash tender offer for all outstanding shares to be followed by a
merger for the same consideration, thereby enabling stockholders to obtain
the benefits of the transaction in exchange for their Shares at the
earliest possible time;
(vii) other provisions of the Offer and Merger Agreement, including
the fact that the Offer is not subject to any financing or minimum
conditions, and that the Merger Agreement allows the Company to terminate
under certain circumstances to accept more desirable transactions without
paying any break-up fee;
(viii) the fact that Parent indicated, through Merrill Lynch, that HEI
had made no determination as to whether to restart negotiations regarding
the sale of the Company's manufacturing assets or the terms thereof in the
absence of a sale of the Company;
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(ix) the extensive arm's-length negotiations between the Special
Committee and Parent leading to the belief of the Special Committee that
$6.70 per Share represented the highest price per Share that could be
negotiated with Parent; and
(x) the deadline placed on the offer by Parent and the risk that
Parent would withdraw its offer after that deadline.
In view of the wide variety of factors considered by the Special Committee,
the Special Committee did not find it practical to, and did not, quantify or
otherwise assign relative weights to the foregoing factors or determine that any
factor was of particular importance. Rather, the Special Committee viewed its
position and recommendation as being based on the totality of the information
presented to and considered by it.
Having considered all the foregoing, and other relevant factors, the
Special Committee concluded that the Offer and the Merger, taken together, was
the best available alternative for the Company, its stockholders and other
constituencies and was fair to and in the best interests of the Company's
stockholders (other than holders of Class A Shares).
The Board of Directors. At its November 2, 1995 meeting, discussed above,
the Board of Directors, comprised of the three members of the Special Committee
and Messrs. Park, Balanson and Jeon, with Chairman M.H. Chung absent, met to
receive the recommendations of the Special Committee and consider the Offer, the
Merger and the other transactions contemplated by the Merger Agreement. In such
meeting, the Board of Directors unanimously approved the Offer, the Merger and
the other transactions contemplated by the Merger Agreement, determined that the
Offer, the Merger and the transactions contemplated by the Merger Agreement are
fair to and in the best interests of the Company's stockholders (other than
holders of Class A Shares) and determined to recommend that the stockholders of
the Company (other than holders of Class A Shares) accept the Offer and tender
their Shares.
In so doing, the Board of Directors gave predominant weight to the
recommendations of the Special Committee, having taken into account the purposes
for which the Special Committee had been formed and having received a
presentation from the Special Committee regarding its extensive arm's length
negotiations, deliberations and consultation with financial and legal advisors.
The Board of Directors also attached significance to the Bear Stearns Opinion to
the Special Committee that, as of the date of such opinion, the Offer and Merger
were fair from a financial point of view to the Company's stockholders (other
than the holders of Class A Shares).
Opinion of Financial Advisor.
On November 1, 1995, at the request of the Special Committee, Bear Stearns
delivered an oral opinion to the Special Committee, subsequently confirmed in
writing by delivery of its written opinion dated as of November 1, 1995 (the
"Bear Stearns Opinion"), to the effect that, as of that date, the Offer and the
Merger were fair, from a financial point of view, to the stockholders of the
Company (other than the holders of the Class A Shares). The full text of the
Bear Stearns Opinion is attached as Exhibit 14 to this Schedule 14D-9 and
incorporated herein by reference. The Bear Stearns Opinion is also included as
Appendix I to this Schedule 14D-9. The Company's stockholders are urged to, and
should, read such opinion carefully in its entirety for assumptions made,
matters considered and limits of the review by Bear Stearns.
The Bear Stearns Opinion addresses only the fairness of the Offer and the
Merger, from a financial point of view, to the stockholders of the Company
(other than the holders of Class A Shares) as of the date set forth therein and
does not constitute a recommendation to any stockholder of the Company to accept
the Offer and tender his Shares. The summary of the Bear Stearns Opinion set
forth herein is qualified in its entirety by reference to the full text of such
Opinion.
Bear Stearns evaluated the financial terms of the Offer and the Merger and
participated in the discussions concerning the consideration to be received.
However, the consideration to be received by the Company's stockholders as a
result of the Offer and the Merger was determined by negotiation between the
Special Committee and Parent after consultation by each of such parties with its
financial advisor. In connection with rendering its Opinion, Bear Stearns, among
other things: (i) reviewed the Merger Agreement in substantially
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final form; (ii) reviewed the Company's Annual Reports to Stockholders and
Annual Reports on Form 10-K for the fiscal years ended March 31, 1993 through
1995, and its Quarterly Report on Form 10-Q for the period ended July 1, 1995;
(iii) reviewed certain operating and financial information, including
projections, provided to Bear Stearns by management relating to the Company's
business and prospects; (iv) met with certain members of the Company's senior
management to discuss its operations, historical financial statements and future
prospects; (v) visited the Company's facilities in San Jose, California; (vi)
reviewed the historical prices and trading volume of the Shares; (vii) reviewed
publicly available financial data and stock market performance data of other
publicly-held companies which it deemed generally comparable to the Company;
(viii) reviewed the financial terms of certain other recent acquisitions of
companies which it deemed generally comparable to the Company; and (ix)
conducted such other studies, analyses, inquiries and investigations as it
deemed appropriate.
In connection with its activities on the Special Committee's behalf, Bear
Stearns relied upon and assumed, without independent verification (i) the
accuracy and completeness of all of the financial and other information provided
to it for purposes of its Opinion and (ii) the reasonableness of the assumptions
made by the management of the Company with respect to its projected financial
results. In addition, Bear Stearns did not make or seek to obtain appraisals of
the Company's assets and liabilities in rendering the Bear Stearns Opinion. Bear
Stearns further relied upon the assurances of the management of the Company that
such management was not aware of any facts that would make the information
provided to Bear Stearns incomplete or misleading. The Bear Stearns Opinion is
also necessarily based upon the economic, market and other conditions as in
effect on, and the information made available to it as of, the date of the
Opinion.
The following is a summary of certain information considered by Bear
Stearns in connection with providing the Bear Stearns Opinion to the Special
Committee.
Bear Stearns noted that the Company has been unprofitable on an operating
basis for 11 consecutive quarters and, in that time, had net losses of
approximately $418 million on revenue of approximately $3.0 billion. During this
time, the Share price has fallen from the $12-15 range to the $4-6 range. For
the quarter ended September 30, 1995, the Company reported a net loss of $44.5
million, compared to the $13.8 million loss in the June quarter. Bear Stearns
also observed that the Company has frequently underperformed relative to its
internal financial projections. In four of the last five quarters, the Company
has recorded revenue and pretax income (excluding non-recurring items) well
below internal expectations. Given the uncertainty surrounding the Company's
ability to achieve its financial projections, Bear Stearns noted that the
Company's liquidity situation was likely to continue to worsen.
Comparable Company Analysis. Bear Stearns compared certain actual and
estimated financial data, stock market data and multiples of income statement
parameters of certain other publicly traded companies deemed to be generally
comparable to the Company. Such companies were used in this analysis because
they were deemed by Bear Stearns to operate in the same general industry (disk
drives) as the Company. Bear Stearns used the following five companies it
considered to be generally comparable (the "Comparable Companies"): Conner
Peripherals, Inc. ("Conner"), Micropolis Corporation, Quantum Corporation
("Quantum"), Seagate Technology, Inc. ("Seagate") and Western Digital
Corporation. Bear Stearns excluded Conner from calculations involving valuation
multiples because, in its view, Conner's stock is no longer trading on the basis
of its financial performance but is instead trading on the basis of its pending
merger with Seagate. Bear Stearns observed that no company used in this analysis
as a comparison is identical to the Company. In particular, such companies have
different product mixes and different proportions of original equipment
manufacturer ("OEM") and distribution sales and have different operating
histories and financial conditions.
Financial data compared included market value, enterprise value (defined as
market value plus debt less cash), revenues, earnings before interest, taxes,
depreciation and amortization ("EBITDA"), earnings before interest and taxes
("EBIT"), net income, earnings per share, gross margin, EBITDA margin, EBIT
margin and projected earnings per share based on a compilation of earnings
estimates of securities analysts. Multiples compared included enterprise value
to latest twelve months revenues, enterprise value to latest twelve months
EBITDA, enterprise value to latest twelve months EBIT and price per share to
latest twelve months and projected calendar 1995 and 1996 earnings per share.
The earnings projections for the Comparable Companies were based upon the
consensus published projections of financial analysts. The range of earnings
projections
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for the Company were based on information provided by the Company. In performing
the Comparable Company analyses, Bear Stearns focused primarily on the implied
equity values per share derived by applying the harmonic mean multiples of
certain income statement parameters at which the Comparable Companies traded to
the Company's respective income statement parameters.
Based on the harmonic mean (an average which gives equal weight to equal
dollar investments) multiple of enterprise value to revenues for the twelve
months ended September 30, 1995 ("LTM") of 0.35x for the Comparable Companies,
the Company's implied equity value per share was $4.38. This harmonic mean
multiple compared to a range of 0.25x to 0.59x for the Comparable Companies.
Based on the harmonic mean multiple of price per share to projected calendar
1996 earnings of 7.2x for the Comparable Companies, the Company's implied equity
value per share ranged from $3.60 to $7.20. This harmonic mean multiple compared
to a range of 5.4x to 8.8x for the Comparable Companies. A derivation of implied
value based on LTM EBITDA, LTM EBIT, LTM earnings per share or projected
calendar 1995 earnings per share produced results which were not meaningful due
to the Company's operating losses during these periods. The overall range of
values indicated from the above analyses resulted in an overall range of implied
equity value per share for the Company of $3.60 to $7.20. Bear Stearns noted
that the $6.70 offer price was towards the high end of this range of values.
Bear Stearns noted that its analysis indicated that: (i) the Company's LTM
gross margin was 7.1% as compared to a mean LTM gross margin for the Comparable
Companies of 16.3%; (ii) the Company's LTM EBIT margin was (6.8%) as compared to
a mean LTM EBIT margin for the Comparable Companies of 5.1%; and (iii) the
Company's LTM net margin was (7.5%) as compared to a mean LTM net margin for the
Comparable Companies of 3.6%. Bear Stearns also noted that: (i) the Company's
cash balance as a percentage of LTM revenues was 1.5% as compared to a mean cash
balance as a percentage of LTM revenues for the Comparable Companies of 13.9%;
(ii) the Company's ratio of total debt to total capitalization was 106% as
compared to a mean ratio of total debt to total capitalization for the
Comparable Companies of 40%; and (iii) the Company had negative tangible net
worth as of September 30, 1995.
Comparable Transaction Analysis. Bear Stearns analyzed the multiples of
various financial statistics implied by the consideration paid in eight pending
or consummated merger and acquisition transactions since 1990 involving
companies deemed to be generally comparable to the Company. Such companies were
used in this analysis because they were deemed by Bear Stearns to operate in the
same general industry sector as the Company. To the extent information was
publicly available for these transactions, multiples analyzed included price per
share to latest twelve months and projected earnings per share and aggregate
transaction value (defined as the total price paid for all equity securities of
a company plus debt less cash) to latest twelve months revenues, EBITDA and
EBIT. The transactions analyzed included: Conner and Seagate; the Disk Drive
Division ("Digital") of Digital Equipment Corporation and Quantum; Sunward
Technologies, Inc. and Read-Rite Corporation; Archive Corporation and Conner
Peripherals, Inc.; Colorado Memory Systems, Inc. and Hewlett-Packard Company;
Dastek, Inc. and Komag Incorporated; WangDAT, Inc. and Rexon Incorporated; and
Cipher Data Products, Inc. and Archive Corporation (collectively, the
"Comparable Transactions"). Bear Stearns observed that no company used in this
analysis as a comparison is identical to the Company. In particular, such
companies have different product offerings and market positions than the Company
and have different operating histories and financial conditions. In performing
the Comparable Transactions analyses, Bear Stearns focused primarily on the
implied equity values per share derived by applying the harmonic mean multiples
of certain income statement parameters at which the Comparable Transactions were
completed to the Company's respective income statement parameters.
Based on the harmonic mean multiple of aggregate transaction value to
latest twelve months revenues of 0.77x for the Comparable Transactions, the
Company's implied equity value per share was $12.31. This harmonic mean multiple
compared to a range of 0.45x to 1.69x for the Comparable Transactions. Based on
the harmonic mean multiple of price per share to projected next year earnings
per share of 9.2x for the Comparable Transactions, the Company's implied equity
value per share ranged from $4.60 to $9.20. This harmonic mean multiple compared
to a range of 7.2x to 15.9x for the Comparable Transactions. A derivation of
implied value based on LTM EBITDA, LTM EBIT, LTM earnings per share or projected
current year earnings per share produced results which were not meaningful due
to the Company's operating losses during
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these periods. The overall range of values indicated from the above analyses
resulted in an overall range of implied equity value per share for the Company
of $4.60 to $12.31. Bear Stearns noted that the $6.70 offer price was within
this range of values.
Bear Stearns observed that two recent transactions involving disk drive
companies (i.e., Conner/Seagate and Digital/Quantum) were more comparable than
the other transactions and therefore analyzed the multiples of various financial
statistics implied by the consideration paid in each of these transactions
separately.
Based on the multiple of aggregate transaction value to latest twelve
months revenues of 0.54x for the Conner/Seagate transaction, the Company's
implied equity value per share was $7.97. Based on the multiple of price per
share to projected next year earnings per share of 15.9x for the Conner/Seagate
transaction, the Company's implied equity value per share ranged from $7.95 to
$15.90. A derivation of implied value based on LTM EBITDA, LTM EBIT, LTM
earnings per share or projected current year earnings per share produced results
which were not meaningful due to the Company's operating losses during these
periods. The overall range of values indicated from the above analyses resulted
in an overall range of implied equity value per share for the Company of $7.95
to $15.90. Bear Stearns noted that the $6.70 offer price was below the low end
of this range of values by approximately 16%. Bear Stearns also noted that its
analysis indicated that: (i) the Company's LTM gross margin was 7.1% as compared
to Conner's LTM gross margin of 16.4%; (ii) the Company's LTM EBIT margin was
(6.8%) as compared to Conner's LTM EBIT margin of 2.2%; and (iii) the Company's
LTM net margin was (7.5%) as compared to Conner's LTM net margin of 1.3%. Bear
Stearns also noted that: (i) the Company's cash balance as a percentage of LTM
revenues was 1.5% as compared to Conner's cash balance as a percentage of LTM
revenues of 13.8%; and (ii) the Company's ratio of total debt to total
capitalization was 106% as compared to Conner's ratio of total debt to total
capitalization of 58%.
Based on the multiple of aggregate transaction value to latest twelve
months revenues of 0.45x for the Digital/Quantum transaction, the Company's
implied equity value per share was $6.27. A derivation of implied value based on
LTM EBITDA, LTM EBIT, LTM earnings per share or projected current or next year
earnings per share produced results which were (i) not meaningful due to the
Company's operating losses during these periods; or (ii) not available due to
insufficient data. Bear Stearns noted that the $6.70 offer price exceeded the
implied equity value per share of $6.27 by approximately 6%. Bear Stearns also
noted that its analysis indicated that: (i) the Company's LTM gross margin was
7.1% as compared to Digital's gross margin of 1.1% for the twelve months ended
October 1, 1994; (ii) the Company's LTM EBIT margin was (6.8%) as compared to
Digital's EBIT margin of (17.1%) for the twelve months ended October 1, 1994;
and (iii) the Company's LTM net margin was (7.5%) as compared to Digital's net
margin of (17.3%) for the twelve months ended October 1, 1994.
Review of Historical Trading Data and Acquisition Premiums. Bear Stearns
reviewed the historical public trading prices of the Company's Common Stock for
the period from January 1, 1990 through October 31, 1995. Bear Stearns observed
that during the last 52-week period, Maxtor's high Share closing price was $7.00
and its low Share closing price was $3.63. Bear Stearns also observed that the
Share price has closed higher than the $6.70 offer price only once since May
1994.
Bear Stearns reviewed the premiums paid by acquirors in the public
Comparable Transactions relative to the stock price of the target company one
trading day prior, ten trading days prior and thirty trading days prior to the
announcement of the transaction. The means of the premiums paid relative to the
target's stock price one trading day prior, ten trading days prior and thirty
trading days prior to the announcement of the public Comparable Transactions
discussed above (i.e., Conner/Seagate, Sunward/Read-Rite, Archive/Conner and
Cipher Data/Archive) were 46%, 59% and 53%, respectively. The offer price of
$6.70 per share represents a premium of 43%, 60% and 26% over the closing price
of the Shares one trading day prior, ten trading days prior and thirty trading
days prior, respectively, to the first public announcement that discussions
regarding an acquisition of the Company were underway. The offer price of $6.70
per share represents a premium of 12%, 25% and 49% over the closing price of the
Company's common stock one trading day prior, ten trading days
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prior and thirty trading days prior, respectively, to the first public
announcement of the proposed outsourcing transaction.
Bear Stearns also reviewed certain publicly available information relating
to thirteen completed and pending acquisitions of remaining interests greater
than 20% since January 1, 1994 involving publicly traded companies. Such
analysis examined the premiums paid by significant shareholders relative to the
stock price of the target company one trading day prior, ten trading days prior
and thirty trading days prior to the announcement of the transaction. The means
of the premiums paid relative to the target's stock price one trading day prior,
ten trading days prior and thirty trading days prior in acquisitions of
remaining interests were 26%, 44% and 48%, respectively. Bear Stearns does not
consider the average premiums paid in other transactions to be a relevant
standard of fairness.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying Bear Stearns' opinion. In arriving at its opinion, Bear Stearns
considered the results of all such analyses. The analyses were prepared solely
for purposes of providing its opinion as to the fairness of the Offer and the
Merger, from a financial point of view, to the stockholders of the Company
(other than the holders of the Class A Shares) and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. As described above, the Bear
Stearns Opinion and presentation to the Special Committee was one of many
factors taken into consideration by the Special Committee in making its
determination to approve the Offer, the Merger and the Merger Agreement. The
foregoing summary does not purport to be a complete description of the analysis
performed by Bear Stearns.
In the ordinary course of its business, Bear Stearns may actively trade the
equity and equity-related securities of the Company for its own account and for
the accounts of customers and, accordingly, may, at any time, hold a long or
short position in such securities.
The Special Committee of the Board of Directors of the Company selected
Bear Stearns as its financial advisor in connection with the transactions
contemplated by the Merger Agreement. Bear Stearns was selected by the Special
Committee because of its qualifications and expertise in providing advice to
companies in the disk drive and data storage industries, as well as its
reputation as an internationally recognized investment banking firm and its
reputation and experience in rendering fairness opinions. In addition, the
Special Committee considered the fact that Bear Stearns was familiar with the
Company, having represented the Company in connection with its sale of Class A
Shares to the Hyundai Shareholders pursuant to the Stock Purchase Agreement as
described above.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to a letter agreement, dated October 24, 1995, the Company agreed
to pay Bear Stearns (a) a fee of $400,000 for rendering its opinion in
connection with the Offer and the Merger and (b) an additional fee of 1.125% of
the total consideration paid by Purchaser in the Offer and the Merger (excluding
debt guaranteed by Purchaser or its affiliates), against which will be credited
(i) the $400,000 fee and (ii) a $300,000 fee paid pursuant to a letter agreement
dated August 24, 1995 (discussed below). The Company has also agreed to
reimburse Bear Stearns for its reasonable out-of-pocket expenses up to $50,000,
including the reasonable fees and disbursements of counsel, and to indemnify
Bear Stearns and certain related persons against certain liabilities in
connection with the engagement of Bear Stearns, including certain liabilities
under the federal securities laws.
In connection with the Proposed Outsourcing Transaction, the Special
Committee retained Bear Stearns to assist it as its exclusive financial advisor.
Pursuant to a letter agreement, dated August 24, 1995, the Company agreed to pay
Bear Stearns (a) an initial fee $100,000; (b) a fee of $200,000 for rendering
its opinion in connection with the Proposed Outsourcing Transaction; (c) an
additional fee of $200,000 upon closing if an outsourcing agreement was
consummated with HEI; and (d) 1.00% of the fair market value of
22
<PAGE> 24
the total consideration paid by any purchaser other than HEI, against which
would be credited (i) the $100,000 fee and (ii) the $200,000 opinion fee. The
Company agreed to reimburse Bear Stearns for its reasonable out-of-pocket
expenses up to $25,000, including the reasonable fees and disbursements of
counsel, and to indemnify Bear Stearns and certain related persons against
certain liabilities in connection with the engagement of Bear Stearns, including
certain liabilities under the federal securities laws. Bear Stearns was paid a
total of $300,000 under the terms of this letter agreement.
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations or
recommendations to the Company's stockholders with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best of the Company's knowledge, no transactions in the Shares
have been effected during the past 60 days by the Company or by any executive
officer, director, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, all of its executive officers,
directors, affiliates or subsidiaries presently intends to tender into the Offer
any Shares which are held of record or beneficially owned by such persons.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, the Company has not
undertaken any negotiations in response to the Offer which relate to or would
result in (i) an extraordinary transaction involving the Company, (ii) a
purchase, sale or transfer of a material amount of the assets of the Company,
(iii) a tender offer for or other acquisition of securities by or of the Company
or (iv) a material change in the present capitalization or dividend policy of
the Company.
(b) Except as described in Item 3(b) and Item 4 above, there are presently
no transactions, board resolutions, agreements in principle or signed contracts
in response to the Offer which relate to or would result in one or more of the
matters referred to in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) General. Except as otherwise disclosed herein, based on a review of
publicly available information filed by the Company with the SEC, neither the
Purchaser nor Parent is aware of (i) any license or regulatory permit that
appears to be material to the business of the Company and its subsidiaries,
taken as a whole, that might be adversely affected by the acquisition of Shares
by the Purchaser pursuant to the Offer or the Merger or (ii) any approval or
other action, other than satisfaction of the Korean Approval Condition, the
requirements of and the extension of termination of all waiting periods imposed
by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
regulations thereunder (the "HSR Act") and the requirements of Section 2171 of
the Defense Production Act of 1950, as amended (the "Exon-Florio Provision"),
described below, by any governmental, administrative or regulatory agency or
authority, domestic or foreign, that would be required for the acquisition or
ownership of Shares by the Purchaser as contemplated herein. Should any such
approval or other action be required, the Purchaser currently contemplates that
such approval or action would be sought. While the Purchaser does not currently
intend to delay the acceptance for payment of Shares tendered pursuant to the
Offer pending the outcome of any such matter, there can be no assurance that any
such approval or action, if needed, would be obtained or would be obtained
without substantial conditions or that adverse consequences might not result to
the business of the Company, the Purchaser or Parent or that certain parts of
the businesses of the Company, the Purchaser or Parent might not have to be
disposed of in the event that such approvals were not obtained or any other
actions were not taken. The Purchaser's obligation under the Offer to accept for
payment and pay for Shares is subject to certain conditions.
(b) Korean Governmental Approvals. The Offer is conditioned on, among
other things, the obtainment of final approval of all necessary governmental
officials and agencies of the Republic of Korea to consummate
23
<PAGE> 25
the Offer, the Merger and the other transactions contemplated by the Merger
Agreement, without any conditions reasonably deemed by Parent to materially
adversely affect the intended benefits to it and its affiliates of the Offer,
the Merger and the other transactions contemplated by the Merger Agreement. HEI
expects to submit an approval application with the Bank of Korea (the "BOK")
pursuant to the Foreign Exchange Control Act of Korea (the "FECA") in connection
with the Offer, the Merger and the transactions contemplated by the Merger
Agreement. Under FECA and the rules promulgated thereunder, overseas investments
by a Korean resident are permissible in principle when the shares to be acquired
by the Korean investor will constitute 20% or more of the outstanding shares of
a company. Because the Offer, the Merger and the transactions contemplated by
the Merger Agreement contemplate an investment of over $10 million in a foreign
country, Parent and the Purchaser must also obtain approval of the Overseas
Investment Deliberation Committee (the "OIDC"), a committee of Korean government
officials operating under the auspices of the BOK and the Korean Ministry of
Finance and Economy (the "MOFE"). The OIDC considers factors such as the general
appropriateness of the investment, possible negative effects of the transaction
upon the Korean economy or Korean foreign policy, whether the transaction would
be against Korean social or public order, and whether the Korean investor has
previously violated Korean foreign investment policies.
Once all the necessary documents for the BOK approval are prepared and
filed with the BOK, the BOK preliminarily reviews the application and forwards
it to the MOFE. The MOFE then arranges for review of the application by the
OIDC, and the OIDC determines whether or not to approve the application.
Following the OIDC's decision, the MOFE returns the application to the BOK along
with the OIDC's decision. The BOK then issues its final decision on approval
shortly after such receipt. The Purchaser will not accept for payment Shares
validly tendered pursuant to the Offer unless and until the Korean Approval
Condition is satisfied. It is not possible to predict the amount of time
necessary to obtain this governmental approval or whether such approval can be
obtained. It is anticipated, however, that the time necessary to obtain such
approval will extend beyond the Expiration Date, and the Company has been
advised that subject to the other conditions to the Offer, the Purchaser intends
to extend the Offer from time to time until such approval has been received. It
is expected that the application will be submitted by Parent by November 15,
1995.
(c) Antitrust. Under the HSR Act, and the rules that have been promulgated
thereunder by the Federal Trade Commission (the "FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the FTC and certain waiting period requirements have been
satisfied. Parent expects to file a Notification and Report Form with respect to
the Offer, the Merger and the other transactions contemplated by the Merger
Agreement by November 10, 1995.
Under the provisions of the HSR Act applicable to the Offer, the purchase
of Shares under the Offer may not be consummated until the expiration of a
15-calendar day waiting period following the filing by Parent. Accordingly, if
such filing is made on the expected date of November 10, 1995, the waiting
period with respect to the Offer will expire at 11:59 p.m., New York City time,
on November 25, 1995, unless Parent receives a request for additional
information or documentary material, or the Antitrust Division and the FTC
terminate the waiting period prior thereto. If, within such 15-day period,
either the Antitrust Division or the FTC requests additional information or
material from Parent concerning the Offer, the waiting period will be extended
and would expire at 11:59 p.m., New York City time, on the tenth calendar day
after the date of substantial compliance by Parent with such request. Only one
extension of the waiting period pursuant to a request for additional information
is authorized by the HSR Act. Thereafter, such waiting period may be extended
only by court order or with the consent of Parent. The Purchaser will not accept
for payment Shares tendered pursuant to the Offer unless and until the waiting
period requirements imposed by the HSR Act with respect to the Offer have been
satisfied.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's acquisition of Shares
pursuant to the Offer and the Merger. At any time before or after the
Purchaser's acquisition of Shares, the Antitrust Division or the FTC could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the acquisition of Shares pursuant
to the Offer or otherwise or seeking divestiture of Shares acquired by the
Purchaser or divestiture of substantial assets of Parent or its subsidiaries.
Private parties and state attorneys general may also bring action under the
antitrust laws under certain circumstances. Based upon an
24
<PAGE> 26
examination of publicly available information relating to the businesses in
which Parent and the Company are engaged, Parent and the Purchaser believe that
the acquisition of Shares by the Purchaser will not violate the antitrust laws.
Nevertheless, there can be no assurance that a challenge to the Offer or other
acquisition of Shares by the Purchaser on antitrust grounds will not be made or,
if such a challenge is made, of the result.
(d) Exon-Florio Provision. The Exon-Florio Provision applies to all
acquisitions proposed or pending on or after August 23, 1988, by or with foreign
persons which could result in foreign control of persons engaged in interstate
commerce in the United States. The Exon-Florio Provision empowers the President
of the United States to prohibit or suspend mergers, acquisitions or takeovers
by or with foreign persons if the President finds, after investigations,
credible evidence that the foreign person might take action that threatens to
impair the national security of the United States and that other provisions of
existing law do not provided adequate and appropriate authority to protect the
national security. The President has designated The Committee on Foreign
Investment in the United States ("CFIUS") as the agency authorized under the
Exon-Florio Provision to receive notices and other information, to determine
whether investigations should be undertaken and to make investigations. CFIUS is
comprised of representatives of the Departments of Treasury, State, Commerce,
Defense and Justice, the Office of Management and Budget, the United States
Trade Representative's Office and the Council of Economic Advisors. Any
determination by CFIUS that an investigation is called for must be made within
30 days after its acceptance of written notification concerning a proposed
transaction. In the event that CFIUS determines to undertake an investigation,
such investigation must be completed within 45 days after such determination.
Upon completion or termination of any such investigation, the Committee must
report to the President and present its recommendation. The President then has
15 days in which to suspend or prohibit the proposed transaction or to seek
other appropriate relief. In order for the President to exercise his authority
to suspend or prohibit an acquisition, the President must make two findings: (i)
that there is credible evidence that leads the President to believe that the
foreign interest exercising control might take action that threatens to impair
national security and (ii) that provisions of law other than the Exon-Florio
Amendment and the International Emergency Economic Powers Act do not provide
adequate and appropriate authority for the President to protect the national
security in connection with the acquisition. Such findings are not subject to
judicial review. If the President makes such findings, he may take action for
such time as he considers appropriate to suspend or prohibit the relevant
acquisition. The President may direct the Attorney General to seek appropriate
relief, including divestment relief, in the District Courts of the United States
in order to implement and enforce the Exon-Florio Amendment. The Exon-Florio
Amendment does not obligate the parties to an acquisition to notify CFIUS of a
proposed transaction. However, if notice of a proposed acquisition is not
submitted to CFIUS, then the transaction remains indefinitely subject to review
by the President under the Exon-Florio Amendment, unless it is determined that
CFIUS does not have jurisdiction over the transaction.
The Purchaser and the Company have not yet determined whether CFIUS has
jurisdiction and therefore whether a filing is appropriate with regard to the
transactions contemplated by the Merger Agreement. Although the Purchaser
believes that the transactions contemplated by the Merger Agreement should not
raise any national security concerns, there can be no assurance that CFIUS will
not determine to conduct an investigation of the proposed transaction and, if an
investigation is commenced, there can be no assurance regarding the outcome of
such investigation. If the results of such investigation are adverse to the
Purchaser, the Purchaser may not be obligated to accept for payment or pay for
any Shares tendered pursuant to the Offer.
(e) State Takeover Statutes. As a Delaware corporation, the Company is
subject to Section 203 ("Section 203") of the DGCL. Section 203 would prevent an
"Interested Stockholder" (generally defined as a person beneficially owning 15%
or more of a corporation's voting stock) from engaging in a "Business
Combination" (as defined in Section 203) with a Delaware corporation for three
years following the date such person became an Interested Stockholder unless:
(i) before such person became an Interested Stockholder, the board of directors
of the corporation approved the transaction in which the Interested Stockholder
became an Interested Stockholder or approved the Business Combination; (ii) upon
consummation of the transaction which resulted in the Interested Stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time that the
transaction
25
<PAGE> 27
commenced (excluding stock held by directors who are also officers and by
employee stock ownership plans that do not allow plan participants to determine
confidentially whether to tender shares); or (iii) following the transaction in
which such person became an Interested Stockholder, the Business Combination is
(a) approved by the board of directors of the corporation and (b) authorized at
a meeting of stockholders by the affirmative vote of the holders of at least 66
2/3% of the outstanding voting stock of the corporation not owned by the
Interested Stockholder. In accordance with the provisions of the Company's
Restated Certificate of Incorporation and Section 203, the Board approved the
acquisition of Class A Shares by Parent and its affiliates in 1993. Accordingly,
the transactions contemplated by the Merger Agreement, including Purchaser's
acquisition of Shares pursuant to the Offer, are exempt from the provisions of
Section 203.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or have
substantial assets, stockholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects, in such states. In 1982, in Edgar v. MITE Corp., the Supreme
Court of the United States invalidated on constitutional grounds the Illinois
Business Takeover Statute, which, as a matter of state securities law, made
takeovers of corporations meeting certain requirements more difficult. However,
in 1987 in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that
the State of Indiana may, as a matter of corporate law, and, in particular, with
respect to those aspects of corporate law concerning corporate governance,
constitutionally disqualify a potential acquirer from voting on the affairs of a
target corporation without the prior approval of the remaining stockholders. The
state law before the Supreme Court was by its terms applicable only to
corporations that had a substantial number of stockholders in the state and were
incorporated there. Subsequently, a number of Federal courts ruled that various
state takeover statutes were unconstitutional insofar as they apply to
corporations incorporated outside the state of enactment.
The Company, directly or through subsidiaries, conducts business in a
number of states throughout the United States, some of which have enacted
takeover laws. The Purchaser does not know whether any of these laws will, by
their terms, apply to the Offer and has not complied with any such laws. Should
any person seek to apply any state takeover law, the Purchaser will take such
action as then appears desirable, which may include challenging the validity or
applicability of any such statute in appropriate court proceedings. In the event
it is asserted that one or more state takeover laws is applicable to the Offer
and the Merger, and an appropriate court does not determine that it is
inapplicable or invalid as applied to the Offer, the Purchaser might be required
to file certain information with, or receive approvals from, the relevant state
authorities. In addition, if enjoined, the Purchaser might be unable to accept
for payment any Shares tendered pursuant to the Offer, or be delayed in
continuing or consummating the Offer. In such case, the Purchaser may not be
obligated to accept for payment any Shares tendered.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
Exhibit 1 Offer to Purchase dated November 8, 1995.
Exhibit 2 Letter of Transmittal dated November 8, 1995.
Exhibit 3 Agreement and Plan of Merger among Maxtor Corporation, Hyundai Acquisition,
Inc. and Hyundai Electronics America dated as of November 2, 1995.(1)
Exhibit 4 Rights Agreement dated as of January 27, 1988 between Maxtor Corporation and
The First National Bank of Boston, as Rights Agent.(2)
Exhibit 5 Amendment to Rights Agreement dated as of September 10, 1993 between Maxtor
Corporation and The First National Bank of Boston, as Rights Agent.(3)
Exhibit 6 Amendment No. 2 to Rights Agreement dated as of November 2, 1995 between Maxtor
Corporation and The First National Bank of Boston, as Rights Agent.
Exhibit 7 Letter to Stockholders of Maxtor Corporation dated November 8, 1995.*
Exhibit 8 Stock Purchase Agreement among Hyundai Electronics Industries Co., Ltd. Hyundai
Heavy Industries Co., Ltd. Hyundai Corporation and Hyundai Merchant Marine Co.,
Ltd. and Maxtor Corporation dated September 10, 1993.(2)
</TABLE>
26
<PAGE> 28
<TABLE>
<S> <C>
Exhibit 9 Restated Certificate of Incorporation of Maxtor Corporation effective February
3, 1994.(2)
Exhibit 10 Manufacturing and Purchasing Agreement between Maxtor Corporation and Hyundai
Electronics Industries Co., Ltd. dated April 27, 1995.(4)
Exhibit 11 Guaranty and Recourse Agreement between Maxtor Corporation and Hyundai
Electronics Industries Co., Ltd. dated as of August 31, 1995.
Exhibit 12 Credit Agreement among Maxtor Corporation, as Borrower, and the Initial Lenders
Named therein and the Issuing Bank, as Initial Lenders and the Issuing Bank,
and Citibank, N.A., as Administrative Agent, dated as of August 31, 1995.
Exhibit 13 Memorandum of Understanding between Hyundai Electronics Industries Co., Ltd.
and Maxtor Corporation dated September 19, 1995.
Exhibit 14 Opinion of Bear, Stearns & Co. Inc. dated November 1, 1995.(1)*
Exhibit 15 Forms of Indemnity Agreements between Maxtor Corporation and its officers and
directors.
Exhibit 16 Press Release, dated November 1, 1995 issued by Maxtor Corporation.
Exhibit 17 Press Release, dated November 3, 1995 issued by Maxtor Corporation.
</TABLE>
- ------------
* Included with Schedule 14D-9 mailed to stockholders.
(1) Included as an exhibit to the Offer to Purchase dated November 8, 1995 being
filed as Exhibit 1 to this Schedule 14D-9.
(2) Filed as an Exhibit to Maxtor Corporation's Report on Form 10-Q (File No.
0-14016) as filed with the Securities and Exchange Commission on February 7,
1994 and incorporated herein by reference.
(3) Filed as an Exhibit to Maxtor Corporation's Report on Form 10-K (File No.
0-14016) as filed with the Securities and Exchange Commission on June 24,
1994 and incorporated herein by reference.
(4) Filed as an Exhibit to Maxtor Corporation's Report on Form 10-K (File No.
0-014016) as filed with the Securities and Exchange Commission on June 23,
1995 and incorporated herein by reference.
27
<PAGE> 29
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
November 8, 1995
MAXTOR CORPORATION
By /s/ GLENN H. STEVENS
------------------------------------
Glenn H. Stevens
Vice President, General Counsel
and Secretary
<PAGE> 30
SCHEDULE I
INFORMATION WITH RESPECT TO THE INTERESTS
OF CERTAIN PERSONS IN THE OFFER AND MERGER
In considering the recommendations of the Board and the special Committee
set forth in Item 4(a) of the Solicitation/Recommendation Statement on Schedule
14D-9 (the "Schedule 14D-9") of which this Schedule I is a part, the Company's
stockholders (other than holders of Class A Shares) should be aware that certain
members of the Board and the Special Committee, respectively, have interests in
the Merger and the Offer which are described below and which may present them
with certain conflicts of interest.
Interests of Certain Officers and Directors of the Company Affiliated with
Parent and the Purchaser
In considering the recommendation of the Board of Directors, stockholders
of the Company should be aware that certain officers and directors of the
Company have certain interests in the proposed transaction, including those
referred to below, that present actual or potential conflicts of interest in
connection with the Offer and the Merger. The Board of Directors and the Special
Committee were aware of these potential or actual conflicts of interest and
considered them along with other matters described under Item 3(b) of this
Schedule 14D-9.
Interests of Certain Board Members with Respect to Compensation for Services
Provided to the Company.
During fiscal 1995, non-employee members of the Board of Directors received
the following compensation: (i) $18,000 per year; (ii) $1,000 per scheduled or
special board meeting or special committee meeting; (iii) $750 per scheduled
committee meeting or telephonic board or committee meeting; and (iv)
nonqualified stock options pursuant to the Company's 1986 Outside Directors
Stock Option Plan (the "1986 Plan"). In addition, non-employee members of the
Board of Directors with no other medical coverage are entitled to participate in
a medical insurance plan and a deferred compensation life insurance plan
available to all members of the Board of Directors. Effective in fiscal 1996
non-employee members of the Board of Directors receive the following
compensation: (i) $22,000 per year; (ii) $2,000 per year for service as a
committee chairperson; (iii) $1,500 per board meeting; (iv) $1,000 per committee
meeting; and (v) nonqualified stock options pursuant to the 1986 Plan and the
1996 Outside Directors Stock Option Plan (the "1996 Plan").
Mr. Gallo, a member of the Special Committee, is a member of Gray Cary Ware
& Freidenrich, which serves as principal outside legal counsel for the Company,
including representing the Company in the transactions described herein, and
which also represents Parent in certain pending litigation.
Interests of Executive Officers and Directors with Respect to Shares Currently
Held and Shares Subject to
Company Stock Options.
The Company's Fiscal 1988 Stock Option Plan (the "1988 Plan") provides that
upon a "transfer of control" (as defined in the 1988 Plan), the Board of
Directors, in its discretion, may (i) provide that all Shares acquired on
exercise of an option will become fully vested upon the "transfer of control,"
or (ii) arrange for the surviving or acquiring corporation to assume the
Company's rights and obligations under the option or substitute an option for
such corporation's stock for an option outstanding under the 1988 Plan. In
connection with the Merger, the Board of Directors has provided that all
outstanding options under the 1988 Plan will become fully vested upon the
Effective Time (as defined below), and upon the Effective Time, each option will
be canceled. The Company's 1995 Stock Option Plan, 1986 Plan and 1996 Plan each
provides that upon a "transfer of control" all Shares acquired on exercise of an
option will become fully vested upon the "transfer of control." In connection
with the Merger, all outstanding options under such plans will automatically
become fully vested upon the Effective Time, and upon the Effective Time, each
option will be canceled. In return for the cancellation of the options under the
Company's option plans, each optionee will receive an amount equal to the
product of (i) the excess, if any, of $6.70 over the per Share exercise price of
the option, and (ii) the number of Shares for which the option is unexercised.
<PAGE> 31
The Company's 1992 Employee Stock Purchase Plan (the "Purchase Plan")
permits the Board of Directors to establish a different term for an offering as
well as a different commencing and/or ending date for an offering. In connection
with the Merger, the Board of Directors has provided that as of the date
immediately prior to the date on which the Purchaser accepts Shares for payment
pursuant to the Offer (the "Final Purchase Date"), (i) Shares will be purchased
with payroll deductions accumulated during the Purchase Plan offering in
operation immediately prior to the Final Purchase Date, and (ii) the Purchase
Plan will terminate, subject to the consummation of the Merger.
In August 1995, the Board granted the following options to certain
executive officers and employee directors of the Company: Richard D. Balanson
(60,000), Katherine C. Young (40,000), Nathan Kawaye (40,000) and Glenn H.
Stevens (40,000). Also in August 1995, the non-employee directors of the Company
received the following automatic grants of options pursuant to the 1996 Plan and
the 1986 Plan: Greg M. Gallo (15,000), Charles Hill (15,000) and Charles Christ
(30,000).
To the knowledge of the Company, directors and officers of the Company, as
a group, beneficially own, directly or indirectly, or exercise control or
direction over 1,589,408 Shares, representing approximately 5% of the
outstanding Shares on a Fully Diluted Basis.
The directors and executive officers of the Company will be entitled to
receive, as contemplated by the Merger Agreement, cash payments, in the manner
set forth in the table below:
<TABLE>
<CAPTION>
SHARES AND OPTION AMOUNTS WITH RESPECT TO THE
COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS
-------------------------------------------------
DOLLAR
AMOUNT OPTIONS
OWNED AT OFFER CONVERTED DOLLAR TOTAL CASH
NAME SHARES PRICE TO CASH AMOUNT CONSIDERATION
- ------------------------------------------ ------ -------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
M.H. Chung................................ 0 $ 0 35,000 $ 48,875 $ 48,875
Richard Balanson.......................... 4,651 31,162 360,000 664,500 695,662
Charles Christ............................ 0 0 30,000 60,375 60,375
Gregory Gallo............................. 9,954 66,692 65,000 260,500 327,192
Charles Hill.............................. 200 1,340 45,000 209,625 210,965
I.B. Jeon................................. 2,500 16,750 35,000 48,875 65,625
C.S. Park................................. 0 0 520,000 1,024,000 1,024,000
Rick Brantmeyer........................... 0 0 100,000 245,000 245,000
Nathan Kawaye............................. 10,396 69,653 111,707 193,454 263,108
Glenn Stevens............................. 0 0 100,000 161,250 161,250
Katherine Young........................... 0 0 160,000 293,250 293,250
------ -------- --------- ---------- -------------
Total................................ 27,701 $185,597 1,561,707 $3,209,704 $ 3,395,301
</TABLE>
Indemnification Agreements.
Since December 1986, the Company has entered into indemnification
agreements with its officers and directors, the form of which was approved by
the stockholders in October of 1986 (the "Indemnification Agreements"). It is
the Company's policy to enter into such Indemnification Agreements with all
officers and directors. Pursuant to the Indemnification Agreements, the Company
has agreed to indemnify its officers and directors to the maximum extent
permitted under the DGCL. For directors and certain officers, the
Indemnification Agreements, as amended, also provide that the Company must
procure a letter of credit in an amount not less than $300,000 for each director
and in an amount not less than $175,000 for each officer and keep such letters
of credit in effect during the term of the Indemnification Agreements. The
Company has obtained such letters of credit. On June 7, 1994, the Board of
Directors authorized the discontinuance of the Company's obligation to provide
letters of credit to future directors and officers and authorized the Company to
request all present holders of letters of credit to return them to the Company
for cancellation. The Company does provide letters of credit for certain former
officers and directors. The Company does not maintain letters of credit for any
current officers or directors. Forms of the Indemnification Agreements are
qualified in their
<PAGE> 32
entirety by reference thereto, copies of which are filed as Exhibit 15 to this
Schedule 14D-9 and are hereby incorporated herein by reference.
In addition, the Merger Agreement contains certain provisions with respect
to indemnification of directors and executive officers and maintenance of
directors and officers insurance subsequent to the Effective Time.
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
- ----------- -------------------------------------------------------------------------------
<S> <C> <C>
Exhibit 1 Offer to Purchase dated November 8, 1995.
Exhibit 2 Letter of Transmittal dated November 8, 1995.
Exhibit 3 Agreement and Plan of Merger among Maxtor Corporation, Hyundai
Acquisition, Inc. and Hyundai Electronics America dated as of November
2, 1995.(1)
Exhibit 4 Rights Agreement dated as of January 27, 1988 between Maxtor Corporation
and The First National Bank of Boston, as Rights Agent.(2)
Exhibit 5 Amendment to Rights Agreement dated as of September 10, 1993 between
Maxtor Corporation and The First National Bank of Boston, as Rights
Agent.(3)
Exhibit 6 Amendment No. 2 to Rights Agreement dated as of November 2, 1995 between
Maxtor Corporation and The First National Bank of Boston, as Rights
Agent.
Exhibit 7 Letter to Stockholders of Maxtor Corporation dated November 8, 1995.*
Exhibit 8 Stock Purchase Agreement among Hyundai Electronics Industries Co., Ltd.
Hyundai Heavy Industries Co., Ltd. Hyundai Corporation and Hyundai
Merchant Marine Co., Ltd. and Maxtor Corporation dated September 10,
1993.(2)
Exhibit 9 Restated Certificate of Incorporation of Maxtor Corporation effective
February 3, 1994.(2)
Exhibit 10 Manufacturing and Purchasing Agreement between Maxtor Corporation and
Hyundai Electronics Industries Co., Ltd. dated April 27, 1995.(4)
Exhibit 11 Guaranty and Recourse Agreement between Maxtor Corporation and Hyundai
Electronics Industries Co., Ltd. dated as of August 31, 1995.
Exhibit 12 Credit Agreement among Maxtor Corporation, as Borrower, and the Initial
Lenders Named therein and the Issuing Bank, as Initial Lenders and the
Issuing Bank, and Citibank, N.A., as Administrative Agent, dated as of
August 31, 1995.
Exhibit 13 Memorandum of Understanding between Hyundai Electronics Industries Co.,
Ltd. and Maxtor Corporation dated September 19, 1995.
Exhibit 14 Opinion of Bear, Stearns & Co. Inc. dated November 1, 1995.(1)*
Exhibit 15 Forms of Indemnity Agreements between Maxtor Corporation and its
officers and directors.
Exhibit 16 Press Release, dated November 1, 1995 issued by Maxtor Corporation.
Exhibit 17 Press Release, dated November 3, 1995 issued by Maxtor Corporation.
</TABLE>
- ------------
* Included with Schedule 14D-9 mailed to stockholders.
(1) Included as an exhibit to the Offer to Purchase dated November 8, 1995 being
filed as Exhibit 1 to this Schedule 14D-9.
(2) Filed as an Exhibit to Maxtor Corporation's Report on Form 10-Q (File No.
0-14016) as filed with the Securities and Exchange Commission on February 7,
1994 and incorporated herein by reference.
(3) Filed as an Exhibit to Maxtor Corporation's Report on Form 10-K (File No.
0-14016) as filed with the Securities and Exchange Commission on June 24,
1994 and incorporated herein by reference.
(4) Filed as an Exhibit to Maxtor Corporation's Report on Form 10-K (File No.
0-014016) as filed with the Securities and Exchange Commission on June 23,
1995 and incorporated herein by reference.
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ANY AND ALL OUTSTANDING SHARES OF COMMON STOCK
OF
MAXTOR CORPORATION
AT
$6.70 NET PER SHARE
BY
HYUNDAI ACQUISITION, INC.
A WHOLLY OWNED SUBSIDIARY OF
HYUNDAI ELECTRONICS AMERICA
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, DECEMBER 7, 1995, UNLESS THE OFFER IS EXTENDED.
THE BOARD OF DIRECTORS OF MAXTOR CORPORATION, BASED ON THE UNANIMOUS
RECOMMENDATION OF THE SPECIAL COMMITTEE OF MAXTOR'S BOARD OF DIRECTORS, HAS
APPROVED THE OFFER, THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE
MERGER AGREEMENT, HAS DETERMINED THAT THE OFFER, THE MERGER AND THE TRANSACTIONS
CONTEMPLATED BY THE MERGER AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF
MAXTOR'S STOCKHOLDERS (OTHER THAN HOLDERS OF CLASS A SHARES) AND RECOMMENDS THAT
THE STOCKHOLDERS OF MAXTOR (OTHER THAN HOLDERS OF CLASS A SHARES) ACCEPT THE
OFFER AND TENDER THEIR SHARES.
------------------------------
The Offer is not conditioned upon any minimum number of Shares being
tendered. The Offer is, however, conditioned on, among other things, the
obtainment of final approval of all necessary governmental officials and
agencies of the Republic of Korea to consummate the Offer, the Merger and the
other transactions contemplated by the Merger Agreement, without any conditions
reasonably deemed by Hyundai Electronics America to materially adversely affect
the intended economic benefits to it and its affiliates of the Offer, the Merger
and the other transactions contemplated by the Merger Agreement. It is not
possible to predict the amount of time necessary to obtain this governmental
approval or whether such approval can be obtained. It is anticipated, however,
that the time necessary to obtain such approval will extend beyond the
Expiration Date set forth above, and, subject to the other conditions of the
Offer, the Purchaser intends to extend the Offer from time to time until such
approval has been received. The Offer is also subject to certain other terms and
conditions. See Sections 10 and 11.
------------------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares should either (i) complete and sign the enclosed Letter of Transmittal
(or a facsimile thereof) in accordance with the instructions in the Letter of
Transmittal, have such stockholder's signature thereon guaranteed if required by
Instruction 1 to the Letter of Transmittal, mail or deliver the Letter of
Transmittal or such facsimile and any other required documents to the Depositary
and either deliver the certificates for such Shares to the Depositary along with
the Letter of Transmittal or facsimile or deliver such Shares pursuant to the
procedure for book-entry transfer set forth in Section 3 prior to the expiration
of the Offer or (ii) request such stockholder's broker, dealer, commercial bank,
trust company or other nominee to effect the transaction for such stockholder. A
stockholder having Shares registered in the name of a broker, dealer, commercial
bank, trust company or other nominee must contact such broker, dealer,
commercial bank, trust company or other nominee if such stockholder desires to
tender such Shares.
A stockholder who desires to tender Shares and whose certificates for such
Shares are not immediately available or who cannot comply with the procedures
for book-entry transfer described in this Offer to Purchase on a timely basis,
may tender such Shares by following the procedures for guaranteed delivery set
forth in Section 3.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
set forth on the back cover of this Offer to Purchase. Additional copies of this
Offer to Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery
and other related materials may be obtained from the Information Agent, the
Dealer Manager or from brokers, dealers, or commercial banks and trusts.
------------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF THIS TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
------------------------------
THE DEALER MANAGER FOR THE OFFER IS:
MERRILL LYNCH & CO.
November 8, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION.......................................................................... 1
SPECIAL FACTORS....................................................................... 3
Background of the Transaction; Past Contacts, Transactions and Negotiations
with the Company................................................................. 3
Recommendations of the Special Committee and the Board of Directors; Fairness of the
Transaction...................................................................... 13
Opinion of Financial Advisor........................................................ 15
Analysis of Financial Advisor to Parent............................................. 20
Purpose and Structure of the Transaction............................................ 22
Plans for the Company after the Transaction......................................... 23
Interests of Certain Persons in the Transaction..................................... 23
The Merger Agreement................................................................ 25
Financing the Transaction........................................................... 29
Certain Effects of the Transaction.................................................. 30
Certain Federal Income Tax Consequences............................................. 31
Dissenters' Rights.................................................................. 31
THE TENDER OFFER...................................................................... 32
Section 1 Terms of the Offer........................................................ 32
Section 2 Acceptance for Payment and Payment........................................ 34
Section 3 Procedure for Tendering Shares............................................ 35
Section 4 Withdrawal Rights......................................................... 37
Section 5 Price Range of Shares; Dividends.......................................... 38
Section 6 Effects of the Offer on the Market for the Shares......................... 39
Section 7 Certain Information Concerning the Company................................ 39
Section 8 Certain Information Concerning Parent and the Purchaser................... 45
Section 9 Dividends and Distributions............................................... 47
Section 10 Conditions to the Offer.................................................. 48
Section 11 Certain Legal Matters; Regulatory Approvals.............................. 49
Section 12 Fees and Expenses........................................................ 52
Section 13 Miscellaneous............................................................ 53
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF PARENT, THE
PURCHASER AND THE HYUNDAI SHAREHOLDERS........................................ SCHEDULE I
INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY...... SCHEDULE II
OPINION OF BEAR, STEARNS & CO. INC.............................................. EXHIBIT I
FINANCIAL STATEMENTS OF THE COMPANY............................................. EXHIBIT II
AGREEMENT AND PLAN OF MERGER.................................................... EXHIBIT III
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW............................. EXHIBIT IV
</TABLE>
i
<PAGE> 3
TO THE HOLDERS OF COMMON SHARES OF
MAXTOR CORPORATION:
Hyundai Acquisition, Inc. (the "Purchaser"), a Delaware corporation and a
wholly owned subsidiary of Hyundai Electronics America, a California corporation
("Parent"), hereby offers to purchase any and all outstanding shares of common
stock, par value $.01 per share (the "Shares"), of Maxtor Corporation, a
Delaware corporation (the "Company"), at a price of $6.70 per Share, net to the
seller in cash (the "Offer Price"), upon the terms and subject to the conditions
set forth in this Offer to Purchase and in the related Letter of Transmittal
(which, as amended from time to time, together constitute the "Offer").
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by the Purchaser
pursuant to the Offer. The Purchaser will pay all charges and expenses of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Dealer Manager (in such
capacity, the "Dealer Manager"), Citibank, N.A. as Depositary (in such capacity,
the "Depositary") and D.F. King & Co., Inc. as Information Agent (the
"Information Agent"), incurred in connection with the Offer.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of November 2, 1995 (the "Merger Agreement"), by and among Parent, the
Purchaser and the Company. The Merger Agreement provides, among other things,
for the making of the Offer by the Purchaser, and further provides that,
following the purchase of Shares pursuant to the Offer and promptly after the
satisfaction or waiver of certain other conditions, the Purchaser will be merged
with and into the Company (the "Merger"). The Company will continue as the
Surviving Corporation after the Merger (the "Surviving Corporation"). At the
effective time of the Merger, each outstanding Share (except for Shares owned by
the Purchaser or any subsidiary of the Purchaser and Shares held by stockholders
exercising their appraisal rights under the Delaware General Corporation Law
(the "DGCL")) will be converted into the right to receive $6.70 per Share (or
any higher per Share price paid for Shares pursuant to the Offer), net to the
holder in cash, without interest.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD OF DIRECTORS"), BASED ON
THE UNANIMOUS RECOMMENDATION OF THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS,
HAS APPROVED THE OFFER, THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY
THE MERGER AGREEMENT, HAS DETERMINED THAT THE OFFER, THE MERGER AND THE OTHER
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT ARE FAIR TO AND IN THE BEST
INTERESTS OF THE COMPANY'S STOCKHOLDERS (OTHER THAN HOLDERS OF CLASS A SHARES,
AS DEFINED BELOW) AND RECOMMENDS THAT STOCKHOLDERS OF THE COMPANY (OTHER THAN
HOLDERS OF CLASS A SHARES) ACCEPT THE OFFER AND TENDER THEIR SHARES. SEE
"SPECIAL FACTORS -- RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF
DIRECTORS; FAIRNESS OF THE TRANSACTION."
BEAR, STEARNS & CO. INC. ("BEAR STEARNS"), FINANCIAL ADVISOR TO THE SPECIAL
COMMITTEE, HAS DELIVERED A WRITTEN OPINION TO THE SPECIAL COMMITTEE, DATED
NOVEMBER 1, 1995 (THE "BEAR STEARNS OPINION"), TO THE EFFECT THAT, AS OF THAT
DATE, THE OFFER AND THE MERGER WERE FAIR, FROM A FINANCIAL POINT OF VIEW, TO THE
STOCKHOLDERS OF THE COMPANY (OTHER THAN HOLDERS OF CLASS A SHARES). SEE "SPECIAL
FACTORS -- OPINION OF FINANCIAL ADVISOR." THE FULL TEXT OF THE BEAR STEARNS
OPINION IS ATTACHED HERETO AS EXHIBIT I. STOCKHOLDERS ARE URGED TO READ SUCH
OPINION CAREFULLY AND IN ITS ENTIRETY FOR ASSUMPTION MADE, MATTERS CONSIDERED
AND LIMITS OF THE REVIEW OF BEAR STEARNS.
The Offer is not conditioned upon any minimum number of Shares being
tendered. The Offer is, however, conditioned on, among other things, the
obtainment of final approval of all necessary governmental officials and
agencies of the Republic of Korea (the "Korean Approval Condition") to
consummate the Offer, the Merger and the other transactions contemplated by the
Merger Agreement, without any conditions reasonably deemed by Parent to
materially adversely affect the intended economic benefits to it and its
affiliates of the Offer, the Merger and the other transactions contemplated by
the Merger Agreement. It is not possible to predict the amount of time necessary
to obtain this governmental approval or whether such approval can be obtained.
It is anticipated, however that the time necessary to obtain such approval will
extend beyond the initial Expiration Date (as defined below), and, subject to
the other conditions of the Offer, the Purchaser intends to extend the Offer
from time to time until such approval has been received. The Offer is also
subject to certain other terms and conditions. See Sections 10 and 11.
<PAGE> 4
The purpose of the Offer is for Hyundai Electronics Industries Co., Ltd.
("HEI"), Hyundai Heavy Industries Co., Ltd. ("HHI"), Hyundai Corporation ("HC")
and Hyundai Merchant Marine Co., Ltd. ("HMM") (collectively, the "Hyundai
Shareholders"), through Parent and the Purchaser, to acquire the entire equity
interest in the Company. HEI presently owns 60%, and HHI presently owns 40%,
respectively, of the capital stock of Parent. HEI, HHI, HC and HMM currently own
5,844,000, 4,870,000, 4,870,000 and 3,896,000 shares, respectively, of the Class
A Common Stock, par value $.01 per share, of the Company (the "Class A Shares"),
constituting all of the outstanding Class A Shares. The Class A Shares have
certain director nomination and consent rights, as described in "Special
Factors -- Background of the Transaction; Past Contacts, Transactions and
Negotiations with the Company." Each Class A Share can be converted at the
option of the holder into one Share. The Class A Shares represent approximately
37% of the outstanding Shares, assuming no conversion of Debentures (as defined
below) or exercise of outstanding Options (as defined below), and assuming
conversion of all of the Class A Shares into Shares ("Fully Diluted Basis").
It is expected that, prior to the consummation of the Merger, the Hyundai
Shareholders will contribute their Class A Shares to the Purchaser or Parent in
exchange for capital stock of the Purchaser or Parent and, as a result, would
collectively, together with Parent, own, directly or indirectly, all of the
outstanding capital stock of the Purchaser, and, after the Merger, all of the
capital stock of the Surviving Corporation. See "Special Factors -- Purpose and
Structure of the Transaction" and Section 8.
Consummation of the Merger is subject to a number of conditions, including
approval by the stockholders of the Company if such approval is required by
applicable law. See Section 11. If the Purchaser acquires a majority of the
outstanding Shares and Class A Shares, counted as a single class, it will have
sufficient voting power to approve and adopt the Merger Agreement and the Merger
without the vote of any other stockholder of the Company. If the Purchaser
acquires at least 90% of the outstanding Shares (including any Shares issued
upon conversion of the Class A Shares contributed to the Purchaser or Parent by
the Hyundai Shareholders), Purchaser intends to approve and consummate the
Merger without any action by, or any further prior notice to, the other
stockholders of the Company pursuant to the short-form merger provisions of the
DGCL.
According to the Company, as of November 1, 1995, there were (i) 33,542,522
Shares outstanding, (ii) 19,480,000 Class A Shares outstanding, (iii) options
(the "Options") to purchase 6,396,690 Shares held by employees, directors and
consultants and (iv) up to a maximum of 1,773,749 Shares available for issuance
under the Company's 1992 Employee Stock Purchase Plan (the "1992 ESPP"). As of
November 1, 1995, all of the executive officers and directors (including
directors nominated by the Hyundai Shareholders) of the Company as a group owned
27,701 Shares and held Options to purchase 1,561,707 Shares (whether or not
exercisable). The Company has advised the Purchaser that, to the best of the
Company's knowledge, and subject to applicable securities laws, all directors
and executive officers of the Company presently intend to tender pursuant to the
Offer all Shares owned by such persons. See "Special Factors -- Interest of
Certain Persons in the Transaction."
The Company also has outstanding $100 million principal amount of 5.75%
Convertible Subordinated Debentures due March 1, 2012 (the "Debentures"), which
are convertible at any time prior to maturity, unless previously redeemed, into
Shares, at a conversion rate of twenty-five Shares per each $1,000 principal
amount of Debentures (equivalent to a conversion price of $40 per Share),
subject to adjustment in certain events. On November 7, 1995, the last full
trading day prior to commencement of the Offer, the last reported sales
quotation of the Shares as reported by the Nasdaq National Market was $6 1/4,
and the last reported sales quotation of the Debentures was $765 per $1,000
principal amount, as reported by the Nasdaq National Market.
The Purchaser is not offering to purchase any of the Debentures. Holders of
Debentures who wish to participate in the Offer must first convert such
Debentures, in accordance with the terms and provisions thereof, and
subsequently tender their Shares pursuant to the terms and conditions of the
Offer. As of the date hereof, the most recent reported sales quotation of the
Debentures exceeds the value of the Shares issuable upon conversation thereof at
the Offer Price. Following the Purchaser's purchase of Shares pursuant to the
Offer, the Debentures not converted by holders of the Debentures pursuant to
their terms will remain outstanding and will continue to be traded publicly.
2
<PAGE> 5
In connection with the execution of the Merger Agreement, the Company has
amended the Rights Agreement (the "Rights Amendment") dated as of January 27,
1988, as amended on September 10, 1994, between the Company and The First
National Bank of Boston (as amended, the "Rights Agreement") to provide that
stock purchase rights (the "Rights") which are associated with each Share will
not trade separately from Shares. The Rights Amendment provides that no
Distribution Date, Stock Acquisition Date or Triggering Event (each as defined
in the Rights Agreement) shall be deemed to have occurred, and neither Parent or
any affiliate or associate of Parent shall be deemed to have become an Acquiring
Person (as defined in the Rights Agreement), by reason of the Merger Agreement
and the consummation of the transactions contemplated thereby. However, if after
November 2, 1995, Parent or any of its subsidiaries or any of their respective
directors becomes the beneficial owner of any Shares (other than by reason of
the Merger Agreement or the consummation of the transactions contemplated
thereby or in any transaction in conformity with the standstill provisions of
the Stock Purchase Agreement, dated as of September 10, 1993, among the Company
and the Hyundai Shareholders (the "Stock Purchase Agreement") (as described in
"Special Factors -- Background of the Transaction; Past Contacts, Transactions
and Negotiations with the Company"), such provision of the Rights Amendment
becomes no longer applicable. The Rights Amendment also provides that the Rights
will expire and be of no force or effect upon consummation of the Merger.
Accordingly, the tender of a Share will constitute the tender of the associated
Right, and no additional consideration will be paid in respect thereof.
The information contained in this Offer to Purchase concerning the Company
was supplied by the Company. Parent, the Purchaser and the Hyundai Shareholders
take no responsibility for the accuracy of such information. The information
contained in this Offer to Purchase concerning the Offer, the Merger, Parent,
the Purchaser and the Hyundai Shareholders was supplied by such parties. The
Company takes no responsibility for the accuracy of such information.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
SPECIAL FACTORS
BACKGROUND OF THE TRANSACTION; PAST CONTACTS, TRANSACTIONS AND NEGOTIATIONS WITH
THE COMPANY.
The highly cyclical and competitive nature of the disk drive industry has
affected the Company since its inception in 1982. The disk drive industry
typically is characterized by rapid technological change, short product life
cycles and intense competition. In addition, the Company has not consistently
been able to bring products to market in a timely and cost-effective manner. As
a result of these and other factors, the Company has incurred cumulative net
losses over the last eleven quarters of approximately $418 million. See Exhibit
II.
From the beginning of 1993 through September 1995, these losses decreased
the Company's available cash, leading the Company to seek a capital infusion in
1993, additional debt financing in 1993 and again in 1995, and the manufacture
by HEI's Hyundai Storage Division ("HSD") of certain of the Company's products
in 1995, as set forth below.
In early 1993, in light of its losses and the expectation of continuing
intense price competition in the disk drive industry, the Company decided to
seek to increase its capital base. It considered issuing additional equity or
other securities in the public market or selling all or part of the Company. In
March 1993, the Company's management first contacted HEI and its affiliates to
determine their possible interest in an investment in the Company. In order to
facilitate discussions between the parties, the Company and HEI entered into a
confidentiality agreement dated May 1, 1993. In May 1993, the Company retained
Bear Stearns to aid the Company in exploring strategic alternatives. In addition
to contacting HEI and its affiliates, the Company and Bear Stearns identified
and contacted several other prospective investors which the Company believed
might be capable of and interested in a purchase of or significant investment in
the Company. Either the Company or Bear Stearns provided each prospective
purchaser with financial statements and a written overview of the Company and
responded to all other due diligence requests. However, the Company received no
offers other
3
<PAGE> 6
than the offer from HEI to invest in the Company, except for an indication that
a third party was interested in acquiring a fully secured debenture that would
be convertible into Shares. No specific terms were proposed by the third party,
and after considering the general nature of this potential offer, the Board of
Directors decided not to pursue it because it would have prevented the Company
from obtaining any other significant financing from third parties and because
the proposal was for substantially less financing than offered by HEI.
On several occasions between June and August 1993, representatives of the
Company and HEI met to discuss terms of a possible investment by HEI in the
Company. In August 1993, the parties negotiated extensively, primarily focusing
on voting rights, standstill provisions, the price and amount of capital stock
of the Company to be purchased, and the Company's ability to continue to
negotiate with parties with whom the Company had previously held discussions or
who independently contacted the Company.
On August 18, 1993, the parties executed a letter of intent and the next
day made a public announcement of its terms. Between August 18 and September 10,
1993, the Company and HEI negotiated the terms of a definitive stock purchase
agreement. On September 10, 1993, the Board of Directors approved and the
Company and the Hyundai Shareholders entered into the Stock Purchase Agreement,
with the closing of the transaction conditioned on Company stockholder approval
and other conditions.
Also in September 1993, the Company obtained a fully secured, asset-based
revolving line of credit from CIT Group/Business Credit, Inc. ("CIT"). The
original committed line of credit provided for borrowings of up to $76.0 million
over a two-year term and was secured by receivables, certain inventories and
other assets. CIT conditioned its line of credit on the Company meeting certain
financial covenants, particularly, minimum operating profit and net worth
covenants.
On December 20, 1993, the Company's stockholders voted to approve the
Hyundai Shareholders' investment in the Company and to amend and restate the
Company's Certificate of Incorporation (the "Restated Certificate") as described
below, as set forth in the Stock Purchase Agreement. The Korean government
approved the investment in the Company by the Hyundai Shareholders in late
January 1994. Shortly thereafter, on February 3, 1994, the Hyundai Shareholders
purchased an aggregate of 19,480,000 Class A Shares at a per share price of
$7.70, for an aggregate purchase price of $149,996,000, which Class A Shares
represented approximately 40% of the outstanding voting stock of the Company on
the date of issuance (the "Hyundai Investment").
The standstill provisions of the Stock Purchase Agreement restrict the
right of the Hyundai Shareholders and their affiliates to acquire additional
voting securities of the Company prior to August 18, 2000 without approval of
the Board of Directors when such purchases will result in the Hyundai
Shareholders owning collectively more than 45% of the outstanding voting stock
of the Company. However, the Hyundai Shareholders and their affiliates may make
a tender or exchange offer for all of the outstanding Shares provided that the
purchase price has been approved by a majority of the disinterested members of
the Board of Directors following negotiations conducted in good faith between
the Hyundai Shareholders or any of their affiliates and such members of the
Board of Directors. In addition, the Hyundai Shareholders and their affiliates
may make unlimited open market purchases if a third party acquires more than 20%
of the Shares or makes a tender or exchange offer for more than 40% of the
Company's total outstanding voting stock and (in each case) the Board of
Directors waives the application of the Rights Agreement to such third party.
Pursuant to the Stock Purchase Agreement, the Company adopted the Restated
Certificate at the closing of the Hyundai Investment. The Restated Certificate
provides that the Company will not take certain actions without the Hyundai
Shareholders' approval, including certain transactions or decisions with respect
to a core line of products, capital expenditures, new high-volume manufacturing
facilities, joint ventures, material exclusive licenses, changes in senior
management compensation arrangements and the issuance of stock in excess of 20%
of the outstanding voting securities of the Company. The Hyundai Shareholders
may not unreasonably withhold their approval of such a transaction or decision.
In addition, the Hyundai Shareholders have approval rights over any Corporate
Sale (generally, any consolidation or merger of the Company or the sale of all
or substantially all of the assets of the Company) of the Company until February
3, 1999, and, thereafter, a right of approval if any Corporate Sale is not
offered first to the Hyundai Shareholders under a right of first refusal.
Collectively, these rights are referred to herein as the "Consent Rights." The
Consent
4
<PAGE> 7
Rights remain in effect as long as Hyundai Shareholders and their subsidiaries
retain either substantially all the Class A Shares and/or Shares issuable upon
conversion thereof (so long as the Class A Shares constitute at least 20% of the
total outstanding voting stock of the Company) or at least 30% of the total
outstanding voting stock of the Company.
In addition, the Stock Purchase Agreement and the Restated Certificate
entitle the Hyundai Shareholders to nominate the number of Company directors
equal to the Hyundai Shareholders' proportionate voting interest in the Company.
The Hyundai Shareholders' right to nominate directors is suspended during such
times as the Hyundai Shareholders and their affiliates no longer collectively
hold of record either (i) at least 80% of the Class A Shares and/or shares
issuable upon conversion thereof, or (ii) at least 20% of the total outstanding
voting stock of the Company. The Board of Directors as a whole, including the
Hyundai Shareholders' nominees, selects the balance of the nominees for
directors, and the Hyundai Shareholders must vote their shares for such
nominees. The Stock Purchase Agreement entitles the Hyundai Shareholders to
designate the director to be elected Chairman of the Board of the Company, and
the Board of Directors must elect the Hyundai Shareholders' designee. The
Hyundai Shareholders' right to designate the director to be elected as Chairman
of the Board terminates permanently at such time as Hyundai Shareholders and
their affiliates no longer collectively hold of record either (i) at least 80%
of the Class A Shares, or (ii) at least 60% of the Class A Shares and at least
20% of the total outstanding voting stock of the Company. On February 3, 1994,
the Hyundai Shareholders nominated Messrs. M. H. Chung, C. S. Park and I. B.
Jeon as directors of the Company. On February 7, 1994, the Board of Directors
increased the authorized number of directors from five to eight and elected
Messrs. Chung, Park and Jeon as directors. Additionally, on February 7, 1994,
the Board of Directors elected Mr. Chung, the Hyundai Shareholders' designee, as
Chairman of the Board of the Company.
An immediate effect of the Stock Purchase Agreement, as approved by the
Company's stockholders, was to give the Hyundai Shareholders considerable
influence over major strategic and operational decisions of the Company. The
Hyundai Shareholders' large equity stake in the Company and the Consent Rights
granted to them pursuant to the Stock Purchase Agreement created impediments to
a sale of the Company to a third party. The Board of Directors did not
anticipate a sale of the Company at the time the Company entered into the Stock
Purchase Agreement and believed that the capital infusion and statement of
confidence represented by the Hyundai Shareholders' investment would
substantially assist the Company's growth and prospects for returning to
profitability, to the ultimate benefit of all stockholders.
Following the closing of the Hyundai Investment, the Company sought to
improve operating performance by closing its San Jose development operations,
focusing its product offerings and significantly reducing headcount, but with
mixed results. The Company's net losses during each of the four calendar
quarters of 1994 were $4.5 million, $12.2 million, $54.7 million and $16.4
million, respectively, and its net cash position declined from a quarter-end
high of approximately $189.4 million at March 26, 1994 to $104.3 million at
December 31, 1994.
In December 1994, the Board of Directors began to consider expanding the
relationship with HEI from a purely financial orientation to a more strategic
focus. The Board of Directors received a report from the then Chief Executive
Officer, Mr. Larry Smart. Mr. Smart described a variety of different forms that
a more strategic relationship might take, including a research and development
joint venture or a manufacturing partnership. In response to Mr. Smart's report,
Dr. Park stated on behalf of HEI that although providing additional financial
support would demonstrate the Hyundai Shareholders' continued commitment to the
Company, HEI preferred a more strategic and tangible expression of its
commitment which could utilize its manufacturing and technological competencies.
Dr. Park described as an example that HEI could establish a manufacturing
facility in Korea that could help the Company reduce its capital expenditure
requirements and manufacture on a more cost-competitive basis. The Board of
Directors felt an expansion of the relationship was worth further consideration,
and directed management to gather additional information and develop more
specific ideas regarding the form such an expansion might take. After several
additional meetings and discussions among management representatives of the
parties, in January 1995, the Company and HEI entered into a memorandum of
understanding concerning the creation of a manufacturing partnership (the
"Manufacturing Memorandum").
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<PAGE> 8
On February 8, 1995, Mr. Smart resigned his positions as the Company's
President and Chief Executive Officer and a director. Following the
recommendation of members of the Board of Directors who were neither Company
executives nor nominees of the Hyundai Shareholders, the Board of Directors
appointed Dr. Park as President and Chief Executive Officer of the Company. In
connection with this appointment, Dr. Park resigned from his positions with HEI
and its affiliates, except his position as a director of Axil Computer, Inc.,
and Dr. Park retained his HEI retirement benefits. In anticipation of further
developments in the relationship between the Company and the Hyundai
Shareholders, and due to Dr. Park's former affiliation with the Hyundai
Shareholders, in February 1995, the Board of Directors established a special
committee comprised of independent outside directors of the Company who were not
employed by the Company or any Hyundai Shareholder. This committee was known as
the Special Committee for Hyundai/Maxtor Transactions (the "Transactions
Committee"). The Transactions Committee was required to review and approve all
significant proposed transactions between the Company and any Hyundai
Shareholder or affiliate of a Hyundai Shareholder.
On April 27, 1995, pursuant to the Manufacturing Memorandum, the Company
and HEI, through HSD, entered into a Manufacturing and Purchasing Agreement (the
"Manufacturing Agreement"), which the Transactions Committee reviewed and
approved. Pursuant to the Manufacturing Agreement, HSD will manufacture certain
mutually agreed Company-designed disk drives in a production facility operated
by HSD. HEI's additional manufacturing capacity was intended to supplement the
production of the Company's hard disk drive assembly plant in Singapore without
any capital expenditure on the Company's part. By entering into the
Manufacturing Agreement, the two companies intended to exchange technology to
enable the Company to obtain high-quality, low-cost manufacturing capacity from
HEI. Pursuant to the Manufacturing Agreement, HSD promptly commenced
preparations to manufacture a new proprietary Company-designed 2 1/2 inch hard
disk.
The Manufacturing Agreement was intended to increase the Company's
operating efficiencies and competitiveness once volume sales were achieved.
Between May and September, 1995, however, the Company's performance continued to
decline due, in part, to industry-wide price reductions for 3 1/2 inch disk
drives, component shortages and the usual soft demand for disk drive products
during late summer. As a result, the Company's cash flow was under increasing
pressure. These developments increased collaboration and planning between the
Company and HEI.
During July 1995, as a result of significant operating losses and declining
cash balances, the Company required additional financing. However, the Company
recognized that its borrowing capacity was extremely limited, and that its cost
of borrowing was very high. In July 1995, the Company's management advised the
Board of Directors that, to meet the dual goals of lowering the overall cost of
debt to the Company and increasing its access to borrowing capacity, management
would seek out a new credit facility, but that in light of the Company's current
financial condition, any such facility would need to be supported by the
guaranty of HEI.
The proposed loan guaranty was submitted to the Transactions Committee for
review and recommendation to the full Board of Directors. Prior to considering
the proposed loan guaranty, the Transactions Committee retained special counsel
to advise it as to its duties in connection with the proposed loan guaranty.
In connection with considering the issues involved in seeking a loan
guaranty from HEI, the Transactions Committee discussed the advisability of
engaging in a more broad-reaching transaction, such as a sale of the Company. In
this regard, however, the Transactions Committee was aware of the Consent Rights
held by the Hyundai Shareholders with respect to the sale of the Company to a
third party, and the Hyundai Shareholders' expressed lack of interest in
purchasing the remaining equity interest in the Company. In light of the
then-current financial condition of the Company, the Transactions Committee
directed that the acting Chief Financial Officer of the Company prepare certain
liquidation and related analyses, as well as information regarding management's
two-year strategic plan. The Transactions Committee reviewed these materials in
connection with its determination regarding whether or not to approve the
proposed loan guaranty. After considering this information, the Transactions
Committee authorized the Company's management to proceed to negotiate the terms
of a guaranty, subject to the Transactions Committee's final review and
approval.
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<PAGE> 9
Thereafter, management approached HEI and requested that HEI provide an
unconditional guaranty of up to $100 million of prospective borrowings by the
Company. On July 17, 1995, HEI and the Company agreed and entered into a
memorandum of understanding for such a guaranty (the "Guaranty Memorandum"),
subject to negotiation of loan documents. At a meeting held on August 10, 1995,
the Transactions Committee met and approved in principle the terms of the
guaranty of the Company's proposed borrowing, which the Transactions Committee
had previously discussed on several occasions. The Transactions Committee
conditioned its approval of the guaranty upon the Company having a right to
substitute different collateral to support the guaranty in the event that it
chose to sell the assets supporting the guaranty. In August 1995, the Company
and HEI entered into a Guaranty and Recourse Agreement (the "Guaranty"),
pursuant to which HEI agreed to unconditionally guarantee up to $100 million of
indebtedness of the Company to Citibank, N.A. (in such capacity, "Citibank") and
certain financial institutions syndicated by Citibank (the "Lenders"). Also in
August 1995, the Company and the Lenders entered into a Credit Agreement (the
"Credit Agreement") which provides the Company with a $100 million line of
credit. As of October 31, 1995, approximately $94 million was outstanding under
the Credit Agreement and no borrowings were outstanding under the Company's $20
million secured line of credit with CIT.
The Guaranty requires HEI to keep the Guaranty in effect for a period of
one year and to renew it annually, provided that the Company is not in default
under its Guaranty obligations and the Company's financial performance has not
materially deteriorated, for a total term of three years. If the Company
defaults on its Credit Agreement loans, the Guaranty provides that the Company
will reimburse HEI within ninety days after HEI pays the Lenders pursuant to the
Guaranty (the "Reimbursement Date"). In its sole discretion, on the
Reimbursement Date, HEI may choose to receive the Company's common stock in
partial satisfaction of the Company's reimbursement obligations, up to the
amount which would result in HEI and the other Hyundai Shareholders owning 45%
of the outstanding stock of the Company, which was the standstill limitation
already provided in the Stock Purchase Agreement. The share price at which
shares would be issued to HEI would be the lesser of (i) the share's closing
price on the date of the Guaranty or (ii) the share's average daily closing
price for the ninety days preceding the Reimbursement Date. If a balance remains
after HEI has received the maximum Company shares permissible, as described
above, then the Company is required to assign to HEI shares which the Company
owns in four of its subsidiaries, as selected by the Company, equal to such
outstanding balance. The fair market value of the subsidiaries' stock selected
by the Company is to be determined by a mutually acceptable investment bank.
During the summer of 1995, the Company's management developed a strategic
business plan which was intended to improve the Company's operational
efficiencies, with the goal of making the Company one of the top three companies
in the disk drive industry within two years. The plan aimed to increase the
Company's market share in the 3 1/2 inch and 2 1/2 inch markets with innovative
product designs. The Company believed that its plan was achievable in part due
to its growing success in selling existing products to major personal computer
manufacturers and to indications of strong interest by prospective customers in
the Company's 2 1/2 inch disk drive under development, which incorporates
certain of the Company's proprietary 1.8 inch disk drive technology to offer
unusually high capacity and small form factors. This plan, however, would
require significant capital investment in manufacturing, and management
concluded that the Company lacked the financial resources to fully execute the
plan by itself.
In August 1995, in connection with the Board of Director's consideration of
management's strategic plan, the Board asked the Transactions Committee to
consider the possibility of negotiating an outsourcing arrangement pursuant to
which the Company would sell substantially all of the Company's manufacturing
facilities and HEI would manufacture and supply the Company with all its disk
drive requirements on mutually agreed terms (the "Proposed Outsourcing
Transaction"). The Company believed that the Proposed Outsourcing Transaction
would improve the Company's liquidity through the cash provided by the sale of
manufacturing assets. In addition, the Company believed that this transaction
would have the ancillary benefit of relieving management of the burden of
managing and funding the Company's capital-intensive manufacturing operations
and would also allow management to focus on design, marketing and sales
functions, which the Company viewed as its core competencies.
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<PAGE> 10
After consulting with its own counsel, the Transactions Committee
determined to recommend to the full Board of Directors that it be charged with
negotiating the sale of the Company's manufacturing assets to a party which
would supply the Company's disk drive needs. In accordance with the Committee's
recommendation, the full Board of Directors changed the charge of the
Transactions Committee from the review and approval of Maxtor-Hyundai
transactions, to the negotiation of a sale of the Company's manufacturing
facilities to a supplier on the most advantageous terms. This newly-chartered
committee (referred to herein as the "Special Committee") was comprised of Mr.
Charles Hill, Chairman, Mr. Charles Christ and Mr. Gregory Gallo. After
discussing several different investment banking firms, the Special Committee
determined to retain Bear Stearns to advise it in the negotiation of the
Proposed Outsourcing Transaction. The Special Committee chose Bear Stearns as
its advisor in part due to the fact that Bear Stearns was familiar with the
Company, having represented the Company in connection with its sale of Class A
Shares to the Hyundai Shareholders pursuant to the Stock Purchase Agreement
described above.
Following the expansion of its charter, at a meeting held on August 19,
1995, the Special Committee considered the process it would follow in conducting
the sale of the Company's manufacturing facilities to a new supplier. In light
of the Special Committee's view that retooling the Company's factories in order
to produce its newest products would require approximately $50-60 million in
capital in addition to the consideration to be paid for purchasing the
facilities, the Special Committee concluded, based in part on the advice of Bear
Stearns, that the likely universe of credible buyers for the Company's
facilities appeared to be limited. The Special Committee also recognized that,
in light of the financial and other support previously provided to the Company
by HEI and the financial resources of HEI and its affiliates, HEI appeared to be
the most logical buyer for the Company's manufacturing assets, as part of an
outsourcing of its manufacturing operations. Accordingly, after considering,
among other things, the cash needs of the Company and its interest in
consummating a favorable transaction as quickly as possible, the Special
Committee determined to instruct Bear Stearns to approach HEI first, to
determine whether HEI had an interest in purchasing the Company's manufacturing
assets as part of an outsourcing transaction at a price which was attractive to
the Special Committee and the Company.
HEI responded to the Company's request by stating that it was willing to
consider the Proposed Outsourcing Transaction in order to support the Company's
needs, in light of the difficulty of seeking financial support from other
existing stockholders or other potential equity investors. Thereafter,
representatives of HEI and Bear Stearns met several times to negotiate this
transaction during late August and September 1995.
As a result of these negotiations, on September 19, 1995, the Company and
HEI signed a non-binding memorandum of understanding (the "Outsourcing
Memorandum"). The Outsourcing Memorandum provided that the parties would
negotiate in good faith definitive agreements by which: (i) HEI would acquire
all of the Company's manufacturing facilities in Singapore, Hong Kong and
Thailand for $100 million, subject to certain adjustments based on due diligence
and independent appraisals; and (ii) HEI and the Company would enter into a
long-term manufacturing and supply agreement on mutually acceptable terms under
which HEI would manufacture and supply all of the Company's disk drive
requirements. The Outsourcing Memorandum between HEI and the Company did not
prohibit the Company from receiving or considering other offers for the assets
being sold. While negotiating with HEI for the sale of the manufacturing assets,
the Special Committee, through Bear Stearns, received expressions of interest
and an offer for certain of the Company's manufacturing assets, but no
expression of interest or offer (other than that made by HEI) for all of the
assets being sold. The Special Committee did consider selling the Company's
printed circuit board assembly contract manufacturing subsidiary, IMS
International Manufacturing Services Limited ("IMS"), to a purchaser other than
HEI, and alternatively considered retaining IMS for the Company until better
values could be generated from the sale of IMS. In 1995, IMS has had increasing
success in marketing its manufacturing services to unaffiliated customers.
Following execution and public announcement of the Outsourcing Memorandum,
HEI performed extensive due diligence on the manufacturing assets. Thereafter,
the Special Committee was advised that HEI reported that, based on its advisors'
valuation reports, there was a potential downward adjustment in the purchase
price, including approximately $9 million relating to the valuation of one of
the assets being sold. No final agreement was reached on price, or the assets
which would be sold.
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<PAGE> 11
Prior to and during the time that the Proposed Outsourcing Transaction was
being negotiated, Dr. Park, with the approval of the Board of Directors, engaged
in discussions with several major companies in the disk drive and related
industries, with a view towards seeking out interest on the part of such
companies in entering into some form of strategic alliance, partnership,
business combination or similar transaction with the Company. On October 13,
1995, approximately three weeks following the Company's press release announcing
the Outsourcing Memorandum with HEI, Dr. Park briefed the Special Committee on
the talks he had conducted and advised the Special Committee that only one of
the companies which he had contacted had expressed an interest in forming a
strategic alliance with the Company. Dr. Park also reported that the interested
company, a major multinational electronics manufacturer (the "Interested
Manufacturer"), indicated that its interest was in forming such an alliance with
both the Company and HEI.
Dr. Park also reported that during his discussions with the Interested
Manufacturer, he had discussed the possibility of a joint venture or a merger
between the Company and the Interested Manufacturer. After consideration, the
Interested Manufacturer had rejected the notion of a joint venture or a merger
between the Company and the Interested Manufacturer as part of its strategy, in
part due to the perceived lack of credibility of the Company due to its
historical failure to timely deliver products and its historical financial
performance. Dr. Park informed the Special Committee that the Interested
Manufacturer had indicated its interest in a potential joint venture or business
combination with a partner stronger than the Company in its stand-alone form,
such as HEI. After consulting first with the Chairman of the Special Committee,
who polled each member of the Special Committee and its advisors, and who
thereafter gave Dr. Park the authority to do so, Dr. Park briefly discussed with
HEI the Interested Manufacturer's concept of an HEI acquisition of Maxtor and a
subsequent joint venture. As a result of those discussions, Dr. Park reported to
the Special Committee that HEI had expressed its willingness to discuss a
possible acquisition of all of the Company, although the Company and HEI
recognized that there was no assurance that any joint venture would be formed
with the Interested Manufacturer. Thereafter, the Special Committee asked Dr.
Park to provide further information to the Special Committee regarding whether
HEI's interest in exploring a possible acquisition of the Company was
conditioned in any way on HEI's successful formation of a joint venture with the
Interested Manufacturer, and to elaborate on why HEI had appeared to change its
view with respect to being willing to consider the acquisition of the Company.
At a subsequent meeting, Dr. Park reported to the Special Committee
regarding a conversation he had with Mr. M.H. Chung, the Chairman of HEI.
Specifically, Dr. Park reported that he had been told by Mr. Chung that HEI's
willingness to discuss a possible acquisition of the Company was not conditioned
upon its ability to reach an agreement with the Interested Manufacturer with
respect to a joint venture, and that HEI believed an acquisition of the Company
would be a better way to support the financial viability of the Company than the
Potential Outsourcing Transaction.
On October 16, 1995, Parent retained Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, "Merrill Lynch") to evaluate the possibility of
acquiring the remaining equity interest in the Company. Parent instructed
Merrill Lynch to prepare a financial analysis of the Company. Merrill Lynch
conducted its review and prepared a financial analysis, which was presented to
senior executives of Parent and HEI on October 23, 1995. See "-- Analysis of
Financial Advisor of Parent."
On October 17, 1995, after satisfying itself through its discussion with
Dr. Park that the exploration of a possible sale of the Company was a feasible
alternative to continuing negotiations regarding the Proposed Outsourcing
Transaction, the Special Committee recommended that the full Board of Directors
approve a resolution expanding its authority to encompass the exploration of,
and, if practicable, negotiation of the sale of the entire Company on terms and
conditions the Special Committee deemed to be in the best interests of the
Company and its stockholders, and to report to the full Board of Directors of
the Company upon conclusion of its negotiations with a recommendation for or
against approval by the full Board of Directors of any transaction involving the
sale of the entire Company. At the same meeting, counsel to the Special
Committee was instructed to negotiate with Bear Stearns, the financial advisor
to the Special Committee, to update its retention letter to encompass the
revised scope of the Special Committee's work. Thereafter, the Board of
Directors charged the Special Committee with the responsibility to explore and
negotiate the possible sale of the Company, and to make its recommendation in
that regard to the full Board of Directors.
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<PAGE> 12
On October 19, 1995, with the authorization of the Special Committee,
representatives of the Company, Parent and Merrill Lynch met with
representatives of the Interested Manufacturer. At this meeting, the Interested
Manufacturer and the Company each made presentations as to their respective
businesses in the context of a possible business combination. Management
representatives of the Company, Parent and the Interested Manufacturer met again
on October 25, 1995 to discuss further the respective businesses of the parties.
On October 24, 1995, financial and legal advisors of Parent, the Special
Committee and the Company held discussions about a possible acquisition by
Parent of all of the outstanding Shares not owned by the Hyundai Shareholders.
At this meeting legal advisors of Parent gave the legal representatives of the
Special Committee and the Company a draft merger agreement for the possible
acquisition.
On October 24, 1995, Parent's representatives delivered a letter to
representatives of the Special Committee stating that Parent was willing to
start negotiations with the Special Committee concerning a possible acquisition
by HEI of the remaining equity interest in the Company not already owned by the
Hyundai Shareholders at a per Share price of $5.15. Parent indicated in the
letter that its ability to proceed with the proposed acquisition would be
subject to several conditions, including the approval of the Company's
disinterested directors under the "standstill" provisions of the Stock Purchase
Agreement, obtaining the necessary Korean governmental approvals and the
satisfaction of certain applicable regulatory requirements. Following caucuses
by each side with its respective advisors, the representatives of Bear Stearns,
the financial advisor to the Special Committee, advised Parent's representatives
that Parent's letter would be presented to the Special Committee at a meeting
scheduled for the following day, but that Bear Stearns would not advise the
Special Committee to accept a price of $5.15.
In response to Bear Stearns' inquiry regarding Parent's rationale for the
$5.15 price, Merrill Lynch indicated that Parent's offer reflected the fact
that, under certain circumstances, if the Company continued its pattern of
quarterly losses, the equity value of the Company could be negative and the
Company would likely exhaust its cash reserves and borrowing capacity in the
near future, and that the Company's financial projections, based on past
performance, were not likely to be achieved.
Thereafter, on October 25, 1995, the Special Committee met and, after
receiving the advice of its financial advisors, determined to decline to accept
Parent's offer of $5.15 per Share. During that meeting the financial advisors to
the Special Committee presented their view that a higher price for the Company
could be supported.
Later that day, the legal and financial advisors of Parent and the Special
Committee met again. At this meeting, representatives of Bear Stearns made a
presentation justifying a range of prices between $6.30 and $12.33 per Share
based on a variety of different valuation methodologies and proposed a per Share
acquisition price of $10.75. Representatives of Merrill Lynch advised the
Special Committee's representatives that $10.75 was not acceptable to the Parent
and that $5.15 per Share was a full and fair price. Representatives of Merrill
Lynch also advised the Special Committee's representatives that their client was
reviewing its options concerning further negotiations.
On October 26, 1995, the Company issued a press release stating that the
Special Committee did not accept Parent's offer per Share and that the parties
were reviewing their options concerning negotiations and announcing its
quarterly financial results, including net loss of $44.5 million for the quarter
ended September 30, 1995, compared to the $13.8 million net loss reported for
the quarter ended July 1, 1995. See Section 7. On October 26, 1995, the Hyundai
Shareholders filed an amendment to their Schedule 13D disclosing that Parent had
delivered the letter described above to the Special Committee. The Special
Committee also met on October 26, 1995 to consider the status of negotiations
and concluded that it would seek to continue discussions with Parent.
Thereafter, and after discussing the matter with the Special Committee and Bear
Stearns, Mr. Gallo of the Special Committee and Mr. Y. H. Kim, President and
Chief Executive Officer of Parent, met to discuss Parent's offer. At their
meeting, Mr. Gallo indicated that the Special Committee desired a price of $8.00
per Share and Mr. Kim indicated that he believed agreement would be difficult to
reach if the Special Committee were not willing to consider a price
significantly below
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<PAGE> 13
$8.00, but that HEI would respond to the Special Committee's position. Mr. Kim
also reiterated Parent's view that $5.15 per Share was a full and fair price for
the Shares not already owned by the Hyundai Shareholders.
Later on October 26, 1995, Mr. Charles Hill, the Chairman of the Special
Committee, sent by facsimile to Mr. Chung, the Chairman of HEI, a letter
proposing that Parent pay $8.00 for each Share, and attaching a memorandum
explaining the Special Committee's justifications for a range of prices between
$6.30 and $12.33 per Share based on a number of different valuation
methodologies.
The Special Committee met again on October 27, 1995 to receive a briefing
from Mr. Gallo and to consider the posture of negotiations, and was advised that
management reported that several of the Company's suppliers had indicated their
intention to change the terms upon which they extended credit to the Company.
The Special Committee was also informed that these suppliers expressed
discomfort at the Company's reaction to Parent's original offer. In particular,
one of the Company's major suppliers had advised the Company that it intended to
reduce the Company's credit line with that supplier, with a negative cash impact
to the Company of up to $10 million.
On Saturday, October 28, 1995, Mr. Chung responded by letter to Mr. Hill's
October 26, 1995 letter by requesting that the Special Committee communicate
directly with Mr. Kim concerning the negotiations. Mr. Chung's letter to Mr.
Hill also reiterated Parent's offer of $5.15 per Share.
On Sunday, October 29, 1995, Mr. Kim and Mr. Hill spoke by telephone. Mr.
Kim told Mr. Hill that Parent was willing to increase its offer price for the
outstanding Shares to a price of $6.15 per Share, and that this was Parent's
"best and final" price. Later that evening, Parent's representatives provided to
representatives of the Special Committee their explanation of Parent's $6.15
offer, based on a number of valuation methodologies, and stated that the offer
would be withdrawn on Wednesday, November 1, 1995 at 5:00 p.m., California time
unless the Special Committee accepted it prior to that time. Also, in response
to a specific inquiry from Bear Stearns, Merrill Lynch reported that HEI had
made no determination as to whether to restart negotiations relating to the
Proposed Outsourcing Transaction or the terms thereof in the event that no
agreement was reached on the sale of the Company. Parent also advised the
Special Committee that it intended to amend its filing on Schedule 13D to
disclose its new offer, that the new offer was its "best and final offer," and
that the offer would be withdrawn if not accepted by November 1, 1995. During
the late evening of October 29, 1995, Mr. Hill, after consulting with the
Special Committee, called Mr. Kim and told him that if Parent agreed to a price
of $7.15, then he believed agreement could be reached quickly.
On October 30, 1995, Mr. Kim spoke with Dr. Park and indicated his concern
about the apparent impasse in negotiations. After reporting this conversation to
the Special Committee and requesting authority to do so, Dr. Park was authorized
to conduct a further discussion with Mr. Kim to determine the extent of the
increase which Parent would be willing to make in its offering price. Dr. Park
then did so, and reported back to the Special Committee that Parent appeared
willing to offer $6.30 per Share to conclude the negotiations, but that it did
not appear that Parent would be willing to offer a materially higher price. In a
conversation held later that same day between Mr. Hill and Mr. Kim, Mr. Kim
confirmed that Parent would be willing to consider paying $6.30 per Share.
At a meeting of the Special Committee held on October 31, 1995, Bear
Stearns provided its preliminary views as to the fairness of a possible
transaction in the range discussed with Parent, and briefly discussed its
analysis of that subject, and, in particular its view that there appeared to be
a high potential for value erosion at the Company in light of several factors,
including factors beyond the control of the Company such as access to components
to manufacture its products. During this discussion, several members of the
Special Committee noted their view that there appeared to be a significant risk
to the viability of the Company on a stand-alone basis during the next several
months, in part due to the Company's exposure to one or more large customers, as
well as the lack of a predictable supply of components available to the Company
and the difficulty of controlling its inventory, output and receivables
balances, and the possibility that customers would defer payment or reschedule
orders to the Company if the Christmas season was not as robust as expected. In
light of the Company's very tight cash situation, these members of the Special
Committee stated their views that it appeared that a prompt sale of the Company
was in the best interests of the Company and all of its
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<PAGE> 14
constituencies, and should be concluded as soon as practicable at the best price
which could be negotiated with Parent. Accordingly, the Special Committee
authorized Mr. Hill to conduct a final round of negotiations with Parent with a
view towards maximizing the price Parent was willing to offer to the Company's
shareholders.
During the evening of October 31, 1995, Mr. Kim and Mr. Hill spoke again by
telephone. During that conversation, each indicated his willingness to favorably
consider an acquisition at a per Share price of $6.70.
During the evening of October 31, 1995, the Special Committee met and
discussed the $6.70 per Share price which Parent had indicated it would be
prepared to offer. In connection therewith, the Special Committee was advised by
its financial advisors that they would recommend to Bear Stearns' valuation
committee the issuance of a fairness opinion with regard to the $6.70 offer. The
Bear Stearns representatives also reiterated the basis for their recommendation,
which they had discussed with the Special Committee at its meeting earlier in
the day.
During this meeting, the Special Committee also received a report from
counsel to the Special Committee regarding the draft merger agreement, its
terms, and the issues to be negotiated between the parties. Following such
meeting, the Special Committee determined to request Bear Stearns to provide an
opinion as to the fairness of Parent's $6.70 offer, and instructed its counsel
and counsel for the Company to proceed with negotiation of the merger agreement
as promptly as practicable. The Special Committee also determined that it was
prepared to recommend an offer of $6.70, subject to the receipt of a fairness
opinion from its financial advisor and the negotiation of satisfactory
definitive documentation.
Thereafter, at a meeting held on November 1, 1995, the Special Committee
received the oral opinion of Bear Stearns, confirmed in writing, that the
proposed acquisition at a price of $6.70 per Share was fair from a financial
point of view to the stockholders (other than the holders of the Class A
Shares). The Special Committee also received a presentation by Bear Stearns
outlining the basis for its opinion, and a further report from its counsel and
the Company's counsel as to the draft merger agreement between the parties and
related matters. Bear Stearns advised the Special Committee that the Bear
Stearns Opinion was based, in part, on its view that the Company's financial
viability as a stand-alone company was questionable. Bear Stearns observed that
without a major equity infusion or other long-term financing, the Company might
not survive as an independent company, and therefore stockholders faced a
significant risk of continued value erosion. In particular, Bear Stearns advised
that based on the Company's own projections, by December 1995, it was likely to
have cash on hand of only $6 million, and borrowing capacity of only $31
million. These limited liquidity resources could quickly be exhausted in the
event that any of the assumptions underlying the Company's projections were not
accurate. In this regard, Bear Stearns also noted the historically significant
magnitude of the divergence of the Company's actual operating performance from
its internal financial projections. Bear Stearns also pointed out that the
Company's history of losses for eleven consecutive quarters, totaling
approximately $418 million, and the risk of a liquidity crisis if the Company's
vendors were to change or limit the terms of trade credit extended to the
Company, as some had done and others had indicated an intention to do, strongly
supported their view. Bear Stearns also reviewed with the Special Committee its
view as to the implied value of the Company based on implied values of
comparable publicly traded companies, recent acquisitions in the Company's
industry and related industries and a premium analysis of storage company
acquisitions and acquisitions of remaining interests of selected companies, in
addition to other analyses and data. See "-- Opinion of Financial Advisor."
Counsel to the Special Committee and counsel to the Company also advised
the Company on the form of merger agreement negotiated between the parties and
the outstanding issues to be negotiated. In particular, counsel advised the
Special Committee that the proposed agreement did not contain any financing
contingency, did not contain a minimum condition and allows the Company to
terminate the agreement under certain circumstances to accept a more desirable
transaction without any break-up fees. Following such presentations, the Special
Committee approved the Parent's $6.70 offer and determined to recommend it to
the full Board of Directors of the Company, subject to negotiation of definitive
documentation. Following the Special Committee's approval, a press release was
issued by the Company stating that the Special Committee
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had approved Parent's acquisition proposal, subject to negotiation of a
satisfactory acquisition agreement. Negotiation of the Merger Agreement was
completed on November 2, 1995.
On November 2, 1995, the Special Committee met with its financial and legal
advisors to discuss further the matters that were reviewed at the previous day's
Special Committee meeting. The Special Committee received presentations by its
counsel and counsel for the Company regarding the Merger Agreement. After this
discussion, representatives of Bear Stearns reaffirmed the opinion delivered the
previous day. After discussion of the presentation and the documents, the
Special Committee ratified the decision it had made the previous day to
recommend Parent's offer to the full Board and voted unanimously to recommend
that the full Board of Directors approve the Merger Agreement.
At that same meeting, the Special Committee also formally rejected an offer
it had received for the purchase of IMS from a prospective purchaser other than
HEI. The Special Committee took this action in order to respond formally to such
offer, and in light of its view that the sale of the Company to Parent better
maximized value to stockholders and all other constituencies of the Company than
the sale of the Company's manufacturing facilities, either together or
separately.
On November 2, 1995 the Company's Board of Directors, with Chairman M.H.
Chung absent, met to hear the report of the Special Committee. Chairman Hill of
the Special Committee and the Special Committee's legal advisor reviewed the
negotiations between the Special Committee and Parent concerning the acquisition
proposal. Following these presentations, the Special Committee unanimously
recommended the approval of the Offer, the Merger, and the Merger Agreement. A
representative of Bear Stearns answered questions regarding its fairness opinion
delivered to the Special Committee. Legal counsel for the Company then reviewed
with the Board of Directors the terms of the Merger Agreement, as well as an
amendment to the Company's Rights Agreement to exempt from the Rights Agreement
the transactions contemplated by the Merger Agreement. Following these
presentations, the Board of Directors, based on the recommendation of the
Special Committee, unanimously, with Chairman Chung absent, approved the Offer,
the Merger, the Merger Agreement and the amendment of the Rights Agreement. The
legal representatives of Parent, Purchaser and the Company finalized the Merger
Agreement and Parent, the Purchaser and the Company executed the Merger
Agreement. On the morning of November 3, 1995, the Company issued a press
release announcing the Board of Directors' approval of the transactions
contemplated by the Merger Agreement, based on the recommendation of the Special
Committee, and the parties' execution of the Merger Agreement.
On November 8, 1995, the Purchaser commenced the Offer.
Certain Litigation. On November 1, 1995, a purported class action styled
Wacholder v. Gallo, et al., C.A. No. 14668 (the "Wacholder Action") was filed in
the Court of Chancery of the State of Delaware in and for New Castle County. The
Wacholder Action names as defendants each member of the current Board of
Directors except Mr. Christ. The Wacholder Action also names as defendants HEI,
Parents and Mr. Ryal R. Poppa, a former director of the Company. The Wacholder
Action alleges that HEI controls and dominates the directors of the Company and
that the Company directors have approved the Parent's $6.70 proposal
notwithstanding the "gross inadequacy and unfairness of the price." The
Wacholder Action seeks relief including, inter alia, a preliminary and permanent
injunction against the consummation of the Offer, unspecified damages and
attorneys' fees and costs. The defendants in the Wacholder Action believe the
allegations in the complaint are without merit and those defendants which are
subject to the jurisdiction of the court intend to defend against the action
vigorously.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS; FAIRNESS OF
THE TRANSACTION
The Special Committee. As described in "-- Background of the Transaction;
Past Contacts, Transactions and Negotiations with the Company," at its meeting
on November 1, 1995, the Special Committee unanimously approved the Offer and
the Merger as fair to the Company's stockholders (other than the holders of the
Class A Shares), subject to negotiation of definitive documents. At its meeting
on November 2, 1995, the Special Committee unanimously reaffirmed its approval
of the Offer and the Merger, unanimously
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approved the Merger Agreement and the transactions contemplated thereby and
unanimously decided to recommend approval to the Board of Directors.
In reaching its conclusion and recommendation described above, the Special
Committee considered the following factors:
(i) the substantial premium which $6.70 per Share represents over
current and recent trading prices;
(ii) the opinion of Bear Stearns to the effect that, as of the date of
its opinion and based upon and subject to certain matters stated therein,
the consideration to be received by the holders of Shares (other than Class
A Shares) pursuant to the Offer and the Merger was fair from a financial
point of view to such holders. The full text of the Bear Stearns Opinion,
which sets forth the assumptions made, matters considered and limitations
on the review undertaken by Bear Stearns, is attached hereto as Exhibit I.
Stockholders are urged to read the Bear Stearns Opinion carefully and in
its entirety for assumptions made, matters considered and limits of the
review by Bear Stearns;
(iii) the results of the inquiries made by the Company to several
major companies in the disk drive and related industries regarding a
possible strategic alliance, partnership, business combination or similar
transaction with the Company which indicated that none of those companies
expressed any interest in entering into any such transaction except the
Interested Manufacturer, and the Interested Manufacturer had declined
outright to consider a joint venture or merger with the Company as a
stand-alone entity;
(iv) the business, results of operations, financial condition and
future prospects of the Company;
(v) the uncertainty of the Company's cash position, and the fact that
the Company was relying heavily on the cash to be generated from the
proposed outsourcing transaction in the event that the negotiations
regarding the sale of the Company did not succeed, and the observation of
its financial advisor that without a major equity infusion or other
long-term financing, the Company might not survive as an independent
company;
(vi) the terms of the Offer, the Merger and the Merger Agreement,
including the structural feature of the Offer and the Merger providing for
a prompt cash tender offer for all outstanding shares to be followed by a
merger for the same consideration, thereby enabling stockholders to obtain
the benefits of the transaction in exchange for their Shares at the
earliest possible time;
(vii) other provisions of the Offer and Merger Agreement, including
the fact that the Offer is not subject to any financing or minimum
conditions, and that the Merger Agreement allows the Company to terminate
under certain circumstances to accept more desirable transactions without
paying any break-up fee;
(viii) the fact that Parent indicated, through Merrill Lynch, that HEI
had made no determination as to whether to restart negotiations regarding
the sale of the Company's manufacturing assets or the terms thereof in the
absence of a sale of the Company;
(ix) the extensive arm's-length negotiations between the Special
Committee and Parent leading to the belief of the Special Committee that
$6.70 per Share represented the highest price per Share that could be
negotiated with Parent; and
(x) the deadline placed on the offer by Parent and the risk that
Parent would withdraw its offer after that deadline.
In view of the wide variety of factors considered by the Special Committee,
the Special Committee did not find it practical to, and did not, quantify or
otherwise assign relative weights to the foregoing factors or determine that any
factor was of particular importance. Rather, the Special Committee viewed its
position and recommendation as being based on the totality of the information
presented to and considered by it.
Having considered all the foregoing, and other relevant factors, the
Special Committee concluded that the Offer and the Merger, taken together, was
the best available alternative for the Company, its stockholders
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<PAGE> 17
and other constituencies and was fair to and in the best interests of the
Company's stockholders (other than holders of Class A Shares).
The Board of Directors. At its November 2, 1995 meeting, discussed in
"--Background of the Transaction; Past Contacts, Transactions and Negotiations
with the Company," the Board of Directors, comprised of the three members of the
Special Committee and Messrs. Park, Balanson and Jeon, with Chairman M.H. Chung
absent, met to receive the recommendations of the Special Committee and consider
the Offer, the Merger and the other transactions contemplated by the Merger
Agreement. In such meeting, the Board of Directors unanimously approved the
Offer, the Merger and the other transactions contemplated by the Merger
Agreement, determined that the Offer, the Merger and the transactions
contemplated by the Merger Agreement are fair to and in the best interests of
the Company's stockholders (other than holders of Class A Shares) and determined
to recommend that the stockholders of the Company (other than holders of Class A
Shares) accept the Offer and tender their Shares.
In so doing, the Board of Directors gave predominant weight to the
recommendations of the Special Committee, having taken into account the purposes
for which the Special Committee had been formed and having received a
presentation from the Special Committee regarding its extensive arm's length
negotiations, deliberations and consultation with financial and legal advisors.
The Board of Directors also attached significance to the Bear Stearns Opinion to
the Special Committee that, as of the date of such opinion, the Offer and Merger
were fair from a financial point of view to the Company's stockholders (other
than the holders of Class A Shares). See "--Opinion of Financial Advisor."
Parent and the Purchaser.
None of Parent, the Purchaser and the Hyundai Shareholders had any
involvement in the Special Committee's evaluation of the fairness of the Offer
and the Merger. Although representatives of the Hyundai Shareholders serve as
directors of the Company, none serves on the Special Committee. Parent, the
Purchaser and the Hyundai Shareholders have each concluded that the Offer, the
Merger and the other transactions contemplated by the Merger Agreement are fair
to holders of Shares (other than holders of the Class A Shares) based on (i) the
unanimous recommendation of the Special Committee, as well as the basis therefor
as set forth above, including the fact that the Special Committee received the
written opinion of Bear Stearns that the consideration to be received by holders
of Shares (other than holders of the Class A Shares) pursuant to the Offer and
the Merger is fair from a financial point of view to such holders, (ii) the
unanimous recommendation of the Board of Directors, as well as the basis
therefor as set forth above and (iii) the fact that representatives of Parent
and its advisors negotiated the terms of the Merger on an arm's-length basis
with representatives of the Special Committee and its financial and legal
advisors. Parent, the Purchaser and the Hyundai Shareholders did not find it
practicable to, and did not, quantify or otherwise attach relative weights to
the specific factors considered by the Special Committee and the Board of
Directors.
OPINION OF FINANCIAL ADVISOR
On November 1, 1995, at the request of the Special Committee, Bear Stearns
delivered an oral opinion to the Special Committee, subsequently confirmed in
writing by delivery of its written opinion dated as of November 1, 1995 (the
"Bear Stearns Opinion"), to the effect that, as of that date, the Offer and the
Merger were fair, from a financial point of view, to the stockholders of the
Company (other than the holders of the Class A Shares).
THE FULL TEXT OF THE BEAR STEARNS OPINION IS ATTACHED AS EXHIBIT I HERETO.
THE COMPANY'S STOCKHOLDERS ARE URGED TO, AND SHOULD, READ SUCH OPINION CAREFULLY
IN ITS ENTIRETY FOR ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE
REVIEW BY BEAR STEARNS.
The Bear Stearns Opinion addresses only the fairness of the Offer and the
Merger, from a financial point of view, to the stockholders of the Company
(other than the holders of Class A Shares) as of the date set forth therein and
does not constitute a recommendation to any stockholder of the Company to accept
the Offer and tender his Shares. The summary of the Bear Stearns Opinion set
forth herein is qualified in its entirety by reference to the full text of such
Opinion.
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<PAGE> 18
Bear Stearns evaluated the financial terms of the Offer and the Merger and
participated in the discussions concerning the consideration to be received.
However, the consideration to be received by the Company's stockholders as a
result of the Offer and the Merger was determined by negotiation between the
Special Committee and Parent after consultation by each of such parties with its
financial advisor. In connection with rendering its Opinion, Bear Stearns, among
other things: (i) reviewed the Merger Agreement in substantially final form;
(ii) reviewed the Company's Annual Reports to Stockholders and Annual Reports on
Form 10-K for the fiscal years ended March 31, 1993 through 1995, and its
Quarterly Report on Form 10-Q for the period ended July 1, 1995; (iii) reviewed
certain operating and financial information, including projections, provided to
Bear Stearns by management relating to the Company's business and prospects;
(iv) met with certain members of the Company's senior management to discuss its
operations, historical financial statements and future prospects; (v) visited
the Company's facilities in San Jose, California; (vi) reviewed the historical
prices and trading volume of the Shares; (vii) reviewed publicly available
financial data and stock market performance data of other publicly-held
companies which it deemed generally comparable to the Company; (viii) reviewed
the financial terms of certain other recent acquisitions of companies which it
deemed generally comparable to the Company; and (ix) conducted such other
studies, analyses, inquiries and investigations as it deemed appropriate.
In connection with its activities on the Special Committee's behalf, Bear
Stearns relied upon and assumed, without independent verification (i) the
accuracy and completeness of all of the financial and other information provided
to it for purposes of its Opinion and (ii) the reasonableness of the assumptions
made by the management of the Company with respect to its projected financial
results. In addition, Bear Stearns did not make or seek to obtain appraisals of
the Company's assets and liabilities in rendering the Bear Stearns Opinion. Bear
Stearns further relied upon the assurances of the management of the Company that
such management was not aware of any facts that would make the information
provided to Bear Stearns incomplete or misleading. The Bear Stearns Opinion is
also necessarily based upon the economic, market and other conditions as in
effect on, and the information made available to it as of, the date of the
Opinion.
The following is a summary of certain information considered by Bear
Stearns in connection with providing the Bear Stearns Opinion to the Special
Committee.
Bear Stearns noted that the Company has been unprofitable on an operating
basis for 11 consecutive quarters and, in that time, had net losses of
approximately $418 million on revenue of approximately $3.0 billion. During this
time, the Share price has fallen from the $12-15 range to the $4-6 range. For
the quarter ended September 30, 1995, the Company reported a net loss of $44.5
million, compared to the $13.8 million loss in the June quarter. Bear Stearns
also observed that the Company has frequently underperformed relative to its
internal financial projections. In four of the last five quarters, the Company
has recorded revenue and pretax income (excluding non-recurring items) well
below internal expectations. Given the uncertainty surrounding the Company's
ability to achieve its financial projections, Bear Stearns noted that the
Company's liquidity situation was likely to continue to worsen.
Comparable Company Analysis. Bear Stearns compared certain actual and
estimated financial data, stock market data and multiples of income statement
parameters of certain other publicly traded companies deemed to be generally
comparable to the Company. Such companies were used in this analysis because
they were deemed by Bear Stearns to operate in the same general industry (disk
drives) as the Company. Bear Stearns used the following five companies it
considered to be generally comparable (the "Comparable Companies"): Conner
Peripherals, Inc. ("Conner"), Micropolis Corporation, Quantum Corporation
("Quantum"), Seagate Technology, Inc. ("Seagate") and Western Digital
Corporation. Bear Stearns excluded Conner from calculations involving valuation
multiples because, in its view, Conner's stock is no longer trading on the basis
of its financial performance but is instead trading on the basis of its pending
merger with Seagate. Bear Stearns observed that no company used in this analysis
as a comparison is identical to the Company. In particular, such companies have
different product mixes and different proportions of original equipment
manufacturer ("OEM") and distribution sales and have different operating
histories and financial conditions.
Financial data compared included market value, enterprise value (defined as
market value plus debt less cash), revenues, earnings before interest, taxes,
depreciation and amortization ("EBITDA"), earnings before interest and taxes
("EBIT"), net income, earnings per share, gross margin, EBITDA margin, EBIT
margin
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<PAGE> 19
and projected earnings per share based on a compilation of earnings estimates of
securities analysts. Multiples compared included enterprise value to latest
twelve months revenues, enterprise value to latest twelve months EBITDA,
enterprise value to latest twelve months EBIT and price per share to latest
twelve months and projected calendar 1995 and 1996 earnings per share. The
earnings projections for the Comparable Companies were based upon the consensus
published projections of financial analysts. The range of earnings projections
for the Company were based on information provided by the Company. In performing
the Comparable Company analyses, Bear Stearns focused primarily on the implied
equity values per share derived by applying the harmonic mean multiples of
certain income statement parameters at which the Comparable Companies traded to
the Company's respective income statement parameters.
Based on the harmonic mean (an average which gives equal weight to equal
dollar investments) multiple of enterprise value to revenues for the twelve
months ended September 30, 1995 ("LTM") of 0.35x for the Comparable Companies,
the Company's implied equity value per share was $4.38. This harmonic mean
multiple compared to a range of 0.25x to 0.59x for the Comparable Companies.
Based on the harmonic mean multiple of price per share to projected calendar
1996 earnings of 7.2x for the Comparable Companies, the Company's implied equity
value per share ranged from $3.60 to $7.20. This harmonic mean multiple compared
to a range of 5.4x to 8.8x for the Comparable Companies. A derivation of implied
value based on LTM EBITDA, LTM EBIT, LTM earnings per share or projected
calendar 1995 earnings per share produced results which were not meaningful due
to the Company's operating losses during these periods. The overall range of
values indicated from the above analyses resulted in an overall range of implied
equity value per share for the Company of $3.60 to $7.20. Bear Stearns noted
that the $6.70 offer price was towards the high end of this range of values.
Bear Stearns noted that its analysis indicated that: (i) the Company's LTM
gross margin was 7.1% as compared to a mean LTM gross margin for the Comparable
Companies of 16.3%; (ii) the Company's LTM EBIT margin was (6.8%) as compared to
a mean LTM EBIT margin for the Comparable Companies of 5.1%; and (iii) the
Company's LTM net margin was (7.5%) as compared to a mean LTM net margin for the
Comparable Companies of 3.6%. Bear Stearns also noted that: (i) the Company's
cash balance as a percentage of LTM revenues was 1.5% as compared to a mean cash
balance as a percentage of LTM revenues for the Comparable Companies of 13.9%;
(ii) the Company's ratio of total debt to total capitalization was 106% as
compared to a mean ratio of total debt to total capitalization for the
Comparable Companies of 40%; and (iii) the Company had negative tangible net
worth as of September 30, 1995.
Comparable Transaction Analysis. Bear Stearns analyzed the multiples of
various financial statistics implied by the consideration paid in eight pending
or consummated merger and acquisition transactions since 1990 involving
companies deemed to be generally comparable to the Company. Such companies were
used in this analysis because they were deemed by Bear Stearns to operate in the
same general industry sector as the Company. To the extent information was
publicly available for these transactions, multiples analyzed included price per
share to latest twelve months and projected earnings per share and aggregate
transaction value (defined as the total price paid for all equity securities of
a company plus debt less cash) to latest twelve months revenues, EBITDA and
EBIT. The transactions analyzed included: Conner and Seagate; the Disk Drive
Division ("Digital") of Digital Equipment Corporation and Quantum; Sunward
Technologies, Inc. and Read-Rite Corporation; Archive Corporation and Conner
Peripherals, Inc.; Colorado Memory Systems, Inc. and Hewlett-Packard Company;
Dastek, Inc. and Komag Incorporated; WangDAT, Inc. and Rexon Incorporated; and
Cipher Data Products, Inc. and Archive Corporation (collectively, the
"Comparable Transactions"). Bear Stearns observed that no company used in this
analysis as a comparison is identical to the Company. In particular, such
companies have different product offerings and market positions than the Company
and have different operating histories and financial conditions. In performing
the Comparable Transactions analyses, Bear Stearns focused primarily on the
implied equity values per share derived by applying the harmonic mean multiples
of certain income statement parameters at which the Comparable Transactions were
completed to the Company's respective income statement parameters.
Based on the harmonic mean multiple of aggregate transaction value to
latest twelve months revenues of 0.77x for the Comparable Transactions, the
Company's implied equity value per share was $12.31. This harmonic mean multiple
compared to a range of 0.45x to 1.69x for the Comparable Transactions. Based on
the
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harmonic mean multiple of price per share to projected next year earnings per
share of 9.2x for the Comparable Transactions, the Company's implied equity
value per share ranged from $4.60 to $9.20. This harmonic mean multiple compared
to a range of 7.2x to 15.9x for the Comparable Transactions. A derivation of
implied value based on LTM EBITDA, LTM EBIT, LTM earnings per share or projected
current year earnings per share produced results which were not meaningful due
to the Company's operating losses during these periods. The overall range of
values indicated from the above analyses resulted in an overall range of implied
equity value per share for the Company of $4.60 to $12.31. Bear Stearns noted
that the $6.70 offer price was within this range of values.
Bear Stearns observed that two recent transactions involving disk drive
companies (i.e., Conner/Seagate and Digital/Quantum) were more comparable than
the other transactions and therefore analyzed the multiples of various financial
statistics implied by the consideration paid in each of these transactions
separately.
Based on the multiple of aggregate transaction value to latest twelve
months revenues of 0.54x for the Conner/Seagate transaction, the Company's
implied equity value per share was $7.97. Based on the multiple of price per
share to projected next year earnings per share of 15.9x for the Conner/Seagate
transaction, the Company's implied equity value per share ranged from $7.95 to
$15.90. A derivation of implied value based on LTM EBITDA, LTM EBIT, LTM
earnings per share or projected current year earnings per share produced results
which were not meaningful due to the Company's operating losses during these
periods. The overall range of values indicated from the above analyses resulted
in an overall range of implied equity value per share for the Company of $7.95
to $15.90. Bear Stearns noted that the $6.70 offer price was below the low end
of this range of values by approximately 16%. Bear Stearns also noted that its
analysis indicated that: (i) the Company's LTM gross margin was 7.1% as compared
to Conner's LTM gross margin of 16.4%; (ii) the Company's LTM EBIT margin was
(6.8%) as compared to Conner's LTM EBIT margin of 2.2%; and (iii) the Company's
LTM net margin was (7.5%) as compared to Conner's LTM net margin of 1.3%. Bear
Stearns also noted that: (i) the Company's cash balance as a percentage of LTM
revenues was 1.5% as compared to Conner's cash balance as a percentage of LTM
revenues of 13.8%; and (ii) the Company's ratio of total debt to total
capitalization was 106% as compared to Conner's ratio of total debt to total
capitalization of 58%.
Based on the multiple of aggregate transaction value to latest twelve
months revenues of 0.45x for the Digital/Quantum transaction, the Company's
implied equity value per share was $6.27. A derivation of implied value based on
LTM EBITDA, LTM EBIT, LTM earnings per share or projected current or next year
earnings per share produced results which were (i) not meaningful due to the
Company's operating losses during these periods; or (ii) not available due to
insufficient data. Bear Stearns noted that the $6.70 offer price exceeded the
implied equity value per share of $6.27 by approximately 6%. Bear Stearns also
noted that its analysis indicated that: (i) the Company's LTM gross margin was
7.1% as compared to Digital's gross margin of 1.1% for the twelve months ended
October 1, 1994; (ii) the Company's LTM EBIT margin was (6.8%) as compared to
Digital's EBIT margin of (17.1%) for the twelve months ended October 1, 1994;
and (iii) the Company's LTM net margin was (7.5%) as compared to Digital's net
margin of (17.3%) for the twelve months ended October 1, 1994.
Review of Historical Trading Data and Acquisition Premiums. Bear Stearns
reviewed the historical public trading prices of the Company's Common Stock for
the period from January 1, 1990 through October 31, 1995. Bear Stearns observed
that during the last 52-week period, Maxtor's high Share closing price was $7.00
and its low Share closing price was $3.63. Bear Stearns also observed that the
Share price has closed higher than the $6.70 offer price only once since May
1994.
Bear Stearns reviewed the premiums paid by acquirors in the public
Comparable Transactions relative to the stock price of the target company one
trading day prior, ten trading days prior and thirty trading days prior to the
announcement of the transaction. The means of the premiums paid relative to the
target's stock price one trading day prior, ten trading days prior and thirty
trading days prior to the announcement of the public Comparable Transactions
discussed above (i.e., Conner/Seagate, Sunward/Read-Rite, Archive/Conner and
Cipher Data/Archive) were 46%, 59% and 53%, respectively. The offer price of
$6.70 per share represents a
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premium of 43%, 60% and 26% over the closing price of the Shares one trading day
prior, ten trading days prior and thirty trading days prior, respectively, to
the first public announcement that discussions regarding an acquisition of the
Company were underway. The offer price of $6.70 per share represents a premium
of 12%, 25% and 49% over the closing price of the Company's common stock one
trading day prior, ten trading days prior and thirty trading days prior,
respectively, to the first public announcement of the proposed outsourcing
transaction.
Bear Stearns also reviewed certain publicly available information relating
to thirteen completed and pending acquisitions of remaining interests greater
than 20% since January 1, 1994 involving publicly traded companies. Such
analysis examined the premiums paid by significant shareholders relative to the
stock price of the target company one trading day prior, ten trading days prior
and thirty trading days prior to the announcement of the transaction. The means
of the premiums paid relative to the target's stock price one trading day prior,
ten trading days prior and thirty trading days prior in acquisitions of
remaining interests were 26%, 44% and 48%, respectively. Bear Stearns does not
consider the average premiums paid in other transactions to be a relevant
standard of fairness.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying Bear Stearns' opinion. In arriving at its opinion, Bear Stearns
considered the results of all such analyses. The analyses were prepared solely
for purposes of providing its opinion as to the fairness of the Offer and the
Merger, from a financial point of view, to the stockholders of the Company
(other than the holders of the Class A Shares) and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. As described above, the Bear
Stearns Opinion and presentation to the Special Committee was one of many
factors taken into consideration by the Special Committee in making its
determination to approve the Offer, the Merger and the Merger Agreement. The
foregoing summary does not purport to be a complete description of the analysis
performed by Bear Stearns.
A copy of the Bear Stearns Opinion and the Bear Stearns presentation
materials have been filed as an exhibit to the Rule 13e-3 Transaction Statement
on Schedule 13E-3 (the "Schedule 13E-3") filed by the Company, Parent, the
Purchaser and the Hyundai Shareholders with the Securities and Exchange
Commission (the "SEC"). Copies thereof will be made available for inspection and
copying at the principal executive offices of the Company during regular
business hours by any interested stockholder of the Company, or his or her
representative who has been so designated in writing, and may also be obtained
in the manner described in Section 7 (except that copies are not available at
the regional offices of the SEC).
In the ordinary course of its business, Bear Stearns may actively trade the
equity and equity-related securities of the Company for its own account and for
the accounts of customers and, accordingly, may, at any time, hold a long or
short position in such securities.
The Special Committee of the Board of Directors of the Company selected
Bear Stearns as its financial advisor in connection with the transactions
contemplated by the Merger Agreement. Bear Stearns was selected by the Special
Committee because of its qualifications and expertise in providing advice to
companies in the disk drive and data storage industries, as well as its
reputation as an internationally recognized investment banking firm and its
reputation and experience in rendering fairness opinions. In addition, the
Special Committee considered the fact that Bear Stearns was familiar with the
Company, having represented the Company in connection with its sale of Class A
Shares to the Hyundai Shareholders pursuant to the Stock Purchase Agreement as
described above in "-- Background of the Transaction; Past Contacts,
Transactions and Negotiations with the Company."
Pursuant to a letter agreement, dated October 24, 1995, the Company agreed
to pay Bear Stearns (a) a fee of $400,000 for rendering its opinion in
connection with the Offer and the Merger and (b) an additional fee of 1.125% of
the total consideration paid by Purchaser in the Offer and the Merger (excluding
debt guaranteed by Purchaser or its affiliates), against which will be credited
(i) the $400,000 fee and (ii) a $300,000 fee paid
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<PAGE> 22
pursuant to a letter agreement dated August 24, 1995 (discussed below). The
Company has also agreed to reimburse Bear Stearns for its reasonable
out-of-pocket expenses up to $50,000, including the reasonable fees and
disbursements of counsel, and to indemnify Bear Stearns and certain related
persons against certain liabilities in connection with the engagement of Bear
Stearns, including certain liabilities under the federal securities laws.
In connection with the Proposed Outsourcing Transaction, the Special
Committee retained Bear Stearns to assist it as its exclusive financial advisor.
Pursuant to a letter agreement, dated August 24, 1995, the Company agreed to pay
Bear Stearns (a) an initial fee $100,000; (b) a fee of $200,000 for rendering
its opinion in connection with the Proposed Outsourcing Transaction; (c) an
additional fee of $200,000 upon closing if an outsourcing agreement was
consummated with HEI; and (d) 1.00% of the fair market value of the total
consideration paid by any purchaser other than HEI, against which would be
credited (i) the $100,000 fee and (ii) the $200,000 opinion fee. The Company
agreed to reimburse Bear Stearns for its reasonable out-of-pocket expenses up to
$25,000, including the reasonable fees and disbursements of counsel, and to
indemnify Bear Stearns and certain related persons against certain liabilities
in connection with the engagement of Bear Stearns, including certain liabilities
under the federal securities laws. Bear Stearns was paid a total of $300,000
under the terms of this letter agreement.
ANALYSIS OF FINANCIAL ADVISOR TO PARENT
Merrill Lynch was retained by Parent as financial advisor to evaluate a
possible acquisition of the Company based upon Merrill Lynch's prior investment
banking relationship and familiarity with Parent. Merrill Lynch was not
requested to, and did not, render any opinion with respect to the fairness of
the consideration to be paid pursuant to the Offer. No special instructions were
given to Merrill Lynch related to its evaluation, and neither Parent nor any of
its affiliates imposed any limitations on the scope thereof.
At the October 23, 1995 meeting with senior executives of Parent and HEI,
Merrill Lynch presented an oral summary of its written presentation regarding
the proposed transaction (the "Merrill Lynch Presentation"). The following is a
summary of the Merrill Lynch Presentation.
(i) Stock Trading History. Merrill Lynch reviewed the history of the
trading price and volume for Shares.
(ii) Analysis of Selected Publicly Traded Hard Disk Drive
Companies. Merrill Lynch compared certain financial information for the
Company to the corresponding publicly available financial information of
certain other hard disk drive companies. These companies included Conner,
Quantum, Seagate and Western Digital Corp. Merrill Lynch determined that an
analysis of the latest twelve months ("LTM") revenue multiples of Quantum
and Western Digital (the "HDD Companies") was most relevant. Based on this
analysis, Merrill Lynch calculated a per Share reference equity range for
the Company of $2.34 to $4.60.
(iii) Analysis of Selected Precedent Transactions. Merrill Lynch also
reviewed the financial terms of three relevant precedent transactions since
1993 involving hard disk drive companies (the "Precedent Transactions").
The Precedent Transactions reviewed, in reverse chronological order of
announcement date, were the following: (a) the pending acquisition of
Conner by Seagate, (b) the acquisition of Digital by Quantum and (c) the
acquisition by Parent of a 40% interest in the Company. As in the analysis
of hard disk drive companies, the Merrill Lynch Presentation indicated that
an analysis of the revenue multiple was relevant. Thus, based on this
analysis, Merrill Lynch calculated a per Share reference equity range of
$2.55 to $8.08.
(iv) Discounted Cash Flow Analysis. Merrill Lynch calculated ranges
of equity value for the Company based upon the value discounted to the
present of its five-year stream of unlevered cash flow and its fiscal year
2000 terminal values based upon a range of multiples of its projected
fiscal year 2000 earnings before interest and taxes ("EBIT") less its net
debt. In conducting its analysis, Merrill Lynch relied upon certain
assumptions and financial projections provided by the management of the
Company ("Management Projections") and applied discount rates reflecting a
weighted average cost of capital
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<PAGE> 23
ranging from 17.0% to 21.0% and multiples of terminal EBIT ranging from
4.0x to 7.0x. Based on this analysis, Merrill Lynch calculated a per Share
reference equity range from the Company of $13.65 to $24.45. Merrill Lynch
advised the senior executives of Parent and HEI that they attributed little
weight to this analysis based on the historical inability of the Company to
achieve projected financial results.
Merrill Lynch also utilized this DCF model (utilizing, however,
terminal EBIT multiples ranging from 4.0x to 6.0x) to calculate ranges of
equity values for the Company based on two sensitivity cases (the
"Sensitivity 1 Projections" and "Sensitivity 2 Projections"). The
Sensitivity 1 Projections were based on (i) reductions in projected
revenue, gross margin and EBIT reflecting the last five quarters actual vs.
budget experience and (ii) growth during 1998 through 2000 at the
International Data Corp. ("IDC") projected HDD industry growth rate. The
Sensitivity 2 Projections were based on (i) reductions in projected volumes
for new products reflecting execution risk and (ii) reductions in EBIT
margins to reflect historical operating expense performance. Based on the
Sensitivity 1 Projections, Merrill Lynch calculated a per Share reference
equity range for the Company of $4.28 to $8.38. Based on the Sensitivity 2
Projections, Merrill Lynch calculated a per Share reference equity range
for the Company of ($3.58) to ($3.42).
(v) Minority Buy-Out Premium Analysis. Merrill Lynch reviewed the
premiums paid in transactions since 1992 in which minority stake holders
acquired the remaining equity in publicly traded companies. This analysis
showed that the premium over market price one day prior to announcement
ranged from (29.0%) to 64.9% with a mean of 26.0% and a median of 30.6%.
Based on this analysis, Merrill Lynch calculated a per Share reference
equity range for the Company of $5.36 to $5.51.
The summary set forth above does not purport to be a complete description
of the Merrill Lynch Presentation or Merrill Lynch's presentation to certain
senior executives of Parent and certain of its affiliates on October 23, 1995. A
copy of the Merrill Lynch Presentation has been filed as an exhibit to the
Schedule 13E-3 filed by the Company, Parent, the Purchaser and the Hyundai
Shareholders with the SEC. Copies thereof will be made available for inspection
and copying at the principal executive offices of the Company during regular
business hours by any interested stockholder of the Company, or his or her
representative who has been so designated in writing, and may also be obtained
in the manner described in Section 7 (except that copies are not available at
regional offices of the SEC).
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Parent and the Company.
Merrill Lynch's analyses were necessarily based on market, industry and other
conditions as in effect on, and the information made available to Merrill Lynch
as of, the date of its presentation. Any estimates contained in the analyses
performed by Merrill Lynch are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
suggested by such analyses. In addition, analyses relating to the value of the
Company do not purport to be appraisals or to reflect the prices at which the
Company may actually be sold. Because such estimates are inherently subject to
uncertainty, neither Parent nor Merrill Lynch nor any other person assumes
responsibility for their accuracy.
No company utilized in the above analyses as a comparison is identical to
the Company. Accordingly, an analysis of the results of the foregoing is not
purely mathematical. Rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the HDD
Companies and the companies involved in the Precedent Transactions and other
factors that could affect the public trading values of HDD Companies or
transaction values of Precedent Transactions to which the Company is being
compared.
In performing its analyses, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
Parent and the Company, and Merrill Lynch did not independently verify such
information or undertake an independent appraisal or physical inspection of the
assets of the Company. With respect to the financial forecasts furnished by the
Company, Merrill Lynch assumed that they reflected the best currently available
estimates and judgment of the management of the Company as to the expected
future financial performance of the Company. As described above, the Merrill
Lynch Presentation was one of many factors taken into consideration by Parent in
making its determination to
21
<PAGE> 24
make the Offer. Consequently, the Merrill Lynch Presentation should not be
viewed as determinative of Parent's decision to proceed with the Offer.
In the ordinary course of its business, Merrill Lynch actively trades in
securities of the Company for its own account and for the account of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
PURPOSE AND STRUCTURE OF THE TRANSACTION
The purpose of the Offer is for the Hyundai Shareholders, through Parent
and the Purchaser, to acquire the entire equity interest in the Company not
currently owned by them. HEI presently owns 60%, and HHI presently owns 40%, of
the capital stock of Parent. HEI, HHI, HC and HMM currently own 5,844,000,
4,870,000, 4,870,000 and 3,896,000 Class A Shares, respectively. The Class A
Shares represent approximately 37% of the outstanding Shares calculated on a
Fully Diluted Basis. It is expected that, prior to the consummation of the
Merger, the Hyundai Shareholders will contribute their Class A Shares to the
Purchaser or Parent in exchange for capital stock of the Purchaser or Parent
and, as a result, would collectively, together with Parent, own, directly or
indirectly, all of the outstanding capital stock of the Purchaser, and, after
the Merger, all of the capital stock of the Surviving Corporation. See Section
8.
The Offer is intended to provide the Company's stockholders (other than
holders of Class A Shares) with cash consideration of $6.70 per Share for all of
their Shares at the earliest possible date. The purpose of the Merger is to
acquire all outstanding Shares not purchased pursuant to the Offer. The
acquisition of the entire equity interest in the Company has been structured as
a cash tender offer followed by a cash merger in order to provide a prompt and
orderly transfer of ownership of the Company from the public stockholders to
Parent, the Purchaser and the Hyundai Shareholders. Following the Merger, the
interests of Parent, the Purchaser and the Hyundai Shareholders in the Company's
net book value and net income will increase to 100%. Parent, the Purchaser and
the Hyundai Shareholders, as the remaining stockholders of the Company, will
thereafter benefit from any increases in the value of the Company and also bear
the risk of any decreases in the value of the Company.
The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including the Korean Approval Condition and, if required by
the DGCL and the Company's Restated Certificate, the approval and adoption of
the Merger Agreement by the requisite vote of the stockholders of the Company.
Under the Restated Certificate and the DGCL, if the Purchaser acquires a
majority of the outstanding Shares and Class A Shares, counted as a single
class, it will have sufficient voting power to approve and adopt the Merger
Agreement and the Merger without the vote of any other stockholder of the
Company. If the Purchaser acquires at least 90% of the outstanding Shares
(including any Shares issued upon conversion of the Class A Shares contributed
to the Purchaser by the Hyundai Shareholders), it intends to approve and
consummate the Merger without any action by, or any further prior notice to, the
other stockholders of the Company, pursuant to the short form merger provisions
of the DGCL. If, however, the Purchaser does not acquire at least 90% of the
then outstanding Shares pursuant to the Offer or otherwise (including any Shares
issued upon conversion of the Class A Shares), and a vote of the Company's
stockholders is required under the DGCL, a significantly longer period of time
will be required to effect the Merger.
Following the consummation of the Offer, subject to the terms of the Rights
Agreement and the standstill provisions of the Stock Purchase Agreement, the
Purchaser, Parent and the Hyundai Shareholders may purchase additional Shares on
the Nasdaq National Market, in privately negotiated transactions or otherwise.
The prices paid in such purchases may be more or less than the price paid
pursuant to the Offer. If the Purchaser does not own a sufficient number of
Shares to consummate a short form merger, such purchases may be used to allow
the Purchaser to acquire a sufficient number of Shares in order to consummate a
short form merger pursuant to the provisions of the DGCL.
The Merger does not require the approval of a majority of the unaffiliated
stockholders of the Company.
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<PAGE> 25
PLANS FOR THE COMPANY AFTER THE TRANSACTION
Upon consummation of the Offer, Parent and the Hyundai Shareholders intend
to continue their review of the Company and its assets, businesses, operations,
properties, policies, corporate structure, dividend policy, capitalization and
management and consider if any changes would be desirable in light of the
circumstances then existing.
While the Interested Manufacturer ruled out the possibility of a joint
venture or a merger with the Company as a stand-alone company (see
"-- Background of the Transaction, Past Contracts, Transactions and Negotiations
with the Company"), a possible joint venture or other business combination with
the Company following consummation of the Merger may be explored by
representatives of the Company, the Hyundai Shareholders and the Interested
Manufacturer while the Offer is pending or thereafter. There is no assurance
that any further discussion will take place or, if such discussions do take
place, that they will lead to any agreement. In addition, HEI may determine to
combine the Company's operations with those of HSD. HEI may also determine to
increase the Company's equity or otherwise increase HEI's level of financial
support to the Company.
Except for the foregoing, and as otherwise indicated in this Offer to
Purchase, none of Parent, the Purchaser or any Hyundai Shareholders has any
other present plans or proposals which relate to or would result in an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving the Company or any of its subsidiaries, a sale or
transfer of a material amount of assets of the Company or any of its
subsidiaries or any material change in the Company's capitalization or any other
material changes in the Company's corporate structure or business or the
composition of the Board of Directors or management.
Parent anticipates that, upon consummation of the Offer, pursuant to the
provisions of the Merger Agreement, it will exercise its rights under the Merger
Agreement to designate persons to be elected to the Board of Directors so that
its designees constitute a proportion of the full Board of Directors equal to
its proportionate ownership of the Company's outstanding capital stock. See
"-- The Merger Agreement."
It is expected that, if Shares are not accepted for payment by the
Purchaser pursuant to the Offer and the Merger is not consummated, the Company's
current management, under the general direction of the Board of Directors
(including the Hyundai Shareholders' representatives to the Board of Directors),
will continue to manage the Company as an ongoing business.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Interests of Certain Officers and Directors of the Company Affiliated with
Parent and the Purchaser
In considering the recommendation of the Board of Directors, stockholders
of the Company should be aware that certain officers and directors of the
Company have certain interests in the proposed transaction, including those
referred to below, that present actual or potential conflicts of interest in
connection with the Offer and the Merger. The Board of Directors and the Special
Committee were aware of these potential or actual conflicts of interest and
considered them along with other matters described under "-- Background of the
Transaction; Past Contacts, Transactions and Negotiations with the Company" and
"-- Recommendation of the Special Committee and the Board of Directors; Fairness
of the Transaction."
Interests of Certain Board Members with Respect to Compensation for Services
Provided to the Company.
During fiscal 1995, non-employee members of the Board of Directors received
the following compensation: (i) $18,000 per year; (ii) $1,000 per scheduled or
special board meeting or special committee meeting; (iii) $750 per scheduled
committee meeting or telephonic board or committee meeting; and (iv)
nonqualified stock options pursuant to the Company's 1986 Outside Directors
Stock Option Plan (the "1986 Plan"). In addition, non-employee members of the
Board of Directors with no other medical coverage are entitled to participate in
a medical insurance plan and a deferred compensation life insurance plan
available to all members of the Board of Directors. Effective in fiscal 1996
non-employee members of the Board of Directors receive the following
compensation: (i) $22,000 per year; (ii) $2,000 per year for service as a
committee
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<PAGE> 26
chairperson; (iii) $1,500 per board meeting; (iv) $1,000 per committee meeting;
and (v) nonqualified stock options pursuant to the 1986 Plan and the 1996
Outside Directors Stock Option Plan (the "1996 Plan").
Mr. Gallo, a member of the Special Committee, is a member of Gray Cary Ware
& Freidenrich, which serves as principal outside legal counsel for the Company,
including representing the Company in the transactions described herein, and
which also represents Parent in certain pending litigation.
Interests of Executive Officers and Directors with Respect to Shares Currently
Held and Shares Subject to
Company Stock Options.
The Company's Fiscal 1988 Stock Option Plan (the "1988 Plan") provides that
upon a "transfer of control" (as defined in the 1988 Plan), the Board of
Directors, in its discretion, may (i) provide that all Shares acquired on
exercise of an option will become fully vested upon the "transfer of control,"
or (ii) arrange for the surviving or acquiring corporation to assume the
Company's rights and obligations under the option or substitute an option for
such corporation's stock for an option outstanding under the 1988 Plan. In
connection with the Merger, the Board of Directors has provided that all
outstanding options under the 1988 Plan will become fully vested upon the
Effective Time (as defined below), and upon the Effective Time, each option will
be canceled. The Company's 1995 Stock Option Plan, 1986 Plan and 1996 Plan each
provides that upon a "transfer of control" all Shares acquired on exercise of an
option will become fully vested upon the "transfer of control." In connection
with the Merger, all outstanding options under such plans will automatically
become fully vested upon the Effective Time, and upon the Effective Time, each
option will be canceled. In return for the cancellation of the options under the
Company's option plans, each optionee will receive an amount equal to the
product of (i) the excess, if any, of $6.70 over the per Share exercise price of
the option, and (ii) the number of Shares for which the option is unexercised.
The Company's 1992 Employee Stock Purchase Plan (the "Purchase Plan")
permits the Board of Directors to establish a different term for an offering as
well as a different commencing and/or ending date for an offering. In connection
with the Merger, the Board of Directors has provided that as of the date
immediately prior to the date on which the Purchaser accepts Shares for payment
pursuant to the Offer (the "Final Purchase Date"), (i) Shares will be purchased
with payroll deductions accumulated during the Purchase Plan offering in
operation immediately prior to the Final Purchase Date, and (ii) the Purchase
Plan will terminate, subject to the consummation of the Merger.
In August 1995, the Board granted the following options to certain
executive officers and employee directors of the Company: Richard D. Balanson
(60,000), Katherine C. Young (40,000), Nathan Kawaye (40,000) and Glenn H.
Stevens (40,000). Also in August 1995, the non-employee directors of the Company
received the following automatic grants of options pursuant to the 1996 Plan and
the 1986 Plan: Greg M. Gallo (15,000), Charles Hill (15,000) and Charles Christ
(30,000).
To the knowledge of the Company, directors and officers of the Company, as
a group, beneficially own, directly or indirectly, or exercise control or
direction over 1,589,408 Shares, representing approximately 5% of the
outstanding Shares on a Fully Diluted Basis. See Schedule II.
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<PAGE> 27
The directors and executive officers of the Company will be entitled to
receive, as contemplated by the Merger Agreement, cash payments, in the manner
set forth in the table below (see "-- The Merger Agreement -- Consideration to
be Paid in the Merger"):
<TABLE>
<CAPTION>
SHARES AND OPTION AMOUNTS WITH RESPECT TO THE
COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS
-------------------------------------------------
DOLLAR
AMOUNT OPTIONS
OWNED AT OFFER CONVERTED DOLLAR TOTAL CASH
NAME SHARES PRICE TO CASH AMOUNT CONSIDERATION
- ------------------------------------------ ------ -------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
M.H. Chung................................ 0 $ 0 35,000 $ 48,875 $ 48,875
Richard Balanson.......................... 4,651 31,162 360,000 664,500 695,662
Charles Christ............................ 0 0 30,000 60,375 60,375
Gregory Gallo............................. 9,954 66,692 65,000 260,500 327,192
Charles Hill.............................. 200 1,340 45,000 209,625 210,965
I.B. Jeon................................. 2,500 16,750 35,000 48,875 65,625
C.S. Park................................. 0 0 520,000 1,024,000 1,024,000
Rick Brantmeyer........................... 0 0 100,000 245,000 245,000
Nathan Kawaye............................. 10,396 69,653 111,707 193,454 263,108
Glenn Stevens............................. 0 0 100,000 161,250 161,250
Katherine Young........................... 0 0 160,000 293,250 293,250
------ -------- --------- ---------- -------------
Total................................ 27,701 $185,597 1,561,707 $3,209,704 $ 3,395,301
</TABLE>
Indemnification Agreements.
Since December 1986, the Company has entered into indemnification
agreements with its officers and directors, the form of which was approved by
the stockholders in October of 1986 (the "Indemnification Agreements"). It is
the Company's policy to enter into such Indemnification Agreements with all
officers and directors. Pursuant to the Indemnification Agreements, the Company
has agreed to indemnify its officers and directors to the maximum extent
permitted under the DGCL. For directors and certain officers, the
Indemnification Agreements, as amended, also provide that the Company must
procure a letter of credit in an amount not less than $300,000 for each director
and in an amount not less than $175,000 for each officer and keep such letters
of credit in effect during the term of the Indemnification Agreements. The
Company has obtained such letters of credit. On June 7, 1994, the Board of
Directors authorized the discontinuance of the Company's obligation to provide
letters of credit to future directors and officers and authorized the Company to
request all present holders of letters of credit to return them to the Company
for cancellation. The Company does provide letters of credit for certain former
officers and directors. The Company does not maintain letters of credit for any
current officers or directors.
In addition, the Merger Agreement contains certain provisions with respect
to indemnification of directors and executive officers and maintenance of
directors and officers insurance subsequent to the Effective Time. See "-- The
Merger Agreement -- Agreement with Respect to Director and Officer
Indemnification and Insurance."
THE MERGER AGREEMENT
The following summary of certain provisions of the Merger Agreement is
presented only as a summary and is qualified in its entirety by reference to the
Merger Agreement, a copy of which is attached hereto as Exhibit III.
The Offer. The Merger Agreement provides for the making of the Offer. The
Purchaser's obligation to accept for payment or pay for Shares is subject to the
satisfaction of the conditions that are described in Section 10 hereof. Pursuant
to the Merger Agreement, Purchaser expressly reserves the right to waive any of
the conditions to the Offer, to the extent permitted by applicable law, and to
make any change in the terms or conditions of the Offer; provided that, without
the written consent of the Company, the Purchaser shall not decrease the price
per Share, decrease the number of shares sought, change the form of
consideration payable, add additional conditions to the Offer or make any other
change in the terms or conditions of the Offer set
25
<PAGE> 28
forth in the Merger Agreement in any manner that is adverse to the holders of
Shares. Notwithstanding the foregoing, the Purchaser may, in its sole
discretion, extend the expiration date from time to time if all conditions to
the Offer have not been satisfied or waived. Subject to the other conditions of
the Offer, the Purchaser intends to extend the Offer from time to time until the
Korean Approval Condition is satisfied.
Consideration to be Paid in the Merger. The Merger Agreement provides
that, following the purchase of Shares pursuant to the Offer and upon the terms
and subject to the conditions set forth in the Merger Agreement, the Purchaser
will be merged with and into the Company, with the Company continuing as the
Surviving Corporation. In the Merger, each Share other than: (i) Shares and
Class A Shares held by the Purchaser or any of its subsidiaries; (ii) Shares
held by the Company or any of its subsidiaries; and (iii) Shares as to which
appraisal rights have been exercised pursuant to DGCL Section 262 ("Dissenting
Shares"), will be converted into the right to receive, in cash and without
interest, $6.70 or such higher price paid for each Share in the Offer. Each
share of common stock of the Purchaser issued and outstanding immediately prior
to the time of the Merger will be converted into and become one share of common
stock of the Surviving Corporation. The Merger Agreement provides that (i) the
Merger shall close no later than the second business day after satisfaction or
waiver of all of the conditions to the Merger set forth in the Merger Agreement;
and (ii) on the Merger closing date (or such other date as Parent and the
Company may agree), the Company and Purchaser will file a certificate of merger
or, if applicable, a certificate of ownership and merger (the "Certificate of
Merger") with the Secretary of State of Delaware. The Merger shall become
effective when the Certificate of Merger is duly filed with the Secretary of
State of Delaware or at such time as is agreed by the parties and specified in
the Certificate of Merger (the "Effective Time").
Pursuant to the Merger Agreement, effective as of the Effective Time, each
outstanding stock option shall become fully exercisable and vested and shall
thereupon be canceled, and each holder of any such option shall be paid by the
Company promptly after the Effective Time for each such option an amount
determined by multiplying (i) the excess, if any, of $6.70 per Share over the
applicable exercise price of such option by (ii) the number of Shares previously
subject to such option immediately prior to its cancellation.
The Company agreed to take all actions reasonably necessary to cause the
last day of the "Offering Period" (as such term is used in the Company's 1992
Employee Stock Purchase Plan (the "1992 ESPP"), to be the date immediately prior
to the date on which the Purchaser accepts Shares for payment pursuant to the
Offer (the "Final Purchase Date"), and apply the funds within each participant's
withholdings account on the Final Purchase Date to the purchase of whole Shares
in accordance with the terms of the 1992 ESPP.
Board Representation. The Merger Agreement provides that, effective upon
Purchaser's purchase of at least the number of Shares that, together with the
Class A Shares, constitutes a majority of the outstanding voting stock of the
Company, Parent shall be entitled to designate the number of directors, rounded
up to the next whole number, on the Company's Board of Directors, such that the
percentage of its designees on the Board, together with the directors nominated
by the Hyundai Shareholders, equals the percentage of the aggregate number of
outstanding Shares and Class A Shares then beneficially owned by Parent and the
Hyundai Shareholders. At such time as Parent's designees constitute a majority
of the Company's Board of Directors, any amendment of the Merger Agreement, any
termination of the Merger Agreement by the Company, any extension of time for
performance of any of the obligations of Parent or the Purchaser thereunder, any
waiver of any condition or any of the Company's rights thereunder or other
action by the Company thereunder will be ineffective unless it is approved by a
majority of the directors of the Company then in office who were not officers of
the Company or Parent or designees, stockholders or affiliates of Parent and the
full Board of Directors; provided, that if there shall be no such directors,
such actions may be effected by majority vote of the entire Board of Directors
of the Company.
The Merger Agreement provides that, from and after the Effective Time, the
directors and officers of the Purchaser will be the initial directors and
officers of the Surviving Corporation. Pursuant to the Merger Agreement, the
certificate of incorporation and the by-laws of the Company, as in effect
immediately prior to the Effective Time, will be the certificate of
incorporation and by-laws of the Surviving Corporation.
Stockholders' Meeting. The Merger Agreement provides that, if required by
applicable law, the Company will call a meeting of its stockholders to be held
as promptly as practicable following the purchase of Shares for the purpose of
considering and voting on the approval of the Merger and adoption of the Merger
26
<PAGE> 29
Agreement. Under the Merger Agreement, at any such meeting, Parent has agreed to
vote, or cause to be voted, all Shares and Class A Shares owned by it, the
Purchaser, any of its other subsidiaries or the Hyundai Shareholders in favor of
approval of the Merger and adoption of the Merger Agreement.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties of the Company with respect to corporate
existence and power, corporate authorization, governmental consents and
approvals, non-contravention, capitalization, subsidiaries, Commission reports,
financial statements, absence of certain changes, undisclosed liabilities,
litigation, taxes, compliance with laws, intellectual property and other
matters.
Parent and Purchaser have also made certain representations and warranties
with respect to corporate existence and power, corporate authorization,
governmental consents and approvals, non-contravention and other matters.
Conduct of Business Pending the Merger. The Company has agreed that,
except as expressly contemplated in the Merger Agreement, as set forth in the
Company Disclosure Schedule or as agreed by Parent, during the period from the
date of the Merger Agreement until such time as the directors designated by
Parent and the Hyundai Shareholders together constitute a majority of the Board
(the "Appointment Date"), (i) the business of the Company and its subsidiaries
will be conducted only in the ordinary and usual course and, to the extent
consistent therewith, each will use its best efforts to preserve intact its
business organizations and maintain its existing relationships with customers,
suppliers, employees, creditors and business partners and (ii) the Company will
not, directly or indirectly, amend its or any of its subsidiaries' certificate
of incorporation or by-laws or similar organizational documents. The Company has
further agreed that during such period and subject to the same exceptions, the
Company will not, and will not permit any of its subsidiaries to, among other
things, (i)(a) declare, set aside or pay any dividend or other distribution in
respect of any of its capital stock or that of its subsidiaries, (b) split,
combine or reclassify the outstanding capital stock of the Company or any of its
subsidiaries, or (c) redeem, purchase or otherwise acquire any shares of capital
stock of the Company or any of its subsidiaries; (ii) issue, sell, pledge,
dispose of or encumber any additional shares of, or securities convertible into
or exchangeable for, or options, warrants, calls, commitments or rights of any
kind to acquire, any shares of capital stock of any class of the Company or its
subsidiaries (other than the issuance of Shares upon the exercise of outstanding
Company stock options); (iii) acquire or agree to acquire any material assets
not listed in the Company Disclosure Schedule, either by purchase, merger,
consolidation, sale of shares in a subsidiary or otherwise; (iv) transfer,
lease, license, sell, mortgage, pledge, dispose of or encumber any material
assets other than in the ordinary and usual course of business and consistent
with past practice; (v) modify, amend or terminate any of its material contracts
or waive, release or assign any material rights or claims, except in the
ordinary course of business and consistent with past practice; (vi) incur or
assume any long-term debt, or except in the ordinary course of business, incur
or assume any short-term indebtedness in amounts not consistent with past
practice, incur or modify any material indebtedness or other liability, assume,
guarantee, endorse or otherwise become liable or responsible for the obligations
of any other person, except in the ordinary course of business and consistent
with past practice except as set forth in the Company Disclosure Schedule, make
any loans, advances or capital contributions to, or investments in, any other
person except as set forth in the Company Disclosure Schedule, or enter into any
material commitment or transaction, except in the ordinary course of business
and consistent with past practice; (vii) pay, discharge or satisfy any claims,
liabilities or obligations, other than the payment, discharge or satisfaction of
any such claims, liabilities or obligations, in the ordinary course of business
and consistent with past practice, of claims, liabilities or obligations
reflected or reserved against in, or contemplated by, the consolidated financial
statements of the Company and its consolidated subsidiaries; (viii) take or
agree or commit to take any action that would make any representation or
warranty of the Company contained in the Merger Agreement inaccurate in any
respect at or as of any time prior to the Effective Time; or (ix) enter into an
agreement, contract, commitment or arrangement to do any of the foregoing, or to
authorize, recommend, propose or announce an intention to do any of the
foregoing.
The Company has agreed to afford Parent and its representatives access
during normal business hours prior to the Appointment Date to the properties,
books, contracts, commitments and records, of the Company
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and its subsidiaries and during such period furnish Parent with such other
information concerning its business, properties and personnel as Parent may
reasonably request.
Subject to the terms and conditions in the Merger Agreement, each of the
parties to the Merger Agreement has agreed to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the Merger and the other transactions contemplated
by the Merger Agreement. Pursuant to the Merger Agreement, each of the Company,
Parent and the Purchaser has agreed to take all reasonable actions necessary to
comply promptly with all legal requirements that may be imposed on it with
respect to the Merger Agreement and the transactions contemplated thereby and to
cooperate with each other in connection with any such requirements imposed upon
any of them or any of their subsidiaries in connection with the Merger Agreement
and the transactions contemplated thereby.
Other Offers. Pursuant to the Merger Agreement, the Company has agreed
that the Company and its subsidiaries or affiliates will not (and the Company
will use its best efforts to cause its officers, directors, employees and other
agents not to), directly or indirectly, take any action to encourage, solicit,
participate in or initiate discussions or negotiations with any entity or group
(other than Parent, any of its affiliates or representatives) concerning any
merger, tender offer, exchange offer, sale of assets, sale of shares of capital
stock or debt securities or similar transactions involving the Company or any
subsidiary, division or operating or principal business unit of the Company (an
"Acquisition Proposal").
Notwithstanding the foregoing, the Company may furnish information
concerning its business, properties or assets to any corporation, partnership,
person or other entity or group pursuant to appropriate confidentiality
agreements, and may negotiate and participate in discussions and negotiations
with such entity or group concerning an Acquisition Proposal, (x) if such entity
or group has on an unsolicited basis submitted a bona fide written proposal to
the Board of Directors of the Company relating to any such transaction which the
Special Committee determines represents a superior alternative to the
stockholders of the Company (other than the holders of the Class A Shares) to
the acquisition of the Company contemplated by the Merger Agreement and (y) if,
in the opinion of the Special Committee, only after receipt of advice from legal
counsel to the Special Committee, the failure to provide such information or to
engage in such discussions or negotiations would cause the Board of Directors to
violate its fiduciary duties to the Company's stockholders under applicable law.
The Company agreed to immediately communicate to Parent the terms of any
proposal or inquiry (and agreed to disclose any written materials received by
the Company in connection with such proposal or inquiry) and the identity of the
party making such proposal or inquiry which it may receive in respect of any
such transaction.
Agreement with Respect to Director and Officer Indemnification and
Insurance. Pursuant to the Merger Agreement and subject to certain limitations
set forth therein, Parent has agreed, subject to any limitation imposed from
time to time under applicable law, that, for a period of six years after the
Effective Time, it will cause the Surviving Corporation (or any successor) to
indemnify, defend and hold harmless the present and former officers, directors,
employees and agents of the Company and its subsidiaries against all losses,
claims, damages, liabilities, fees and expenses arising out of actions or
omissions occurring at or prior to the Effective Time to the full extent
permitted under Delaware law, subject to the Company's certificate of
incorporation, by-laws and indemnification agreements, all as in effect on the
date of the Merger Agreement. Parent has further agreed, subject to certain
limitations set forth in the Merger Agreement, that, for not less than three
years after the Effective Time, Parent or the Surviving Corporation shall
maintain the Company's existing officers' and directors' liability insurance.
Parent has also agreed to cause the Surviving Corporation to comply with the
Company's existing indemnification agreements with the Company's directors and
executive officers. See "-- Interests of Certain Persons in the Transaction."
Conditions to the Merger. Pursuant to the Merger Agreement, the respective
obligations of each party to consummate the Merger are subject to the
satisfaction or waiver (to the extent permitted by law), on or prior to the
Closing Date of the following conditions: (i) the adoption and approval of the
Merger Agreement by the requisite vote of the stockholders, if such vote is
required by applicable law and the certificate of incorporation of the Company,
to consummate the Merger, (ii) no statute, rule, order, decree or regulation
shall have been enacted or promulgated that prohibits the consummation of the
Merger; (iii) no order or
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injunction shall preclude, restrain, enjoin or prohibit the consummation of the
Merger and (iv) Parent, the Purchaser or their affiliates shall have purchased
the Shares pursuant to the Offer.
Termination. The Merger Agreement may be terminated and the Merger
contemplated therein may be abandoned at any time prior to the Effective Time,
whether before or after stockholder approval thereof (i) by the mutual consent
of Parent and the Company, (ii) by either Parent or the Company if the Offer
shall have expired without any Shares being purchased therein, or if the Shares
tendered in the Offer shall not have been accepted for payment by March 31,
1996; except that the right to terminate the Merger Agreement is not available
to any party whose failure to fulfill any obligation thereunder has been the
cause of, or resulted in, the failure of Parent or the Purchaser, as the case
may be, to purchase the Shares pursuant to the Offer on or prior to such date,
(iii) by either Parent or the Company if any Governmental Entity (as defined in
the Merger Agreement) shall have issued an order, decree or ruling or taken any
other action in each case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by the Merger Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable, (iv) by the Board of Directors of the Company if prior to the
purchase of the Shares pursuant to the Offer, the Board decides that the Company
should enter into a definitive agreement providing for an acquisition of the
Company by a third party on terms determined by the Board to be superior to the
Offer, (v) by the Board of Directors of the Company if, prior to the purchase of
the Shares pursuant to the Offer, Parent or the Purchaser breaches or fails in
any material respect to perform or comply with any of the material covenants and
agreements in the Merger Agreement or breaches its representations and
warranties in any material respect, (vi) by the Board of Directors of the
Company if the Offer shall have expired, or shall have been withdrawn, abandoned
or terminated, without (in each case) Parent or the Purchaser, as the case may
be, purchasing any Shares, (vii) by the Board of Directors of the Company if
Parent, the Purchaser or any of their affiliates shall have failed to commence
the Offer on or prior to five business days following the date of the initial
public announcement of the Offer, (viii) by Parent or the Purchaser if prior to
the purchase of the Shares pursuant to the Offer, the Board of Directors of the
Company shall have withdrawn, or modified or changed in a manner adverse to
Parent or the Purchaser, its approval or recommendation of the Offer, the Merger
Agreement or the Merger or shall have recommended an Acquisition Proposal or
offer, or shall have executed an agreement in principle (or similar agreement)
or definitive agreement providing for a tender offer or exchange offer for any
shares of capital stock of the Company, or a merger, consolidation or other
business combination with a person or entity other than Parent, the Purchaser or
their affiliates; (ix) by Parent or the Purchaser, if Parent or the Purchaser
has terminated the Offer, without Parent or the Purchaser purchasing any Shares
thereunder, provided that Parent or the Purchaser has not failed to purchase the
Shares in the Offer in breach of the material terms thereof; or (x) by Parent or
the Purchaser if, due to an occurrence that if occurring after the commencement
of the Offer would result in a failure to satisfy any of the conditions set
forth in Annex A to the Merger Agreement, Parent, the Purchaser, or any of their
affiliates has failed to commence the offer on or prior to five business days
following the date of initial public announcement of the offer.
Fees and Expenses. Each party to the Merger Agreement has agreed to pay
its own fees and expenses.
FINANCING THE TRANSACTION
The Purchaser estimates that the total amount of funds required to purchase
all Shares validly tendered pursuant to the Offer, to consummate the Merger, and
to pay all related costs and expenses will be approximately $250 million. See
Section 12.
Parent plans to obtain between 80% and 100% of the necessary funds through
a loan facility to be obtained by Parent from a consortium of international
banks or other international institutions with HEI as guarantor with respect to
such loan facility, subject to the approval of the loan facility and the
guaranty by the Korean governmental authorities in connection with their
comprehensive review of the Merger, the Offer and the transactions contemplated
by the Merger Agreement. In the event that Parent borrows less than the full
amount of the total amount of funds required to purchased all Shares validly
tendered pursuant to the Offer, the remaining additional funds will be obtained
through capital contributions by HEI in the form of equity or debt, subject to
Korean governmental review and approval. See Section 11.
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Parent intends to repay the loan facility through its operating funds and,
to the extent necessary, through capital contributions from one or more of the
Hyundai Shareholders.
CERTAIN EFFECTS OF THE TRANSACTION
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and the number of holders of Shares,
which could adversely affect the liquidity and market value of the remaining
publicly held Shares.
Depending upon the aggregate market value and per share price of any Shares
not purchased pursuant to the Offer, the Shares may no longer meet the standards
of the National Association of Securities Dealers, Inc. (the "NASD") for
continued inclusion in the Nasdaq National Market, which require that an issuer
have at least 200,000 publicly held shares with a market value of $1 million,
and have net tangible assets of at least $1 million, $2 million or $4 million
depending on profitability levels during the issuer's four most recent fiscal
years. If these standards are not met, the Shares might nevertheless continue to
be included in the NASD's Nasdaq Stock Market with quotations published in the
Nasdaq "additional list" or in one of the "local lists." However, if the number
of holders of Shares falls below 300, or if the number of publicly held Shares
falls below 100,000, or if there are not at least two market makers for the
Shares, NASD rules provide that the securities would no longer be "qualified"
for Nasdaq Stock Market reporting, and the Nasdaq Stock Market would cease to
provide any quotations. Shares held directly or indirectly by an officer or
director of the Company, or by any beneficial owner of more than 10 percent of
the Shares, ordinarily will not be considered as being publicly held for this
purpose. If, as a result of the purchase of Shares pursuant to the Offer or
otherwise, the Shares no longer meet the NASD requirements for continued
inclusion in any tier of the Nasdaq National Market or in any other tier of the
Nasdaq Stock Market, and the Shares are no longer included in any tier of the
Nasdaq National Market, as the case may be, the market for Shares could be
adversely affected.
In the event the Shares no longer meet the requirements of the NASD for
inclusion in any tier of the Nasdaq Stock Market, quotations might still be
available from other sources. The extent of the public market for the Shares and
availability of such quotations would, however, depend upon the number of
holders of Shares remaining at such time, the interest in maintaining a market
in the Shares on the part of securities firms, the possible termination of
registration under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as described below, and other factors.
Under the regulations of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"), the Shares are currently "margin
securities." Because they are margin securities, brokers may extend credit on
the collateral of the Shares. Depending upon factors similar to those described
above regarding listing and market quotations, following the Offer, it is
possible that the Shares would no longer constitute "margin securities" and
therefore could no longer be used as collateral for loans made by brokers.
The Shares are currently registered under the Exchange Act. The Company may
apply to the SEC to terminate such registration if the Shares are not listed on
a national securities exchange or Nasdaq and there are fewer than 300 record
holders of the Shares. Such termination would reduce substantially the
information required to be furnished by the Company to its stockholders and to
the SEC and would make certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b), the requirement of
furnishing a proxy statement in connection with stockholders' meetings pursuant
to Section 14(a) and the requirements of Rule 13e-3 under the Exchange Act with
respect to "going private" transactions no longer applicable to the Company.
Furthermore, the ability of "affiliates" of the Company and persons holding
"restricted securities" of the Company to dispose of such securities pursuant to
Rule 144 under the Securities Act of 1933, as amended, may be impaired or
eliminated. If registration of the Shares under the Exchange Act were terminated
prior to the consummation of the Merger, the Shares would no longer be "margin
securities" or be eligible for Nasdaq reporting. The Purchaser presently intends
to seek to cause the Company to apply for termination of registration of the
Shares promptly following the Offer if the criteria therefore are satisfied.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain federal income tax consequences
relating to the Offer and the Merger. The discussion is based on the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury Regulations
promulgated thereunder, and administrative rulings and court decisions, all as
in effect on the date hereof. The summary is addressed to stockholders that are
U.S. Persons (as defined below) and does not discuss all of the federal income
tax consequences that may be relevant to a particular stockholder in view of the
particular circumstances for such stockholder.
For purposes of this summary, a "U.S. Person" means a stockholder that is a
citizen or resident of the United States, a corporation or partnership created
or organized in or under the laws of the United States or any state, or an
estate or trust the income of which is includible in gross income for federal
income tax purposes regardless of source.
Tax Status of Transaction. The receipt of cash for Shares pursuant to the
Offer (or the Merger) will be a taxable transaction for federal income tax
purposes and may also be a taxable transaction under applicable state, local or
foreign tax laws. The tax consequences of such receipt pursuant to the Offer (or
the Merger) may vary depending upon, among other things, the particular
circumstances of the stockholder. In general, a stockholder who receives cash
for Shares pursuant to the Offer (or the Merger) will recognize gain or loss for
federal income tax purposes equal to the difference between the amount of cash
received in exchange for the Shares sold and such stockholder's adjusted tax
basis in such Shares. Provided that the Shares constitute capital assets in the
hands of the stockholder, such gain or loss will be capital gain or loss, and
will be long term capital gain or loss if the holder has held the Shares for
more than one year at the time of sale. Gain or loss will be calculated
separately for each block of Shares (i.e., a group of Shares with the same tax
basis and holding period) tendered pursuant to the Offer.
Legislative proposals have recently been introduced in Congress to reduce
effective tax rates applicable to net long-term capital gains and to limit
further the deductibility of long-term capital losses. If the proposals were
enacted into law, and the effective date of such legislation were to be such
that the Offer and the Merger were covered by such legislation, long-term
capital gains recognized as a result of such transactions would generally be
taxed at reduced effective tax rates, and long-term capital losses would be
subject to further limitations on deductibility. However, it is not clear
whether the proposals will be enacted, and, if enacted, whether the proposals
will apply with respect to the receipt of cash for Shares pursuant to the Offer
and/or the Merger.
Withholding. Unless a stockholder complies with certain reporting and/or
certification procedures or is an exempt recipient under applicable provisions
of the Code and Treasury Regulations promulgated thereunder, such stockholder
may be subject to withholding tax of 31% with respect to any cash payments
received pursuant to the Offer and the Merger. See Section 3. Stockholders
should consult their brokers to ensure compliance with such procedures.
Stockholders that are not U.S. persons should consult with their own tax
advisors regarding withholding taxes in general.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW. STOCKHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE
OFFER AND THE MERGER TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE
ALTERNATIVE MINIMUM TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS.
DISSENTERS' RIGHTS
No appraisal rights are available in connection with the Offer. However, if
the Merger is consummated, stockholders of the Company may have certain rights
under Section 262 of the DGCL (which is reproduced in full in Exhibit IV hereto)
to demand appraisal of, and payment in cash of the fair value of, their Shares.
Such rights, if the statutory procedures were compiled with, could lead to a
judicial determination of the fair value (excluding any element of value arising
from the accomplishment or expectation of the Merger) required to be paid in
cash to such dissenting holders for their Shares. Any such judicial
determination of the fair value of Shares could be based upon considerations
other than or in addition to the price paid in the Offer
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and the market value of the Shares, including asset values and the investment
value of the Shares. The value so determined could be more or less than the
purchase price per Share pursuant to the Offer or the consideration per Share to
be paid in the Merger.
In addition, several decisions by Delaware courts have held that, in
certain instances, a controlling stockholder of a corporation involved in a
merger has a fiduciary duty to the other stockholders that requires the Merger
to be fair to such other stockholders. In determining whether a merger is fair
to such other stockholders, the Delaware courts have considered, among other
things, the type and amount of consideration to be received by the stockholders
and whether there was fair dealing among the parties. The Delaware Supreme Court
has indicated in recent decisions that in most cases the remedy available in a
merger that is found not be "fair" to such other stockholders is the right to
appraisal described above or a damages remedy based on essentially the same
principles.
THE TENDER OFFER
SECTION 1. TERMS OF THE OFFER.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any extension or
amendment), the Purchaser will accept for payment and pay for all Shares validly
tendered prior to the Expiration Date (as hereinafter defined) and not withdrawn
in accordance with Section 4. The term "Expiration Date" means 12:00 midnight,
New York City time, on Thursday, December 7, 1995, unless and until the
Purchaser, in its sole discretion (but subject to the terms of the Merger
Agreement), shall have extended the period of time during which the Offer is
open, in which event the term "Expiration Date" shall refer to the latest time
and date at which the Offer, as so extended by the Purchaser, shall expire.
Subject to the other conditions of the Offer, the Purchaser intends to extend
the Offer from time to time until the Korean Approval Condition is satisfied.
The Offer is conditioned upon, among other things, satisfaction of the
Korean Approval Condition and the extension or termination of all waiting
periods imposed by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the regulations thereunder (the "HSR Act") and the requirements of
Section 271 of the Defense Production Act of 1950, as amended (the "Exon-Florio
Provision"). See Section 10, which sets forth in full the conditions to the
Offer. If the Korean Approval Condition is not satisfied or any or all of the
other events set forth in Section 10 shall have occurred or shall be determined
by the Purchaser to have occurred prior to the Expiration Date, the Purchaser
reserves the right (but shall not be obligated) to (i) decline to purchase any
of the Shares tendered in the Offer and terminate the Offer, and return all
tendered Shares to the tendering stockholders, (ii) waive or amend any or all
conditions to the Offer, to the extent permitted by applicable law and the
provisions of the Merger Agreement, and, subject to complying with applicable
rules and regulations of the SEC, purchase all Shares validly tendered, (iii)
subject to the terms of the Merger Agreement, extend the Offer and, subject to
the right of stockholders to withdraw Shares until the Expiration Date, retain
the Shares which have been tendered during the period or periods for which the
Offer is extended, or (iv) subject to the terms of the Merger Agreement, amend
the Offer.
The Merger Agreement provides that the Purchaser shall not decrease the
Offer Price or decrease the number of Shares sought, change the form of
consideration payable, add additional conditions to the Offer or make any other
change in the terms or conditions of the Offer in any manner adverse to the
holders of the Shares (other than with respect to insignificant changes or
amendments and subject to the next sentence) without the written consent of the
Company, provided, however, that if on a scheduled Expiration Date, all
conditions to the Offer shall not have been satisfied or waived, the Purchaser
may, from time to time, in its sole discretion, extend the Expiration Date. The
Purchaser shall, on the terms and subject to the prior satisfaction or waiver of
the conditions of the Offer, accept for payment Shares validly tendered within
five business days after such satisfaction or waiver of the conditions of this
Offer, and pay for accepted Shares as promptly thereafter as practicable;
provided, however, that if, immediately prior to the Expiration Date (as it may
be extended), the Shares validly tendered and not withdrawn pursuant to the
Offer, together with the Class A Shares then held by the Hyundai Shareholders,
equal less than 90% of the aggregate number of
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outstanding Shares and outstanding Class A Shares, the Purchaser may extend the
Offer for a period not to exceed ten business days, notwithstanding that all
conditions to the Offer are satisfied as of the Expiration Date. In addition, at
the Purchaser's sole discretion, the Offer Price may be increased, and the Offer
may be extended to the extent required by law in connection with such increase,
in each case without the consent of the Company. See "Special Factors -- The
Merger Agreement."
Subject to the applicable rules and regulations of the SEC and the terms of
the Merger Agreement, the Purchaser expressly reserves the right, in its sole
discretion, at any time or from time to time, regardless of whether or not any
of the events set forth in Section 10 shall have occurred or shall have been
determined by the Purchaser to have occurred, (i) to extend the period of time
during which the Offer is open and thereby delay acceptance for payment of, and
the payment for, any Shares, by giving oral or written notice of such extension
to the Depositary and (ii) to amend the Offer in any respect by giving oral or
written notice of such amendment to the Depositary. The rights reserved by the
Purchaser in this paragraph are in addition to the Purchaser's rights to
terminate the Offer pursuant Section 10. Under no circumstances will interest be
paid on the purchase price for tendered Shares, whether or not the Purchaser
exercises its rights to extend the Offer.
Although the Purchaser intends, subject to the satisfaction of the other
conditions to the Offer, to extend the Offer from time to time until the Korean
Approval Condition is satisfied, there can be no assurance that the Purchaser
will exercise its rights to extend the Offer. Any extension, amendment or
termination will be followed as promptly as practicable by public announcement.
In the case of an extension, Rule 14e-1(d) under the Exchange Act requires that
the announcement be issued no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date in accordance
with the public announcement requirements of Rule 14d-4(c) under the Exchange
Act. Subject to applicable law (including Rule 14d-4(c) and 14d-6(d) under the
Exchange Act, which require that any material change in the information
published, sent or given to stockholders in connection with the Offer be
promptly disseminated to stockholders in a manner reasonably designed to inform
the stockholders of such change), and without limiting the manner in which the
Purchaser may choose to make any public announcement, the Purchaser will not
have any obligation to publish, advertise or otherwise communicate any such
public announcement other than by making a release to the Dow Jones News
Service. As used in this Offer to Purchase, "business day" has the meaning set
forth in Rule 14d-1 under the Exchange Act.
If the Purchaser extends the Offer, or if the Purchaser (whether before or
after its acceptance for payment of shares) is delayed in its purchase of or
payment for Shares or is unable to pay for Shares pursuant to the Offer for any
reason, then, without prejudice to the Purchaser's rights under the Offer, the
Depositary may retain tendered shares on behalf of the Purchaser, and such
Shares may not be withdrawn except to the extent tendering stockholders are
entitled to withdrawal rights as described in Section 4. However, the ability of
the Purchaser to delay the payment for Shares which the Purchaser has accepted
for payment is limited by Rule 14e-1(c) under the Exchange Act, which requires
that a bidder pay the consideration offered or return the securities deposited
by or on behalf of holders of securities promptly after the termination or
withdrawal of the bidder's offer.
If the Purchaser makes a material change in the terms of the Offer or
waives a material condition of the Offer (subject to the Merger Agreement), the
Purchaser will disseminate additional tender offer materials and extend the
Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act. The minimum period during which the Offer must remain open
following material changes in the terms of the Offer or information concerning
the Offer, other than a change in price or a change in percentage of securities
sought, will depend upon the facts and circumstances, including the relative
materiality of the terms or information. With respect to a change in price or a
change in percentage of securities sought, a minimum ten business day period is
required to allow for adequate dissemination to stockholders and investor
response.
The Company has provided the Purchaser with the Company's stockholder list
and security position listings for the purpose of disseminating the Offer to
holders of Shares. This Offer to Purchase, the related Letter of Transmittal and
other relevant materials, will be mailed to record holders of Shares whose names
appear on the Company's stockholder list and will be furnished, for subsequent
transmittal to beneficial owners of Shares, to brokers, dealers, commercial
banks, trust companies and similar persons whose names, or the
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names of whose nominees, appear on the stockholder list or, if applicable, who
are listed as participants in a clearing agency's security position listing.
SECTION 2. ACCEPTANCE FOR PAYMENT AND PAYMENT.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Purchaser will accept for payment and will pay for all Shares
validly tendered prior to the Expiration Date promptly after the Expiration
Date. All questions as to the satisfaction of such terms and conditions will be
determined by the Purchaser in its sole discretion, which determination will be
final and binding. See Sections 1 and 10. Subject to applicable rules of the SEC
and the terms of the Merger Agreement, the Purchaser expressly reserves the
right, in its discretion, to delay acceptance for payment of or payment for
Shares in order to comply, in whole or in part, with any applicable law,
including, without limitation, the HSR Act, the Exon-Florio Provision and in
order to satisfy the Korean Approval Condition. See Sections 10 and 11. Any such
delays will be effected in compliance with Rule 14e-1(c) under the Exchange Act
(relating to a bidder's obligation to pay for or return tendered securities
promptly after the termination or withdrawal of such bidder's offer).
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) the certificates
evidencing such Shares (the "Share Certificates") or timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Shares, if such
procedure is available, into the Depositary's account at The Depository Trust
Company, the Midwest Securities Trust Company or the Philadelphia Depository
Trust Company (each a "Book-Entry Transfer Facility" and, collectively, the
"Book-Entry Transfer Facilities") pursuant to the procedures set forth in
Section 3, (ii) a Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees, or, in the
case of book-entry transfer, an Agent's Message (as hereinafter defined) and
(iii) any other documents required by the Letter of Transmittal. The per Share
consideration paid to any stockholder pursuant to the Offer will be the highest
per Share consideration paid to any other stockholder pursuant to the Offer.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares, that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Purchaser may enforce such agreement against the participant.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares validly tendered to the Purchaser as,
if and when, the Purchaser gives oral or written notice to the Depositary of the
Purchaser's acceptance for payment of such Shares. Payment for Shares accepted
for payment pursuant to the Offer will be made by deposit of the purchase price
therefor with the Depositary, which will act as agent for tendering stockholders
for the purpose of receiving payments from the Purchaser and transmitting
payments to such tendering stockholders. Under no circumstances will interest be
paid on the purchase price of the Shares to be paid by the Purchaser, regardless
of any extension of the Offer or any delay in making such payment. Upon the
deposit of funds with the Depositary for the purpose of making payments to
tendering stockholders, the Purchaser's obligation to make such payment shall be
satisfied and tendering stockholders must thereafter look solely to the
Depositary for payment of amounts owed to them by reason of the acceptance for
payment of Shares pursuant to the Offer. The Purchaser will pay any stock
transfer taxes with respect to the transfer and sale to it or its order pursuant
to the Offer, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, as well as any charges and expenses of the Depositary and the
Information Agent.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, or if Share Certificates are submitted evidencing more Shares than are
tendered, Share Certificates evidencing unpurchased Shares will be returned,
without expense to the tendering stockholder (or, in the case of Shares tendered
by book-entry transfer into the Depositary's account at a Book-Entry Transfer
Facility pursuant to the procedure set forth in
34
<PAGE> 37
Section 3, such Shares will be credited to an account maintained at such
Book-Entry Transfer Facility), as promptly as practicable following the
expiration, termination or withdrawal of the Offer.
The Purchaser reserves the right to transfer or assign, in whole at any
time, or in part from time to time, to Parent or direct or indirect wholly owned
subsidiary of Parent and Parent may assign its rights to any one or more Hyundai
Shareholder or affiliates thereof, the right to purchase all or any portion of
the Shares tendered pursuant to the Offer, but any such transfer or assignment
will not relieve the Purchaser of its obligations under the Offer and will in no
way prejudice the rights of tendering stockholders to receive payment for Shares
validly tendered and accepted for payment pursuant to the Offer.
SECTION 3. PROCEDURE FOR TENDERING SHARES.
Valid Tender. For a stockholder validly to tender Shares pursuant to the
Offer, either (i) a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any required signature guarantees, or, in
the case of a book-entry transfer, an Agent's Message, and any other required
documents, must be received by the Depositary at one of its addresses set forth
on the back cover of this Offer to Purchase prior to the Expiration Date and
either the Share Certificates must be received by the Depositary at one of such
addresses or such Shares must be tendered pursuant to, the procedure for
book-entry transfer described below (and a Book-Entry Confirmation must be
received by the Depositary) in each case prior to the Expiration Date, or (ii)
the tendering stockholder must comply with the guaranteed delivery procedures
described below.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at each Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase, and any
financial institution that is a participant in any of the Book-Entry Transfer
Facilities' systems may make book-entry delivery of Shares by causing a
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at a Book-Entry Transfer Facility in accordance with such Book-Entry
Transfer Facility's procedures for transfer. However, although delivery of
Shares may be effected through book-entry transfer at a Book-Entry Transfer
Facility, the Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees, or an Agent's Message
in connection with a book-entry delivery of Shares, and any other required
documents, must, in any case, be transmitted to and received by the Depositary
at one of its addresses set forth on the back cover of this Offer to Purchase
prior to the Expiration Date or the tendering stockholder must comply with the
guaranteed delivery procedures described below. DELIVERY OF DOCUMENTS TO A
BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER
FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ANY OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER
FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL
BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING IN
THE CASE OF A BOOK-ENTRY TRANSFER, A BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal (a) if the Letter of Transmittal is signed by the registered
holder(s) (which term, for purposes of this Section, includes any participant in
any of the Book-Entry Transfer Facilities systems whose name appears on a
security position listing as the owner of the Shares) of Shares tendered
therewith and such registered holder has not completed either the box entitled
"Special Delivery Instructions" or the box entitled "Special Payment
Instructions" on the Letter of Transmittal or (b) if such Shares are tendered
for the account of a financial institution (including most commercial banks,
savings and loan associations and brokerage houses) that is a participant in the
Security Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program
(each an "Eligible Institution"). If a Share Certificate is registered in the
name of a person other than the signer of the Letter of Transmittal, or if
payment is to be made, or a Share Certificate not accepted for payment or not
tendered is to be returned, to a person other than the registered holder(s),
then the Share Certificate must be endorsed or accompanied by
35
<PAGE> 38
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear on the Share Certificate, with the signature(s) on
such Share Certificate or stock powers guaranteed as described above. See
Instructions 1 and 5 of the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Share Certificates are not immediately
available or time will not permit all required documents to reach the Depositary
prior to the Expiration Date or the procedure for book-entry transfer cannot be
completed on a timely basis, such Shares may nevertheless be tendered if all the
following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Purchaser herewith, is
received by the Depositary as provided below prior to the Expiration Date;
and
(iii) the Share Certificates for all tendered Shares, in proper form
for transfer (or a Book-Entry Confirmation with respect to all such
Shares), together with a properly completed and duly executed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees
or, in the case of a book-entry transfer, an Agent's Message, and any other
required documents, are received by the Depositary within three trading
days after the date of execution of such Notice of Guaranteed Delivery. A
trading day is any day on which the Nasdaq National Market is open for
business.
Any Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, facsimile transmission or mail to the Depositary and must include a
guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will, in all cases, be made only after timely
receipt by the Depositary of (i) the Share Certificates for (or a timely
Book-Entry Confirmation with respect to) such Shares, (ii) a Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees, or, in the case of a book-entry transfer, an
Agent's Message, and (iii) any other documents required by the Letter of
Transmittal. Accordingly, tendering stockholders may be paid at different times
depending upon when Share Certificates or Book-Entry Confirmations with respect
to Shares are actually received by the Depositary. Under no circumstances will
interest be paid on the purchase price of the Shares to be paid by the
Purchaser, regardless of any extension of the Offer or any delay in making such
payment.
The Purchaser's acceptance for payment of Shares validly rendered pursuant
to one of the procedures described above will constitute a binding agreement
between the tendering stockholder and the Purchaser upon the terms and subject
to the conditions of the Offer.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tendered Shares pursuant to any of the procedures described above will be
determined by the Purchaser, in its sole discretion, whose determination will be
final and binding on all parties. The Purchaser reserves the absolute right to
reject any or all tenders of any Shares determined by it not to be in proper
form or if the acceptance for payment of, or payment for, such Shares may, in
the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves
the absolute right, in its sole discretion, to waive any of the conditions of
the Offer or any defect or irregularity in any tender with respect to Shares of
any particular stockholder, whether or not similar defects or irregularities are
waived in the case of other stockholders. No tender of Shares will be deemed to
have been validly made until all defects and irregularities have been cured or
waived.
The Purchaser's interpretation of the terms and conditions of the Offer
(including the Letter of Transmittal and the instructions thereto) will be final
and binding. None of Parent, the Purchaser, the Dealer Manager, the Depositary,
the Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or will incur any
liability for failure to give any such notification.
36
<PAGE> 39
Appointment as Proxy. By executing a Letter of Transmittal as set forth
above, a tendering stockholder irrevocably appoints designees of the Purchaser
as such stockholder's attorneys-in-fact and proxies, in the manner set forth in
the Letter of Transmittal, each with full power of substitution, to the full
extent of such stockholder's rights with respect to the Shares tendered by such
stockholder and accepted for payment by the Purchaser (and any and all other
Shares or other securities issued or issuable in respect of such Shares on or
after November 1, 1995). All such proxies shall be considered coupled with an
interest in the tendered Shares. This appointment will be effective when, and
only to the extent that, the Purchaser accepts such Shares for payment pursuant
to the Offer. Upon such acceptance for payment, all prior powers of attorney,
proxies or consents given by such stockholder with respect to such Shares and
other securities will, without further action, be revoked, and no subsequent
powers of attorney, proxies or consents may be given. The designees of the
Purchaser will thereby be empowered to exercise all voting and other rights with
respect to such Shares or securities in respect of any annual, special,
adjourned or postponed meeting of the Company's stockholders, actions by written
consent in lieu of any such annual meeting or otherwise, as they in their sole
discretion deem proper. The Purchaser reserves the right to require that, in
order for Shares or other securities to be deemed validly tendered, immediately
upon the Purchaser's acceptance for payment of such Shares the Purchaser must be
able to exercise full voting consent and other rights with respect to such
Shares and any other securities, including voting at any meeting of
stockholders.
Backup Withholding. In order to avoid "backup withholding" of federal
income tax on payments of cash pursuant to the Offer, a stockholder surrendering
Shares in the Offer must, unless an exemption applies, provide the Depositary
with such stockholder's correct taxpayer identification number ("TIN") on a
Substitute Form W-9 and certify under penalties of perjury that such TIN is
correct and that such stockholder is not subject to backup withholding. If a
stockholder does not provide such stockholder's correct TIN or fails to provide
the certifications described above, the Internal Revenue Service (the "IRS") may
impose a penalty on such stockholder and payment of cash to such stockholder
pursuant to the Offer may be subject to backup withholding of 31%. All
stockholders surrendering Shares pursuant to the Offer should complete and sign
the main signature form and the Substitute Form W-9 included as part of the
Letter of Transmittal to provide the information and certification necessary to
avoid backup withholding (unless an applicable exemption exists and is proved in
a manner satisfactory to the Purchaser and the Depositary). Certain stockholders
(including, among others, all corporations and certain foreign individuals and
entities) are not subject to backup withholding. Noncorporate foreign
stockholders should complete and sign the main signature form and a Form W-8,
Certificate of Foreign Status, a copy of which may be obtained from the
Depositary, in order to avoid backup withholding. See Instruction 9 to the
Letter of Transmittal.
SECTION 4. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section 4, tenders of Shares are
irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to
the procedures set forth below at any time prior to the Expiration Date and,
unless theretofore accepted for payment by the Purchaser pursuant to the Offer,
may also be withdrawn at any time after January 6, 1996, or at such later time
as may apply if the Offer is extended.
If the Purchaser is delayed in its acceptance for payment of or payment for
Shares or is unable to accept Shares for payment pursuant to the Offer for any
reason, then, without prejudice to the Purchaser's rights under the Offer (but
subject to compliance with Rule 14e-1(c) under the Exchange Act), the Depositary
may, nevertheless, on behalf of the Purchaser, retain tendered Shares, and such
Shares may not be withdrawn except to the extent that tendering stockholders are
entitled to exercise, and duly exercise, withdrawal rights as described in this
Section 4.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase. Any
such notice of withdrawal must specify the name of the person who tendered the
Shares to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder of the Shares to be withdrawn, if different from that of the
person who tendered such Shares. If Share Certificates evidencing Shares to be
withdrawn have been delivered or otherwise identified to the Depositary, then,
prior to the
37
<PAGE> 40
physical release of such Share Certificates, the serial numbers shown on such
Share Certificates must be submitted to the Depositary and the signature(s) on
the notice of withdrawal must be guaranteed by an Eligible Institution, unless
such Shares have been tendered for the account of an Eligible Institution. If
Shares have been tendered pursuant to the procedure for book-entry transfer as
set forth in Section 3, any notice of withdrawal must also specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Shares.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser in its sole
discretion, whose determination will be final and binding. None of Parent, the
Purchaser, the Depositary, the Dealer Manager, the Information Agent, the
Company or any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification.
Withdrawals of tenders of Shares may not be rescinded, and any Shares
properly withdrawn will thereafter be deemed not validly tendered for purposes
of the Offer. However, withdrawn Shares may be retendered at any time prior to
the Expiration Date by again following one of the procedures described in
Section 3.
SECTION 5. PRICE RANGE OF SHARES; DIVIDENDS.
The Shares trade in the over-the-counter market and prices are quoted on
the Nasdaq National Market under the symbol MXTR. The following table sets
forth, for the quarters indicated, the high and low last reported sales
quotations per Share on the Nasdaq National Market, as reported in published
financial sources:
<TABLE>
<CAPTION>
HIGH LOW
----- ----
<S> <C> <C>
FISCAL YEAR ENDED MARCH 26, 1994:
Fiscal Quarter Ended June 26, 1993.............................. $ 8 1/16 $6 1/16
Fiscal Quarter Ended September 25, 1993......................... 6 11/16 4 1/2
Fiscal Quarter Ended December 25, 1993.......................... 6 3/4 4 5/8
Fiscal Quarter Ended March 26, 1994............................. 8 5/16 5 7/16
FISCAL YEAR ENDED MARCH 25, 1995:
Fiscal Quarter Ended June 25, 1994.............................. 7 7/8 4 11/16
Fiscal Quarter Ended September 24, 1994......................... 5 1/2 4 5/16
Fiscal Quarter Ended December 24, 1994.......................... 5 3/4 3 1/4
Fiscal Quarter Ended March 25, 1995............................. 6 5/16 4 1/16
FISCAL YEAR ENDING MARCH 30, 1996:
Fiscal Quarter Ended July 1, 1995............................... 7 4
Fiscal Quarter Ended September 30, 1995......................... 6 1/8 4 1/16
Fiscal Quarter through November 7, 1995......................... 6 9/32 4
</TABLE>
On October 24, 1995, the last full day prior to the public announcement of
Parent's interest in acquiring any and all Shares at a per Share price of $5.15,
the last reported sales quotations of the Shares on the Nasdaq National Market
was $4.50 per Share. On November 2, 1995, the last full trading day prior to the
public announcement of the execution of the Merger Agreement, the last reported
sales quotations of the Shares on the Nasdaq National Market was $6.125 per
Share. On November 7, 1995, the last full trading day prior to the date of this
Offer to Purchase, the last reported sales quotations of the Shares on the
Nasdaq National Market was $6.25 per Share.
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
The Company has never paid dividends on the Shares.
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<PAGE> 41
SECTION 6. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES.
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and the number of holders of Shares
and could adversely affect the liquidity and market value of the remaining
Shares held by the public and have other consequences with respect to Nasdaq
reporting, Exchange Act registration and availability of margin credit. See
"Special Factors -- Certain Effects of the Transaction."
SECTION 7. CERTAIN INFORMATION CONCERNING THE COMPANY.
Except as otherwise noted below, the information concerning the Company
contained in this Offer to Purchase, including financial information, has been
taken from or is based upon publicly available documents and records on file
with the SEC and other public sources. Neither Parent nor the Purchaser assumes
any responsibility for the accuracy or completeness of the information
concerning the Company contained in such documents and records or for any
failure by the Company to disclose events which may have occurred or may affect
the significance or accuracy of any such information but which are unknown to
Parent or the Purchaser.
The Company was organized in 1982 and develops, manufactures and markets
mass-storage products for desktop and mobile computer systems. Products range
from low-capacity flash cards to 3 1/2 inch AT drives for the desktop with up to
1.6 gigabytes of capacity. The Company markets and sells its products through a
direct sales force to original equipment manufacturers, distributors and other
emerging sales channels such as computer specialty retailers and computer
superstores. As the market has become increasingly segmented, diverse sales
channels have developed for different products.
The Company's facilities included corporate headquarters in San Jose,
California; engineering and pilot production in Longmont, Colorado;
manufacturing facilities in Singapore, Hong Kong and Thailand; and a service and
exchange distribution center in Ireland. IMS International Manufacturing
Services Ltd. is a wholly owned subsidiary of the Company whose primary business
is contract manufacturing of printed circuit boards for original equipment
manufacturers. The Company employs approximately 7,700 people worldwide.
Financial Information. Set forth below is certain selected consolidated
financial information relating to the Company and its subsidiaries which has
been excerpted or derived from the financial statements contained in the
Company's Annual Report on Form 10-K for the fiscal year ended March 25, 1995
(the "Company Form 10-K"), the Company's Quarterly Report on Form 10-Q for the
quarter ended July 1, 1995 (the "Company Form 10-Q") and the Company's press
release of October 26, 1995 for the quarter ended September 30, 1995. More
comprehensive financial information is included in the Company Form 10-K, the
Company Form 10-Q and other documents filed by the Company with the SEC. The
financial information that follows is qualified in its entirety by reference to
the Company Form 10-K, Company Form 10-Q and such other documents, including the
financial statements and related notes contained therein. The Company Form 10-K,
the Company Form 10-Q and such other documents may be examined and copies may be
obtained from the offices of the SEC in the manner set forth below. See Exhibit
II.
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<PAGE> 42
MAXTOR CORPORATION
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL YEAR ENDED
--------------------- -----------------------------------
JULY 1, JUNE 25, MARCH 25, MARCH 26, MARCH 27,
1995 1994 1995 1994 1993
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue.............................. $ 315,894 $ 218,310 $ 906,799 $1,152,615 $1,442,546
Income (loss) from operations........ (11,906) (11,057) (76,026) (247,921) 53,968
Net income (loss).................... (13,827) (12,189) (82,222) (257,589) 46,112
Net income (loss) per Share.......... (0.27) (0.24) (1.63) (8.00) 1.46
Shares used in computing net income
(loss) per Share.................. 52,085 49,925 50,583 32,203 31,534
Ratio of earnings to fixed charges... N.M. N.M. N.M. N.M. N.M.
Balance Sheet Data (at end of period):
Working capital...................... 57,612 149,134 82,444 157,467 212,152
Total assets......................... 391,297 443,479 381,847 492,375 579,113
Long-term debt and capital
lease obligations due after one
year.............................. 101,354 106,524 101,967 107,393 119,868
Total stockholder's equity........... 33,505 107,129 43,903 119,187 219,658
</TABLE>
On October 26, 1995, the Company issued a press release regarding September
30, 1995 financials. Set forth below is a summary of information contained
therein.
CONSOLIDATED STATEMENTS OF LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 24,
1995 1994
------------- -------------
<S> <C> <C>
Revenue............................................................. $ 281,406 $ 174,368
Cost of revenue..................................................... 281,359 191,064
-------- --------
Gross margin........................................................ 47 (16,696)
Research and development............................................ 21,847 14,589
Selling, general and administrative................................. 19,486 21,437
-------- --------
Loss from operations................................................ (41,286) (52,722)
Interest expense, net............................................... (2,404) (1,395)
-------- --------
Loss before income tax.............................................. (43,690) (54,177)
Provision for income taxes.......................................... 798 600
-------- --------
Net loss............................................................ (44,488) (54,717)
Net loss per Share.................................................. (0.84) (1.09)
Shares used in computing net loss per Share......................... 52,866 50,256
======== ========
</TABLE>
40
<PAGE> 43
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
SEPTEMBER 30, SEPTEMBER 24,
1995 1994
------------- -------------
<S> <C> <C>
Revenue........................................................... $ 597,300 $ 392,678
Cost of revenue................................................... 567,392 385,350
-------- --------
Gross margin...................................................... 29,908 7,328
Research and development.......................................... 44,638 28,625
Selling, general and administrative............................... 38,462 42,482
-------- --------
Loss from operations.............................................. (53,192) (63,779)
Interest expense, net............................................. (3,672) (1,927)
-------- --------
Loss before income taxes.......................................... (56,864) (65,706)
Provision for income taxes........................................ 1,451 1,200
-------- --------
Net loss.......................................................... (58,315) (66,906)
Net loss per Share................................................ (1.11) (1.34)
Shares used in computing net loss per Share....................... 52,476 50,091
======== ========
</TABLE>
41
<PAGE> 44
MAXTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
SEPTEMBER 30, JULY 1, MARCH 25,
1995 1995 1995
------------- ----------- --------------
<S> <C> <C> <C>
ASSETS
Cash and short-term investments......................... $ 19,377 $ 82,227 $108,516
Accounts receivable, net................................ 141,436 103,084 111,530
Inventories............................................. 143,157 116,902 89,680
Other current assets.................................... 13,409 11,837 8,695
-------- -------- --------
Total current assets.......................... 317,379 314,050 318,421
Property, plant and equipment, net...................... 74,751 70,074 56,144
Other assets............................................ 5,627 7,173 7,282
-------- -------- --------
Total assets.................................. $ 397,757 $ 391,297 $381,847
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Short-term borrowings................................... $ 72,000 $ 30,000 $ 30,000
Accounts payable........................................ 161,419 157,084 136,746
Accrued compensation, expenses and warranty............. 62,542 59,064 58,832
Accrued special and restructuring....................... 295 434 635
Current portion of long-term debt....................... 2,778 2,853 2,957
Income taxes payable.................................... 7,287 7,003 6,807
-------- -------- --------
Total current liabilities..................... 306,321 256,438 235,977
Long-term debt.......................................... 100,664 101,354 101,967
Stockholders' equity (deficit).......................... (9,228) 33,505 43,903
======== ======== ========
Total liabilities and stockholders' equity
(deficit)................................... $ 397,757 $ 391,297 $381,847
======== ======== ========
</TABLE>
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<PAGE> 45
The book value per share as of March 25, 1995 was $0.87 per share, as of
July 1, 1995 was $0.64 per share and as of September 30, 1995 was ($0.18) per
share.
During the past 60 days, neither the Company nor any officer or director of
the Company or pension plan, profit sharing plan or similar plan of the Company
has effected any transaction in the Shares. In addition, the Company has never
made purchases of its Shares.
The approximate number of holders of record of the shares as of October 31,
1995 was 1,800.
Certain Projections. The Company does not as a matter of course make
public forecasts or projections as to future performance. In connection with
Parent's review of the Company in connection with the proposed transactions, the
Company provided Parent with certain projections, prepared in connection with
the Company's preparation of its strategic business plan in the summer of 1995.
See "-- Background of the Transactions; Past Contacts, Transactions and
Negotiations with the Company." The projections were not prepared with a view to
public disclosure or in compliance with published guidelines of the SEC
regarding projections or the guidelines established by the American Institute of
Certified Public Accountants regarding projections and are included herein only
because the information was provided to such parties. Management also provided
to Parent and to Bear Stearns revised revenue and profit projections for the
calendar fourth quarter 1995 and first quarter 1996 based on projected
shortfalls in media availability in the near term. The cumulative effect of
these revisions (which have not been reflected in the projections set forth
below) was to reduce projected revenues for the six month period by $144 million
and reduce projected net income by $26 million for such period.
The projections, while presented with numerical specificity, are based on
myriad estimates and assumptions, including, but not limited to those listed
below, which involve judgments with respect to, among other things, future
economic and competitive conditions, inflation rates and future business
decisions. These estimates and assumptions may not be realized and are
inherently subject to significant business, economic and competitive
uncertainties, many of which are beyond the control of the Company. Therefore,
there can be no assurance that the projections set forth below will prove to be
reliable estimates of probable future performance. It is quite likely that
actual results will vary materially from these estimates. In light of the
uncertainties inherent in projections of any kind, the inclusion of projections
herein should not be regarded as a representation by any party that the
estimated results will be realized. There can be no assurances in this regard.
The projections were not prepared in accordance with generally accepted
accounting principles and were not audited or reviewed by any independent
accounting firm, nor did any independent accounting firm perform any other
services with respect thereto and none of the Company, Parent, the Purchaser,
the Hyundai Shareholders, the Dealer Manager nor any other person assumes any
responsibility for the accuracy of such projections.
The projections represent possible future operating experience as of the
time they were prepared. The Company does not presently intend to update or
publicly revise the projections to reflect circumstances existing or
developments occurring after the preparation of such information or to reflect
the occurrence of events that were unanticipated at the time the projections
were prepared.
The Company developed its strategic plan and the projections set forth
above to identify those critical elements necessary to position it as one of the
three top disk drive companies both in terms of sales and sustained profits over
the projected period. The Company made a number of critical assumptions in
developing this goal. The following are the major assumptions underlying the
projections:
(i) Continued overall HDD market growth as projected by IDC and the
accelerated expansion of capacity and system level budgets for higher
capacity drives in personal computers and notebook computers over the next
two years;
(ii) The Company's ability to successfully define, develop and cost
effectively manufacture in high volume, products that meet these perceived
market needs. This includes new product platforms in both 3 1/2 inch and
2 1/2 inch form factors;
(iii) Access to advanced head and media technologies in early stage
development and subsequent allocation of sufficient quantities at
competitive cost to meet high volume applications;
43
<PAGE> 46
(iv) Timely development of next generation low cost electronic
architecture for future disk drive products, including new highly
integrated chip sets;
(v) Penetration of top tier personal computer and notebook computer
manufacturers enabling significant market share growth;
(vi) Continued expansion of IMS, the Company's printed circuit board
assembly contract manufacturing subsidiary, into unaffiliated non-disk
drive contract manufacturing markets;
(vii) Access to significant cash resources to finance the operating
and strategic needs of the strategic plan through development of strategic
partnerships, being either expansion of the existing relationship with HEI
or development of new partnerships.
The Company's management recognized that the Company's ability to achieve
its two year strategic plan and corresponding projections was subject to
significant risks relating to each of these key assumptions.
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
--------------------------------------------------
ACTUAL PROJECTED
----------------- ------------------------------
1993 1994 1995 1996 1997
-------- ------ -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenue......................................... $1,237.8 $891.3 $1,268.0 $2,953.5 $4,225.6
Cost of revenue................................. 1,302.4 832.9 1,167.6 2,605.5 3,697.9
-------- ------ -------- -------- --------
Gross margin.................................... (64.6) 58.4 100.4 348.0 527.7
Operating expenses:
Research and development...................... 112.3 58.5 85.0 114.4 158.2
Selling, general and administrative........... 81.7 81.4 79.8 116.0 164.2
Restructuring and other....................... 19.5 0.0 (10.2) 12.2 19.4
-------- ------ -------- -------- --------
Total operating expenses........................ 213.5 139.9 154.5 242.5 341.7
Income (loss) from operations................... (278.1) (81.5) (54.2) 105.5 186.0
Other (income)/expense.......................... 8.1 4.1 7.6 15.5 9.5
-------- ------ -------- -------- --------
Income (loss) before income taxes............... (286.2) (85.6) (61.8) 90.0 176.5
Provision for income taxes...................... (13.7) 2.2 2.3 18.0 35.3
-------- ------ -------- -------- --------
Net income (loss)............................... $ (272.5) $(87.8) $ (64.1) $ 72.0 $ 141.2
======= ====== ======= ======= =======
</TABLE>
44
<PAGE> 47
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
ACTUAL PROJECTED
----------------- ---------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS
Total current assets............................. $ 298.0 $ 311.7 $ 315.8 $ 656.0 $ 861.9
Property, plant and equipment, net............... 69.9 50.3 85.5 140.9 120.6
Other non-current assets......................... 8.0 6.9 5.9 7.1 8.3
------- ------- ------- ------- -------
Total assets........................... $ 375.8 $ 368.9 $ 407.3 $ 803.9 $ 990.8
LIABILITIES AND STOCKHOLDERS' EQUITY
Total current liabilities........................ $ 296.2 $ 222.8 $ 323.0 $ 638.7 $ 666.8
Long-term deferred taxes......................... 1.0 0.1 0.3 9.3 26.9
Long-term debt and capital lease obligations..... 108.3 105.3 100.1 100.1 100.1
------- ------- ------- ------- -------
Total liabilities...................... 405.5 328.1 423.4 748.1 793.8
Common stock..................................... 167.5 325.9 333.1 333.1 333.1
Retained earnings................................ (197.3) (285.1) (349.2) (277.2) (136.0)
------- ------- ------- ------- -------
Total stockholders' equity............. (29.7) 40.8 (16.1) 55.8 197.0
Total liabilities and stockholders'
equity............................... $ 375.8 $ 368.9 $ 407.3 $ 803.9 $ 990.8
</TABLE>
Other Information. The Company is subject to the information and reporting
requirements of the Exchange Act and, in accordance therewith, is required to
file reports and other information with the SEC relating to its business,
financial condition and other matters. Information, as of particular dates,
concerning the Company's directors and officers, their remuneration, stock
options granted to them, the principal holders of the Company's securities, any
material interests of such persons in transactions with the Company and other
matters is required to be disclosed in proxy statements distributed to the
Company's stockholders and filed with the SEC. These reports, proxy statements
and other information, including the Tender Offer Statement on Schedule 14D-1
(the "Schedule 14D-1") filed by Parent and the Purchaser with the SEC and the
Schedule 13E-3 filed by the Company, Parent, the Purchaser and the Hyundai
Shareholders with the SEC, of which this Offer to Purchase forms a part, should
be available for inspection at the public reference facilities of the SEC
located in Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
also should be available for inspection and copying at prescribed rates at the
following regional offices of the SEC: Seven World Trade Center, 13th Floor, New
York, New York 10048, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 5670 Wilshire Boulevard, 11th Floor, Los Angeles,
California 90036. Copies of this material may also be obtained by mail, upon
payment of the SEC's customary fees, from the SEC's principal office at 450
Fifth Street, N.W., Washington, D.C. 20549. Such materials should also be
available on-line through EDGAR and for inspection at the offices of the Nasdaq
National Market at 33 Whitehall Street, New York, New York 10004.
SECTION 8. CERTAIN INFORMATION CONCERNING PARENT AND THE PURCHASER.
The Purchaser is presently a wholly owned subsidiary of Parent. It is
expected that, prior to the consummation of the Merger, the Hyundai Shareholders
will contribute their Class A Shares to the Purchaser or Parent in exchange for
capital stock of the Purchaser or Parent, and, as a result, would collectively
own, directly or indirectly, all the outstanding capital stock of the Purchaser,
and, after the Merger, all of the capital stock of the Surviving Corporation.
The Purchaser was formed as an acquisition vehicle in connection with the Offer,
the Merger and the other transactions contemplated by the Merger Agreement and
will be merged with and into the Company pursuant to the Merger.
45
<PAGE> 48
Parent is principally engaged in the business of marketing semiconductors
and information systems such as personal computers and monitors manufactured by
HEI. HEI is engaged in the business of designing, manufacturing, assembling and
marketing semiconductors, information systems, telecommunications equipment,
automation electronics and other electronic equipment and instruments. HHI is
engaged in the business of ship building, the development and manufacture of
heavy equipment such as offshore oil wells and gas turbine engines, and the
design and construction of electric and nuclear power plants. HC is a general
trading company selling consumer and other manufactured goods, textiles and raw
materials. HC principally trades for members of the affiliated Hyundai group of
companies although, in some cases, HC may sell goods of non-affiliated
companies. HMM is in the business of shipping and freight forwarding,
principally of containers and automobiles between South Korea and the United
States.
HC owns 766,042 shares of HHI stock, which represents approximately 16% of
the outstanding stock of HHI. HHI owns 766,042 shares of HC capital stock, which
represents approximately 16% of the outstanding shares of HC. HHI owns 10,400
shares of Parent's capital stock, which represents approximately 40% of the
outstanding shares of Parent. HMM owns 11,077,453 shares of HEI capital stock,
which represents 24% of the outstanding shares of HEI. HEI owns 15,600 shares of
Parent's capital stock, which represents approximately 60% of the outstanding
Shares of Parent.
The Hyundai Shareholders informally agreed at the time of the closing of
the Hyundai Investment to act together with respect to the acquisition regarding
the holding, voting and disposing of equity securities of the Company. The
Hyundai Shareholders have not put their agreement in writing. Any Hyundai
Shareholder may terminate the agreement as to itself at any time at its
election. Pursuant to their informal agreement, each Hyundai Shareholder granted
a revocable power of attorney for the voting of Class A Shares held by it to J.
Y. Kim, the President of HEI.
Parent is a California corporation and the Purchaser is a Delaware
corporation. The principal executive offices of Parent and the Purchaser are
located at 510 Cottonwood Drive, Milpitas, California 95035.
Set forth below is certain selected consolidated financial information
regarding HEI. The financial information set forth below was prepared in
accordance with Korean generally accepted accounting principles ("Korean GAAP"),
which differ in certain respects from United States generally accepted
accounting principles ("GAAP"). For example, under Korean GAAP, property, plant
and equipment are recorded at cost, except for upward revaluation to give
accounting recognition to some extent to the loss in purchasing power of the
Korean Won. Such revaluation presents production facilities and buildings at
their depreciated replacement cost and land at the prevailing market value, as
of the effective date of the revaluation.
Investments in subsidiaries and affiliated companies are reported at cost,
except if the financial condition of the subsidiary or affiliated company has
significantly deteriorated, the investment is reduced to its estimated net
realizable value. Neither consolidation of subsidiaries nor the equity method of
accounting for minorityowned companies is applied in the financial statements of
HEI.
The official accounting records of HEI are maintained in Korean Won in
accordance with the laws and regulations of the Republic of Korea. For the
convenience of the reader, the financial data have been translated into U.S.
dollars at the rate of 788 Won per U.S. Dollar, which was the prevailing rate at
December 31, 1994.
46
<PAGE> 49
HYUNDAI ELECTRONICS INDUSTRIES CO., LTD
SELECTED BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1994 1993
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Current Assets................................................... $1,343,500 $ 793,064
Total Assets..................................................... 4,150,175 2,781,764
========== ==========
Current Liabilities.............................................. 1,492,756 1,147,190
Total Liabilities................................................ 3,580,049 2,371,166
Stockholders' Equity............................................. 570,126 410,597
Total Liabilities and Stockholders' Equity....................... 4,150,125 2,781,764
========== ==========
</TABLE>
The name, citizenship, business address, principal occupation or employment
and five-year employment history for each of the directors and executive
officers of the Purchaser, Parent and the Hyundai Shareholders are set forth in
Schedule I hereto.
Except as set forth in this Offer to Purchase, none of the Purchaser,
Parent or the Hyundai Shareholders, or, to the best knowledge of the Purchaser,
Parent and the Hyundai Shareholders, any of the persons listed in Schedule I
hereto, or any associate or majority-owned subsidiary of such persons,
beneficially owns any equity security of the Company, and none of the Purchaser,
Parent or the Hyundai Shareholders, or, to the best knowledge of the Purchaser,
Parent or the Hyundai Shareholders or any of the other persons referred to
above, or any of the respective directors, executive officers or subsidiaries of
any of the foregoing, has effected any transaction in any equity security of the
Company during the past 60 days.
Except as set forth in this Offer to Purchase, none of the Purchaser,
Parent or the Hyundai Shareholders, or, to the best knowledge of the Purchaser,
Parent and the Hyundai Shareholders, any of the persons listed in Schedule I
hereto has any contract, arrangement, understanding or relationship with any
other person with respect to any securities of the Company, including, without
limitation, any contract, arrangement, understanding or relationship concerning
the transfer or the voting of any securities of the Company, joint ventures,
loan or option arrangements, puts or calls, guaranties of loans, guaranties
against loss or the giving or withholding of proxies. Except as set forth in
this Offer to Purchase, none of the Purchaser, Parent or the Hyundai
Shareholders, or, to the best knowledge of the Purchaser, the Parent or the
Hyundai Shareholders, any of the persons listed in Schedule I hereto has had any
transactions with the Company, or any of its executive officers, directors or
affiliates that would require reporting under the rules of the SEC.
Except as set forth in this Offer to Purchase, there have been no contacts,
negotiations or transactions between any of the Purchaser, Parent or the Hyundai
Shareholders, or their respective subsidiaries, or, to the best knowledge of the
Purchaser, Parent or the Hyundai Shareholders, any of the persons listed in
Schedule I hereto, on the one hand, and the Company or its executive officers,
directors or affiliates, on the other hand, concerning a merger, consolidation
or acquisition, tender offer or other acquisition of securities, election of
directors, or a sale or other transfer of a material amount of assets.
SECTION 9. DIVIDENDS AND DISTRIBUTIONS.
The Company has agreed in the Merger Agreement that, other than as
expressly contemplated by the Merger Agreement or as agreed to in writing by
Parent, it shall not and shall not permit any of its subsidiaries to: (i)(a)
declare, set aside or pay any dividends or other distribution with respect to
the Company's capital stock or that of its subsidiaries, or (b) redeem, purchase
or otherwise acquire directly or indirectly any of the Company's capital stock
or that of its subsidiaries; (ii) issue, sell, pledge or encumber any additional
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of
capital stock of the Company or its subsidiaries, other than Shares issued upon
the exercise of Options outstanding on the date hereof; or (iii) split, combine
or reclassify the outstanding capital stock of the Company or of any of the
subsidiaries of the Company. See "Special Factors -- The Merger Agreement."
47
<PAGE> 50
SECTION 10. CONDITIONS TO THE OFFER.
Certain Conditions of the Offer. Notwithstanding any other provisions of
the Offer, and in addition to (and not in limitation of) the Purchaser's rights
to extend and amend the Offer at any time in its sole discretion (subject to the
provisions of the Merger Agreement), the Purchaser shall not be required to
accept for payment or, subject to any applicable rules and regulations of the
SEC, including Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, and may delay the acceptance for payment of
or, subject to the restriction referred to above, the payment for, any tendered
Shares, and may terminate or amend the Offer as to any Shares not then paid for,
if (i) any applicable waiting period under the HSR Act or the Exon-Florio Act
has not expired or terminated, or (ii) the Korean Approval Condition shall not
have been satisfied or (iii) at any time on or after the date of the Merger
Agreement and before the time of payment for any such Shares, any of the
following events shall occur or shall be determined by the Purchaser to have
occurred:
(a) there shall have been any action taken, or any statute, rule,
regulation, judgment, order or injunction promulgated, entered, enforced,
enacted, issued or deemed applicable to the Offer or the Merger by any
domestic or foreign, federal or state, governmental, regulatory or
administrative agency or authority or court or legislative body or
commission which directly or indirectly (1) prohibits, or imposes any
material limitations on, Parent's or the Purchaser's ownership or operation
(or that of any of their respective subsidiaries or affiliates) of all or a
material portion of their or the Company's businesses or assets, or compels
Parent or the Purchaser or their respective subsidiaries and affiliates to
dispose of or hold separate any material portion of the business or assets
of the Company or Parent and their respective subsidiaries, in each case,
taken as a whole, (2) prohibits, or makes illegal, the acceptance for
payment, payment for or purchase of Shares or the consummation of the
Offer, the Merger or the other transactions contemplated by the Merger
Agreement, (3) results in the delay in or restricts the ability of the
Purchaser, or renders the Purchaser unable, to accept for payment, pay for
or purchase some or all of the Shares, (4) imposes material limitations on
the ability of the Purchaser or Parent effectively to exercise full rights
of ownership of the Shares, including, without limitation, the right to
vote the Shares purchased by it on all matters properly presented to the
Company's stockholders, or (5) otherwise materially adversely affects the
consolidated financial condition, businesses or results of operations of
the Company and its subsidiaries, taken as a whole, provided that Parent
shall have used all reasonable efforts to cause any such judgment, order or
injunction to be vacated or lifted;
(b) there shall have occurred (1) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange
or in the Nasdaq National Market System, for a period in excess of three
hours, (2) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or the Republic of Korea
(whether or not mandatory), (3) a commencement of a war, armed hostilities
or other international or national calamity directly or indirectly
involving the United States or the Republic of Korea, or, in the case of
any of the foregoing in existence on the date of the Merger Agreement, any
material acceleration or worsening thereof, (4) any limitation (whether or
not mandatory) by any foreign or United States governmental authority on
the extension of credit by banks or other financial institutions, (5) any
decline in either the Dow Jones Industrial Average or the Standard & Poor's
Index of 500 Industrial Companies by a cumulative amount in excess of 20%
over the period from the close of business on the date of the Merger
Agreement through the close of business on the day immediately preceding
the expiration of the Offer, (6) a change in general financial bank or
capital market conditions which materially or adversely affects the ability
of
financial institutions in the United States or the Republic of Korea to
extend credit or syndicate loans, (7) any significant change in the United
States or the Republic of Korea currency exchange rates or suspension of,
or limitation on, the markets therefor (whether or not mandatory) or the
imposition of, or any significant change in, any currency or exchange
control laws in the United States or the Republic of Korea, or (8) in the
case of any of the foregoing existing at the time of the commencement of
the Offer, a material acceleration or worsening thereof;
(c) (1) the representations and warranties of the Company set forth in
the Merger Agreement shall not be true and correct in any material respect
as of the date of the Merger Agreement and as of
48
<PAGE> 51
consummation of the Offer as though made on or as of such date, (2) the
Company shall have failed to comply with its covenants and agreements under
the Merger Agreement in all material respects or (3) there shall have
occurred any events or changes which have had or which are reasonably
likely to have a material adverse effect on the Company and its
subsidiaries taken as a whole, compared to its net losses and declining
cash position over its three most recent fiscal quarters;
(d) the Company's Board of Directors shall have withdrawn, or modified
or changed in a manner adverse to Parent or the Purchaser (including by
amendment of the Schedule 14D-9) its recommendation of the Offer, the
Merger Agreement, or the Merger, or recommended another proposal or offer,
or the Board of Directors of the Company, upon request of the Purchaser,
shall fail to reaffirm such approval or recommendation or shall have
resolved to do any of the foregoing; or
(e) the Merger Agreement shall have terminated in accordance with its
terms;
which in the sole judgment of Parent or the Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
the Purchaser) giving rise to such condition makes it inadvisable to proceed
with the Offer and/or with such acceptance for payment of or payments for
Shares.
The foregoing conditions are for the sole benefit of Parent and the
Purchaser and may be waived by Parent or the Purchaser, in whole or in part at
any time and from time to time in the sole discretion of Parent or the
Purchaser. The failure by Parent or the Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
SECTION 11. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS.
General. Except as otherwise disclosed herein, based on a review of
publicly available information filed by the Company with the SEC, neither the
Purchaser nor Parent is aware of (i) any license or regulatory permit that
appears to be material to the business of the Company and its subsidiaries,
taken as a whole, that might be adversely affected by the acquisition of Shares
by the Purchaser pursuant to the Offer or the Merger or (ii) any approval or
other action, other than satisfaction of the Korean Approval Condition, the
requirements of the HSR Act and the Exon-Florio Provision, described below, by
any governmental, administrative or regulatory agency or authority, domestic or
foreign, that would be required for the acquisition or ownership of Shares by
the Purchaser as contemplated herein. Should any such approval or other action
be required, the Purchaser currently contemplates that such approval or action
would be sought. While the Purchaser does not currently intend to delay the
acceptance for payment of Shares tendered pursuant to the Offer pending the
outcome of any such matter, there can be no assurance that any such approval or
action, if needed, would be obtained or would be obtained without substantial
conditions or that adverse consequences might not result to the business of the
Company, the Purchaser or Parent or that certain parts of the businesses of the
Company, the Purchaser or Parent might not have to be disposed of in the event
that such approvals were not obtained or any other actions were not taken. The
Purchaser's obligation under the Offer to accept for payment and pay for Shares
is subject to certain conditions. See Section 10.
Korean Governmental Approvals. The Offer is conditioned on, among other
things, the obtainment of final approval of all necessary governmental officials
and agencies of the Republic of Korea to consummate the Offer, the Merger and
the other transactions contemplated by the Merger Agreement, without any
conditions reasonably deemed by Parent to materially adversely affect the
intended economic benefits to it and its affiliates of the Offer, the Merger and
the other transactions contemplated by the Merger Agreement. HEI expects to
submit an approval application with the Bank of Korea (the "BOK") pursuant to
the Foreign Exchange Control Act of Korea (the "FECA") in connection with the
Offer, the Merger and the transactions contemplated by the Merger Agreement.
Under FECA and the rules promulgated thereunder, overseas investments by a
Korean resident are permissible in principle when the shares to be acquired by
the Korean investor will constitute 20% or more of the outstanding shares of a
company. Because the Offer, the Merger and the transactions contemplated by the
Merger Agreement contemplate an investment of over $10 million in a foreign
country, Parent and the Purchaser must also obtain approval of the Overseas
Investment Deliberation Committee (the "OIDC"), a committee of Korean government
officials operating under the
49
<PAGE> 52
auspices of the BOK and the Korean Ministry of Finance and Economy (the "MOFE").
The OIDC considers factors such as the general appropriateness of the
investment, possible negative effects of the transaction upon the Korean economy
or Korean foreign policy, whether the transaction would be against Korean social
or public order, and whether the Korean investor has previously violated Korean
foreign investment policies.
Once all the necessary documents for the BOK approval are prepared and
filed with the BOK, the BOK preliminarily reviews the application and forwards
it to the MOFE. The MOFE then arranges for review of the application by the
OIDC, and the OIDC determines whether or not to approve the application.
Following the OIDC's decision, the MOFE returns the application to the BOK along
with the OIDC's decision. The BOK then issues its final decision on approval
shortly after such receipt. The Purchaser will not accept for payment Shares
validly tendered pursuant to the Offer unless and until the Korean Approval
Condition is satisfied. It is not possible to predict the amount of time
necessary to obtain this governmental approval or whether such approval can be
obtained. It is anticipated, however, that the time necessary to obtain such
approval will extend beyond the Expiration Date, and, subject to the other
conditions of the Offer, the Purchaser intends to extend the Offer from time to
time until such approval has been received. See Section 10. It is expected that
the application will be submitted by Parent by November 15, 1995.
Antitrust. Under the HSR Act, and the rules that have been promulgated
thereunder by the Federal Trade Commission (the "FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the FTC and certain waiting period requirements have been
satisfied. Parent expects to file a Notification and Report Form with respect to
the Offer, the Merger and the other transactions contemplated by the Merger
Agreement by November 10, 1995.
Under the provisions of the HSR Act applicable to the Offer, the purchase
of Shares under the Offer may not be consummated until the expiration of a
15-calendar day waiting period following the filing by Parent. Accordingly, if
such filing is made on the expected date of November 10, 1995, the waiting
period with respect to the Offer will expire at 11:59 p.m., New York City time,
on November 25, 1995, unless Parent receives a request for additional
information or documentary material, or the Antitrust Division and the FTC
terminate the waiting period prior thereto. If, within such 15-day period,
either the Antitrust Division or the FTC requests additional information or
material from Parent concerning the Offer, the waiting period will be extended
and would expire at 11:59 p.m., New York City time, on the tenth calendar day
after the date of substantial compliance by Parent with such request. Only one
extension of the waiting period pursuant to a request for additional information
is authorized by the HSR Act. Thereafter, such waiting period may be extended
only by court order or with the consent of Parent. The Purchaser will not accept
for payment Shares tendered pursuant to the Offer unless and until the waiting
period requirements imposed by the HSR Act with respect to the Offer have been
satisfied. See Section 10.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's acquisition of Shares
pursuant to the Offer and the Merger. At any time before or after the
Purchaser's acquisition of Shares, the Antitrust Division or the FTC could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the acquisition of Shares pursuant
to the Offer or otherwise or seeking divestiture of Shares acquired by the
Purchaser or divestiture of substantial assets of Parent or its subsidiaries.
Private parties and state attorneys general may also bring action under the
antitrust laws under certain circumstances. Based upon an examination of
publicly available information relating to the businesses in which Parent and
the Company are engaged, Parent and the Purchaser believe that the acquisition
of Shares by the Purchaser will not violate the antitrust laws. Nevertheless,
there can be no assurance that a challenge to the Offer or other acquisition of
Shares by the Purchaser on antitrust grounds will not be made or, if such a
challenge is made, of the result. See Section 10 for certain conditions to the
Offer, including conditions with respect to litigation and certain governmental
actions.
Exon-Florio Provision. The Exon-Florio Provision applies to all
acquisitions proposed or pending on or after August 23, 1988, by or with foreign
persons which could result in foreign control of persons engaged in interstate
commerce in the United States. The Exon-Florio Provision empowers the President
of the United States to prohibit or suspend mergers, acquisitions or takeovers
by or with foreign persons if the President finds, after investigations,
credible evidence that the foreign person might take action that threatens to
impair
50
<PAGE> 53
the national security of the United States and that other provisions of existing
law do not provided adequate and appropriate authority to protect the national
security. The President has designated The Committee on Foreign Investment in
the United States ("CFIUS") as the agency authorized under the Exon-Florio
Provision to receive notices and other information, to determine whether
investigations should be undertaken and to make investigations. CFIUS is
comprised of representatives of the Departments of Treasury, State, Commerce,
Defense and Justice, the Office of Management and Budget, the United States
Trade Representative's Office and the Council of Economic Advisors. Any
determination by CFIUS that an investigation is called for must be made within
30 days after its acceptance of written notification concerning a proposed
transaction. In the event that CFIUS determines to undertake an investigation,
such investigation must be completed within 45 days after such determination.
Upon completion or termination of any such investigation, the Committee must
report to the President and present its recommendation. The President then has
15 days in which to suspend or prohibit the proposed transaction or to seek
other appropriate relief. In order for the President to exercise his authority
to suspend or prohibit an acquisition, the President must make two findings: (i)
that there is credible evidence that leads the President to believe that the
foreign interest exercising control might take action that threatens to impair
national security and (ii) that provisions of law other than the Exon-Florio
Amendment and the International Emergency Economic Powers Act do not provide
adequate and appropriate authority for the President to protect the national
security in connection with the acquisition. Such findings are not subject to
judicial review. If the President makes such findings, he may take action for
such time as he considers appropriate to suspend or prohibit the relevant
acquisition. The President may direct the Attorney General to seek appropriate
relief, including divestment relief, in the District Courts of the United States
in order to implement and enforce the Exon-Florio Amendment. The Exon-Florio
Amendment does not obligate the parties to an acquisition to notify CFIUS of a
proposed transaction. However, if notice of a proposed acquisition is not
submitted to CFIUS, then the transaction remains indefinitely subject to review
by the President under the Exon-Florio Amendment, unless it is determned that
CFIUS does not have jurisdiction over the transaction.
The Purchaser and the Company have not yet determined whether CFIUS has
jurisdiction and therefore whether a filing is appropriate with regard to the
transactions contemplated by the Merger Agreement. Although the Purchaser
believes that the transactions contemplated by the Merger Agreement should not
raise any national security concerns, there can be no assurance that CFIUS will
not determine to conduct an investigation of the proposed transaction and, if an
investigation is commenced, there can be no assurance regarding the outcome of
such investigation. If the results of such investigation are adverse to the
Purchaser, the Purchaser may not be obligated to accept for payment or pay for
any Shares tendered pursuant to the Offer.
State Takeover Statutes. As a Delaware corporation, the Company is subject
to Section 203 ("Section 203") of the DGCL. Section 203 would prevent an
"Interested Stockholder" (generally defined as a person beneficially owning 15%
or more of a corporation's voting stock) from engaging in a "Business
Combination" (as defined in Section 203) with a Delaware corporation for three
years following the date such person became an Interested Stockholder unless:
(i) before such person became an Interested Stockholder, the board of directors
of the corporation approved the transaction in which the Interested Stockholder
became an Interested Stockholder or approved the Business Combination; (ii) upon
consummation of the transaction which resulted in the Interested Stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of the corporation outstanding at the time that the
transaction commenced (excluding stock held by directors who are also officers
and by employee stock ownership plans that do not allow plan participants to
determine confidentially whether to tender shares); or (iii) following the
transaction in which such person became an Interested Stockholder, the Business
Combination is (a) approved by the board of directors of the corporation and (b)
authorized at a meeting of stockholders by the affirmative vote of the holders
of at least 66 2/3% of the outstanding voting stock of the corporation not owned
by the Interested Stockholder. In accordance with the provisions of the
Company's Restated Certificate of Incorporation and Section 203, the Board
approved the acquisition of Class A Shares by Parent and its affiliates in 1993.
Accordingly, the transactions contemplated by the Merger Agreement, including
Purchaser's acquisition of Shares pursuant to the Offer, are exempt from the
provisions of Section 203.
51
<PAGE> 54
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or have
substantial assets, stockholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects, in such states. In 1982, in Edgar v. MITE Corp., the Supreme
Court of the United States invalidated on constitutional grounds the Illinois
Business Takeover Statute, which, as a matter of state securities law, made
takeovers of corporations meeting certain requirements more difficult. However,
in 1987 in CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that
the State of Indiana may, as a matter of corporate law, and, in particular, with
respect to those aspects of corporate law concerning corporate governance,
constitutionally disqualify a potential acquirer from voting on the affairs of a
target corporation without the prior approval of the remaining stockholders. The
state law before the Supreme Court was by its terms applicable only to
corporations that had a substantial number of stockholders in the state and were
incorporated there. Subsequently, a number of Federal courts ruled that various
state takeover statutes were unconstitutional insofar as they apply to
corporations incorporated outside the state of enactment.
The Company, directly or through subsidiaries, conducts business in a
number of states throughout the United States, some of which have enacted
takeover laws. The Purchaser does not know whether any of these laws will, by
their terms, apply to the Offer and has not complied with any such laws. Should
any person seek to apply any state takeover law, the Purchaser will take such
action as then appears desirable, which may include challenging the validity or
applicability of any such statute in appropriate court proceedings. In the event
it is asserted that one or more state takeover laws is applicable to the Offer
and the Merger, and an appropriate court does not determine that it is
inapplicable or invalid as applied to the Offer, the Purchaser might be required
to file certain information with, or receive approvals from, the relevant state
authorities. In addition, if enjoined, the Purchaser might be unable to accept
for payment any Shares tendered pursuant to the Offer, or be delayed in
continuing or consummating the Offer. In such case, the Purchaser may not be
obligated to accept for payment any Shares tendered. See Section 10.
SECTION 12. FEES AND EXPENSES.
Merrill Lynch is acting as Dealer Manager in connection with the Offer and
has provided certain financial advisory services in connection with the
acquisition of the Company. Parent has agreed, pursuant to an engagement letter
dated as of October 16, 1995 (the "Engagement Letter"), to pay Merrill Lynch (i)
a fee of $50,000, payable on the date of the Engagement Letter, (ii) an
additional fee of 0.25% of the aggregate purchase price to be paid in the Offer
and the Merger, payable on the date of the Merger Agreement, and (iii) if,
during the period Merrill Lynch is retained pursuant to the Engagement Letter or
within two years thereafter, Parent and the Company consummate an Acquisition
Transaction (as defined in the Engagement Letter and including, without
limitation, the Tender Offer and the Merger) or enter into an agreement that
subsequently results in an Acquisition Transaction, an additional fee of 0.85%
of the aggregate purchase price paid in such Acquisition Transaction (against
which fee any amounts paid pursuant to clauses (i) or (ii) above will be
credited), payable upon the closing of such Acquisition Transaction or, in the
case of a tender offer or exchange offer, upon the acceptance for payment of
Shares pursuant thereto. For the purpose of calculating the above fees, the
"aggregate purchase price paid" in an Acquisition Transaction shall (i) be
computed as if all of the then outstanding Shares on a fully diluted basis
(other than Shares held by Parent as of the date of the Engagement Letter) were
acquired in such Acquisition Transaction at the per Share price paid in such
transaction and (ii) shall include the amount of any indebtedness of the Company
assumed or acquired by Parent or an affiliate of Parent, or retired or defeased,
in connection with the Acquisition Transaction (the Debentures being valued for
this purpose at 80% of their face value). In addition, the Engagement Letter
provides that Parent will reimburse Merrill Lynch for its reasonable
out-of-pocket expenses (including reasonable fees and expenses of its legal
counsel) and will indemnify Merrill Lynch and certain related persons against
certain liabilities, including liabilities under securities laws, arising out of
its engagement. Merrill Lynch has rendered various investment banking and other
advisory services to Parent and its affiliates in the past and is expected to
continue to render such services, for which it has received and will continue to
receive customary compensation from Parent and its affiliates.
52
<PAGE> 55
For a description of the compensation of Bear Stearns, financial advisor to
the Special Committee, see "Special Factors -- Opinion of Financial Advisor."
The Purchaser has retained D.F. King & Co., Inc. to act as the Information
Agent in connection with the Offer. The Information Agent may contact holders of
Shares by mail, telephone, facsimile, telegraph and personal interviews and may
request brokers, dealers and other nominee stockholders to forward materials
relating to the Offer to beneficial owners of Shares. The Information Agent will
receive reasonable and customary compensation for its services, estimated to
total approximately $10,000 to $15,000, will be reimbursed for certain
reasonable out-of-pocket expenses and will be indemnified against certain
liabilities and expenses in connection therewith, including certain liabilities
under the federal securities laws.
Citibank, N.A. has been retained as the Depositary. The Depositary has not
been retained to make solicitations or recommendations in its role as
Depositary. The Depositary will receive reasonable and customary compensation
for its services, estimated to total approximately $5,000 to $8,000, will be
reimbursed for certain reasonable out-of-pocket expenses and will be indemnified
against certain liabilities and expenses in connection therewith, including
certain liabilities under the federal securities laws.
It is estimated that the expenses incurred in connection with the
Transaction will be approximately as set forth below:
<TABLE>
<S> <C>
Financial Advisor Fees........................................................... $6,900,000
Legal Fees....................................................................... 775,000
Printing and Mailing Costs....................................................... 125,000
Filing Fees...................................................................... 55,000
Miscellaneous.................................................................... 100,000
----------
Total.................................................................. $7,955,000
==========
</TABLE>
Except as set forth above, the Purchaser and Parent will not pay any fees
or commissions to any broker or dealer or any other person for soliciting
tenders of Shares pursuant to the Offer. Brokers, dealers, commercial banks,
trust companies and other nominees will, upon request only, be reimbursed by the
Purchaser for customary mailing and handling expenses incurred by them in
forwarding material to their customers.
SECTION 13. MISCELLANEOUS.
Neither Parent nor the Purchaser is aware of any jurisdiction where the
making of the Offer or the tender of Shares in connection therewith is
prohibited by any administrative or judicial action pursuant to any valid state
statute. If Parent or the Purchaser becomes aware of any valid state statute
prohibiting the making of the Offer or the acceptance of the Shares pursuant
thereto, Parent or the Purchaser will make a good faith effort to comply with
such state statute. If, after such good faith effort, Parent or the Purchaser
cannot comply with any such state statute, the Offer will not be made to (nor
will tenders be accepted from or on behalf of) the holders of Shares in such
state. In any jurisdiction where the securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer shall be deemed
to be made on behalf of the Purchaser, by the Dealer Manager or one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PARENT OR THE PURCHASER NOT CONTAINED IN THIS OFFER
TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Parent and the Purchaser have filed with the SEC the Tender Offer Statement
on Schedule 14D-1, together with exhibits, pursuant to Rule 14d-3 under the
Exchange Act, furnishing certain additional information with respect to the
Offer. Parent, the Purchaser, the Hyundai Shareholders and the Company have
filed with the SEC the Schedule 13E-3, together with exhibits, pursuant to Rule
13e-3 under the Exchange Act, with respect to the Offer. The Company has filed
with the SEC the Company's Solicitation/Recommendation Statement on Schedule
14D-9 (the "Schedule 14D-9") pursuant to Rule 14d-9 under the Exchange Act,
together with exhibits, setting forth the Company's recommendation of the Board
of
53
<PAGE> 56
Directors with respect to the Offer and other information required to be
disseminated to stockholders of the Company pursuant to Rule 14d-9. The Schedule
14D-9 is being mailed to stockholders of the Company herewith. Such Schedule
14D-1, Schedule 13E-3 and Schedule 14D-9, including exhibits and any amendments
thereto, which furnish certain additional information with respect to the Offer,
may be inspected at, and copies may be obtained from, the same places and in the
same manner as set forth in Section 7 (except that they will not be available at
the regional offices of the SEC).
HYUNDAI ACQUISITION, INC.
NOVEMBER 8, 1995
54
<PAGE> 57
SCHEDULE I
INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS
OF PARENT, THE PURCHASER AND THE HYUNDAI SHAREHOLDERS
1. Directors and Officers of Hyundai Electronics America. The following
table sets forth the names, present principal occupations or employment and
material occupations, positions, offices or employment, during the last five
years of each director and executive officer of Parent. Unless otherwise
indicated, all occupations, offices or positions of employment listed opposite
an individual's name are or were with Parent. Except as otherwise indicated,
each of the persons listed below is a citizen of the Republic of Korea. The
business address of each individual is 510 Cottonwood Drive, Milpitas,
California 95035.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
- ----------------------------- --------------------------------------------------------------
<S> <C>
Young Hwan Kim............... Mr. Kim has been a member of the Board of Directors of Parent
President, Chief Executive since 1990. Mr. Kim has been Chief Executive Officer and
Officer and Director President of Parent since October 1990.
David Eichler................ Mr. Eichler has been a member of the Board of Directors of
Chief Financial Officer and Parent since 1994. Mr. Eichler has also been Chief Financial
Director Officer of Parent since March 1994. Previously, Mr. Eichler
was Chief Financial Officer of Trident Systems from July 1993
to February 1994. Mr. Eichler was also Assistant Treasurer of
Syntex Corporation from February 1992 to July 1993. Mr.
Eichler was Director of Finance of Syntex USA from February
1990 to February 1992. Mr. Eichler is a citizen of the United
States of America.
Sei Kwang Park............... Mr. Park has been Secretary of Parent since February 1995. Mr.
Secretary and Senior Park has also been Senior Manager of HEI since October 1990.
Manager
Dong Soo Shyn................ Mr. Shyn has been a member of the Board of Directors of Parent
Director since 1995. He was Vice President of Parent from October 1990
to March 1995.
</TABLE>
2. Directors and Executive Officers of Hyundai Electronics Industries Co.,
Ltd. The following table sets forth the names, present principal occupations or
employment and material occupations, positions, offices or employment, during
the last five years of each executive officer of HEI and each person carrying
out a function in HEI similar to that of a director in a United States
corporation. Unless otherwise indicated, all occupations, offices or positions
of employment listed opposite an individual's name are or were with HEI. Except
as otherwise indicated, each of the persons listed below is a citizen of the
Republic of Korea. The business address of each individual is San 136-1, Ami-ri,
Bubal-eub, Ichon-kun, Kyoungki-do, Korea.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
- ----------------------------- --------------------------------------------------------------
<S> <C>
Mong Hun Chung............... Mr. Chung has been Chairman of HEI since January 1992. He was
Chairman, President and President and Representative Director of HEI from February
Representative Director 1984 to December 1991. Currently, Mr. Chung is also Vice
Chairman of HMM and holds directorship positions on the boards
of other Parent affiliated companies.
Joo Yong Kim................. Mr. Kim has been President and Representative Director of HEI
President and since January 1992. Mr. Kim was President and Representative
Representative Director Director of HHI from October 1990 to January 1992.
Dong Sik Kim................. Mr. Kim has been Executive Vice President of HEI's Industrial
Executive Vice President Electronics Sector since October 1990.
Kyung Hee Choi............... Mr. Choi has been Executive Vice President of HEI's
Executive Vice President Administration Division since October 1990.
</TABLE>
<PAGE> 58
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
- ----------------------------- --------------------------------------------------------------
<S> <C>
Kye Hwan Oh.................. Mr. Oh has been Executive Vice President of HEI's Memory
Executive Vice President Business Division since October 1990.
Young Yull Rha............... Mr. Rha has been Executive Vice President of HEI's
Executive Vice President Semiconductor Manufacturing Division since October 1990.
</TABLE>
On August 14, 1992, the Criminal District Court, Seoul, Korea, entered a
sentence of 2 1/2 years imprisonment, suspended for 3 years, against Mr. Choi.
The conviction was based on alleged improper accounting by HMM, resulting in
underpayment of its Korean income tax. Mr. Choi is currently serving a
probationary sentence, but no fine or imprisonment will be imposed against Mr.
Choi as long as Mr. Choi does not engage in activities which led to his
conviction during the probationary period. It is expected that Mr. Choi's
probation will be terminated in the near future.
3. Directors and Executive Officers of Hyundai Heavy Industries Co.,
Inc. The following table sets forth the names, present principal occupations or
employment and material occupations, positions, offices or employment, during
the last five years of each executive officer of HHI and each person carrying
out a function in HHI similar to that of a director in a United States
corporation. Unless otherwise indicated, all occupations, offices or positions
of employment listed opposite an individual's name are or were with HHI. Except
as otherwise indicated, each of the persons listed below is a citizen of the
Republic of Korea. The business address of each individual is 1, Cheonha-dong,
Ulsan, Kyungnam, Korea.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
- ----------------------------- --------------------------------------------------------------
<S> <C>
Jung Kook Kim................ Mr. Kim has been President and Representative Director of HHI
President and since January 1993. Mr. Kim was President and Representative
Representative Director Director of Hyundai Engineering and Construction Co., Ltd.
from October 1990 to January 1993.
Soo Sik Kwon................. Mr. Kwon has been Executive Vice President of HHI's Engine
Executive Vice President Division since October 1990.
Ju Yeong Kim................. Mr. Kim has been Executive Vice President of HHI's Plant
Executive Vice President Division since October 1990.
Jeong Nam Lee................ Mr. Lee has been Executive Vice President of HHI's Ship
Executive Vice President Building Division since October 1990.
Yeoung Gi Lee................ Mr. Lee has been Senior Vice President of HHI's Financing and
Senior Vice President Administration Division since October 1990.
Sang Chun Chung.............. Mr. Chung has been Senior Vice President of HHI's Marketing
Senior Vice President Division since October 1990.
</TABLE>
4. Directors and Executive Officers of Hyundai Corporation. The following
table sets forth the names, present principal occupations or employment and
material occupations, positions, offices or employment, during the last five
years of each executive officer of HC and each person carrying out a function in
HC similar to that of a director in a United States corporation. Unless
otherwise indicated, all occupations, offices or positions of employment listed
opposite an individual's name are or were with HC. Except as otherwise
indicated, each of the persons listed below is a citizen of the Republic of
Korea. The business address of each individual is 140-2, Kye-dong, Chongro-ku,
Seoul, Korea.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
- ----------------------------- --------------------------------------------------------------
<S> <C>
Choon Lim Lee................ Mr. Lee has been Chairman of HC since October 1990.
Chairman
Se Yong Park................. Mr. Park has been President and Representative Director of HC
President and since January 1991. He was President and Representative
Representative Director Director of HHM from October 1990 to January 1991.
Chung Il Chung............... Mr. Chung has been Executive Vice President of HC since
Executive Vice President October 1990.
</TABLE>
<PAGE> 59
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
- ----------------------------- --------------------------------------------------------------
<S> <C>
Kang Soo Choo................ Mr. Choo has been Executive Vice President of HC's Energy and
Executive Vice President Resources Division since October 1990.
Won Jin Park................. Mr. Park has been Vice President of HC's Administration
Vice President Division since October 1990.
</TABLE>
5. Directors and Executive Officers of Hyundai Merchant Marine Co.,
Ltd. The following table sets forth the names, present principal occupations or
employment and material occupations, positions, offices or employment, during
the last five years of each executive officer of HMM and each person carrying
out a function in HMM similar to that of a director in a United States
corporation. Unless otherwise indicated, all occupations, offices or positions
of employment listed opposite an individual's name are or were with HMM. Except
as otherwise indicated, each of the persons listed below is a citizen of the
Republic of Korea. The business address of each individual is 96, Mukyo-dong,
Chung-ku, Seoul, Korea.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
- ----------------------------- --------------------------------------------------------------
<S> <C>
Yung Won Hyun................ Mr. Hyun has been Chairman of HMM since October 1990.
Chairman
Mong Hun Chung............... Mr. Chung has been Vice Chairman and Representative Director
Vice Chairman and of HMM since October 1990.
Representative Director
Se Yong Park................. Mr. Park has been President and Representative Director of HMM
President and since October 1990.
Representative Director
Young Woo Yoon............... Mr. Yoon has been Executive Vice President of HMM's Bulk
Executive Vice President Carrier Business Division since October 1990.
Ik Sang Moon................. Mr. Moon has been Executive Vice President of HMM's Container
Executive Vice President Business Division since October 1990.
Dong Kook Chang.............. Mr. Chang has been Senior Vice President of HMM's Managerial
Senior Vice President Administration Division since October 1990.
</TABLE>
6. Directors and Executive Officers of Hyundai Acquisition, Inc. The
following table sets forth the names, present principal occupations or
employment and material occupations, positions, offices or employment, during
the last five years of each director and executive officer of Purchaser. Unless
otherwise indicated, all occupations, offices or positions of employment listed
opposite an individual's name are or were with Purchaser. Except as otherwise
indicated, each of the persons listed below is a citizen of the Republic of
Korea. The business address of each individual is 510 Cottonwood Drive,
Milpitas, California 95035.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
- ----------------------------- --------------------------------------------------------------
<S> <C>
Young Hwan Kim............... Mr. Kim has been a member of the Board of Directors of
President, Chief Executive Purchaser since 1995. He has been the Chief Executive Officer,
Officer, Secretary and President and Secretary of Purchaser since November 1995. Mr.
Director Kim has also served as Chief Executive Officer, President and
Director of Parent since October 1990.
</TABLE>
<PAGE> 60
SCHEDULE II
INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS
OF THE COMPANY
Directors and Executive Officers of Maxtor Corporation. The following
table sets forth the names, present principal occupations or employment and
material occupations, positions, offices or employment, during the last five
years of each director and executive officer of the Company. Unless otherwise
indicated, all occupations, offices or positions of employment listed opposite
an individual's name are or were with the Company. Except as otherwise
indicated, each of the persons listed below is a citizen of the United States of
America. The business address of each individual is 211 River Oaks Parkway, San
Jose, CA 95134.
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
- ------------------------------ -------------------------------------------------------------
<S> <C>
Mong Hun Chung................ Mr. Chung has been a member of the Board of Directors of the
Chairman of the Board Company since February 1994. Mr. Chung has also been Chairman
of the Board of Directors of Hyundai Electronics Industries
Co., Ltd. in Korea since January 1992. He was President and
Representative Director of Hyundai Electronics Industries
Co., Ltd. in Korea from February 1984 to December 1991.
Currently, Mr. Chung is also Vice Chairman of Hyundai
Merchant Marine Co., Ltd. and holds directorship positions on
the boards of other Parent affiliated companies. Mr. Chung is
a citizen of the Republic of Korea.
Charles F. Christ............. Mr. Christ has been a member of the Board of Directors of the
Director Company since August 1995. Mr. Christ is the Vice President
and General Manager of the Components Division of Digital
Equipment Corporation. Prior to joining Digital Equipment
Corporation, Mr. Christ was a senior partner with the
management consulting group of Coopers & Lybrand LLP in New
York City, where he specialized in restructuring programs,
turnarounds, and strategic planning. Previously, he was
President and Chief Executive Officer of Digital Sound
Corporation, a telecommunications voice-processing company in
Santa Barbara, California.
Gregory M. Gallo.............. Mr. Gallo has been a member of the Board of Directors of the
Director Company since December 1987. Mr. Gallo is an attorney and
member of Gray Cary Ware & Freidenrich, a Professional
Corporation, a Palo Alto, California law firm, which was the
successor by merger in January 1994 to Ware & Freidenrich,
and which serves as outside counsel to the Company. Mr. Gallo
has been a member of Gray Cary Ware & Freidenrich or its
predecessor firm since 1977. He is also currently a director
of Network General Corporation, a network diagnostics com-
pany, and General Magic, Inc., a software company.
Charles Hill.................. Mr. Hill has been a member of the Board of Directors of the
Director Company since March 1992. Mr. Hill has been a Senior Research
Fellow at the Hoover Institution since 1989. From 1982 to
1989, he served as Chief of Staff of the U.S. State
Department and Executive Assistant to former U.S. Secretary
of State George P. Shultz. Mr. Hill at present is
Diplomat-in-Residence at Yale University and Special
Consultant to the Secretary General of the United Nations.
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
- ------------------------------ -------------------------------------------------------------
<S> <C>
In Baik Jeon.................. Mr. Jeon has been a member of the Board of Directors of the
Director Company since February 1994. Mr. Jeon has been President and
Chief Executive Officer and a director of Axil Computer,
Inc., a workstation computer manufacturer, in Santa Clara,
California, since February 1995. Previously, he was Vice
President of Strategic Development of the Company from
February 1994 until February 1995. Prior to 1994, Mr. Jeon
held various management positions with Hyundai Business Group
companies, including Vice President, Corporate Planning of
Hyundai Electronics Industries Co., Ltd., from 1991 to 1994,
and Senior Vice President of Hyundai Electronics America from
1988 to 1991. Mr. Jeon is a citizen of the Republic of Korea.
Dr. Chong Sup Park............ Dr. Park has been a member of the Board of Directors of the
President, Chief Executive Company since February 1994. Dr. Park was appointed President
Officer and Director and Chief Executive Officer of the Company in February 1995.
From July 1993 to February 1995, Dr. Park was President and
Chief Executive Officer of Axil Computer, Inc. He has been
Chairman of Axil Computer, Inc. since July 1993. Previously,
he taught at the graduate schools of business and
international studies, Yonsei University, Seoul, Korea, in
addition to having undertaken research projects for Ernst &
Young Consulting Company, Seoul, Korea, from April 1992
through June 1993. Dr. Park also held various management
positions with Hyundai Electronics Industries Co., Ltd.,
including from 1990 to February 1992, Senior Vice President,
Semiconductor Sales and Marketing. From 1985 to 1989, Dr.
Park was President and Chief Executive Officer of Hyundai
Electronics America, Inc., of San Jose, California. Dr. Park
is a citizen of the Republic of Korea.
Dr. Richard D. Balanson....... Dr. Balanson has been a member of the Board of Directors of
Executive Vice President, the Company since October 1994. Dr. Balanson was appointed
Chief Technical Officer Executive Vice President and Chief Technical Officer of the
and Director Company in October 1994. He joined the Company in August 1994
as Vice President and Chief Technical Officer. Prior to
joining the Company, Dr. Balanson was President and Chief
Operating Officer of Applied Magnetics Corporation from 1992
to 1994. From 1975 until 1992, he served in several manage-
rial positions with International Business Machines.
Rick Brantmeyer............... Mr. Brantmeyer joined the Company as Senior Vice President,
Senior Vice President, Sales and Marketing in August 1995. Prior to joining the
Sales and Marketing Company, he served in senior management positions at Western
Digital Corporation, including Vice President of Marketing
and Vice President, Key Account Sales. Prior to joining
Western Digital Corporation, he served in senior management
positions at MiniScribe Corp., including Vice President, Key
Account Sales, Group Vice President of Products and Vice
President of North American Sales.
Katherine Curtin Young........ Ms. Young joined the Company as Senior Vice President of
Senior Vice President, Worldwide Materials in August 1994 and was promoted to Senior
Worldwide Operations Vice President, Worldwide Operations in January 1995. From
February 1993 to July 1994, Ms. Young was President of
Worldwide Supplier Management of AST Research Inc., a
supplier of desktop, file server and notebook computers. From
September 1988 to January 1993, Ms. Young served as Vice
President, Corporate Materials at Conner Peripherals, a disk
drive manufacturer.
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION OR EMPLOYMENT
- ------------------------------ -------------------------------------------------------------
<S> <C>
Nathan Kawaye................. Mr. Kawaye joined the Company as Vice President, Finance and
Vice President, Finance Financial Planning & Analysis in November 1991. In October
Corporate Controller and 1994, Mr. Kawaye was appointed Vice President, Finance and
Chief Corporate Controller. In April 1995, Mr. Kawaye was named
Accounting Officer Vice President, Finance, Corporate Controller and Chief
Accounting Officer. Prior to joining the Company, he served
as Vice President, Finance and Administration and Chief
Financial Officer of Sigma Circuits Incorporated, a printed
circuit board manufacturer, from May 1989 to November 1991.
Glenn H. Stevens.............. Mr. Stevens joined the Company as Vice President, General
Vice President, General Counsel and Secretary in June 1994. From August 1992 to May
Counsel and Secretary 1994, Mr. Stevens had a private law practice. From 1979 to
August 1992, he held various legal positions at U S West,
Inc., a telecommunications products and services provider,
including Chief Counsel and Secretary for its research and
development organization and Chief Intellectual Property
Counsel for the family of U S West companies.
</TABLE>
<PAGE> 63
EXHIBIT I
LOGO BEAR, STEARNS & CO. INC.
CITICORP CENTER
ONE SANSOME STREET
SAN FRANCISCO, CALIFORNIA 94104
(415) 772-2900
ATLANTA - BOSTON
CHICAGO - DALLAS - LOS ANGELES
NEW YORK - SAN FRANCISCO
FRANKFURT - GENEVA - HONG KONG
LONDON - PARIS - TOKYO
November 1, 1995
Special Committee of the Board of Directors
Maxtor Corporation
211 River Oaks Parkway
San Jose, CA 95134
Attention: Mr. Charles Hill
Chairmain of the Special Committee
Dear Sirs:
We understand that Maxtor Corporation ("Maxtor") has received an offer from
Hyundai Electronics America ("HEA") to acquire all of the outstanding shares of
the Common Stock of Maxtor (the "Shares") which Hyundai Electronics Industries
Co., Ltd., together with its affilitates, does not already own. You have
provided us with the Agreement and Plan of Merger in substantially final form
(the "Merger Agreement") among Maxtor, HEA and a wholly-owned subsidiary of HEA
("Subsidiary"). As more fully described in the Merger Agreement, Subsidiary (i)
would promptly commence a tender offer to purchase all Shares for $6.70 per
share in cash and (ii) as promptly thereafter as practicable would merge with
Maxtor, and each outstanding Share not previously tendered would be converted
into the right to receive $6.70 in cash (collectively, the "Transaction").
You have asked us to render our opinion as to whether the Transaction is fair,
from a financial point of view, to the shareholders of Maxtor (other than the
holders of Class A Common Stock of Maxtor).
In the course of our analyses for rendering this opinion, we have:
1. reviewed the Merger Agreement;
2. reviewed Maxtor's Annual Reports to Shareholders and Annual
Reports on Form 10-K for the fiscal years ended March 31, 1993
through 1995, and its Quarterly Report on Form 10-Q for the
period ended July 1, 1995;
3. reviewed certain operating and financial information,
including projections, provided to us by management relating
to Maxtor's business and prospects;
<PAGE> 64
4. met with certain members of Maxtor's senior management to
discuss its operations, historical financial statements and
future prospects;
5. visited Maxtor's facilities in San Jose, California;
6. reviewed the historical prices and trading volume of the
common shares of Maxtor;
7. reviewed publicly available financial data and stock market
performance data of companies which we deemed generally
comparable to Maxtor;
8. reviewed the terms of recent acquisitions of companies which
we deemed generally comparable to Maxtor; and
9. conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us by Maxtor.
With respect to Maxtor's projected financial results, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the management of Maxtor as to its expected future
performance. We have not assumed any responsibility for the information or
projections provided to us, and we have further relied upon the assurances of
the management of Maxtor that it is unaware of any facts that would make the
information or projections provided to us incomplete or misleading. In arriving
at our opinion, we have not performed or obtained any independent appraisal of
the assets of Maxtor. Our opinion is necessarily based on economic, market and
other conditions, and the information made available to us, as of the date
hereof.
Based on the foregoing, it is our opinion that the Transaction is fair, from a
financial point of view, to the shareholders of Maxtor (other than the holders
of Class A Common Stock of Maxtor).
We have acted as financial advisor to the Special Committee of Maxtor's Board of
Directors in connection with the Transaction and will receive a fee for such
services, payment of a significant portion of which is contingent upon the
consummation of the Transaction.
Very truly yours,
BEAR, STEARNS & CO. INC.
LOGO
By: /s/ G. Matthews
------------------------------------
Managing Director
<PAGE> 65
EXHIBIT II
FINANCIAL RESULTS FOR THE FIRST QUARTER OF FISCAL YEAR 1996
ENDED JULY 1, 1995
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
JULY 1, JUNE 25,
1995 1994
-------- --------
<S> <C> <C>
Revenue................................................................ $315,894 $218,310
Cost of revenue........................................................ 286,033 194,286
-------- --------
Gross margin........................................................... 29,861 24,024
-------- --------
Operating expenses:
Research and development............................................. 22,791 14,036
Selling, general and administrative.................................. 18,976 21,045
-------- --------
Total operating expenses............................................... 41,767 35,081
-------- --------
Loss from operations................................................... (11,906) (11,057)
Interest expense....................................................... (1,820) (1,971)
Interest income........................................................ 552 1,439
-------- --------
Loss before income taxes............................................... (13,174) (11,589)
Provision for income taxes............................................. 653 600
-------- --------
Net loss............................................................... $(13,827) $(12,189)
======== ========
Net loss per share..................................................... $ (0.27) $ (0.24)
======== ========
Shares used in computing net loss per share............................ 52,085 49,925
======== ========
</TABLE>
See accompanying notes.
<PAGE> 66
MAXTOR CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 1, MARCH 25,
1995 1995
----------- ------------
<S> <C> <C>
(UNAUDITED) (AUDITED)
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 82,227 $ 96,518
Short-term investments............................................ -- 11,998
Accounts receivable, net of allowance for doubtful accounts of
$3,168 at July 1, 1995 and $3,850 at March 25, 1995............ 103,084 111,530
Inventories:
Raw materials.................................................. 51,166 40,528
Work-in-process................................................ 30,623 28,398
Finished goods................................................. 35,113 20,754
------ ------
116,902 89,680
Prepaid expenses and other........................................ 11,837 8,695
------ ------
Total current assets...................................... 314,050 318,421
Property, plant and equipment, at cost:
Buildings......................................................... 22,593 22,575
Machinery and equipment........................................... 165,804 146,020
Furniture and fixtures............................................ 12,381 12,177
Leasehold improvements............................................ 9,298 9,262
------ ------
210,076 190,034
Less accumulated depreciation and amortization.................... (140,002) (133,890)
------ ------
Net property, plant and equipment.............................. 70,074 56,144
Other assets........................................................ 7,173 7,282
------ ------
$ 391,297 $ 381,847
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings............................................. $ 30,000 $ 30,000
Accounts payable.................................................. 157,084 136,746
Income taxes payable.............................................. 7,003 6,807
Accrued payroll and payroll-related expenses...................... 13,755 14,802
Accrued warranty.................................................. 22,495 25,058
Accrued special and restructuring................................. 434 635
Accrued expenses.................................................. 22,814 18,972
Long-term debt and capital lease obligations due within one
year........................................................... 2,853 2,957
------ ------
Total current liabilities................................. 256,438 235,977
Long-term debt and capital lease obligations due after one year..... 101,354 101,967
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; no
shares issued or outstanding................................... -- --
Class A common stock, $0.01 par value, 19,480,000 shares
authorized, issued and outstanding............................. 195 195
Common stock, $0.01 par value, 180,520,000 shares authorized;
issued and outstanding:
July 1, 1995 -- 33,062,304 shares; March 25, 1995 -- 32,217,287
shares........................................................ 331 322
Additional paid-in capital........................................ 330,777 327,357
Accumulated deficit............................................... (297,798) (283,971)
------ ------
Total stockholders' equity..................................... 33,505 43,903
------ ------
$ 391,297 $ 381,847
====== ======
</TABLE>
See accompanying notes.
<PAGE> 67
MAXTOR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
JULY 1, JUNE 25,
1995 1994
-------- --------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net loss............................................................. $(13,827) $(12,189)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization..................................... 9,089 10,734
Loss on disposal of property, plant and equipment................. 28 17
Change in assets and liabilities:
Accounts receivable............................................. 8,446 11,805
Inventories..................................................... (27,222) (1,466)
Prepaid expenses and other...................................... (3,142) 1,026
Accounts payable................................................ 20,338 (24,494)
Income taxes payable............................................ 196 92
Accrued payroll and payroll-related expenses.................... (1,047) 730
Accrued warranty................................................ (2,563) (1,055)
Accrued special and restructuring............................... (201) 182
Accrued expenses................................................ 3,842 (11,046)
-------- --------
Total adjustments............................................ 7,764 (13,475)
-------- --------
Net cash used in operating activities........................ (6,063) (25,664)
-------- --------
Cash flows from investing activities:
Purchase of available-for-sale investments........................... -- (25,094)
Proceeds from maturity of available-for-sale investments............. 11,998 7,429
Purchase of property, plant and equipment............................ (24,049) (5,445)
Proceeds from disposal of property, plant and equipment.............. 79 128
Other................................................................ 1,153 (818)
-------- --------
Net cash used in investing activities........................ (10,819) (23,800)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of debt....................................... -- 59
Principal payments on debt, including capital lease obligations...... (838) (1,328)
Proceeds from issuance of common stock, net of notes receivable,
stock repurchases and tax benefits................................ 3,429 131
-------- --------
Net cash provided by (used in) financing activities.......... 2,591 (1,138)
-------- --------
Net change in cash and cash equivalents................................ (14,291) (50,602)
Cash and cash equivalents at beginning of period....................... 96,518 144,520
-------- --------
Cash and cash equivalents at end of period............................. $ 82,227 $ 93,918
======== ========
Supplemental disclosures of cash flow information:
Cash paid (received) for:
Interest............................................................. $ 196 $ 279
Income taxes......................................................... 470 248
Income tax refunds................................................... -- (11)
Supplemental information on noncash investing and financing activities:
Capital lease obligations.............................................. $ 121 $ 22
</TABLE>
See accompanying notes.
<PAGE> 68
MAXTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The consolidated financial
statements include the accounts of Maxtor Corporation (Maxtor or the Company)
and its wholly-owned subsidiaries. In connection with the sale of the assets of
Storage Dimensions, Inc. (SDI), formerly a wholly-owned subsidiary of the
Company, Maxtor acquired a 32.8% interest in the company formed for the purpose
of purchasing the net assets of SDI. Maxtor accounts for its investment under
the equity method. All significant intercompany transactions have been
eliminated in consolidation. All adjustments of a normal recurring nature which,
in the opinion of management, are necessary for a fair statement of the results
for the interim periods have been made. It is recommended that the interim
financial statements be read in conjunction with the Company's consolidated
financial statements and notes thereto for the fiscal year ended March 25, 1995.
Interim results are not necessarily indicative of the operating results expected
for later quarters or the full fiscal year.
The Company maintains a 52/53-week fiscal year cycle. Fiscal year 1996 will
be comprised of 53 weeks. The first quarter of fiscal year 1996 was comprised of
14 weeks; remaining quarters will be comprised of 13 weeks. Fiscal year 1995 was
comprised of 52 weeks; all quarters were comprised of 13 weeks.
2. SHORT-TERM BORROWINGS
In September 1993, the Company obtained a secured, asset-based revolving
line of credit. The original committed line of credit provided for borrowings up
to $76.0 million over a two-year term and is secured by receivables, certain
inventories and other assets. This revolving line of credit includes sublines
for letters of credit and bears interest at various rates. Borrowings under this
line of credit are limited to a percentage of eligible receivables. The
agreement includes covenants to maintain certain financial ratios and precludes
the Company from paying cash dividends. On June 17, 1994, the Company received
an amendment to its line of credit for the minimum operating profit which is
measured at the end of each quarter. With such amendment, the Company was in
compliance with all financial covenants during the quarter ended June 25, 1994.
On October 11, 1994, the Company received an unconditional waiver of defaults of
minimum operating profit, minimum net worth and leverage ratio covenants
defaults that occurred as of the fiscal quarter ended September 24, 1994. On
October 31, 1994, the Company received another amendment to its line of credit
with respect to each of the financial covenants that are measured at the end of
each fiscal quarter and fiscal year end. The amendment extended the commitment
on the revolving line of credit for an additional year, thereby providing for
borrowings over a two-year term, ending September 1996. The Company also elected
to reduce its line of credit from $76.0 million to $50.0 million. On August 2,
1995, the Company received an unconditional waiver of defaults of minimum
operating profit and capital expenditures covenants that occurred as of the
fiscal quarter ended July 1, 1995. This waiver enables the Company to borrow, if
necessary, through the fiscal quarter ending September 30, 1995. As of July 1,
1995, $30.0 million of borrowings and $1.3 million of letters of credit were
outstanding. The $30.0 million of borrowings was fully repaid the first week
after fiscal quarter end. The balance available for additional borrowings under
this line of credit at July 1, 1995 was approximately $15.5 million using the
July 1, 1995 borrowing base.
On July 20, 1995, the Company and Hyundai Electronics Industries Co., Ltd.
(HEI) entered into a memorandum of understanding under which HEI will provide a
$100 million corporate guarantee, subject to negotiation and execution of a
definitive agreement. The Company intends to obtain a $100 million credit
facility supported by the HEI guarantee during the second quarter of fiscal year
1996.
<PAGE> 69
MAXTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
3. NET LOSS PER SHARE
Net loss per share is based upon the weighted average number of shares of
all classes of common stock outstanding during the quarters ended July 1, 1995
and June 25, 1994.
4. CONTINGENCIES
As part of the acquisition of the MiniScribe business in June 1990, the
Company was assigned a patent license agreement between MiniScribe and Rodime
plc (Rodime) covering patents related to 3.5-inch disk drives. The Company
believes that the assignment was valid; however, Rodime has taken the position
that the assignment was invalid and would not in any event cover 3.5-inch drives
manufactured and sold by the Company before the acquisition of MiniScribe's
assets. In February 1993, Maxtor commenced an action for declaratory relief in
the U.S. Bankruptcy Court in Denver, Colorado seeking a judgment that the
assignment was valid. Rodime filed a denial and counterclaim for patent
infringement. In April 1994, the relevant claims of the Rodime patent at issue
in Rodime's counterclaims were declared invalid in litigation between Rodime and
another disk drive manufacturer. The Company's litigation with Rodime has been
stayed pending Rodime's appeal of the finding of invalidity.
Certain other claims, including other patent infringement claims, against
the Company have arisen in the course of its business. There is presently no
litigation involving such claims, and the Company believes the outcome of these
claims and the claim concerning Rodime described above will not have a material
adverse effect, if any, on the Company's financial position or results of
operations.
<PAGE> 70
FINANCIAL RESULTS FOR FISCAL YEAR 1995
ENDED MARCH 25, 1995
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 25, MARCH 26,
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 96,518 $ 144,520
Short-term investments................................................. 11,998 74,911
Accounts receivable, net of allowance for doubtful accounts of $3,850
at March 25, 1995 and $3,653 at March 26, 1994...................... 111,530 99,806
Inventories:
Raw materials....................................................... 40,528 51,419
Work-in-process..................................................... 28,398 19,196
Finished goods...................................................... 20,754 25,408
-------- --------
89,680 96,023
Prepaid expenses and other............................................. 8,695 7,936
-------- --------
Total current assets.............................................. 318,421 423,196
Property, plant and equipment, at cost:
Buildings.............................................................. 22,575 21,387
Machinery and equipment................................................ 146,020 195,820
Furniture and fixtures................................................. 12,177 18,195
Leasehold improvements................................................. 9,262 17,506
-------- --------
190,034 252,908
Less accumulated depreciation and amortization......................... (133,890) (191,750)
-------- --------
Net property, plant and equipment................................... 56,144 61,158
Other assets............................................................. 7,282 8,021
-------- --------
$ 381,847 $ 492,375
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.................................................. $ 30,000 $ 30,000
Accounts payable....................................................... 136,746 137,566
Income taxes payable................................................... 6,807 7,530
Accrued payroll and payroll-related expenses........................... 14,802 11,720
Accrued warranty....................................................... 25,058 27,281
Accrued special and restructuring...................................... 635 21,777
Accrued expenses....................................................... 18,972 25,700
Long-term debt and capital lease obligations due within one year....... 2,957 4,155
-------- --------
Total current liabilities......................................... 235,977 265,729
Long-term debt and capital lease obligations due after one year.......... 101,967 107,393
Deferred tax liabilities................................................. -- 66
Commitments and contingencies Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; no
shares issued or outstanding........................................ -- --
Class A common stock, $0.01 par value, 19,480,000 shares authorized,
issued and outstanding.............................................. 195 195
Common stock, $0.01 par value, 180,520,000 shares authorized; issued
and outstanding: March 25, 1995 -- 32,217,287 shares; March 26,
1994 -- 30,425,242 shares........................................... 322 304
Additional paid-in capital............................................. 327,357 320,564
Accumulated deficit.................................................... (283,971) (201,749)
-------- --------
43,903 119,314
Less notes receivable from stockholders................................ -- (127)
-------- --------
Total stockholders' equity........................................ 43,903 119,187
-------- --------
$ 381,847 $ 492,375
======== ========
</TABLE>
See accompanying notes.
<PAGE> 71
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
MARCH 25, MARCH 26, MARCH 27,
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Revenue................................................. $ 906,799 $1,152,615 $1,442,546
Cost of revenue......................................... 850,669 1,205,014 1,177,460
-------- ---------- ----------
Gross margin............................................ 56,130 (52,399) 265,086
-------- ---------- ----------
Operating expenses:
Research and development.............................. 60,769 97,168 112,621
Selling, general and administrative................... 81,600 78,854 98,497
Restructuring and other............................... (10,213) 19,500 --
-------- ---------- ----------
Total operating expenses...................... 132,156 195,522 211,118
-------- ---------- ----------
Income (loss) from operations........................... (76,026) (247,921) 53,968
Interest expense........................................ (8,379) (10,087) (10,140)
Interest income......................................... 4,216 2,283 2,557
Minority interest in loss of joint venture.............. -- -- 1,014
-------- ---------- ----------
Income (loss) before income taxes....................... (80,189) (255,725) 47,399
Provision for income taxes.............................. 2,033 1,864 1,287
-------- ---------- ----------
Net income (loss)....................................... $ (82,222) $ (257,589) $ 46,112
======== ========== ==========
Net income (loss) per share............................. $ (1.63) $ (8.00) $ 1.46
======== ========== ==========
Shares used in computing net income (loss)
per share................................... 50,583 32,203 31,534
======== ========== ==========
</TABLE>
See accompanying notes.
<PAGE> 72
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
RETAINED NOTES
COMMON STOCK ADDITIONAL EARNINGS RECEIVABLE TOTAL
------------------- PAID-IN (ACCUMULATED FROM STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT) STOCKHOLDERS EQUITY
---------- ------ ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 28, 1992........ 24,012,231 $240 $ 146,246 $ 9,728 $ (429) $ 155,785
Issuance of common stock under
stock option plans and
related tax benefit.......... 2,075,738 21 12,767 -- (167) 12,621
Payments on and forgiveness of
notes receivable from
stockholders................. -- -- -- -- 379 379
Issuance of common stock under
stock purchase plan.......... 721,308 7 3,249 -- -- 3,256
Adjustment to common stock held
by Standard Chartered Bank... -- -- 1,505 -- -- 1,505
Issuance of common stock from
exercise of stock rights..... 2,000,000 20 (20) -- -- --
Net income..................... -- -- -- 46,112 -- 46,112
--------- ---- -------- --------- ----- ---------
Balance, March 27, 1993........ 28,809,277 288 163,747 55,840 (217) 219,658
Issuance of common stock under
stock option plans........... 792,920 8 3,362 -- -- 3,370
Payments on and forgiveness of
notes receivable from
stockholders................. -- -- -- -- 90 90
Issuance of common stock under
stock purchase plan.......... 823,045 8 4,307 -- -- 4,315
Issuance of Class A common
stock, net of issuance
costs........................ 19,480,000 195 149,148 -- -- 149,343
Net loss....................... -- -- -- (257,589) -- (257,589)
--------- ---- -------- --------- ----- ---------
Balance, March 26, 1994........ 49,905,242 499 320,564 (201,749) (127) 119,187
Issuance of common stock under
stock option plans........... 1,112,825 11 4,133 -- -- 4,144
Payments on and forgiveness of
notes receivable from
stockholders................. -- -- -- -- 127 127
Issuance of common stock under
stock purchase plan.......... 679,220 7 2,660 -- -- 2,667
Net loss....................... -- -- -- (82,222) -- (82,222)
--------- ---- -------- --------- ----- ---------
Balance, March 25, 1995........ 51,697,287 $517 $ 327,357 $ (283,971) $ -- $ 43,903
========= ==== ======== ========= ===== =========
</TABLE>
See accompanying notes.
<PAGE> 73
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
MARCH 25, MARCH 26, MARCH 27,
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income (loss)....................................... $ (82,222) $(257,589) $ 46,112
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 34,865 85,865 62,028
Forgiveness of notes receivable from stockholders.... 41 61 74
Change in non-current deferred tax liabilities....... (66) (934) 1,000
Gain on sale of interest in joint venture............ (10,005) -- --
Loss on disposal of property, plant and equipment.... 2,233 2,135 2,301
Minority interest in loss of joint venture........... -- -- (1,023)
Other, net........................................... -- -- (796)
Changes in assets and liabilities:
Accounts receivable................................ (18,563) 49,591 (17,248)
Inventories........................................ (150) 59,320 (45,740)
Prepaid expenses and other......................... (925) 2,739 (6,256)
Accounts payable................................... 14,813 7,374 20,020
Income taxes payable............................... (723) 2,866 (3,894)
Accrued payroll and payroll-related expenses....... 3,573 (4,796) (1,066)
Accrued warranty................................... (1,637) 11,192 1,657
Accrued special and restructuring.................. (21,142) 21,777 --
Accrued expenses................................... (283) 3,947 12,706
-------- --------- --------
Total adjustments............................... 2,031 241,137 23,763
-------- --------- --------
Net cash provided by (used in) operating
activities.................................... (80,191) (16,452) 69,875
-------- --------- --------
Cash flows from investing activities:
Proceeds from sale of interest in joint venture, net.... (1,463) -- --
Proceeds from sale of subsidiary, net of costs.......... -- -- 15,842
Purchase of short-term investments...................... -- (74,911) --
Purchase of available-for-sale investments.............. (30,091) -- --
Proceeds from maturity of available-for-sale
investments.......................................... 93,004 -- --
Purchase of property, plant and equipment, net.......... (32,612) (29,746) (91,700)
Proceeds from disposal of property, plant and
equipment............................................ 1,077 1,013 1,930
Other assets............................................ (417) (72) (1,686)
-------- --------- --------
Net cash provided by (used in) investing
activities.................................... 29,498 (103,716) (75,614)
-------- --------- --------
Cash flows from financing activities:
Proceeds from issuance of debt, including short-term
borrowings........................................... 238 2,870 79,798
Principal payments on debt, including capital lease
obligations.......................................... (4,444) (30,563) (30,092)
Proceeds from issuance of Class A common stock.......... -- 149,343 --
Proceeds from issuance of common stock, net of issuance
of notes receivable and stock repurchase............. 6,810 7,685 15,193
Payments on notes receivable from stockholders.......... 87 29 305
-------- --------- --------
Net cash provided by financing activities....... 2,691 129,364 65,204
-------- --------- --------
Net change in cash and cash equivalents................... (48,002) 9,196 59,465
Cash and cash equivalents at beginning of period.......... 144,520 135,324 75,859
-------- --------- --------
Cash and cash equivalents at end of period................ $ 96,518 $ 144,520 $ 135,324
======== ========= ========
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest................................................ $ 6,657 $ 9,985 $ 9,250
Income taxes............................................ 2,822 1,337 4,661
Income tax refunds...................................... (65) (1,824) (292)
Supplemental information on noncash investing and
financing activities:
Capital lease obligations................................. $ 245 $ 122 $ 520
</TABLE>
See accompanying notes.
<PAGE> 74
MAXTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Maxtor
Corporation (Maxtor or the Company) and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments, which are purchased
with a maturity of three months or less, to be cash equivalents. Other
short-term investments consists of floating rate notes, certificates of deposit
and commercial paper. The Company generally purchases investments with a
maturity from three to twelve months.
INVENTORIES
Inventories are stated at the lower of cost (computed on a first-in,
first-out basis) or market.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are provided on the straight-line basis over
the estimated useful lives of the assets, which are generally from three to five
years, except for buildings which are depreciated over thirty years. Assets
under capital leases and leasehold improvements are amortized over the shorter
of the asset life or the remaining lease term. Capital lease amortization is
included with depreciation expense.
REVENUE RECOGNITION AND PRODUCT WARRANTY
Revenue is recognized upon product shipment. Revenue from sales to certain
distributors is subject to agreements providing limited rights of return, as
well as price protection on unsold merchandise. Accordingly, the Company records
reserves upon shipment for estimated returns, exchanges and credits for price
protection. The Company also provides for the estimated cost to repair or
replace products under warranty at the time of sale.
ACCOUNTING FOR INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109). The Company adopted the provisions of SFAS No. 109 in its financial
statements for fiscal year 1994. The adoption of SFAS No. 109 did not have a
material effect on the Company's consolidated financial position or results of
operations. Prior years were accounted for under Statement of Financial
Accounting Standards No. 96, "Accounting for Income Taxes," and have not been
restated.
NET INCOME (LOSS) PER SHARE
Net loss per share is based upon the weighted average number of shares of
common and Class A common stock outstanding during each of fiscal years 1995 and
1994. For fiscal year 1993, net income per share is based upon the weighted
average number of shares of common stock and common stock equivalents
outstanding during the fiscal year. Common stock equivalents include shares
issuable upon the assumed exercise of stock options reflected under the treasury
stock method. The convertible subordinated debentures are excluded from the
calculation of primary and fully diluted earnings per share as they had an
anti-dilutive impact on net income per share in fiscal year 1993.
<PAGE> 75
MAXTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
FOREIGN CURRENCY TRANSLATION AND FOREIGN CURRENCY FINANCIAL INSTRUMENTS
The functional currency for all foreign operations is the U.S. dollar. As
such, all material foreign exchange gains or losses are included in the
determination of net income (loss). Approximately $1,014,000, $865,000 and
$659,000 of net foreign exchange losses were included in net income (loss) in
fiscal years 1995, 1994 and 1993, respectively. To reduce the impact of foreign
currency fluctuations on the Company's monetary asset and liability positions,
the Company enters into foreign currency forward exchange contracts. Gains and
losses are deferred and offset by gains and losses on the underlying hedged
exposures. See Note 2 for further disclosure regarding the Company's derivative
financial instruments.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of accounts receivable, cash
equivalents and short-term investments. The Company's products are sold
worldwide to original equipment manufacturers (OEMs), distributors, and other
emerging sales channels such as computer specialty retailers and computer
superstores. Concentration of credit risk with respect to the Company's trade
receivables is limited by the Company's ongoing credit evaluation process and
the geographical dispersion of sales transactions, therefore the Company
generally requires no collateral from its customers. The allowance for
uncollectible accounts receivable is based upon the expected collectibility of
all accounts receivable. The Company has cash equivalent and short-term
investment policies that limit the amount of credit exposure to any one
financial institution and restrict placement of these investments to financial
institutions evaluated as highly credit-worthy.
FISCAL YEAR
The Company maintains a 52/53-week fiscal year cycle. Fiscal years 1995,
1994 and 1993 were each comprised of 52 weeks. Fiscal year 1996 will be
comprised of 53 weeks. The Company's fiscal year ends on the last Saturday of
March.
2. FINANCIAL INSTRUMENTS
INVESTMENTS
Effective at the beginning of fiscal year 1995, the Company adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS No. 115). SFAS No. 115 requires
the Company to determine the appropriate classification of its investments in
debt and equity securities at the time of purchase and to re-evaluate such
classification as of each balance sheet date. At March 27, 1994 and March 25,
1995, all investments in debt securities are classified as available-for-sale,
and as such are carried at fair value. The Company has no investments in equity
securities at March 25, 1995. Realized gains and losses and declines in value
judged to be other than temporary are included in interest income. The cost of
debt securities sold is based on the specific identification method. As of March
25, 1995, unrealized gains and losses on available-for-sale investments were not
material. Realized gains and losses on available-for-sale investments were not
material for the fiscal year ended March 25, 1995. Due to insignificant
differences between the cost and fair value of the Company's investments, the
adoption of SFAS No. 115 had no material effect on the Company's financial
statements at March 27, 1994. In accordance with SFAS No. 115, prior period
financial statements have not been restated.
<PAGE> 76
MAXTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The following is a summary of the Company's investments by major security
type at fair value as of March 25, 1995:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Money market instruments.......................... $78,194 $ -- $ -- $78,194
Floating rate notes............................... 11,998 -- -- 11,998
------- ------- ------- -------
$90,192 $ -- $ -- $90,192
======= ======= ======= =======
Included in cash and cash equivalents............. $78,194 $ -- $ -- $78,194
Included in short-term investments................ 11,998 -- -- 11,998
------- ------- ------- -------
$90,192 $ -- $ -- $90,192
======= ======= ======= =======
</TABLE>
FAIR VALUE DISCLOSURES
The fair values of cash and cash equivalents, and short-term investments
approximate cost due to the short period of time to maturity or due to floating
rate resets on investments. The carrying values of the note receivable and the
investment in affiliate, both of which are classified in other assets,
approximate their fair values. The fair value of the Company's fixed rate debt
is estimated based on the current rates offered to the Company for similar debt
instruments of the same remaining maturities. The fair value of the Company's
variable rate debt approximates its carrying value as these instruments are
repriced frequently at market rates. The fair value of the Company's convertible
subordinated debentures is based on quoted market prices. The fair value of
foreign currency forward exchange contracts used for hedging purposes is
estimated based on quoted market prices.
The carrying values and fair values of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
MARCH 25, 1995 MARCH 26, 1994
---------------------- ----------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents....................... $ 96,518 $96,518 $144,520 $ 144,520
Short-term investments.......................... 11,998 11,998 74,911 74,911
Note receivable................................. 4,000 4,000 4,000 4,000
Investment in affiliate......................... 1,010 1,010 1,095 1,095
Short and long-term debt
-- fixed rate................................. 4,445 4,359 7,405 7,350
-- variable rate.............................. 30,000 30,000 33,368 33,368
Convertible subordinated debentures............. 100,000 55,000 100,000 66,000
Foreign currency forward exchange contracts..... -- 37 -- 2
</TABLE>
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into currency forward contracts to manage foreign
currency exchange risk associated with the Company's manufacturing operations in
Singapore. The Company's policy is to hedge all material transaction and
translation exposures on a quarterly basis. Contracts are generally entered into
at the end of each fiscal quarter to reduce foreign currency exposures for the
following fiscal quarter. Contracts generally have maturities of three months or
less. Any gains or losses on these instruments are accounted for in accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation", and
<PAGE> 77
MAXTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
are generally included in Cost of Revenue. Deferred gains or losses attributable
to these instruments were not material as of March 25, 1995. Notional amounts of
outstanding currency forward contracts were $33,769,000 and $18,026,000, for
fiscal years ended 1995 and 1994, respectively.
3. JOINT VENTURE AND INVESTMENT IN AFFILIATE
JOINT VENTURE
In March 1989, the Company and Kubota Corporation (Kubota) organized a
jointly-owned corporation, Maxoptix Corporation (Maxoptix). On December 26,
1994, the Company entered into an agreement for the sale of the Company's
interest in Maxoptix to Kubota Electronics America Corporation, a Delaware
company, whose ultimate parent is Kubota. Prior to the sale, Maxtor and Kubota
owned 67% and 33% interests in Maxoptix, respectively. The transaction was
completed on February 18, 1995. As consideration for the sale, the Company
received $1.5 million in cash and was relieved of certain liabilities. The
Company recorded a gain of approximately $10.0 million on the sale. The results
of operations of Maxoptix for fiscal years 1995, 1994 and 1993 have been
immaterial to the Company's statements of income (loss), balance sheets and
statements of cash flows.
INVESTMENT IN AFFILIATE
On December 26, 1992, the Company sold the assets and liabilities of its
wholly-owned subsidiary, Storage Dimensions, Inc. (SDI). The consideration
received by the Company in connection with the transaction consisted of
$17,400,000 in cash, a $4,000,000 three-year subordinated promissory note and a
minority interest of 32.8% in the company formed for the purpose of purchasing
the assets of SDI. The Company recognized a nominal gain on the transaction. The
terms of the note were amended in fiscal year 1994 and again in fiscal year
1995. The latter amendment provides for a deferral of principal payments; the
final payment is due in December 1996. Interest payments continue to be due and
paid monthly at a rate of 12% per annum on the unpaid balance. Maxtor accounts
for its investment under the equity method of accounting. If SDI had not been
included in the consolidated financial statements during fiscal year 1993, the
Company's results of operations would have been as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MARCH 27, 1993
-----------------
(IN MILLIONS,
EXCEPT
PERCENTAGES AND
PER SHARE
AMOUNTS)
<S> <C>
Revenue....................................................... $ 1,388.2
Gross margin.................................................. 246.2
As a percentage of revenue.................................. 17.7%
Income from operations........................................ $ 50.3
Net income.................................................... 43.5
Net income per share.......................................... $ 1.38
========
</TABLE>
4. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company operates in a single industry segment: the design, manufacture
and sale of data storage products for desktop and mobile computer systems. It
has a world-wide sales, service and distribution network. The Company markets
and sells its products through a direct sales force to OEMs, distributors and
other emerging sales channels such as computer specialty retailers and computer
superstores.
<PAGE> 78
MAXTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
During fiscal year 1995, no customer accounted for more than 10% of the
Company's revenue. During fiscal years 1994 and 1993, one customer accounted for
approximately 24% and 14% of the Company's revenue, respectively.
The Company had export sales of approximately 48%, 43%, and 50% of revenue
in fiscal years 1995, 1994 and 1993, respectively. Approximately 38%, 35% and
57% of export sales were to the Far East in fiscal years 1995, 1994 and 1993,
respectively. The balance of export sales was primarily to Europe in each of the
three fiscal years.
Operations outside the United States consist of manufacturing plants in
Singapore and Hong Kong that produce subassemblies and final assemblies for the
Company's disk drive products. The geographic breakdown of the Company's
activities for each of the three fiscal years in the period ended March 25, 1995
is presented in the following table:
<TABLE>
<CAPTION>
U.S. FAR EAST ELIMINATIONS CONSOLIDATED
---------- ---------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fiscal year ended March 25, 1995
Revenue from unaffiliated customers...... $ 901,812 $ 4,987 $ -- $ 906,799
Transfers between geographic locations... 35,268 874,746 (910,014) --
---------- ---------- ----------- ----------
Revenue.................................. 937,080 879,733 (910,014) 906,799
---------- ---------- ----------- ----------
Income (loss) from operations............ (135,848) 59,558 264 (76,026)
---------- ---------- ----------- ----------
Identifiable assets...................... 338,139 293,096 (249,388) 381,847
---------- ---------- ----------- ----------
Fiscal year ended March 26, 1994
Revenue from unaffiliated customers...... $1,150,146 $ 2,469 $ -- $ 1,152,615
Transfers between geographic locations... 75,233 1,169,240 (1,244,473) --
---------- ---------- ----------- ----------
Revenue.................................. 1,225,379 1,171,709 (1,244,473) 1,152,615
---------- ---------- ----------- ----------
Income (loss) from operations............ (305,824) 57,903 -- (247,921)
---------- ---------- ----------- ----------
Identifiable assets...................... 470,787 306,574 (284,986) 492,375
---------- ---------- ----------- ----------
Fiscal year ended March 27, 1993
Revenue from unaffiliated customers...... $1,440,737 $ 1,809 $ -- $ 1,442,546
Transfers between geographic locations... 81,412 1,265,548 (1,346,960) --
---------- ---------- ----------- ----------
Revenue.................................. 1,522,149 1,267,357 (1,346,960) 1,442,546
---------- ---------- ----------- ----------
Income (loss) from operations............ (55,882) 109,257 593 53,968
---------- ---------- ----------- ----------
Identifiable assets...................... 619,439 464,697 (505,023) 579,113
---------- ---------- ----------- ----------
</TABLE>
Revenue from unaffiliated customers is based on the location of the
customer. Transfers between geographic locations are accounted for at amounts
that are above cost. Such transfers are eliminated in the consolidated financial
statements. Identifiable assets are those assets that can be directly associated
with a particular geographic location through acquisition and/or utilization. In
determining each of the geographic locations' income (loss) from operations and
identifiable assets, the expenses and assets relating to general corporate or
headquarter activities are included in the amounts for the geographic locations
where they were incurred, acquired or utilized.
<PAGE> 79
MAXTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
5. LINES OF CREDIT, DEBT AND CAPITAL LEASE OBLIGATIONS
Lines of credit, debt and capital lease obligations consist of the
following:
<TABLE>
<CAPTION>
MARCH 25, MARCH 26,
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
5.75% Convertible Subordinated Debentures due March 1, 2012............ $ 100,000 $ 100,000
Short-term borrowings, interest payable at a rate of 1.75% above bank's
prime rate per annum (9.0% at March 25, 1995)........................ 30,000 30,000
Term loans, principal payable in varying monthly, quarterly and
semiannual installments through October 1996; interest payable at
rates ranging from 5.5% to 8.46% per annum; secured by equipment..... 1,844 3,139
Term loans, principal payable in varying monthly, bi-monthly and
quarterly installments through December 1996; interest payable at
rates ranging from 7.15% to 9.5% per annum; secured by equipment..... 2,601 7,634
Capital lease obligations.............................................. 479 775
--------
134,924 141,548
Less amounts due within one year....................................... 32,957 34,155
--------
Due after one year..................................................... $ 101,967 $ 107,393
========
</TABLE>
Future aggregate maturities (exclusive of capital lease obligations) are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING (IN THOUSANDS)
----------------------------------------------------------------------- --------------
<S> <C>
1996................................................................... $ 32,668
1997................................................................... 1,777
1998................................................................... 5,000
1999................................................................... 5,000
2000................................................................... 5,000
Later years............................................................ 85,000
--------
Total.................................................................. $134,445
========
</TABLE>
The 5.75% Convertible Subordinated Debentures (Debentures) are convertible
at any time prior to maturity, unless previously redeemed, into shares of common
stock of the Company at a conversion rate of 25 shares per each $1,000 principal
amount of Debentures (equivalent to a conversion price of $40 per share),
subject to adjustment in certain events. Interest on the Debentures is payable
on March 1 and September 1 of each year. The Debentures, at the option of the
Company, are redeemable at 101.150% of the principal amount as of March 25, 1995
and thereafter at prices adjusting to the principal amount on or after March 1,
1997, plus accrued interest. The Debentures are entitled to a sinking fund of
$5,000,000 principal amount of Debentures, payable annually beginning March 1,
1998, which is calculated to retire at least 70% of the Debentures prior to
maturity. The Debentures are subordinated in right to payment to all senior
indebtedness.
In September 1993, the Company obtained a secured, asset-based revolving
line of credit. The original committed line of credit provided for borrowings up
to $76.0 million over a two-year term and is secured by receivables, certain
inventories and other assets. This revolving line of credit includes sublines
for letters of credit and bears interest at various rates. Borrowings under this
line of credit are limited to a percentage of eligible receivables. The
agreement includes covenants to maintain certain financial ratios and precludes
the Company from paying cash dividends. On June 17, 1994, the Company received
an amendment to its line of
<PAGE> 80
MAXTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
credit for the minimum operating profit covenant which is measured at the end of
each quarter. With such amendment, the Company was in compliance with all
financial covenants during the quarter ended June 25, 1994. On October 11, 1994,
the Company received an unconditional waiver of defaults of minimum operating
profit, minimum net worth and leverage ratio covenants that occurred as of the
fiscal quarter ended September 24, 1994. On October 31, 1994, the Company
received another amendment to its line of credit with respect to all of the
financial covenants, all of which are measured at the end of each fiscal quarter
and fiscal year end. The amendment extended the commitment on the revolving line
of credit for an additional year, thereby providing for borrowings over a
two-year term, ending September 1996. The Company also elected to reduce its
line of credit from $76.0 million to $50.0 million. The Company was in
compliance with its financial covenants for the quarter and fiscal year ended
March 25, 1995. As of March 25, 1995, $30.0 million of borrowings and $1.3
million of letters of credit were outstanding. The weighted average interest
rate on the borrowings outstanding was 10.75% and 7.75% at March 25, 1995 and
March 26, 1994, respectively. The $30.0 million of borrowings were fully repaid
the first week after fiscal year end. The balance available for additional
borrowings under this line of credit at March 25, 1995 was approximately $18.7
million using the March 25, 1995 borrowing base.
The Company leases certain equipment under long-term leases. These leases
have been accounted for as installment purchases and, accordingly, capitalized
costs of $1,845,000 and $4,317,000 have been included in machinery and equipment
at March 25, 1995 and March 26, 1994, respectively. Accumulated amortization of
the leased equipment amounted to $1,352,000 and $3,558,000 at March 25, 1995 and
March 26, 1994, respectively.
6. COMMITMENTS AND CONTINGENCIES
The Company leases certain of its principal facilities and certain
machinery and equipment under operating lease arrangements. The future minimum
annual rental commitments as of March 25, 1995 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING (IN THOUSANDS)
- ------------------ --------------
<S> <C>
1996............................................................. $ 12,514
1997............................................................. 6,724
1998............................................................. 3,700
1999............................................................. 3,288
2000............................................................. 2,694
Later years...................................................... 13,234
--------------
Total.................................................. $ 42,154
===========
</TABLE>
The above commitments extend through fiscal year 2017. Rental expense was
approximately $16,998,000, $15,668,000 and $12,804,000 for fiscal years 1995,
1994 and 1993, respectively.
As part of the acquisition of the MiniScribe business in June 1990, the
Company was assigned a patent license agreement between MiniScribe and Rodime
plc (Rodime) covering patents related to 3.5-inch disk drives. The Company
believes that the assignment was valid; however, Rodime has taken the position
that the assignment was invalid and would not in any event cover 3.5-inch drives
manufactured and sold by the Company before the acquisition of MiniScribe's
assets. In February 1993, Maxtor commenced an action for declaratory relief in
the U.S. Bankruptcy Court in Denver, Colorado seeking a judgment that the
assignment was valid. Rodime filed a denial and counterclaim for patent
infringement. In April 1994, the relevant claims of the Rodime patent at issue
in Rodime's counterclaims were declared invalid in litigation between Rodime
<PAGE> 81
MAXTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
and another disk drive manufacturer. The Company's litigation with Rodime has
been stayed pending Rodime's appeal of the finding of invalidity.
Certain other claims, including other patent infringement claims, against
the Company have arisen in the course of its business. There is presently no
litigation involving such claims, and the Company believes the outcome of these
claims and the claim concerning Rodime described above will not have a material
adverse effect, if any, on the Company's financial position, results of
operations or cash flows.
7. RELATED PARTY TRANSACTIONS
During fiscal year 1994, the Company entered into an agreement (the
Agreement) for the creation of a strategic relationship with Hyundai Electronics
Industries Co., Ltd. and several related members of the Hyundai Business Group
(Hyundai). Under the terms of the Agreement, Hyundai invested approximately $150
million in the Company and received approximately 19.5 million shares of Class A
common stock, constituting approximately 40% of the Company's outstanding voting
stock at that date. The Agreement specifies the conditions for conversion of the
Class A common stock into the Company's common stock. The special series of
common stock entitles Hyundai to representation on the Company's Board of
Directors proportionate to its share of ownership and certain voting rights. The
Agreement also provides that Hyundai may not acquire more than 45% of the
Company except in a tender for all outstanding shares or in certain other cases.
In January 1995, the Company announced it had signed a memorandum of
understanding for the creation of a manufacturing partnership with Hyundai
Electronics Industries Co., Ltd. (HEI). In May 1995, the Company announced it
had finalized a definitive agreement with HEI. Under the terms of the agreement,
HEI will manufacture Maxtor-designed hard disk drives for the Company. The two
companies plan to begin volume production within several months at a Korean
manufacturing site. The additional manufacturing capacity provided by HEI is
intended to supplement current production capacity at the Company's
manufacturing facility in Singapore without any capital expenditure on Maxtor's
part. The two companies plan to participate in an ongoing exchange of technology
to enable HEI to assume a leadership role in disk drive manufacturing for Maxtor
and to enable Maxtor to obtain high-quality, low-cost manufacturing capacity.
8. STOCKHOLDERS' EQUITY
STOCK OPTIONS
At March 25, 1995, the Company has approximately 3,180,000 shares available
for grant under the Fiscal 1988, 1992, 1995 Stock Option Plans and the 1986
Outside Directors Stock Option Plans (the Plans). The Company's 1985 Plan
expired during fiscal year 1995. Since inception of the Plans, the Company has
reserved 15,815,000 shares of common stock for issuance under the Plans. The
Plans generally provide for non-qualified stock options to be granted to
eligible employees, consultants, contractors and employee directors of the
Company at a price not less than 85% of the fair market value at the date of
grant, as determined by the Board of Directors. Officers and directors of the
Company are eligible for stock option grants under the 1988 and the 1995 Plans
but are not eligible for stock option grants under the 1992 Plan. The 1995 Plan,
which was approved by the Company's stockholders on August 18, 1994, provides
for the grant of incentive stock options as well as non-qualified stock options
and provides for options to be granted at a price not less than the fair market
value at the date of grant.
Options granted under the Plans are generally immediately exercisable, and
shares purchased on the exercise thereof are subject to monthly vesting over a
one-, three- or four-year period. Shares that are not vested at the date of
termination of employment may be repurchased by the Company at the lower of the
original purchase price or the fair market value at the time of repurchase.
Options granted prior to September
<PAGE> 82
MAXTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
1991 may be exercised within five years from the date of grant and options
granted thereafter may be exercised within ten years from the date of grant.
The 1986 Outside Directors Stock Option Plan provides for nonqualified
stock options to be granted to non-employee directors of the Company at fair
market value at the date of grant. Options are exercisable 90 days from the date
of grant and vest monthly over a four-year period provided the grantee remains
in service as a director. Options may be exercised within ten years from the
date of grant.
The following table summarizes option activity through March 25, 1995:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------
SHARES AVERAGE
AVAILABLE PRICE PER AGGREGATE
FOR GRANT SHARES SHARE VALUE
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Balance at March 28, 1992..................... 437,500 8,101,092 $ 4.89 $ 39,600
Shares reserved............................... 1,388,439 -- -- --
Options granted............................... (1,604,129) 1,604,129 10.92 17,517
Options exercised............................. -- (2,075,738) 5.61 (11,636)
Options canceled.............................. 808,709 (808,709) 5.65 (4,571)
--------- --------- ------ --------
Balance at March 27, 1993..................... 1,030,519 6,820,774 6.00 40,910
Shares reserved............................... 1,600,000 -- -- --
Options granted............................... (1,566,031) 1,566,031 6.32 9,891
Options exercised............................. -- (792,920) 4.24 (3,365)
Options canceled.............................. 1,742,008 (1,742,008) 5.80 (10,104)
--------- --------- ------ --------
Balance at March 26, 1994..................... 2,806,496 5,851,877 6.38 37,332
Shares reserved............................... 2,015,000 -- -- --
Options granted............................... (2,752,075) 2,752,075 4.51 12,400
Options exercised............................. -- (1,112,825) 3.78 (4,209)
Options canceled.............................. 1,338,162 (1,338,162) 6.49 (8,690)
Cancellation of 1985 Stock Option Plan........ (227,071) -- -- --
--------- --------- ------ --------
Balance at March 25, 1995..................... 3,180,512 6,152,965 $ 5.99 $ 36,833
========= ========= ====== ========
</TABLE>
Of the options outstanding, 2,938,225 were vested as of March 25, 1995.
There were no shares outstanding subject to repurchase as of March 25, 1995,
March 26, 1994 and March 27, 1993.
EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan provides that substantially all employees
may purchase the Company's common stock at a price equal to 85% of its fair
market value on certain specified dates via a payroll deduction plan. The number
of shares reserved for future issuance under this Plan totals approximately
676,645 shares.
STOCKHOLDER'S RIGHTS PLAN
In January 1988, the Board of Directors adopted a stockholder rights plan
which granted to holders of record one stock purchase right per share of common
stock which becomes exercisable upon the occurrence of certain triggering
events. Such events would include the acquisition of 20% or more of the
Company's outstanding shares or the commencement of a tender or exchange offer
for 25% or more of the Company's outstanding shares of common stock.
<PAGE> 83
MAXTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Should a triggering event occur, holders of such rights would be entitled
to purchase Maxtor common stock at an exercise price of $50 per share. If the
Company is acquired in a merger or other business combination, each right then
exercisable will entitle its holder to purchase that number of shares of the
acquiring company's common stock that has a market value equal to twice the
right's exercise price. If a 20% or greater stockholder acquires the Company
through a transaction in which the Company and its common stock survive, or
engages in certain self-dealing transactions with the Company, each holder of a
right, other than the 20% stockholder, will have the right to receive, upon
payment of the exercise price, that number of shares of the Company's common
stock having a market value at the time of the transaction equal to two times
the exercise price. Such rights do not extend to any holder whose action
triggered the rights. The stockholder rights plan was amended effective upon the
closing of the transaction with Hyundai to provide for certain provisions
applicable to Hyundai.
The rights expire in January 1998 and may be redeemed prior to that time at
the option of the Board of Directors for nominal consideration subject to
certain time limitations. Until a triggering event occurs, the rights will not
trade separately from the related Maxtor common shares.
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------
MARCH 25, MARCH 26, MARCH 27,
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................. $ -- $ -- $(4,018)
State............................................... -- -- 1,326
Foreign............................................. 2,099 2,798 2,979
------ ------ -------
2,099... 2,798 287
Deferred:
Foreign............................................. (66) (934) 1,000
------ ------ -------
Total....................................... $ 2,033 $ 1,864 $ 1,287
====== ====== =======
</TABLE>
<PAGE> 84
MAXTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The provision for income taxes differs from the amount computed by applying
the statutory rate of 35% for fiscal years 1995 and 1994 (34% for fiscal year
1993) to income (loss) before income taxes. The principal reasons for this
difference are listed in the following table:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------
MARCH 25, MARCH 26, MARCH 27,
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at federal statutory rate................................ $ (28,066) $ (89,504) $ 16,116
State income tax, net of federal benefit..................... -- -- 875
Tax savings from foreign operations.......................... (19,732) (19,281) (16,035)
Repatriated foreign earnings absorbed by current year
losses..................................................... 33,045 74,855 --
U.S. loss not providing current tax benefit.................. 32,663 14,627 8,064
Valuation of temporary differences........................... (17,142) 18,995 (3,965)
Reduction of taxes provided in prior years................... -- -- (4,018)
Other........................................................ 1,265 2,172 250
------ ------ -------
Total.............................................. $ 2,033 $ 1,864 $ 1,287
====== ====== =======
</TABLE>
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income taxes purposes. The significant
components of the Company's deferred tax assets and liabilities under SFAS No.
109 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------
MARCH 25, MARCH 26,
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Inventory valuation account.................................. $ 9,276 $ 10,940
Depreciation................................................. 2,977 9,079
Sales related reserves....................................... 11,112 10,842
Net operating loss carryforwards............................. 87,746 59,978
Tax credit carryforwards..................................... 18,543 5,963
Accrued special and restructuring............................ -- 8,938
Other........................................................ 2,084 3,921
--------- ---------
Total deferred tax assets...................................... 131,738 109,661
Valuation allowance for deferred tax assets.................... 124,760 96,847
--------- ---------
Net deferred tax assets........................................ $ 6,978 $ 12,814
========= =========
Deferred tax liabilities:
Unremitted earnings of certain foreign entities.............. $ 6,978 $ 12,814
--------- ---------
Total deferred tax liabilities................................. $ 6,978 $ 12,814
========= =========
</TABLE>
Approximately $12,346,000 of the valuation allowance is attributable to
stock options, the benefit of which will be credited to additional paid-in
capital when realized.
Pretax income from foreign operations was approximately $62,200,000,
$61,000,000 and $110,000,000 in fiscal years 1995, 1994 and 1993, respectively.
The Company currently enjoys a tax holiday for its operations in Singapore that
expires on June 30, 1995. This holiday can be extended until June 30, 1997
provided the
<PAGE> 85
MAXTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Company meets certain conditions. The Company is confident it can meet these
conditions and receive an extension through June 30, 1997. The net impact of
this tax holiday was to increase net income by approximately $15,000,000 in each
of fiscal years 1995 and 1994 and $28,000,000 in fiscal year 1993. This equates
to $0.29, $0.47 and $0.89 per share fully diluted, for fiscal years 1995, 1994
and 1993, respectively.
At March 25, 1995, for federal income tax purposes, the Company had net
operating loss carryforwards of $251,000,000 which will expire beginning in
fiscal year 1997 and tax credit carryforwards of approximately $18,500,000 which
will expire beginning in fiscal year 1999. Certain changes in stock ownership
can result in a limitation on the amount of net operating loss and tax credit
carryovers that can be utilized each year. The Company determined it has
undergone such an ownership change. Consequently, utilization of approximately
$134,000,000 of net operating loss carryforwards and the deduction equivalent of
approximately $12,900,000 of tax credit carryforwards will be limited to
approximately $12,000,000 per year.
The Company has reached settlement of certain issues with the Internal
Revenue Service. As a result of this settlement, the Company's fiscal year 1993
provision for income taxes reflects a $4,000,000 reduction of taxes provided in
prior periods.
10. SPECIAL ITEMS AND RESTRUCTURING
In the fourth quarter of fiscal year 1995, the Company recorded a
non-recurring gain of approximately $10.0 million related to the sale of the
Company's interest in Maxoptix to Kubota (see Note 3).
During fiscal year 1994, the Company experienced significant production
delays with certain product lines as a result of both design and vendor problems
and determined that it was unable to bring to market profitable successor
products to certain existing products. The Company therefore decided to
discontinue certain products and manufacturing activities, and recorded special
charges amounting to $68.9 million in Cost of Revenue in the third quarter of
fiscal year 1994. The charges consisted of estimated costs associated with the
termination of certain products, a reduction in manufacturing capacity, write
downs of inventory and equipment that were no longer productive, and related
future commitments to third parties. The charges were comprised of approximately
$45.4 million of inventory-related expenses, approximately $19.8 million of
equipment-related expenses, and approximately $3.7 million of other associated
expenses. As of March 25, 1995, all actions have been substantially completed.
As of March 25, 1995, approximately $1.5 million remained accrued for payments
related to certain non-cancelable operating leases for equipment, vendor
cancellation charges and warranty-related costs associated with certain
discontinued products. The Company expects to expend cash for these items during
the first half of fiscal year 1996.
The decisions described above reduced the scope of the Company's product
and manufacturing activities and, as a result, the Company initiated a
restructuring plan which provided for the consolidation and streamlining of
certain operations and administration. The Company recorded a restructuring
charge of $19.5 million in the third quarter of fiscal year 1994 related to
these actions. The plan provided for a worldwide headcount reduction of
approximately 500 employees, which was substantially completed during February
1994. The Company's research and development activities were consolidated at its
Longmont, Colorado facilities, which eliminated the need for certain facilities
in San Jose, California. In addition, the Company's actions eliminated the need
for certain manufacturing facilities in Singapore. The charge consisted of
approximately $11.8 million in estimated costs related to the worldwide
reduction in headcount and approximately $7.7 million associated with facility
consolidations, including lease and other obligations on certain facility
leases.
As of March 25, 1995, the Company has completed all of its restructuring
actions. As a result of these actions, worldwide headcount was reduced by
approximately 500 employees from manufacturing, research and development, sales,
marketing and administrative functions, and facilities space was reduced by
approximately
<PAGE> 86
MAXTOR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
350,000 square feet. The Company's savings from operations as a result of these
actions amounted to approximately $9.0 million per quarter, beginning with the
quarter ended March 26, 1994. Certain actions were completed at a cost which was
slightly higher or lower than originally estimated. On a net basis, costs were
lower than originally estimated by approximately $0.2 million. The net
adjustment of approximately $0.2 million was recorded to Restructuring and Other
during the fourth quarter of fiscal year 1995 upon completion of the Company's
restructuring actions.
The following table presents a roll-forward reconciliation of the activity
in the restructuring accrual balance from December 25, 1993 to March 25, 1995:
<TABLE>
<CAPTION>
SEVERANCES, RENT AND OTHER
BENEFITS AND FACILITIES-
OTHER HEADCOUNT- RELATED
RELATED CHARGES CHARGES TOTAL
---------------- -------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
December 1993 restructuring charges................... $ 11,769 $ 7,731 $ 19,500
Cash expenditures..................................... (8,891) (1,744) (10,635)
------- ------ -------
Balance at March 26, 1994............................. 2,878 5,987 8,865
------- ------ -------
Cash expenditures..................................... (2,474) (5,682) (8,156)
Adjustments........................................... (404) 197 (207)
------- ------ -------
Balance at March 25, 1995............................. $ -- $ 502 $ 502
======= ====== =======
</TABLE>
At March 25, 1995, the Company had $502,000 of accrued restructuring
charges remaining related to recurring payments under certain non-cancelable
operating leases. The Company expects to expend cash for these items during
fiscal year 1996.
Fiscal year 1993 consolidated income from operations includes non-recurring
revenue of approximately $10.0 million and $6.1 million recognized in the first
and third quarters of fiscal year 1993, respectively, which was primarily
related to certain royalty and licensing agreements.
<PAGE> 87
EXHIBIT III
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MAXTOR CORPORATION
HYUNDAI ACQUISITION, INC.
AND
HYUNDAI ELECTRONICS AMERICA
DATED AS OF
NOVEMBER 2, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 88
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 2, 1995, by and among
Hyundai Electronics America, a California corporation ("Parent"), Hyundai
Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of
Parent (the "Purchaser"), and Maxtor Corporation, a Delaware corporation (the
"Company").
ARTICLE I
THE OFFER AND MERGER
Section 1.1 The Offer.
(a) As promptly as practicable (but in no event later than five business
days after the public announcement of the execution hereof), the Purchaser shall
commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) a tender offer (the "Offer") for any and
all of the outstanding shares of Common Stock, par value $.01 per share (the
"Shares"), of the Company at a price of $6.70 per Share, net to the seller in
cash (such price, or such higher price per Share as may be paid in the Offer,
being referred to herein as the "Offer Price"), subject to the conditions set
forth in Annex A hereto. The obligations of the Purchaser to commence the Offer
and to accept for payment and to pay for any Shares validly tendered on or prior
to the expiration of the Offer and not withdrawn shall be subject only to the
conditions set forth in Annex A hereto. The Offer shall be made by means of an
offer to purchase (the "Offer to Purchase") containing the terms set forth in
this Agreement and the conditions set forth in Annex A hereto. The Purchaser
shall not decrease the Offer Price or decrease the number of Shares sought,
change the form of consideration payable, add additional conditions to the Offer
or make any other change in the terms or conditions of the Offer in any manner
adverse to the holders of the Shares (other than with respect to insignificant
changes or amendments and subject to Section 1.1(b)) without the written consent
of the Company, provided, however, that if on the initial scheduled expiration
date of the Offer, which shall be 20 business days after the date the Offer is
commenced, all conditions to the Offer shall not have been satisfied or waived,
the Purchaser may, from time to time, in its sole discretion, extend the
expiration date. In addition, at the Purchaser's sole discretion, the Offer
Price may be increased, and the Offer may be extended to the extent required by
law in connection with such increase in each case without the consent of the
Company.
(b) The Purchaser shall, on the terms and subject to the prior satisfaction
or waiver of the conditions of the Offer, accept for payment Shares validly
tendered within five business days after such satisfaction or waiver of all
conditions of the Offer, and pay for accepted Shares as promptly thereafter as
practicable; provided, however, that if, immediately prior to the initial
expiration date of the Offer (as it may be extended), the Shares validly
tendered and not withdrawn pursuant to the Offer, together with the Class A
Shares (as defined in Section 1.1(c) hereof) then held by the Class A Purchasers
(as defined in Section 4.1(a) hereof), equal less than 90% of the aggregate
number of outstanding Shares and outstanding Class A Shares, the Purchaser may
extend the Offer for a period not to exceed ten business days, notwithstanding
that all conditions to the Offer are satisfied as of such expiration date of the
Offer.
(c) As used herein, the term "Shares" shall not include the shares of Class
A Common Stock, par value $.01 per share, of the Company (the "Class A Shares").
Section 1.2 Company Actions.
(a) The Company hereby approves of and consents to the Offer and represents
that the Special Committee of the Board of Directors has received the opinion of
Bear, Stearns & Co. Inc., financial advisor to the Special Committee, to the
effect that the Offer and the Merger are fair to the stockholders of the Company
other than the holders of Class A Shares from a financial point of view, and
that the Board of Directors, upon the unanimous recommendation of its Special
Committee, at a meeting duly called and held, has unanimously (i) determined
that each of the Agreement, the Offer and the Merger (as defined in Section 1.5)
are fair to and in the best interests of the stockholders of the Company, (ii)
approved this
1
<PAGE> 89
Agreement and the transactions contemplated hereby, including the Offer and the
Merger (collectively, the "Transactions") and (iii) resolved to recommend that
the stockholders of the Company accept the Offer, tender their Shares thereunder
to the Purchaser and approve and adopt this Agreement and the Merger; provided,
that such recommendation may be withdrawn, modified or amended if the Board of
Directors or its Special Committee determines, after receipt of advice from the
Special Committee's counsel, that failure to withdraw, modify or amend such
recommendation would result in the Board of Directors violating its fiduciary
duties to the Company's stockholders under applicable law.
(b) In connection with the Offer, the Company will promptly furnish or
cause to be furnished to the Purchaser mailing labels, security position
listings and any available listing or computer file containing the names and
addresses of all record holders of the Shares as of a recent date, and shall
furnish the Purchaser with such additional information (including, but not
limited to, updated lists of holders of the Shares and their addresses, mailing
labels and lists of security positions) and assistance as the Purchaser or its
agents may reasonably request in communicating the Offer to the record and
beneficial holders of the Shares. Subject to the requirements of applicable law
and except for such steps as are reasonably necessary to disseminate the Offer
Documents and any other documents necessary to consummate the Offer or the
Merger, Parent and the Purchaser (i) shall use reasonable best efforts to keep
the names and addresses of the Company's shareholders confidential, (ii) shall
not use any of such information except in connection with the Offer and the
Merger, and (iii) shall use reasonable best efforts to see that any agent,
advisor or service provider engaged by them complies with the foregoing
confidentiality and use limitations. If this Agreement is terminated in
accordance with its terms, Parent and Purchaser will deliver to the Company all
copies of such information then in their possession.
Section 1.3 SEC Documents.
(a) As soon as practicable on the date the Offer is commenced, Parent and
the Purchaser shall file with the United States Securities and Exchange
Commission (the "SEC") a Tender Offer Statement on Schedule 14D-1 with respect
to the Offer and a Transaction Statement on Schedule 13E-3 (the Schedule 14D-1
and the Schedule 13E-3, together with all amendments, supplements and exhibits
thereto, including the Offer to Purchase, being collectively the "Offer
Documents"). The Company shall execute, and join in the filing of, the Schedule
13E-3. Concurrently with the commencement of the Offer, the Company shall file
with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 (together
with all amendments and supplements thereto and including the exhibits thereto,
the "Schedule 14D-9"), which shall, subject to the fiduciary duties of the
Company's directors under applicable law and to the provisions of this
Agreement, contain the recommendation referred to in clause (iv) of Section
1.2(a) hereof.
(b) Parent and the Purchaser will take all steps necessary to ensure that
the Offer Documents, and the Company will take all steps necessary to ensure
that the Schedule 14D-9, will comply in all material respects with the
provisions of applicable federal securities laws and, on the date filed with the
SEC and on the date first published, sent or given to the Company's
stockholders, shall not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading, except that Parent and the Purchaser make no
representation with respect to information furnished by the Company for
inclusion in the Offer Documents and the Company makes no representation with
respect to information furnished by Parent or the Purchaser for inclusion in the
Schedule 14D-9. The information supplied in writing by the Company for inclusion
in the Offer Documents and by Parent or the Purchaser for inclusion in the
Schedule 14D-9 will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Each of Parent and the Purchaser will take all steps
necessary to cause the Offer Documents, and the Company will take all steps
necessary to cause the Schedule 14D-9, to be filed with the SEC and to be
disseminated to holders of the Shares, in each case as and to the extent
required by applicable federal securities laws. Each of Parent and the
Purchaser, on the one hand, and the Company, on the other hand, will promptly
correct any information provided by it for use in the Offer Documents and the
Schedule 14D-9 if and to the extent that it shall have become false and
misleading in any material respect and the Purchaser will take all steps
necessary to cause the Offer Documents, and the Company will take all steps
2
<PAGE> 90
necessary to cause the Schedule 14D-9, as so corrected to be filed with the SEC
and to be disseminated to holders of the Shares, in each case as and to the
extent required by applicable federal securities laws. The Company, on the one
hand, and Parent and the Purchaser on the other hand, and their respective
counsel shall be given the opportunity to review and provide comments with
respect to the Offer Documents and the Schedule 14D-9 before they are filed with
the SEC. In addition, each party hereto will provide the other parties and their
counsel in writing with any comments, whether written or oral, which they may
receive from time to time from the SEC or its staff with respect to the Offer
Documents or the Schedule 14D-9 promptly after the receipt of such comments.
Section 1.4 Directors.
(a) Promptly upon the purchase of and payment for at least the number of
Shares which, together with the Class A Shares, constitutes a majority of the
outstanding voting stock of the Company, by Parent or any of its subsidiaries,
and from time to time thereafter, Parent shall be entitled to designate such
number of directors, rounded up to the next whole number, on the Board of
Directors such that the percentage of its designees on the Board, together with
the directors nominated by Hyundai Electronics Industries Co., Ltd., Hyundai
Heavy Industries Co., Ltd., Hyundai Corporation and Hyundai Merchant Marine Co.,
Ltd. (collectively the "Class A Purchasers") pursuant to paragraph D(4) of
Article FOURTH of the Company's Restated Certificate of Incorporation (the
"Certificate of Incorporation"), shall equal the percentage of the aggregate
number of outstanding Shares and Class A Shares then beneficially owned by
Parent and the Class A Purchasers. In furtherance thereof, the Company shall,
upon request of the Purchaser, use its best efforts promptly to cause Parent's
designees to be so elected or appointed to the Company's Board, and in
furtherance thereof, to the extent necessary, increase the size of the Board of
Directors. At such time, the Company shall also cause persons designated by
Parent to constitute at least the same percentage (rounded up to the next whole
number) as is on the Company's Board of Directors of (i) each committee of the
Company's Board of Directors, (ii) each board of directors (or similar body) of
each subsidiary of the Company and (iii) each committee (or similar body) of
each such board. Notwithstanding the foregoing, until the Effective Time (as
defined in Section 1.6 hereof), the Company shall use reasonable efforts to have
at least two members of the Board of Directors who are neither (i) officers of
Parent or the Company, nor (ii) designees, stockholders or affiliates of Parent.
The Company shall promptly take all actions required pursuant to Section 14(f)
of the Exchange Act and Rule 14f-1 promulgated thereunder in order to fulfill
its obligations under this Section 1.4(a), including mailing to stockholders the
information required by such Section 14(f) and Rule 14f-1 (or, at Parent's
request, furnishing such information to Parent for inclusion in the Offer
Documents initially filed with the SEC and distributed to the stockholders of
the Company) as is necessary to enable Parent's designees to be elected to the
Company's Board of Directors. Parent or the Purchaser will supply the Company
any information with respect to either of them and their nominees, officers,
directors and affiliates required by such Section 14(f) and Rule 14f-1. The
provisions of this Section 1.4(a) are in addition to and shall not limit any
rights which the Purchaser, Parent or any of their affiliates may have as a
holder or beneficial owner of Shares as a matter of law with respect to the
election of directors or otherwise.
(b) From and after the time, if any, that Parent's designees constitute a
majority of the Company's Board of Directors, any amendment of this Agreement,
any termination of this Agreement by the Company, any extension of time for
performance of any of the obligations of Parent or the Purchaser hereunder, any
waiver of any condition or any of the Company's rights hereunder or other action
by the Company hereunder will be ineffective unless it is approved by a majority
of the directors of the Company then in office who were not officers of the
Company or Parent or designees, stockholders or affiliates of Parent and the
full Board of Directors; provided, that if there shall be no such directors,
such actions may be effected by majority vote of the entire Board of Directors
of the Company.
Section 1.5 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.6 hereof), the Company
and the Purchaser shall consummate a merger (the "Merger") pursuant to which (a)
the Purchaser shall be merged with and into the Company and the separate
corporate existence of the Purchaser shall thereupon cease, (b) the Company
shall be the surviving corporation in the Merger (sometimes hereinafter referred
to as the "Surviving Corporation") and shall continue to be governed by the laws
of the State of Delaware, and (c) the separate corporate existence of the
3
<PAGE> 91
Company with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger, except as set forth in clause (a) of this
Section 1.5. Pursuant to the Merger, (x) the Certificate of Incorporation, as in
effect immediately prior to the Effective Time, shall be the initial certificate
of incorporation of the Surviving Corporation and (y) the By-laws of the Company
(the "By-laws"), as in effect immediately prior to the Effective Time, shall be
the initial By-laws of the Surviving Corporation. The Merger shall have the
effects specified in the Delaware General Corporation Law (the "DGCL").
Section 1.6 Effective Time. Parent, the Purchaser and the Company will
cause a Certificate of Merger, or, if applicable, a Certificate of Ownership and
Merger (as applicable, the "Certificate of Merger"), to be executed and filed on
the date of the Closing (as defined in Section 1.7) (or on such other date as
Parent and the Company may agree) with the Secretary of State of Delaware (the
"Secretary of State") as provided in the DGCL. The Merger shall become effective
at the time when the Certificate of Merger has been duly filed with the
Secretary of State or such time as is agreed upon by the parties and specified
in the Certificate of Merger, and such time is hereinafter referred to as the
"Effective Time."
Section 1.7 Closing. The closing of the Merger (the "Closing") shall take
place at 9:00 a.m., local time, on a date to be specified by the parties, which
shall be no later than the second business day after satisfaction or waiver of
all of the conditions set forth in Article VI hereof (the "Closing Date"), at
the offices of McCutchen, Doyle, Brown & Enersen, San Francisco, California,
unless another date or place is agreed to in writing by the parties hereto.
Section 1.8 Directors and Officers of the Surviving Corporation. The
directors and officers of the Purchaser at the Effective Time shall be the
initial directors and officers, respectively, of the Surviving Corporation.
Section 1.9 Stockholders' Meeting.
(a) If required by applicable law in order to consummate the Merger, the
Company, acting through its Board of Directors, shall, in accordance with
applicable law:
(i) duly call, give notice of, convene and hold a special meeting of
its stockholders (the "Special Meeting") as promptly as practicable
following the acceptance for payment and purchase of Shares by the
Purchaser pursuant to the Offer for the purpose of considering and taking
action upon the approval of the Merger and the adoption of this Agreement;
(ii) prepare and file with the SEC a preliminary proxy or information
statement relating to the Merger and this Agreement and use its best
efforts (x) to obtain and furnish the information required to be included
by the SEC in the Proxy Statement (as hereinafter defined) and, after
consultation with Parent, to respond promptly to any comments made by the
SEC with respect to the preliminary proxy or information statement and
cause a definitive proxy or information statement, including any amendment
or supplement thereto (the "Proxy Statement") to be mailed to its
stockholders, provided that no amendment or supplement to the Proxy
Statement will be made by the Company without consultation with Parent and
its counsel and (y) to obtain the necessary approvals of the Merger and
this Agreement by its stockholders;
(iii) prepare and revise the Proxy Statement so that, at the date
mailed to Company stockholders and at the time of the meeting of Company
stockholders to be held in connection with the Merger, the Proxy Statement
will (x) not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
that the statements made therein, in light of the circumstances under which
they are made, not misleading (except that the Company shall not be
responsible under this clause (iii) with respect to statements made therein
based on information supplied by Parent or the Purchaser expressly for
inclusion in the Proxy Statement), and (y) comply in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder; and
(iv) subject to the fiduciary obligations of the Board of Directors
under applicable law as advised by counsel to the Special Committee,
include in the Proxy Statement the recommendation of the Board that
4
<PAGE> 92
stockholders of the Company vote in favor of the approval of the Merger and
the adoption of this Agreement.
(b) Parent shall furnish to the Company, and revise, written information
concerning itself, the Purchaser and the Class A Purchasers expressly for
inclusion in the Proxy Statement. Such Parent-furnished information will not, at
the date mailed to Company stockholders or at the time of the meeting of Company
stockholders to be held in connection with the Merger, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated in the Parent-furnished information or necessary in order to make the
statements made in the Parent-furnished information, in light of the
circumstances under which they are made, not misleading.
(c) Parent shall vote, or cause to be voted, all of the Shares and Class A
Shares then owned by it, the Purchaser, any of its other subsidiaries or the
Class A Purchasers in favor of the approval of the Merger and the adoption of
this Agreement.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of any
Shares or any shares of capital stock of the Purchaser:
(a) Purchaser Capital Stock. Each issued and outstanding share of capital
stock of the Purchaser shall be converted into and become one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Purchaser Owned Stock. All Shares
that are owned by the Company or any subsidiary of the Company and any Shares
and Class A Shares owned by the Purchaser or any subsidiary of the Purchaser
shall be cancelled and retired and shall cease to exist and no consideration
shall be delivered in exchange therefor.
(c) Exchange of Shares. Each issued and outstanding Share (other than
Shares to be cancelled in accordance with Section 2.1(b) and any Shares which
are held by stockholders exercising appraisal rights pursuant to Section 262 of
the DGCL ("Dissenting Stockholders")) shall be converted into the right to
receive the Offer Price, payable to the holder thereof, without interest (the
"Merger Consideration"), upon surrender of the certificate formerly representing
such Share in the manner provided in Section 2.2. All such Shares, when so
converted, shall no longer be outstanding and shall automatically be cancelled
and retired and shall cease to exist, and each holder of a certificate
representing any such Shares shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration therefor upon the
surrender of such certificate in accordance with Section 2.2, without interest,
or, in the case of Dissenting Stockholders, the right, if any, to receive
payment from the Surviving Corporation of the "fair value" of such Shares as
determined in accordance with Section 262 of the DGCL.
Section 2.2 Exchange of Certificates.
(a) Paying Agent. Prior to the Effective Time, Parent shall designate a
bank or trust company to act as agent for the holders of the Shares in
connection with the Merger (the "Paying Agent") to receive the funds to which
holders of the Shares shall become entitled pursuant to Section 2.1(c). Parent
shall, from time to time, make available to the Paying Agent funds in amounts
and at times necessary for the payment of the Merger Consideration in the
amounts and at the times provided herein. All interest earned on such funds
shall be paid to Parent.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail to each holder of record of a
certificate or certificates, which immediately prior to the Effective Time
represented outstanding Shares (the "Certificates"), whose Shares were converted
pursuant to Section 2.1(c) into the right to receive the Merger Consideration
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery
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of the Certificates to the Paying Agent and shall be in such form and have such
other provisions as Parent and the Company may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for payment of the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Paying Agent or to such other agent or agents as may be
appointed by Parent, together with such letter of transmittal, duly executed,
the holder of such Certificate shall be entitled to receive in exchange therefor
the Merger Consideration for each Share formerly represented by such Certificate
and the Certificate so surrendered shall forthwith be cancelled. If payment of
the Merger Consideration is to be made to a person other than the person in
whose name the surrendered Certificate is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or shall
be otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered holder
of the Certificate surrendered or shall have established to the satisfaction of
the Surviving Corporation that such tax either has been paid or is not
applicable. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive the Merger Consideration in cash as contemplated by
this Section 2.2. The right of any stockholder to receive the Merger
Consideration shall be subject to and reduced by any applicable withholding
obligation.
(c) Transfer Books; No Further Ownership Rights in the Shares. At the
Effective Time, the stock transfer books of the Company shall be closed and
thereafter there shall be no further registration of transfers of the Shares on
the records of the Company. From and after the Effective Time, the holders of
Certificates evidencing ownership of the Shares outstanding immediately prior to
the Effective Time shall cease to have any rights with respect to such Shares,
except as otherwise provided for herein or by applicable law. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be cancelled and exchanged as provided in this Article II.
(d) Termination of Fund; No Liability. At any time following six months
after the Effective Time, the Surviving Corporation shall be entitled to require
the Paying Agent to deliver to it any funds (including any interest received
with respect thereto) which had been made available to the Paying Agent and
which have not been disbursed to holders of Certificates, and thereafter such
holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) only as general creditors
thereof with respect to the Merger Consideration payable upon due surrender of
their Certificates, without any interest thereon. Notwithstanding the foregoing,
none of Parent, the Surviving Corporation or the Paying Agent shall be liable to
any holder of a Certificate for Merger Consideration delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
Section 2.3 Dissenters' Rights. If any Dissenting Stockholder shall be
entitled to be paid the "fair value" of such holder's Shares, as provided in
Section 262 of the DGCL, the Company shall give the Purchaser notice thereof and
the Purchaser shall have the right to participate in all negotiations and
proceedings with respect to any such demands. Neither the Company nor the
Surviving Corporation shall, except with the prior written consent of the
Purchaser, voluntarily make any payment with respect to, or settle or offer to
settle, any such demand for payment. If any Dissenting Stockholder shall fail to
perfect or shall have effectively withdrawn or lost the right to dissent, the
Shares held by such Dissenting Stockholder shall thereupon be treated as though
such Shares had been converted into the right to receive the Merger
Consideration pursuant to Section 2.1(c).
Section 2.4 Transfer of Shares After the Effective Time. No transfer of
Shares shall be made on the stock transfer books of the Surviving Corporation at
or after the Effective Time.
Section 2.5 Company Stock Plans.
(a) The Company shall, effective as of the Effective Time, (i) cause each
outstanding stock option (the "Options") to purchase Shares granted under the
Company's Fiscal 1988 Stock Option Plan, Fiscal 1992 Stock Option Plan, 1995
Stock Option Plan, 1986 Outside Directors Stock Option Plan, 1996 Outside
Directors Stock Option Plan and the other option arrangements set forth in
Section 3.2 of the Company Disclosure Schedule (as defined below) (collectively,
the "Option Plans"), whether or not then exercisable or vested, to become fully
exercisable and vested, and (ii) cause each Option that is then outstanding to
be
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cancelled. In consideration of such cancellation, and except to the extent that
Parent or the Purchaser and the holder of any such Option otherwise agree,
Parent will cause the Company (or, at Parent's option, the Purchaser) to pay to
such holders of Options an amount in respect thereof equal to the product of (A)
the excess, if any, of the Offer Price over the exercise price of each such
Option and (B) the number of Shares previously subject to the Option immediately
prior to its cancellation (such payment to be net of withholding taxes). The
Company shall take all actions reasonably necessary to cause the Company's
employees and directors to consent, to the extent required, to the transactions
contemplated by this Section 2.5, no later than immediately prior to the time
the Purchaser accepts Shares for payment pursuant to the Offer.
(b) The Company shall take all actions reasonably necessary to cause the
last day of the "Offering Period" (as such term is used in the Company's 1992
Employee Stock Purchase Plan (the "1992 ESPP") to be the date immediately prior
to the date on which the Purchaser accepts Shares for payment pursuant to the
Offer (the "Final Purchase Date"), and apply the funds within each participant's
withholdings account on the Final Purchase Date to the purchase of whole Shares
in accordance with the terms of the 1992 ESPP.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and the Purchaser as follows:
Section 3.1 Organization. Each of the Company and its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization and has all requisite
corporate power and authority and all necessary governmental approvals to own,
lease and operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized, existing and in good
standing or to have such power, authority, and governmental approvals would not
have a material adverse effect on the Company and its subsidiaries, taken as a
whole. The Company and each of its subsidiaries is duly qualified or licensed to
do business and in good standing in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing would not in the aggregate
have a material adverse effect on the Company and its subsidiaries, taken as a
whole.
Section 3.2 Capitalization.
(a) The authorized capital stock of the Company consists of 180,520,000
Shares, 19,480,000 Class A Shares and 5,000,000 shares of preferred stock, par
value $.01 per share. As of November 1, 1995, (i) 33,542,522 Shares are issued
and outstanding, (ii) 19,480,000 Class A Shares are issued and outstanding,
(iii) 6,386,290 Shares are issuable pursuant to outstanding Options granted
under the Option Plans and (iv) 1,773,749 shares are available for issuance
under the 1992 ESPP. Since such date, no Shares have been issued except upon the
exercise of Options previously granted under the Option Plan, and no Options
have been granted and no additional shares have been made available for issuance
under the 1992 ESPP. All the outstanding shares of the Company's capital stock
are, and all Shares which may be issued pursuant to the exercise of outstanding
Options will be, when issued in accordance with the respective terms thereof,
duly authorized, validly issued, fully paid and non-assessable. All Options will
terminate upon the Effective Date. Except for the Company's 5.75% Convertible
Debentures due March 1, 2012 in the outstanding face amount of $100,000,000,
there are no bonds, debentures, notes or other indebtedness having general
voting rights (or convertible into securities having such rights) ("Voting
Debt") of the Company or any of its subsidiaries issued and outstanding. Except
as set forth above, and except for the rights (the "Rights") issuable pursuant
to the Rights Agreement, dated as of January 27, 1988, as amended as of
September 10, 1993 and November 2, 1995 (the "Rights Agreement"), between the
Company and The First National Bank of Boston, as rights agent (a true and
complete copy of which has been delivered to Parent), and the securities
issuable upon the exercise of such Rights, and the 1995 Stock Option Plan of IMS
International Manufacturing Services Limited, (i) there are no shares of capital
stock of the Company authorized, issued or outstanding and (ii) there are no
existing options, warrants, calls, pre-emptive rights, subscriptions or other
rights,
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agreements, arrangements or commitments of any character, relating to the issued
or unissued capital stock of the Company or any of its subsidiaries, obligating
the Company or any of its subsidiaries to issue, transfer or sell or cause to be
issued, transferred or sold any shares of capital stock or Voting Debt of, or
other equity interest in, the Company or any of its subsidiaries or securities
convertible into or exchangeable for such shares or equity interests, or
obligating the Company or any of its subsidiaries to grant, extend or enter into
any such option, warrant, call, subscription or other right, agreement,
arrangement or commitment and (iii) there are no outstanding obligations of the
Company or any of its subsidiaries to vote or to repurchase, redeem or otherwise
acquire any shares of capital stock of the Company, or any subsidiary or
affiliate of the Company or to provide funds to make any investment (in the form
of a loan, capital contribution or otherwise) in any subsidiary or any other
entity.
(b) Except as set forth in Section 3.2 of the Company Disclosure Schedule,
all of the outstanding shares of capital stock of each of the Company's
subsidiaries are beneficially owned by the Company, directly or indirectly, and
all such shares have been validly issued and are fully paid and nonassessable
and are owned by either the Company or one of its subsidiaries free and clear of
all liens, charges, claims or encumbrances.
Section 3.3 Authorization; Validity of Agreement; Company Action.
(a) The Company has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance by the Company of this Agreement, and
the consummation by it of the transactions contemplated hereby, have been duly
authorized by its Board of Directors and, except for obtaining the approval of
its stockholders as contemplated by Section 1.9 hereof, no other corporate
action on the part of the Company is necessary to authorize the execution and
delivery by the Company of this Agreement and the consummation by it of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and, assuming due and valid authorization, execution
and delivery hereof by Parent and the Purchaser is a valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, subject to the effect of applicable bankruptcy, insolvency, fraudulent
conveyance and other similar laws. The affirmative vote of the holders of a
majority of the outstanding Shares and Class A Shares, voting together as a
single class, and the affirmative vote of the holders of the outstanding Class A
Shares, voting as a separate class, are the only votes of the holders of any
class or series of the Company's capital stock necessary to approve this
Agreement and the transactions contemplated hereby.
(b) In connection with the Class A Purchasers' purchase of the Class A
Shares, the Board of Directors of the Company duly and validly approved such
transaction for the purposes of Section 203 of the DGCL. Accordingly, the
provisions of Section 203 of the DGCL will not apply to the transactions
contemplated by this Agreement.
(c) The Board of Directors of the Company has taken all necessary action so
that (i) the Rights will not be exercisable, trade separately, or be otherwise
affected by the Offer, the Merger or the other transactions contemplated hereby,
(ii) none of Parent and its affiliates will be deemed to be an "Acquiring
Person" for purposes thereof and (iii) a "Distribution Date" shall not occur by
virtue of the Offer, the Merger or the other transactions contemplated hereby.
(d) The Board of Directors of the Company has approved the Offer, the
Merger and the other transactions contemplated hereby for purposes of any
"standstill" or other provisions, including Section 7.2, of the Stock Purchase
Agreement, dated as of September 10, 1993, between the Company and the Class A
Purchasers, and, accordingly, such Agreement does not restrict Parent's or the
Purchaser's ability to make the Offer, acquire Shares pursuant thereto or take
the other actions contemplated hereby.
(e) The Offer, the Merger and the other transactions contemplated hereby
have been unanimously approved by the "Continuing Directors," within the meaning
of paragraphs B(1) and C(7) of Article EIGHTH of the Company's Certificate of
Incorporation, and, accordingly, the provisions of Section A of such Article
EIGHTH are not applicable to the Offer, the Merger or any other transaction
contemplated hereby.
Section 3.4 Consents and Approvals; No Violations. Except for the filings
set forth on Section 3.4 of the disclosure schedule delivered to Parent and the
Purchaser on or before the date hereof (the "Company
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Disclosure Schedule") and the filings, permits, authorizations, consents and
approvals as may be required under, and other applicable requirements of, the
Exchange Act, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), state securities or blue sky laws, and the DGCL,
neither the execution, delivery or performance of this Agreement by the Company
nor the consummation by the Company of the transactions contemplated hereby nor
compliance by the Company with any of the provisions hereof will (i) conflict
with or result in any breach of any provision of the Certificate of
Incorporation or the By-laws of the Company or of any of its subsidiaries, (ii)
require any filing with, or permit, authorization, consent or approval of, any
court, arbitral tribunal, administrative agency or commission or other
governmental or other regulatory authority or agency (a "Governmental Entity")
on the part of the Company or any subsidiary, (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which any of them or any of their properties or assets may be bound
(the "Specified Agreements") or (iv) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Company, any of its
subsidiaries or any of their properties or assets, excluding from the foregoing
clauses (ii), (iii) and (iv) such violations, breaches, rights of termination,
amendment, cancellation or acceleration or defaults which would not,
individually or in the aggregate, have a material adverse effect on the Company
and its subsidiaries, taken as a whole and which will not materially impair the
ability of the Company to consummate the transactions contemplated hereby.
Section 3.5 SEC Reports and Financial Statements. The Company has filed
with the SEC, and has heretofore made available to Parent, true and complete
copies of, all forms, reports, schedules, statements and other documents
required to be filed by it since April 1, 1993 under the Securities Act of 1933,
as amended (the "Securities Act") or the Exchange Act (collectively, the "SEC
Documents"). As of their respective dates or, if amended, as of the date of the
last such amendment, the Company SEC Documents, including, without limitation,
any financial statements or schedules included therein (a) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading and (b) complied
in all material respects with the applicable requirements of the Exchange Act
and the Securities Act, as the case may be, and the applicable rules and
regulations of the SEC thereunder. None of the Company's subsidiaries is
required to file any forms, reports or other documents with the SEC. The
financial statements of the Company included in the SEC Documents have been
prepared from, and are in accordance with, the books and records of the Company
and its consolidated subsidiaries, comply in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with United
States generally accepted accounting principles ("GAAP") applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position and the
consolidated results of operations and cash flows (and changes in financial
position, if any) of the Company and its consolidated subsidiaries as of the
respective dates and for the respective periods thereof.
Section 3.6 Absence of Certain Changes. Except as disclosed in the Company
SEC Documents or in Section 3.6 of the Company Disclosure Schedule, since July
1, 1995, (i) the Company and its subsidiaries have conducted their respective
businesses only in the ordinary and usual course, (ii) neither the Company nor
any of its subsidiaries have taken any of the actions contemplated by Section
5.1 hereof and (iii) there have not occurred any events or changes which have
had or which are reasonably likely to have, in the aggregate, a material adverse
effect on the Company and its subsidiaries, taken as a whole.
Section 3.7 No Undisclosed Liabilities. Except (a) as disclosed in the
Company SEC Documents, including any exhibits to the SEC Documents, and (b) for
liabilities and obligations (x) incurred in the ordinary course of business and
consistent with past practice, (y) pursuant to the terms of this Agreement or
(z) as set forth in Section 3.7 of the Company Disclosure Schedule, since July
1, 1995, neither the Company nor any of its subsidiaries has incurred any
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, that have, or could reasonably be expected to have, a material
adverse effect on the
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Company and its subsidiaries, taken as a whole, or would be required by GAAP to
be reflected on a consolidated balance sheet of the Company and its subsidiaries
(including the notes thereto).
Section 3.8 Litigation. Except as disclosed in the Company SEC Documents
or in Section 3.8 of the Company Disclosure Schedule, there is no suit, claim,
action, proceeding or investigation pending before any Governmental Entity or,
to the best knowledge of the Company, threatened against the Company or any of
its subsidiaries that could reasonably be expected to have a material adverse
effect on the Company and its subsidiaries, taken as a whole. Except as
disclosed in the Company SEC Documents or in the Company Disclosure Schedule,
neither the Company nor any of its subsidiaries is subject to any outstanding
order, writ, injunction or decree that could reasonably be expected to have a
material adverse effect on the Company and its subsidiaries, taken as a whole.
Section 3.9 No Default; Compliance with Applicable Laws. Except as
disclosed in Section 3.9 of the Company Disclosure Schedule, the business of the
Company and each of its subsidiaries is not being conducted in default or
violation of any term, condition or provision of (i) its respective Certificate
of Incorporation or By-laws, (ii) any Specified Agreement or (iii) any federal,
state, local or foreign statute, law, ordinance, rule, regulation, judgment,
decree, order, concession, grant, franchise, permit or license or other
governmental authorization or approval applicable to the Company or any of its
subsidiaries, excluding from the foregoing clauses (ii) and (iii), defaults or
violations which would not, individually or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole. Except as
disclosed in Section 3.9 of the Company Disclosure Schedule, as of the date of
this Agreement, no investigation or review by any Governmental Entity or other
entity with respect to the Company or any of its subsidiaries is pending or, to
the best knowledge of the Company, threatened, nor has any Governmental Entity
or other entity indicated an intention to conduct the same, other than, in each
case, those the outcome of which, as far as reasonably can be foreseen after due
inquiry, in the future will not, individually or in the aggregate have a
material adverse effect on the Company and its subsidiaries, taken as a whole.
Section 3.10 Intellectual Property. The Company and its subsidiaries own,
or are licensed or otherwise have the rights to use, all patents, trademarks,
trade names, copyrights, technology, trade secrets, know-how and processes
(collectively, "Intellectual Property Rights") material to or necessary for the
conduct of their businesses as presently conducted. No claims are pending by any
person against the Company or any of its subsidiaries as to the use of any
Intellectual Property Rights and, to the Company's best knowledge, the use by
the Company or any of its subsidiaries of all Intellectual Property Rights does
not infringe on the rights of any person in a manner which has, or is reasonably
likely to have, a material adverse effect on the Company and its subsidiaries,
taken as a whole. To the Company's best knowledge, no third person is infringing
on the Intellectual Property Rights of the Company or any of its subsidiaries in
a manner which has, or is reasonably likely to have, a material adverse effect
on the Company and its subsidiaries, taken as a whole.
Section 3.11 Taxes. (a) Except as set forth in Section 3.11 of the Company
Disclosure Schedule, the Company and its subsidiaries have duly filed (or there
have been filed on their behalf) with the appropriate governmental authorities
all Tax Returns (as hereinafter defined) required to be filed by them on or
prior to the date hereof, other than any filings which the failure to make in a
timely manner would not have a material adverse effect on the Company and the
subsidiaries taken as a whole, and such Tax Returns are true, correct and
complete in all material respects. The material income tax reporting positions
of the Company and its subsidiaries have substantial support.
(b) "Tax Return" shall mean any report, return, document, declaration or
other information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including, without
limitation, information returns, any documents with respect to or accompanying
payments of estimated Taxes, or with respect to or accompanying requests for the
extension of time in which to file any such report, return, document,
declaration or other information. "Taxes" shall mean any and all taxes, charges,
fees, levies or other assessments, including, without limitation, income, gross
receipts, excise, real or personal property, sales, withholding, social
security, occupation, use, service, service use, license, net worth, payroll,
franchise, transfer and recording taxes, fees and charges, imposed by the United
States Internal Revenue Service or any taxing authority (whether domestic or
foreign including, without limitation, any state,
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county, local or foreign government or any subdivision or taxing agency thereof
(including a United States possession)), whether computed on a separate,
consolidated, unitary, combined or any other basis; and such term shall include
any interest whether paid or received, fines, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such taxes, charges,
fees, levies or other assessments.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER
Parent and the Purchaser represent and warrant to the Company as follows:
Section 4.1 Organization. Each of Parent and the Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has all requisite corporate or other
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power, authority, and governmental approvals would not have a material
adverse effect on Parent and the Purchaser, taken as a whole. Each of Parent and
the Purchaser is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing would not, in the aggregate, have a material adverse effect on
Parent and the Purchaser, taken as a whole.
Section 4.2 Authorization; Validity of Agreement; Necessary Action. Each
of Parent and the Purchaser has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance by Parent and the Purchaser of
this Agreement, and the consummation of the Merger and of the transactions
contemplated hereby have been duly authorized by the Board of Directors of
Parent and the Purchaser and by Parent as the sole stockholder of the Purchaser
and no other corporate action on the part of Parent and the Purchaser is
necessary to authorize the execution and delivery by Parent and the Purchaser of
this Agreement and the consummation of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by Parent and the Purchaser,
as the case may be, and, assuming due and valid authorization, execution and
delivery hereof by the Company, is a valid and binding obligation of each of
Parent and the Purchaser, as the case may be, enforceable against each of them
in accordance with its respective terms, subject to the effect of applicable
bankruptcy, insolvency, fraudulent conveyance and other similar laws.
Section 4.3 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Exchange Act, the HSR Act, the Exon-Florio
amendments to the Omnibus Trade and Competition Act of 1988, the 1992 Byrd-Exon
amendments to the Defense Production Act, state securities or blue sky laws and
the DGCL, and except for the completion of certain governmental reviews and the
obtainment of approvals under Korean law to the transactions contemplated
hereby, neither the execution, delivery or performance of this Agreement by
Parent or the Purchaser nor the consummation by Parent or the Purchaser of the
transactions contemplated hereby nor compliance by Parent or the Purchaser with
any of the provisions hereof will (i) conflict with or result in any breach of
any provision of the respective certificate of incorporation or by-laws of
Parent or the Purchaser, (ii) require any filing with, or permit, authorization,
consent or approval of, any Governmental Entity on the part of Parent or the
Purchaser, (iii) except as set forth on Schedule 4.3, result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which Parent or the Purchaser is a party or by which
either of them or any of their respective properties or assets may be bound or
(iv) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Parent or the Purchaser or any of their properties or assets,
excluding from the foregoing clauses (ii),(iii) and (iv) such violations,
breaches, rights of termination, amendment, cancellation or acceleration or
defaults which would not, individually or in the aggregate, have a material
adverse effect on Parent and the Purchaser taken as a whole and will not
materially impair the ability of Parent or the Purchaser to consummate the
transactions contemplated hereby.
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ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company. The Company covenants and
agrees that, except (i) as expressly contemplated by this Agreement, (ii) as set
forth in Section 5.1 of the Company Disclosure Schedule or (iii) as agreed in
writing by Parent, after the date hereof, and prior to the time when the
directors designated by Parent pursuant to Section 1.4(a) hereof, together with
the directors nominated by the Class A Purchasers pursuant to paragraph D(4) of
Article FOURTH of the Company's Certificate of Incorporation, shall constitute a
majority of, the Board of Directors of the Company (the "Appointment Date"):
(a) the business of the Company and its subsidiaries shall be conducted
only in the ordinary and usual course and, to the extent consistent therewith,
each of the Company and its subsidiaries shall use its best efforts to preserve
its business organization intact and maintain its existing relations with
customers, suppliers, employees, creditors and business partners;
(b) the Company shall not, directly or indirectly, amend its or any of its
subsidiaries' Certificate of Incorporation or By-laws or similar organizational
documents;
(c) the Company shall not, and it shall not permit any of its subsidiaries
to: (i)(A) declare, set aside or pay any dividend or other distribution payable
in cash, stock or property with respect to the Company's capital stock or that
of its subsidiaries, or (B) redeem, purchase or otherwise acquire directly or
indirectly any of the Company's capital stock or that of its subsidiaries; (ii)
issue, sell, pledge, dispose of or encumber any additional shares of, or
securities convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital stock of any
class of the Company or its subsidiaries, other than Shares issued upon the
exercise of Options outstanding on the date hereof (or Options specified in
offers of employment outstanding on the date hereof) in accordance with the
Option Plans as in effect on the date hereof; or (iii) split, combine or
reclassify the outstanding capital stock of the Company or of any of the
subsidiaries of the Company;
(d) the Company shall not, and it shall not permit any of its subsidiaries
to, acquire or agree to acquire, any material assets not listed in Schedule 5.1
of the Company Disclosure Schedule, either by purchase, merger, consolidation,
sale of shares in a subsidiary or otherwise;
(e) the Company shall not, and it shall not permit any of its subsidiaries
to, transfer, lease, license, sell, mortgage, pledge, dispose of, or encumber
any material assets other than in the ordinary and usual course of business and
consistent with past practice;
(f) neither the Company nor any of its subsidiaries shall: (i) grant any
increase in the compensation payable or to become payable by the Company or any
of its subsidiaries to any of its executive officers or key employees other than
in the ordinary and usual course of business and consistent with past practice,
or (ii)(A) adopt any new, or (B) except as contemplated by Section 2.5, amend or
otherwise increase, or accelerate the payment or vesting of the amounts payable
or to become payable under any existing, bonus, incentive compensation, deferred
compensation, severance, profit sharing, stock option, stock purchase,
insurance, pension, retirement or other employee benefit plan agreement or
arrangement other than in the ordinary and usual course of business and
consistent with past practice; or (iii) enter into any employment or severance
agreement with or, except in accordance with the existing written policies of
the Company or as required by applicable law, grant any severance or termination
pay to any officer, director or employee of the Company or any its subsidiaries;
(g) neither the Company nor any of its subsidiaries shall modify, amend or
terminate any of its material contracts or waive, release or assign any material
rights or claims, except in the ordinary course of business and consistent with
past practice;
(h) neither the Company nor any of its subsidiaries shall: (i) incur or
assume any long-term debt, or except in the ordinary course of business, incur
or assume any short-term indebtedness in amounts not consistent with past
practice; (ii) incur or modify any material indebtedness or other liability;
(iii) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for
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the obligations of any other person, except in the ordinary course of business
and consistent with past practice except as set forth in Section 5.1 of the
Company Disclosure Schedule; (iv) make any loans, advances or capital
contributions to, or investments in, any other person (other than to wholly
owned subsidiaries of the Company or customary loans or advances to employees in
accordance with past practice) except as set forth in Section 5.1 of the Company
Disclosure Schedule; or (v) enter into any material commitment or transaction,
except in the ordinary course of business and consistent with past practice;
(i) neither the Company nor any of its subsidiaries shall change any of the
accounting methods used by it unless required by GAAP;
(j) neither the Company nor any of its subsidiaries shall pay, discharge or
satisfy any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction of any such claims, liabilities or obligations, in the ordinary
course of business and consistent with past practice, of claims, liabilities or
obligations reflected or reserved against in, or contemplated by, the
consolidated financial statements (or the notes thereto) of the Company and its
consolidated subsidiaries;
(k) neither the Company nor any of its subsidiaries will take, or agree to
commit to take, any action that would make any representation or warranty of the
Company contained herein inaccurate in any respect at, or as of any time prior
to, the Effective Time; and
(l) neither the Company nor any of its subsidiaries will enter into an
agreement, contract, commitment or arrangement to do any of the foregoing, or to
authorize, recommend, propose or announce an intention to do any of the
foregoing.
Section 5.2 Access; Confidentiality. Upon reasonable notice, the Company
shall (and shall cause each of its subsidiaries to) afford to the officers,
employees, accountants, counsel, financing sources and other representatives of
Parent, access, during normal business hours during the period prior to the
Appointment Date, to all its properties, books, contracts, commitments and
records and, during such period, the Company shall (and shall cause each of its
subsidiaries to) furnish promptly to Parent (a) a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to the requirements of federal securities laws and (b) all other
information concerning its business, properties and personnel as Parent may
reasonably request. After the Appointment Date the Company shall provide Parent
and such persons as Parent shall designate with all such information, at such
time as Parent shall request. Unless otherwise required by law and until the
Appointment Date, Parent will hold any such information which is non-public in
confidence in accordance with the provisions of a letter agreement dated May 1,
1993 between the Company and Parent (the "Confidentiality Agreement").
Section 5.3 Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto shall use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations, or
to remove any injunctions or other impediments or delays, legal or otherwise, to
consummate and make effective the Merger and the other transactions contemplated
by this Agreement. In case at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of the Company and Parent shall use all
reasonable efforts to take, or cause to be taken, all such necessary actions.
Section 5.4 Consents and Approvals.
(a) Each of the Company, Parent and the Purchaser will take all reasonable
actions necessary to comply promptly with all legal requirements which may be
imposed on it with respect to this Agreement and the transactions contemplated
hereby (which actions shall include, without limitation, furnishing all
information required under the HSR Act and in connection with approvals of or
filings with any other Governmental Entity) and will promptly cooperate with and
furnish information to each other in connection with any such requirements
imposed upon any of them or any of their subsidiaries in connection with this
Agreement and the transactions contemplated hereby. Each of the Company, Parent
and the Purchaser will, and will cause its subsidiaries to, take all reasonable
actions necessary to obtain (and will cooperate with each other in
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obtaining) any consent, authorization, order or approval of, or any exemption
by, any Governmental Entity or other public or private third party required to
be obtained or made by Parent, the Purchaser, the Company or any of their
subsidiaries in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement.
(b) The Company and Parent shall take all reasonable actions necessary to
file as soon as practicable notifications under the HSR Act and to respond as
promptly as practicable to any inquiries received from the Federal Trade
Commission and the Antitrust Division of the Department of Justice for
additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any Governmental Entity
in connection with antitrust matters.
Section 5.5 No Solicitation. Neither the Company nor any of its
subsidiaries or affiliates shall (and the Company shall use its best efforts to
cause its officers, directors, employees, representatives and agents, including,
but not limited to, investment bankers, attorneys and accountants, not to),
directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Parent,
any of its affiliates or representatives) concerning any merger, tender offer,
exchange offer, sale of assets, sale of shares of capital stock or debt
securities or similar transactions involving the Company or any subsidiary,
division or operating or principal business unit of the Company (an "Acquisition
Proposal"). Notwithstanding the foregoing, the Company may furnish information
concerning its business, properties or assets to any corporation, partnership,
person or other entity or group pursuant to appropriate confidentiality
agreements, and may negotiate and participate in discussions and negotiations
with such entity or group concerning an Acquisition Proposal (x) if such entity
or group has on an unsolicited basis submitted a bona fide written proposal to
the Board of Directors of the Company relating to any such transaction which the
Special Committee of the Board determines represents a superior alternative to
the stockholders of the Company (other than the holders of the Class A Shares)
to the acquisition of the Company contemplated by this Agreement and (y) if, in
the opinion of the Special Committee of the Board of Directors of the Company,
only after receipt of advice from legal counsel to the Special Comittee, the
failure to provide such information or access or to engage in such discussions
or negotiations would cause the Board of Directors to violate its fiduciary
duties to the Company's stockholders under applicable law. The Company will
immediately communicate to Parent the terms of any proposal or inquiry (and will
disclose any written materials received by the Company in connection with such
proposal or inquiry) and the identity of the party making such proposal or
inquiry which it may receive in respect of any such transaction.
Section 5.6 Brokers or Finders. Each of Parent and the Company represents,
as to itself, its subsidiaries and its affiliates, that, except as set forth in
Schedule 5.6, no agent, broker, investment banker, financial advisor or other
firm or person is or will be entitled to any brokers' or finder's fee or any
other commission or similar fee in connection with any of the transactions
contemplated by this Agreement and each of Parent and the Company agrees to
indemnify and hold the other harmless from and against any and all claims,
liabilities or obligations with respect to any other fees, commissions or
expenses asserted by any person on the basis of any act or statement alleged to
have been made by such party or its affiliates.
Section 5.7 Publicity. Each party's initial press release with respect to
the execution of this Agreement has been previously approved by the other
parties. Following such initial press releases, so long as this Agreement is in
effect, neither the Company, Parent nor any of their respective affiliates shall
issue or cause the publication of any press release or other public announcement
with respect to the Merger, this Agreement or the other transactions
contemplated hereby without the prior consultation of the other party, except as
may be required by law or by any listing agreement with a national securities
exchange or trading market.
Section 5.8 Notification of Certain Matters. The Company shall give prompt
notice to Parent and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event the occurrence or non-occurrence of
which would cause any representation or warranty contained in this Agreement to
be untrue or inaccurate in any material respect at or prior to the Effective
Time and (ii) any material failure of the Company or Parent, as the case may be,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery
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of any notice pursuant to this Section 5.8 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
Section 5.9 Directors' and Officers' Insurance and Indemnification.
(a) For six years after the Effective Time, Parent shall cause the
Surviving Corporation (or any successor to the Surviving Corporation) to
indemnify, defend and hold harmless the present and former officers, directors,
employees and agents of the Company and its subsidiaries (each an "Indemnified
Party") against all losses, claims, damages, liabilities, fees and expenses
(including reasonable fees and disbursements of counsel and judgments, fines,
losses, claims, liabilities and amounts paid in settlement (provided that any
such settlement is effected with the written consent of the Parent or the
Surviving Corporation)) arising out of actions or omissions occurring at or
prior to the Effective Time to the full extent permitted under Delaware law,
subject to the terms of the Certificate of Incorporation, By-laws and
indemnification agreements, all as in effect at the date hereof, including
provisions relating to advancement of expenses incurred in the defense of any
action or suit; provided that, in the event any claim or claims are asserted or
made within such six year period, all rights to indemnification in respect of
any such claim or claims shall continue until disposition of any and all such
claims; provided further, that any determination required to be made with
respect to whether an Indemnified Party's conduct complies with the standards
set forth under Delaware law, the Certificate of Incorporation, the By-Laws or
such agreements, as the case may be, shall be made by independent counsel
mutually acceptable to Parent and the Indemnified Party and; provided further,
that nothing herein shall impair any rights or obligations of any present or
former directors or officers of the Company.
(b) Parent or the Surviving Corporation shall maintain the Company's
existing officers' and directors' liability insurance ("D&O Insurance") for a
period of not less than three years after the Effective Date; provided, that the
Parent may substitute therefor policies of substantially similar coverage and
amounts containing terms no less favorable to such former directors or officers;
provided, further, if the existing D&O Insurance expires, is terminated or
cancelled during such period, Parent or the Surviving Corporation will use all
reasonable efforts to obtain substantially similar D&O Insurance; provided
further, however, that in no event shall the Company be required to pay
aggregate premiums for insurance under this Section 5.9 in excess of 175% of the
aggregate premiums paid by the Company in 1995 on an annualized basis for such
purpose.
(c) The provisions of this Section 5.9 shall be in furtherance of, and
shall not limit, the indemnification agreements entered into between an
Indemnified Party and the Company prior to the date hereof and remaining in
force on the date hereof, and Parent shall cause the Surviving Corporation to
comply with such agreements. The provisions of this Section 5.9 are for the
express benefit of, and shall be enforceable by, each Indemnified Party and his
or her heirs and representatives.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing Date of each of the
following conditions, any and all of which may be waived in whole or in part by
the Company, Parent or the Purchaser, as the case may be, to the extent
permitted by applicable law:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted by the requisite vote of the stockholders of the Company, if required by
applicable law and the Certificate of Incorporation, in order to consummate the
Merger;
(b) Statutes; Consents. No statute, rule, order, decree or regulation
shall have been enacted or promulgated by any government or any governmental
agency or authority of competent jurisdiction which prohibits the consummation
of the Merger;
(c) Injunctions. There shall be no order or injunction of a court or other
governmental authority of competent jurisdiction in effect precluding,
restraining, enjoining or prohibiting consummation of the Merger; and
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(d) Purchase of Shares in Offer. Parent, the Purchaser or their affiliates
shall have purchased Shares pursuant to the Offer.
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Time,
whether before or after stockholder approval thereof:
(a) By the mutual consent of Parent and the Company.
(b) By either of Parent or the Company:
(i) if the Offer shall have expired without any Shares being purchased
therein, or if the Shares tendered in the Offer shall not have been
accepted for payment by March 31, 1996; provided, however, that the right
to terminate this Agreement under this Section 7.1(b)(i) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of Parent or
the Purchaser, as the case may be, to purchase the Shares pursuant to the
Offer on or prior to such date; or
(ii) if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action (which order, decree, ruling or other
action the parties hereto shall use their reasonable efforts to lift), in
each case permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order, decree, ruling
or other action shall have become final and non-appealable.
(c) By the Board of Directors of the Company:
(i) if, prior to the purchase of the Shares pursuant to the Offer, the
Board of Directors of the Company shall have (A) withdrawn, or modified or
changed in a manner adverse to Parent or the Purchaser, its approval or
recommendation of the Offer, this Agreement or the Merger in order to
permit the Company to execute a definitive agreement providing for the
acquisition of the Company by merger, consolidation or otherwise,
determined by the Special Committee of the Board of Directors of the
Company, to constitute a superior alternative to the stockholders of the
Company (other than the holders of the Class A Shares) (the "Alternate
Transaction") than the acquisition of the Company contemplated by this
Agreement, (B) determined, only after receipt of advice from legal counsel
to the Special Committee, that the failure to take such action as set forth
in the preceding clause (A) would cause the Board of Directors to violate
its fiduciary duties to the Company's stockholders under applicable law,
and (C) given notice to the Purchaser and Parent of its intent to terminate
this Agreement and of the terms and provisions of the Alternate
Transaction, such notice to be given five business days prior to the date
of the termination of this Agreement; or
(ii) if, prior to the purchase of the Shares pursuant to the Offer,
Parent or the Purchaser breaches or fails in any material respect to
perform or comply with any of its material covenants and agreements
contained herein or breaches its representations and warranties in any
material respect; or
(iii) if the Offer shall have expired, or shall have been withdrawn,
abandoned or terminated, without (in each case) Parent or the Purchaser
shall have terminated the Offer without Parent or the Purchaser, as the
case may be, purchasing any Shares pursuant thereto; provided that the
Company may not terminate this Agreement pursuant to this Section
7.1(c)(iii) if the Company is in material breach of this Agreement; or
(iv) if Parent, the Purchaser or any of their affiliates shall have
failed to commence the Offer on or prior to five business days following
the date of the initial public announcement of the Offer; provided, that
the Company may not terminate this Agreement pursuant to this Section
7.1(c)(iv) if the Company is in material breach of this Agreement.
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(d) By Parent or the Purchaser:
(i) if prior to the purchase of the Shares pursuant to the Offer, the
Board of Directors of the Company shall have withdrawn, or modified or
changed in a manner adverse to Parent or the Purchaser, its approval or
recommendation of the Offer, this Agreement or the Merger or shall have
recommended an Acquisition Proposal or offer, or shall have executed an
agreement in principle (or similar agreement) or definitive agreement
providing for a tender offer or exchange offer for any shares of capital
stock of the Company, or a merger, consolidation or other business
combination with a person or entity other than Parent, the Purchaser or
their affiliates (or the Board of Directors of the Company resolves to do
any of the foregoing); or
(ii) if Parent or the Purchaser shall have terminated the Offer
without Parent or the Purchaser purchasing any Shares thereunder, provided
that Parent or the Purchaser may not terminate this Agreement pursuant to
this Section 7.1(d)(ii) if Parent or the Purchaser has failed to purchase
the Shares in the Offer in breach of the material terms thereof; or
(iii) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of the
conditions set forth in Annex A hereto, Parent, the Purchaser, or any of
their affiliates shall have failed to commence the Offer on or prior to
five business days following the date of the initial public announcement of
the Offer.
Section 7.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 7.1, written notice thereof shall forthwith be
given to the other party or parties specifying the provision hereof pursuant to
which such termination is made, and this Agreement shall forthwith become null
and void, and there shall be no liability on the part of Parent, the Company,
their respective stockholders and affiliates, or the respective officers and
directors thereof, except as set forth in this Section 7.2 and Section 8.1;
provided, however, that nothing herein shall relieve any party from liability
for any material breach of this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses. All costs and expenses incurred in
connection with this Agreement and the consummation of the transactions
contemplated hereby shall be paid by the party incurring such expenses.
Section 8.2 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects,
whether before or after any vote of the stockholders of the Company contemplated
hereby, by written agreement of the parties hereto (which in the case of the
Company shall include approvals as contemplated in Section 1.4(b)), at any time
prior to the Closing Date with respect to any of the terms contained herein;
provided, however, that after the approval of this Agreement by the stockholders
of the Company, no such amendment, modification or supplement shall reduce the
amount or change the form of the Merger Consideration.
Section 8.3 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any schedule, instrument
or other document delivered pursuant to this Agreement shall survive the
Effective Time.
Section 8.4 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given upon receipt, and shall be given to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Parent or the Purchaser, to:
Hyundai Electronics America
510 Cottonwood Drive
Milpitas, CA 95035
Attn: Mr. Y.H. Kim
President & Chief Executive Officer
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with copies to:
Hyundai Electronics Industries Co., Ltd.
66, Jeokseon-dong, Jongro-ku
Seoul, Korea
Attn: I. H. Chun
Legal Department
Bartley C. Deamer
McCutchen, Doyle, Brown & Enersen
Three Embarcadero Center
San Francisco, California 94111
and:
(b) if to the Company, to:
Maxtor Corporation
211 River Oaks Parkway
San Jose, CA 95134
Attn: Glenn H. Stevens
General Counsel
with copies to:
Diane Holt Frankle
Gray Cary Ware & Freidenrich
400 Hamilton Avenue
Palo Alto, California 94301
Gregory V. Varallo
Richards, Layton & Finger
One Rodney Square
Wilmington, Delaware 19899
Section 8.5 Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Whenever the words "include", "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words "without
limitation". As used in this Agreement, the term "affiliate(s)" shall have the
meaning set forth in Rule 12b-2 of the Exchange Act. As used in this Agreement,
a "subsidiary" of any entity shall mean all corporations or other entities in
which such entity owns a majority of the issued and outstanding capital stock or
equity or similar interests. As used in this Agreement, any reference to any
event, change or effect being material or having a material adverse effect on or
with respect to any entity (or group of entities taken as a whole) means such
event, change or effect is materially adverse to the consolidated financial
condition, businesses or results of operations of such entity (or, if used with
respect thereto, of such group of entities taken as a whole).
Section 8.6 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 8.7 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement and the Confidentiality Agreement (including the
documents and the instruments referred to herein and therein): (a) constitute
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, and (b) except as provided in Section 5.9 is not intended to confer upon
any person other than the parties hereto any rights or remedies hereunder.
Section 8.8 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory
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<PAGE> 106
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 8.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of law thereof.
Section 8.10 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that the Purchaser may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to
Parent or to any direct or indirect wholly owned subsidiary of Parent, and
Parent may assign, in its sole discretion, any or all of its rights, interests
and obligations hereunder to any one or more of the Class A Purchasers or any
affiliates thereof. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
IN WITNESS WHEREOF, Parent, the Purchaser and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
HYUNDAI ELECTRONICS AMERICA
By: /s/ Y.H. KIM
------------------------------------
Name: Y.H. Kim
Title: President
HYUNDAI ACQUISITION, INC.
By: /s/ Y.H. KIM
------------------------------------
Name: Y.H. Kim
Title: President
MAXTOR CORPORATION
By: /s/ GLENN H. STEVENS
------------------------------------
Name: Glenn H. Stevens
Title: Secretary
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ANNEX A
Certain Conditions of the Offer. Notwithstanding any other provisions of
the Offer, and in addition to (and not in limitation of) the Purchaser's rights
to extend and amend the Offer at any time in its sole discretion (subject to the
provisions of the Merger Agreement), the Purchaser shall not be required to
accept for payment or, subject to any applicable rules and regulations of the
SEC, including Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, and may delay the acceptance for payment of
or, subject to the restriction referred to above, the payment for, any tendered
Shares, and may terminate or amend the Offer as to any Shares not then paid for,
if (i) any applicable waiting period under the HSR Act or the Exon-Florio Act
has not expired or terminated, or (iii) the Korean Approval Condition [final
approval of all necessary governmental officials and agencies of the Republic of
Korea, without any conditions reasonably deemed by Parent to materially
adversely affect the intended economic benefits to Parent and its affiliates of
the Merger Transaction] shall not have been satisfied or (iv) at any time on or
after the date of the Merger Agreement and before the time of payment for any
such Shares, any of the following events shall occur or shall be determined by
the Purchaser to have occurred:
(a) there shall have been any action taken, or any statute, rule,
regulation, judgment, order or injunction promulgated, entered, enforced,
enacted, issued or deemed applicable to the Offer or the Merger by any domestic
or foreign federal or state governmental regulatory or administrative agency or
authority or court or legislative body or commission which directly or
indirectly (l) prohibits, or imposes any material limitations on, Parent's or
the Purchaser's ownership or operation (or that of any of their respective
subsidiaries or affiliates) of all or a material portion of their or the
Company's businesses or assets, or compels Parent or the Purchaser or their
respective subsidiaries and affiliates to dispose of or hold separate any
material portion of the business or assets of the Company or Parent and their
respective subsidiaries, in each case taken as a whole, (2) prohibits, or makes
illegal, the acceptance for payment, payment for or purchase of Shares or the
consummation of the Offer, the Merger or the other transactions contemplated by
the Merger Agreement, (3) results in the delay in or restricts the ability of
the Purchaser, or renders the Purchaser unable, to accept for payment, pay for
or purchase some or all of the Shares, (4) imposes material limitations on the
ability of the Purchaser or Parent effectively to exercise full rights of
ownership of the Shares, including, without limitation, the right to vote the
Shares purchased by it on all matters properly presented to the Company's
stockholders, or (5) otherwise materially adversely affects the consolidated
financial condition, businesses or results of operations of the Company and its
subsidiaries, taken as a whole, provided that Parent shall have used all
reasonable efforts to cause any such judgment, order or injunction to be vacated
or lifted;
(b) there shall have occurred (1) any general suspension of trading in, or
limitation on prices for, securities on the New York Stock Exchange or in the
NASDAQ National Market System, for a period in excess of three hours, (2) a
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States or the Republic of Korea (whether or not mandatory),
(3) a commencement of a war, armed hostilities or other international or
national calamity directly or indirectly involving the United States or the
Republic of Korea, or, in the case of any of the foregoing in existence on the
date of this Agreement, any material acceleration or worsening thereof, (4) any
limitation (whether or not mandatory) by any foreign or United States
governmental authority on the extension of credit by banks or other financial
institutions, (5) any decline in either the Dow Jones Industrial Average or the
Standard & Poor's Index of 500 Industrial Companies by a cumulative amount in
excess of 20% over the period from the close of business on the date of the
Merger Agreement through the close of business on the day immediately preceding
the expiration of the Offer, (6) a change in general financial bank or capital
market conditions which materially or adversely affects the ability of financial
institutions in the United States or the Republic of Korea to extend credit or
syndicate loans, (7) any significant change in the United States or the Republic
of Korea currency exchange rates or suspension of, or limitation on, the markets
therefor (whether or not mandatory) or the imposition of, or any significant
change in, any currency or exchange control laws in the United States or the
Republic of Korea, or (8) in the case of any of the foregoing existing at the
time of the commencement of the Offer, a material acceleration or worsening
thereof;
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(c) (1) the representations and warranties of the Company set forth in the
Merger Agreement shall not be true and correct in any material respect as of the
date of the Merger Agreement and as of consummation of the Offer as though made
on or as of such date, (2) the Company shall have failed to comply with its
covenants and agreements under the Merger Agreement in all material respects or
(3) there shall have occurred any events or changes which have had or which are
reasonably likely to have a material adverse effect on the Company and its
subsidiaries taken as a whole, compared to its net losses and declining cash
position over its three most recent fiscal quarters;
(d) the Company's Board of Directors shall have withdrawn, or modified or
changed in a manner adverse to Parent or the Purchaser (including by amendment
of the Schedule 14D-9) its recommendation of the Offer, the Merger Agreement, or
the Merger, or recommended another proposal or offer, or the Board of Directors
of the Company, upon request of the Purchaser, shall fail to reaffirm such
approval or recommendation or shall have resolved to do any of the foregoing; or
(e) the Merger Agreement shall have terminated in accordance with its
terms;
which in the sole judgment of Parent or the Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
the Purchaser) giving rise to such condition makes it inadvisable to proceed
with the Offer and/or with such acceptance for payment of or payments for
Shares.
The foregoing conditions are for the sole benefit of Parent and the
Purchaser and may be waived by Parent or the Purchaser, in whole or in part at
any time and from time to time in the sole discretion of Parent or the
Purchaser. The failure by Parent or the Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
A-2
<PAGE> 109
EXHIBIT IV
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation in this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to sec. 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsections (f) or (g) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs (a) and (b) of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate
<PAGE> 110
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
deliver to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of his shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register
<PAGE> 111
in Chancery, if so ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the list at
the addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and in the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all of
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
<PAGE> 112
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
79, L. '95, eff. 7-1-95.)
<PAGE> 113
The Depositary for the Offer is:
CITIBANK, N.A.
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
c/o Citicorp Data c/o Citicorp Data Corporate Trust Window
Distribution, Inc. Distribution, Inc. 111 Wall Street, 5th Floor
P.O. Box 1429 404 Sette Drive New York, New York
Paramus, New Jersey 07653 Paramus, New Jersey 07652
By Facsimile Transmission:
(For Eligible Institutions
Only)
(201) 262-3240
Confirm by Telephone:
(800) 422-2066
</TABLE>
Any questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
set forth below. Additional copies of this Offer to Purchase, the Letter of
Transmittal or the Notice of Guaranteed Delivery may be obtained from the
Information Agent or the Dealer Manager as set forth below, and will be
furnished promptly at the Company's expense. You may also contact your local
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Offer.
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
Banks and Brokers Call Collect (212) 269-5550
All Others Call Toll Free (800) 290-6428
The Dealer Manager for the Offer is:
MERRILL LYNCH & CO.
World Financial Center
North Tower
New York, New York 10281-1305
(212) 236-4565 (Call Collect)
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
OF
MAXTOR CORPORATION
PURSUANT TO THE OFFER TO PURCHASE
DATED NOVEMBER 8, 1995
BY
HYUNDAI ACQUISITION, INC.
A WHOLLY OWNED SUBSIDIARY OF
HYUNDAI ELECTRONICS AMERICA
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON THURSDAY, DECEMBER 7, 1995, UNLESS THE OFFER IS EXTENDED.
TO: CITIBANK, N.A., DEPOSITARY
<TABLE>
<S> <C> <C>
By Mail: By Overnight Courier: By Hand:
Citibank, N.A. Citbank, N.A. Citibank, N.A.
c/o Citicorp Data c/o Citicorp Data Corporate Trust Window
Distribution, Inc. Distribution, Inc. 111 Wall Street, 5th Street
P.O. Box 1429 404 Sette Drive New York, New York
Paramus, New Jersey 07653 Paramus, New Jersey 07652
By Facsimile Transmission:
(For Eligible Institutions
Only)
(201) 262-3240
Confirm by Telephone:
(800) 422-2066
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA A FACSIMILE TRANSMISSION, OTHER THAN AS SET FORTH ABOVE DOES
NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used either if certificates for Shares
(as defined below) are to be forwarded herewith or, unless an Agent's Message
(as defined below) is utilized, if delivery of Shares is to be made by
book-entry transfer to an account maintained by the Depositary at The Depository
Trust Company, the Midwest Securities Trust Company or the Philadelphia
Depository Trust Company (each a "Book-Entry Transfer Facility" and,
collectively, the "Book-Entry Transfer Facilities") pursuant to the book-entry
transfer procedures set forth in Section 3 of the Offer to Purchase.
Stockholders who deliver certificates evidencing Shares ("Share Certificates")
by book-entry transfer are referred to herein as "Book-Entry Stockholders" and
other stockholders are referred to herein as "Certificate Stockholders."
Stockholders whose Share Certificates are not immediately available or who
cannot deliver either the Share Certificates for, or a Book-Entry Confirmation
(as defined in Section 2 of the Offer to Purchase) with respect to, their Shares
and all other documents required hereby to the Depositary prior to the
Expiration Date (as defined in Section 1 of the Offer to Purchase) must tender
their Shares in accordance with the guaranteed delivery procedures set forth in
<PAGE> 2
Section 2 of the Offer to Purchase. See Instruction 2. Delivery of documents to
a Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's procedures does not constitute delivery to the Depositary.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED (SEE INSTRUCTIONS)
- ------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED OWNER(S)
(PLEASE FILL IN EXACTLY AS SHARES TENDERED
NAME(S) APPEAR(S) ON SHARE CERTIFICATE(S) (ATTACH ADDITIONAL LIST IF NECESSARY)
- ------------------------------------------------------------------------------------------------
TOTAL
NUMBER OF
SHARES
SHARE REPRESENTED BY NUMBER OF
CERTIFICATE SHARE SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
-----------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
TOTAL SHARES
- ------------------------------------------------------------------------------------------------
* Need not be completed by Book-Entry Stockholders.
** Unless otherwise indicated, it will be assumed that all Shares described herein are being
tendered. See Instruction 4.
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER
FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY
TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution
----------------------------------------------
Check box of Book-Entry Transfer Facility:
/ / The Depository Trust Company
/ / Midwest Securities Trust Company
/ / Philadelphia Depository Trust Company
Account No.
----------------------------------------------------------------
Transaction Code No.
-------------------------------------------------------
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Owner(s):
--------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
-------------------------
Name of Institution that Guaranteed Delivery
-------------------------------
If delivery is by book-entry transfer check box of Book-Entry Transfer
Facility:
/ / The Depository Trust Company
/ / Midwest Securities Trust Company
/ / Philadelphia Depository Trust Company
Account No.
---------------------------------------------------------------
Transaction Code No.
------------------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Hyundai Acquisition, Inc. (the
"Purchaser"), a Delaware corporation and a wholly owned subsidiary of Hyundai
Electronics America, ("Parent") a California corporation, the above-described
shares of common stock, par value $.01 per share (the "Shares"), of Maxtor
Corporation, (the "Company"), a Delaware corporation, upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated November 8, 1995
(the "Offer to Purchase") and this Letter of Transmittal (which, as amended from
time to time, together constitute the "Offer"), receipt of which is hereby
acknowledged. The undersigned understands that the Purchaser reserves the right
to transfer or assign, in whole at any time, or in part from time to time, to
Parent or one or more of its affiliates, the right to purchase all or any
portion of the Shares tendered pursuant to the Offer.
Upon the terms of the Offer, subject to, and effective upon, acceptance for
payment of, and payment for, the Shares tendered herewith in accordance with the
terms of the Offer, the undersigned hereby sells, assigns and transfers to, or
upon the order of, the Purchaser all right, title and interest in and to all the
Shares that are being tendered hereby and all dividends, distributions
(including, without limitation, distributions of additional Shares) and rights
declared, paid or distributed in respect of such Shares on or after November 1,
1995 (collectively, "Distributions"), and irrevocably constitutes and appoints
Citibank, N.A. (the "Depositary"), the true and lawful agent and
attorney-in-fact of the undersigned, with full power of substitution (such power
of attorney being deemed to be an irrevocable power coupled with an interest),
to the full extent of the undersigned's rights with respect to such Shares and
all Distributions, to (i) deliver Share Certificates
<PAGE> 4
evidencing such Shares and all Distributions or transfer ownership of such
Shares and all Distributions on the account books maintained by a Book-Entry
Transfer Facility, together, in any such case, with all accompanying evidences
of transfer and authenticity to, or upon the order of, the Purchaser, (ii)
present such Shares and all Distributions for transfer on the Company's books
and (iii) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Shares and all Distributions, all in accordance with the terms
of the Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby and all Distributions and, when the same are accepted for
payment by the Purchaser, the Purchaser will acquire good title thereto, free
and clear of all liens, restrictions, claims and encumbrances, and the same will
not be subject to any adverse claim. The undersigned will, upon request, execute
any additional documents deemed by the Depositary or the Purchaser to be
necessary or desirable to complete the sale, assignment and transfer of the
Shares tendered hereby and all Distributions. In addition, the undersigned shall
remit and transfer promptly to the Depositary for the account of the Purchaser
all Distributions in respect of the Shares tendered hereby, accompanied by
appropriate documentation of transfer, and, pending such remittance and transfer
or appropriate assurance thereof, the Purchaser shall be entitled to all rights
and privileges as owner of such Distribution and may withhold the entire
purchase price of the Shares tendered hereby or deduct from such purchase price,
the amount or value of such Distribution as determined by Purchaser in its sole
discretion.
All authority conferred or agreed to be conferred pursuant to this Letter
of Transmittal shall be binding upon the successors, assigns, heirs, executors,
administrators and legal representatives of the undersigned and shall not be
affected by, and shall survive, the death or incapacity of the undersigned.
Except as stated in the Offer to Purchase, this tender is irrevocable.
The undersigned hereby irrevocably appoints Y.H. Kim and S.K. Park, and
each of them, and any other designees of the Purchaser, the attorneys-in-fact
and proxies of the undersigned, each with full power of substitution, to vote at
any annual, special, adjourned or postponed meeting of the Company's
stockholders or otherwise in such manner as each such attorney-in-fact and proxy
or his substitute shall in his sole discretion deem proper with respect to, to
execute any written consent concerning any matter as each such attorney-in-fact
and proxy or his substitute shall in his sole discretion deem proper with
respect to, and to otherwise act as each such attorney-in-fact and proxy or his
substitute shall in his sole discretion deem proper with respect to, the Shares
tendered hereby that have been accepted for payment by the Purchaser prior to
the time any such action is taken and with respect to which the undersigned is
entitled to vote (and any and all other Shares and Distributions). This
appointment is effective when, and only to the extent that, the Purchaser
accepts for payment such Shares as provided in the Offer to Purchase. This power
of attorney and proxy are irrevocable and are granted in consideration of the
acceptance for payment of such Shares in accordance with the terms of the Offer.
Upon such acceptance for payment, all prior powers of attorney, proxies and
consents given by the undersigned with respect to such Shares (and all Shares
and other securities issued in Distributions in respect of such Shares) will,
without further action, be revoked and no subsequent powers of attorney,
proxies, consents or revocations may be given (and, if given, will not be deemed
effective) by the undersigned.
The undersigned understands that the Purchaser's acceptance for payment of
Shares validly tendered pursuant to any of the procedures described in Section 3
of the Offer to Purchase and in the Instructions hereto will constitute a
binding agreement between the undersigned and the Purchaser upon the terms and
subject to the conditions of the Offer. Without limiting the foregoing, if the
price to be paid in the Offer is amended in accordance with the Offer, the price
to be paid to the undersigned will be the amended price notwithstanding the fact
that a different price is stated in this Letter of Transmittal.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price for all Shares purchased and/or
return all Share Certificates evidencing Shares not tendered or accepted for
payment in the name(s) of the registered holder(s) appearing under "Description
of Shares Tendered." Similarly, unless otherwise indicated under "Special
Delivery Instructions," please mail the check for the purchase price and/or
return any Share Certificates evidencing Shares not tendered or accepted for
<PAGE> 5
payment (and accompanying documents, as appropriate) to the address(es) of the
registered holder(s) appearing under "Description of Shares Tendered." In the
event that both the Special Delivery Instructions and the Special Payment
Instructions are completed, please issue the check for the purchase price and/or
return any Share Certificates evidencing Shares not tendered or accepted for
payment (and any accompanying documents, as appropriate) in the name of, and
deliver such check and/or return such Share Certificates (and any accompanying
documents, as appropriate) to, the person or persons so indicated. Unless
otherwise indicated herein under "Special Payment Instructions," please credit
any Shares tendered herewith by book-entry transfer that are not accepted for
payment by crediting the account at the Book-Entry Transfer Facility designated
above. The undersigned recognizes that the Purchaser has no obligation pursuant
to the Special Payment Instructions to transfer any Shares from the name of the
registered holder thereof if the Purchaser does not accept for payment any of
the Shares so tendered.
/ / CHECK HERE IF ANY OF THE SHARE CERTIFICATES REPRESENTING SHARES THAT
YOU OWN HAVE BEEN LOST OR DESTROYED AND SEE INSTRUCTION 11.
Number of Shares represented by the lost or destroyed Share Certificates:
-----------------------------
<PAGE> 6
---------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
To be completed ONLY if Share Certificates not tendered or not
accepted for payment and/or the check for the purchase price of Shares
accepted for payment are to be issued in the name of someone other than
the undersigned, or if Shares delivered by book-entry transfer that are
not accepted for payment are to be returned by credit to an account
maintained at a Book-Entry Transfer Facility other than the account
indicated above.
Issue: / / check, and/or
/ / Share Certificates to:
Name
----------------------------------------------------------------
(PLEASE PRINT)
Address
-------------------------------------------------------------
--------------------------------------------------------------------
(ZIP CODE)
--------------------------------------------------------------------
EMPLOYER IDENTIFICATION OR SOCIAL SECURITY NO.
/ / Credit unpurchased Shares delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below:
Check appropriate box of Book-Entry Transfer Facility:
/ / The Depository Trust Company
/ / Midwest Security Trust Company
/ / Philadelphia Depositary Trust Company
----------------------------------------------------------------------
(ACCOUNT NUMBER)
----------------------------------------------------------------------
----------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
To be completed ONLY if Share Certificates not tendered or not
accepted for payment and/or the check for the purchase price of Shares
accepted for payment are to be sent to someone other than the undersigned,
or to the undersigned at an address other than that above.
Mail: / / check, and/or
/ / Share Certificates to:
Name
----------------------------------------------------------------
(PLEASE PRINT)
Address
-------------------------------------------------------------
--------------------------------------------------------------------
(ZIP CODE)
-------------------------------------------------------------------
EMPLOYER IDENTIFICATION OR SOCIAL SECURITY NO.
-------------------------------------------------------------------
<PAGE> 7
SIGN HERE
(ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW)
X ______________________________________________________________________________
X ______________________________________________________________________________
SIGNATURE(S) OF STOCKHOLDER(S)
Dated __________________________________________________________________________
(Must be signed by registered holder(s) exactly as name(s) appear(s) on Share
Certificates or on a security position listing or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by trustee, executor, administrator, guardian, attorney-in-fact,
agent, officer of a corporation or other person acting in a fiduciary or
representative capacity, please provide the following information and see
Instruction 5.)
Name(s) ________________________________________________________________________
(PLEASE PRINT)
Capacity (full title) __________________________________________________________
Address_________________________________________________________________________
________________________________________________________________________________
(ZIP CODE)
Daytime Area Code and Telephone No. ____________________________________________
Employer Identification or Social Security No. _________________________________
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
Authorized Signature ___________________________________________________________
Name ___________________________________________________________________________
(PLEASE PRINT)
Title __________________________________________________________________________
Name of Firm ___________________________________________________________________
Address ________________________________________________________________________
________________________________________________________________________________
(ZIP CODE)
Area Code and Telephone No. ____________________________________________________
Dated __________________________________________________________________________
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. No signature guarantee is required on this
Letter of Transmittal (i) if this Letter of Transmittal is signed by the
registered holder(s) (which term, for purposes of this Section, includes any
participant in any of the Book-Entry Transfer Facilities' systems whose name
appears on a security position listing as the owner of the Shares) of Shares
tendered herewith, unless such registered holder(s) has completed either the box
entitled "Special Payment Instructions" or the box entitled "Special Delivery
Instructions" on the Letter of Transmittal or (ii) if such Shares are tendered
for the account of a financial institution (including most commercial banks,
savings and loan associations and brokerage houses) that is a participant in the
Security Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program
(an "Eligible Institution"). In all other cases, all signatures on this Letter
of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5.
2. Requirements of Tender. This Letter of Transmittal is to be completed
by stockholders either if Share Certificates are to be forwarded herewith or,
unless an Agent's Message is utilized, if delivery of Shares is to be made
pursuant to the procedures for book-entry transfer set forth in Section 3 of the
Offer to Purchase. For a stockholder validly to tender Shares pursuant to the
Offer, either (i) a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any required signature guarantees, or, in
the case of a book-entry transfer, an Agent's Message, and any other required
documents, must be received by the Depositary at one of its addresses set forth
herein prior to the Expiration Date and either the Share Certificates evidencing
tendered Shares must be received by the Depositary at one of such addresses or
Shares must be delivered pursuant to the procedures for book-entry transfer set
forth herein (and a Book-Entry Confirmation received by the Depositary), in each
case prior to the Expiration Date, or (ii) the tendering stockholder must comply
with the guaranteed delivery procedures set forth below and in Section 3 of the
Offer to Purchase. If Share Certificates are forwarded to the Depositary in
multiple deliveries, a properly completed Letter of Transmittal must accompany
each such Delivery.
Stockholders whose Share Certificates are not immediately available or who
cannot deliver their Share Certificates and all other required documents to the
Depositary or complete the procedures for book-entry transfer prior to the
Expiration Date may tender their Shares by properly completing and duly
executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery
procedures set forth in Section 3 of the Offer to Purchase. Pursuant to such
procedures, (i) such tender must be made by or through an Eligible Institution,
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by the Purchaser, must be received by the
Depositary prior to the Expiration Date and (iii) the Share Certificates for all
tendered Shares, in proper form for transfer (or a Book-Entry Confirmation with
respect to all such Shares), together with a properly completed and duly
executed Letter of Transmittal or facsimile thereof) with any required signature
guarantees (or, in the case of a book-entry transfer, an Agent's Message, and
any other required documents are received by the Depositary within three trading
days after the date of execution of the Notice of Guaranteed Delivery, all as
provided in Section 3 of the Offer to Purchase. A "trading day" is any day on
which the Nasdaq National Market operated by the National Association of
Securities Dealers, Inc. is open for business.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgement from the participant in such Book-Entry
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Purchaser may enforce such agreement against the participant.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ANY OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER
FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL
BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING IN
THE CASE A OF BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS
BY MAIL,
<PAGE> 9
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All tendering stockholders, by execution of
this Letter of Transmittal (or facsimile thereof), waive any right to receive
any notice of the acceptance of their Shares for payment.
3. Inadequate Space. If the space provided herein is inadequate, the Share
Certificate numbers, the number of Shares evidenced by such Share Certificates
and the number of Shares tendered should be listed on a separate schedule
attached hereto.
4. Partial Tenders (Applicable to Certificate Stockholders Only). If fewer
than all the Shares evidenced by any Share Certificate submitted are to be
tendered, fill in the number of Shares that are to be tendered in the box
entitled "Number of Shares Tendered." In any such case, new Share Certificate(s)
for the remainder of the Shares that were evidenced by the old Share
Certificate(s) will be sent to the registered holder, unless otherwise provided
in the appropriate box on this Letter of Transmittal, as soon as practicable
after the expiration of the Offer. All Shares represented by Share Certificates
delivered to the Depositary will be deemed to have been tendered unless
otherwise indicated.
5. Signatures on Letter of Transmittal, Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature must correspond with the name as written on the
face of the Share Certificate(s) without any change whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Shares are registered in different names on several Share
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of Share
Certificates.
If this Letter of Transmittal or any Share Certificates or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to the Purchaser of their authority so to act must be submitted.
If this Letter of Transmittal is signed by the registered owner(s) of the
Shares listed and transmitted hereby, no endorsements of Share Certificates or
separate stock powers are required unless payment or Share Certificates for
Shares not tendered or accepted for payment are to be issued to a person other
than the registered owner(s). Signatures on such Share Certificates or stock
powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Share Certificates listed, the Share Certificates
must be endorsed or accompanied by appropriate stock powers, in either case
signed exactly as the name or names of the registered owner or owners appear on
the Share Certificates. Signatures on such Share Certificates or stock powers
must be guaranteed by an Eligible Institution.
6. Stock Transfer Taxes. The Purchaser will pay any stock transfer taxes
with respect to the transfer and sale of Shares to it or its order pursuant to
the Offer. If, however, payment of the purchase price of any Share is to be made
to, or if Share Certificates evidencing Shares not tendered or accepted for
payment are to be registered in the name of, any person(s) other than the
registered holder(s), or if tendered Share Certificates are registered in the
name(s) of any person(s) other than the person(s) signing this Letter of
Transmittal, the amount of any stock transfer taxes (whether imposed on the
registered holder(s) or such person(s)) payable on account of the transfer to
such person(s) will be deducted from the purchase price of such Shares unless
satisfactory evidence of the payment of such taxes or exemption therefrom is
submitted.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Share Certificates evidencing the
Shares tendered hereby.
<PAGE> 10
7. Special Payment and Delivery Instructions. If a check is to be issued
in the name of, and/or Share Certificates evidencing Shares not accepted for
payment are to be returned to, a person other than the signer of this Letter of
Transmittal or if a check is to be sent and/or such Share Certificates are to be
returned to a person other than the signer of this Letter of Transmittal or to
an address other than that shown above, the appropriate boxes on this Letter of
Transmittal should be completed. Any stockholder(s) delivering Shares by
book-entry transfer may request that Shares not accepted for payment be credited
to such account maintained at a Book-Entry Transfer Facility as such
stockholder(s) may designate.
8. Waiver of Conditions. The Purchaser reserves the absolute right in its
sole discretion to waive any of the specified conditions of the Offer, in whole
or in part, in the case of any Shares tendered.
9. 31% Backup Withholding. In order to avoid "backup withholding" of
federal income tax on payments of cash pursuant to the Offer, a stockholder
surrendering Shares in the Offer must, unless an exemption applies, provide the
Depositary with such stockholder's correct taxpayer identification number
("TIN") on Substitute Form W-9 in this Letter of Transmittal and certify under
penalties of perjury that such TIN is correct and that such stockholder is not
subject to backup withholding. If a stockholder does not provide such
stockholder's correct TIN or fails to provide the certifications described
above, the Internal Revenue Service (the "IRS") may impose a $50 penalty on such
stockholder and payment of cash to such stockholder pursuant to the Offer may be
subject to backup withholding of 31%.
Backup withholding is not an additional income tax. Rather, the amount of
the backup withholding can be credited against the federal income tax liability
of the person subject to the backup withholding, provided that the required
information is given to the IRS. If backup withholding results in an overpayment
of tax, a refund can be obtained by the stockholder upon filing an income tax
return.
The stockholder is required to give the Depositary the TIN (i.e., social
security number or employer identification number) of the record owner of the
Shares. If the Shares are held in more than one name or are not in the name of
the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
number to report.
The box in Part 3 of the Substitute Form W-9 may be checked if the
tendering stockholder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part 3 is checked,
the stockholder or other payee must also complete the Certificate of Awaiting
Taxpayer Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Depositary will
withhold 31% on all payments made prior to the time a properly certified TIN is
provided to the Depositary. However, such amounts will be refunded to such
stockholder if a TIN is provided to the Depositary within 60 days.
Certain stockholders (including, among others, all corporations and certain
foreign individuals and entities) are not subject to backup withholding.
Noncorporate foreign stockholders should complete and sign the main signature
form and a Form W-8, Certificate of Foreign Status, a copy of which may be
obtained from the Depositary, in order to avoid backup withholding. See the
enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for more instructions.
10. Requests for Assistance or Additional Copies. Questions and requests
for assistance may be directed to the Information Agent or the Dealer Manager at
their respective addresses set forth below. Additional copies of the Offer to
Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and the
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 may be obtained from the Information Agent or from brokers, dealers, or
commercial banks and trusts.
11. Lost, Destroyed or Stolen Certificates. If any Share Certificate has
been lost, destroyed or stolen, the stockholder should promptly notify the
Depositary by checking the box immediately preceding the special payment/special
delivery instructions and indicating the number of Shares lost. The stockholder
will then be instructed as to the steps that must be taken in order to replace
the Share Certificate. This Letter of Transmittal and related documents cannot
be processed until the procedures for replacing lost or destroyed certificates
have been followed.
<PAGE> 11
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF), TOGETHER WITH
ANY REQUIRED SIGNATURE GUARANTEES, OR, IN THE CASE OF A BOOK-ENTRY TRANSFER, AN
AGENT'S MESSAGE, AND ANY OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE
DEPOSITARY PRIOR TO THE EXPIRATION DATE AND EITHER SHARE CERTIFICATES EVIDENCING
TENDERED SHARES MUST BE RECEIVED BY THE DEPOSITARY OR SHARES MUST BE DELIVERED
PURSUANT TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER, IN EACH CASE PRIOR TO THE
EXPIRATION DATE, OR THE TENDERING STOCKHOLDER MUST COMPLY WITH THE PROCEDURES
FOR GUARANTEED DELIVERY.
<PAGE> 12
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: HYUNDAI ACQUISITION, INC.
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TAXPAYER -------------------------------
FORM W-9 IDENTIFICATION NUMBER ("TIN") IN THE BOX SOCIAL SECURITY NUMBER(S)
DEPARTMENT OF THE TREASURY AT RIGHT AND CERTIFY BY SIGNING AND DATING OR
INTERNAL REVENUE SERVICE BELOW -------------------------------
PAYOR'S REQUEST FOR TAXPAYER EMPLOYER IDENTIFICATION
IDENTIFICATION NUMBER NUMBER(S)
- -------------------------------------------------------------------------------------------------------------
PART 2 -- Certification -- Under penalties of perjury, I certify that: PART 3 --
(1) the number shown on this form is my correct Taxpayer Identification Awaiting TIN
Number (or I am waiting for a number to be issued to me) and / /
(2) I am not subject to backup withholding because (a) I am exempt from ---------------------------------
backup withholding or (b) I have not been notified by the Internal PART 4 --
Revenue Service (the "IRS") that I am subject to backup withholding Exempt TIN
as a result of a failure to report all interest or dividends or (c) / /
the IRS has notified me that I am no longer subject to backup
withholding.
- -------------------------------------------------------------------------------------------------------------
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) in Part 2 above if you have been notified by the
IRS that you are subject to backup withholding because of under reporting interest or dividends on your tax
returns. However, if after being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS stating that you are no longer subject to backup withholding, do
not cross out such item (2). If you are exempt from backup withholding, check the box in Part 4 above.
- -------------------------------------------------------------------------------------------------------------
Signature Date
---------------------------------------------------------------------------------- ---------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
- ------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand
that, if I do not provide a taxpayer identification number to the Depositary,
31% of all reportable payments made to me will be withheld, but will be refunded
if I provide a certified taxpayer identification number within 60 days.
Signature Date
-------------------------------------------- ----------------
- -----------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
INFORMATION.
<PAGE> 13
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
Banks and Brokers Call Collect (212) 269-5550
All Others Call Toll Free (800) 290-6428
The Dealer Manager for the Offer is:
MERRILL LYNCH & CO.
World Financial Center
North Tower
New York, New York 10281-1305
(212) 236-4565 (Call Collect)
<PAGE> 1
Exhibit 6
AMENDMENT No. 2
TO
RIGHTS AGREEMENT
This AMENDMENT No. 2 TO RIGHTS AGREEMENT (the "Amendment") is entered
into as of the 2nd day of November, 1995, between Maxtor Corporation, a Delaware
corporation (the "Company"), and The First National Bank of Boston (the "Rights
Agent"). Capitalized terms not defined herein shall have the meanings given them
in the Rights Agreements (as defined below).
RECITALS
WHEREAS, pursuant to that certain Rights Agreement dated as of January
27, 1988 (the "Prior Agreement"), the Board of Directors of the Company on
January 27, 1988 (i) authorized the issuance and declared a dividend of one
right (a "Right") for each share of the Common Stock of the Company outstanding
as of the close of business on February 8, 1988, each Right representing the
right to purchase one share of Common Stock of the Company upon the terms and
subject to the conditions set forth in the Rights Agreement, and (ii) further
authorized the issuance of one Right with respect to each share of Common Stock
of the Company that shall become outstanding between February 8, 1988, and the
Distribution Date.
WHEREAS, the Prior Agreement was amended on September 10, 1993 (the
Rights Agreement as amended is hereinafter referred to as the "Rights
Agreement").
WHEREAS, in accordance with Section 21 of the Rights Agreement,
Chemical Trust Company of California resigned as Rights Agent and The First
National Bank of Boston was appointed as the second successor Rights Agent
effective May 10, 1993;
WHEREAS, pursuant to Section 26 of the Rights Agreement, the Company
and the Rights Agent may, prior to the time a person becomes an Acquiring
Person, amend any provision of the Rights Agreement.
WHEREAS, to the knowledge of the Board of Directors of the Company, no
person has become an Acquiring Person.
WHEREAS, the Board of Directors has determined that it is in the best
interest of the Company and its stockholders to amend the Rights Agreement as
set forth herein immediately prior to and in connection with the execution of
(i) that certain Agreement and Plan of Merger dated as of November 2, 1995, as
the same may be amended from time to time (the "Merger Agreement") among
Hyundai Electronics America, a California corporation ("HEA"), Hyundai
Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary of HEA
("Sub") and the Company (pursuant to which Merger Agreement, among other
things, Sub shall merge with and into the Company (the "Merger")),
-1-
<PAGE> 2
WHEREAS, the Company has requested that the Rights Agreement be amended
in accordance with Section 26 of the Rights Agreement, as set forth herein, and
the Rights Agent is willing to amend the Rights Agreement as set forth herein.
AGREEMENT
NOW, THEREFORE, the parties, intending to be legally bound, hereby
agree as follows:
1. Section 7(a) of the Rights Agreement is hereby amended to read
in its entirely as follows:
"(a) The Rights shall become exercisable, and may be
exercised to purchase Common Stock, except as otherwise provided herein, in
whole or in part at any time after the Distribution Date upon surrender of the
Right Certificate, with the form of election to purchase on the reverse side
thereof duly executed (with such signature duly guaranteed), to the Rights
Agent at Shareholder Services Division, P.O. Box 1865, Boston, Massachusetts
02105-1865, together with payment of the Purchase Price with respect to each
Right exercised, subject to adjustment as hereinafter provided, at or prior to
the close of business on the (i) February 28, 1998 (the "Final Expiration
Date"), (ii) the time at which the Rights are redeemed as provided in Section
23 hereof (such date being herein referred to as the "Redemption Date") or
(iii) immediately prior to the Effective Time (as defined in that certain
Agreement and Plan of Merger dated as of November 2, 1995, as the same may be
amended from time to time (the "Merger Agreement") among Hyundai Electronics
America, a California corporation ("HEA"), Hyundai Acquisition, Inc., a
Delaware corporation and a wholly owned subsidiary of HEA, and the Company).
2. Section 33 of the Rights Agreement is hereby added as follows:
"33. Hyundai Electronics America Transactions.
Notwithstanding any provision of this Rights Agreement to the contrary, no
Distribution Date, Stock Acquisition Date or Triggering Event shall be deemed
to have occurred, neither HEA nor any Affiliate or Associate of HEA shall be
deemed to have become an Acquiring Person and no holder of Rights shall be
entitled to exercise such Rights under or be entitled to any rights pursuant to
Section 7(a), 11(a) or 13(a) of this Rights Agreement solely by reason of (x)
the approval, execution, delivery or effectiveness of the Merger Agreement or
(y) the consummation of the transactions contemplated under the Merger
Agreement in accordance with the terms thereof (including, without limitation,
the consummation of the Offer, as such term is defined in the Merger Agreement,
and the Merger), provided that if, after November 2, 1995, HEA or any of its
Subsidiaries or any of their respective directors becomes the Beneficial Owner
of any shares of Common Stock of the Company (other than by reason of the
approval, execution, delivery or effectiveness of the Merger Agreement or the
consummation of any of the transactions contemplated thereby or in any
transaction in conformity with Section 7.2 of that certain Stock Purchase
Agreement dated as of September 10, 1993 among the Company,
-2-
<PAGE> 3
Hyundai Heavy Industries Co., Ltd., Hyundai Corporation and Hyundai Merchant
Marine Co., Ltd.) the provisions of this Section 33 (other than this proviso)
shall not be applicable."
3. This Amendment shall be deemed effective as of November __, 1995
as if executed by both parties on such date. Except as amended hereby, the
Rights Agreement shall remain unchanged and shall remain in full force and
effect.
4. This Amendment may be executed in any number of counterparts, each
of which shall be an original, but all of which together shall constitute one
instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed themselves or by their respective duly authorized representatives as
of the date first above written.
MAXTOR CORPORATION
By: /s/ DR. CHONG SUP PARK
-----------------------------------------
Dr. Chong Sup Park
Its: President and Chief Executive Officer
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ GEOFFREY ANDERSON
-----------------------------------------
Geoffrey Anderson
Its: Senior Account Manager
<PAGE> 1
November 8, 1995
Dear Stockholders:
I am pleased to inform you that, on November 2, 1995, the Company entered
into an Agreement and Plan of Merger with Hyundai Electronics America ("HEA")
and Hyundai Acquisition, Inc., a wholly-owned subsidiary of HEA ("Hyundai
Acquisition"), pursuant to which Hyundai Acquisition is commencing a cash tender
offer (the "Offer") to purchase all outstanding shares of the Company's Common
Stock at $6.70 per share. Following the completion of the Offer, upon the terms
and subject to the conditions of the Merger Agreement, Hyundai Acquisition will
be merged (the "Merger") into the Company, and each share of the Company's
Common Stock not purchased in the Offer (other than any shares owned by the
Company or any of its subsidiaries, Hyundai Acquisition or any of its
subsidiaries and any dissenting stockholders) will be converted into the right
to receive $6.70 per share in cash, without interest. Upon consummation of these
transactions, HEA and other companies in the Hyundai business group will own the
entire equity interest in the Company.
The Company's Board of Directors, based on the unanimous recommendation of
a Special Committee comprised of directors not employed by the Company, HEA or
other companies in the Hyundai business group, has unanimously approved the
Offer, the Merger and the Merger Agreement, determined that the Offer and Merger
are fair to and in the best interests of the Company's stockholders, and
recommends that stockholders accept the Offer and tender their shares pursuant
to the Offer.
In arriving at their decisions, the Special Committee and the Board of
Directors gave careful consideration to a number of factors described in the
attached Schedule 14D-9 that is being filed today with the Securities and
Exchange Commission. Among other things, the Special Committee considered the
opinion of Bear Stearns & Co. Inc. that the consideration to be offered to the
stockholders of the Company (other than the holders of Class A Common Stock,
which are companies in the Hyundai business group), in the Offer and the Merger
is fair, from a financial point of view, to such holders.
Accompanying this letter, in addition to the attached Schedule 14D-9
relating to the Offer, is the Offer to Purchase, dated November 8, 1995, of
Hyundai Acquisition, together with related materials including a Letter of
Transmittal to be used for tendering your shares. These documents set forth the
terms and conditions of the Offer and the Merger, provide detailed information
about these transactions and include instructions as to how to tender your
shares. I urge you to read the enclosed materials carefully.
Very truly yours,
Dr. C. S. Park
President and Chief Executive Officer
<PAGE> 1
GUARANTY AND RECOURSE AGREEMENT
This Guaranty and Recourse Agreement (this "Agreement") is dated as of
August 31, 1995 by and between Maxtor Corporation ("Maxtor") and Hyundai
Electronics Industries Co., Ltd. ("HEI").
RECITALS
A. Maxtor proposes to borrow up to One Hundred Million Dollars
($100,000,000) from time to time from Citibank and/or certain financial
institutions syndicated by Citibank (individually, a "Lender" and collectively,
the "Lenders") pursuant to that certain Credit Agreement dated as of August 31,
1995, (the "Credit Agreement").
B. As a condition to making any loans under the Credit Agreement, the
Lenders have requested HEI to enter into an Unconditional Guaranty dated as of
August 31, 1995 (the "Guaranty"). HEI has agreed to do so, provided Maxtor
agrees to reimburse HEI for amounts that HEI pays under the Guaranty, and
secures that reimbursement obligation with certain assets, all as set forth in
this Agreement.
AGREEMENT
NOW, THEREFORE, the parties agree as follows:
1. Guaranty. HEI shall execute and deliver a Guaranty to the Lenders
simultaneously with Maxtor's execution and delivery of the Credit Agreement;
provided that HEI shall not be required to guarantee an aggregate principal
indebtedness in excess of One Hundred Million Dollars ($100,000,000). HEI shall
cause the Guaranty to remain in full force and effect for a period of 364 days
from the date of the Guaranty, to be renewed annually, subject to HEI's consent
which shall not be withheld so long as Maxtor is not in default with respect to
its obligations under this Agreement and its financial performance has not
materially deteriorated, for a total term of up to three (3) years from the date
of the Guaranty. The issuance of the Guaranty will be subject to the negotiation
of mutually satisfactory definitive agreements between HEI and the Lenders and
to HEI's satisfaction with the definitive terms of the Credit Agreement. Any
amendment, waiver or release under the Credit Agreement which would materially
adversely affect the rights of HEI under the Guaranty will be subject to HEI's
consent, which consent will not be unreasonably withheld.
2. Reimbursement. Within ninety (90) days after the date that HEI pays the
Lenders in satisfaction of its obligations under the Guaranty, Maxtor shall
reimburse HEI for any and all such payments. Such ninetieth day following such
payment by HEI to the Lenders is referred to in this Agreement as the
"Reimbursement Date." All amounts payable hereunder are payable in lawful money
of the United States of America and shall be paid to HEI by wire transfer of
same day funds to an account designated by HEI to Maxtor, and will include
interest on the amount paid by HEI under the Guaranty from the date of HEI's
payment and Maxtor's reimbursement or other satisfaction at Citibank's base rate
plus 2% per year, subject to any applicable limit on the permissible amount of
interest.
3. Primary Recourse. Effective on the Reimbursement Date, HEI, at HEI's
sole discretion, may exercise the right to receive from Maxtor that number of
shares (the "Shares") of common stock of Maxtor as will permit HEI and its
Affiliates to own no greater than Forty-five Percent (45%) of the outstanding
capital stock of Maxtor, subject in all cases to the terms and conditions of the
Stock Purchase Agreement dated as of September 10, 1993, between HEI and Maxtor.
The price per share for the Shares shall be equal to the lesser of (i) the
closing price of the shares of Maxtor on the date of the Guaranty or (ii) the
average of the daily closing price of the Shares for the ninety (90) days
preceding the Reimbursement Date. "Affiliates" under this Section 3 means any
person or entity that owns or controls
1
<PAGE> 2
HEI and any person or entity that is directly or indirectly controlled by or is
under common control with HEI. HEI shall exercise the right to receive stock
under this Section 3 by delivering written notice to Maxtor not later than
thirty (30) days after the Reimbursement Date specifying such election. Within
thirty (30) days thereafter, Maxtor shall cause the Shares to be issued to HEI
in consideration of the cancellation of the portion of the indebtedness that
Maxtor owes to HEI pursuant to Section 1 hereof equal to the aggregate value of
the Shares. Maxtor shall maintain a sufficient number of authorized shares at
all times during the term of this Agreement to permit Maxtor to satisfy its
obligations hereunder.
4. Secondary Recourse. If (i) HEI exercises its rights under Section 3
hereof, and (ii) there remains after such exercise a balance owing to HEI under
Section 1 hereof, then Maxtor will assign to HEI a portion of the securities
described on Exhibit A attached hereto (the "Subsidiary Shares") selected by
Maxtor with a value equal to such outstanding balance. HEI and Maxtor will
promptly select a mutually acceptable investment banking firm to determine the
fair market value of the Subsidiary Shares. Promptly upon review by HEI and
Maxtor of such valuation, Maxtor shall execute such documents as are necessary
to effect the assignment provided for in this Section 4. Nothing in Section 3 or
this Section 4 will preclude HEI from exercising any remedy otherwise available
under applicable law for any balance owing that is not satisfied under such
provisions, including without limitation remedies available by means of
subrogation.
5. Right to Sell. If Maxtor elects to sell or otherwise dispose of all or
any portion of its interest in the Subsidiary Shares, Maxtor and HEI will
consult in good faith prior to any consummation of such sale or disposition. HEI
will consent to such sale or disposition if either (i) Maxtor provides mutually
acceptable assets to be substituted for the Subsidiary Shares to serve as
secondary recourse hereunder, and the amount of the Credit Agreement and the
Guaranty is reduced as mutually agreed, or (ii) the indebtedness under the
Credit Agreement will be satisfied in full with the proceeds of such sale or
disposition. HEI will execute such releases as Maxtor requests to permit Maxtor
to dispose of the Subsidiary Shares free and clear of any interest that HEI may
have in the Subsidiary Shares.
6. Notices. Any notice required or desired to be served, given or delivered
hereunder shall be in the form and manner specified below, and shall be
addressed to the party to be notified as follows:
If HEI: Hyundai Electronics Industries Co., Ltd.
K.S. Yoo, Director, Corporate Finance &
Coordination Office
FAX: 011-822-398-4372
If to Maxtor: Maxtor Corporation
Melonie Brophy
V.P. Finance & Corporate Treasurer
FAX: 408-432-4480
or to such other address as each party designates by notice in the manner herein
prescribed. Notice shall be deemed given hereunder if (i) delivered personally
or otherwise actually received, (ii) sent by overnight delivery service, or
(iii) sent via telecopy machine. Notice telecopied as provided in clause (iii)
above shall be effective upon receipt of such telecopy if the duplicate signed
copy is sent under clause (ii) above. Notice given in any other manner described
herein shall be effective upon receipt by the addressee thereof;
provided, however, that if any notice is tendered to an
addressee and delivery thereof is refused by such addressee, such notice shall
be effective upon such tender unless expressly set forth in such notice.
"Business Day" means any day other than (i) a Saturday, Sunday, or (ii) a day on
which banks in San Francisco, California are required to be closed.
2
<PAGE> 3
7. Additional Guaranties. If less than One Hundred Million Dollars
($100,000,000) is available to be borrowed under the Credit Agreement, then
Maxtor shall be entitled to seek additional loans from one or more financial
institutions, and HEI shall provide one or more guaranties of Maxtor's
obligations under such agreements, provided the aggregate principal amount
guaranteed shall not exceed One Hundred Million Dollars ($100,000,000) and the
terms of such agreements are not more burdensome than the terms of the Credit
Agreement, as reasonably determined by HEI to its satisfaction. The terms of
this Agreement shall govern the rights and obligations of Maxtor and HEI with
respect to such additional guaranties.
8. Subordination. HEI's rights hereunder are subordinate to the rights of
the Lenders under the Credit Agreement. HEI shall not exercise any rights
against Maxtor with respect to the Subsidiary Shares or otherwise for so long as
any amounts are owing to the Lenders under the Credit Agreement.
9. Miscellaneous Provisions.
(a) Entire Agreement; Amendments. This Agreement contains all of the
terms and conditions agreed upon by the parties relating to its subject matter
and supersedes all prior or contemporaneous agreements, negotiations,
correspondence, understandings and communications of the parties, whether oral
or written, respecting that subject matter. This Agreement may not be amended or
modified, nor may any of its terms be waived, except by written instruments
signed by Maxtor and HEI.
(b) Severability. If any provision of this Agreement is determined to be
invalid, illegal or unenforceable, in whole or in part, the validity, legality
and enforceability of any of the remaining provisions or portions of this
Agreement shall not in any way be affected or impaired thereby and this
Agreement shall nevertheless be binding between Maxtor and HEI.
(c) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, as such laws are applied to
agreements entered into and to be performed solely in California by California
residents.
(d) Binding Effect. This Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective successors and
assigns, provided that the benefits of this Agreement are personal to Maxtor and
cannot be assigned.
(e) Counterparts. This Agreement may be signed in any number of
counterparts, each of which will constitute an original, and all of which, taken
together, shall constitute one and the same agreement with the same effect as if
the signatures thereon were upon the same instrument.
(f) Confidentiality. This Agreement and the terms hereof are subject to
the confidentiality provisions of that certain Confidentiality Agreement between
Maxtor and HEI dated as of May 1, 1993.
(g) Corporate Approval. All of HEI's obligations under this Agreement
are subject to the terms of this Agreement and the Guaranty, and all actions
needed to carry it out, being unanimously approved by the directors of Maxtor
not affiliated with HEI and to any other appropriate corporate approvals.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
HYUNDAI ELECTRONICS INDUSTRIES CO., LTD.
By: /s/ K.S. Yoo
-----------------------------------------
Title: Director of Corporate Planning
-----------------------------------------
MAXTOR CORPORATION
By: /s/ Melonie C. Brophy
-----------------------------------------
Title: V.P. Finance & Treasurer
-----------------------------------------
4
<PAGE> 1
COPY AS EXECUTED
U.S. $100,000,000
CREDIT AGREEMENT
Dated as of August 31, 1995
Among
MAXTOR CORPORATION
as Borrower
and
THE INITIAL LENDERS NAMED HEREIN
AND THE ISSUING BANK
as Initial Lenders and the Issuing Bank
and
CITIBANK, N.A.
as Administrative Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
<S> <C>
SECTION 1.01. Certain Defined Terms................................................................... 1
SECTION 1.02. Computation of Time Periods............................................................. 15
SECTION 1.03. Accounting Terms........................................................................ 15
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES AND THE LETTERS OF CREDIT
SECTION 2.01. The Revolving Credit Advances........................................................... 15
SECTION 2.02. Making the Revolving Credit Advances.................................................... 16
SECTION 2.03. The Competitive Bid Advances............................................................ 17
SECTION 2.04. Fees.................................................................................... 22
SECTION 2.05. Termination, Reduction or Extension of the Commitments.................................. 23
SECTION 2.06. Repayment of Revolving Credit Advances.................................................. 25
SECTION 2.07. Interest on Revolving Credit Advances................................................... 25
SECTION 2.08. Interest Rate Determination............................................................. 26
SECTION 2.09. Optional Conversion of Revolving Credit Advances........................................ 27
SECTION 2.10. Prepayments............................................................................. 28
SECTION 2.11. Increased Costs......................................................................... 28
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
SECTION 2.12. Illegality.............................................................................. 29
SECTION 2.13. Payments and Computations............................................................... 30
SECTION 2.14. Taxes................................................................................... 31
SECTION 2.15. Sharing of Payments, Etc................................................................ 33
SECTION 2.16. Use of Proceeds......................................................................... 34
SECTION 2.17. Issuance of and Drawings and Reimbursement Under Letters of Credit...................... 34
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Sections 2.01, 2.03 and 2.17................... 39
SECTION 3.02. Conditions Precedent to Each Revolving Credit Borrowing and Issuance.................... 41
SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing.................................. 41
SECTION 3.04. Determinations Under Section 3.01....................................................... 42
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower.......................................... 43
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants.................................................................. 46
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
SECTION 5.02. Negative Covenants..................................................................... 50
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default....................................................................... 53
SECTION 6.02. Actions in Respect of the Letters of Credit upon Default................................ 56
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. Authorization and Action................................................................ 57
SECTION 7.02. Administrative Agent's Reliance, Etc.................................................... 57
SECTION 7.03. Citibank and Affiliates................................................................. 58
SECTION 7.04. Lender and Issuing Bank Credit Decision................................................. 58
SECTION 7.05. Indemnification......................................................................... 58
SECTION 7.06. Successor Administrative Agent.......................................................... 60
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc......................................................................... 61
SECTION 8.02. Notices, Etc............................................................................ 61
SECTION 8.03. No Waiver; Remedies..................................................................... 62
SECTION 8.04. Costs and Expenses...................................................................... 62
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
SECTION 8.05. Right of Set-off........................................................................ 64
SECTION 8.06. Binding Effect.......................................................................... 64
SECTION 8.07. Assignments and Participations.......................................................... 64
SECTION 8.08. Confidentiality......................................................................... 68
SECTION 8.09. Governing Law........................................................................... 68
SECTION 8.10. Execution in Counterparts............................................................... 68
SECTION 8.11. Jurisdiction, Etc....................................................................... 68
SECTION 8.12. Waiver of Jury Trial.................................................................... 69
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
Schedules
- ---------
<S> <C>
Schedule I - List of Applicable Lending Offices
Schedule 4.01(c) - Required Authorizations and Approvals
Schedule 4.01(e) - Material Adverse Changes
Schedule 5.02(a) - Existing Liens
Schedule 5.02(b)(iii)(B) - Permitted Debt Transactions
Schedule 5.02(b)(iii)(D) - Surviving Debt
Exhibits
- --------
Exhibit A-1 - Form of Revolving Credit Note
Exhibit A-2 - Form of Competitive Bid Note
Exhibit B-1 - Form of Notice of Revolving Credit Borrowing
Exhibit B-2 - Form of Notice of Competitive Bid Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Notice of Extension of Termination Date
Exhibit E - Form of Guaranty
Exhibit F-1 - Form of Opinion of New York Counsel for the Borrower
Exhibit F-2 - Form of Opinion of General Counsel to the Borower
Exhibit G-1 - Form of Opinion of Counsel for the Guarantor
Exhibit G-2 - Form of Opinion of Corporate Counsel for the
Guarantor
</TABLE>
v
<PAGE> 7
CREDIT AGREEMENT
Dated as of August 31, 1995
MAXTOR CORPORATION, a Delaware corporation (the "Borrower"),
the banks, financial institutions and other institutional lenders listed on the
signature pages hereof as the Initial Lenders (the "Initial Lenders"), the
Issuing Bank (the "Issuing Bank") and CITIBANK, N.A. ("Citibank"), as
administrative agent (the "Administrative Agent") for the Lenders and the
Issuing Bank (as hereinafter defined), agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms As used in this
Agreement, the following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of the terms
defined):
"Administrative Agent's Account" means the account of the
Administrative Agent maintained by the Administrative Agent at Citibank
with its office at 1 Court Square, 7th Floor, Zone 1, Long Island City,
New York 11120, Account No. 36852248, Attention: John Makrinos.
"Advance" means a Revolving Credit Advance, a Competitive Bid
Advance or a Letter of Credit Advance.
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, controls, is controlled by or is under common
control with such Person or is a director or officer of such Person.
For purposes of this definition, the term "control" (including the
terms "controlling", "controlled by" and "under common control with")
of a Person means the possession, direct or indirect, of the power to
vote 5% or more of the Voting Stock of such Person or to direct or
cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or
otherwise.
"Applicable Lending Office" means, with respect to each Lender
and the Issuing Bank, such Lender's and the Issuing Bank's Domestic
Lending Office in the case of a
<PAGE> 8
Base Rate Advance and such Lender's Eurodollar Lending Office in the
case of a Eurodollar Rate Advance and, in the case of a Competitive Bid
Advance, the office of such Lender notified by such Lender to the
Administrative Agent as its Applicable Lending Office with respect to
such Competitive Bid Advance.
"Applicable Margin" means, as of any date, a percentage per
annum equal to 0% for Base Rate Advances and .3% for Eurodollar Rate
Advances.
"Assigning Lender" has the meaning specified in Section
8.07(c).
"Assignment and Acceptance" means an assignment and acceptance
entered into by a Lender or the Issuing Bank and an Eligible Assignee,
and accepted by the Administrative Agent, in substantially the form of
Exhibit C hereto.
"Available Amount" of any Letter of Credit means, at any time,
the maximum amount available to be drawn under such Letter of Credit at
such time (assuming compliance at such time with all conditions to
drawing).
"Base Rate" means a fluctuating interest rate per annum in
effect from time to time, which rate per annum shall at all times be
equal to the highest of:
(a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time, as
Citibank's base rate;
(b) the sum (adjusted to the nearest 1/16 of 1% or, if
there is no nearest 1/16 of 1%, to the next higher 1/16 of 1%)
of (i) 1/2 of 1% per annum, plus (ii) the rate obtained by
dividing (A) the latest three-week moving average of secondary
market morning offering rates in the United States for
three-month certificates of deposit of major United States
money market banks, such three-week moving average (adjusted to
the basis of a year of 360 days) being determined weekly on
each Monday (or, if such day is not a Business Day, on the next
succeeding Business Day) for the three-week period ending on
the previous Friday by Citibank on the basis of such rates
reported by certificate of deposit dealers to and published by
the Federal Reserve Bank of New York or, if such publication
shall be suspended or terminated, on the basis of quotations
for such rates received by Citibank from three New York
certificate of deposit dealers of recognized standing selected
by Citibank, by (B) a percentage equal to 100% minus the
average of the daily percentages specified during such three-
2
<PAGE> 9
week period by the Board of Governors of the Federal Reserve
System (or any successor) for determining the maximum reserve
requirement (including, but not limited to, any emergency,
supplemental or other marginal reserve requirement) for
Citibank with respect to liabilities consisting of or including
(among other liabilities) three-month U.S. dollar non-personal
time deposits in the United States, plus (iii) the average
during such three-week period of the annual assessment rates
estimated by Citibank for determining the then current annual
assessment payable by Citibank to the Federal Deposit Insurance
Corporation (or any successor) for insuring U.S. dollar
deposits of Citibank in the United States; and
(c) 1/2 of one percent per annum above the Federal
Funds Rate.
"Base Rate Advance" means a Revolving Credit Advance or Letter
of Credit Advance that bears interest as provided in Section
2.07(a)(i).
"Borrowing" means a Revolving Credit Borrowing or a Competitive
Bid Borrowing.
"Business Day" means a day of the year on which banks are not
required or authorized by law to close in New York City, San Francisco
or Philadelphia and, if the applicable Business Day relates to any
Eurodollar Rate Advances, on which dealings are carried on in the
London interbank market.
"Capitalized Leases" means all leases that have been or should
be, in accordance with GAAP, recorded as capitalized leases.
"CSI" means Citicorp Securities, Inc.
"Commitment" means a Revolving Credit Commitment or a Letter of
Credit Commitment.
"Competitive Bid Advance" means an advance by a Lender to the
Borrower as part of a Competitive Bid Borrowing resulting from the
competitive bidding procedure described in Section 2.03 and refers to a
Fixed Rate Advance or a LIBO Rate Advance.
"Competitive Bid Borrowing" means a borrowing consisting of
simultaneous Competitive Bid Advances from each of the Lenders whose
offer to make one or more
3
<PAGE> 10
Competitive Bid Advances as part of such borrowing has been accepted
under the competitive bidding procedure described in Section 2.03.
"Competitive Bid Note" means a promissory note of the Borrower
payable to the order of any Lender, in substantially the form of
Exhibit A-2 hereto, evidencing the indebtedness of the Borrower to such
Lender resulting from a Competitive Bid Advance made by such Lender.
"Competitive Bid Reduction" has the meaning specified in
Section 2.03(c).
"Confidential Information" means information that the Borrower
furnishes to the Administrative Agent, any Lender or the Issuing Bank
in a writing designated as confidential, but does not include any such
information that is or becomes generally available to the public or
that is or becomes available to the Administrative Agent, such Lender
or the Issuing Bank from a source other than the Borrower.
"Consolidated" refers to the consolidation of accounts in
accordance with GAAP.
"Convert", "Conversion" and "Converted" each refers to a
conversion of Revolving Credit Advances of one Type into Revolving
Credit Advances of the other Type pursuant to Section 2.08 or 2.09.
"Debt" of any Person means, without duplication, (a) all
indebtedness of such Person for borrowed money, (b) all obligations of
such Person for the deferred purchase price of property or services,
(c) all obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments, (d) all obligations of such
Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person
(even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale
of such property), (e) all obligations of such Person as lessee under
leases that have been or should be, in accordance with GAAP, recorded
as capital leases, (f) all obligations, contingent or otherwise, of
such Person in respect of acceptances, letters of credit or similar
extensions of credit, (g) all Debt of others referred to in clauses (a)
through (f) above or clause (h) below guaranteed directly or indirectly
in any manner by such Person, or in effect guaranteed directly or
indirectly by such Person through an agreement (1) to pay or purchase
such Debt or to advance or supply funds for the payment or purchase of
such Debt, (2) to purchase, sell or lease (as lessee or lessor)
4
<PAGE> 11
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Debt or to assure the
holder of such Debt against loss, (3) to supply funds to or in any
other manner invest in the debtor (including any agreement to pay for
property or services irrespective of whether such property is received
or such services are rendered) or (4) otherwise to assure a creditor
against loss, and (h) all Debt referred to in clauses (a) through (g)
above secured by (or for which the holder of such Debt has an existing
right, contingent or otherwise, to be secured by) any Lien on property
(including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable
for the payment of such Debt.
"Declining Lender" has the meaning specified in Section
2.05(c).
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
"Domestic Lending Office" means, with respect to any Lender or
the Issuing Bank, the office of such Lender or the Issuing Bank
specified as its "Domestic Lending Office" opposite its name on
Schedule I hereto or in the Assignment and Acceptance pursuant to which
it became a Lender or the Issuing Bank, or such other office of such
Lender or the Issuing Bank as such Lender or the Issuing Bank may from
time to time specify to the Borrower and the Administrative Agent.
"Effective Date" has the meaning specified in Section 3.01.
"Eligible Assignee" means (i) a Lender; (ii) an Affiliate of a
Lender; (iii) a commercial bank organized under the laws of the United
States, or any State thereof, and having a combined capital and surplus
of at least $250,000,000; (iv) a commercial bank organized under the
laws of any other country that is a member of the Organization for
Economic Cooperation and Development or has concluded special lending
arrangements with the International Monetary Fund associated with its
General Arrangements to Borrow, or a political subdivision of any such
country, and having a combined capital and surplus of at least
$250,000,000, so long as such bank is acting through a branch or agency
located in the country in which it is organized or another country that
is described in this clause (iv); and (v) any other Person approved by
the Administrative Agent and the Borrower, such approval not to be
unreasonably withheld or delayed; provided, however, that neither the
Loan Parties nor an Affiliate of either of the Loan Parties shall
qualify as an Eligible Assignee.
5
<PAGE> 12
"Environmental Action" means any action, suit, demand, demand
letter, claim, notice of non-compliance or violation, notice of
liability or potential liability, investigation, proceeding, consent
order or consent agreement relating in any way to any Environmental
Law, Environmental Permit or Hazardous Materials or arising from
alleged injury or threat of injury to health, safety or the
environment, including, without limitation, (a) by any governmental or
regulatory authority for enforcement, cleanup, removal, response,
remedial or other actions or damages and (b) by any governmental or
regulatory authority or any third party for damages, contribution,
indemnification, cost recovery, compensation or injunctive relief.
"Environmental Law" means any federal, state, local or foreign
statute, law, ordinance, rule, regulation, code, order, judgment,
decree or judicial or agency interpretation, policy or guidance
relating to pollution or protection of the environment, health, safety
or natural resources, including, without limitation, those relating to
the use, handling, transportation, treatment, storage, disposal,
release or discharge of Hazardous Materials.
"Environmental Permit" means any permit, approval,
identification number, license or other authorization required under
any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title
IV of ERISA is a member of either Loan Party's controlled group, or
under common control with either Loan Party, within the meaning of
Section 414 of the Internal Revenue Code.
"ERISA Event" means (a) (i) the occurrence of a reportable
event, within the meaning of Section 4043 of ERISA, with respect to any
Plan unless the 30-day notice requirement with respect to such event
has been waived by the PBGC, or (ii) the requirements of subsection (1)
of Section 4043(b) of ERISA (without regard to subsection (2) of such
Section) are met with a contributing sponsor, as defined in Section
4001(a)(13) of ERISA, of a Plan, and an event described in paragraph
(9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably
expected to occur with respect to such Plan within the following 30
days; (b) the application for a minimum funding waiver with respect to
a Plan; (c) the provision by the administrator
6
<PAGE> 13
of any Plan of a notice of intent to terminate such Plan pursuant to
Section 4041(a)(2) of ERISA (including any such notice with respect to
a plan amendment referred to in Section 4041(e) of ERISA); (d) the
cessation of operations at a facility of either Loan Party or any ERISA
Affiliate in the circumstances described in Section 4062(e) of ERISA;
(e) the withdrawal by either Loan Party or any ERISA Affiliate from a
Multiple Employer Plan during a plan year for which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA; (f)
the conditions for the imposition of a lien under Section 302(f) of
ERISA shall have been met with respect to any Plan; (g) the adoption of
an amendment to a Plan requiring the provision of security to such Plan
pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of
proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or
the occurrence of any event or condition described in Section 4042 of
ERISA that constitutes grounds for the termination of, or the
appointment of a trustee to administer, a Plan.
"Eurocurrency Liabilities" has the meaning assigned to that
term in Regulation D of the Board of Governors of the Federal Reserve
System, as in effect from time to time.
"Eurodollar Lending Office" means, with respect to any Lender,
the office of such Lender specified as its "Eurodollar Lending Office"
opposite its name on Schedule I hereto or in the Assignment and
Acceptance pursuant to which it became a Lender (or, if no such office
is specified, its Domestic Lending Office), or such other office of
such Lender as such Lender may from time to time specify to the
Borrower and the Administrative Agent.
"Eurodollar Rate" means, for any Interest Period for each
Eurodollar Rate Advance comprising part of the same Revolving Credit
Borrowing, an interest rate per annum equal to the rate per annum
obtained by dividing (a) the average (rounded upward to the nearest
whole multiple of 1/16 of 1% per annum, if such average is not such a
multiple) of the rate per annum at which deposits in U.S. dollars are
offered by the principal office of each of the Reference Banks in
London, England to prime banks in the London interbank market at 11:00
A.M. (London time) two Business Days before the first day of such
Interest Period in an amount substantially equal to such Reference
Bank's Eurodollar Rate Advance comprising part of such Revolving Credit
Borrowing to be outstanding during such Interest Period and for a
period equal to such Interest Period by (b) a percentage equal to 100%
minus the Eurodollar Rate Reserve Percentage for such Interest Period.
The Eurodollar Rate for any Interest Period for each Eurodollar Rate
Advance comprising part of the same Revolving Credit
7
<PAGE> 14
Borrowing shall be determined by the Administrative Agent on the basis
of applicable rates furnished to and received by the Administrative
Agent from the Reference Banks two Business Days before the first day
of such Interest Period, subject, however, to the provisions of Section
2.08.
"Eurodollar Rate Advance" means a Revolving Credit Advance that
bears interest as provided in Section 2.07(a)(ii).
"Eurodollar Rate Reserve Percentage" for any Interest Period
for all Eurodollar Rate Advances or LIBO Rate Advances comprising part
of the same Borrowing means the reserve percentage applicable two
Business Days before the first day of such Interest Period under
regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including, without limitation, any emergency,
supplemental or other marginal reserve requirement) for a member bank
of the Federal Reserve System in New York City with respect to
liabilities or assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of liabilities that
includes deposits by reference to which the interest rate on Eurodollar
Rate Advances or LIBO Rate Advances is determined) having a term equal
to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Existing Credit Agreement" means the Financing Agreement dated
September 16, 1993 between the Borrower and The CIT Group/Business
Credit, Inc., as agent and lender.
"Extending Lender" has the meaning specified in Section
2.05(c).
"Facilities" means the Revolving Credit Facility and the Letter
of Credit Facility.
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the
weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for such day on such
transactions received by the
8
<PAGE> 15
Administrative Agent from three Federal funds brokers of recognized
standing selected by it.
"Fixed Rate Advances" has the meaning specified in Section
2.03(a)(i).
"GAAP" has the meaning specified in Section 1.03.
"Guarantor" means Hyundai Electronics Industries Co., Ltd., a
company incorporated with limited liability in the Republic of Korea.
"Guaranty" has the meaning specified in Section 3.01(h)(iv).
"Guaranty and Recourse Agreement" means the Guaranty and
Recourse Agreement dated as of August 31, 1995 between the Borrower and
the Guarantor.
"Hazardous Materials" means (a) petroleum and petroleum
products, byproducts or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon gas
and (b) any other chemicals, materials or substances designated,
classified or regulated as hazardous or toxic or as a pollutant or
contaminant under any Environmental Law.
"Hyundai Group" means, collectively, the Guarantor, Hyundai
Merchant Marine, Hyundai Corporation and Hyundai Heavy Industries Co.,
Ltd.
"Information Memorandum" means the information memorandum dated
August 9, 1995, used by the Administrative Agent in connection with the
syndication of the Commitments.
"Insufficiency" means, with respect to any Plan, the amount, if
any, of its unfunded benefit liabilities, as defined in Section
4001(a)(18) of ERISA.
"Interest Period" means, for each Eurodollar Rate Advance
comprising part of the same Revolving Credit Borrowing and each LIBO
Rate Advance comprising part of the same Competitive Bid Borrowing, the
period commencing on the date of such Eurodollar Rate Advance or LIBO
Rate Advance or the date of the Conversion of any Base Rate Advance
into such Eurodollar Rate Advance and ending on the last day of the
period selected by the Borrower pursuant to the provisions below and,
thereafter, with respect to Eurodollar Rate Advances, each subsequent
period commencing on the
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last day of the immediately preceding Interest Period and ending on the
last day of the period selected by the Borrower pursuant to the
provisions below. The duration of each such Interest Period shall be
one, two, three or six months, as the Borrower may, upon notice
received by the Administrative Agent not later than 12:00 P.M. (noon)
(New York City time) on the third Business Day, in the case of a
Revolving Credit Borrowing, or on the fourth Business Day, in the case
of a Competitive Bid Borrowing, prior to the first day of such Interest
Period, select; provided, however, that:
(i) the Borrower may not select any Interest Period
that ends after the Termination Date;
(ii) Interest Periods commencing on the same date for
Eurodollar Rate Advances comprising part of the same Revolving
Credit Borrowing or for LIBO Rate Advances comprising part of
the same Competitive Bid Borrowing shall be of the same
duration;
(iii) whenever the last day of any Interest Period
would otherwise occur on a day other than a Business Day, the
last day of such Interest Period shall be extended to occur on
the next succeeding Business Day, provided, however, that, if
such extension would cause the last day of such Interest Period
to occur in the next following calendar month, the last day of
such Interest Period shall occur on the next preceding Business
Day; and
(iv) whenever the first day of any Interest Period
occurs on a day of an initial calendar month for which there is
no numerically corresponding day in the calendar month that
succeeds such initial calendar month by the number of months
equal to the number of months in such Interest Period, such
Interest Period shall end on the last Business Day of such
succeeding calendar month.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time, and the regulations promulgated and
rulings issued thereunder.
"Issuing Bank" means the Issuing Bank approved pursuant to
Section 2.17 and each Eligible Assignee to which the Letter of Credit
Commitment hereunder has been assigned pursuant to Section 8.07.
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"L/C Cash Collateral Account" means the interest-bearing cash
collateral account to be established and maintained by the
Administrative Agent, over which the Administrative Agent shall have
sole dominion and control, upon terms as may be satisfactory to the
Administrative Agent.
"L/C Related Documents" has the meaning specified in Section
2.17.
"Lenders" means the Initial Lenders and each Person that shall
become a Lender hereto pursuant to Section 8.07.
"Letter of Credit" has the meaning specified in Section 2.17.
"Letter of Credit Advance" means an advance made by the Issuing
Bank or any Lender pursuant to Section 2.17.
"Letter of Credit Agreement" has the meaning specified in
Section 2.17.
"Letter of Credit Commitment" means, with respect to the
Issuing Bank at any time, (a) $30,000,000 or (b) if the Issuing Bank
has entered into any Assignment and Acceptance, the amount set forth
for the Issuing Bank in the Register maintained by the Administrative
Agent pursuant to Section 8.07(e) as the Issuing Bank's "Letter of
Credit Commitment", as such amount may be reduced pursuant to Section
2.05.
"Letter of Credit Facility" means, at any time, the amount of
the Issuing Bank's Letter of Credit Commitment at such time.
"LIBO Rate" means, for any Interest Period for all LIBO Rate
Advances comprising part of the same Competitive Bid Borrowing, an
interest rate per annum equal to the rate per annum obtained by
dividing (a) the average (rounded upward to the nearest whole multiple
of 1/16 of 1% per annum, if such average is not such a multiple) of the
rate per annum at which deposits in U.S. dollars are offered by the
principal office of each of the Reference Banks in London, England to
prime banks in the London interbank market at 11:00 A.M. (London time)
two Business Days before the first day of such Interest Period by (b) a
percentage equal to 100% minus the Eurodollar Rate Reserve Percentage
for such Interest Period. The LIBO Rate for any Interest Period for
each LIBO Rate Advance comprising part of the same Competitive Bid
Borrowing shall be determined by the Administrative Agent on the basis
of applicable rates furnished to and received by the Administrative
Agent from the
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Reference Banks two Business Days before the first day of such Interest
Period, subject, however, to the provisions of Section 2.08.
"LIBO Rate Advances" has the meaning specified in Section
2.03(a)(i).
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance
on title to real property.
"Loan Documents" means this Agreement, the Notes, the Guaranty,
and each Letter of Credit Agreement, in each case as amended or
otherwise modified from time to time.
"Loan Parties" means the Borrower and the Guarantor.
"Material Adverse Change" means any material adverse change in
the business, financial condition, operations, performance, properties
or prospects of either Loan Party or either Loan Party and its
Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on
(a) the business, financial condition, operations, performance,
properties or prospects of either Loan Party or either Loan Party and
its Subsidiaries taken as a whole, (b) the rights and remedies of the
Administrative Agent, any Lender or the Issuing Bank under this
Agreement or any other Loan Document or (c) the ability of either Loan
Party to perform its obligations under this Agreement or any other Loan
Document.
"Multiemployer Plan" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which either Loan Party or any ERISA
Affiliate is making or accruing an obligation to make contributions, or
has within any of the preceding five plan years made or accrued an
obligation to make contributions.
"Multiple Employer Plan" means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of either Loan Party or any ERISA Affiliate and at least one
Person other than the Loan Parties and the ERISA Affiliates or (b) was
so maintained and in respect of which either Loan Party or any ERISA
Affiliate could have liability under Section 4064 or 4069 of ERISA in
the event such plan has been or were to be terminated.
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<PAGE> 19
"Note" means a Revolving Credit Note or a Competitive Bid Note.
"Notice of Competitive Bid Borrowing" has the meaning specified
in Section 2.03(a).
"Notice of Issuance" has the meaning specified in Section 2.17.
"Notice of Revolving Credit Borrowing" has the meaning
specified in Section 2.02(a).
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor).
"Permitted Liens" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding
shall have been commenced: (a) Liens for taxes, assessments and
governmental charges or levies to the extent not required to be paid
under Section 5.01(b) hereof; (b) Liens imposed by law, such as
materialmen's, mechanics', carriers', workmen's and repairmen's Liens
and other similar Liens arising in the ordinary course of business
securing obligations that are not overdue for a period of more than 30
days; (c) pledges or deposits to secure obligations under workers'
compensation laws or similar legislation or to secure public or
statutory obligations; (d) easements, rights of way and other
encumbrances on title to real property that do not render title to the
property encumbered thereby unmarketable or materially adversely affect
the use of such property for its present purposes; (e) Liens consisting
of judgment or judicial attachment liens, provided that the enforcement
of such Liens is effectively stayed; (f) Liens on assets of
corporations that become Subsidiaries after the date of this Agreement,
provided, however, that such Liens existed at the time the respective
corporations became Subsidiaries and were not created in anticipation
thereof or in connection with the creation of such Subsidiaries; (g)
Liens securing Capitalized Lease obligations on assets subject to such
Capitalized Leases, provided that such Capitalized Leases are permitted
under subsection 5.02(b)(iii)(C); (h) Liens arising solely by virtue of
any statutory or common law provision relating to banker's liens,
rights of set-off or similar rights and remedies as to deposit accounts
or other funds maintained with a creditor depository institution;
provided that (i) such deposit account is not a dedicated cash
collateral account and is not subject to restrictions against access by
the Borrower in excess of those set forth by regulations promulgated by
the Federal Reserve Board, and (ii) such deposit account is not
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<PAGE> 20
intended by the Borrower or any of its Subsidiaries to provide
collateral to the depository institution.
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, trust,
unincorporated association, joint venture, limited liability company or
other entity, or a government or any political subdivision or agency
thereof.
"Plan" means a Single Employer Plan or a Multiple Employer
Plan.
"Pro Rata Share" of any amount means, with respect to any
Lender at any time, the product of such amount times a fraction the
numerator of which is the amount of such Lender's Revolving Credit
Commitment at such time and the denominator of which is the Revolving
Credit Facility at such time.
"Reference Banks" means Citibank, Societe Generale and The
Industrial Bank of Japan, Limited, San Francisco Agency.
"Register" has the meaning specified in Section 8.07(e).
"Reimbursement Obligation" means the obligation of the Borrower
to reimburse the Issuing Bank pursuant to Section 2.17(d) for amounts
drawn under the Letters of Credit and other amounts reimbursable by the
Borrower thereunder.
"Required Lenders" means at any time Lenders owed or holding at
least 66 2/3% of the sum of (a) the aggregate principal amount of the
Advances outstanding at such time and (b) the aggregate Available
Amount of all Letters of Credit outstanding at such time, or, if no
such principal amount and no Letters of Credit are outstanding at such
time, Lenders holding at least 66 2/3% of the Revolving Credit
Facility at such time.
"Responsible Officer" means any officer of the Borrower.
"Revolving Credit Advance" means an advance by a Lender to the
Borrower as part of a Revolving Credit Borrowing and refers to a Base
Rate Advance or a Eurodollar Rate Advance (each of which shall be a
"Type" of Revolving Credit Advance).
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<PAGE> 21
"Revolving Credit Borrowing" means a borrowing consisting of
simultaneous Revolving Credit Advances of the same Type made by each of
the Lenders pursuant to Section 2.01.
"Revolving Credit Commitment" means, with respect to any Lender
at any time, (a) the amount set forth opposite such Lender's name on
the signature pages hereof under the caption "Revolving Credit
Commitment" or (b) if such Lender has increased its Revolving Credit
Commitment pursuant to Section 2.05(c) or has entered into any
Assignment and Acceptance, the amount set forth for such Lender in the
Register maintained by the Administrative Agent pursuant to Section
8.07(e) as such Lender's "Revolving Credit Commitment", as such amount
may be reduced pursuant to Section 2.05 or by Competitive Bid
Reductions.
"Revolving Credit Facility" means, at any time, the aggregate
amount of the Lenders' Revolving Credit Commitments at such time.
"Revolving Credit Note" means a promissory note of the Borrower
payable to the order of any Lender, in substantially the form of
Exhibit A-1 hereto, evidencing the aggregate indebtedness of the
Borrower to such Lender resulting from the Revolving Credit Advances
made by such Lender.
"Securitization" means transaction Number 1 described on
Schedule 5.02(b)(iii)(B).
"Single Employer Plan" means a single employer plan, as defined
in Section 4001(a)(15) of ERISA, that (a) is maintained for employees
of either Loan Party or any ERISA Affiliate and no Person other than
the Loan Parties and the ERISA Affiliates or (b) was so maintained and
in respect of which either Loan Party or any ERISA Affiliate could have
liability under Section 4069 of ERISA in the event such plan has been
or were to be terminated.
"Subordinated Debt" means any Debt of the Borrower that
is subordinated to the obligations of the Borrower under the Loan
Documents on, and that otherwise contains, terms and conditions
satisfactory to the Required Lenders.
"Subsidiary" of any Person means any corporation, partnership,
joint venture, limited liability company, trust or estate of which (or
in which) more than 50% of (a) the issued and outstanding capital stock
having ordinary voting power to elect a
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<PAGE> 22
majority of the Board of Directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such
limited liability company, partnership or joint venture or (c) the
beneficial interest in such trust or estate is at the time directly or
indirectly owned or controlled by such Person, by such Person and one
or more of its other Subsidiaries or by one or more of such Person's
other Subsidiaries.
"Surviving Debt" means Debt of the Borrower identified on
Schedule 5.02(b)(iii)(D) hereto.
"Termination Date" means, with respect to each Lender and the
Issuing Bank, the earlier of (a) August 29, 1996 or, if extended
pursuant to Section 2.05(c), the date to which the Commitment of such
Lender or the Issuing Bank, as the case may be, is so extended pursuant
to Section 2.05(c) and (b) the date of termination in whole of the
Commitments pursuant to Section 2.05 or 6.01.
"Unused Revolving Credit Commitment" means, with respect to any
Lender at any time, (a) such Lender's Revolving Credit Commitment
(computed with regard to all existing Competitive Bid Reductions) at
such time minus (b) the sum of (i) the aggregate principal amount of
all Revolving Credit Advances and Letter of Credit Advances made by
such Lender (in its capacity as a Lender) and outstanding at such time,
plus (ii) such Lender's Pro Rata Share of (A) the aggregate Available
Amount of all Letters of Credit outstanding at such time and (B) the
aggregate principal amount of all Letter of Credit Advances made by the
Issuing Bank pursuant to Section 2.17(d) and outstanding at such time.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person, even if the right so to vote has been suspended by the
happening of such a contingency.
"Withdrawal Liability" has the meaning specified in Part I of
Subtitle E of Title IV of ERISA.
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SECTION 1.02. Computation of Time Periods. In this Agreement
in the computation of periods of time from a specified date to a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each mean "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with, in the case
of the Borrower, generally accepted accounting principles, and, in the case of
the Guarantor, generally accepted financial accounting standards in the Republic
of Korea consistent with those applied in the preparation of the financial
statements referred to in Section 4.01(e) ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT
SECTION 2.01. The Revolving Credit Advances. Each Lender
severally agrees, on the terms and conditions hereinafter set forth, to make
Revolving Credit Advances to the Borrower from time to time on any Business Day
during the period from the Effective Date until the Termination Date in an
amount for each such Advance not to exceed such Lender's Unused Revolving Credit
Commitment at such time. Each Revolving Credit Borrowing shall be in an
aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess
thereof (or, if less, an aggregate amount equal to the amount by which the
aggregate amount of a proposed Competitive Bid Borrowing requested by the
Borrower exceeds the aggregate amount of Competitive Bid Advances offered to be
made by the Lenders and accepted by the Borrower in respect of such Competitive
Bid Borrowing, if such Competitive Bid Borrowing is made on the same date as
such Revolving Credit Borrowing) and shall consist of Revolving Credit Advances
of the same Type made on the same day by the Lenders ratably according to their
respective Revolving Credit Commitments. Within the limits of each Lender's
Unused Revolving Credit Commitment, the Borrower may borrow under this Section
2.01, prepay pursuant to Section 2.10 and reborrow under this Section 2.01.
SECTION 2.02. Making the Revolving Credit Advances. (a) Each
Revolving Credit Borrowing shall be made on notice, given not later than
12:00 P.M. (noon) (New York City time) on the third Business Day prior to the
date of the proposed Revolving Credit Borrowing in the case of a Revolving
Credit Borrowing consisting of Eurodollar Rate Advances, or the Business Day
of the proposed Revolving Credit Borrowing in the case of a Revolving Credit
Borrowing consisting of Base Rate Advances, by the Borrower to the
Administrative Agent,
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which shall give to each Lender prompt notice thereof by telecopier or telex.
Each such notice of a Revolving Credit Borrowing (a "Notice of Revolving Credit
Borrowing") shall be by telephone, confirmed immediately in writing, or
telecopier or telex in substantially the form of Exhibit B-1 hereto, specifying
therein the requested (i) date of such Revolving Credit Borrowing, (ii) Type of
Revolving Credit Advances comprising such Revolving Credit Borrowing, (iii)
aggregate amount of such Revolving Credit Borrowing, and (iv) in the case of a
Revolving Credit Borrowing consisting of Eurodollar Rate Advances, initial
Interest Period for each such Revolving Credit Advance. Each Lender shall,
before 3:00 P.M. (New York City time) on the date of such Revolving Credit
Borrowing, make available for the account of its Applicable Lending Office to
the Administrative Agent at the Administrative Agent's Account, in same day
funds, such Lender's ratable portion of such Revolving Credit Borrowing. After
the Administrative Agent's receipt of such funds and upon fulfillment of the
applicable conditions set forth in Article III, the Administrative Agent will
make such funds available to the Borrower at the Administrative Agent's address
referred to in Section 8.02 not later than 4:00 P.M. (New York City time);
provided, however, that the Administrative Agent shall first make a portion of
such funds equal to the aggregate principal amount of any Letter of Credit
Advances made by the Issuing Bank and by any other Lender and outstanding on the
date of such Borrowing, plus interest accrued and unpaid thereon to and as of
such date, available to the Issuing Bank and such other Lenders for repayment of
such Letter of Credit Advances.
(b) Anything in subsection (a) above to the contrary
notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for
any Revolving Credit Borrowing if the aggregate amount of such Revolving Credit
Borrowing is less than $5,000,000 or if the obligation of the Lenders to make
Eurodollar Rate Advances shall then be suspended pursuant to Section 2.08 or
2.12 and (ii) the Eurodollar Rate Advances may not be outstanding as part of
more than five separate Revolving Credit Borrowings.
(c) Each Notice of Revolving Credit Borrowing shall be
irrevocable and binding on the Borrower. In the case of any Revolving Credit
Borrowing that the related Notice of Revolving Credit Borrowing specifies is to
be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each
Lender against any loss, cost or expense incurred by such Lender as a result of
any failure to fulfill on or before the date specified in such Notice of
Revolving Credit Borrowing for such Revolving Credit Borrowing the applicable
conditions set forth in Article III, including, without limitation, any loss
(including loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Lender to fund the Revolving Credit
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<PAGE> 25
Advance to be made by such Lender as part of such Revolving Credit Borrowing
when such Revolving Credit Advance, as a result of such failure, is not made on
such date.
(d) Unless the Administrative Agent shall have received notice
from a Lender prior to the date of any Revolving Credit Borrowing that such
Lender will not make available to the Administrative Agent such Lender's ratable
portion of such Revolving Credit Borrowing, the Administrative Agent may assume
that such Lender has made such portion available to the Administrative Agent on
the date of such Revolving Credit Borrowing in accordance with subsection (a) of
this Section 2.02 and the Administrative Agent may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent that such Lender shall not have so made such ratable
portion available to the Administrative Agent, such Lender and the Borrower
severally agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Administrative Agent, at (i) in the case of the Borrower, the
interest rate applicable at the time to Revolving Credit Advances comprising
such Revolving Credit Borrowing and (ii) in the case of such Lender, the Federal
Funds Rate. If such Lender shall repay to the Administrative Agent such
corresponding amount, such amount so repaid shall constitute such Lender's
Revolving Credit Advance as part of such Revolving Credit Borrowing for purposes
of this Agreement.
(e) The failure of any Lender to make the Revolving Credit
Advance to be made by it as part of any Revolving Credit Borrowing shall not
relieve any other Lender of its obligation, if any, hereunder to make its
Revolving Credit Advance on the date of such Revolving Credit Borrowing, but no
Lender shall be responsible for the failure of any other Lender to make the
Revolving Credit Advance to be made by such other Lender on the date of any
Revolving Credit Borrowing.
SECTION 2.03. The Competitive Bid Advances. (a) Each Lender
severally agrees that the Borrower may make Competitive Bid Borrowings under
this Section 2.03 from time to time on any Business Day during the period from
the date hereof until the date occurring 30 days prior to the Termination Date
in the manner set forth below; provided that, following the making of each
Competitive Bid Borrowing, the aggregate amount of the Advances then outstanding
shall not exceed the aggregate amount of the Revolving Credit Commitments of the
Lenders (computed without regard to any Competitive Bid Reduction); and provided
further that the aggregate amount of any proposed Competitive Bid Borrowing and
any Revolving Credit Borrowings to be made on the same day is within the
aggregate amount of the Unused Revolving Credit Commitments of the Lenders.
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(i) The Borrower may request a Competitive Bid Borrowing
under this Section 2.03 by delivering to the Administrative Agent, by
telecopier or telex, a notice of a Competitive Bid Borrowing (a "Notice
of Competitive Bid Borrowing "), in substantially the form of Exhibit
B-2 hereto, specifying therein the requested (v) date of such proposed
Competitive Bid Borrowing, (w) aggregate amount of such proposed
Competitive Bid Borrowing, (x) in the case of a Competitive Bid
Borrowing consisting of LIBO Rate Advances, Interest Period, or in the
case of a Competitive Bid Borrowing consisting of Fixed Rate Advances,
maturity date for repayment of each Fixed Rate Advance to be made as
part of such Competitive Bid Borrowing (which maturity date may not be
earlier than the date occurring 14 days after the date of such
Competitive Bid Borrowing or later than the earlier of (I) 180 days
after the date of such Competitive Bid Borrowing and (II) the
Termination Date), (y) interest payment date or dates relating thereto,
and (z) other terms (if any) to be applicable to such Competitive Bid
Borrowing, not later than 12:00 P.M. (noon) (New York City time) (A) at
least one Business Day prior to the date of the proposed Competitive
Bid Borrowing, if the Borrower shall specify in the Notice of
Competitive Bid Borrowing that the rates of interest to be offered by
the Lenders shall be fixed rates per annum (the Advances comprising any
such Competitive Bid Borrowing being referred to herein as " Fixed Rate
Advances") and (B) at least four Business Days prior to the date of the
proposed Competitive Bid Borrowing, if the Borrower shall instead
specify in the Notice of Competitive Bid Borrowing that the rates of
interest be offered by the Lenders are to be based on the LIBO Rate
(the Advances comprising such Competitive Bid Borrowing being referred
to herein as "LIBO Rate Advances"). Each Notice of Competitive Bid
Borrowing shall be irrevocable and binding on the Borrower. The
Administrative Agent shall in turn promptly notify each Lender of each
request for a Competitive Bid Borrowing received by it from the
Borrower by sending such Lender a copy of the related Notice of
Competitive Bid Borrowing.
(ii) Each Lender may, if, in its sole discretion, it elects to
do so, irrevocably offer to make one or more Competitive Bid Advances
to the Borrower as part of such proposed Competitive Bid Borrowing at a
rate or rates of interest specified by such Lender in its sole
discretion, by notifying the Administrative Agent (which shall give
prompt notice thereof to the Borrower), before 9:30 A.M. (New York City
time) on the date of such proposed Competitive Bid Borrowing, in the
case of a Competitive Bid Borrowing consisting of Fixed Rate Advances
and before 10:00 A.M. (New York City time) three Business Days before
the date of such proposed Competitive Bid Borrowing, in the case of a
Competitive Bid Borrowing consisting of LIBO Rate Advances, of the
minimum amount and maximum amount of each Competitive Bid
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Advance that such Lender would be willing to make as part of such
proposed Competitive Bid Borrowing (which amounts may, subject to the
first proviso to the first sentence of this Section 2.03(a), exceed
such Lender's Revolving Credit Commitment, if any), the rate or rates
of interest therefor and such Lender's Applicable Lending Office with
respect to such Competitive Bid Advance; provided that if the
Administrative Agent in its capacity as a Lender shall, in its sole
discretion, elect to make any such offer, it shall notify the Borrower
of such offer at least 30 minutes before the time and on the date on
which notice of such election is to be given to the Administrative
Agent by the other Lenders. If any Lender shall elect not to make such
an offer, such Lender shall so notify the Administrative Agent, before
10:00 A.M. (New York City time) on the date on which notice of such
election is to be given to the Administrative Agent by the other
Lenders, and such Lender shall not be obligated to, and shall not, make
any Competitive Bid Advance as part of such Competitive Bid Borrowing;
provided that the failure by any Lender to give such notice shall not
cause such Lender to be obligated to make any Competitive Bid Advance
as part of such proposed Competitive Bid Borrowing.
(iii) The Borrower shall, in turn, before 11:00 A.M. (New York
City time) on the date of such proposed Competitive Bid Borrowing, in
the case of a Competitive Bid Borrowing consisting of Fixed Rate
Advances and before 12:00 P.M.(noon) (New York City time) three
Business Days before the date of such proposed Competitive Bid
Borrowing, in the case of a Competitive Bid Borrowing consisting of
LIBO Rate Advances, either:
(x) cancel such Competitive Bid Borrowing by giving
the Administrative Agent notice to that effect, or
(y) accept one or more of the offers made by any
Lender or Lenders pursuant to paragraph (ii) above, in its sole
discretion, by giving notice to the Administrative Agent of the
amount of each Competitive Bid Advance (which amount shall be
equal to or greater than the minimum amount, and equal to or
less than the maximum amount, notified to the Borrower by the
Administrative Agent on behalf of such Lender for such
Competitive Bid Advance pursuant to paragraph (ii) above) to be
made by each Lender as part of such Competitive Bid Borrowing,
and reject any remaining offers made by Lenders pursuant to
paragraph (ii) above by giving the Administrative Agent notice
to that effect. The Borrower shall accept the offers made by
any Lender or Lenders to make Competitive Bid Advances in order
of the lowest to the highest rates of interest
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offered by such Lenders. If two or more Lenders have offered
the same interest rate, the Borrower may, in its sole
discretion, accept one or more such offers and reject the
remainder of such offers. The aggregate amount of the
Competitive Bid Advances made as part of a Competitive Bid
Borrowing shall not exceed the aggregate amount of the proposed
Competitive Bid Borrowing requested by the Borrower in the
related Notice of Competitive Bid Borrowing.
(iv) If the Borrower notifies the Administrative Agent that
such Competitive Bid Borrowing is cancelled pursuant to paragraph
(iii)(x) above, the Administrative Agent shall give prompt notice
thereof to the Lenders and such Competitive Bid Borrowing shall not be
made.
(v) If the Borrower accepts one or more of the offers made by
any Lender or Lenders pursuant to paragraph (iii)(y) above, the
Administrative Agent shall in turn promptly notify (A) each Lender that
has made an offer as described in paragraph (ii) above, of the date and
aggregate amount of such Competitive Bid Borrowing and whether or not
any offer or offers made by such Lender pursuant to paragraph (ii)
above have been accepted by the Borrower, (B) each Lender that is to
make a Competitive Bid Advance as part of such Competitive Bid
Borrowing, of the amount of each Competitive Bid Advance to be made by
such Lender as part of such Competitive Bid Borrowing, and (C) each
Lender that is to make a Competitive Bid Advance as part of such
Competitive Bid Borrowing, upon receipt, that the Administrative Agent
has received forms of documents appearing to fulfill the applicable
conditions set forth in Article III. Each Lender that is to make a
Competitive Bid Advance as part of such Competitive Bid Borrowing
shall, before 12:00 noon (New York City time) on the date of such
Competitive Bid Borrowing specified in the notice received from the
Administrative Agent pursuant to clause (A) of the preceding sentence
or any later time when such Lender shall have received notice from the
Administrative Agent pursuant to clause (C) of the preceding sentence,
make available for the account of its Applicable Lending Office to the
Administrative Agent at the Administrative Agent's Account, in same day
funds, such Lender's portion of such Competitive Bid Borrowing. Upon
fulfillment of the applicable conditions set forth in Article III and
after receipt by the Administrative Agent of such funds, the
Administrative Agent will make such funds available to the Borrower at
the Administrative Agent's address referred to in Section 8.02 not
later than 3:00 P.M. (New York City time). Promptly after each
Competitive Bid Borrowing the Administrative Agent will notify each
Lender of the amount of the Competitive Bid Borrowing, the consequent
Competitive Bid Reduction and the dates upon which such Competitive Bid
Reduction commenced and will terminate.
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(vi) If the Borrower notifies the Administrative Agent that it
accepts one or more of the offers made by any Lender or Lenders
pursuant to paragraph (iii)(y) above, such notice of acceptance shall
be irrevocable and binding on the Borrower. The Borrower shall
indemnify each Lender against any loss, cost or expense incurred by
such Lender as a result of any failure to fulfill on or before the date
specified in the related Notice of Competitive Bid Borrowing for such
Competitive Bid Borrowing the applicable conditions set forth in
Article III, including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such
Lender to fund the Competitive Bid Advance to be made by such Lender as
part of such Competitive Bid Borrowing when such Competitive Bid
Advance, as a result of such failure, is not made on such date.
(b) Each Competitive Bid Borrowing shall be in an aggregate
amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof
and, following the making of each Competitive Bid Borrowing, the Borrower shall
be in compliance with the limitation set forth in the first proviso to the first
sentence of subsection (a) above.
(c) The aggregate amount of the Revolving Credit Commitments of
the Lenders shall be deemed used from time to time to the extent of the
aggregate amount of the Competitive Bid Advances then outstanding and such
deemed use of the aggregate amount of the Revolving Credit Commitments shall be
allocated among the Lenders ratably according to their respective Revolving
Credit Commitments (such deemed use of the aggregate amount of the Revolving
Credit Commitments being a "Competitive Bid Reduction").
(d) Within the limits and on the conditions set forth in this
Section 2.03, the Borrower may from time to time borrow under this Section 2.03,
repay or prepay pursuant to subsection (e) below, and reborrow under this
Section 2.03, provided that a Competitive Bid Borrowing shall not be made within
three Business Days of the date of any other Competitive Bid Borrowing.
(e) The Borrower shall repay to the Administrative Agent for
the account of each Lender that has made a Competitive Bid Advance, on the
maturity date of each Competitive Bid Advance (such maturity date being that
specified by the Borrower for repayment of such Competitive Bid Advance in the
related Notice of Competitive Bid Borrowing delivered pursuant to subsection
(a)(i) above and provided in the Competitive Bid Note evidencing such
Competitive Bid Advance), the then unpaid principal amount of such
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Competitive Bid Advance. The Borrower shall have no right to prepay any
principal amount of any Competitive Bid Advance unless, and then only on the
terms, specified by the Borrower for such Competitive Bid Advance in the related
Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i)
above and set forth in the Competitive Bid Note evidencing such Competitive Bid
Advance.
(f) The Borrower shall pay interest on the unpaid principal
amount of each Competitive Bid Advance from the date of such Competitive Bid
Advance to the date the principal amount of such Competitive Bid Advance is
repaid in full, at the rate of interest for such Competitive Bid Advance
specified by the Lender making such Competitive Bid Advance in its notice with
respect thereto delivered pursuant to subsection (a)(ii) above, payable on the
interest payment date or dates specified by the Borrower for such Competitive
Bid Advance in the related Notice of Competitive Bid Borrowing delivered
pursuant to subsection (a)(i) above, as provided in the Competitive Bid Note
evidencing such Competitive Bid Advance. Upon the occurrence and during the
continuance of a Default, the Borrower shall pay interest on the amount of
unpaid principal of and interest on each Competitive Bid Advance owing to a
Lender, payable in arrears on the date or dates interest is payable thereon, at
a rate per annum equal at all times to 2% per annum above the rate per annum
required to be paid on such Competitive Bid Advance under the terms of the
Competitive Bid Note evidencing such Competitive Bid Advance unless otherwise
agreed in such Competitive Bid Note.
(g) The indebtedness of the Borrower resulting from each
Competitive Bid Advance made to the Borrower as part of a Competitive Bid
Borrowing shall be evidenced by a separate Competitive Bid Note of the Borrower
payable to the order of the Lender making such Competitive Bid Advance.
SECTION 2.04. Fees. (a) Facility Fee. The Borrower agrees to
pay to the Administrative Agent for the account of each Lender a facility fee on
the aggregate amount of such Lender's Revolving Credit Commitment from the date
hereof in the case of each Initial Lender and from the effective date specified
in the Assignment and Acceptance pursuant to which it became a Lender in the
case of each other Lender until the Termination Date at a rate per annum equal
to .125%, payable in arrears quarterly on the last Business Day of each March,
June, September and December, commencing September 30, 1995, and on the
Termination Date.
(b) Administrative Agent's Fees. The Borrower shall pay to the
Administrative Agent for its own account such fees as may from time to time be
agreed between the Borrower and the Administrative Agent.
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(c) Letter of Credit Fees. (i) On the date each Letter of
Credit is issued, the Borrower shall pay to the Issuing Bank a Letter of Credit
issuance fee of .10% per annum of the face amount of such Letter of Credit,
calculated for the period between the date of issuance and the date of
cancellation of such Letter of Credit.
(ii) On the date each Letter of Credit is issued, the Borrower
shall pay to the Adminsitrative Agent for the account of the Lenders a Letter of
Credit issuance fee equalling in the aggregate .30% per annum of the face amount
of such Letter of Credit, calculated for the period between the date of issuance
and the date of cancellation of such Letter of Credit, payable to the Lenders
ratably in accordance with their respective Revolving Credit Commitments.
SECTION 2.05. Termination, Reduction or Extension of the
Commitments. (a) Termination and Reduction. The Borrower shall have the right,
upon at least three Business Days' notice to the Administrative Agent, to
permanently terminate in whole or reduce in part the unused portions of the
Revolving Credit Commitments and the Letter of Credit Facility, provided that
(i) each partial reduction of a Facility shall be in the aggregate amount of
$10,000,000 or an integral multiple of $1,000,000 in excess thereof, (ii) each
partial reduction of the Revolving Credit Facility shall be made ratably among
the Lenders in accordance with their Revolving Credit Commitments with respect
to such Facility and (iii) the aggregate amount of the Revolving Credit
Commitments of the Lenders shall not be reduced to an amount that is less than
the aggregate principal amount of the Competitive Bid Advances then outstanding.
(b) Letter of Credit Automatic Reduction. The Letter of Credit
Facility shall be permanently reduced from time to time on the date of each
reduction in the Revolving Credit Facility by the amount, if any, by which the
amount of the Letter of Credit Facility exceeds the Revolving Credit Facility
after giving effect to such reduction of the Revolving Credit Facility.
(c) Extensions. (i) At any time no earlier than 45 days and no
later than 30 days prior to the Termination Date in effect at any time, the
Borrower may, by written notice to the Administrative Agent, request that the
Termination Date then in effect be extended for all or a portion of the
Revolving Credit Commitments for a period of 364 days. Such request shall be
irrevocable and binding upon the Borrower. The Administrative Agent shall
promptly notify each Lender of such request. The Lenders shall have no
obligation whatsoever to agree to any request made by the Borrower for the
extension of the Termination Date for the Revolving Credit Commitments. If a
Lender agrees, in its individual and sole discretion, to so
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extend all or a portion of its Revolving Credit Commitment (an "Extending
Lender"), it shall deliver to the Administrative Agent a notice of its agreement
to do so, in substantially the form of Exhibit D hereto, no earlier than 30 days
and no later than 20 days prior to such Termination Date and the Administrative
Agent shall notify the Borrower of such Extending Lender's agreement to extend
its Revolving Credit Commitment no later than 15 days prior to such Termination
Date. The Revolving Credit Commitment of any Lender that fails to accept or
respond to the Borrower's request for extension of the Termination Date (a
"Declining Lender") shall be terminated on the Termination Date then in effect
(without regard to any extension by other Lenders) and on such Termination Date
the Borrower shall pay in full the principal amount of all Advances owing to
such Declining Lender, together with accrued interest thereon to the date of
payment of such principal amount, all facility fees and other fees payable to
such Declining Lender and all other amounts payable to such Declining Lender
under this Agreement (including, but not limited to, any increased costs or
other additional amounts (computed in accordance with Section 2.11) and any
Taxes incurred by such Declining Lender prior to such Termination Date and
amounts payable under Section 8.04(a)). The Extending Lenders, or any of them,
in their sole discretion may offer to increase their respective Revolving Credit
Commitments by an aggregate amount that shall not exceed the sum of the
aggregate amount of the Declining Lenders' Revolving Credit Commitments plus the
aggregate amount of the Extending Lenders' Revolving Credit Commitments for
which such Extending Lenders have not extended the Termination Date. Each such
Extending Lender shall deliver to the Administrative Agent a notice, in
substantially the form of Exhibit D hereto, of its offer to so increase its
Revolving Credit Commitment no later than 15 days prior to such Termination
Date. The Borrower shall, no later than one day before the Termination Date,
deliver to the Administrative Agent a notice setting forth the Revolving Credit
Commitments of the Extending Lenders, if any, that are to become or be effective
as of the Termination Date. If the Extending Lenders provide Revolving Credit
Commitments in an aggregate amount equal to at least 66 2/3% of the aggregate
amount of the Revolving Credit Commitments requested by the Borrower to be
extended, then, effective on the Termination Date in effect at the time of the
Borrower's request, (A) the Termination Date shall be extended by 364 days for
such Extending Lenders' Revolving Credit Commitments and (B) the Revolving
Credit Commitment of each Extending Lender shall be the amount specified in the
notice provided by the Borrower to the Administrative Agent (which amount shall
not exceed the amount specified by such Extending Lender in its most recent
notice to the Administrative Agent). A maximum of two extensions of the
Termination Date are permitted under this Section 2.05(c)(i).
(ii) At any time no earlier than 45 days and no later than 30
days prior to the Termination Date in effect at any time, the Borrower may, by
written notice to the
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Administrative Agent, request that the Termination Date then in effect be
extended for all of the Letter of Credit Commitment for a period of 364 days.
Such request shall be irrevocable and binding upon the Borrower, unless the
Termination Date for the Revolving Credit Commitments shall fail to be extended
by operation of Section 2.05(c)(i). The Administrative Agent shall promptly
notify the Issuing Bank of such request. The Issuing Bank shall have no
obligation whatsoever to agree to any request made by the Borrower for the
extension of the Termination Date for the Letter of Credit Commitment. If the
Issuing Bank agrees, in its individual and sole discretion, to so extend all of
its Letter of Credit Commitment, it shall deliver to the Administrative Agent a
written notice of its agreement to do so no earlier than 30 days and no later
than 20 days prior to such Termination Date and the Administrative Agent shall
notify the Borrower of the Issuing Bank's agreement to extend its Letter of
Credit Commitment no later than 15 days prior to such Termination Date. Then,
effective on the Termination Date in effect at the time of the Borrower's
request, the Termination Date shall be extended by 364 days for the Issuing
Bank's Letter of Credit Commitment. If the Issuing Bank fails to accept or
respond to the Borrower's request for extension of the Termination Date, the
Issuing Bank's Letter of Credit Commitment shall be terminated on the
Termination Date then in effect (without regard to any extension by the Lenders
of their Revolving Credit Commitments) and on such Termination Date the Borrower
shall pay in full the principal amount of all Advances owing to the Issuing
Bank, together with accrued interest thereon to the date of payment of such
principal amount, all issuance fees and other fees payable to the Issuing Bank
and all other amounts payable to the Issuing Bank under this Agreement
(including, but not limited to, any increased costs or other additional amounts
(computed in accordance with Section 2.11) and any Taxes incurred by the Issuing
Bank prior to such Termination Date and amounts payable under Section 8.04(a)).
A maximum of two extensions of the Termination Date are permitted under this
Section 2.05(c)(ii).
SECTION 2.06. Repayment of Revolving Credit Advances. The
Borrower shall repay to the Administrative Agent for the ratable account of the
Lenders on the Termination Date the aggregate principal amount of the Revolving
Credit Advances then outstanding.
SECTION 2.07. Interest on Revolving Credit Advances. (a)
Scheduled Interest. The Borrower shall pay interest on the unpaid principal
amount of each Revolving Credit Advance owing to each Lender from the date of
such Revolving Credit Advance until such principal amount shall be paid in full,
at the following rates per annum:
(i) Base Rate Advances. During such periods as such Revolving
Credit Advance is a Base Rate Advance, a rate per annum equal at all
times to the sum of (x)
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the Base Rate in effect from time to time plus (y) the Applicable
Margin in effect from time to time, payable in arrears quarterly on the
last day of each March, June, September and December during such
periods and on the date such Base Rate Advance shall be Converted or
paid in full.
(ii) Eurodollar Rate Advances. During such periods as such
Revolving Credit Advance is a Eurodollar Rate Advance, a rate per annum
equal at all times during each Interest Period for such Revolving
Credit Advance to the sum of (x) the Eurodollar Rate for such Interest
Period for such Revolving Credit Advance plus (y) the Applicable Margin
in effect from time to time, payable in arrears on the last day of such
Interest Period and, if such Interest Period has a duration of more
than three months, on each day that occurs during such Interest Period
every three months from the first day of such Interest Period and on
the date such Eurodollar Rate Advance shall be Converted or paid in
full.
(b) Default Interest. Upon the occurrence and during the
continuance of a Default, the Borrower shall pay interest on (i) the unpaid
principal amount of each Revolving Credit Advance owing to each Lender, payable
in arrears on the dates referred to in clause (a)(i) or (a)(ii) above, at a rate
per annum equal at all times to 2% per annum above the rate per annum required
to be paid on such Revolving Credit Advance pursuant to clause (a)(i) or (a)(ii)
above and (ii) to the fullest extent permitted by law, the amount of any
interest, fee or other amount payable hereunder that is not paid when due, from
the date such amount shall be due until such amount shall be paid in full,
payable in arrears on the date such amount shall be paid in full and on demand,
at a rate per annum equal at all times to 2% per annum above the rate per annum
required to be paid on Base Rate Advances pursuant to clause (a)(i) above.
SECTION 2.08. Interest Rate Determination. (a) Each Reference
Bank agrees to furnish to the Administrative Agent timely information for the
purpose of determining each Eurodollar Rate and each LIBO Rate. If any one or
more of the Reference Banks shall not furnish such timely information to the
Administrative Agent for the purpose of determining any such interest rate, the
Administrative Agent shall determine such interest rate on the basis of timely
information furnished by the remaining Reference Banks. The Administrative Agent
shall give prompt notice to the Borrower and the Lenders of the applicable
interest rate determined by the Administrative Agent for purposes of Section
2.07(a)(i) or (ii), and the rate, if any, furnished by each Reference Bank for
the purpose of determining the interest rate under Section 2.07(a)(ii).
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(b) If, with respect to any Eurodollar Rate Advances, the
Required Lenders notify the Administrative Agent that the Eurodollar Rate for
any Interest Period for such Advances will not adequately reflect the cost to
such Required Lenders of making, funding or maintaining their respective
Eurodollar Rate Advances for such Interest Period, the Administrative Agent
shall forthwith so notify the Borrower and the Lenders, whereupon (i) each
Eurodollar Rate Advance will automatically, on the last day of the then existing
Interest Period therefor, Convert into a Base Rate Advance, and (ii) the
obligation of the Lenders to make, or to Convert Revolving Credit Advances into,
Eurodollar Rate Advances shall be suspended until the Administrative Agent shall
notify the Borrower and the Lenders that the circumstances causing such
suspension no longer exist.
(c) If the Borrower shall fail to select the duration of any
Interest Period for any Eurodollar Rate Advances in accordance with the
provisions contained in the definition of "Interest Period" in Section 1.01, the
Administrative Agent will forthwith so notify the Borrower and the Lenders and
such Advances will automatically, on the last day of the then existing Interest
Period therefor, Convert into Base Rate Advances.
(d) On the date on which the aggregate unpaid principal amount
of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by
payment or prepayment or otherwise, to less than $5,000,000, such Advances shall
automatically Convert into Base Rate Advances.
(e) Upon the occurrence and during the continuance of any
Default, (i) each Eurodollar Rate Advance will automatically, on the last day of
the then existing Interest Period therefor, Convert into a Base Rate Advance and
(ii) the obligation of the Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended.
(f) If fewer than two Reference Banks in good faith are unable
to furnish timely information to the Administrative Agent for determining the
Eurodollar Rate or LIBO Rate for any Eurodollar Rate Advances or LIBO Rate
Advances, as the case may be,
(i) the Administrative Agent shall forthwith notify the
Borrower and the Lenders that the interest rate cannot be determined
for such Eurodollar Rate Advances or LIBO Rate Advances, as the case
may be,
(ii) with respect to Eurodollar Rate Advances, each such
Advance will automatically, on the last day of the then existing
Interest Period therefor, Convert into
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a Base Rate Advance (or if such Advance is then a Base Rate Advance,
will continue as a Base Rate Advance), and
(iii) the obligation of the Lenders to make Eurodollar Rate
Advances or LIBO Rate Advances or to Convert Revolving Credit Advances
into Eurodollar Rate Advances shall be suspended until the
Administrative Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist.
SECTION 2.09. Optional Conversion of Revolving Credit Advances.
The Borrower may on any Business Day, upon notice given to the Administrative
Agent not later than 12:00 P.M. (noon) (New York City time) on the third
Business Day prior to the date of the proposed Conversion and subject to the
provisions of Sections 2.08 and 2.12, Convert all Revolving Credit Advances of
one Type comprising the same Borrowing into Revolving Credit Advances of the
other Type; provided, however, that any Conversion of Eurodollar Rate Advances
into Base Rate Advances shall be made only on the last day of an Interest Period
for such Eurodollar Rate Advances, any Conversion of Base Rate Advances into
Eurodollar Rate Advances shall be in an amount not less than the minimum amount
specified in Section 2.02(b) and no Conversion of any Revolving Credit Advances
shall result in more separate Revolving Credit Borrowings than permitted under
Section 2.02(b). Each such notice of a Conversion shall, within the restrictions
specified above, specify (i) the date of such Conversion, (ii) the Revolving
Credit Advances to be Converted, and (iii) if such Conversion is into Eurodollar
Rate Advances, the duration of the initial Interest Period for each such
Advance. Each notice of Conversion shall be irrevocable and binding on the
Borrower.
SECTION 2.10. Prepayments. (a) Optional. The Borrower may, with
notice given to the Administrative Agent not later than 12:00 P.M. (noon) (New
York City time) on the same Business Day for Base Rate Advances, or with at
least two Business Days' notice to the Administrative Agent for Eurodollar Rate
Advances, stating the proposed date and aggregate principal amount of the
prepayment, and if such notice is given the Borrower shall, prepay the
outstanding principal amount of the Revolving Credit Advances comprising part of
the same Revolving Credit Borrowing in whole or ratably in part, together with
accrued interest to the date of such prepayment on the principal amount prepaid;
provided, however, that (x) each partial prepayment shall be in an aggregate
principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess
thereof and (y) in the event of any such prepayment of a Eurodollar Rate
Advance, the Borrower shall be obligated to reimburse the Lenders in respect
thereof pursuant to Section 8.04(c).
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(b) Mandatory. The Borrower shall, on each Business Day, prepay
an aggregate principal amount of the Revolving Credit Advances comprising part
of the same Revolving Credit Borrowings and the Letter of Credit Advances equal
to the amount by which (A) the sum of the aggregate principal amount of (x) the
Revolving Credit Advances and (y) the Letter of Credit Advances then outstanding
plus the aggregate Available Amount of all Letters of Credit then outstanding
exceeds (B) the Revolving Credit Facility on such Business Day. If, after giving
effect to the foregoing prepayments, the aggregate Available Amount of all
Letters of Credit then outstanding exceeds the Letter of Credit Facility, then
the Borrower shall pay to the Administrative Agent on behalf of the Lenders and
the Issuing Bank in same day funds, for deposit in the L/C Cash Collateral
Account, an aggregate amount equal to such excess in accordance with
arrangements reasonably satisfactory to the Administrative Agent.
SECTION 2.11. Increased Costs. (a) If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law),
there shall be any increase in the cost to any Lender or the Issuing Bank of
agreeing to make or making, funding or maintaining Eurodollar Rate Advances or
LIBO Rate Advances, of agreeing to issue or of issuing or maintaining Letters of
Credit or of agreeing to make or of making Letter of Credit Advances (excluding
for purposes of this Section 2.11 any such increased costs resulting from (i)
Taxes or Other Taxes (as to which Section 2.14 shall govern) and (ii) changes in
the basis of taxation of overall net income or overall gross income by the
United States or by the foreign jurisdiction or state under the laws of which
such Lender or the Issuing Bank is organized or has its Applicable Lending
Office or any political subdivision thereof), then the Borrower shall from time
to time, upon demand by such Lender or the Issuing Bank (with a copy of such
demand to the Administrative Agent), pay to the Administrative Agent for the
account of such Lender or the Issuing Bank additional amounts sufficient to
compensate such Lender or the Issuing Bank for such increased cost. A
certificate as to the amount of such increased cost, setting forth the
calculation of the increased cost in reasonable detail, submitted to the
Borrower and the Administrative Agent by such Lender or the Issuing Bank, shall
be conclusive and binding for all purposes, absent manifest error; provided that
the Borrower shall have no obligation to any Lender or the Issuing Bank under
this Section 2.11(a) if such Lender or the Issuing Bank shall not have delivered
such certificate to the Borrower within sixty days following the later of (1)
the date of the occurrence of the event that forms the basis for such demand and
(2) the date such Lender or the Issuing Bank, as the case may be, shall have or
should reasonably have become aware of such event.
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(b) If any Lender or the Issuing Bank determines that
compliance with any law or regulation or any guideline or request from any
central bank or other governmental authority (whether or not having the force of
law) affects or would affect the amount of capital required or expected to be
maintained by such Lender or the Issuing Bank or any corporation controlling
such Lender or the Issuing Bank and that the amount of such capital is increased
by or based upon the existence of such Lender's or the Issuing Bank's commitment
to lend hereunder and other commitments of this type or the issuance or
maintenance of Letters of Credit (or similar contingent obligations), then, upon
demand by such Lender or the Issuing Bank (with a copy of such demand to the
Administrative Agent), the Borrower shall pay to the Administrative Agent for
the account of such Lender or the Issuing Bank, from time to time as specified
by such Lender or the Issuing Bank, additional amounts sufficient to compensate
such Lender or the Issuing Bank or such corporation in the light of such
circumstances, to the extent that such Lender or the Issuing Bank reasonably
determines such increase in capital to be allocable to the existence of such
Lender's or the Issuing Bank's commitment to lend hereunder or to the issuance
or maintenance of any Letters of Credit. A certificate as to such amounts
setting forth the calculation of the increased cost in reasonable detail,
submitted to the Borrower and the Administrative Agent by such Lender or the
Issuing Bank, shall be conclusive and binding for all purposes, absent manifest
error; provided that the Borrower shall have no obligation to any Lender or the
Issuing Bank under this Section 2.11(b) if such Lender or the Issuing Bank shall
not have delivered such certificate to the Borrower within sixty days following
the later of (1) the date of the occurrence of the event that forms the basis
for such demand and (2) the date such Lender or the Issuing Bank, as the case
may be, shall have or should reasonably have become aware of such event.
SECTION 2.12. Illegality. Notwithstanding any other provision
of this Agreement, if any Lender shall notify the Administrative Agent that the
introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other governmental
authority asserts that it is unlawful, for any Lender or its Eurodollar Lending
Office to perform its obligations hereunder to make Eurodollar Rate Advances or
LIBO Rate Advances or to fund or maintain Eurodollar Rate Advances or LIBO Rate
Advances hereunder, (i) each Eurodollar Rate Advance or LIBO Rate Advance, as
the case may be, will automatically, upon one Business Day's notice to the
Borrower, Convert into a Base Rate Advance or an Advance that bears interest at
the rate set forth in Section 2.07(a)(i), as the case may be, and (ii) the
obligation of the Lenders to make Eurodollar Rate Advances or LIBO Rate Advances
or to Convert Revolving Credit Advances into Eurodollar Rate Advances shall be
suspended until the Administrative Agent shall notify the Borrower and the
Lenders that the circumstances causing such suspension no longer exist.
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SECTION 2.13. Payments and Computations. (a) The Borrower shall
make each payment hereunder and under the Notes not later than 1:00 P.M. (New
York City time) on the day when due in U.S. dollars to the Administrative Agent
at the Administrative Agent's Account in same day funds. The Administrative
Agent will promptly thereafter cause like funds to be distributed (i) if such
payment by the Borrower is in respect of principal, interest, facility fees or
any other obligation then payable hereunder and under the Notes to more than one
Lender and the Issuing Bank, to such party for the account of their respective
Applicable Lending Offices ratably in accordance with the amounts of such
respective obligations then payable to such party and (ii) if such payment by
the Borrower is in respect of any obligation then payable hereunder to one
Lender or the Issuing Bank, to such party for the account of its Applicable
Lending Office, in each case to be applied in accordance with the terms of this
Agreement. Upon its acceptance of an Assignment and Acceptance and recording of
the information contained therein in the Register pursuant to Section 8.07(d),
from and after the effective date specified in such Assignment and Acceptance,
the Administrative Agent shall make all payments hereunder and under the Notes
in respect of the interest assigned thereby to the Lender or the Issuing Bank
assignee thereunder, and the parties to such Assignment and Acceptance shall
make all appropriate adjustments in such payments for periods prior to such
effective date directly between themselves.
(b) The Borrower hereby authorizes each Lender and the Issuing
Bank, if and to the extent payment owed to such Lender or the Issuing Bank is
not made when due hereunder or under the Note held by such Lender, to charge
from time to time against any or all of the Borrower's accounts with such Lender
or the Issuing Bank any amount so due.
(c) All computations of interest based on the Base Rate shall
be made by the Administrative Agent on the basis of a year of 365 or 366 days,
as the case may be, and all computations of interest based on the Eurodollar
Rate, the LIBO Rate or the Federal Funds Rate and of facility fees and Letter of
Credit issuance fees shall be made by the Administrative Agent on the basis of a
year of 360 days, in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest, facility fees or Letter of Credit issuance fees are payable. Each
determination by the Administrative Agent of an interest rate, facility fee or
Letter of Credit issuance fee hereunder shall be conclusive and binding for all
purposes, absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest or facility fee, as
the case may be; provided, however, that, if such
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extension would cause payment of interest on or principal of Eurodollar Rate
Advances or LIBO Rate Advances to be made in the next following calendar month,
such payment shall be made on the next preceding Business Day.
(e) Unless the Administrative Agent shall have received notice
from the Borrower prior to the date on which any payment is due to the Lenders
or the Issuing Bank hereunder that the Borrower will not make such payment in
full, the Administrative Agent may assume that the Borrower has made such
payment in full to the Administrative Agent on such date and the Administrative
Agent may, in reliance upon such assumption, cause to be distributed to each
Lender and/or the Issuing Bank on such due date an amount equal to the amount
then due such Lender and/or the Issuing Bank. If and to the extent the Borrower
shall not have so made such payment in full to the Administrative Agent, each
Lender and/or the Issuing Bank shall repay to the Administrative Agent forthwith
on demand such amount distributed to such Lender and/or the Issuing Bank
together with interest thereon, for each day from the date such amount is
distributed to such Lender and/or the Issuing Bank until the date such Lender
and/or the Issuing Bank repays such amount to the Administrative Agent, at the
Federal Funds Rate.
SECTION 2.14. Taxes. (a) Any and all payments by the Borrower
hereunder or under the Notes shall be made, in accordance with Section 2.13,
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender, the Issuing Bank and the
Administrative Agent, taxes imposed on its overall net income, and franchise
taxes imposed on it in lieu of net income taxes, by the jurisdiction under the
laws of which such Lender, the Issuing Bank or the Administrative Agent (as the
case may be) is organized or any political subdivision thereof and, in the case
of each Lender or the Issuing Bank, taxes imposed on its overall net income, and
franchise taxes imposed on it in lieu of net income taxes, by the jurisdiction
of such Lender's or the Issuing Bank's Applicable Lending Office or any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities in respect of payments
hereunder or under the Notes being hereinafter referred to as "Taxes"). If the
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under any Note to any Lender, the Issuing Bank or the
Administrative Agent, (i) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.14) such Lender, the Issuing Bank
or the Administrative Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrower
shall make such deductions
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and (iii) the Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies that arise from any payment made hereunder or under the Notes
or from the execution, delivery or registration of, performing under, or
otherwise with respect to, this Agreement or the Notes (hereinafter referred to
as "Other Taxes").
(c) The Borrower shall indemnify each Lender, the Issuing Bank
and the Administrative Agent for the full amount of Taxes or Other Taxes
(including, without limitation, any taxes imposed by any jurisdiction on amounts
payable under this Section 2.14) imposed on or paid by such Lender, the Issuing
Bank or the Administrative Agent (as the case may be) and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto. This indemnification shall be made within 30 days from the date such
Lender, the Issuing Bank or the Administrative Agent (as the case may be) makes
written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Borrower shall furnish to the Administrative Agent, at its address referred to
in Section 8.02, the original or a certified copy of a receipt evidencing
payment thereof. In the case of any payment hereunder or under the Notes by or
on behalf of the Borrower through an account or branch outside the United States
or by or on behalf of the Borrower by a payor that is not a United States
person, if the Borrower determines that no Taxes are payable in respect thereof,
the Borrower shall furnish, or shall cause such payor to furnish, to the
Administrative Agent, at such address, an opinion of counsel acceptable to the
Administrative Agent stating that such payment is exempt from Taxes. For
purposes of this subsection (d) and subsection (e), the terms "United States"
and "United States person" shall have the meanings specified in Section 7701 of
the Internal Revenue Code.
(e) Each Lender and Issuing Bank organized under the laws of a
jurisdiction outside the United States, on or prior to the date of its execution
and delivery of this Agreement in the case of each Initial Lender, on the date
it is approved as the Issuing Bank pursuant to Section 2.17 and on the date of
the Assignment and Acceptance pursuant to which it becomes a Lender or the
Issuing Bank in the case of each other Lender or Issuing Bank, and from time to
time thereafter as requested in writing by the Borrower (but only so long as
such Lender or the Issuing Bank remains lawfully able to do so), shall provide
each of the Administrative Agent and the Borrower with two original Internal
Revenue Service forms 1001
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or 4224, as appropriate, or any successor or other form prescribed by the
Internal Revenue Service, certifying that such Lender is exempt from or entitled
to a reduced rate of United States withholding tax on payments pursuant to this
Agreement or the Notes. If the forms provided by a Lender or the Issuing Bank at
the time such Lender or the Issuing Bank first becomes a party to this Agreement
indicates a United States interest withholding tax rate in excess of zero,
withholding tax at such rate shall be considered excluded from Taxes unless and
until such Lender or the Issuing Bank provides the appropriate forms certifying
that a lesser rate applies, whereupon withholding tax at such lesser rate only
shall be considered excluded from Taxes for periods governed by such form;
provided, however, that, if at the date of the Assignment and Acceptance
pursuant to which a Lender or Issuing Bank assignee becomes a party to this
Agreement, the Lender or Issuing Bank assignor was entitled to payments under
subsection (a) in respect of United States withholding tax with respect to
interest paid at such date, then, to such extent, the term Taxes shall include
(in addition to withholding taxes that may be imposed in the future or other
amounts otherwise includable in Taxes) United States withholding tax, if any,
applicable with respect to the Lender or Issuing Bank assignee on such date. If
any form or document referred to in this subsection (e) requires the disclosure
of information, other than information necessary to compute the tax payable and
information required by Internal Revenue Service form 1001 or 4224 or any
successor form thereof, that the Lender or the Issuing Bank reasonably considers
to be confidential, the Lender or the Issuing Bank shall give notice thereof to
the Borrower and shall not be obligated to include in such form or document such
confidential information.
(f) For any period with respect to which a Lender or the
Issuing Bank has failed to provide the Borrower with the appropriate form
described in Section 2.14(e) (other than if such failure is due to a change in
law occurring subsequent to the date on which a form originally was required to
be provided, or if such form otherwise is not required under the first sentence
of subsection (e) above), such Lender or the Issuing Bank shall not be entitled
to indemnification under Section 2.14(a) or (c) with respect to Taxes imposed by
the United States by reason of such failure; provided, however, that should a
Lender or the Issuing Bank become subject to Taxes because of its failure to
deliver a form required hereunder, the Borrower shall take such steps as the
Lender or the Issuing Bank shall reasonably request to assist the Lender or the
Issuing Bank to recover such Taxes.
(g) Any Lender or the Issuing Bank claiming any additional
amounts payable pursuant to this Section 2.14 agrees to use reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions) to
change the jurisdiction of its Eurodollar Lending Office if the making of such a
change would avoid the need for, or reduce the amount of, any such additional
amounts that may thereafter accrue and would not, in the reasonable judgment
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of such Lender or the Issuing Bank, be otherwise disadvantageous to such Lender
or the Issuing Bank.
SECTION 2.15. Sharing of Payments, Etc. If any Lender or the
Issuing Bank shall obtain any payment (whether voluntary, involuntary, through
the exercise of any right of set-off, or otherwise) (a) on account of
obligations due and payable to such Lender or the Issuing Bank hereunder and
under the Notes at such time in excess of its ratable share (according to the
proportion of (i) the amount of such obligations due and payable to such Lender
or the Issuing Bank at such time to (ii) the aggregate amount of the obligations
due and payable to all Lenders and the Issuing Bank hereunder and under the
Notes at such time) of payments on account of the obligations due and payable to
all Lenders and the Issuing Bank hereunder and under the Notes at such time
obtained by all the Lenders and the Issuing Bank at such time or (b) on account
of obligations owing (but not due and payable) to such Lender or the Issuing
Bank hereunder and under the Notes at such time in excess of its ratable share
(according to the proportion of (i) the amount of such obligations owing to such
Lender or the Issuing Bank at such time to (ii) the aggregate amount of the
obligations owing (but not due and payable) to all Lenders and the Issuing Bank
hereunder and under the Notes at such time) of payments on account of the
obligations owing (but not due and payable) to all Lenders and the Issuing Bank
hereunder and under the Notes at such time obtained by all of the Lenders and
the Issuing Bank at such time, such Lender or the Issuing Bank shall forthwith
purchase from the other Lenders or the Issuing Bank, as the case may be, such
participations in the obligations due and payable or owing to them, as the case
may be, as shall be necessary to cause such purchasing Lender or the Issuing
Bank to share the excess payment ratably with each of them; provided, however,
that if all or any portion of such excess payment is thereafter recovered from
such purchasing Lender or the Issuing Bank, such purchase from each Lender or
the Issuing Bank shall be rescinded and such Lender or the Issuing Bank shall
repay to the purchasing Lender or the Issuing Bank, as the case may be, the
purchase price to the extent of such recovery together with an amount equal to
such Lender's or the Issuing Bank's ratable share (according to the proportion
of (i) the amount of such Lender's or the Issuing Bank's required repayment to
(ii) the total amount so recovered from the purchasing Lender or the Issuing
Bank) of any interest or other amount paid or payable by the purchasing Lender
or the Issuing Bank in respect of the total amount so recovered. The Borrower
agrees that any Lender or the Issuing Bank so purchasing a participation from
another Lender or the Issuing Bank, as the case may be, pursuant to this Section
2.15 may, to the fullest extent permitted by law, exercise all its rights of
payment (including the right of set-off) with respect to such participation as
fully as if such Lender or the Issuing Bank were the direct creditor of the
Borrower in the amount of such participation.
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SECTION 2.16. Use of Proceeds. The proceeds of the Advances
shall be available (and the Borrower agrees that it shall use such proceeds)
solely for working capital purposes and refinancing Surviving Debt of the
Borrower and its Subsidiaries. All Letters of Credit shall be issued and
proceeds of Letters of Credit shall be used to support obligations of the
Borrower, contingent or otherwise, for working capital purposes.
SECTION 2.17. Issuance of and Drawings and Reimbursement Under
Letters of Credit. (a) Letters of Credit. The Issuing Bank severally agrees, on
the terms and conditions hereinafter set forth, to issue letters of credit (the
"Letters of Credit") for the account of the Borrower from time to time on any
Business Day during the period from the date it is approved by the
Administrative Agent to act as the Issuing Bank hereunder until 30 days before
the Termination Date (i) in an aggregate Available Amount for all Letters of
Credit issued by the Issuing Bank not to exceed at any time the Issuing Bank's
Letter of Credit Commitment at such time and (ii) in an Available Amount for
each such Letter of Credit not to exceed the Unused Revolving Credit Commitments
of the Lenders at such time. No Letter of Credit shall have an expiration date
(including all rights of the Borrower or the beneficiary to require renewal)
later than the Termination Date. Within the limits of the Letter of Credit
Facility, and subject to the limits referred to above, the Borrower may request
the issuance of Letters of Credit under this Section 2.17(a), the Borrower may
repay any Letter of Credit Advances resulting from drawings thereunder pursuant
to Section 2.17(d) and the Borrower may request the issuance of additional
Letters of Credit under this Section 2.17(a).
(b) Request for Issuance. Each Letter of Credit shall be issued
upon notice, given not later than 12:00 P.M. (noon) (New York City time) on the
third Business Day prior to the date of the proposed issuance of such Letter of
Credit, by the Borrower to the Administrative Agent, which shall give to the
Issuing Bank and each Lender prompt notice thereof by telex or telecopier. Each
such notice of issuance of a Letter of Credit (a "Notice of Issuance") shall be
by telephone, confirmed immediately in writing, or telex or telecopier,
specifying therein the requested (A) date of such issuance (which shall be a
Business Day), (B) Available Amount of such Letter of Credit, (C) expiration
date of such Letter of Credit, (D) name and address of the beneficiary of such
Letter of Credit and (E) form of such Letter of Credit, and shall be accompanied
by such application and agreement for letter of credit as the Administrative
Agent may specify to the Borrower for use in connection with such requested
Letter of Credit (a "Letter of Credit Agreement"). If (x) the requested form of
such Letter of Credit is acceptable to the Issuing Bank in its sole discretion
and (y) it has not received notice of objection to such issuance from the
Administrative Agent on its behalf or on behalf of the Required Lenders, the
Issuing Bank will, upon fulfillment of the applicable conditions set forth in
Article III, make such Letter of Credit available to the Borrower at its
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office referred to in Section 8.02 or as otherwise agreed with the Borrower in
connection with such issuance. In the event and to the extent that the
provisions of any Letter of Credit Agreement shall conflict with this Agreement,
the provisions of this Agreement shall govern.
(c) Letter of Credit Reports. The Issuing Bank shall furnish to
the Administrative Agent (A) on the first Business Day of each month a written
report summarizing the then outstanding Letters of Credit and any drawings
thereunder, which report the Administrative Agent shall forward to the Lenders,
and (B) on the same Business Day as a cancellation of a Letter of Credit prior
to its stated expiration date, notice of such cancellation.
(d) Drawing and Reimbursement. (i) In the event of any request
for a drawing under a Letter of Credit by the beneficiary or transferee thereof,
the Issuing Bank shall promptly notify the Borrower, but in any event no later
than the day prior to the day payment is made thereunder. Subject to the
following clause (ii), the Borrower agrees to reimburse the Issuing Bank on the
date the Issuing Bank makes a payment under a Letter of Credit, for the amount
of (x) such draft so paid and (b) any taxes, fees, charges or other costs or
expenses incurred by the Issuing Bank. Each such payment shall be made to the
Administrative Agent for the account of the Issuing Bank in immediately
available funds.
(ii) If the Issuing Bank pays a draft under any Letter of
Credit for which it is not reimbursed in full by the Borrower in accordance with
the terms of this Agreement, the payment by the Issuing Bank of such draft shall
constitute for all purposes of this Agreement the making by the Issuing Bank of
a Letter of Credit Advance, which shall be a Base Rate Advance, in the amount of
such draft. Upon written demand by the Issuing Bank with an outstanding Letter
of Credit Advance, with a copy of such demand to the Administrative Agent, each
Lender shall purchase from the Issuing Bank, and the Issuing Bank shall sell and
assign to each such Lender, such Lender's Pro Rata Share of such outstanding
Letter of Credit Advance as of the date of such purchase, by making available
for the account of its Applicable Lending Office to the Administrative Agent for
the account of the Issuing Bank, by deposit to the Administrative Agent's
Account, in same day funds, an amount equal to the portion of the outstanding
principal amount of such Letter of Credit Advance to be purchased by such
Lender. Promptly after receipt thereof, the Administrative Agent shall transfer
such funds to the Issuing Bank. The Borrower hereby agrees to each such sale and
assignment. Each Lender agrees to purchase its Pro Rata Share of an outstanding
Letter of Credit Advance on (i) the Business Day on which demand therefor is
made by the Issuing Bank, provided notice of such demand is given not later than
11:00 A.M. (New York City time) on such Business Day or (ii) the first Business
Day next succeeding such demand if notice of such demand is given after such
time. Upon any such assignment by the Issuing Bank to any other Lender of a
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portion of a Letter of Credit Advance, the Issuing Bank represents and warrants
to such other Lender that the Issuing Bank is the legal and beneficial owner of
such interest being assigned by it, free and clear of any liens, but makes no
other representation or warranty and assumes no responsibility with respect to
such Letter of Credit Advance, the Loan Documents or either Loan Party. If and
to the extent that any Lender shall not have so made the amount of such Letter
of Credit Advance available to the Administrative Agent, such Lender agrees to
pay to the Administrative Agent forthwith on demand such amount together with
interest thereon, for each day from the date of demand by the Issuing Bank until
the date such amount is paid to the Administrative Agent, at the Federal Funds
Rate for its account or the account of the Issuing Bank, as applicable. If such
Lender shall pay to the Administrative Agent such amount for the account of the
Issuing Bank on any Business Day, such amount so paid in respect of principal
shall constitute a Letter of Credit Advance made by such Lender on such Business
Day for purposes of this Agreement, and the outstanding principal amount of the
Letter of Credit Advance made by the Issuing Bank shall be reduced by such
amount on such Business Day.
(e) Failure to Make Letter of Credit Advances. The failure of
any Lender to make the Letter of Credit Advance to be made by it on the date
specified in Section 2.17(d) shall not relieve any other Lender of its
obligation hereunder to make its Letter of Credit Advance on such date, but no
Lender shall be responsible for the failure of any other Lender to make the
Letter of Credit Advance to be made by such other Lender on such date.
(f) Repayment of Letter of Credit Advances. (i) The Borrower
shall repay to the Administrative Agent for the account of the Issuing Bank and
each other Lender that has made a Letter of Credit Advance on the earlier of
demand and the Termination Date the outstanding principal amount of each Letter
of Credit Advance made by each of them.
(ii) The obligations of the Borrower under this Agreement with
respect to any Letter of Credit, any Letter of Credit Agreement and any other
agreement or instrument relating to any Letter of Credit shall be unconditional
and irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, such Letter of Credit Agreement and such other agreement or
instrument (as amended, supplemented or modified from time to time in accordance
with their respective terms) under all circumstances, including, without
limitation, the following circumstances and regardless of the use of proceeds of
any drawing under any Letter of Credit or any defense related thereto:
(A) any lack of validity or enforceability of this Agreement,
any Note, any Letter of Credit Agreement, any Letter of Credit or any
other agreement or instrument
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relating thereto (all of the foregoing being, collectively, the "L/C
Related Documents");
(B) any change in the time, manner or place of payment of, or
in any other term of, all or any of the obligations of the Borrower in
respect of any L/C Related Document or any other amendment or waiver of
or any consent to departure from all or any of the L/C Related
Documents;
(C) the existence of any claim, set-off, defense or other right
that the Borrower may have at any time against any beneficiary or any
transferee of a Letter of Credit (or any Persons for whom any such
beneficiary or any such transferee may be acting), the Issuing Bank or
any other Person, whether in connection with the transactions
contemplated by the L/C Related Documents or any unrelated transaction;
(D) any statement or any other document presented under a
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(E) payment by the Issuing Bank under a Letter of Credit
against presentation of a draft or certificate that does not strictly
comply with the terms of such Letter of Credit;
(F) any exchange, release or non-perfection of any collateral,
or any release or amendment or waiver of or consent to departure from
any guaranty, for all or any of the obligations of the Borrower in
respect of the L/C Related Documents; or
(G) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing, including, without limitation, any
other circumstance that might otherwise constitute a defense available
to, or a discharge of, the Borrower, the Guarantor or any other
guarantor.
(g) No Liability of the Issuing Bank. The Borrower assumes all
risks of the acts or omissions of any beneficiary or transferee of any Letter of
Credit with respect to its use of such Letter of Credit. Neither the Issuing
Bank nor any of its officers or directors shall be liable or responsible for:
(a) the use that may be made of any Letter of Credit or any acts or omissions of
any beneficiary or transferee in connection therewith; (b) the validity,
sufficiency or genuineness of documents, or of any endorsement thereon, even if
such documents should prove to be in any or all respects invalid, insufficient,
fraudulent or forged; (c) payment by the Issuing Bank against presentation of
documents that do not comply with the terms of a Letter
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of Credit, including failure of any documents to bear any reference or adequate
reference to the Letter of Credit; or (d) any other circumstances whatsoever in
making or failing to make payment under any Letter of Credit, except that the
Borrower shall have a claim against the Issuing Bank, and the Issuing Bank shall
be liable to, and hereby indemnify, the Borrower, to the extent of any direct,
but not consequential, damages suffered by the Borrower that the Borrower proves
were caused by (i) the Issuing Bank's willful misconduct or negligence in
determining whether documents presented under any Letter of Credit comply with
the terms of the Letter of Credit or (ii) the Issuing Bank's willful or
negligent failure to make lawful payment under a Letter of Credit after the
presentation to it of a draft and certificates strictly complying with the terms
and conditions of the Letter of Credit. In furtherance and not in limitation of
the foregoing, the Issuing Bank may accept documents that appear on their face
to be in order, without responsibility for further investigation, regardless of
any notice or information to the contrary.
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Sections
2.01, 2.03 and 2.17. Sections 2.01, 2.03 and 2.17 of this Agreement shall become
effective on and as of the first date (the "Effective Date") on which the
following conditions precedent have been satisfied:
(a) There shall have occurred no Material Adverse Change with
respect to the Borrower since March 25, 1995, other than as provided on
Schedule 4.01(e) hereto, and there shall have occurred no Material
Adverse Change with respect to the Guarantor since December 31, 1994.
(b) There shall exist no action, suit, investigation,
litigation or proceeding affecting either Loan Party or any of its
Subsidiaries pending or threatened before any court, governmental
agency or arbitrator that (i) could be reasonably likely to have a
Material Adverse Effect or (ii) purports to affect the legality,
validity or enforceability of this Agreement or any other Loan Document
or the consummation of the transactions contemplated hereby.
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(c) Nothing shall have come to the attention of the Lenders or
the Issuing Bank during the course of their due diligence investigation
to lead them to believe that the Information Memorandum was or has
become misleading, incorrect or incomplete in any material respect;
without limiting the generality of the foregoing, the Lenders and the
Issuing Bank shall have been given such access to the management,
records, books of account, contracts and properties of each Loan Party
and its Subsidiaries as they shall have reasonably requested.
(d) All governmental and third party consents and approvals
necessary in connection with the transactions contemplated hereby shall
have been obtained (without the imposition of any conditions that are
not acceptable to the Lenders or the Issuing Bank) and shall remain in
effect, and no law or regulation shall be applicable in the reasonable
judgment of the Lenders and the Issuing Bank that restrains, prevents
or imposes materially adverse conditions upon the transactions
contemplated hereby.
(e) The Borrower shall have notified each Lender, the Issuing
Bank and the Administrative Agent in writing as to the proposed
Effective Date.
(f) The Borrower shall have paid all accrued fees and expenses
of the Administrative Agent, the Issuing Bank and the Lenders
(including the accrued fees and expenses of counsel to the
Administrative Agent).
(g) On the Effective Date, the following statements shall be
true and the Administrative Agent shall have received for the account
of each Lender and the Issuing Bank a certificate signed by a duly
authorized officer of the Borrower, dated the Effective Date, stating
that:
(i) The representations and warranties contained in
each Loan Document are correct on and as of the Effective Date,
and
(ii) No event has occurred and is continuing that
constitutes a Default.
(h) The Administrative Agent shall have received on or before
the Effective Date the following, each dated such day, in form and
substance satisfactory to the Administrative Agent and (except for the
Revolving Credit Notes) in sufficient copies for each Lender and the
Issuing Bank:
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(i) The Revolving Credit Notes to the order of the
Lenders, respectively.
(ii) Certified copies of the resolutions of the Board
of Directors of each Loan Party approving this Agreement, the
Notes, each other Loan Document to which it is or is to be a
party, and of all documents evidencing other necessary
corporate action and governmental approvals, if any, with
respect to this Agreement, the Notes and each other Loan
Document.
(iii) A certificate of the Secretary or an Assistant
Secretary of each Loan Party certifying the names and true
signatures of the officers of such Loan Party authorized to
sign this Agreement, the Notes, each other Loan Document to
which it is or is to be a party and the other documents to be
delivered hereunder and thereunder.
(iv) A guaranty in substantially the form of Exhibit
E (as amended, supplemented or modified from time to time in
accordance with its terms, the "Guaranty"), duly executed by
the Guarantor.
(v) Favorable opinions of Morrison & Foerster, New
York counsel for the Borrower, and the General Counsel of the
Borrower, substantially in the form of Exhibits F-1 and F-2
hereto, respectively, and as to such other matters as any
Lender or the Issuing Bank through the Administrative Agent may
reasonably request.
(vi) Favorable opinions of Shin & Kim, counsel for
the Guarantor, and the Corporate Counsel of the Guarantor,
substantially in the form of Exhibits G-1 and G-2 hereto,
respectively, and as to such other matters as any Lender or the
Issuing Bank through the Administrative Agent may reasonably
request.
(vii) A favorable opinion of Shearman & Sterling,
counsel for the Administrative Agent, in form and substance
satisfactory to the Administrative Agent.
SECTION 3.02. Conditions Precedent to Each Revolving Credit
Borrowing and Issuance. The obligation of each Lender to make a Revolving
Credit Advance on the occasion of each Revolving Credit Borrowing (including the
initial Borrowing), and the right
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of the Borrower to request the issuance of Letters of Credit (including the
initial issuance of Letters of Credit), shall be subject to the conditions
precedent that the Effective Date shall have occurred and on the date of such
Revolving Credit Borrowing or issuance (a) the following statements shall be
true (and each of the giving of the applicable Notice of Revolving Credit
Borrowing or Notice of Issuance and the acceptance by the Borrower of the
proceeds of such Revolving Credit Borrowing or by the Borrower of such Letter of
Credit shall constitute a representation and warranty by the Borrower that on
the date of such Borrowing or issuance such statements are true):
(i) the representations and warranties contained in
each Loan Document are correct in all material respects on and
as of the date of such Revolving Credit Borrowing or issuance,
before and after giving effect to such Revolving Credit
Borrowing or issuance and to the application of the proceeds
therefrom, as though made on and as of such date, and
(ii) no event has occurred and is continuing, or would
result from such Revolving Credit Borrowing or issuance or from
the application of the proceeds therefrom, that constitutes a
Default;
and (b) the Administrative Agent shall have received such other approvals,
opinions or documents as any Lender or the Issuing Bank through the
Administrative Agent may reasonably request.
SECTION 3.03. Conditions Precedent to Each Competitive Bid
Borrowing. The obligation of each Lender that is to make a Competitive Bid
Advance on the occasion of a Competitive Bid Borrowing to make such Competitive
Bid Advance as part of such Competitive Bid Borrowing is subject to the
conditions precedent that (i) the Administrative Agent shall have received the
written confirmatory Notice of Competitive Bid Borrowing with respect thereto,
(ii) on or before the date of such Competitive Bid Borrowing, but prior to such
Competitive Bid Borrowing, the Administrative Agent shall have received a
Competitive Bid Note payable to the order of such Lender for each of the one or
more Competitive Bid Advances to be made by such Lender as part of such
Competitive Bid Borrowing, in a principal amount equal to the principal amount
of the Competitive Bid Advance to be evidenced thereby and otherwise on such
terms as were agreed to for such Competitive Bid Advance in accordance with
Section 2.03, and (iii) on the date of such Competitive Bid Borrowing the
following statements shall be true (and each of the giving of the applicable
Notice of Competitive Bid Borrowing and the acceptance by the Borrower of the
proceeds of
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such Competitive Bid Borrowing shall constitute a representation and
warranty by the Borrower that on the date of such Competitive Bid Borrowing such
statements are true):
(a) the representations and warranties contained in each Loan
Document are correct in all material respects on and as of the date of
such Competitive Bid Borrowing, before and after giving effect to such
Competitive Bid Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date,
(b) no event has occurred and is continuing, or would result
from such Competitive Bid Borrowing or from the application of the
proceeds therefrom, that constitutes a Default,
(c) no event has occurred and no circumstance exists as a
result of which the information concerning the Borrower that has been
provided to the Administrative Agent and each Lender by the Borrower in
connection herewith would include an untrue statement of a material
fact or omit to state any material fact or any fact necessary to make
the statements contained therein, in the light of the circumstances
under which they were made, not misleading, and
(d) the aggregate amount of such Competitive Bid Borrowing and
all Revolving Credit Borrowings to be made on the same day is within
the aggregate amount of the Unused Revolving Commitments of the
Lenders, computed prior to such Borrowings.
SECTION 3.04. Determinations Under Section 3.01. For
purposes of determining compliance with the conditions specified in Section
3.01, each Lender and the Issuing Bank shall be deemed to have consented to,
approved or accepted or to be satisfied with each document or other matter
required thereunder to be consented to or approved by or acceptable or
satisfactory to the Lenders and the Issuing Bank unless an officer of the
Administrative Agent responsible for the transactions contemplated by the Loan
Documents shall have received notice from such Lender and the Issuing Bank prior
to the date that the Borrower, by notice to the Lenders and the Issuing Bank,
designates as the proposed Effective Date, specifying its objection thereto. The
Administrative Agent shall promptly notify the Lenders and the Issuing Bank of
the occurrence of the Effective Date.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower.
The Borrower represents and warrants as follows:
(a) Each Loan Party is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation.
(b) The execution, delivery and performance by each Loan Party
of this Agreement, the Notes, and each other Loan Document to which it
is or is to be a party, and the consummation of the transactions
contemplated hereby, are within such Loan Party's corporate powers,
have been duly authorized by all necessary corporate action, and do not
contravene (i) such Loan Party's charter or by-laws or (ii) any law,
regulation (including, without limitation, Regulations U and X of the
Board of Governors of the Federal Reserve System) or contractual
restriction binding on or affecting the Loan Parties.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
or any other third party is required for the due execution, delivery
and performance by either Loan Party of this Agreement, the Notes or
any other Loan Document to which it is or is to be a party, except for
those authorizations, approvals, actions, notices and filings listed on
Schedule 4.01(c) hereto, all of which have been duly obtained, taken,
given or made and are in full force and effect.
(d) This Agreement has been, and each of the Notes and each
other Loan Document when delivered hereunder will have been, duly
executed and delivered by each Loan Party thereto. This Agreement is,
and each of the Notes and each other Loan Document when delivered
hereunder will be, the legal, valid and binding obligation of each Loan
Party thereto enforceable against each such Loan Party in accordance
with their respective terms.
(e) (i) The Consolidated balance sheet of the Borrower and its
Subsidiaries as at March 25, 1995, and the related Consolidated
statements of income and cash flows of the Borrower and its
Subsidiaries for the fiscal year then ended, accompanied by an opinion
of Ernst & Young, independent public accountants, and the Consolidated
balance sheet of the Borrower and its Subsidiaries as at July 1, 1995,
and the related Consolidated statements of income and cash flows of the
Borrower and its Subsidiaries
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for the three months then ended, duly certified by the chief financial
officer of the Borrower, copies of which have been furnished to each
Lender and the Issuing Bank, fairly present, subject, in the case of
said balance sheet as at July 1, 1995, and said statements of income
and cash flows for the three months then ended, to year-end audit
adjustments, the Consolidated financial condition of the Borrower and
its Subsidiaries as at such dates and the Consolidated results of the
operations of the Borrower and its Subsidiaries for the periods ended
on such dates, all in accordance with generally accepted accounting
principles consistently applied. Since March 25, 1995, there has been
no Material Adverse Change, other than as provided on Schedule 4.01(e)
hereto.
(ii) The Consolidated balance sheet of the Guarantor and its
Subsidiaries as at December 31, 1994, and the related Consolidated
statements of income and cash flows of the Guarantor and its
Subsidiaries for the fiscal year then ended, accompanied by an opinion
of Saedong Accounting Corporation, a member firm of Price Waterhouse,
independent public accountants, copies of which have been furnished to
each Lender and the Issuing Bank, fairly present the Consolidated
financial condition of the Guarantor and its Subsidiaries as at such
date and the Consolidated results of the operations of the Guarantor
and its Subsidiaries for the periods ended on such date, all in
accordance with generally accepted financial accounting standards in
the Republic of Korea consistently applied. Since December 31, 1994,
there has been no Material Adverse Change.
(f) There is no pending or threatened action, suit,
investigation, litigation or proceeding, including, without limitation,
any Environmental Action, affecting either Loan Party or any of its
Subsidiaries before any court, governmental agency or arbitrator that
(i) could be reasonably likely to have a Material Adverse Effect or
(ii) purports to affect the legality, validity or enforceability of
this Agreement, any Note or any other Loan Document or the consummation
of the transactions contemplated hereby.
(g) The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System), and no proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any margin stock.
(h) No ERISA Event has occurred or is reasonably expected to
occur with respect to any Plan.
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(i) As of the last annual actuarial valuation date, the funded
current liability percentage, as defined in Section 302(d)(8) of ERISA,
of each Plan exceeds 90% and there has been no Material Adverse Change
in the funding status of any such Plan since such date.
(j) Neither Loan Party nor any ERISA Affiliate has incurred or
is reasonably expected to incur any Withdrawal Liability to any
Multiemployer Plan that has had or is reasonably likely to have a
Material Adverse Effect.
(k) Neither Loan Party nor any ERISA Affiliate has been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or has been terminated, within the meaning of
Title IV of ERISA, and no such Multiemployer Plan is reasonably
expected to be in reorganization or to be terminated, within the
meaning of Title IV of ERISA.
(l) Except as set forth in the financial statements referred to
in this Section 4.01 and in Section 5.01(i), the Loan Parties and their
respective Subsidiaries have no material liability with respect to
"expected post retirement benefit obligations" within the meaning of
Statement of Financial Accounting Standards No. 106.
(m) The operations and properties of the Borrower and each of
its Subsidiaries comply with all applicable Environmental Laws and
Environmental Permits, except such non-compliance that would not have a
Material Adverse Effect, all past non-compliance with such
Environmental Laws and Environmental Permits has been resolved without
ongoing obligations or costs, and no circumstances exist that could be
reasonably likely to (i) form the basis of an Environmental Action
against the Borrower or any of its Subsidiaries or any of their
properties that could have a Material Adverse Effect or (ii) cause any
such property to be subject to any restrictions on ownership,
occupancy, use or transferability under any Environmental Law that
could have a Material Adverse Effect.
(n) None of the properties currently or, to the best of its
knowledge, formerly owned or operated by the Borrower or any of its
Subsidiaries is listed or proposed for listing on the National
Priorities List under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("NPL") or on the Comprehensive
Environmental Response, Compensation and Liability Information System
maintained by the U.S. Environmental Protection Agency ("CERCLIS") or
any
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analogous foreign, state or local list or, to the best knowledge of the
Borrower, is adjacent to any such property; there are no and never have
been any underground or aboveground storage tanks or any surface
impoundments, septic tanks, pits, sumps or lagoons in which Hazardous
Materials are being or have been treated, stored or disposed of by the
Borrower or any of its Subsidiaries or, to the best of its knowledge,
by any other Person, on any property currently or, to the best of its
knowledge, formerly owned or operated by the Borrower or any of its
Subsidiaries; there is no friable asbestos or, other than as is being
maintained in accordance with applicable Environmental Laws, other
asbestos or asbestos-containing material on any property currently
owned or operated by the Borrower or any of its Subsidiaries; and
Hazardous Materials have not been released, discharged or disposed of
by the Borrower or any of its Subsidiaries or, to the best of its
knowledge, by any other Person, on any property currently or, to the
best of its knowledge, formerly owned or operated by the Borrower or
any of its Subsidiaries or any adjoining property.
(o) Neither the Borrower nor any of its Subsidiaries is
undertaking, and has not completed, either individually or together
with other potentially responsible parties, any investigation or
assessment or remedial or response action relating to any actual or
threatened release, discharge or disposal of Hazardous Materials at any
site, location or operation, either voluntarily or pursuant to the
order of any governmental or regulatory authority or the requirements
of any Environmental Law; and all Hazardous Materials generated, used,
treated, handled or stored at or transported to or from any property
currently or formerly owned or operated by the Borrower or any of its
Subsidiaries have been disposed of in a manner not reasonably expected
to result in material liability to the Borrower or any of its
Subsidiaries.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any
Advance shall remain unpaid, any Letter of Credit shall be outstanding or any
Lender or the Issuing Bank shall have any Commitment hereunder, the Borrower
will:
(a) Compliance with Laws, Etc. Comply, and cause each
of its Subsidiaries to comply, in all material respects, with all
applicable laws, rules, regulations and
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orders, such compliance to include, without limitation,
compliance with ERISA and Environmental Laws as provided in Section
5.01(j).
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of
its Subsidiaries to pay and discharge, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges or
levies imposed upon it or upon its property and (ii) all lawful claims
that, if unpaid, might by law become a Lien upon its property;
provided, however, that neither the Borrower nor any of its
Subsidiaries shall be required to pay or discharge any such tax,
assessment, charge or claim that is being contested in good faith and
by proper proceedings and as to which appropriate reserves are being
maintained, unless and until any Lien resulting therefrom attaches to
its property and becomes enforceable against its other creditors.
(c) Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations in such amounts and covering such
risks as is usually carried by companies engaged in similar businesses
and owning similar properties in the same general areas in which the
Borrower or such Subsidiary operates; provided, however, that the
Borrower and its Subsidiaries may self-insure to the same extent as
other companies engaged in similar businesses and owing similar
properties in the same general areas in which the Borrower or such
Subsidiary operates and to the extent consistent with prudent business
practice.
(d) Preservation of Corporate Existence, Etc. Preserve and
maintain, and cause each of its Subsidiaries to preserve and maintain,
its corporate existence, rights (charter and statutory) and franchises;
provided, however, that the Borrower and its Subsidiaries may
consummate any merger or consolidation permitted under Section 5.02(c)
and provided further that neither the Borrower nor any of its
Subsidiaries shall be required to preserve any right or franchise if
the Board of Directors of the Borrower or such Subsidiary shall
determine that the preservation thereof is no longer desirable in the
conduct of the business of the Borrower or such Subsidiary, as the case
may be, and that the loss thereof is not disadvantageous in any
material respect to the Borrower, such Subsidiary, the Lenders or the
Issuing Bank.
(e) Visitation Rights. Upon advance request, at any reasonable
time and from time to time, but no more than four times in any calendar
year, permit the Administrative Agent, any of the Lenders or the
Issuing Bank or any agents or representatives thereof, to examine and
make copies of and abstracts from the records
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and books of account of, and visit the properties of, the Borrower and
any of its Subsidiaries, and to discuss the affairs, finances and
accounts of the Borrower and any of its Subsidiaries with any of their
officers or directors and with their independent certified public
accountants.
(f) Keeping of Books. Keep, and cause each of its Subsidiaries
to keep, proper books of record and account, in which full and correct
entries shall be made of all financial transactions and the assets and
business of the Borrower and each such Subsidiary in accordance with
generally accepted accounting principles in effect from time to time.
(g) Maintenance of Properties, Etc. Maintain and preserve, and
cause each of its Subsidiaries to maintain and preserve, all of its
properties that are used or useful in the conduct of its business in
good working order and condition, ordinary wear and tear excepted.
(h) Transactions with Affiliates. Conduct, and cause each of
its Subsidiaries to conduct, all transactions otherwise permitted under
the Loan Documents with any of their Affiliates on terms that are fair
and reasonable and no less favorable to the Borrower or such Subsidiary
than it would obtain in a comparable arm's-length transaction with a
Person not an Affiliate.
(i) Reporting Requirements. Furnish to the Lenders:
(i) as soon as available and in any event within 45
days after the end of each of the first three quarters of each
fiscal year of the Borrower, Consolidated and consolidating
balance sheets of the Borrower and its Subsidiaries as of the
end of such quarter and Consolidated and consolidating
statements of income and cash flows of the Borrower and its
Subsidiaries for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter,
duly certified (subject to year-end audit adjustments) by the
chief financial officer of the Borrower as having been prepared
in accordance with generally accepted accounting principles,
provided that in the event of any change in GAAP used in the
preparation of such financial statements, the Borrower shall
also provide a statement of reconciliation conforming such
financial statements to GAAP;
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(ii) as soon as available and in any event within 90
days after the end of each fiscal year of the Borrower, a copy
of the annual audit report for such year for the Borrower and
its Subsidiaries, containing Consolidated and consolidating
balance sheets of the Borrower and its Subsidiaries as of the
end of such fiscal year and Consolidated and consolidating
statements of income and cash flows of the Borrower and its
Subsidiaries for such fiscal year, in each case accompanied by
an opinion acceptable to the Required Lenders by Ernst & Young
or other independent public accountants acceptable to the
Required Lenders, provided that in the event of any change in
GAAP used in the preparation of such financial statements, the
Borrower shall also provide a statement of reconciliation
conforming such financial statements to GAAP;
(iii) as soon as available and in any event within 90
days after the end of each fiscal year of the Guarantor, a copy
of the annual audit report for such year for the Guarantor and
its Subsidiaries, containing Consolidated balance sheets of the
Guarantor and its Subsidiaries as of the end of such fiscal
year and Consolidated statements of income and cash flows of
the Guarantor and its Subsidiaries for such fiscal year, in
each case accompanied by an opinion acceptable to the Required
Lenders by Saedong Accounting Corporation, a member firm of
Price Waterhouse, or other independent public accountants
acceptable to the Required Lenders, provided that in the event
of any change in GAAP used in the preparation of such financial
statements, the Guarantor shall also provide a statement of
reconciliation conforming such financial statements to GAAP;
(iv) as soon as possible and in any event within
five days after a Responsible Officer of the Borrower has
knowledge of the occurrence of a Default continuing on the date
of such statement, a statement of the chief financial officer
of the Borrower setting forth details of such Default and the
action that the Borrower has taken and proposes to take with
respect thereto;
(v) promptly after the sending or filing thereof,
copies of all reports and registration statements that the
Borrower or any Subsidiary files with the Securities and
Exchange Commission or any national securities exchange;
(vi) promptly after the commencement thereof, notice
of all actions and proceedings before any court, governmental
agency or arbitrator affecting
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either Loan Party or any of its Subsidiaries of the type
described in Section 4.01(f);
(vii) (A) promptly and in any event within 10 days
after either Loan Party or any ERISA Affiliate knows or has
reason to know that any ERISA Event has occurred, a statement
of the chief financial officer of the Borrower describing such
ERISA Event and the action, if any, that such Loan Party or
such ERISA Affiliate has taken and proposes to take with
respect thereto and (B) on the date any records, documents or
other information must be furnished to the PBGC with respect to
any Plan pursuant to Section 4010 of ERISA, a copy of such
records, documents and information;
(viii) promptly and in any event within two Business
Days after receipt thereof by either Loan Party or any ERISA
Affiliate, copies of each notice from the PBGC stating its
intention to terminate any Plan or to have a trustee appointed
to administer any Plan;
(ix) promptly and in any event within 30 days after
the receipt thereof by either Loan Party or any ERISA
Affiliate, a copy of the annual actuarial report for each Plan
the funded current liability percentage (as defined in Section
302(d)(8) of ERISA) of which is less than 90% or the unfunded
current liability of which exceeds $1,000,000;
(x) promptly and in any event within five Business
Days after receipt thereof by either Loan Party or any ERISA
Affiliate from the sponsor of a Multiemployer Plan, copies of
each notice concerning (A) the imposition of Withdrawal
Liability by any such Multiemployer Plan, (B) the
reorganization or termination, within the meaning of Title IV
of ERISA, of any such Multiemployer Plan or (C) the amount of
liability incurred, or that may be incurred, by such Loan Party
or any ERISA Affiliate in connection with any event described
in clause (A) or (B);
(xi) promptly after the assertion or occurrence
thereof, notice of any Environmental Action against or of any
noncompliance by the Borrower or any of its Subsidiaries with
any Environmental Law or Environmental Permit that could
reasonably be expected to have a Material Adverse Effect; and
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(xii) such other information respecting either Loan
Party or any of its Subsidiaries as any Lender through the
Administrative Agent may from time to time reasonably request.
(j) Compliance with Environmental Laws. Comply, and
cause each of its Subsidiaries and all lessees and other Persons
operating or occupying its properties to comply, in all material
respects, with all applicable Environmental Laws and Environmental
Permits; obtain and renew and cause each of its Subsidiaries to obtain
and renew all Environmental Permits necessary for its operations and
properties; and conduct, and cause each of its Subsidiaries to conduct,
any investigation, study, sampling and testing, and undertake any
cleanup, removal, remedial or other action necessary to remove and
clean up all Hazardous Materials from any of its properties, in
accordance with the requirements of all Environmental Laws;
provided, however, that neither the Borrower nor any of
its Subsidiaries shall be required to undertake any such cleanup,
removal, remedial or other action to the extent that such action is not
required by Environmental Laws or to the extent that its obligation to
do so is being contested in good faith and by proper proceedings and
appropriate reserves are being maintained with respect to such
circumstances.
SECTION 5.02. Negative Covenants. So long as any
Advance shall remain unpaid, any Letter of Credit shall be outstanding or any
Lender or the Issuing Bank shall have any Commitment hereunder, the Borrower
will not:
(a) Liens, Etc. Create or suffer to exist, or permit
any of its Subsidiaries to create or suffer to exist, any Lien on or
with respect to any of its properties, whether now owned or hereafter
acquired, or assign, or permit any of its Subsidiaries to assign, any
right to receive income, other than:
(i) Permitted Liens,
(ii) purchase money Liens upon or in any real
property or equipment acquired or held by the Borrower or any
Subsidiary in the ordinary course of business to secure the
purchase price of such property or equipment or to secure Debt
incurred solely for the purpose of financing the acquisition of
such property or equipment, or Liens existing on such property
or equipment at the time of its acquisition (other than any
such Liens created in contemplation of such acquisition that
were not incurred to finance the acquisition of such property)
or extensions, renewals or replacements of any of the foregoing
for
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the same or a lesser amount, or Liens of a lessor under an
operating lease, provided, however, that no such Lien shall
extend to or cover any properties of any character other than
the real property or equipment being acquired, and no such
extension, renewal or replacement shall extend to or cover any
properties not theretofore subject to the Lien being extended,
renewed or replaced, provided further that the aggregate
principal amount of the indebtedness secured by the Liens
referred to in this clause (ii) and the Debt incurred in
connection with Section 5.02(b)(iii)(F) shall not exceed
$35,000,000 in the aggregate at any time outstanding,
(iii) the Liens existing on the Effective Date and
described on Schedule 5.02(a) hereto,
(iv) Liens in favor of the Guarantor to secure the
Borrower's obligation to the Guarantor under the Guaranty and
Recourse Agreement, to the extent such Liens become operative
only after the Commitments shall have been terminated and the
Administrative Agent, the Lenders and the Issuing Bank shall
have been paid in full for all obligations of the Borrower
hereunder and under the Notes, and
(v) Liens to secure Debt permitted under Section
5.02(b)(iii)(B).
(b) Debt. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist,
any Debt other than:
(i) in the case of the Borrower, Subordinated Debt;
(ii) in the case of any of its Subsidiaries, Debt
owed to the Borrower or to a wholly-owned Subsidiary of the
Borrower; and
(iii) in the case of the Borrower and any of its
Subsidiaries,
(A) Debt under the Loan Documents,
(B) Debt incurred in connection with the
Securitization or the transactions listed on Schedule
5.02(b)(iii)(B) to the extent such Debt does not
exceed $130,000,000 in the aggregate,
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(C) Capitalized Leases not to exceed in the
aggregate $10,000,000 at any time outstanding,
(D) the Surviving Debt and any Debt extending
the maturity of, or refunding or refinancing, in
whole or in part, any Surviving Debt, provided that
the terms of any such extending, refunding or
refinancing Debt, and of any agreement entered into
and of any instrument issued in connection therewith,
are otherwise permitted by the Loan Documents, and
provided further that the principal amount of such
Surviving Debt shall not be increased above the
principal amount thereof outstanding immediately pror
to such extension, refunding or refinancing, and the
direct and contingent obligors therefor shall not be
changed, as a result of or in connection with such
extension, refunding or refinancing, and provided
further that the Existing Credit Agreement shall be
terminated in whole upon the completion of the
Securitization,
(E) indorsement of negotiable instruments for
deposit or collection or similar transactions in the
ordinary course of business, and
(F) other Debt the aggregate principal amount
of which, together with the aggregate indebtedness
secured by the Liens referred to in 5.02(a)(ii),
shall not exceed $35,000,000 in the aggregate at any
time outstanding.
(c) Mergers, Etc. Merge or consolidate with or into, or convey,
transfer, lease or otherwise dispose of (whether in one transaction or
in a series of transactions) all or substantially all of its assets
(whether now owned or hereafter acquired) to, any Person, or permit any
of its Subsidiaries to do so, except that (i) any Subsidiary of the
Borrower may merge or consolidate with or into, or dispose of assets
to, any other Subsidiary of the Borrower, and except that any
Subsidiary of the Borrower may merge into or dispose of assets to the
Borrower, provided, in each case, that no Default shall have occurred
and be continuing at the time of such proposed transaction or would
result therefrom and (ii) the Borrower may sell one or more
manufacturing Subsidiaries, provided that each such sale is for fair
value.
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(d) Accounting Changes. Make or permit, or permit any of its
Subsidiaries to make or permit, any change in accounting policies or
reporting practices, except as required or permitted by generally
accepted accounting principles.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Advance
when the same becomes due and payable, or the Borrower shall fail to
pay any interest on any Advance, any Reimbursement Obligation or any
other amount payable hereunder, or either Loan Party shall fail to make
any other payment of fees or other amounts payable under any Loan
Document within three Business Days after the same becomes due and
payable; or
(b) Any representation or warranty made by either Loan Party
under or in connection with any Loan Document shall prove to have been
incorrect in any material respect when made; or
(c) (i) The Borrower shall fail to perform or observe any term,
covenant or agreement contained in Section 5.01(d), (e), (h) or (i) or
5.02 or (ii) either Loan Party shall fail to perform or observe any
other term, covenant or agreement contained in any Loan Document on its
part to be performed or observed if such failure shall remain
unremedied for 10 days after written notice thereof shall have been
given to such Loan Party by the Administrative Agent, any Lender or the
Issuing Bank; or
(d) Either Loan Party or any of its Subsidiaries shall fail to
pay any principal of or premium or interest on any Debt that is
outstanding in a principal or notional amount of at least $5,000,000 in
the aggregate in the case of the Borrower and $25,000,000 in the
aggregate in the case of the Guarantor (but excluding Debt outstanding
hereunder) of such Loan Party or such Subsidiary (as the case may be),
when the same becomes due and payable (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to
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such Debt; or any other event shall occur or condition shall exist
under any agreement or instrument relating to any such Debt and shall
continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such event or condition is to
accelerate, or to permit the acceleration of, the maturity of such
Debt; or any such Debt shall be declared to be due and payable, or
required to be prepaid or redeemed (other than by a regularly scheduled
required prepayment or redemption), purchased or defeased, or an offer
to prepay, redeem, purchase or defease such Debt shall be required to
be made, in each case prior to the stated maturity thereof; or
(e) Either Loan Party or any of its Subsidiaries shall
generally not pay its debts as such debts become due, or shall admit in
writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against either Loan Party or any of its
Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief
of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property and, in the case of
any such proceeding instituted against it (but not instituted by it),
either such proceeding shall remain undismissed or unstayed for a
period of 45 days, or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee, custodian or other
similar official for, it or for any substantial part of its property)
shall occur; or either Loan Party or any of its Subsidiaries shall take
any corporate action to authorize any of the actions set forth above in
this subsection (e); or
(f) Any judgment or order for the payment of money in excess of
$5,000,000 in the case of the Borrower and $15,000,000 in the case of
the Guarantor shall be rendered against such Loan Party or any of its
Subsidiaries and either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or order or (ii) there
shall be any period of 10 consecutive days during which such judgment
remains unsatisfied and a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(g) Any non-monetary judgment or order shall be rendered
against either Loan Party or any of its Subsidiaries that could be
reasonably expected to have a Material Adverse Effect, and there shall
be any period of 10 consecutive days during
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which such judgment remains unsatisfied and a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise,
shall not be in effect; or
(h) (i) (A) The Hyundai Group and its Affiliates shall cease to
retain beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of
1934), directly or indirectly, of Voting Stock of the Borrower (or
other securities convertible into such Voting Stock) representing 25%
or more of the combined voting power of all Voting Stock of the
Borrower; or (B) any Person or two or more Persons acting in concert
other than the Hyundai Group and its Affiliates shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of
1934), directly or indirectly, of Voting Stock of the Borrower (or
other securities convertible into such Voting Stock) representing 25%
or more of the combined voting power of all Voting Stock of the
Borrower; or (C) any Person or two or more Persons acting in concert
other than the Hyundai Group and its Affiliates shall have acquired by
contract or otherwise, or shall have entered into a contract or
arrangement that, upon consummation, will result in its or their
acquisition of the power to exercise, directly or indirectly, a
controlling influence over the management or policies of the Borrower;
or
(ii) Any Person or two or more Persons other than the owners of
the Guarantor on the date hereof or their Affiliates acting in concert
shall have acquired by contract or otherwise, or shall have entered
into a contract or arrangement that, upon consummation, will result in
its or their acquisition of the power to exercise, directly or
indirectly, a controlling influence over the management or policies of
the Guarantor; or
(i) Any ERISA Event shall have occurred with respect to a Plan
and the sum (determined as of the date of occurrence of such ERISA
Event) of the Insufficiency of such Plan and the Insufficiency of any
and all other Plans with respect to which an ERISA Event shall have
occurred and then exist (or the liability of the Borrower and the ERISA
Affiliates related to such ERISA Event) exceeds $5,000,000; or
(j) Either Loan Party or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan in an amount that, when
aggregated with all other amounts required to be paid to Multiemployer
Plans by such Loan Party and the ERISA
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Affiliates as Withdrawal Liability (determined as of the date of such
notification), exceeds $5,000,000 or requires payments exceeding
$1,250,000 per annum; or
(k) Either Loan Party or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that such Multiemployer
Plan is in reorganization or is being terminated, within the meaning of
Title IV of ERISA, and as a result of such reorganization or
termination the aggregate annual contributions of such Loan Party and
the ERISA Affiliates to all Multiemployer Plans that are then in
reorganization or being terminated have been or will be increased over
the amounts contributed to such Multiemployer Plans for the plan years
of such Multiemployer Plans immediately preceding the plan year in
which such reorganization or termination occurs by an amount exceeding
$1,250,000; or
(l) Any provision of the Guaranty shall for any reason cease to
be valid and binding on or enforceable against the Guarantor, or the
Guarantor shall revoke the Guaranty;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Borrower,
declare the Commitments to be terminated forthwith, whereupon the Commitments
shall immediately terminate, and (ii) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the Notes,
all interest thereon and all other amounts payable under this Agreement and the
other Loan Documents to be forthwith due and payable, whereupon the Notes, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower; provided,
however, that in the event of an actual or deemed entry of an order for
relief with respect to either Loan Party under the Federal Bankruptcy Code, (A)
the obligation of each Lender to make Advances shall automatically be terminated
and (B) the Notes, all such interest and all such amounts shall automatically
become and be due and payable, without presentment, demand, protest or any
notice of any kind, all of which are hereby expressly waived by the Borrower.
SECTION 6.02. Actions in Respect of the Letters of Credit
upon Default. (a) If any Event of Default shall have occurred and be
continuing, the Administrative Agent may, or shall at the request of the
Required Lenders, irrespective of whether it is taking any of the actions
described in Section 6.01 or otherwise, make demand upon the Borrower to, and
forthwith upon such demand the Borrower will, pay to the Administrative Agent on
behalf of the Lenders and the Issuing Bank in same day funds at the
Administrative Agent's office
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designated in such demand, for deposit in the L/C Cash Collateral Account, an
amount equal to the aggregate Available Amount of all Letters of Credit then
outstanding. If at any time the Administrative Agent determines that any funds
held in the L/C Cash Collateral Account are subject to any right or claim of any
Person other than the Administrative Agent, the Lenders and the Issuing Bank or
that the total amount of such funds is less than the aggregate Available Amount
of all Letters of Credit, the Borrower will, forthwith upon demand by the
Administrative Agent, pay to the Administrative Agent, as additional funds to be
deposited and held in the L/C Cash Collateral Account, an amount equal to the
excess of (i) such aggregate Available Amount over (ii) the total amount of
funds, if any, then held in the L/C Cash Collateral Account that the
Administrative Agent determines to be free and clear of any such right and
claim.
(b) The Borrower hereby agrees that any amounts from time to
time on deposit in the L/C Cash Collateral Account shall be and constitute
collateral security for the prompt and complete payment when due of the
obligations and liabilities of the Borrower under and in respect of the Letters
of Credit.
(c) The Borrower, the Administrative Agent, the Issuing Bank
and the Lenders agree that any action taken or omitted to be taken by the
Administrative Agent in connection with the L/C Cash Collateral Account, if
taken or omitted to be taken in good faith and with reasonable care, shall be
binding upon the Borrower, the Issuing Bank and the Lenders and shall not create
any liability on the part of the Administrative Agent to the Borrower, the
Issuing Bank or the Lenders.
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ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. Authorization and Action. Each Lender (in its
capacity as a Lender and, if applicable, the Issuing Bank) hereby appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers and discretion under this Agreement and the other
Loan Documents as are delegated to the Administrative Agent by the terms hereof
and thereof, together with such powers and discretion as are reasonably
incidental thereto. As to any matters not expressly provided for by this
Agreement and the other Loan Documents (including, without limitation,
enforcement or collection of the Notes), the Administrative Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding upon all Lenders, the Issuing Bank and all holders
of Notes; provided, however, that the Administrative Agent shall not be required
to take any action that exposes the Administrative Agent to personal liability
or that is contrary to this Agreement or applicable law. The Administrative
Agent agrees to give to each Lender and the Issuing Bank prompt notice of each
notice given to it by the Borrower pursuant to the terms of this Agreement.
SECTION 7.02. Administrative Agent's Reliance, Etc. Neither the
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with the Loan Documents, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the
foregoing, the Administrative Agent: (i) may treat the payee of any Note as the
holder thereof until the Administrative Agent receives and accepts an Assignment
and Acceptance entered into by the Lender that is the payee of such Note, as
assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07;
(ii) may consult with legal counsel (including counsel for either Loan Party),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (iii) makes
no warranty or representation to any Lender or the Issuing Bank and shall not be
responsible to any Lender or the Issuing Bank for any statements, warranties or
representations (whether written or oral) made in or in connection with any Loan
Document; (iv) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of any
Loan Document on the part of either Loan Party or to inspect the property
(including the books and records) of either Loan Party;
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(v) shall not be responsible to any Lender or the Issuing Bank for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of any Loan Document or any other instrument or document furnished pursuant
hereto; and (vi) shall incur no liability under or in respect of any Loan
Document by acting upon any notice, consent, certificate or other instrument or
writing (which may be by telecopier, telegram or telex) believed by it to be
genuine and signed or sent by the proper party or parties.
SECTION 7.03. Citibank and Affiliates. With respect to its
Commitments, the Advances made by it and the Note issued to it, Citibank shall
have the same rights and powers under the Loan Documents as any other Lender and
may exercise the same as though it were not the Administrative Agent; and the
term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include
Citibank in its individual capacity. Citibank and its Affiliates may accept
deposits from, lend money to, act as trustee under indentures of, accept
investment banking engagements from and generally engage in any kind of business
with, either Loan Party, any of its Subsidiaries and any Person who may do
business with or own securities of either Loan Party or any such Subsidiary, all
as if Citibank were not the Administrative Agent and without any duty to account
therefor to the Lenders.
SECTION 7.04. Lender and Issuing Bank Credit Decision. Each
Lender and the Issuing Bank acknowledges that it has, independently and without
reliance upon the Administrative Agent or any other Lender or the Issuing Bank,
as the case may be, and based on the financial statements referred to in Section
4.01 and such other documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement. Each Lender
and the Issuing Bank also acknowledges that it will, independently and without
reliance upon the Administrative Agent or any other Lender or the Issuing Bank,
as the case may be, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
SECTION 7.05. Indemnification. (a) The Lenders and the Issuing
Bank agree to indemnify the Administrative Agent (to the extent not reimbursed
by the Borrower) from and against such Lender's or the Issuing Bank's ratable
share of any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever that may be imposed on, incurred by, or asserted against the
Administrative Agent in any way relating to or arising out of any Loan Document
or any action taken or omitted by the Administrative Agent under any Loan
Document, provided that neither any Lender nor the Issuing Bank shall be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits,
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costs, expenses or disbursements resulting from the Administrative Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Lender and the Issuing Bank agrees to reimburse the Administrative Agent
promptly upon demand for its ratable share of any out-of-pocket expenses
(including counsel fees) incurred by the Administrative Agent in connection with
the preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, the Loan
Documents, to the extent that the Administrative Agent is not reimbursed for
such expenses by the Borrower. For purposes of this Section 7.05, the Lenders'
and the Issuing Bank's respective ratable shares of any amount shall be
determined, at any time, according to the sum of (i) the aggregate principal
amount of the Revolving Credit Advances or Letter of Credit Advances outstanding
at such time and owing to the respective Lenders or the Issuing Bank, (ii) their
respective Pro Rata Shares of the aggregate Available Amount of all Letters of
Credit outstanding at such time and (iii) their respective Unused Revolving
Credit Commitments at such time; provided, that the aggregate principal amount
of Letter of Credit Advances owing to the Issuing Bank shall be considered to be
owed to the Lenders ratably in accordance with their respective Revolving Credit
Commitments. The failure of any Lender or the Issuing Bank to reimburse the
Administrative Agent promptly upon demand for its ratable share of any amount
required to be paid by such Lender or the Issuing Bank, as the case may be, to
the Administrative Agent as provided herein shall not relieve any other Lender
or the Issuing Bank, as the case may be, of its obligation hereunder to
reimburse the Administrative Agent for its ratable share of such amount, but no
Lender or the Issuing Bank, as the case may be, shall be responsible for the
failure of any other Lender or the Issuing Bank, as the case may be, to
reimburse the Administrative Agent for such other Lender's or the Issuing Bank's
ratable share of such amount. Without prejudice to the survival of any other
agreement of any Lender or the Issuing Bank hereunder, the agreement and
obligations of each Lender and the Issuing Bank contained in this Section
7.05(a) shall survive the payment in full of principal, interest and all other
amounts payable hereunder and under the other Loan Documents.
(b) Each Lender severally agrees to indemnify the Issuing Bank
(to the extent not promptly reimbursed by the Borrower) from and against such
Lender's ratable share (determined as provided below) of any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever that may be
imposed on, incurred by, or asserted against the Issuing Bank in any way
relating to or arising out of the Loan Documents or any action taken or omitted
by the Issuing Bank under the Loan Documents; provided, however, that no Lender
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Issuing Bank's gross negligence or
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willful misconduct. Without limitation of the foregoing, each Lender agrees to
reimburse the Issuing Bank promptly upon demand for its ratable share of any
costs and expenses (including, without limitation, fees and expenses of counsel)
payable by the Borrower under Section 8.04, to the extent that the Issuing Bank
is not promptly reimbursed for such costs and expenses by the Borrower. For
purposes of this Section 7.05(b), the Lenders' respective ratable shares of any
amount shall be determined, at any time, according to the sum of (i) the
aggregate principal amount of the Revolving Credit Advances and Letter of Credit
Advances outstanding at such time and owing to the respective Lenders and (ii)
their respective Pro Rata Shares of the aggregate Available Amount of all
Letters of Credit outstanding at such time plus (iii) their respective Unused
Revolving Credit Commitments at such time; provided that the aggregate principal
amount of Letter of Credit Advances owing to the Issuing Bank shall be
considered to be owed to the Lenders ratably in accordance with their respective
Revolving Credit Commitments. The failure of any Lender to reimburse the Issuing
Bank promptly upon demand for its ratable share of any amount required to be
paid by the Lender to the Issuing Bank as provided herein shall not relieve any
other Lender of its obligation hereunder to reimburse the Issuing Bank for its
ratable share of such amount, but no Lender shall be responsible for the failure
of any other Lender to reimburse the Issuing Bank for such other Lender's
ratable share of such amount. Without prejudice to the survival of any other
agreement of any Lender hereunder, the agreement and obligations of each Lender
contained in this Section 7.05(b) shall survive the payment in full of
principal, interest and all other amounts payable hereunder and under the other
Loan Documents.
SECTION 7.06. Successor Administrative Agent. The
Administrative Agent may resign at any time by giving written notice thereof to
the Lenders, the Issuing Bank and the Borrower and may be removed at any time
with or without cause by the Required Lenders. Upon any such resignation or
removal, the Required Lenders shall have the right to appoint a successor
Administrative Agent, subject to the Borrower's approval, which shall not be
unreasonably withheld. If no successor Administrative Agent shall have been so
appointed by the Required Lenders, and shall have accepted such appointment,
within 30 days after the retiring Administrative Agent's giving of notice of
resignation or the Required Lenders' removal of the retiring Administrative
Agent, then the retiring Administrative Agent may, on behalf of the Lenders and
the Issuing Bank and after consulting with the Borrower, appoint a successor
Administrative Agent, which shall be a commercial bank organized under the laws
of the United States of America or of any State thereof and having a combined
capital and surplus of at least $50,000,000. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, discretion, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
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discharged from its duties and obligations under the Loan Documents. After any
retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Article VII shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any
provision of any Loan Document, nor consent to any departure by any Loan Party
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Borrower and the Required Lenders, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no amendment, waiver or consent
shall, unless in writing and signed by all the Lenders, do any of the following:
(a) waive any of the conditions specified in Section 3.01, (b) increase the
Commitments of the Lenders or subject the Lenders to any additional obligations
(other than as permitted by Section 2.05(c) to the extent any of such Lenders
consents thereunder), (c) reduce the principal of, or interest on, the Revolving
Credit Notes or any fees or other amounts payable hereunder, (d) postpone any
date fixed for any payment of principal of, or interest on, the Revolving Credit
Notes or any fees or other amounts payable hereunder, (e) change the percentage
of the Commitments or of the aggregate unpaid principal amount of the Revolving
Credit Notes or of the aggregate Available Amount of outstanding Letters of
Credit, or the number of Lenders, that in each case shall be required for the
Lenders or any of them to take any action hereunder, (f) reduce or limit the
obligations of the Guarantor under Section I of the Guaranty or otherwise limit
the Guarantor's liability with respect to the obligations owing to the
Administrative Agent, the Lenders and the Issuing Bank or (g) amend this Section
8.01; and provided further that no amendment, waiver or consent shall, unless in
writing and signed by the Issuing Bank in addition to the Lenders required above
to take such action, affect the rights or obligations of the Issuing Bank under
this Agreement; provided further that no amendment, waiver or consent shall,
unless in writing and signed by the Administrative Agent in addition to the
Lenders required above to take such action, affect the rights or duties of the
Administrative Agent under this Agreement or any Note.
SECTION 8.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic or telex communication) and mailed, telecopied, telegraphed, telexed
or delivered, if to the Borrower, at its address at
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211 River Oaks Parkway, San Jose, California 95134, telecopy no. (408) 432-4480,
Attention: Melonie Brophy, Vice President - Finance & Treasurer; if to any
Initial Lender or the Issuing Bank approved pursuant to Section 2.17, at its
Domestic Lending Office specified opposite its name on Schedule I hereto; if to
any other Lender or Issuing Bank, at its Domestic Lending Office specified in
the Assignment and Acceptance pursuant to which it became a Lender or the
Issuing Bank; and if to the Administrative Agent, at its address at 1 Court
Square, 7th Floor, Zone 1, Long Island City, New York 11120, Attention: John
Makrinos; or, as to the Borrower or the Administrative Agent, at such other
address as shall be designated by such party in a written notice to the other
parties and, as to each other party, at such other address as shall be
designated by such party in a written notice to the Borrower and the
Administrative Agent. All such notices and communications shall, when mailed,
telecopied, telegraphed or telexed, be effective when deposited in the mails,
telecopied, delivered to the telegraph company or confirmed by telex answerback,
respectively, except that notices and communications to the Administrative Agent
pursuant to Article II, III or VII shall not be effective until received by the
Administrative Agent. Delivery by telecopier of an executed counterpart of any
amendment or waiver of any provision of this Agreement or the Notes or of any
Exhibit hereto to be executed and delivered hereunder shall be effective as
delivery of a manually executed counterpart thereof.
SECTION 8.03. No Waiver; Remedies. No failure on the part of
any Lender, the Issuing Bank or the Administrative Agent to exercise, and no
delay in exercising, any right hereunder or under any Note shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 8.04. Costs and Expenses. (a) The Borrower
agrees to pay on demand all costs and expenses of the Administrative Agent and
CSI in connection with the preparation, execution, delivery, administration,
modification and amendment of the Loan Documents and the other documents to be
delivered hereunder, including, without limitation, (A) all due diligence,
syndication (including printing, distribution and bank meetings),
transportation, computer, duplication, appraisal, consultant, and audit expenses
and (B) the reasonable fees and expenses of counsel for the Administrative Agent
with respect thereto and with respect to advising the Administrative Agent as to
its rights and responsibilities under the Loan Documents. After an Event of
Default, the Borrower further agrees to pay on demand all costs and expenses of
the Administrative Agent, CSI, the Issuing Bank and the Lenders, if any
(including, without limitation, reasonable counsel fees and expenses), in
connection with the enforcement (whether through negotiations, legal proceedings
or otherwise) of the Loan
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Documents and the other documents to be delivered hereunder, including, without
limitation, reasonable fees and expenses of counsel for the Administrative
Agent, CSI, the Issuing Bank and each Lender in connection with the enforcement
of rights under this Section 8.04(a).
(b) The Borrower agrees to indemnify and hold harmless the
Administrative Agent, the Issuing Bank and each Lender and each of their
Affiliates and their officers, directors, employees, agents and advisors (each,
an "Indemnified Party") from and against any and all claims, damages, losses,
liabilities and expenses (including, without limitation, reasonable fees and
expenses of counsel) that may be incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or by
reason of, or in connection with the preparation for a defense of, any
investigation, litigation or proceeding arising out of, related to or in
connection with (i) the Facilities, the Loan Documents, any of the transactions
contemplated herein or therein or the actual or proposed use of the proceeds of
the Advances or the Letters of Credit or (ii) the actual or alleged presence of
Hazardous Materials on any property of either Loan Party or any of its
Subsidiaries or any Environmental Action relating in any way to either Loan
Party or any of its Subsidiaries, in each case whether or not such
investigation, litigation or proceeding is brought by either Loan Party, its
directors, shareholders or creditors or an Indemnified Party or any other Person
or any Indemnified Party is otherwise a party thereto and whether or not the
transactions contemplated hereby are consummated, except to the extent such
claim, damage, loss, liability or expense is found in a final, non-appealable
judgment by a court of competent jurisdiction to have resulted from such
Indemnified Party's gross negligence or willful misconduct. The Borrower also
agrees not to assert any claim against the Administrative Agent, any Lender, the
Issuing Bank, any of their Affiliates, or any of their respective directors,
officers, employees, attorneys and agents, on any theory of liability, for
special, indirect, consequential or punitive damages arising out of or otherwise
relating to the Facilities, this Agreement, the other Loan Documents, any of the
transactions contemplated herein or therein or the actual or proposed use of the
proceeds of the Advances or the Letters of Credit.
(c) If any payment of principal of, or Conversion of, any
Eurodollar Rate Advance or LIBO Rate Advance is made by the Borrower to or for
the account of a Lender other than on the last day of the Interest Period for
such Advance, as a result of a payment or Conversion pursuant to Section
2.05(c), 2.08(d) or (e), 2.10 or 2.12, acceleration of the maturity of the Notes
pursuant to Section 6.01 or for any other reason, or by an Eligible Assignee to
a Lender other than on the last day of the Interest Period for such Advance upon
an assignment of rights and obligations under this Agreement pursuant to Section
8.07 as a result of a demand by the Borrower pursuant to Section 8.07(a), the
Borrower shall, upon demand by such Lender (with a copy of such demand to the
Administrative Agent), pay to the
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Administrative Agent for the account of such Lender any amounts required to
compensate such Lender for any additional losses, costs or expenses that it may
reasonably incur as a result of such payment or Conversion, including, without
limitation, any loss (including loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by any Lender to fund or maintain such Advance.
(d) Without prejudice to the survival of any other agreement of
either Loan Party hereunder or under any other Loan Document, the agreements and
obligations of the Borrower contained in Sections 2.11, 2.14 and 8.04 shall
survive the payment in full of principal, interest and all other amounts payable
hereunder and under any of the other Loan Documents.
SECTION 8.05. Right of Set-off. Upon (i) the occurrence
and during the continuance of any Event of Default and (ii) the making of the
request or the granting of the consent specified by Section 6.01 to authorize
the Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, each Lender, the Issuing Bank and each of its
Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Lender, the Issuing Bank or such
Affiliate to or for the credit or the account of the Borrower against any and
all of the obligations of the Borrower now or hereafter existing under this
Agreement and the Note held by such Lender, whether or not such Lender or the
Issuing Bank shall have made any demand under this Agreement or such Note and
although such obligations may be unmatured. Each Lender and the Issuing Bank
agrees promptly to notify within one Business Day the Borrower after any such
set-off and application, provided that the failure to give such notice
shall not affect the validity of such set-off and application. The rights of
each Lender, the Issuing Bank and its Affiliates under this Section are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) that such Lender, the Issuing Bank and its Affiliates may
have.
SECTION 8.06. Binding Effect. This Agreement shall
become effective (other than Sections 2.01 and 2.03, which shall only become
effective upon satisfaction of the conditions precedent set forth in Section
3.01) when it shall have been executed by the Borrower and the Administrative
Agent and when the Administrative Agent shall have been notified by each Initial
Lender that such Initial Lender has executed it and thereafter shall be binding
upon and inure to the benefit of the Borrower, the Administrative Agent, the
Issuing Bank and each Lender and their permitted respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Lenders and the Issuing Bank.
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SECTION 8.07. Assignments and Participations. (a) Each
Lender may, with the consent (except as provided below), not to be unreasonably
withheld, of the Administrative Agent and, prior to the occurrence and
continuance of a Default, the Borrower, and, each Lender if demanded by the
Borrower (following a demand by such Lender pursuant to Section 2.11 or 2.14)
upon at least 5 Business Days' notice to such Lender and the Administrative
Agent, will, with the consent of the Administrative Agent, not to be
unreasonably withheld, and only if no Default has occurred and is continuing,
assign to one or more Persons all or a portion of its rights and obligations
under this Agreement (including, without limitation, all or a portion of its
Revolving Credit Commitment, the Revolving Credit Advances owing to it and the
Revolving Credit Note or Notes held by it); provided, however,
that (i) each such assignment shall be of a constant, and not a varying,
percentage of all rights and obligations under and in respect of all the
Facilities (other than any right to make Competitive Bid Advances, Competitive
Bid Advances owing to it and Competitive Bid Notes), (ii) except in the case of
an assignment to a Person that, immediately prior to such assignment, was a
Lender or an assignment of all of a Lender's rights and obligations under this
Agreement, the amount of the Revolving Credit Commitment of the assigning Lender
being assigned pursuant to each such assignment (determined as of the date of
the Assignment and Acceptance with respect to such assignment) shall in no event
be less than $3,000,000 or an integral multiple of $500,000 in excess thereof,
(iii) each such assignment shall be to an Eligible Assignee, and (iv) each such
assignment made as a result of a demand by the Borrower pursuant to this Section
8.07(a) shall be arranged by the Administrative Agent after consultation with
the Borrower and shall be either an assignment of all of the rights and
obligations of the assigning Lender under this Agreement or an assignment of a
portion of such rights and obligations made concurrently with another such
assignment or other such assignments that together cover all of the rights and
obligations of the assigning Lender under this Agreement, (vi) no Lender shall
be obligated to make any such assignment as a result of a demand by the Borrower
pursuant to this Section 8.07(a) unless and until such Lender shall have
received one or more payments from either the Borrower or one or more Eligible
Assignees in an aggregate amount at least equal to the aggregate outstanding
principal amount of the Advances owing to such Lender, together with accrued
interest thereon to the date of payment of such principal amount and all other
amounts payable to such Lender under this Agreement and (vii) the parties to
each such assignment shall execute and deliver to the Administrative Agent, for
its acceptance and recording in the Register, an Assignment and Acceptance,
together with any Revolving Credit Note subject to such assignment and a
processing and recordation fee of $3,000, except that such fee is not payable if
the assignee is an existing Lender and is replacing the assigning Lender at the
demand of the Borrower. Each Lender may, without the consent of, but upon notice
to, the Administrative Agent and the
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Borrower, assign all or a portion of its rights and obligations under this
Agreement to any of its Affiliates.
(b) The Issuing Bank may assign to one Lender or Affiliate of a
Lender all of its rights and obligations under the undrawn portion of its Letter
of Credit Commitment at any time; provided, however, that (i) each such
assignment shall be to an Eligible Assignee and (ii) the parties to each such
assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance, together
with a processing and recordation fee of $3,000.
(c) By executing and delivering an Assignment and Acceptance,
the Lender or the Issuing Bank assignor thereunder (the "Assigning Lender") and
the assignee thereunder confirm to and agree with each other and the other
parties hereto as follows: (i) other than as provided in such Assignment and
Acceptance, such Assigning Lender makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement or any other Loan
Document or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other Loan Document or any other
instrument or document furnished pursuant hereto; (ii) such Assigning Lender
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of either Loan Party or the performance or observance
by either Loan Party of any of its respective obligations under any Loan
Document or any other instrument or document furnished pursuant hereto; (iii)
such assignee confirms that it has received a copy of this Agreement, together
with copies of the financial statements referred to in Section 4.01 and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance; (iv)
such assignee will, independently and without reliance upon the Administrative
Agent, such assigning Lender or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and to exercise such powers and discretion under the Loan Documents as
are delegated to the Administrative Agent by the terms thereof, together with
such powers and discretion as are reasonably incidental thereto; and (vii) such
assignee agrees that it will perform in accordance with their terms all of the
obligations that by the terms of this Agreement are required to be performed by
it as a Lender or Issuing Bank, as the case may be.
(d) Upon its receipt of an Assignment and Acceptance executed
by an Assigning Lender and an assignee representing that it is an Eligible
Assignee, together with
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<PAGE> 79
any Revolving Credit Note or Notes subject to such assignment, the
Administrative Agent shall, if such Assignment and Acceptance has been completed
and is in substantially the form of Exhibit C hereto, (i) accept such Assignment
and Acceptance, (ii) record the information contained therein in the Register
and (iii) give prompt notice thereof to the Borrower. Within five Business Days
after its receipt of such notice, the Borrower, at its own expense, shall
execute and deliver to the Administrative Agent in exchange for the surrendered
Revolving Credit Note a new Revolving Credit Note to the order of such Eligible
Assignee in an amount equal to the Revolving Credit Commitment assumed by it
pursuant to such Assignment and Acceptance and, if the Assigning Lender has
retained a Revolving Credit Commitment hereunder, a new Revolving Credit Note to
the order of the Assigning Lender in an amount equal to the Revolving Credit
Commitment retained by it hereunder. Such new Revolving Credit Note or Notes
shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Revolving Credit Note or Notes, shall be dated the
effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of Exhibit A-1 hereto.
(e) The Administrative Agent shall maintain at its address
referred to in Section 8.02 a copy of each Assignment and Acceptance delivered
to and accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Issuing Bank and the Commitment of, and
principal amount of the Advances owing to, each Lender and the Issuing Bank from
time to time (the "Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Borrower, the
Administrative Agent, the Lenders and the Issuing Bank, may treat each Person
whose name is recorded in the Register as a Lender or the Issuing Bank, as the
case may be, hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower, any Lender or the Issuing Bank at any
reasonable time and from time to time upon reasonable prior notice.
(f) Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in such Assignment and Acceptance,
(x) the assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, have the rights and obligations of a Lender or the
Issuing Bank, as the case may be, hereunder and (y) the Assigning Lender
thereunder shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under this Agreement (and, in the case of
an Assignment and Acceptance covering the Issuing Bank's or all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such Lender or the Issuing Bank shall cease to be a party hereto).
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<PAGE> 80
(g) Each Lender may sell participations to one or more banks or
other entities (other than either Loan Party or any of its Affiliates) in or to
all or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Revolving Credit Commitment, the
Revolving Credit Advances owing to it and the Revolving Credit Note or Notes
held by it); provided, however, that (i) such Lender's obligations under this
Agreement (including, without limitation, its Revolving Credit Commitment to the
Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any such Note for all purposes of
this Agreement, (iv) the Borrower, the Administrative Agent, the other Lenders
and the Issuing Bank shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under the Loan Documents
and (v) no participant under any such participation shall have any right to
approve any amendment or waiver of any provision of any Loan Document, or any
consent to any departure by either Loan Party therefrom, except to the extent
that such amendment, waiver or consent would reduce the principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, in each
case to the extent subject to such participation, or postpone any date fixed for
any payment of principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation.
(h) Any Lender or the Issuing Bank may, in connection with any
assignment or participation or proposed assignment or participation pursuant to
this Section 8.07, disclose to the assignee or participant or proposed assignee
or participant, any information relating to the Borrower furnished to such
Lender or the Issuing Bank by or on behalf of the Borrower; provided that, prior
to any such disclosure, the assignee or participant or proposed assignee or
participant shall agree to preserve the confidentiality of any Confidential
Information relating to the Borrower received by it from such Lender or the
Issuing Bank.
(i) Notwithstanding any other provision set forth in this
Agreement, any Lender or the Issuing Bank may at any time create a security
interest in all or any portion of its rights under this Agreement (including,
without limitation, the Advances owing to it and the Note or Notes held by it)
in favor of any Federal Reserve Bank in accordance with Regulation A of the
Board of Governors of the Federal Reserve System.
SECTION 8.08. Confidentiality. None of the Administrative
Agent, any Lender or the Issuing Bank shall use or disclose any Confidential
Information to any other Person without the consent of the Borrower, other than
(a) to the Administrative Agent's, such Lender's or the Issuing Bank's
Affiliates and their officers, directors, employees, agents and advisors and, as
contemplated by Section 8.07(h), to actual or prospective assignees and
participants, and then only on a confidential basis, (b) as required by any law,
rule or regulation or judicial process, (c) to any rating agency when required
by it, provided that, prior to any such disclosure, such rating agency shall
undertake to preserve the confidentiality
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<PAGE> 81
of any Confidential Information relating to the Borrower received by it from
such Lender and (d) as requested or required by any state, federal or foreign
authority or examiner regulating banks or banking.
SECTION 8.09. Governing Law. This Agreement and the Notes shall
be governed by, and construed in accordance with, the laws of the State of New
York.
SECTION 8.10. Execution in Counterparts. This Agreement
may be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 8.11. Jurisdiction, Etc. (a) Each of the parties hereto
hereby irrevocably and unconditionally submits, for itself and its property, to
the nonexclusive jurisdiction of any New York State court or federal court of
the United States of America sitting in New York City, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or any of the other Loan Documents to which it is a party, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in any such New York State
court or, to the extent permitted by law, in such federal court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by
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<PAGE> 82
law. Nothing in this Agreement shall affect any right that any party may
otherwise have to bring any action or proceeding relating to this Agreement or
any of the other Loan Documents in the courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or any of the
other Loan Documents to which it is a party in any New York State or federal
court. Each of the parties hereto hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.
SECTION 8.12. Waiver of Jury Trial. Each of the
Borrower, the Administrative Agent, the Lenders and the Issuing Bank hereby
irrevocably waives all right to trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement, any of the other Loan Documents or the Letters of
Credit or the actions of the Administrative Agent, any Lender or the Issuing
Bank in the negotiation, administration, performance or enforcement thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
MAXTOR CORPORATION
By /s/ MELONIE C. BROPHY
------------------------------
Title: V.P. Finance, Treasurer
CITIBANK, N.A.,
as Agent
By /s/ ROBERT D. WETRUS
------------------------------
Title: Vice President
Citibank, N.A.
Attorney-In-Fact
76
<PAGE> 83
[Intentionally left blank]
77
<PAGE> 84
<TABLE>
<CAPTION>
COMMITMENT INITIAL LENDERS
- ---------- ---------------
<S> <C>
$14,500,000 CITIBANK, N.A.
By /s/ ROBERT D. WETRUS
--------------------------------
Title: Vice President
Citibank, N.A.
Attorney-in-Fact
$ 9,500,000 CHO HUNG BANK
By /s/ SOOYOUNG CHO
--------------------------------
Title: General Manager
$ 9,500,000 CREDIT LYONNAIS
LOS ANGELES BRANCH
By /s/ ROBERT IVOSEVICH
---------------------------------
Title: Senior Vice President
CREDIT LYONNAIS
CAYMAN ISLAND BRANCH
By /s/ ROBERT ISOSEVICH
---------------------------------
Title: Senior Vice President
</TABLE>
78
<PAGE> 85
<TABLE>
<S> <C>
$9,500,000 THE DAI-ICHI KANGYO BANK,
LIMITED, SAN FRANCISCO AGENCY
By /s/ TOSHIO HYODO
--------------------------------
Title: General Manager & Agent
$9,500,000 THE INDUSTRIAL BANK OF JAPAN,
LIMITED SAN FRANCISCO AGENCY
By /s/ MAKOTO MASUDA
--------------------------------
Title: Joint General Manager
$9,500,000 THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.
By /s/ MOTOKAZU UEMATSU
--------------------------------
Title: Deputy General Manager
$9,500,000 SHINHAN BANK
NEW YORK BRANCH
By /s/ WON KEY KIM
--------------------------------
Title: Assistant General Manager
</TABLE>
79
<PAGE> 86
<TABLE>
<S> <C>
$9,500,000 SOCIETE GENERALE
By /s/ GEORGE Y.L. CHEN
----------------------------------------
Title: Vice President
$9,500,000 THE SUMITOMO BANK, LIMITED,
SAN FRANCISCO BRANCH
By /s/ YUJI HARADA
-----------------------------------------
Title: General Manager
By /s/ HERMAN WHITE JR.
-----------------------------------------
Title: Vice President
$9,500,000 STANDARD CHARTERED BANK
By /s/ WOO YOUNG SONG
-----------------------------------------
Title: Vice President
By /s/ MARGUERITE J. FELSENFELD, ESQ.
-----------------------------------------
Title: Administrative Officer
</TABLE>
$100,000,000 TOTAL OF COMMITMENTS
80
<PAGE> 1
MEMORANDUM OF UNDERSTANDING
BY AND BETWEEN
HYUNDAI ELECTRONICS INDUSTRIES CO., LTD.
AND MAXTOR CORPORATION
This Memorandum of Understanding (the "MOU"), dated September 19, 1995, by and
between Hyundai Electronics Industries Co., Ltd., a Korean corporation,
including its subsidiaries and affiliates ("HEI"), and Maxtor Corporation, a
Delaware corporation, including its subsidiaries and affiliates ("Maxtor"),
confirms the mutual intent of the parties that:
1. HEI will acquire from Maxtor, and Maxtor will transfer to HEI, the
following manufacturing facilities and operations:
- Maxtor Peripherals (S) Pte Limited (but excluding its wholly owned
subsidiary, Maxtor Ireland Limited)
- Maxtor (Thailand) Limited
- Maxtor (Hong Kong) Limited
- IMS International Manufacturing Services Limited, and its wholly owned
subsidiary, IMS International Manufacturing Services (Thailand) Limited
The purchase price to be paid by HEI will be U.S. $100 million, subject to
appropriate adjustments in accordance with the independent appraisal of the real
estate and HEI's and Maxtor's appraisal of the equipment and any new net capital
additions through the closing date, due diligence and mutual agreement on the
resulting adjustment in value. (It is understood that the value of any equipment
that is or will be obsolete in light of Maxtor's new product plans will be
defined in the definitive agreement.) This purchase price reflects the fact that
Maxtor will retain all other balance sheet items (excluding the properties,
plants and equipment) of the above subsidiaries.
2. As part of this transaction, HEI and Maxtor will enter into an exclusive
long-term manufacturing and purchase agreement pursuant to which HEI agrees to
supply 100% of the hard disk drive products to be developed by Maxtor and Maxtor
will use HEI's facilities for 100% of its hard disk drive needs. This agreement
will determine the split and share of the business scope and functions between
the parties as well as the terms and conditions of product transactions. The
transfer prices for the products will be based on a "cost plus margin" formula
to be determined by the parties by mutual agreement in good faith.
1
<PAGE> 2
3. HEI will make the necessary investment to modernize the transferred
facilities and to expand capacity required to meet Maxtor's needs. In addition,
HEI will use its best efforts to improve the operating efficiency and economy of
the manufacturing facilities in cooperation with Maxtor. This effort will
include, without limitation, integration of technologies between HEI and Maxtor
to improve the overall competitiveness of the HDD business of Maxtor. These
technologies include those under HEI's control. In addition, HEI will
aggressively pursue manufacturing of some HDD components which are not presently
produced by Maxtor or HEI, including heads and media components.
This Memorandum of Understanding is conditioned upon the parties entering into
definitive agreements. The foregoing is also subject to obtaining requisite
approvals, including, if necessary, the approvals of the parties' respective
boards of directors, as well as the approvals of the U.S. and Korean
governmental agencies. Prior to the execution of a definitive agreement, nothing
in this MOU will prevent Maxtor from considering any proposal(s) initiated by
third parties and negotiating and entering into a definitive agreement based
upon any such proposal.
All discussions pursuant to this Memorandum of Understanding, the fact that such
discussions are occurring, and information related hereto exchanged by the
parties, shall be maintained in strict confidence. The parties agree to disclose
such information only to their respective employees and consultants with a need
to know, provided that such employees and consultants agree to maintain this
matter in confidence. Neither party shall make any announcement or disclosure
concerning the foregoing without the prior consent of the other except as may be
required by applicable securities laws. The parties agree that Exhibit A,
attached hereto, and similar communications and other communications allowed
herein, may be publicly distributed and discussed immediately upon execution of
this MOU.
2
<PAGE> 3
This MOU reflects the parties' intent to proceed as set forth herein with the
goal of consummating the transactions contemplated herein on or before December
15, 1995. However, except for obligations of confidentiality and provisions in
the immediately preceding paragraph neither party will incur any obligation
hereunder until a written definitive agreement is executed by the parties, which
agreement will entirely supersede this MOU.
In witness whereof, the parties have caused their duly authorized
representatives to sign this Memorandum of Understanding as of the date first
above written.
MAXTOR CORPORATION HYUNDAI ELECTRONICS
INDUSTRIES CO., LTD.
By /s/ C. S. Park By /s/ J. Y. Kim
----------------------------- -----------------------------
Name C. S. Park Name J. Y. Kim
----------------------------- -----------------------------
Title President Title President
----------------------------- -----------------------------
3
<PAGE> 1
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of _________ is made by and between
MAXTOR CORPORATION, a Delaware corporation (the "Company"), and _________,
a director of the Company (the "Indemnitee").
R E C I T A L S
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance or indemnification, due
to increased exposure to litigation costs and risks resulting from their service
to such corporations, and due to the fact that the exposure frequently bears no
reasonable relationship to the compensation of such directors and officers;
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous, or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take;
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is often beyond the personal
resources of officers and directors;
D. The Company believes that it is unfair for its directors and
officers and the directors and officers of its subsidiaries to assume the risk
of huge judgments and other expenses which may occur in cases in which the
director or officer received no personal profit and in cases where the director
or officer was not culpable;
E. The Company recognizes that the issues in controversy in litigation
against a director or officer of a corporation such as the Company or a
subsidiary of the Company are often related to the knowledge, motives and intent
of such director or officer, that he is usually the only witness with knowledge
of the essential facts and exculpating circumstances regarding such matters and
that the long period of time which usually elapses before the trial or other
disposition of such litigation often extends beyond the time that the director
or officer can reasonably recall such matters; and may extend beyond the normal
time for retirement for such director or officer with the result that he, after
retirement or in the event of his death, his spouse, heirs executors or
administrators, may be faced with limited ability and undue hardship in
maintaining an adequate defense, which may discourage such a director or officer
from serving in that position;
F. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as officers and directors of the
Company and its subsidiaries and to encourage such individuals to take the
business risks necessary for the success of the Company and its subsidiaries, it
is necessary for the Company to contractually indemnify its officers and
directors and the officers and directors of its subsidiaries, and to assume for
itself maximum liability for expenses and damages in connection with claims
against such officers and directors in connection with their service to the
Company and its subsidiaries, and has further concluded
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REV. 6/94
<PAGE> 2
that the failure to provide such contractual indemnification could result in
great harm to the Company and its subsidiaries and the Company's stockholders;
G. Section 145 of the General Corporation Law of Delaware, under which
the Company is organized ("Section 145"), empowers the Company to indemnify its
officers, directors, employees and agents by agreement and to indemnify persons
who serve, at the request of the Company, as the directors, officers, employees
or agents of other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive;
H. The Company, after reasonable investigation prior to the date
hereof, has determined that the liability insurance coverage available to the
Company and its subsidiaries as of the date hereof is inadequate and/or
unreasonably expensive. The Company believes, therefore, that the interests of
the Company's stockholders would best be served by a combination of such
insurance as the Company may obtain, or request a subsidiary to obtain, pursuant
to the Company's obligations hereunder and the indemnification by the Company of
the directors and officers of the Company and its subsidiaries;
I. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company and/or one or more
subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company; and
J. The Indemnitee is willing to serve, or to continue to serve, the
Company and/or one or more subsidiaries of the Company, provided that he is
furnished the indemnity provided for herein.
A G R E E M E N T
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. DEFINITIONS.
(a) Agent. For the purposes of this Agreement, "agent" of the
Company means any person who is or was a director, officer, employee or other
agent of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the Company
or a subsidiary of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.
(b) Expenses. For purposes of this Agreement, "expenses"
includes all direct and indirect costs of any type or nature whatsoever
(including, without limitation, all attorneys' fees and related disbursements,
other out-of-pocket costs and reasonable compensation for time spent by the
Indemnitee for which he is not otherwise compensated by the Company or any third
party) actually and reasonably incurred by the Indemnitee in connection with
either the investigation, defense or appeal of a proceeding or establishing or
enforcing a right to indemnification under this Agreement, Section 145 or
otherwise; provided, however, that
ii
REV. 6/94
<PAGE> 3
expenses shall not include any judgments, fines, ERISA excise taxes or penalties
or amounts paid in settlement of a proceeding.
(c) Proceeding. For the purposes of this Agreement,
"proceeding" means any threatened, pending, or completed action, suit or other
proceeding, whether civil, criminal, administrative, investigative or any other
type whatsoever.
(d) Subsidiary. For purposes of this Agreement, "subsidiary"
means any corporation of which more than 50% of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more other subsidiaries, or by one or more other subsidiaries.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue
to serve as an agent of the Company, at its will (or under separate agreement,
if such agreement exists), in the capacity Indemnitee currently serves as an
agent of the Company, so long as he is duly appointed or elected and qualified
in accordance with the applicable provisions of the by-laws of the Company or
any subsidiary of the Company or until such time as he tenders his resignation
in writing, provided, however, that nothing contained in this Agreement is
intended to create any right to continued employment by Indemnitee.
3. MAINTENANCE OF LIABILITY INSURANCE.
(a) The Company hereby convenants and agrees that, so long as
the Indemnitee shall continue to serve as an agent of the Company and thereafter
for the period of five years following the termination of service as an officer
or director of the Company, to the extent the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent of
the Company, the Company, subject to Section 3(c), shall promptly obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in the amount of $30 million in the aggregate for each policy
year from established and reputable insurers.
(b) In all policies of D&O Insurance, the Indemnitee shall be
named as an insured in such a manner as to provide the Indemnitee the same
rights and benefits as are accorded to the most favorably insured of the
Company's directors, if the Indemnitee is a director; or of the Company's
officers, if the Indemnitee is not a director of the Company but is an officer;
or of the Company's key employees, if the Indemnitee is not an officer or
director but is a key employee.
(c) Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain D&O Insurance if the Company determines in good
faith that such insurance is not reasonably available, the premium costs for
such insurance are disproportionate to the amount of coverage provided, the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a subsidiary of the Company.
4. MANDATORY INDEMNIFICATION. The Company shall indemnify the
Indemnitee:
(a) Third Party Actions. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any proceeding (other than
an action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
or penalties, and amounts paid in settlement) actually and reasonably incurred
by him in
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connection with the investigation, defense, settlement or appeal of such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and
(b) Derivative Actions. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any proceeding by or in the
right of the Company to procure a judgment in its favor by reason of the fact
that he is or was an agent of the Company, or by reason of anything done or not
done by him in any such capacity, against any amounts paid in settlement of any
such proceeding and all expenses actually and reasonably incurred by him in
connection with the investigation, defense, settlement, or appeal of such
proceeding if he acted in good faith in a manner he reasonably believed to be in
or not opposed to the best interests of the Company; except that no
indemnification under this subsection shall be made in respect of any claim,
issue or matter as to which such person shall have been finally adjudged to be
liable to the Company by a court of competent jurisdiction due to willful
misconduct of a culpable nature in the performance of his duty to the Company
unless and only to the extent that the Court of Chancery or the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such amounts which the
Court of Chancery or such other court shall deem proper; and
(c) Actions where Indemnitee is Deceased. If the Indemnitee is
a person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, against any
and all expenses and liabilities of any type whatsoever (including, but not
limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid
in settlement) actually and reasonably incurred by or for him in connection with
the investigation, defense, settlement or appeal of such proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company, and, prior to, during the pendency or after
completion of such proceeding Indemnitee is deceased, except that in a
proceeding by or in the right of the Company no indemnification shall be due
under the provisions of this subsection in respect of any claim, issue or matter
as to which such person shall have been finally adjudged to be liable to the
Company, by a court of competent jurisdiction, due to willful misconduct of a
culpable nature in the performance of his duty to the Company, unless and only
to the extent that the Court of Chancery or the court in which such proceeding
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such amounts which the Court of
Chancery or such other court shall deem proper; and
(d) Notwithstanding the foregoing, the Company shall not be
obligated to indemnify the Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
or penalties, and amounts paid in settlement) which have been paid directly to
Indemnitee by D&O Insurance.
5. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines ERISA excise taxes or penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but not entitled, however, to indemnification for all of
the total amount thereof, the Company shall nevertheless indemnify the
Indemnitee for such total amount except as to the portion thereof to which the
Indemnitee is not entitled.
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6. MANDATORY ADVANCEMENT OF EXPENSES. Subject to Section 11(a)
below, the Company shall advance all expenses incurred by the Indemnitee in
connection with the investigation, defense, settlement or appeal of any
proceeding to which the Indemnitee is a party or is threatened to be made a
party by reason of the fact that the Indemnitee is or was an agent of the
Company. Indemnitee hereby undertakes to repay such amounts advanced only if,
and to the extent that, it shall ultimately be determined pursuant to Section 8
hereof that the Indemnitee is not entitled to be indemnified by the Company as
authorized hereby. The advances to be made hereunder shall be paid by the
Company to the Indemnitee within twenty (20) days following delivery of a
written request therefor by the Indemnitee to the Company.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the
commencement of a proceeding pursuant to Section 7(a) hereof, the Company has
D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(c) In the event the Company shall be obligated to pay the
expenses of any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee, upon the delivery to the Indemnitee of written
notice of the election so to do. After delivery of such notice, approval of such
counsel by the Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to the Indemnitee under this Agreement for any fees
of counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (B) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and the Indemnitee in the conduct of
any such defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, the fees and expenses of Indemnitee's
counsel shall be at the expense of the Company.
8. DETERMINATION OF RIGHT TO INDEMNIFICATION.
(a) To the extent the Indemnitee has been successful on the
merits or otherwise in defense of any proceeding referred to in subsections
4(a), 4(b) or 4(c) of this Agreement or in the defense of any claim, issue or
matter described therein, the Company shall indemnify the Indemnitee against
expenses actually and reasonably incurred by him in connection with the
investigation, defense, or appeal of such proceeding.
(b) In the event that Section 8(a) is inapplicable, the
Company shall also indemnify the Indemnitee unless, and only to the extent that,
the Company shall prove by clear and convincing evidence to a forum listed in
Subsection 8(c) below that the Indemnitee has not met the applicable standard of
conduct required to entitle the Indemnitee to such indemnification.
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(c) The Indemnitee shall be entitled to select the forum in
which the validity of the Company's claim under Section 8(b) hereof that the
Indemnitee is not entitled to indemnification will be heard from among the
following:
(1) A quorum of the Board consisting of directors who
are not parties to the proceeding for which indemnification is being sought;
(2) The stockholders of the Company;
(3) Legal counsel selected by the Indemnitee, and
reasonably approved by the Board, which counsel shall make such determination in
a written opinion; or
(4) A panel of three arbitrators, one of whom is
selected by the Company, another of whom is selected by the Indemnitee and the
last of whom is selected by the first two arbitrators so selected.
(d) As soon as practicable, and in no event later than 30 days
after written notice of the Indemnitee's choice of forum pursuant to Section
8(c) above, the Company shall, at its own expense, submit to the selected forum
in such manner as the Indemnitee or the Indemnitee's counsel may reasonably
request, its claim that the Indemnitee is not entitled to indemnification; and
the Company shall act in the utmost good faith to assure the Indemnitee a
complete opportunity to defend against such claim.
(e) Notwithstanding a determination by and forum listed in
Section 8(c) hereof that Indemnitee is not entitled to indemnification with
respect to a specific proceeding, the Indemnitee shall have the right to apply
to the Court of Chancery of Delaware, the court in which that proceeding is or
was pending or any other court of competent jurisdiction, for the purpose of
enforcing the Indemnitee's right to indemnification pursuant to this Agreement.
(f) Notwithstanding any other provision in this Agreement to
the contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 8 involving the Indemnitee and against all expenses incurred by the
Indemnitee in connection with any other proceeding between the Company and the
Indemnitee involving the interpretation or enforcement of the rights of the
Indemnitee under this Agreement unless a court of competent jurisdiction finds
that each of the claims and/or defenses of the Indemnitee in any such proceeding
was frivolous or made in bad faith.
9. LIMITATION OF ACTIONS AND RELEASE OF CLAIMS. No proceeding
shall be brought and no cause of action shall be asserted by or on behalf of the
Company or any subsidiary against the Indemnitee, his spouse, heirs, estate,
executors or administrators after the expiration of one year from the act or
omission of the Indemnitee upon which such proceeding is based; however, in a
case where the Indemnitee fraudulently conceals the facts underlying such cause
of action, no proceeding shall be brought and no cause of action shall be
asserted after the expiration of one year from the earlier of (i) the date the
Company or any subsidiary of the Company discovers such facts, or (ii) the date
the Company or any subsidiary of the Company could have discovered such facts by
the exercise of reasonable diligence. Any claim or cause of action of the
Company or any subsidiary of the Company, including claims predicated upon the
negligent act or omission of the Indemnitee, shall be extinguished and deemed
released unless asserted by filing of a legal action within such period. This
Section 9 shall not apply to any cause of action which has accrued on the date
hereof and of which the Indemnitee is aware on the date hereof, but as to which
the Company has no actual knowledge apart from the Indemnitee's knowledge.
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10. STOCKHOLDER RATIFICATION. The form of this Agreement has been
approved by the stockholders of the Company; no changes requiring stockholder
ratification have been subsequently made, and this Agreement is therefore not
subject to ratification by such stockholders.
11. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise as
required under Section 145, but such indemnification or advancement of expenses
may be provided by the Company in specific cases if the Board of Directors finds
it to be appropriate; or
(b) Lack of Good Faith. To indemnify the Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
the Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(c) Unauthorized Settlements. To indemnify the Indemnitee
under this Agreement for any amounts paid in settlement of a proceeding effected
within seven (7) calendar days after delivery by the Indemnitee to the Company
of the notice provided for in Section 7(a) hereof unless the Company consents to
such settlement.
12. NON-EXCLUSIVITY. The provisions for indemnification and
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Certificate of Incorporation or Bylaws, the vote of the
Company's stockholders or disinterested directors, other agreements, or
otherwise, both as to action in his official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
13. INTERPRETATION OF AGREEMENT. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law.
14. SEVERABILITY. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 13 hereof.
15. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any
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<PAGE> 8
other provision hereof (whether or not similar) nor shall such waiver constitute
a continuing waiver.
16. SUCCESSORS AND ASSIGNS. The terms of this Agreement shall
bind, and shall inure to the benefit of, the successors and assigns of the
parties hereto.
17. NOTICE. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given (i) if delivered by hand and receipted for by the party addressee or (ii)
if mailed by certified or registered mail with postage prepaid, on the third
business day after the mailing date. Addresses for notice to either party are as
shown on the signature page of this Agreement, or as subsequently modified by
written notice.
18. GOVERNING LAW. This Agreement shall be governed exclusively by
and construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
19. CONSENT TO JURISDICTION. The Company and the Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be brought only in the state courts of the State of
Delaware.
The parties hereto have entered into this Indemnity Agreement effective
as of the date first above written.
MAXTOR CORPORATION
Address: 2190 Miller Avenue
Longmont, Colorado 80501
By __________________________________
Its: __________________________________
INDEMNITEE:
_______________________________________
Address: ______________________________
______________________________
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<PAGE> 9
INDEMNITY AGREEMENT
This Indemnity Agreement, dated as of ______________, 199___ is made by
and between MAXTOR CORPORATION, a Delaware corporation (the "Company"), and
__________, a _________ of the Company (the "Indemnitee").
R E C I T A L S
A. The Company is aware that competent and experienced persons
are increasingly reluctant to serve as directors or officers of corporations
unless they are protected by comprehensive liability insurance or
indemnification, due to increased exposure to litigation costs and risks
resulting from their service to such corporations, and due to the fact that the
exposure frequently bears no reasonable relationship to the compensation of such
directors and officers;
B. The statutes and judicial decisions regarding the duties of
directors and officers are often difficult to apply, ambiguous, or conflicting,
and therefore fail to provide such directors and officers with adequate,
reliable knowledge of legal risks to which they are exposed or information
regarding the proper course of action to take;
C. Plaintiffs often seek damages in such large amounts and the
costs of litigation may be so enormous (whether or not the case is meritorious),
that the defense and/or settlement of such litigation is often beyond the
personal resources of officers and directors;
D. The Company believes that it is unfair for its directors and
officers and the directors and officers of its subsidiaries to assume the risk
of huge judgments and other expenses which may occur in cases in which the
director or officer received no personal profit and in cases where the director
or officer was not culpable;
E. The Company recognizes that the issues in controversy in
litigation against a director or officer of a corporation such as the Company or
a subsidiary of the Company are often related to the knowledge, motives and
intent of such director or officer, that he is usually the only witness with
knowledge of the essential facts and exculpating circumstances regarding such
matters and that the long period of time which usually elapses before the trial
or other disposition of such litigation often extends beyond the time that the
director or officer can reasonably recall such matters; and may extend beyond
the normal time for retirement for such director or officer with the result that
he, after retirement or in the event of his death, his spouse, heirs executors
or administrators, may be faced with limited ability and undue hardship in
maintaining an adequate defense, which may discourage such a director or officer
from serving in that position;
F. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as officers and directors of the
Company and its subsidiaries and to encourage such individuals to take the
business risks necessary for the success of the Company and its subsidiaries, it
is necessary for the Company to contractually indemnify its officers and
directors and the officers and directors of its subsidiaries, and to assume for
itself maximum liability for expenses and damages in connection with claims
against such officers and directors in connection with their service to the
Company and its subsidiaries, and has further concluded that the failure to
provide such contractual indemnification could result in great harm to the
Company and its subsidiaries and the Company's shareholders;
<PAGE> 10
G. Section 145 of the General Corporation Law of Delaware, under
which the Company is organized ("Section 145"), empowers the Company to
indemnify its officers, directors, employees and agents by agreement and to
indemnify persons who serve, at the request of the Company, as the directors,
officers, employees or agents of other corporations or enterprises, and
expressly provides that the indemnification provided by Section 145 is not
exclusive;
H. The Company, after reasonable investigation prior to the date
hereof, has determined that the liability insurance coverage available to the
Company and its subsidiaries as of the date hereof is inadequate and/or
unreasonably expensive. The Company believes, therefore, that the interests of
the Company's shareholders would best be served by a combination of such
insurance as the Company may obtain, or request a subsidiary to obtain, pursuant
to the Company's obligations hereunder and the indemnification by the Company of
the directors and officers of the Company and its subsidiaries;
I. The Company desires and has requested the Indemnitee to serve
or continue to serve as a director or officer of the Company and/or one or more
subsidiaries of the Company free from undue concern for claims for damages
arising out of or related to such services to the Company and/or one or more
subsidiaries of the Company; and
J. The Indemnitee is willing to serve, or to continue to serve,
the Company and/or one or more subsidiaries of the Company, provided that he is
furnished the indemnity provided for herein.
A G R E E M E N T
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. DEFINITIONS.
(a) Agent. For the purposes of this Agreement, "agent" of the
Company means any person who is or was a director, officer, employee or other
agent of the Company or a subsidiary of the Company; or is or was serving at the
request of, for the convenience of, or to represent the interests of the Company
or a subsidiary of the Company as a director, officer, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise; or was a director, officer, employee or agent of a foreign or
domestic corporation which was a predecessor corporation of the Company or a
subsidiary of the Company, or was a director, officer, employee or agent of
another enterprise at the request of, for the convenience of, or to represent
the interests of such predecessor corporation.
(b) Expenses. For purposes of this Agreement, "expenses"
includes all direct and indirect costs of any type or nature whatsoever
(including, without limitation, all attorneys' fees and related disbursements,
other out-of-pocket costs and reasonable compensation for time spent by the
Indemnitee for which he is not otherwise compensated by the Company or any third
party) actually and reasonably incurred by the Indemnitee in connection with
either the investigation, defense or appeal of a proceeding or establishing or
enforcing a right to indemnification under this Agreement, Section 145 or
otherwise; provided, however, that expenses shall not include any judgments,
fines, ERISA excise taxes or penalties or amounts paid in settlement of a
proceeding.
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<PAGE> 11
(c) Proceeding. For the purposes of this Agreement,
"proceeding" means any threatened, pending, or completed action, suit or other
proceeding, whether civil, criminal, administrative, investigative or any other
type whatsoever.
(d) Subsidiary. For purposes of this Agreement, "subsidiary"
means any corporation of which more than 50% of the outstanding voting
securities is owned directly or indirectly by the Company, by the Company and
one or more other subsidiaries, or by one or more other subsidiaries.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or
continue to serve as an agent of the Company, at its will (or under separate
agreement, if such agreement exists), in the capacity Indemnitee currently
serves as an agent of the Company, so long as he is duly appointed or elected
and qualified in accordance with the applicable provisions of the by-laws of the
Company or any subsidiary of the Company or until such time as he tenders his
resignation in writing, provided, however, that nothing contained in this
Agreement is intended to create any right to continued employment by Indemnitee.
3. MAINTENANCE OF LIABILITY INSURANCE.
(a) The Company hereby convenants and agrees that, so long as
the Indemnitee shall continue to serve as an agent of the Company and thereafter
for the period of five years following the termination of service as an officer
or director of the Company, to the extent the Indemnitee shall be subject to any
possible proceeding by reason of the fact that the Indemnitee was an agent of
the Company, the Company, subject to Section 3(c), shall promptly obtain and
maintain in full force and effect directors' and officers' liability insurance
("D&O Insurance") in the amount of $30 million in the aggregate for each policy
year from established and reputable insurers.
(b) In all policies of D&O Insurance, the Indemnitee shall be
named as an insured in such a manner as to provide the Indemnitee the same
rights and benefits as are accorded to the most favorably insured of the
Company's directors, if the Indemnitee is a director; or of the Company's
officers, if the Indemnitee is not a director of the Company but is an officer;
or of the Company's key employees, if the Indemnitee is not an officer or
director but is a key employee.
(c) Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain D&O Insurance if the Company determines in good
faith that such insurance is not reasonably available, the premium costs for
such insurance are disproportionate to the amount of coverage provided, the
coverage provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a subsidiary of the Company.
4. MANDATORY INDEMNIFICATION. The Company shall indemnify the
Indemnitee:
(a) Third Party Actions. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any proceeding (other than
an action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
or penalties, and amounts paid in settlement) actually and reasonably incurred
by him in connection with the investigation, defense, settlement or appeal of
such proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and
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<PAGE> 12
(b) Derivative Actions. If the Indemnitee is a person who was
or is a party or is threatened to be made a party to any proceeding by or in the
right of the Company to procure a judgment in its favor by reason of the fact
that he is or was an agent of the Company, or by reason of anything done or not
done by him in any such capacity, against any amounts paid in settlement of any
such proceeding and all expenses actually and reasonably incurred by him in
connection with the investigation, defense, settlement, or appeal of such
proceeding if he acted in good faith in a manner he reasonably believed to be in
or not opposed to the best interests of the Company; except that no
indemnification under this subsection shall be made in respect of any claim,
issue or matter as to which such person shall have been finally adjudged to be
liable to the Company by a court of competent jurisdiction due to willful
misconduct of a culpable nature in the performance of his duty to the Company
unless and only to the extent that the Court of Chancery or the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such amounts which the
Court of Chancery or such other court shall deem proper; and
(c) Actions where Indemnitee is Deceased. If the Indemnitee is
a person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was an agent of the Company, or
by reason of anything done or not done by him in any such capacity, against any
and all expenses and liabilities of any type whatsoever (including, but not
limited to, judgments, fines, ERISA excise taxes and penalties, and amounts paid
in settlement) actually and reasonably incurred by or for him in connection with
the investigation, defense, settlement or appeal of such proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company, and, prior to, during the pendency or after
completion of such proceeding Indemnitee is deceased, except that in a
proceeding by or in the right of the Company no indemnification shall be due
under the provisions of this subsection in respect of any claim, issue or matter
as to which such person shall have been finally adjudged to be liable to the
Company, by a court of competent jurisdiction, due to willful misconduct of a
culpable nature in the performance of his duty to the Company, unless and only
to the extent that the Court of Chancery or the court in which such proceeding
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such amounts which the Court of
Chancery or such other court shall deem proper; and
(d) Notwithstanding the foregoing, the Company shall not be
obligated to indemnify the Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
or penalties, and amounts paid in settlement) which have been paid directly to
Indemnitee by D&O Insurance.
5. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines ERISA excise taxes or penalties, and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but not entitled, however, to indemnification for all of
the total amount thereof, the Company shall nevertheless indemnify the
Indemnitee for such total amount except as to the portion thereof to which the
Indemnitee is not entitled.
6. MANDATORY ADVANCEMENT OF EXPENSES. Subject to Section 12(a)
below, the Company shall advance all expenses incurred by the Indemnitee in
connection with the investigation, defense, settlement or appeal of any
proceeding to which the Indemnitee is a party or is threatened to be made a
party by reason of the fact that the Indemnitee is or was an agent of the
Company. Indemnitee hereby undertakes to repay such amounts advanced only if,
and to the extent that, it shall ultimately be determined pursuant to Section 8
hereof that the Indemnitee
1/94 4 INDEMNITY AGREEMENT
<PAGE> 13
is not entitled to be indemnified by the Company as authorized hereby. The
advances to be made hereunder shall be paid by the Company to the Indemnitee
within twenty (20) days following delivery of a written request therefor by the
Indemnitee to the Company.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
(a) Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
(b) If, at the time of the receipt of a notice of the
commencement of a proceeding pursuant to Section 7(a) hereof, the Company has
D&O Insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(c) In the event the Company shall be obligated to pay the
expenses of any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee, upon the delivery to the Indemnitee of written
notice of the election so to do. After delivery of such notice, approval of such
counsel by the Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to the Indemnitee under this Agreement for any fees
of counsel subsequently incurred by the Indemnitee with respect to the same
proceeding, provided that (i) the Indemnitee shall have the right to employ his
counsel in any such proceeding at the Indemnitee's expense; and (ii) if (A) the
employment of counsel by the Indemnitee has been previously authorized by the
Company, (B) the Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and the Indemnitee in the conduct of
any such defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, the fees and expenses of Indemnitee's
counsel shall be at the expense of the Company.
8. DETERMINATION OF RIGHT TO INDEMNIFICATION.
(a) To the extent the Indemnitee has been successful on the
merits or otherwise in defense of any proceeding referred to in subsections
4(a), 4(b) or 4(c) of this Agreement or in the defense of any claim, issue or
matter described therein, the Company shall indemnify the Indemnitee against
expenses actually and reasonably incurred by him in connection with the
investigation, defense, or appeal of such proceeding.
(b) In the event that Section 8(a) is inapplicable, the
Company shall also indemnify the Indemnitee unless, and only to the extent that,
the Company shall prove by clear and convincing evidence to a forum listed in
Subsection 8(c) below that the Indemnitee has not met the applicable standard of
conduct required to entitle the Indemnitee to such indemnification.
(c) The Indemnitee shall be entitled to select the forum in
which the validity of the Company's claim under Section 8(b) hereof that the
Indemnitee is not entitled to indemnification will be heard from among the
following:
(1) A quorum of the Board consisting of directors who
are not parties to the proceeding for which indemnification is being sought;
(2) The shareholders of the Company;
1/94 5 INDEMNITY AGREEMENT
<PAGE> 14
(3) Legal counsel selected by the Indemnitee, and
reasonably approved by the Board, which counsel shall make such determination in
a written opinion; or
(4) A panel of three arbitrators, one of whom is
selected by the Company, another of whom is selected by the Indemnitee and the
last of whom is selected by the first two arbitrators so selected.
(d) As soon as practicable, and in no event later than 30 days
after written notice of the Indemnitee's choice of forum pursuant to Section
8(c) above, the Company shall, at its own expense, submit to the selected forum
in such manner as the Indemnitee or the Indemnitee's counsel may reasonably
request, its claim that the Indemnitee is not entitled to indemnification; and
the Company shall act in the utmost good faith to assure the Indemnitee a
complete opportunity to defend against such claim.
(e) Notwithstanding a determination by and forum listed in
Section 8(c) hereof that Indemnitee is not entitled to indemnification with
respect to a specific proceeding, the Indemnitee shall have the right to apply
to the Court of Chancery of Delaware, the court in which that proceeding is or
was pending or any other court of competent jurisdiction, for the purpose of
enforcing the Indemnitee's right to indemnification pursuant to this Agreement.
(f) Notwithstanding any other provision in this Agreement to
the contrary, the Company shall indemnify the Indemnitee against all expenses
incurred by the Indemnitee in connection with any hearing or proceeding under
this Section 8 involving the Indemnitee and against all expenses incurred by the
Indemnitee in connection with any other proceeding between the Company and the
Indemnitee involving the interpretation or enforcement of the rights of the
Indemnitee under this Agreement unless a court of competent jurisdiction finds
that each of the claims and/or defenses of the Indemnitee in any such proceeding
was frivolous or made in bad faith.
9. LETTER OF CREDIT
(a) In order to secure the obligations of the Company to
indemnify the Indemnitee under Sections 4 and 5 hereof and to advance to the
Indemnitee certain amounts under Section 6 hereof, the Company shall obtain an
irrevocable standby letter of credit naming the Indemnitee, if Indemnitee is a
director of the Company or a subsidiary of the Company, as the sole beneficiary,
in an amount not less than $500,000 for the period prior to May 1, 1991, and
after April 30, 1994, and in the amount of $300,000 for the period May 1, 1991,
through and including April 30, 1994, or if the Indemnitee is not a director of
the Company or a subsidiary of the Company, in an amount not less than $250,000
for the period prior to May 1, 1991, and after April 30, 1994, and in the amount
of $175,000 for the period May 1, 1991, through and including April 30, 1994,
issued by a financial institution having assets in excess of $100 million and
containing terms and conditions reasonably acceptable to the Indemnitee (the
"Letter of Credit"). The Letter of Credit shall provide that the Indemnitee may
from time to time draw certain amounts thereunder, upon the presentation to the
issuer thereof a certificate executed by the Indemnitee certifying (i) that the
Indemnitee has made demand upon the Company for an amount not less than the
amount the Indemnitee is drawing upon under the Letter of Credit and that the
Company has refused to provide the Indemnitee with such amount and (ii) that the
Indemnitee believes that the Indemnitee is entitled under the terms of this
Agreement to the amount which the Indemnitee is drawing upon under the Letter of
Credit.
(b) The Company shall maintain and renew the Letter of Credit
or a substitute letter of credit meeting the criteria of Section 9(a) hereof
during the term of this Agreement in a manner such that the Letter of Credit
shall be in the amount established under
1/94 6 INDEMNITY AGREEMENT
<PAGE> 15
Section 9(a) for each officer or director and shall have an initial term of one
year, be renewed for successive one-year periods, for as long as Indemnitee
serves as an officer or director and for the period of four years following the
termination of the officer's or director's service as an officer or director,
and shall provide that the Indemnitee, as beneficiary, shall be given at least
sixty (60) days' written notice by the issuer of the Letter of Credit in the
event that such Letter of Credit has not been renewed by the Company at least 60
days prior to the end of any one-year term, on which notice, the Indemnitee
shall be entitled to draw against the Letter of Credit up to the face amount
thereof, and to place such amount in a segregated account in the name of the
Indemnitee which the Indemnitee agrees will be used only for the indemnification
of Indemnitee as provided in this Agreement; provided, however, that the Company
may, with the prior written consent of the Indemnitee, which consent shall not
be unreasonably withheld, reduce the amount of the Letter of Credit in the event
and during the period that the Company is able to obtain D&O Insurance covering
the Indemnitee with substantially greater coverage, with respect to either the
amount of such coverage or the types of claims included therein, that the D&O
Insurance which is in effect at the time of such proposed reduction.
(c) Funds received from the Bank upon a draw under the Letter
of Credit (the "Funds") shall be deemed a loan by Maxtor to Indemnitee of the
Funds. Indemnitee will deposit the Funds in an interest-bearing account (the
"Indemnity Account") in the name and under the sole control of Indemnitee with
such financial institution as the Company and Indemnitee may agree; provided,
however, that to the extent that it is determined, contrary to the intent of the
parties, that Indemnitee's receipt of the Funds constitutes a secured
transaction between the Company and Indemnitee, the Company hereby grants
Indemnitee a security interest in the Funds which shall secure any and all of
the Company's obligations under the Indemnity Agreement.
(d) Indemnitee will not deposit any funds other than the Funds
into the Indemnity Account, nor otherwise commingle the Funds with any other
funds. Indemnitee will use the Funds only for payment of fees and expenses
authorized under this Agreement and for payment of any taxes, interest and
penalties ("Taxes") payable by or imposed upon Indemnitee as a consequence of
Indemnitee's holding or withdrawal of Funds, or with respect to the Funds and
earnings thereon (collectively, "Authorized Expenses"), will give Company at
least five days' written notice before withdrawing any of the Funds from the
Indemnity Account, and promptly thereafter provide the Company with such
evidence as the Company may reasonably request that any withdrawals from the
Indemnity Account and payment of the Funds have been made on account of such
Authorized Expenses.
(e) Interest on the Funds shall accrue to the benefit of
Indemnitee, but shall (net of Authorized Expenses) be added to the loan amount,
considered part of the Funds and remain in the Indemnity Account. Unless earlier
repayment is required in accordance with Section (h) of this Agreement, on the
fourth anniversary of the termination of Indemnitee's service as an officer or
director of the Company, Indemnitee will pay to the Company an amount equal to
the principal amount of the Funds and any accrued interest, less any amounts
paid for Authorized Expenses; provided, however, that if as of such date an
action is pending or threatened which would require indemnification under the
Agreement, and as of such date the Company's D&O Insurance carrier, if any, is
refusing to provide interim reimbursements of Authorized Expenses incurred or
incurable by Indemnitee in the defense of such action, the repayment obligation
shall be suspended until the earlier of the settlement of or entry of final
judgment in such action, or the commencement of payment of reimbursement of
Authorized Expenses by the D&O Insurance carrier. To the extent Indemnitee is
entitled to reimbursement under any D&O Insurance policy for any Authorized
Expenses paid by Indemnitee from the Funds, Indemnitee assigns to the Company
his right to such reimbursement.
1/94 7 INDEMNITY AGREEMENT
<PAGE> 16
(f) To secure repayment of the Funds, Indemnitee grants to the
Company a security interest in the Funds and the Indemnity Account. Indemnitee
will execute and deliver such documents, including notices to the institution
with which the Indemnity Account is maintained, as the Company reasonably
requests to perfect and continue the security interest granted under this
Agreement.
(g) Any use of the Funds for any purpose other than payment of
Authorized Expenses will constitute a default under this Agreement. Upon such
default, the entire principal amount of the Funds, less any amount paid for
Authorized Expenses, will be due and payable to the Company.
(h) Notwithstanding any other provision of this Agreement to
the contrary, the Funds shall be repayable upon the establishment by the Company
of an irrevocable Letter of Credit meeting the criteria of Section 9(a) in an
amount required under Section 9(a) for officers and directors as of the date
such Letter of Credit is established naming Indemnitee as sole beneficiary and
requiring prior written notice by the financial institution to Indemnitee of any
non-renewal, to secure obligations of the Company under the Agreement, and
drawable as provided in Section 9(b) of this Agreement.
(i) The Company agrees to treat the transfer of Funds pursuant
to this Agreement as a loan to Indemnitee for federal and state income tax
purposes and, with respect to the Funds and any earnings thereon, to adopt in
its tax returns such positions as will alleviate or minimize, to the maximum
extent possible, any liability of Indemnitee for Taxes. The Company further
agrees to indemnify each Indemnitee, and to hold each Indemnitee harmless from
and against any liability for Taxes (including for Taxes payable with respect to
this indemnification, and whether arising upon the filing of a return or a
subsequent adjustment by any taxing authority) arising with respect to the Funds
or earnings thereon, and to pay or reimburse Indemnitee promptly in respect of
such Taxes (including for Taxes paid by Indemnitee as Authorized Expenses
hereunder).
10. LIMITATION OF ACTIONS AND RELEASE OF CLAIMS. No proceeding
shall be brought and no cause of action shall be asserted by or on behalf of the
Company or any subsidiary against the Indemnitee, his spouse, heirs, estate,
executors or administrators after the expiration of one year from the act or
omission of the Indemnitee upon which such proceeding is based; however, in a
case where the Indemnitee fraudulently conceals the facts underlying such cause
of action, no proceeding shall be brought and no cause of action shall be
asserted after the expiration of one year from the earlier of (i) the date the
Company or any subsidiary of the Company discovers such facts, or (ii) the date
the Company or any subsidiary of the Company could have discovered such facts by
the exercise of reasonable diligence. Any claim or cause of action of the
Company or any subsidiary of the Company, including claims predicated upon the
negligent act or omission of the Indemnitee, shall be extinguished and deemed
released unless asserted by filing of a legal action within such period. This
Section 10 shall not apply to any cause of action which has accrued on the date
hereof and of which the Indemnitee is aware on the date hereof, but as to which
the Company has no actual knowledge apart from the Indemnitee's knowledge.
11. STOCKHOLDER RATIFICATION. The form of this Agreement has been
approved by the stockholders of the Company; no changes requiring stockholder
ratification have been subsequently made, and this Agreement is therefore not
subject to ratification by such shareholders.
12. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
1/94 8 INDEMNITY AGREEMENT
<PAGE> 17
(a) Claims Initiated by Indemnitee. To indemnify or advance
expenses to the Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, except with
respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise as
required under Section 145, but such indemnification or advancement of expenses
may be provided by the Company in specific cases if the Board of Directors finds
it to be appropriate; or
(b) Lack of Good Faith. To indemnify the Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
the Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(c) Unauthorized Settlements. To indemnify the Indemnitee
under this Agreement for any amounts paid in settlement of a proceeding effected
within seven (7) calendar days after delivery by the Indemnitee to the Company
of the notice provided for in Section 7(a) hereof unless the Company consents to
such settlement.
13. NON-EXCLUSIVITY. The provisions for indemnification and
advancement of expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company's Certificate of Incorporation or Bylaws, the vote of the
Company's shareholders or disinterested directors, other agreements, or
otherwise, both as to action in his official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
14. INTERPRETATION OF AGREEMENT. It is understood that the parties
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification to the Indemnitee to the fullest extent now or hereafter
permitted by law.
15. SEVERABILITY. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
(i) the validity, legality and enforceability of the remaining provisions of the
Agreement (including without limitation, all portions of any paragraphs of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby, and (ii) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 14 hereof.
16. MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
17. SUCCESSORS AND ASSIGNS. The terms of this Agreement shall
bind, and shall inure to the benefit of, the successors and assigns of the
parties hereto.
18. NOTICE. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given (i) if delivered by hand and receipted for by the party addressee or (ii)
if mailed by certified or registered mail with postage
1/94 9 INDEMNITY AGREEMENT
<PAGE> 18
prepaid, on the third business day after the mailing date. Addresses for notice
to either party are as shown on the signature page of this Agreement, or as
subsequently modified by written notice.
19. GOVERNING LAW. This Agreement shall be governed exclusively by
and construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
20. CONSENT TO JURISDICTION. The Company and the Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be brought only in the state courts of the State of
Delaware.
The parties hereto have entered into this Indemnity Agreement effective
as of the date first above written.
MAXTOR CORPORATION
Address: 211 River Oaks Parkway
San Jose, California 95134
By _________________________________
Its _________________________________
INDEMNITEE:
_____________________________________
Address:_____________________________
_____________________________________
1/94 10 INDEMNITY AGREEMENT
<PAGE> 1
[MAXTOR(R) LETTERHEAD]
NEWS RELEASE
CONTACT:
Rosanne Ramirez
408-432-4483
MAXTOR SPECIAL COMMITTEE ACCEPTS INCREASED PRICE FOR HYUNDAI ACQUISITION
PROPOSAL
SAN JOSE, CALIF. -- November 1, 1995 -- Maxtor Corporation
(NASDAQ:MXTR) today announced that the Special Committee of the Board of
Directors of Maxtor has unanimously approved an acquisition proposal by Hyundai
Electronics America (HEA) on behalf of Hyundai Electronics Industries Co., Ltd.,
(HEI) to acquire all of the outstanding shares of Maxtor not already owned by
HEI or its affiliates for $6.70 per share. The Special Committee will recommend
the acquisition proposal to Maxtor's Board of Directors, subject to finalization
of a definitive acquisition agreement. Consummation of the acquisition is also
subject to receipt of various governmental approvals and satisfaction of other
normal and customary closing conditions.
Maxtor Corporation develops, manufactures and markets hard disk drives
for desktop and mobile computer systems. Maxtor employs approximately 7,700
people worldwide and has headquarters in San Jose, Calif. Maxtor had sales of
$906.8 million in the fiscal year ended March 1995. For more information on
Maxtor, visit Maxtor's worldwide web site at http://www.maxtor.com.
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<PAGE> 1
[MAXTOR(R) LETTERHEAD]
NEWS RELEASE
FOR RELEASE 5:30AM PACIFIC STANDARD TIME
EDITOR CONTACT:
Carol Cassara
408 432 4567
ANALYST CONTACT:
Rosanne Ramirez
408 432 4483
MAXTOR BOARD OF DIRECTORS ACCEPTS HYUNDAI OFFER
SAN JOSE, CALIF. -- November 3, 1995 -- Maxtor Corporation (NASDAQ:MXTR) today
announced that its Board of Directors yesterday approved the offer by Hyundai
Electronics America (HEA) to acquire all of the outstanding shares of Maxtor not
held by Hyundai Electronics Industries Co., Ltd. or its affiliates for $6.70 per
share, based on the unanimous recommendation by the Special Committee of
Maxtor's Board. Maxtor and HEA have entered into an agreement and plan of merger
providing for a cash tender offer for any and all shares of Maxtor common stock
at $6.70 per share, and a merger following the closing of the tender offer at
the same price.
It is expected that HEA will file tender offer documents with the Securities and
Exchange Commission and distribute them promptly to stockholders.
The acquisition is subject to the approval of both U.S. and Korean governments
and satisfaction of other normal and customary closing conditions. The company
believes that the acquisition will be completed by early 1996.
Maxtor Corporation develops, manufactures and markets hard disk drives for
desktop and mobile computer systems. Maxtor employs approximately 7,700 people
worldwide and has headquarters in San Jose, Calif. Maxtor had sales of $906.8
million in the fiscal year ended March 1995. For more information on Maxtor,
visit Maxtor's worldwide web site at http://www.maxtor.com.
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